http://www.condoroptions.com/index.php/options-education/managing-greeks-not-trades/ Wed, 17 Feb 2010 23:34:57 +0000 http://wordpress.org/?v=2.9.2 hourly 1 http://www.condoroptions.com/index.php/options-education/managing-greeks-not-trades/comment-page-1/#comment-603 Iron Condors and Vertical Skew Mon, 22 Jun 2009 15:58:11 +0000 http://www.condoroptions.com/?p=1456#comment-603 [...] Assume we want to risk $5000 on this trade.  In the first variation, the maximum possible loss on a 1-lot trade would be $71, or the distance between the short and long options ($100) less the credit received ($29).  To risk the desired amount, we’d trade 70 contracts of the first position.  In the second, wider variation, the maximum possible loss on a 1-lot trade would be $902 ($1000 – $98), so to risk the desired amount we would trade 5 contracts. (Since that second variation is actually only risking $4510, I’ll set the first variation to use 63 contracts so that they really are risking the same dollar amount.) To address D.S.’s first point, while it’s true that the second variation brings in a larger credit up front, and while the break-even points at expiration on the second trade are slightly further out, I don’t regard this as a significant factor, for a few reasons. First, I rarely hold trades through to expiration. Secondly, assuming we risk the same amount on each variation, any differences in the nominal credit received will obviously balance out. Finally, the conditions that cause me to exit and enter trades have nothing to do with some fixed profit/loss level, but have everything to do with the various greek exposures I want to maintain. [...] [...] Assume we want to risk $5000 on this trade.  In the first variation, the maximum possible loss on a 1-lot trade would be $71, or the distance between the short and long options ($100) less the credit received ($29).  To risk the desired amount, we’d trade 70 contracts of the first position.  In the second, wider variation, the maximum possible loss on a 1-lot trade would be $902 ($1000 – $98), so to risk the desired amount we would trade 5 contracts. (Since that second variation is actually only risking $4510, I’ll set the first variation to use 63 contracts so that they really are risking the same dollar amount.) To address D.S.’s first point, while it’s true that the second variation brings in a larger credit up front, and while the break-even points at expiration on the second trade are slightly further out, I don’t regard this as a significant factor, for a few reasons. First, I rarely hold trades through to expiration. Secondly, assuming we risk the same amount on each variation, any differences in the nominal credit received will obviously balance out. Finally, the conditions that cause me to exit and enter trades have nothing to do with some fixed profit/loss level, but have everything to do with the various greek exposures I want to maintain. [...]

]]> http://www.condoroptions.com/index.php/options-education/managing-greeks-not-trades/comment-page-1/#comment-599 Iron Condors and Vertical Skew | Condor Options Wed, 17 Jun 2009 18:21:30 +0000 http://www.condoroptions.com/?p=1456#comment-599 [...] Assume we want to risk $5000 on this trade.  In the first variation, the maximum possible loss on a 1-lot trade would be $71, or the distance between the short and long options ($100) less the credit received ($29).  To risk the desired amount, we’d trade 70 contracts of the first position.  In the second, wider variation, the maximum possible loss on a 1-lot trade would be $902 ($1000 – $98), so to risk the desired amount we would trade 5 contracts. (Since that second trade is actually only risking $4510, I’ll set the first trade to use 63 contracts so that they really are risking the same dollar amount.) To address D.S.’s first point, while it’s true that the second variation brings in a larger credit up front, and while the break-even points at expiration on the second trade are slightly further out, I don’t regard this as a significant factor, for a couple of reasons. First, I rarely hold trades through to expiration. More importantly, the conditions that cause me to exit and enter trades have nothing to do with some fixed profit/loss level, but have everything to do with the various greek exposures I want to maintain. [...] [...] Assume we want to risk $5000 on this trade.  In the first variation, the maximum possible loss on a 1-lot trade would be $71, or the distance between the short and long options ($100) less the credit received ($29).  To risk the desired amount, we’d trade 70 contracts of the first position.  In the second, wider variation, the maximum possible loss on a 1-lot trade would be $902 ($1000 – $98), so to risk the desired amount we would trade 5 contracts. (Since that second trade is actually only risking $4510, I’ll set the first trade to use 63 contracts so that they really are risking the same dollar amount.) To address D.S.’s first point, while it’s true that the second variation brings in a larger credit up front, and while the break-even points at expiration on the second trade are slightly further out, I don’t regard this as a significant factor, for a couple of reasons. First, I rarely hold trades through to expiration. More importantly, the conditions that cause me to exit and enter trades have nothing to do with some fixed profit/loss level, but have everything to do with the various greek exposures I want to maintain. [...]

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