"Vacation Spreads"

[beerntrading]

2) I don't understand....
But,
1) "Oh! The Secret Sauce!"

I'll play around with that--I didn't realize you meant expirations so close together. How far OTM are you looking? I'm having trouble visualizing the time-dimension curve in my mind--you'd think that would be easier than diagonals, but I just haven't spent enough time with calendars.

For 2, I never go naked shorts. But I'd have no problem doing a long-short-long fly--basically two ATM credit spreads--as long as it's got good return potential.

 

[mushinseeker]

tom. that payoff you were describing (morphing it into verticals is insane)

 

[tommcginnis]

I'll play around with that--I didn't realize you meant expirations so close together. How far OTM are you looking? I'm having trouble visualizing the time-dimension curve in my mind--you'd think that would be easier than diagonals, but I just haven't spent enough time with calendars.

For 2, I never go naked shorts. But I'd have no problem doing a long-short-long fly--basically two ATM credit spreads--as long as it's got good return potential.

What strikes? Anywhere they'll take me for a cheap-ass debit. If you shop from far OTM to deep ITM, the actual cost for the horizontal debit really doesn't change that much -- not the 10x-100x you see with a vertical.

Visualization? It's too loopy for me -- too reactive to time and vol. I just want to know "relative to" the long (owned) expiry -- cuz my *real* aim is just to enter that vertical long *anchor* a bit early, and essentially use it twice. If it *happens* to get sweet earlier, all the better, but I'm an option *seller* -- I'm just setting up a vertical with a little added usage ahead of time. "Recycling" as it were. Diagonals, really, do the same thing, but if you moved them off of your long strike, you'd have to mind them while you're gone. Ewwwww.

Naked shorts: no -- I'm not big on that, either, but if you intended to buy, then entering via selling puts is a *damn* sweet way to do it. I mean, they're *paying* you to buy it anyway! Jeeez! Who thought of this stuff? Sweee-eeet.

 

[beerntrading]

tom. that payoff you were describing (morphing it into verticals is insane)

Yes it is. When I see a clear, steady trend, diagonals are my favorite. I call it walking-up the strike. It's so cool to get that spread where you're ITM on the long after a few months and it's just raining money on you without eating up margin. I'm looking for an authoritative move on the S&P past 2470 and 2480 in the same day (during trading hours). If I see that, I'm back to diagonals until we see 2600.

What strikes? Anywhere they'll take me for a cheap-ass debit. If you shop from far OTM to deep ITM, the actual cost for the horizontal debit really doesn't change that much -- not the 10x-100x you see with a vertical.

Visualization? It's too loopy for me -- too reactive to time and vol. I just want to know "relative to" the long (owned) expiry -- cuz my *real* aim is just to enter that vertical long *anchor* a bit early, and essentially use it twice. If it *happens* to get sweet earlier, all the better, but I'm an option *seller* -- I'm just setting up a vertical with a little added usage ahead of time. "Recycling" as it were. Diagonals, really, do the same thing, but if you moved them off of your long strike, you'd have to mind them while you're gone. Ewwwww.

Naked shorts: no -- I'm not big on that, either, but if you intended to buy, then entering via selling puts is a *damn* sweet way to do it. I mean, they're *paying* you to buy it anyway! Jeeez! Who thought of this stuff? Sweee-eeet.

Dear lord...are you me from the future, and did I invent the time machine? Between beer, politics, trading...a few other threads I've seen. Seriously, eerily similar.

...Oh, didn't I read somewhere that you were a International Relations / Comparative Politics major too? Or is that just self-projection?

 

[tommcginnis]

tom. that payoff you were describing (morphing it into verticals is insane)

Well, it's kind-of cheating, really -- and not something I'm convinced scales well:
10¢-15¢ entries including commissions
GTC Orders to buy back the shorts for 5¢ were entered immediately.
Of a dozen or so placed, a couple hit 40¢-50¢, and while bigger money was possible, I sold.

As the shorts got hit, I turned the remaining longs into verticals, obtaining between 10¢ and 40¢ -- maybe a 20¢ average?

On a whole, a pretty fair set-up. But you don't want to think of it as a calendar return, because when you go vertical, your risk goes from $0 to $5 (at least!). It's a whole new deal.

 

[tommcginnis]

Yes it is. When I see a clear, steady trend, diagonals are my favorite. I call it walking-up the strike.

Dear lord...are you me from the future, and did I invent the time machine? Between beer, politics, trading...a few other threads I've seen. Seriously, eerily similar.

...Oh, didn't I read somewhere that you were a International Relations / Comparative Politics major too? Or is that just self-projection?

"Walking up the strike..." Exactly! I love it. I'm gonna borrow that. I'll pair it with "anchor."

You are obviously a man of taste and breeding. Yessum.

IR/Comparative -- one of my favorite classes (as a student and a teacher) was Comparitive Systems. Too much fun. And, I was teaching it AS the Berlin Wall was coming down!! WOW was that fun! And Maggie Thatcher against the EEU with "The British Pound Sterling now! And forever!!" Oh mannnn. It (the teaching end of it) was in a small university's B-school, and this was a Senior Seminar, and they were *bored* and anxious to avoid anything that smacked of work. I had 'em reeling, but loving it. Good times.

 

[beerntrading]

"Walking up the strike..." Exactly! I love it. I'm gonna borrow that. I'll pair it with "anchor."

You are obviously a man of taste and breeding. Yessum.

IR/Comparative -- one of my favorite classes (as a student and a teacher) was Comparitive Systems. Too much fun. And, I was teaching it AS the Berlin Wall was coming down!! WOW was that fun! And Maggie Thatcher against the EEU with "The British Pound Sterling now! And forever!!" Oh mannnn.

You see Graham Allison's new book yet? I have my copy coming Friday. Some nice light beach reading...lol, I'm a dork like that.

 

[mushinseeker]

Tom .. i lost you on the last paragraph. XYZ at $150, you put on a cheap otm calendar at 155, 2 days to expiration, xyz goes to 154, you buy back short and sell the outer month, now you have the vertical for credit. how can there be risk?below is back of the envelope simulation... leg1 is calendar/ leg 2 is buying back short and selling outer month to turn it into vertical. As you can see you put on vertical for $11 credit.

 

[tommcginnis]

Frikken Graham Allison. "Is he still alive?!?" Jeeeez.
My nerdliness? Math. I'm putting together a options inventory/management model via
https://en.wikipedia.org/wiki/Leslie_matrix
to model total capital deployment, rather than $$$ at risk.
This will make it able to be modeled recursively, and "Bingo!" you've got empirically-derived trading rules that bypass the evils of Our Man Kelly, holy cow!
Yeah. Nerds.
(Were I a better nerd, I wouldn't have to RETEACH myself all this rot. Phooey.)

 

[tommcginnis]

Tom .. i lost you on the last paragraph. XYZ at $150, you put on a cheap otm calendar at 155, 2 days to expiration, xyz goes to 154, you buy back short and sell the outer month, now you have the vertical for credit. how can there be risk?below is back of the envelope simulation... leg1 is calendar/ leg 2 is buying back short and selling outer month to turn it into vertical. As you can see you put on vertical for $11 credit.
View attachment 174947

(Staying with the SPX...)
If you bought the original horizontal for 15¢, bought the short back for 5¢ and then sold the strike $5 closer to the market for 40¢, you've entered the vertical for $4.80 net risk. Now, getting *paid* 20¢ for a short-duration spread is not a bad thing. But you don't want to dismiss 20/480 reward-to-risk, either.