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-   -   Wrangle Long and Short (http://www.elitetrader.com/vb/showthread.php?t=174918)

asdfghj7 Aug 31st, 2009 08:09 PM

Wrangle Long and Short
 
I've searched a very large selection of option trading books, and trader articles containing entry setups and adjustments for a short and/or long wrangle. Bairds, 'Option Market Making', which is good, is the only one. For those who know, any direction towards a magazine article, website, or trading book, is much appreciated.

spindr0 Aug 31st, 2009 10:20 PM

Re: Wrangle Long and Short
 
Quote:

Quote from asdfghj7:

I've searched a very large selection of option trading books, and trader articles containing entry setups and adjustments for a short and/or long wrangle. Bairds, 'Option Market Making', which is good, is the only one. For those who know, any direction towards a magazine article, website, or trading book, is much appreciated.
I doubt that you're going to find much written about it since it's a combination of several strategies.

I don't think that you need a tutorial on entry setups and adjustments, etc. You model the position and see what the risk graph looks like. You use option strategies that fit your outlook (not the converse) and you tailor the strikes, expirations and ratio(s) to achieve an acceptable risk graph. If subsequent events put a leg in jeopardy, you add or subtract something to shift the risk graph (or close it down).

OddTrader Aug 31st, 2009 10:34 PM

http://www.elitetrader.com/vb/showth...hlight=wrangle[^\s]*&pagenumber=2
Quote:

Quote from Maverick74:

Tiki, I am going to declare you the winner! Although I didn't even think of using the butterfly strikes so wide although you could do that on the front month.

Basically what I had was a butterfly on the front month which would be done for a credit.

+1 put @ 95
-1 call @ 100
-1 put @ 100
+1 call @ 105

This gives you your typical butterfly that will carry positive theta at the 100 strike and around it while also limiting your losses to the outer strikes. So with the butterfly would want the stock to sit still and not move which in and of itself is a good strategy for many.

So then we add a WRANGLE!!!!! That's right someone mentioned this earlier on the back month which is also a form of a backspread. However, we sell the 100 strikes yet again to keep our credit. So....

+2 put @ 95
-1 put @ 100
-1 call @ 100
+2 calls @ 105

Long Wrangle!

What this does is it's basically a backspread that will give us long vega and long gamma exposure should the stock take off or collapse.

So when you put the spread together, you start off delta neutral, theta positive, and no vega exposure. You will be earning time premium and hope that the stock just sits there. However if the stock starts to move, you will still be making money during the front month no matter what. If the stock really moves hard then the position will turn into a long gamma, long vega position in which your theta will go negative. However you can also let your deltas run or you can gamma scalp them. After the front month butterfly expires, you will be losing money if the stock sits still and stops moving so you can then put on another butterfly. At expiration on the back month you will have a range where you will lose money after only a moderate move in the stock. But if the stock either sits still or breaks one way or the other you have unlimited profits. We have the best of both worlds here, a credit spread that earns premium as long as the stock sits still and doesn't move and if it does move we then have a long gamma long vega position that could make us unlimited profits. Hence a very very versatile strategy. If you put enough of these on, you could really spread your risk out. Of course you can always alter the strikes to change your profit range. By widening the strikes on the front month butterfly like Tiki did you reduce your profits slightly but increase your odds of making money during the front month.

Thank you for everyone who participated. I hope everyone here learned something. I think this is ET at it's best. Hopefully we can continue this option dialogue on many other option threads.

Again, congratulations to Tiki! Give yourself a cookie. LOL.


spindr0 Sep 1st, 2009 08:36 AM

Quote:

Quote from Maverick74:

Basically what I had was a butterfly on the front month which would be done for a credit.

+1 put @ 95
-1 call @ 100
-1 put @ 100
+1 call @ 105

This gives you your typical butterfly that will carry positive theta at the 100 strike and around it while also limiting your losses to the outer strikes. So with the butterfly would want the stock to sit still and not move which in and of itself is a good strategy for many.

So then we add a WRANGLE!!!!! That's right someone mentioned this earlier on the back month which is also a form of a backspread. However, we sell the 100 strikes yet again to keep our credit. So....

+2 put @ 95
-1 put @ 100
-1 call @ 100
+2 calls @ 105
FWIW, you can achieve a similar risk graph with fewer legs (commission and slippage) by just ratioing next month's strangle to this month's straddle:

+2 Oct 95 put
-1 Sep 100 put
-1 Sep 100 call
+2 Oct 105 call

These tend to have unbalanced P&L areas. If one was neutral, it could be balanced out by adjusting the ratio, eg.

+10 Oct 95 put
- 5 Sep 100 put
- 6 Sep 100 call
+10 Oct 105 call

Where these can get interesting is pre-earnings when IV is inflated and you can pick up 15 basis pts or more of skew b/t the two months. 2:1 is an extreme ratio... in the vicinity of 7:5 is more practical. To widen the profit zone in the middle of the W, a near month short strangles should be considered.

OddTrader Sep 1st, 2009 09:57 AM

http://www.optionetics.com/forums/to...30237&sort=asc

"
4. Buy 20x 7.25 puts and sell 10x 7.75 puts for a 3c credit.
Buy 20x 8.25 calls and sell 10x 7.75 calls for a 4c credit.
...

the wrangle and the backspread have similar characteristics but obviously the backspread (as half of the wrangle) has a strong bearish bias. the wrangle has similar gamma characteristics to the straddle but is a far safer bet if the stock sits still. you give up some of the powerful gamma of the straddle in exchange for less theta risk. thus you win with the wrangle on big moves up or down or if nothing happens. you lose on a slow trickle toward either of your long strikes."

spindr0 Sep 1st, 2009 10:56 AM

Quote:

Quote from OddTrader:

4. Buy 20x 7.25 puts and sell 10x 7.75 puts for a 3c credit.
Buy 20x 8.25 calls and sell 10x 7.75 calls for a 4c credit.
Ugh, what a horrible position! You have a 7 ct credit. On an expiration basis that means you lose money above 7.82 and lose money below 7.68 for a 14 ct profit range which is probably non existent after commissions and exit slippage. Your upside and downside breakevens are 2X the strike difference less the credit received or 6.82 and 8.68 ...

With such wide breakevens and a 1:2 ratio, a move prior to expiration will make peanuts b/t the breakevens (possibly a loss after slippage) .

This is what people pay big bucks for from Optionetics?


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