Again this is only the 1st month, this is a diagonal condor. 1st month I make $0. If the 1st month I have to roll my put my call will not have to roll. My long strangle expire on mar 2008. So if I don't have to roll. Oct I will collect premium put and call. Nov collect put and call Dec Jan and Feb and Mar If I have to roll my other side still collect. Yes 1st month I risk $700 to make $0 if only you understand the reason behind this
Actually, in the BEST case, assuming IV is constant and the Q's doesn't move, you would make money in the first month too (your position value will be in the green). You are putting the trade on for a net cost of 0, but at Sept expiration, your short option liability will decay to 0 value. While your long Mar 08 strangle will also experience some decay, it should be at a lesser rate (again, assuming a scenario where the Q's stays in your range, and your long IV doesn't crash).
Hi verbotenlaandia thank you for your input. Appreciate it. I have put up a trade and will try this for the next 6 months and see how it goes. Cheers
You are correct. Your trade should be profitable as long as your rolls are done for a credit or even. Your position is in essence a double diagonal and as such volatility will have some effect (you are long vega). The fact you have kept 7 months to expiry and selected a 7 point strike separation between your credit spread legs gives you room to do a lot of rolling should the qqqq's misbehave. In summary: 1. you wil make money if qqqq's stay between your short strikes when front month expiry rolls around. 2. you will make money if you adjust your rolls as discussed above. 3. risk lies in a big move in the qqqq's that takes place over a number of days and you run out of credit rolls, i.e. you can only roll for debit. Other risk is iv coming down. Good luck. db
It depends. You can roll the put down and out when spot gets to your short strike - this should let you do the roll to the next month for a credit/even. If you wait til expiry your short put may well be deep itm and you'll have to roll down and out to a much further month to do it for a credit/even. Once you run out of months to roll to and/or your short strike is the same as your long (i.e. it's become a calendar) then that's the end. For example, let's say qqqq keeps drifting down. When it gets to atm you roll the put down to next month (down and out) for credit/even. It continues to drift lower and you repeat the above until your short strike is the same as your long march 08 put. At that point you own a long put calendar that has no risk because it cost you nothing to put it on (as a matter of fact you collected premium/even during the adjustments). The reason this strategy may do well is because of the combination of wide strike separation (lets you do lots of rolls) and the fact the long option has about 7 months to go (again, lets you do lots of rolls) and the selection of the otm (greater than 5%) short strangle. There's a high probability of making some money. And as benysl pointed out the biggest risk is a quick and large move in qqqq. It's very interesting and I'll be following it. Cheers db
Hi benysl, IV crush plus the wide contango spread between front and back months are also enemies of this position. Just curious about how much you will walk away with. Please keep us posted. Regards and gtty, Lar
Hi Lar, this strategy is worth looking if you are looking for a low risk options trade. QQQQ is 1 of the most liquid options contract so bid ask is not that wide. I learn this from someone else that trade stocks options like AAPL IBM etc. He teach me this method and he have been doing well and I figure it should be better with QQQQ except lower return