Complex option strategy with superior risk-reward profile?

I've seen this risk profile before. OP needs to model a 10% drop in IV and see how good it looks. If the trade acutally looks better, then he is long the front and short the backmonths. In that case, model a 10% IV jump. Same deal, no free lunch.

 

thats what i was figuring long short month short back month in some ratio..
now i believe that your basically long the front month vol and short the back.. this will only work if the front vol keeps going up in relation to the back vol.. right? i mean this is a exploiting a theoretical mis pricing of vol over the calender am i right? or are we even talking technically? or are we just coloring graphs to look pretty?

 

Complex options strategy could generate complex results, some of the times.

 

I know enough about the subject to know there is not huge kinks in the vol-surface of the cubes. Assume there is; the payoffs require a greater than 10% move to generate any PNL. Regardless, the OP has manipped the vol to be 500bp or more over ATM vols.

 

OP.. whats that mean
manipped?
500bp? basis points?

 

atticus, I believe cdcaveman is talking about a 1000bp move either in front or back month vol. How come it's not enough to generate pnl?

PS 1bp = 0.01%

 

I am stating that he's (the OP) boosting up/down and out vola. It's fine for laughs, but has nothing to do with reality. The ATM PNL would be negative. Why pull shit like this?

I have absolutely no interest in this trade. i simply don't want newbies taken in by this BS.

 

I like the newer version risk profile. This appears to be a very safe trade set up but there has to be some trade-off. Perhaps, its the margin requirement or the return within a 5% range is not too great. I would also like to see how this risk profile looks with +/- vega and with the passage of time. You're making great efforts, I hope you can reply this message.

 

i'm a total noob and i can clearly see the graph looks to good to make any money! haha hiding the risk in a profit graph is exactly how to lose money... its what the profit graph won't tell you is where the money is to be made..

 

Well you cant as soon constant volatility for one.. and it's what a static profit loss graph won't show you that will actually lose or make you money...