2 wingspan selection questions and one statistical (pipe dream?) question...

Discussion in 'Options' started by gangof4, May 2, 2006.

  1. gangof4


    When i'm looking @ the various wingspan possibilities (condor vs butterfly vs albatross) i find myself just kind of intuitively (rightly or wrongly) being drawn to one when i look @ the options chain amd greeks (granted, @ a rudimentary level). what i am wondering is whether there is a more statistical (read: intelligent) way of selecting the wingspan that gives me the greatest statistically advantage and/or most favourable risk/reward given the parameters (underlying price, IV, etc)?

    easier question: when selecting between a 'regular' call condor, albatross, etc and the 'iron' version- is it simply a question of looking at the pricing of the calls vs the puts and seeing if there is a price advantage in one over the other? ie: simply if selling the calls gives me a credit of .95, and selling the puts= .85, i write the calls and there is no other analysis to do. correct?

    finally, kinda a long shot related to the first question: is there a database/program which shows generic (ie: not stock specific) statistical history of the probabilities of various strategies given different parameters you plug in. ie:

    long straddle on a stock priced @ x, with x days til expiration, with an IV of x= x % historically have been profitable, x % have expired worthless, etc.

    probably a pipe dream, but figured i'd ask- maybe learn what data source has the closes thing to it.

    i ask because my studying made me recall an arrogant ass i met in 1998 who kinda belittled stock managers (ie: my job) as clueless unscientific gamblers- he was an equity options trader. he claimed he knew the exact statistical probabilities of his trades beforehand and, given his sophisticated risk management, over time his returns were predictable and positive. he claimed to average >50% annual. i know he was successful, but, in our business, success can often be due to marketing prowess and high management fees- not returns. he did say that, @ less than $40mm under management (very little in our business), he wouldn't take additional money because he wouldn't be able to do as well.

    ot: if you want to see a great example of marketing over returns- look @ the fees and returns on superfund (ie: thank god regulations prohibit me from telling you more about how lousy we are. PLEASE don't read the prospectus until after you send the $)
  2. rosy


    was he just adding up deltas to get his "exact probabililty"
  3. Interesting...there was a whole thread on Christian (I think thats his name) superfund guy...if anyone read the thread on ET there is no way they would put one $ into that fund. I mean...what a scam:confused: :eek:
  4. cnms2


    Long question, short answer: in long run expectancy is zero for all your positions, ignoring slippage and commissions.

    Think like this: if one position would be perceived as having a higher probability, traders will immediately go for it and prices will adjust so that the higher probability position will cost more, and everything goes back to balance.
  5. gangof4


    no, that wasn't really the question.

    the angle i was coming from is that we all know that if you're simply buying otm calls & puts on a wing and a prayer (or t/a!), sure, the price paid for the contract should correlate to the r/r- but the net-net of this r/r scenario is that something like 85% expire worthless (that's the # i've seen thrown around). hence, i was wondering if similar calculations exist for combos.

    for instance, short otm strangles is a very high & bet simply looking @ win/loss ratio (ie: not factoring in the 'blow up your net worth' risk in that 1 in 10 that loses- just a pure win/loss/tie %). further broken down that the otm strangle is a higher probability in a $60 stock than a $15 stock, higher 3 weeks out than 6 weeks, with an IV of 20 vs 60, etc. so, what happens to the % when it's an iron butterfly instead?

    that's what i was getting at. what i'm really interested in is the odds of strategies like a long or short iron albatross, etc, given different parameters.
  6. gangof4


    though not to the extreme of superfund, marketing and networking are far more important than results in the retail business. the key skill set needed to be a successful RIA or broker is sales ability. very low correlation between money management skills/results and income. a friend of mine, great guy, hasn't made less than $500m/yr since the 80's- in the words of Gecko, he couldn't tell preferred stock from livestock! doesn't manage any of his own/family $- he and his dad have accounts with me and other $ managers. but he CAN sell, and comes off damn professional. all that matters...
  7. cnms2


    My reply about the zero / negative expectancy applies to all the possible options positions.

    By the way: I have a hard time following your posts because of your orthography. Maybe that's why you don't get more replies.