Can you construct such a P/L graph with any options combos?

Discussion in 'Options' started by DerivativesG, Jun 8, 2011.

  1. I can imagine ending up near expiry with something like this, but can't see the logic of initiating a position like that in one go.
     
    #11     Jun 9, 2011
  2. spindr0

    spindr0

    1) As mentioned by others, it's commission (and slippage) intense. Not good.

    2) If held for 60 days, to a point it behaves a like a long straddle - better in the loss and modest profit areas and worse if you get the monstrous move (opportunity loss).

    3) I don't know what to make about the 2009 comment because this position does better as IV rises and the opposite has occurred since then. IOW, you'd want IV to rise after executing it.
     
    #12     Jun 9, 2011
  3. MTE

    MTE

    The OP said up until 2009, so it is plausible.
     
    #13     Jun 9, 2011
  4. spindr0

    spindr0

    It's plausible during any period where IV rises. .

    2007 to 2009 was a high IV period. The present is a lower IV period. Both details are irrelvant since it doesn't matter what IV is when the position is executed as long as it rises afterwards. Therefore, to me it makes no sense that it only worked then and not now.

    I see no edge to a 6 legged critter like this with all legs executed simultaneously. That changes if you get a decent IV skew or you leg in but that's not the OP's presentation.

    The secret sauce to a position like this is being a Fool Service Broker :)
     
    #14     Jun 9, 2011
  5. MTE

    MTE

    I agree with you. Maybe that position worked once and never again since 2009. :)
     
    #15     Jun 9, 2011
  6. jogomax

    jogomax

    Maybe is related to that, and he can get discounts in the official commisions from his/her broker under the table. :D
     
    #16     Jun 10, 2011
  7. Two short butterflys that partially overlap.
     
    #17     Jun 10, 2011
  8. [​IMG]

    • The P/L graph posted cannot exist.
    • You have a call and put debt spread with a risk/reward ratio of about 1/1.5
    • The shaded out orange circles indicate price action that cannot occur.
     
    #18     Jun 10, 2011
  9. I got more info on this position and it seems that the earlier posters were right. This six legged creature, does not get filled in one day alone.
    The rest of the assumptions about the net debit and offsetting it was also right.
     
    #19     Jun 10, 2011
  10. MTE

    MTE

    Input an example I gave at the beginning of the thread into an option analysis software and you will see that a position like that does exist.
     
    #20     Jun 12, 2011