Trade 50 A Little Bit Out There
And a little less in the middle. I’ll cut straight to the chase here and try to explain the logic of this trade. We are buying a straddle– in this case the 7400, and we are selling 2 strangles. 2 x 7300 puts and 2x 7500 calls. With thanks to http://optioncreator.com/stuskul
Our prices are: 7400 call=36 7400 put=79, 7300 put=38 (x2)= 76, 7500 call= 10(x2)=20. Our bought options cost 36+79=115, our sold options 76+20=96. So our cost is 115-96=19. What is max profit? 100-19 paid=81. Where’s our risk? 7200 and 7600. All peachy so far? Not so fast.
What’s Wrong with this trade?
Here’s our Greek take away*. Delta…. approx neutral. Theta= 2.91 against us 4.8 in our favour. Vega 13.1 in our favour, 20 against. There is a bias to the upside however which means vega might work in our favour, as well as theta. We want the position to ‘wiffle around’ and if nothing much happens it may be that in a week’s time we can close out for much more than the 19 we are paying. It is not so much about direction as time decay. Direction is the second tool in the shed. The sold options should lose more value over time than those that we own.
*If you want screenshots of my calculations let us know. They were too unwieldy to put here.
Our Ethos Remains The Same
Our passion remains undiminished despite the trying times of these robot driven markets. The trades are here to illustrate what is possible,what is realistic, and when we get one going horribly wrong- how to repair a broken trade. Stick with us, we want to change the trading world and just nudge the odds a little in favour of us retail traders. And if you are new here, welcome, and thanks for getting this far. Options are NOT easy, but they are amazing.
Not sure how this will go,and maybe it’s all a bit hurried as time has not been on my side lately- that is by choice, there is life outside the markets.
I was told about this at a trading seminar courtesy of London Trading Group: ‘only 1% of people offering trading course in the US had a track record’. We have a track record you can see for yourself-we are free and offer nothing but a passion for options.
I don’t have the numbers with me but …this trade bought for 19, was a close today at 35.
that’s 84% profit in old money, and the trade is still young. This is where you could close out part/ some, or all of the trade-the permutations are many.
I like it TP. I normally trade these on the SPX, as there are weeklies, and so theta is greater.