Riskarb's combo to fly conversion journal

riskarb · Jan 24, 2006

I will sum the debit-risks and apply the debit to long Dow straddles. Probably towards the end of the week.

riskarb · Jan 24, 2006

Please apply a $.03 debit to the completed flies -- forgot to add $.75per for the 4-leg commission.

El OchoCinco · Jan 24, 2006

Risk:

Is the -delta bias in OIH due to a possible pullback in the sector as oil prices settle a bit?

Quote from riskarb:

I like it a lot better than the 145 I'm short! I'd probably want some mild -delta on OIH here, provided I am flat in that ticker. I'd go with the 150 or the 50/55 strangle.
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riskarb · Jan 24, 2006

Quote from optioncoach:

Risk:

Is the -delta bias in OIH due to a possible pullback in the sector as oil prices settle a bit?
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Right, I'd simply feel more comfortable being short 30d than neutral. Not a reco, however.

El OchoCinco · Jan 24, 2006

An i nteresting idea, instead of biasing the delta from the initial position, perhaps you can leg into a off-center strangle to make a pregnant Iron Condor... IN other words short the 155 OIH Straddle and then perhaps enter then 140/165 strangle.

If I sold 12 155 straddles I would buy 4 $140 puts and 6 $165 calls this would be a bearish pregnant Iron Condor (say it 10 times fast) and allow for more downside room while still being profitable...

Hmmm Naked Combo to Pregnant Iron Condor (sounds like a sick porno flick...)

Quote from riskarb:

Right, I'd simply feel more comfortable being short 30d than neutral. Not a reco, however.
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jplatsky · Jan 24, 2006

In the interest of those following the journal, a closer look at the GOOG adjustment made by the Coach might be beneficial for those who would consider using it in the future.

The 400 straddle was sold for 53.60.

The put side was closed for 10.10. So the risk on the downside is now removed. The remaining credit is now 43.50, for only the calls.

The entire credit is kept if GOOG expires <400, partial credit if it expires between 400 and 443.50 and a loss if GOOG expires > 443.50

To remove the upside risk the 390 call was then purchased for 61.70. Reduced by the credit of 43.50 for the sold call, leaving a bull call spread 390/400 for the price of 18.20

I believe the above math is correct, my apologies in advance if not.

Thanks for the journal Riskarb,
Jack

Quote from optioncoach:

Well here is what I did with GOOG today. Given teh strength and the continued rise to earnings next week I did the following:

1. Initially I sold 5 FEB $400 Straddles @ $53.60 for a credit of $26,800.

2. Today I closed the $400 Puts @ $10.10 (sold at $22.50) for a profit of $12.40 or $6,200. This cost me $5,050 to buy back, reducing my net credit on the straddle to $21,750.

3. I purchased the FEB $390 Call and rolled into Bull Call Spread ($390/$400) since I am now bullish on GOOG through the earnings. I paid $61.70 for 5 $390 Calls or $30,850. If you subtract the net credit I already received, the cost was $9,100.

4. The net cost of the spread is $9,100 and has a value of $5,000 (10-point spread and 5 spreads).

5. At or close to expiration I expect GOOG to be above $400. In that case the net loss on the spread will be $4,100 ($9,100 cost minus $5,000 credit to close). Combined with the net profit on the closed puts of $6,200 this is a net profit combined of $2,100.

So if GOOG stays above $400 I turn my short straddle into a $2,100 profitable bull call spread. If GOOG tanks I lose $9,100 on the spread which is offset by the $6,200 in profit already collected for a net loss of $2,900.

SUMMARY: I now have a position where I risk $2,900 to make $2,100 on the assumption that GOOG will remain above $400.

I am pretty tired this morning from working late so if I @#$%ed up the math let me know. If not, then I think I made a good adjustment based on my changed view of GOOG. For some reason I have this little devil telling me I iz wrong!

EDIT: Something is off here and I think I am double counting the put profit somehow. Worst case scenario I still have a limited loss and some good tuition. ANyone catch the mistake please tell me. 5 hours sleep is not working for me today LOL.
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El OchoCinco · Jan 24, 2006

The real question is do we get to the same answer, me using $ values and you using the premium values LOL....my mind is fish today so someone just do the math for me

EDIT: Actually it works out the same. $18.20 * $100 * 5 = $9,100.

The ITM spread at expiration is worth $5,000 for a loss of $4,100 put against the profit of $6,200 already collected.

Is that correct?

Quote from jplatsky:

In the interest of those following the journal, a closer look at the GOOG adjustment made by the Coach might be beneficial for those who would consider using it in the future.

The 400 straddle was sold for 53.60.

The put side was closed for 10.10. So the risk on the downside is now removed. The remaining credit is now 43.50, for only the calls.

The entire credit is kept if GOOG expires <400, partial credit if it expires between 400 and 443.50 and a loss if GOOG expires > 443.50

To remove the upside risk the 390 call was then purchased for 61.70. Reduced by the credit of 43.50 for the sold call, leaving a bull call spread 390/400 for the price of 18.20

I believe the above math is correct, my apologies in advance if not.

Thanks for the journal Riskarb,
Jack
More...

bpatel11 · Jan 24, 2006

Coach
after your two adjustment your net debit is $9100. At expiration if GOOG is above 400 then you will receive $5000 credit. This will make total debit ($9100-$5000)= $4100 which will be minimum loss you will incur. if GOOG is below 390 at expiration then you will have maximum loss which will equal to net debit of $9100.

Please correct me if i miscalculated

Thanks & hope you get enough rest

bharat

Quote from optioncoach:

Well here is what I did with GOOG today. Given teh strength and the continued rise to earnings next week I did the following:

1. Initially I sold 5 FEB $400 Straddles @ $53.60 for a credit of $26,800.

2. Today I closed the $400 Puts @ $10.10 (sold at $22.50) for a profit of $12.40 or $6,200. This cost me $5,050 to buy back, reducing my net credit on the straddle to $21,750.

3. I purchased the FEB $390 Call and rolled into Bull Call Spread ($390/$400) since I am now bullish on GOOG through the earnings. I paid $61.70 for 5 $390 Calls or $30,850. If you subtract the net credit I already received, the cost was $9,100.

4. The net cost of the spread is $9,100 and has a value of $5,000 (10-point spread and 5 spreads).

5. At or close to expiration I expect GOOG to be above $400. In that case the net loss on the spread will be $4,100 ($9,100 cost minus $5,000 credit to close). Combined with the net profit on the closed puts of $6,200 this is a net profit combined of $2,100.

So if GOOG stays above $400 I turn my short straddle into a $2,100 profitable bull call spread. If GOOG tanks I lose $9,100 on the spread which is offset by the $6,200 in profit already collected for a net loss of $2,900.

SUMMARY: I now have a position where I risk $2,900 to make $2,100 on the assumption that GOOG will remain above $400.

I am pretty tired this morning from working late so if I @#$%ed up the math let me know. If not, then I think I made a good adjustment based on my changed view of GOOG. For some reason I have this little devil telling me I iz wrong!

EDIT: Something is off here and I think I am double counting the put profit somehow. Worst case scenario I still have a limited loss and some good tuition. ANyone catch the mistake please tell me. 5 hours sleep is not working for me today LOL.
More...

El OchoCinco · Jan 24, 2006

Everyting is correct and then there is the $6,200 in profits pocketed from the put buyback. What is slapping me in the head is whether I am correct in how I am figuring the put profits. I am working in reverse today and thank God I have no other trades to make LOL.

I know it is really stupid to fill a page with this crap, but I cannot shake this nagging feeling that something aint right lol. See we all get CRAFT* disease.

Phil

*CRAFT- Can't Remember a Fuckin' Thing

Quote from bpatel11:

Coach
after your two adjustment your net debit is $9100. At expiration if GOOG is above 400 then you will receive $5000 credit. This will make total debit ($9100-$5000)= $4100 which will be minimum loss you will incur. if GOOG is below 390 at expiration then you will have maximum loss which will equal to net debit of $9100.

Please correct me if i miscalculated

Thanks & hope you get enough rest

bharat
More...

RichardRimes · Jan 24, 2006

Vol on CME has really exploded...from 35% to 40% on the 380's (I guess thats 500 bp)? yesterday bought stock sold call at 380 then early this am bought stock sold call at 390...thought I'd wait before selling the put...however it seems the mkt thinks earnings are going to be good so sold 1 390 put at 10. If earnings aren't great your fly will be looking nice.