3-d Option Combination 2012

[Options-trader 10]

I propose you to observe the process of my next option combination conducting.

Size of investment - 50,000$. For purchase straddle i put no more than 2/3 total amount of investment. The remained sum is necessary for management of a combination.

Today i opened long straddle of The Goldman Sachs Group (GS).

It has been bought 40 contracts of AUGUST'12 95 PUT (3.90$) and 40 contracts of AUGUST'12 95 CALL (4.45$). In purchase it has been spent: 8.35*100*40=33.400$

Further i will conduct the combination.

[Options-trader 10]

I propose you to observe the process of my next option combination conducting.

Size of investment - 50,000$. For purchase straddle i put no more than 2/3 total amount of investment. The remained sum is necessary for management of a combination.

Today i opened long straddle of The Goldman Sachs Group (GS).

It has been bought 40 contracts of AUGUST'12 95 PUT (3.90$) and 40 contracts of AUGUST'12 95 CALL (4.45$). In purchase it has been spent: 8.35*100*40=33.400$

Further i will conduct the combination.

 

The price of the share is about $101.30. It is necessary to advance the combination. So i bought 40 contracts of SEPTEMBER'12 100 PUT (3.75$)

In purchase of third position has been spent: 3.75*100*40=15.000$. Total investment to the combination is 48.400$.

[Pippovic 10]

Hi Options-trader,

 

Is it possible to put a P/L chart here for your position?

The way I read it you now LONG 80 contracts on the PUT side (AUG95 and SEP100) and 40 on the AUG95 CALL side. If I visualise this, the P/L chart looks very skewed to the bearish side. To me it looks like a lot of risk, should GS continue to rise in the next 2 months and it is currently trending bullish.

 

Straddles can be good in Earnings season and there is always the possibility for the stock to gap up or down. But I think the earnings announcement for GS is not known yet: GS Company Events | Goldman Sachs Group, Inc. (The) Stock - Yahoo! Finance

 

I have also checked the volatility on GS and the Implied Volatility for both August and September is lower than the Historical Volatility. This could imply that the stock is slightly bullish.

 

All together it looks to me like a risky trade, so it would be good to see on a chart what the max loss and profit are in your current position.

 

Thx!

[Options-trader 10]

Hi Options-trader,

 

Is it possible to put a P/L chart here for your position?

The way I read it you now LONG 80 contracts on the PUT side (AUG95 and SEP100) and 40 on the AUG95 CALL side. If I visualise this, the P/L chart looks very skewed to the bearish side. To me it looks like a lot of risk, should GS continue to rise in the next 2 months and it is currently trending bullish.

 

Straddles can be good in Earnings season and there is always the possibility for the stock to gap up or down. But I think the earnings announcement for GS is not known yet: GS Company Events | Goldman Sachs Group, Inc. (The) Stock - Yahoo! Finance

 

I have also checked the volatility on GS and the Implied Volatility for both August and September is lower than the Historical Volatility. This could imply that the stock is slightly bullish.

 

All together it looks to me like a risky trade, so it would be good to see on a chart what the max loss and profit are in your current position.

 

Thx!

 

Hi Pippovic,

 

i do not use P/L charts in trading. I use a distinctive approach to risk assessment. Delta of the call is about 0.80-0.90, delta of the puts is about 0.60. So in case of rising of the share the total cost of combination will rise.

Total expenses to combination per unit are 8.35+3.75=$12.05. If the share will reach $105.50 before AUGUST'12 95 CALL will expire the cost of combination will return all the expenses.

In my opinion buying straddles before Earning is more risky, because premiums of options are overestimated. And the share can remain near the strike after Earning.

 

Thanks!

[Pippovic 10]

Thanks very much for the explanation.

Personally I need a chart to visualise the P/L, so it's pretty impressive that you assess risk based on the deltas.

 

You are right about premiums with trading earnings via a straddle/strangle, unless you buy this way in advance, that's why I mentioned that it CAN be good but if there are no movements or the movements are not big enough, you can get burnt...like me in the past....

 

If IV stays around the same, you'll be making some good profit if GS moves over 105.50 or under approx 92.

 

Could I just ask how you got to choose specifically GS for a straddle?

I would have expected it just to be bullish, and there are enough other strategies for that.

 

Look forward to the updates.

 

Pippovic

[Options-trader 10]

Thanks very much for the explanation.

Personally I need a chart to visualise the P/L, so it's pretty impressive that you assess risk based on the deltas.

 

You are right about premiums with trading earnings via a straddle/strangle, unless you buy this way in advance, that's why I mentioned that it CAN be good but if there are no movements or the movements are not big enough, you can get burnt...like me in the past....

 

If IV stays around the same, you'll be making some good profit if GS moves over 105.50 or under approx 92.

 

Could I just ask how you got to choose specifically GS for a straddle?

I would have expected it just to be bullish, and there are enough other strategies for that.

 

Look forward to the updates.

 

Pippovic

 

Hi Pippovic,

 

I do not assess risk based on the deltas. Deltas allows me understand how change cost of combination if the share rise or down.

I use a special approach to an assessment. Here i can explain some elements. Before opening straddle i determine when should buy third

position. Also i determine price levels of the share when i need to close the combination or conduct it. For determine suitable price of straddle

i use special technical indicator of the share and historical pricies of straddles "At-the-money".

[Options-trader 10]

Today i have closed 40 contracts of AUGUST'12 95 CALL (7.80$) and have bought 40 contracts of SEPTEMBER'12 105 CALL ($2.60). Total investment to the combination was reduced to $27.600.

[Options-trader 10]

To balance calls and puts i have bought 40 contracts of OCTOBER'12 100 PUT ($2.35). In purchase of third position it has been spent: 2,35*100*40=$9.400. Total investments to the combination is $37.000.

[Options-trader 10]

The share came close to $113. So i have closed the combination: SEPTEMBER'12 105 CALL - $8.05 and OCTOBER'12 100 PUT ($0.97). The loss of combination is $920 or 2%.