The Perfect Option position

Discussion in 'Options' started by Maverick74, Nov 12, 2003.

  1. Maverick74


    I think I have found the perfect option position. After doing a little work and research I have found a unique strategy that accomplishes so many things in one strategy. This position starts out delta neutral. It also starts out vega neutral and in many cases has positive theta or neutral theta. Then if the underlying makes a move one way or the other the position starts to add deltas in the direction of the move and adds vega to your position to benefit from an increase in VOL. The position at this point can also be gamma scalped. If the position returns to its starting point, it reverts back to delta neutral, vega neutral and positive theta. So to sum up, if the underlying sits still you will actually have a position where you will earn time premium, and if the stock breaks out, you will have all the benefits of that by having positive gamma, positive vega and your deltas will accumulate so you can gamma scalp them or let your position run. I think it is quite an unbelievable position.

    Due to the explosiveness of this position and the huge income opportunity it represents, the old Mav man cannot distribute this secret strategy to the public. However you can buy my options course for $39.95 or call my toll free hotline 1-800-mav-da-man. Operators are standing by. This position is the real deal. Order now!
  2. Maverick74


    OK, seriously, there are a lot of smart guys on this board. Does anyone want to take a stab at what this position is. I am trying to get intelligent dialogue going here. If you think about it, you should be able to come up with the basic structure of this position based on what you know about gamma, vega and theta. I'm not going to post it until someone comes close to figuring it out. It will be interesting to see what people come up with.
  3. a couple (say, 10) short nearmonth straddles/strangles combined with MORE (say, 20) long farmonth straddles/strangles.

    Might be a good one ?

  4. Yeah, that's the one I'll go with too. A ratio'd diagonalized iron condor.

    What do we get if we win?
  5. We get to test it and reap money (that is, if we win! ;))

  6. Nordic


    definitely sounds like a volatility spread. Ratio Vertical or possibly a condor?? Not sure, either way I'm certainly not in your league Dude it's been awhile with options for me
  7. in an uptrend.....long call
    in a downtrend.....long put

  8. for example:
    dec03 ATM 10 options short.
    jan04 otm short 12 times (both sides 12 times, below and above,is that a strangle?)
    and mar04 ATM short 7 times to get vega neutral.
    Adjusting delta with stock.
    Maybe a bit different, depending on volatiliy.
    This above will work with stock at 30, 30 atm 25/35otm. volatility 50.

    That will do, but i dont believe in this kind of strategies.
    Or is it a bit more complex and genious this stratege we are looking for?
  9. problem with above strategy: with slow trending you will lose big either way you will lose big ,finally, there is no edge.
  10. Maverick74


    Nope. Basically you are proposing a long calendar straddle. A very good strategy in it's own right. I have discussed calendars and straddles at length on here so I can see how that would be a good guess. However, if you could put this trade on for a credit please please please tell me how for I will be indebted to you forever. LOL. I'll buy us both a Porsche. I would do so much size on this trade I would be breaking exchange records! Now granted you could ratio this out to create a credit I suppose with the right ratio or small debit however my trade seeks to put on a similar amount of options on both legs. Also You could sell the front month straddle and then buy the back money strangle and by using the strangle on the back month, you would have a situation where your debit would be rather small however this trade would carry a lot of risk over the short term. My proposed position actually poses no immediate risk. The risk would happen only at the beginning of a moderate move. Then once it got out of this narrow envelope the profit profile would return. And over the short term, regardless of move, there is almost no risk. Only as the front month expiration approaches is there a range where there is some risk exposure.

    However, I do like the straddle/strangle swap, it's a good play. But remember you are exposed heavily to vega from the outset of this trade. My position has no vega exposure at the beginning. Only if the stock breaks out does vega appear or breakdown.

    So keep guessing. We might actually get some interesting new strategies out of this I have never thought of which is also another objective of this exercise.
    #10     Nov 12, 2003