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Hi
Mark,
<SPAN
class=700430922-17032002>
<SPAN
class=700430922-17032002>think there might be some misunderstanding here because
the jury on the results of Dom's trade is still out. Please note that the
April options still have a month to go before expiration during which time
anything can happen. But the strategy in itself is OK and will work best if and
when the market is about to enter a quiet period.
<SPAN
class=700430922-17032002>
The
problem with the butterfly trade you are referring to is
again its comparatively small probability of profit - only 28% in this
case. Option traders often use such butterflies as a vehicle for getting into
some low-risk position first; they adjust it later, transforming it into
other positions as the market dictates.
<SPAN
class=700430922-17032002>
One
other use of long butterflies is for skimming off high volatilities when the
trader expects them to collapse shortly.
<SPAN
class=700430922-17032002>
Best
regards,
<SPAN
class=700430922-17032002>
<SPAN
class=700430922-17032002>Michael Suesserott
<SPAN
class=700430922-17032002>
<BLOCKQUOTE
style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000080 2px solid">
<FONT face=Tahoma
size=2>-----Ursprüngliche Nachricht-----Von: M. Simms
[mailto:prosys@xxxxxxxxxxxxxxxx]Gesendet: Friday, March 15, 2002
22:22An: realtraders@xxxxxxxxxxxxxxxBetreff: RE: [RT]
spread on ibm
Despite some
pants-wetting moments today, this turned out to be a nice strat
!!
The 105 calls
collapsed nicely....but of course a 105 settlement would have been the best
!
The volume on
those 105 calls was enormous. <SPAN
class=700211421-15032002>Well done.
Note: When the
markets are not surging and are within reasonable ranges, this is a
goodie....if you can keep the commissions low and not get "rocked" on the
fills.
Anyone ever
attempt to backtest this straddle for a week to 10 days before expiration
?
Also, as a
comparison, what was the profitability of selling 2x 105 calls, buying 1x 110
calls, buying 1x 100 calls ? (long butterfly)
I know there
would have been 1 less leg of commissions....
<BLOCKQUOTE
style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #0000ff 2px solid">
<FONT face=Tahoma
size=2>-----Original Message-----From: MikeSuesserott@xxxxxxxxxxx
[mailto:MikeSuesserott@xxxxxxxxxxx]Sent: Friday, March 15, 2002
8:53 AMTo: realtraders@xxxxxxxxxxxxxxxSubject: [RT]
spread on ibm
<SPAN
class=071164512-15032002>Hi Dom,
<SPAN
class=071164512-15032002>
<SPAN
class=071164512-15032002>my heart and mind was all set to write 60%, rounded
from 59.8 which was the number that OptionVue gave for your short
straddle, but my fingers wrote 30, for what reason I know not. Sorry about
that. See attached for the probabilities pertaining to your
position.
<SPAN
class=071164512-15032002>
<SPAN
class=071164512-15032002>I would indeed consider a probability of
profit of 60% to be OK for this type of trade. Though that number is
not cast in concrete, either. For one thing, the probability refers to the
current statistical volatility of 32%, and would vary inversely
with it. If volatilities were to increase, it would hurt the
probability of profit; if they were to collapse, it would benefit it.
Furthermore, a probability figure cannot take into account possible
adjustments or roll-overs of the straddle. So that number is to be
taken with a grain of salt.
<SPAN
class=071164512-15032002><FONT face="Trebuchet MS"
color=#000080>
<SPAN
class=071164512-15032002>Best regards,
<SPAN
class=071164512-15032002>
<SPAN
class=071164512-15032002>Michael Suesserott
<SPAN
class=071164512-15032002>
<SPAN
class=071164512-15032002>
<SPAN
class=071164512-15032002> -----Ursprüngliche
Nachricht-----Von: Dom
[mailto:domenick@xxxxxxxxxxxx]Gesendet: Friday, March 15, 2002
05:28An: realtraders@xxxxxxxxxxxxxxxBetreff: Re: [RT]
spread on ibm
<BLOCKQUOTE
style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000080 2px solid">
Hi Mike,
This trade selling 25 april ibm
105 calls and selling 25 april ibm 105 puts for a gross credit of
45,000.00 backed by cash which is collecting approximately 5% in
Ginmae , is not set in stone. When I deem appropriate I will
sell more puts or calls depending on where ibm is at.
The next cycle is for 25 days.
In the last 25 days ibm highest close
was 109.28 and the lowest close was 96.38.The beginning profit range (not
counting future selling) is 96.00 to 114.00. With possible more
selling at around the 110.00 and/or 100.00 areas.will bring the 96.00
lower and the 114 higher.
With the highest close in last
25 days being 109.28 and the lowest close being 96.38 on ibm , I
don't understand how you can get only a 30% profit probability, which you
consider good. I think a 30 % profit possibility is low. The trade is
done and I know it will be profitable.Option Vue does not agree. Check out
option vue by telling it the spread was bought rather than sold. It should
come up with 70 %profit probability. The reciprical of 30%.
Best regards,
Dom
<BLOCKQUOTE
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
<A title=MikeSuesserott@xxxxxxxxxxx
href="mailto:MikeSuesserott@xxxxxxxxxxx";>MikeSuesserott@xxxxxxxxxxx
To: <A
title=realtraders@xxxxxxxxxxxxxxx
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx
Sent: Thursday, March 14, 2002 4:32
PM
Subject: [RT] spread on ibm
<SPAN
class=048215020-14032002>Hello Dom,
<SPAN
class=048215020-14032002>
<SPAN
class=048215020-14032002>I agree that the theoretical range would be 101
- 109. Including moderate slippage and commissions, OptionVue gives
101.23 - 108.77. See attached. In the lower left corner you'll find the
other numbers, 13% probability of profit and a mathematical
expectation of -0.91 points at current prices. This shows that this
"conservative approach" is conservative only in that losses are limited;
unfortunately, they are also almost certain (87%
probability).
<SPAN
class=048215020-14032002>
<SPAN
class=048215020-14032002>Dom, the strategy you suggest - the sale
of a straddle - is fundamentally sound, and by placing your
stops at 96 and 114 you attain a 30% probability of profit at current
volatilities, which is OK for that type of trade. The problem was simply
that in trying to be extra conservative you suggested "insurance" (the
long options); that insurance was so expensive that the position had
hardly any chance left to become a winner.
<SPAN
class=048215020-14032002>
<SPAN
class=048215020-14032002>Best regards,
<SPAN
class=048215020-14032002>
<SPAN
class=048215020-14032002>Michael Suesserott
<SPAN
class=048215020-14032002>
<BLOCKQUOTE
style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000080 2px solid">
<FONT face=Tahoma
size=2>-----Ursprüngliche Nachricht-----Von: Dom
[mailto:domenick@xxxxxxxxxxxx]Gesendet: Thursday, March 14,
2002 21:32An:
realtraders@xxxxxxxxxxxxxxxBetreff: Re: [RT] spread on
ibm
Hello Mike,
I do this as a
collar spread. I sell the put and the call. Net credit of 9.00. The
profit range for ibm would be between 96.00 to 114.00. I place stops
at 96.00 and 114.00.
I presented a most
conservative approach. With this conservative approach the profit
range would be 101 and 109. These figures would be 105.00 strike
plus/minus the 4.00 credit=101.00 and 109.00. How did you get
102 and 108?
Best regards,
Dom
<BLOCKQUOTE
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
<A title=MikeSuesserott@xxxxxxxxxxx
href="mailto:MikeSuesserott@xxxxxxxxxxx";>MikeSuesserott@xxxxxxxxxxx
To: <A
title=realtraders@xxxxxxxxxxxxxxx
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx
Sent: Thursday, March 14, 2002
2:37 PM
Subject: [RT] spread on
ibm
<FONT face="Trebuchet MS"
color=#000080>Hi Dom,
<SPAN
class=541315818-14032002>
<SPAN
class=541315818-14032002>no offense, I hope, but the trade you
suggest here is not very promising, IMHO. The risk/reward of 1
to 4 sounds good; however, this is not the correct number by which
to evaluate this spread, for the simple reason that the attainment
of that profit is very unlikely. <SPAN
class=541315818-14032002>Probability calculations bear this out. To
wit:
<SPAN
class=541315818-14032002>
<SPAN
class=541315818-14032002>The range of profitability of this spread
is extremely limited - only between, roughly, 102 and 108,
which is a very small range for IBM to be in at expiration. If you
exit the spread earlier, that range will be even smaller. In
consequence, probability of
profit is only 13%, and the mathematical expectation of the
trade is negative, -0.72 points. Should volatility increase, those
numbers will be even worse.
<SPAN
class=541315818-14032002>
<FONT face="Trebuchet MS"
color=#000080>Why do a trade for which the probabilities are so
unfavorable right from the outset?
<SPAN
class=541315818-14032002>
<FONT face="Trebuchet MS"
color=#000080>Regards,
<SPAN
class=541315818-14032002>
<FONT face="Trebuchet MS"
color=#000080>Michael Suesserott
<SPAN
class=541315818-14032002>
<SPAN
class=541315818-14032002>
<SPAN
class=541315818-14032002> -----Ursprüngliche
Nachricht-----Von: Dom
[mailto:domenick@xxxxxxxxxxxx]Gesendet: Thursday, March
14, 2002 17:27An:
realtraders@xxxxxxxxxxxxxxxBetreff: [RT] Re: spread on
ibm
<BLOCKQUOTE
style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000080 2px solid">
<BLOCKQUOTE dir=ltr
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
<A title=domenick@xxxxxxxxxxxx
href="mailto:domenick@xxxxxxxxxxxx";>Dom
To: <A
title=realtraders@xxxxxxxxxxxxxxx
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx
Sent: Thursday, March 14,
2002 11:24 AM
Subject: spread on
ibm
Here is spread that can be done now
with good risk/reward .
sell ibm 105 april put and sell 105
april call. buy the april 100 put and buy the
april 110 call. total credit +4
Max. loss -1 max gain
+4 or anywhere in
between.
If comfortable using
stops pocket total premium of +9., place stops at 100 and
110. For myself I would use choice.
<FONT face=Arial
size=2>DomTo
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