Strategy

Discussion in 'Options' started by Chuck Krug, Aug 4, 2011.

  1. maybe i should have been clear about the aim of this trade:
    hold the short put and the short call untill expiration
     
    #21     Aug 4, 2011
  2. spindr0

    spindr0

    Being covered for margin purposes does not mean that you have limited loss.

    To wit, buy UL and sell a call. It's a covered call (CC) but losses can be massive if the UL tanks. Conversely, it's the same for a covered put (CP)

    For an equity, if you put a CC and a CP together (different strikes), the UL's cancel and you're left with a short (naked) strangle:

    CC = +100 XYZ, sell 1 XYZ 100c
    CP = -100 XYZ, sell 1 XYZ 80p

    net result is sell 1 XYZ 100c and sell 1 XYZ 80p

    Your positioin is a bit more complex because it's diagonalized and you're long futures contracts are at different strikes... but it's the same concept.

    If you substitute VERY deep short ITM puts and calls for your futures positions, you'll see that the risk graph is similar in shape to the naked "calendarized short strangle" that MTE described.
     
    #22     Aug 4, 2011
  3. Awesome thread. Chuck, your intent doesn't play into the dissection. You're short the strangle.
     
    #23     Aug 4, 2011
  4. spindr0

    spindr0

    Somehow, you usually cut to the chase quickly.

    Hey, are you awarding AWESOME points today? :)
     
    #24     Aug 4, 2011
  5. I am. This thread earns infinite points. It only required three pages.
     
    #25     Aug 4, 2011
  6. what would happen to this position if the s&p opened at 600 tomorrow?
     
    #26     Aug 4, 2011
  7. Chuck, the Sep/Dec ES futures spread is essentially a dividend (rate) arbitrage. For the purpose of this discussion it's "no position", which leaves you short the Sep/Dec strangle. Further, you're trading the inside strangle, so you need to deduct the strike-differential (from the net-credit) to arrive at the extrinsic premium. Plus you're short upside vegas in Dec/Sep.

    I wouldn't do it here. Best to stick with something limited risk. And if you're going to (do it) then leave the futures out and go with the OTM strangle.
     
    #27     Aug 4, 2011
  8. You would incur a loss exceeding 553 ES points.
     
    #28     Aug 4, 2011
  9. spindr0

    spindr0

    Short ES sep @1250 does extremely well but merely offsets massive loss on long es dec @1245 (ignoring 5 pt diff in strikes)

    Short dec 1240 call @65 is essentially worthless. Cool, you made 65 pts. Sadly, your short short sep 1255 put took in 37 pts and is now worth 655. Did I mention that you will now reside at -618 Asphalty Avenue?
     
    #29     Aug 4, 2011
  10. bought the 1230 put to hedge
     
    #30     Aug 4, 2011