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Old Jul 15th, 2012, 06:39 AM   #1
samer1
 
 
Join Date: Sep 2008
Posts: 42
Hi,

I have been working on a complex option strategy that has a very wide profit range. It seems to have an excellent risk-reward ratio and superior to other "income" strategies like iron condors, butterflies, etc...

The bright shaded region is the 68% price range.

Please let me know what you think!

Many thanks!

Regards,
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File Type: jpg example_6.27.2012.jpg (82.6 KB, 640 views)
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Old Jul 15th, 2012, 08:28 AM   #2
hedgeman
 
 
Join Date: Jul 2012
Location: Philippines
Posts: 59
Good to see someone looking outside the box. Its an unusual risk profile, but interesting. I can't make out the profit potential without additional trades (adjustments) at expiration and what the margin requirement is? What is the plan as market moves either direction?
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Old Jul 15th, 2012, 09:15 AM   #3
Nater
 
 
Join Date: May 2012
Posts: 13
The picture is kind of hard to see, but the from what I can see, it looks pretty good. Would you be able to explain the details in text?
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Old Jul 15th, 2012, 09:48 AM   #4
Moderate
Registered User
 
Join Date: Mar 2006
Posts: 586
ur brokers are gonna love this one
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Old Jul 15th, 2012, 11:00 AM   #5
spec77
 
 
Join Date: May 2011
Posts: 69
My guess is it's a long-vega strategy.
The R/R can be worse if the vol decreases. Also you should weight the vega if your position involves multiple maturities
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Old Jul 15th, 2012, 01:55 PM   #6
samer1
 
 
Join Date: Sep 2008
Posts: 42
Quote:
Quote from hedgeman:

Good to see someone looking outside the box. Its an unusual risk profile, but interesting. I can't make out the profit potential without additional trades (adjustments) at expiration and what the margin requirement is? What is the plan as market moves either direction?
Thanks for your comment!

There are adjustments to this trade:

1. If the market goes up, the trader sells calls.
2. If the market goes down fast, the trader unwinds the whole position. If it goes down slowly, the PnL will probably hit the high of the PnL graph on the left side. The position should be unwinded and profits should be taken.

I see there is more potential to create better adjustments for the case that the price goes down.

The margin requirement is USD 15,000. The profit potential is unlimited on the upside. On the downside, there can be a loss. However, please note that if the market crashes immediately, the trade should make some profit (white line).

Feel free to suggest better adjustments...
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