Basic position dissection ( a la Cottle ) ... Long 36call / 39put Guts (ITM) strangle bought for $1.70+$1.90 = $3.60 Dissect out $3.00 box ( difference between strikes ) Synthetically Long 36put / 39call strangle bought for $1.70+$1.90 = $3.60 - $3 box = $0.60 Max Loss $0.60 x 10 contracts = $600
That's exactly what I was looking for. If you didn't copy it out of the book, congrats. (Man... I REALLY want to get to a point where I can just look at a trade and see that, rather than having to grind through it mentally.)
Most of the time people trade off of the option P&L graphs where they can see the areas and extent of potential losses vs wins, however inaccurate. So I’m assuming that you also use those graphs and can see whatever you’d see otherwise, just wishing for a better vision that really wouldn’t be different…
That's... not exactly the aspect I'm talking about. Looking at the book and seeing the skew is something I'm taking for granted here; what I'm - let's call it "envious of" - is the skill and the speed in reacting to it that the pro guys have developed. The 10,000x repetition that @jamesbp is talking about; closing the OODA loop, if you're familiar with the concept.
When using to 'Dissect' positions the difference between the strikes is the 'notional price' of the box spread on expiry ( market price would be slightly different due to bid-ask / carry ) I think of the Box Spread as a means of 'converting' one position into a synthetically equivalent position. Say 95-105 Box Long Box ... think long verticals ... +95/-105 call vert || -95/+105 put vertical ... debit $10 Short Box ... think short verticals ... -95/+105 call vert || +95/-105 put vertical ... credit $10 Can then be used to convert Guts Strangles -->> Strangles Natural Flies -->> Iron Flies Natural Condors -->> Iron Condors