Right now the bid/ask is $1.95/$3.10 so I can close for a small profit but might hold on. We will see....
Eric, I find a much larger comfort zone in trading Diagonals than credit spreads. Diagonals offer greater diversification with respect to adjustments going forward, ie, risk management. Let me also state, that we will be trading 'haircut margin' next month, and find the use of capital/risk vs. reward/risk a much nicer environment to profit from... using diagonals rather than credit spreads. That said.... with 'haircut margin' the entire realm of strategies now becomes much more GREEK or portfolio oriented. For example... as diagonals approach expiration and their corresponding short strikes... you have maximum profit potential, but also introduce RISK!. Using haircut margin and say applying an OTM backspread, can rduece the risk tremendously.... and for a credit, at that moment in time. That does not imply the risk in your portfolio is eliminated... but it does shift the risk area away from the current expiring diagonal. In a retail account... if I were to trade diagonals very conservatively... I would place 3 month out longs vs. 2 month out short diagonal positions... and reposition after 30 days. The return THETA ( and possibly VEGA) has been around 4% a month... with very little risk, huge profit windows. The largest cost in this type of position results from trading expenses... and using a direct floor broker can help increase the returns another 2+%. I believe this is similar to what Mark does... using CTM options.... for credit. Hope this helps.... it's learning in 'motion'.... and been very profitable so far. M~
Andy, I'm asking because of our transition to 'HairCut Margin'. With the added bonus of Capital/Risk...... delta scalping becomes a much more viable approch. For example: I personally would not trade Covered Calls, ie, Buy 100 shares of stock and sell one call contract against it. But, with haircut margin, you could buy 1000 shares of stock (very inexpesively) sell 10 ITM calls and use the credit to buy OTM put protection. You're returns can be very generous, with downside protection. This is just not possible in retail because of the huge expense of purchasing the stock... and all the downside risk of the stock would bring. So.. we've been analyzing backspreads.... time spreads.... etc. It's really an entirely new way of thinking... RISK/Capital managament. M`
Rally, Just trying to exploit the opportunities 'haircut' may open up... My personal trading style has been THETA oriented.... in the past, but 'haircut margin' is opening up some very interesting possibilities. Straddles/strangles/backspreads.... etc. Your thoughts appreciated. M~
Murray, yes, scalping a long gamma position with spot can be very lucrative under haircut but it also requires better trading skills than simply selling verticals/diagonals. Not a bad way to compliment your short gamma approach. Having said that, i am sure you will be fine as long as you know this leverage works both ways. Good luck.
I think you meant bull call spread although it will have same R/R as a bull put spread of same strikes.... A long stock collar can have the same profile as a bull call spread
Yes, collar = bull vertical = bull PUT spread = bull CALL spread. If the expirations for all options are the same. Otherwise, it's synthetically equivalent to a diagonal. MoMoney.
Murray and Coach, I appreciate your discussion on 'haircut' strategies. However there are a lot of retail "newbie" who might follow blindly without understanding the disadvantages of those advanced 'haircut' strategies in a retail account. Why don't you start a new thread on haircut strategies? Of course I, as a blind newbie, will follow.
NEW YORK, Nov 02, 2006 (BUSINESS WIRE) -- The International Securities Exchange (NYSE:ISE) today announced that it has filed a complaint in the United States District Court for the Southern District of New York seeking to end the exclusive listing of certain index options. ISE has asked the District Court to issue a declaratory judgment holding that ISE does not need a license to list index options on the Dow Jones Industrial Average (Ticker: DJX) and S&P 500 Index (Ticker: SPX). Currently, these two actively-traded index options trade exclusively on the Chicago Board Options Exchange (CBOE) pursuant to licensing agreements between CBOE and Dow Jones & Company, the provider of the Dow Jones Industrial Average, and The McGraw-Hill Companies, Inc., the provider of the S&P 500 Index. In June 2006, the United States Court of Appeals for the Second Circuit ruled that ISE did not need a license to list options on the SPDR and DIAMONDS ETFs. "ISE was founded on the belief that competition among exchanges improves market efficiency and, ultimately, benefits investors," said David Krell, ISE's President and Chief Executive Officer. "We have witnessed this occurrence for equity, ETF, and certain index options since ISE announced its entry into the market eight years ago, providing the spark that ended the practice of exclusively listing options on only one exchange. As a result of ISE's leadership, the market has experienced increased liquidity, tighter spreads, and lower customer transaction fees, and we want to deliver those same benefits to investors in the remaining exclusively-listed index options." Since options have become multiply listed, annual options volumes have nearly tripled from 507 million contracts traded on all exchanges in 1999 to over 1.5 billion contracts traded in 2005. Year-to-date options volumes are up an additional 40.1% according to The Options Clearing Corporation (OCC).