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What you have basically done is put on a Delta neutral spread. "See the
attachment which will show you the various Strike prices and their deltas. The
major disadvantage to this spread is that you have time erosion on both the
calls and puts. This spread does allow you to trade the bonds or the options to
adjust as the price of the bond moves. Liquidity is not a problem in the bond
options. If you use the March options then you can also use the February
options to adjust the position and this would give you back some of your time
erosion lose. What you have created is a non directional volatility spread that
gives you many options for adjustment and also gives you a defined risk. For a
different look at a combination, say you bought an equal amount of of 102 puts
and 108 calls. That would also put you delta neutral. What it allows you to do
is to trade all the options between these two strikes to adjust your position as
well as trade the future against the position to adjust. You can also trade
the February options against the position. It would provide a lot more trading
opportunities with less premium risk.
Prosper wrote:
> Hi,
>
> I was thinking about an option play that would require that you buy one, at
> the money put 3 to 6 months out. Then you buy 2 calls out of the money by
> two strikes. Or vise versa (buying a call and 2 puts). Example, buy 1 June
> 106 T-Bond call and buy 2 June 102 T-Bond puts.
>
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