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  #21 (permalink)  
Old 28-03-2009, 05:53 PM
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option neutral strategy

Neutral Options are a very sound strategy in options trading.
They combine balanced risk and reward ratio with a high probability of profit
and wide profit zone.

Neutral options come in three main flavors: short strangles & straddles, butterflies, and iron condors.

Short strangle/straddles usually require very large account margins but provide the highest probability of profit
and have unlimited risk. Butterflies are four option spreads using all calls or all puts. Iron condors
are four option spreads which combine both calls and puts.

Here are the six option spreads that we will be using for neutral options strategies:

Short Straddle = Sell at the money call (sac) + Sell at the money put (sap)
Short Strangle = Sell out the money call (soc) + Sell at the money put (sop)
Butterfly Call = Buy out of the money call (boc) + Sell 2 at the money calls (2sac) + buy in the money call (bic)
Butterfly Put = Buy out of the money put (bop) + Sell 2 at the money puts (2sap) + buy in the money put (bip)
Iron Condor = Buy out of the money call (bop) + sell at the money call (sac) + sell at the money put (sac) + buy out of the money put (bop)
Iron Condor (flat) = Buy further out of the money call (bOp) + sell out of the money call (soc) + sell out of money put (soc) + buy further out of the money put (bOp)
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  #22 (permalink)  
Old 28-03-2009, 08:36 PM
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BUTTERFLY SPREAD WITH REAL EXAMPLE

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Last edited by alex; 28-03-2009 at 11:29 PM. Reason: correction in quantity
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Old 28-03-2009, 11:06 PM
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@ Alex

The quantity tab in options oracle has to be edited to 50 for longs and 100 for the shorts. [It selects default of 1]

Oracle doesn't not take the lot size into account. That will give you a correct picture in returns computation
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  #24 (permalink)  
Old 28-03-2009, 11:17 PM
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Originally Posted by xyte View Post
@ Alex

The quantity tab in options oracle has to be edited to 50 for longs and 100 for the shorts. [It selects default of 1]

..
Oracle doesn't not take the lot size into account. That will give you a correct picture in returns computation

oopsss sorry preoccupied had to edit all msg again ...you right xyte 2 quantity shd read as 100; will edit likewise thanks for correcting
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Last edited by alex; 28-03-2009 at 11:24 PM.
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  #25 (permalink)  
Old 29-03-2009, 12:02 AM
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sat da's excellent excel on options waiting here
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  #26 (permalink)  
Old 29-03-2009, 12:22 AM
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Nice alex.

this one from my side, ( alredy tested twice with feb-march and march-april contracts) a mixture of straddle and calender
( This should be applied in case if u think Volatilty in middle Month is not going to increase much from Near month levels )

Sell Middle Month ATM Call (SMMAC) + Sell Middle Month ATM Put (SMMAP)+
Buy Near Month OTM Call (BNMOC) + Buy Near Month OTM Put (BNMOP)



for best result choose value as
Let us say

ATM Call Strike = ACS..............and its value ACV [Middle Month]
ATM Put Strike = APS..............and its value APV [Middle Month]
OTM Call Strike = OCS.............and its value OCV [Near Month]
OTM Put Strke = OPS..............and its value OPV [Near Month]

OCS - ACS = APS - OPS = D (say)..........[ensures eqaul distance from ATM]
(ACV+APV) - ( OCV+OPV) = V
V > D

and even better if
V-D ~ 3% of ACS ( or APS)

For example



Best time to initiate and squareup:
A) As soon as Middle Month ATM options start traded with reasonable Bid-Ask Spread
B) After a huge trend move, following pending consolidation or retrace a littile
C) At a Spot value which perhaps ( going to be) nears the middle of True Range prevailing on monthly basis.( this is trickiest job and out of our hand)
D)Sqaure up in last week of Near Month or before(if get a profit approx 0.7-1% of ACS or so).

Note : Risk involve is low ( also reward) but probabilty of winning is high.

Last edited by devdas; 27-06-2009 at 09:57 PM.
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  #27 (permalink)  
Old 29-03-2009, 04:18 AM
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Originally Posted by deuterium View Post
Nice alex.

this one from my side, ( alredy tested twice with feb-march and march-april contracts) a mixture of straddle and calender

Sell Middle Month ATM Call (SMMAC) + Sell Middle Month ATM Put (SMMAP)+
Buy Near Month OTM Call (BNMOC) + Buy Near Month OTM Put (BNMOP)



for best result choose value as
Let us say

ATM Call Strike = ACS..............and its value ACV [Middle Month]
ATM Put Strike = APS..............and its value APV [Middle Month]
OTM Call Strike = OCS.............and its value OCV [Near Month]
OTM Put Strke = OPS..............and its value OPV [Near Month]

OCS - ACS = APS - OPS = D (say)..........[ensures eqaul distance from ATM]
(ACV+APV) - ( OCV+OPV) = V
V > D

and even better if
V-D ~ 3% of ACS ( or APS)

For example



Best time to initiate and squareup:
A) As soon as Middle Month ATM options start traded with reasonable Bid-Ask Spread
B) After a huge trend move, following pending consolidation or retrace a littile
C) At a Spot value which perhaps ( going to be) nears the middle of True Range prevailing on monthly basis.( this is trickiest job and out of our hand)
D)Sqaure up in last week of Near Month or before(if get a profit approx 0.7-1% of ACS or so).

Note : Risk involve is low ( also reward) but probabilty of winning is high.


delta +37.76 -39.82
most option neutral strategies are delta neutral strategies... your method somewhat fall in same line and that denotes low risk scenario
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  #28 (permalink)  
Old 01-04-2009, 06:02 PM
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D,

This Mixture of Straddle & Calendar,when do you advise to employ this Strategy ?

Asish
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Old 01-04-2009, 06:09 PM
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waiting for satda to enter the lounge with his paraphernalia
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  #30 (permalink)  
Old 01-04-2009, 06:28 PM
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Originally Posted by uasish View Post
D,

This Mixture of Straddle & Calendar,when do you advise to employ this Strategy ?

Asish

calender spread should be ideal before last week of expiry.
Shorting straddle wd be ideal before important announcement.Ex. result announcement of a company or before releasing important economic announcement which is widely expected, at such times most option buyers buy strangle and hence the risk premium is greater cuz of likely volatility after the announcement option premium is much much higher.You short the straddle just before the key data and cover afterwords when volatility subsides.( technical words - vega strategies )
I have done many time before budget, ( few guys i knew who like to short straddle of some perticular company, wont be appropriate to reveal the names of such companies as its their pie but one comes up is hind liver, now a days its nt working )
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