The odds will never be sufficiently in your favor to make that trade worth the risk, unless you're trading a 5-wide atm at a 2.50 credit. Ppl mention sigmas and probabilties of profit, but it's such delusional-complacency which enables such gambling. I wish you luck, tho. I think you'll probably be ok today.
RiskArb, The gamma disappears at the end of the day doesn't it -- not a big options maven here? Not sure what the risk you are referring to is under those circumstances. And since I am exposing ignorance here, don't these particular options calculate the expiry price tomorrow at the open? So, the real risk is tonight I'd guess. If so, then if the calls were still OTM, you might just flatten the whole thing -- it's obviously a position " at risk" at this point. Thanks, Sam
The options are still trading. The position loses 75k at 1235... assume you go flat delta here at 1231 ES; it would require 50 ES futures, but your short gamma is generating deltas against your position. If it did trade to SPX=1135, Coach would have a net-loss of $65,000 with a 50 ES long-hedge. Going flat delta under a static hedge simply allows for a slightly smaller loss. This is all moot... it's absurd to risk 15:1 under any scenario. There are far too many +expectancy trades that allow for 1:1 or better.
I have the utmost respect for Brethren Optioncoach and Riskarb... It will be interesting to observe how their exchanges develop, since they are both highly experienced in this options game...
$75K loss at 1235? I would love to know how that occurs. 5.00 points * 100 * 50 contracts = $25,000. But I received $1.00 in credit so it would be 4.00 points and a loss of $20K. To be even more exact, I can close the position right now at $2.60 for a loss of $1.60 or $8,000 which can still change. I know you don't like the position but let's not overstate the loss lol. Let's all put the seatbelts on It is more than halfway home. Phil
I didn't read your initial thread carefully. I read the "$75,000" as $ at risk. My mistake. Obviously it's 4:1... where did you get the $75,000 haircut for the position?
No, risk is bound by: {strike differential} - {credit received} Verticals are bound by the above terms. saw his $75,000 haircut req and it threw me off. The position doesn't require $75,000. If Coach were to take a static-hedge to gain neutrality at 1130ES he would reduce the upside risk to $10,000, unbounded downside risk, albeit unlikely.