The Perfect Option position

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

  1. sonoma

    sonoma

    You don't need an unusual skew in the front month. You're simply looking to sell enough premium in the front month to compensate for the additional long positions in the back month. And yes, depending on tenor and term vol structure, you'll have to vary the relative position of your back month otm long puts (and/or calls).

    This is not a position that you enter all at once. This is a position that you work into over time. If you have a relatively modest account, then skip the additional long options. However, if you're trading in size, then those additional long puts allow you to weather almost any disaster. Like all aggregated positions, you will have to do some management to keep your risk measures acceptable over time. And you'll need to become knowledgeable about the proper circumstances to short or add premium, but that's no different than with trading generally. No mystery or magic here.
     
    #291     Apr 8, 2013