Combination: for put spread the simultaneous purchase and sale of both puts. Google pin risk. I forgot the main risk at expiry: how to manage the portfolio when the underlying price is between both strikes. It can imply delta hedging or the sale of the put spread before expiry.
Im have no access to a screen,but take a look at the 12/6 SPY put spreads that are short the 297 strike.Look at the 1 pt vertical.the 2 pt vertical,3 pt vertical and so on.They trade somewhere around .13-.25....Its up to you to figure out what R:R you prefer... As for 10-1 or more,that will be a Bfly with 297 as the short strike.. Take a look at the 299/297/295 put fly....Where is it trading,whats the R:R??? Remember,I am going off your prediction that the SPY goes out at 297 on 12/6....
Not trying to be a dick,but I would love to have to worry about Pin risk on some punt of a spread..Yeah,its a "risk",but it also implies that I maxed out on a -.01/-.03 delta bet...
[raising hand] I'm one of the slow children in the room, moving my lips while reading the letter cubes. Took all this time to figure out that "A" thing - it looks different when you turn it upside down, y'know! - and then they go and do this lowercase thing to me... More seriously: it's actually pretty disturbing that, after having done several hundred spreads (and I'm counting ICs as well as verticals), I couldn't see this right away. I'm trying to understand why not, and the closest I can come is that I obviously don't have an intuitive sense for fitting an options strategy to a made-up situation; all of my experience has been around actual ones. Move the postulates around, and suddenly, whatever experience I have doesn't apply any more. That's a good lesson; I'll take it. Thanks, guys. What's much more disturbing to me, though, is that a number of other folks here stepped on the same garden rake. My excuse is that I'm still very much a newbie at this stuff, but I expected better in general. Maybe I need to readjust my expectations. :\
Hey BW,you have learned a shitload. In the time I have seen your posts... Dont be too hard on yourself Ive been at this for a while,trading on the floor,and upstairs at different investment banks/hedge funds.. Im sure you know this,but floor guys have a different way of approaching trading than "upstairs" guys... You appear to be very adept at picking up the more advanced concepts..you are an upstairs guy.thats a compliment. I started trading when McMillan was the major resource,and was on the floor trading for Salomon.. No delta sheets,no clue to Greeks,but ran a massive proprietary book.But it's a very different approach...
Thanks, Tao - very kind of you! I've actually got a pretty good-sized ego, but I don't find a whole lot of use for it while I'm learning, so I'm always willing to laugh at my own mistakes - hopefully while figuring out the root of the error. Fortunately, there are some really sharp folks here who call'em like they see'em, and provide me with plenty of opportunities to amuse myself that way. And I agree: I have learned a lot. It's just that I want a lot MORE, and that jones keeps getting worse. (Is there, like, heroin mixed into this trading stuff? Just asking, 'cause it's crazy addictive.) I'm ambitious as hell - I'd really love to learn how to do both (OK, so it might take a few more days...) As I understand it, you floor guys just ran it on price movement and feeling the sentiment; less analytical and more "I saw the jugular and my reflexes just took over" sort of thing. Isn't that where Paul Tudor Jones started? (And McMillan - I need to make a pass through "On Options" again. The first time I tried, it was nearly impenetrable - but it's been a few months, so I suspect a lot more will stick this time.)
Everything in moderation, man. After a long enough time, you may become like Ren here, angry at the markets, represented by Stimpy, Sven and their game. It would eventually get your goat without some self-control.
Thanks, ON - but nah, not planning to fight the weather any time soon. Getting angry at the market would be like getting angry at the sea; it won't care. The sea, even in the middle of a hurricane, is not hostile per se; it'll just kill you for a fool if you're on it and didn't pay your dues (oddly, I find a lot of reassurance in that - even though the converse is not guaranteed.) But there's also another parallel: when I first took to the sea, I focused everything I had on learning how to be a good sailor so I could survive on it - because I decided that it would always be a part of my life from then on. I'm doing the same thing now, for the same reasons... and frankly, because that kind of commitment is where all the juice in life is, for me. My version of moderation is "any arterial bleeding? No? Great, throw on a pressure bandage and keep going." It might kill me one day, but I've had one unholy hell of fun ride through life doing just that. I suspect I'm too old to change... even if I wanted to.