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The Doctors position is one to be traded, not held, unless there is a mojor move in the
underlying. Attached are 2 graphs. one of the position today and the results of a move
today. the other indicates the profit picture in RED or what it would look like at
expiration. Options were created to trade. Ira
Ira Tunik wrote:
> The Doctor brings up a point that most traders forget. That is bleeding to death. If you
> worry about how much you can lose and cover that aspect, the profits will take care of
> themselves.
>
> The Doctor wrote:
>
> > You all have evolved the concept of a pure volatility play into a much more
> > complicated and expensive position than necessary. Any vol. play is a form of a
> > backspread. Backspreads would be long future/stock and long put, long put and call
> > combination, short straddle long two combos....(probably the cheapest backspread).
> > Delta adjusting a backspread no longer makes it a pure directional play, but rather a
> > vol. play. Buy 1000 shares and buy 10 50 delta puts is just an expense way to buy 10
> > 50 delta calls unless you are going to adjust along the way. If you are going to
> > adjust then the backspread is a vol. play and not a directional play.
> >
> > Consider selling a straddle and buying two OTM combos instead. The general tone of an
> > experienced pro is not to focus on what I make if it works, but rather to focus on
> > what I lose if it doesn't work. Events don't occur frequently ..... by definition.
> > So the challenge becomes how not to bleed to death waiting for the event. If you look
> > at event you could retire from...... backspreads will almost always make you the most
> > money for dollar at risk. You want trades with very High Gamma and little or no Theta
> > and you are all creating very expensive variations that could bleed you to death
> > waiting.
> >
> > Daniel Goncharoff wrote:
> >
> > > I thought Mike's point was exactly what he wrote, no more no less:
> > >
> > > To replicate 10 calls plus 10 puts at the same strike, you need 10 futures plus 20
> > > puts (or short 10 futures plus 20 calls)
> > >
> > > Delta is a bad way to analyze a straddle, because the net delta of a straddle is
> > > zero, yet there is real risk in the position.
> > >
> > > Regards
> > > DanG
> > >
> > > Ira Tunik wrote:
> > >
> > > > Is the point that you are trying to make that at extremes of price movement the
> > > > straddle will have a delta value of 1000, not 500 like the 10 by 5 position?
> > > > In that case you would be correct.
> > > >
> > > > MikeSuesserott@xxxxxxxxxxx wrote:
> > > >
> > > > > Robert,
> > > > >
> > > > > though I don't consider myself a guru of anything, I do trade options
> > > > > professionally, and I have seen this misconception come up several times on
> > > > > this list. To clarify once again: suppose you consider a long straddle
> > > > > consisting of 10 calls and 10 puts. To make for an *equivalent* position,
> > > > > you would need to buy 20 calls and sell 10 futures contracts - not 10 and 5!
> > > > > Just do the math, and you'll see for yourself.
> > > > >
> > > > > Thus, being long 20 option contracts in both cases, you have exactly the
> > > > > same Vegas (sensitivities to volatility changes) in the central areas of
> > > > > both positions. Even the Thetas (sensitivities to time decay) are virtually
> > > > > the same.
> > > > >
> > > > > Differences arise in the follow-up strategies, of course. Orders in the
> > > > > underlying are usually easier to handle due to better liquidity, and the
> > > > > bid/ask spread, as a rule, will be tighter. On the other hand, margin for
> > > > > the underlying is often a multiple of what you would pay for the options, so
> > > > > if you want to hold the position for some time this would have to be taken
> > > > > into consideration, too. This is especially true for equities, where the
> > > > > money outlay can be a real drain on your capital available for trading.
> > > > >
> > > > > Regards,
> > > > >
> > > > > Michael Suesserott
> > > > >
> > > > > -----Ursprungliche Nachricht-----
> > > > > Von: Robert Hodge [mailto:r-hodge@xxxxxxxxxxxxxxx]
> > > > > Gesendet: Sunday, December 10, 2000 21:56
> > > > > An: realtraders@xxxxxxxxxxx
> > > > > Betreff: RE: [RT] Re: Trading Events
> > > > >
> > > > > Perhaps a cheaper way is to buy either the put or the call and take an equal
> > > > > and opposite position in the relevant futures contract (eg buy a call and
> > > > > short the future). I think this would be less sensitive to any (likely) fall
> > > > > in implied vols after the tension is released by the news coming out while
> > > > > still having the same fundamental characteristics as a straddle.
> > > > >
> > > > > Perhaps an options guru can correct me though :)
> > > > >
> > > > > Regards,
> > > > >
> > > > > Robert
> > > > >
> > > > >
> > > > > To unsubscribe from this group, send an email to:
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> > > >
> > > >
> > > > To unsubscribe from this group, send an email to:
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> > >
> > >
> > > To unsubscribe from this group, send an email to:
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> >
> >
> > To unsubscribe from this group, send an email to:
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>
>
> To unsubscribe from this group, send an email to:
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