You can't simply look at the terminal distribution. Look at the trade as a down and out put at a credit with a tight barrier. The 10-day BE is at 1500 at flat vol. It's not something that I would trade with that risk, but you can't judge the position on the credit vs. max risk.
Well, I don't think the bid/offer is the only way to get an advantage. Why is he putting on that exact trade? Why is he using those exact strikes? Anything weird on the IV surface? If he was slightly bullish, he should just buy IWM 1/2 of your usual size instead of overcomplicating things with 2 extra dimension of risk (skew/vega) and 4x commission. It's ridiculous that people describe options positions as "strategies". The iron condor sheep slap on an IC month after month regardless of IV, Skew and correlations. Just sell 15 deltas and buy 10 deltas, yada, yada, yada. I've seen dozends of trades like that one above. They all like "we're slightly bullish and when the market creeps up we make adjustments and then....then when time goes by the market is gonna pullback right into the tent and then we profit" Those crap trades are even marketed. "M3", "The ROCK" and what not. Those trades just trade deltas with a little theta/vega kicker due to the fact that risk premium is consistently overpriced in indices. Works wonders in a bull market, but so does buy and hold. So again, OP, what is your edge? P.S.: You will be unpleasantly surprised that the P/L curve won't "bulge accordingly" but you'll get hit in the mouth quite hard instead. The downside protection is just for margin reasons and when things go south, you basically trade a 2 by 3 frontspread untill your lousy wing kicks in. P.P.S.: Don't whine about being too old to learn greeks. Everyone who can do basic differential calculus learns this stuff in an afternoon, although applying it may take a while. to give you a quick and dirty headstart: - http://www.espenhaug.com/KnowYourWeapon.pdf (can't seem to find part two anymore) - How to Calculate Options Prices and Their Greeks: Exploring the Black Scholes Model from Delta to Vega by Pierino Ursone. (Best book on options greeks and their application ever writen) Do this and you will stop thinking that an IV explosion will help a short body wingspread.
Just ignore this clown and we'l assume that MrMuppet would have paid 1.10 for the counter-party risk.
You're totally right. Increased volatility will make that BE move higher, so against me. Haven't thought it would go this way, but the simulator confirms it.
This was all the edge I ever needed to make money, analyze the chart, strikes and expiration to find the position that best suited my view and lock it in. Best thing about the analyzer is I can tweak the strikes until I feel comfortable with it while visualizing the greeks a bit.
Thank you for chiming in, Chief. Comforting to hear you reinforce that approach. Three months ago when I discovered your over 1400 page thread on SPX threads you became my first hero on this forum. The way you explained all you were doing was clear, made sense and seemed easy to follow; I copied and pasted entire paragraphs with your thinking process. Well, I feel an urge to digress a bit here and make a weird analogy. You were my Carlos Santana with his soothing guitar playing. And not too long after that, I discovered destriero who became my John McLaughlin. Different style, harder to digest, nonetheless beautiful. The two may seem incompatible but they played together and their Love, Devotion, Surrender album from 1972 is a piece of art I still can’t get tired of listening to. I play guitar, but can’t come even close to any of them. Not even in my dreams.
@Corto have you thought about an otm asymmetric 132 call fly expiring in 7-14 days? From all that I have learned from des, that would be his first look for a directional assumption. IWM Feb 22 152/158/161 for 3.29 does not look like a bad idea.