The art of adjustment

Discussion in 'Options' started by optiontraders, May 6, 2014.

  1. How to adjust a bwb for bullish market? Roll is not that attractive
     
    #11     Feb 20, 2017
    water7 likes this.
  2. Roll up one of your shorts or roll down one of the top longs.
     
    #12     Feb 20, 2017
    tommcginnis likes this.
  3. tommcginnis

    tommcginnis

    Topping markets suck for selling top-side options, don't they?
    The BWB is *very* hard to write then, because there is basically nothing close in, and only really lean stuff farther and farther out. (A BWB in the SPX/ES will move you ~3 strikes closer to the market, for the same premium and/or the same position delta as a comparable vertical. Ugh. Good if markets are moving slowly, *crap* if they're topping.)

    So, feeling the heat?
    1) Exit the position, take a new BWB position in a further expiry where you can add some time$$. Keep in mind, of course, that the market may continue climbing, and you're only forestalling an eventual re-do of risk assignment, not just postponing it. A (4+4) 8x commission fee, though.

    2) If you're confident that the current extension *is*it*, and that for whatever reason, the market "is sure to" head down as expiration approaches, you might go BWB-->vertical and "consume" that "free" vertical roll. Watch out, though -- if you wait too long, there won't *be* a viable vertical target in that same expiry. A (4+2) 6x commission fee here.

    3) You can roll the BWB itself, by entering a S1;B2::S2;{skip};B1 that polevaults over the far insurance strike, now using that as the market-facing long, rather than the BWB far-insurance. This will cost you, but will maintain a BWB structure. It can also be done as a single trade on most platforms. (A boon when you're in a hurry.) How do you make up the cost? Go in the other direction -- if calls, then open a compensating put BWB (or vertical, or whatever.) Another (3+3) 6x commission fee on this one.

    4) My favorite: exactly what Stevegee58 posted: turn it into a riskless, $0margin impact, butterfly, by buying a vertical inside the far-insurance strike, while selling that very far-insurance strike. Making up the difference on the other side keeps it in the same expiry, while you can target a revenue-neutral day, on the greater capital-at-risk. (Or just take the hit, and accept the improved sleep that night.) In any event, to butterfly carries a (1+1) 2x commission fee.
     
    #13     Feb 20, 2017
  4. water7

    water7


    is your original trade "attractive" enough in current market condition?
    what kind of bwb you're talking about?

    there a LOT of ways to adjust your BWB-variant
    but it's better if you already considered these adjustments cost & benefit before you start a trade

    picture every possible scenarios that could happen,
    then make a mental/written plan for each of them
    including how much lose you should take if everything doesn't work out

    :]
     
    #14     Feb 21, 2017