Spin, TOS gives you all the greeks for each position automatically. I often have multiple legs, and it puts them all together in a very easy to digest format. On the other hand, I also agree that simpler is generally better. More legs can be a pain in the neck to manage without giving much in the way of additional benefits. Commissions and slippage can be painful!! One thing that matters to me in addition to dmo's overall analysis is the distance OTM of my individual options holdings. This tells me what needs more careful attention for possible adjustments.
There is No any "Perfect Option position" without (un)hidden risks as one wished/ expected! "Ask not what your options can do for you, but what you can do with your options." --- OddTrader
it has been a long time since I visited ET, I have been trading options for quite a while and still am trading and profitable to say the least. Maverick74 is this thread still alive? I trade mainly naked with a ratio to provide some kind of hedge, but the hedge is temporary and no naked position can withstand a big move I am saying move like oct 2008. the strategy presented here is fairly interesting. I give it some thoughts thou it is not perfect and do has some risk but the risk is well confine and if a big move occur this will hit a home run. If the thread is alive we can kick back to discussion
I finally has time to go thru all the posting. I guess Maverick74 has left this thread. Maybe there is better strategy but again I guess there is no better strategy it is how you manage the position. the thread started in 2002 I wasn't even trading options back then, I wonder is Maverick born in 1974 judging from the nick? Anyway here is my thought on this perfect position. Of course we do understand there is no risk free trade, if there is ever a risk free trade than 1 can do it a million contract or how many his account can take in since it is risk free. There can be low risk but not risk free at least I haven't found one yet. This position in general benefit from a big move up or down since the back month has a extra long, so the bigger the move the better it will be for this position. If stock remain the front month earn the time decay which help to offset the back month decay loss, of course it depend on the IV. The position will suffer if it go up or down slowly at the 105 or 95 level where the front month butterfly hit max loss and the back month spread long leg is ATM. The back month may or may not have a profit depending on IV at that time. But let do the maths, what is the probabilty that stock remain at 100 (very slim), stock remain at 97 - 103 (quite high where you earn some premium from front month). Stock shoot below 90 or above 110 (slim), stock at 95 - 97 or 103 -105 (pretty high). 1 way out would be as stock move at certain strike interval keep throwing in the position. so as time goes by you build up a series of position and some will take it max loss and some will hit home run, hopefully when you net off you have some profit. But this position has a total of 10 leg, if you build up position it get messy and you get a free migraine as well. What do you guys think? Everyone has their perfect position, well this position do look interesting but I guess I wont probably take it until I do further more research as my brain cell is getting fewer and fewer
This thread is really old. When it was started, it was meant to be an academic exercise, not a revealing of some secret strategy. No option strategy "works or doesn't work". Good traders make money, bad traders don't. I didn't invent the strategy. It was covered in detail in Baird's book "Option Market Making". The general idea is to be short front month premium and long back month premium. That's a very broad idea and ambiguous for most traders. Market makers manage a large book of options and so they will have positions in just about every strike on the chain. So to help them keep order to their book, they generally tend to build flys where they can. Being that they can earn the edge on each individual strike, it makes sense. This is not a position that one just "puts on". At best you could leg into various aspects of this position. But then of course you have to get out. I have learned over the years that getting into option positions is easy. Getting out, much harder.