You may have ommitted the margin aspects from consideration. Going from naked to fly free's up a lot of margin allowing you to reuse that margin for other combos to conversion. You can build up a much larger inventory of flies vs. naked straddles for the same margin. This is a key advantage of conversion over offsetting. Comparing that with the ultra-wide fly to narrow fly conversion, there are similar benefits though not as pronounced. A side effect of Nick's ultra-wide fly approach is that you have purchased black-swan insurance up front! You could always try selling back the outer strangle to recoup some of the cost but it probably wouldn't be worth it in most cases. :eek: ....but that's just one trade.
you'll be spending too much in premiums I think. I'm not advocating this, but you would probably do just as well to sell a strangle and buy a farther OTM strangle
Having slept on this...I agree...in an IRA where you have no margin its allYOUR money and opportunity costs at stake. This conversion looks for a small edge which in purchasing the "tiny" wings initially I think eats up that "edge"...the best thing is to try it in your IRA paper account...I just think there are probably better plays in an IRA
I was assigned on my short ISRG PUT at $130 in the short straddle so today I am simply exercising my long $115 put. So I just have to wait until the last premium is shrunk out of the calls to realize the full credit of $2.40 * 3 spreads profit on the combo conversion to FLY. Will check my screener again today but I do not like the inbetween period where we are, too close to FEB expiration and still a week or so to far from March expiration.
Agree, am wating till next Thursday at the earliest to put on March straddles. More likely even week after that.
Yeah, I'd neglected to mention that there is generally little opportunity in the final 10d to expiration. I use that time to adjust futures/spot hedges.
Don't you wish you closed that trade last friday..in the mid 120's WITHOUT converting??? You had some nice profits at that moment. Don't let ISRG run away from you this time (just kidding).
Well a profit is a profit, I do not play the game of coulda woulda shoulda. It was short-lived in the mid $120's and dived pretty quick. I could have made even more money if I added more puts to the strangle as the stock was crashing too. But that was not the intent of the position. $2.40 credit on an IRON FLY with a free ticket to make $17.40 is ok by me .