Wingspreads
This chapter covers butterfly spreads and other wingspreads such as irons, condors, stretched out condor skip-strike butterflies and unbalanced butterflies. They all have similar risk reward characteristics and sensitivities. In addition, there are pregnant multi-strike butterflies that have many single-strike butterflies inside them. Wingspreads are strategies that traders employ when they believe that the market will land within a specified range and within a specified time frame. In addition...
Exhibit 623
Diamonetric Grid Identifies AUG Expiration Range of 260 to 300 with 280, Target Price. Diamonetric Grid Identifies AUG Expiration Range of 260 to 300 with 280, Target Price. Vit' st 71 it . i'ti I f- M.-af Apr via i'jy Aug Vu- i 1 '. Vit' st 71 it . i'ti I f- M.-af Apr via i'jy Aug Vu- i 1 '. Chart courtesy of ProphetFinance.com Dissecting out wingspreads by hand can be very messy, so it is important to be methodical. This trade was a 2-strike butterfly but was managed as 4 embedded baby...
Dynamic Gamma Scalping
As we saw earlier in my gamma scalping example, trading futures against long straddles can be very limiting. If on that overnight trade I had had more alternatives, I could have altered my premium profile or avoided the dampening effect on my net contracts. If the move from 3790 up to 3850, then down to 3730 and back to 3790, had happened during the day, I could have sold calls when the market was moving up and puts on the way down. In this way much of the premium erosion that I suffered would...
Wingspread Dissection In Practice
We are going to follow an initial trade and the subsequent adjustments made in the RD3 Webinar Series, where we forecasted a likely expiration range with the Diamonetric Grid5 Exhibit 6-23 . GOOG Google was trading at 296 with 23 days to go and a target price of 280, while staying within the range of 260 to 300. The initial trade warranted either a 280 calendar spread, or a Butterfly with a Technical analysis tool used to determine profit opportunities based on forecasting probable trading...
Iron Wingspreads
A note about short iron butterflies and iron condors despite the fact that they are short, they act the same as long call or put wingspreads in that they are a play for the same trading range that the strikes cover. Iron butterflies and iron condors are a seeming contradiction you receive a credit to be long the range that you want the underlying to reside in. Is the credit for the short iron butterfly better than a debit for a regular long butterfly A short iron butterfly has the same risk...
Hg6024a3c68 1996
Coulda Woulda Shoulda 2001 Printed in the United States of America ISBN 0-9778691-72 First Edition January 2006 Thanks again to Scott Snyder, Shelly Brown, Brian Schaer for the OptionVantage Software Graphics, Allan Wolff, Adam Frank, Tharma Rajenthiran, Ravindra Ramlakhan, Victor Brancale, Rudi Prenzlin, Roger Kilgore, PJ Scardino, Morgan Parker, Carl Knox and Sarah Williams the angel who revived the Appendix and Chapter 10. Extra Special thanks to Yehudah Grundman of The Kabbalah Centre...
Relativity of Gamma
When comparing the gamma of 100 straddles for three different strikes, 100, 105 and 200 as in Exhibit 3-10, one can see that the higher the strike price, the lower the gamma. The values have an inverse relationship. As the underlying doubles in price, the gamma halves in value. Consider the graphs of gamma values at three different at-the-money strikes. Compare the three positions in Exhibit 3-11, i.e. the 100 100 calls when the underlying is at 100, 105 105 calls when the underlying is at 105,...
Pin Risk
As you can see from Exhibit 3-22, I was left with 25 long synthetic calls. In addition, the futures were at 73 and a half 73.16 or 73 16 32 , just 16 ticks out of the money. My concern now was pin risk. If the bonds were at 74 the next day, I would have a dilemma. Should I exercise my puts to liquidate my futures leaving the calls to die worthless or wait to be assigned on my calls to liquidate my futures let the puts die worthless The dilemma is that if I do not exercise my puts and my short...
Properties Of Strangles And Straddles
From a theoretical standpoint strangles and straddles have very similar properties with regard to gamma, vega, and theta. Any disparity between the Greeks deviates further as time passes or the market moves away from the strikes involved. They will, however, come close together again as the underlying moves to a point where both spreads are deep in-the-money. Curvature refers to gamma. A position is said to have positive curvature when it is long gamma. It is quite common to have analyzer...
Tools For Dissection
There are five tools that can be used for position dissection. Only two will be introduced in this chapter the SynTool, which sets aside Conversions Reversals and the BoxTool, which sets aside Boxes. Although introduced below, the remaining three will be presented when appropriate the WingTool that sets aside Butterflies, Condors, Irons, etc., the TimeTool that sets aside Calendar spreads and the JellyRoller that sets aside Jelly Rolls. SynTool Using the SynTool is basically taking out a...
Chapter 8
Fair Value Equations Including Banking 198 Banking The Concepts of Borrowing and Lending 200 Short Stock Inventory Problems and Squeezes 201 Equity Stock Reversal Without Dividend 202 Implied Interest Rate on an Equity Conversion Reversal No Dividend 204 Interest Rate Setting in Your Options Pricing Tool 205 Equity Conversion Reversal With Dividend 207 OEX Synthetic Futures and Theoretical Values 209 Implied Interest Rate on a Box Trade 213 Explanation of Residual Price 217 Stocks Involved in...