If You initiate the two legs separately, at your advantage, best price, for each leg; your are comfortable with this. Into Swing low buy leaps calls, into swing high sell short term calls, buy leaps puts.. so nd so the same... buy back the calls, sell the puts short term,... Don't stay at the name of the strategy, just build a position, complex position... Best regards Philippe http://www.dot-circle.net/coveredcall.html
That doesn't really answer the question of how volatility affects profitability of an iron condor at expiration does it???
The "AT The Money" (ATM) options are less affected by the volatility change. For the other options the answer is yes !
Are you thinking of a butterfly or iron condor? If I put my short strikes on an iron condor deep OTM and everything expires worthless, how does volatility impact the Profit of that trade?
------------------------------------------------------- There is more than one or two characteristics if the volatility change, the price also, then the spread.. ------------------------------------------------------- source: http://www.securitytraders.com/content/view/78/67/ Buy Deep In-The-Money Options Written by James Thomas Thursday, 08 February 2007 In times of high volatility, Buying deep in-the-money (ITM) options is a good way of implementing directional option trading strategies. This is because high implied volatilities, will eventually begin to come back down to more normal volatility levels and when this happens, the at-the-money (ATM) and out-of-the-money (OTM) options are going to suffer. Deep in-the-money (ITM) options, however will remain largely unaffected. Why you might ask? Well this is because deep ITM options have very little time value and it is the time value or extrinsic value of an option that is effected by rising or falling implied volatility. In volatile markets, using deep in-the-money options can be more forgiving if you are right about direction, but your timing is slightly off. For example if you have a stock with a strong underlying uptrend that has experienced a healthy correction and you enter a little too early by buying Calls before the stock starts trending up again. Because deep ITM options have very little time premium, they offer somewhat of a buffer should the stock move against you slightly or move sideways for a period before it starts trending again. At-the-money and out-of-the-money options are ALL time value and therefore your timing in regards to the direction of the underlying needs to be spot on. In times of high implied volatility, any period of sideways movement, or a slowing to how much a stock is rising or falling, can result in considerable erosion in the time value premium for both at-the-money (ATM) and out-of-the-money (OTM) option holders. This is due to both a fall in implied volatility and also time decay. When it comes to neutralizing the effects of volatility, buying a deep in-the-money (ITM) option can be very effective in this regard. Many traders argue however, that there are definite disadvantages to buying deep-in-the-money (ITM) options saying that they are expensive and are prone to greater slippage due to a wider spread. To that I rebut by saying that the word expensive does not apply to deep in-the-money (ITM) options. The fact that they demand a higher premium is due to their real intrinsic value. In regards to the wider spread, this is in most cases due to market makers not advertising their true buy/sell price. In my experience, placing an order that splits the bid/ask in half, usually results in a quick fill and a successful entry or exit. Ultimately, I like to think of deep in-the-money options as a surrogate for the underlying stock itself. In fact, if you go deep enough in the money, where the delta is 1 for calls and -1 puts, these options will move point for point with the underlying stock. For short-term directional traders (and LEAP traders - though LEAPS have greater volatility risk due to their higher vega), this provides an opportunity to effectively trade the options as if you were trading the underlying stock itself, but for a fraction of the capital outlay. That in my book is a smart way to use the leverage that options provide and trading smart, not hard is fundamental to achieving consistent trading profits. James Thomas is a successful private option trader and creator of www.option-trading-tips.com - an informative resource full of useful option trading tips, including free tutorials. Last Updated ( Thursday, 08 February 2007 ) source: http://www.securitytraders.com/content/view/78/67/
ATM options carry the greatest vega sensitivity. ATM straddles are the position with the greatest vega sensitivity.
Naysayers would tell you Dan is "just another guru" who teaches the "magic of adjustments" etc. That's like saying here's another culinary institute that teaches the "magic of cooking". Besides, cooking has been around for as long as humans existed and there's enough recipe books out there to reclaim an island in the Phillipines. Would it be the same thing to learn cooking from a recipe book, vs. going to the best cooking school in France to learn from a chef who's had real life experience working in the top restaurants in the world? And what alternatives to trader wannabes do naysayers offer? Do they offer to teach you for free, or even for a fee? Or do they ask you to "read the boards and read books to learn?" Mav, I'd like to throw this thought out, let me know what you think. Let's take an iron condor for example. Let's say that statistically prices adopt a fat tail distribution. Let's assume that. If you put an iron condor on with an 85% chance of winning (a small profit) and which has a 15% chance of making a huge loss, and if your strategy included limiting that loss a manageable amount when the trade moves against you, don't you have a positive expectancy over the long run? Again, with calendars. Yes, they are long vega. But if you choose to place the trade on consistently when IV is at it's lowest levels, what are the probabilities of it going even lower, over a large many trades? A calendar does not have a large probability of winning (50 - 60%) but the reward/risk ratio is large. What if your adjustments gave you a chance to profit even when prices were to move against you? My last question. If you had to predict volatility and price with 95% or better accuracy, how do market makers survive for 10 - 20 years in the pits? They're basically trading the same strategies as everyone else, just that they pay little commissions and get to buy at bid and sell at ask? They also have to pay a price for this every month. I don't have a fixed view, I'm open to new ideas and would sincerely like to hear your views. Thanks.