Low Risk Options Trading Strategy - Option Spreads

[Capricorn]

Standard practice is to adjust a d/n trade if it skews more than 100 either way.

 

[lazytrader]

Pasha, Dan was buying Ratio spread, with very little of his money. 1 ATM short call, pays for 2 OTM calls. If market opens gap-down, all calls go worthless and u don't loose anything here
cause ur investment is Zero or very low. If mkt opens gap up.. you are happy cause thats what u want to see..

Agreed, if the gap is in our direction. Lets assume we start out with a put spread 1:2. The market goes up so we remove one OTM put and place the call spread.
An unexpected drop down the next day would open up a 100 point loss if it keeps going down.
The whole point of the Paul Forchione method is to keep the trade delta neutral, however I was unable to find any protection against unexpected gaps against the position which could be it's weak point.
I do think Dan is referring to a delta neutral position however more info is reqd to be able to better assess it's potential.
If you read through the Wastej thread you will find that there is no mention of profit% or how he arrived at the adjustment points of 2461, etc. Somehow, nobody asked these critical questions which could have multiplied the thread value.

Hi pasha, in this trade there is no loss on gap down since you are selling a call and buying 2 calls. If gaps down then all will be OTM, if gap up then depending on how far it gaps up you can still make a profit

 

[DanPickUp]

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[AW10]

Agreed, if the gap is in our direction. Lets assume we start out with a put spread 1:2. The market goes up so we remove one OTM put and place the call spread.

Pasha, lets say you sell one 5000 put @ 142, and buy 2 4800 put.@73. Net cost to you 2 Rs..or say 0 for simplicity. It is bearish stratgy .Ratio Put Backspread.

If mkt goes up (against my desired direction), both puts will loose money.. Buy you are not lossing anything as you have not invested anythign here. So why worry about remving OTM put.
Be happy and do something else.

If market goes down.. then 2 OTM 4800 puts will gain more then what we are loosing 1 ATM 5000 PUT.
Dan's approach was to adjust after say market has come down to 4600 levels and protect the profit on this winning trade.

You will be loosing something only when market expires between 5000 and 4800. At that stage, 4800, put will be worth ZERO.. but 5000 short put will cost you something.

An unexpected drop down the next day would open up a 100 point loss if it keeps going down.
The whole point of the Paul Forchione method is to keep the trade delta neutral, however I was unable to find any protection against unexpected gaps against the position which could be it's weak point.
I do think Dan is referring to a delta neutral position however more info is reqd to be able to better assess it's potential.
If you read through the Wastej thread you will find that there is no mention of profit% or how he arrived at the adjustment points of 2461, etc. Somehow, nobody asked these critical questions which could have multiplied the thread value.

IMO, Dan was not talking about delta neutral.

Happy Trading

 

[AW10]

Standard practice is to adjust a d/n trade if it skews more than 100 either way.

I think, this is more of personal choice of trader. Will someone shoot me down if I open a delta neutral trade and adjust it at +/- 50 deviation.

 

[DanPickUp]

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[pasha]

Pasha, lets say you sell one 5000 put @ 142, and buy 2 4800 put.@73. Net cost to you 2 Rs..or say 0 for simplicity.
If mkt goes up (against my desired direction), both puts will loose money.. Buy you are not lossing anything as you have not invested anythign here. So why worry about remving OTM put.

At the point where the market goes against the position, Dan had suggested in page 14 to remove 1 bought put. This is what I'm asking, in the event that the market reversed and went back down.
Dan, a clarification needed here. Are we doing delta neutral positions?

 

[pasha]

Pasha or all the other members of the thread : Do you have some kind of option strategie analyze software which you can use ?

The strategie is more easy to understand, when you can see and understand the analyze picture.

If you have a software, show me a picture from the start of the strategie.

You have to understand and to see the picture, to see where your risk occures. It is the first important key in the puzzle or strategie.

You start with a call or a put back spread.

I will lead you to the end of the strategie, but I will have little time to do that. So, please be patient.

On the other hand, you do not need me.

AW10, lazytrader and capricorn have given you the right answer to see behind the idea. Read theyr last few posts once more and you will understand it.

DanPickUp

Most here are using Options oracle but it is not like Option vue at all. Personally I do not trust it.

 

[pasha]

Hi pasha, in this trade there is no loss on gap down since you are selling a call and buying 2 calls. If gaps down then all will be OTM, if gap up then depending on how far it gaps up you can still make a profit

Hi LT, the original trade starts with selling 1 ITM put and buying 2 OTM. Dan has posted it on page 14.

 

[AW10]

At the point where the market goes against the position, Dan had suggested in page 14 to remove 1 bought put. This is what I'm asking, in the event that the market reversed and went back down.
Dan, a clarification needed here. Are we doing delta neutral positions?

Pasha you are right. He spoke about removing 1 Long put.
Lets look at this way,

start with 1 short 5000 put + 2 long 4800 put = call it ratio backspread.
Same thing u can also view as 1 short 5000 put + 1 long 4800 put + 1 long 4800 put.
So when u squareoff 1 long 4800 put, u are left with 1 short 5000 put + 1 long 4800 put.
This is nothing but a bullish put spread. And it is net credit spread. cause 5000 put is costlier then 4800 put.

As far as I remember, on adjustment he was also selling Bearish spread using CALLS. (I might be wrong). So effectively, he has sold 1 bullish spread, and 1 bearish spread.. and both are Credit. So it is sort of Iron condor position.

Iron condor is popular income generating strategy. but instead of selling both the spreads at open, he is adjusting Ratio spread into Iron condor.

Happy Trading