1. Try clicking on the name of the most recent article in the column on the right. This will remove the "Archives" list.
2. Try right click on the chart itself and open it on a separate window.
I am sorry that I cannot always make the chart small enough to fit neatly on the left column. I want you to be able to see the details I want to point out.
I Hope this helps,
Juan
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Here is Varum's trade. I believe it merits some discussion. For what I gather it is an OTM call butterfly and an OTM put calendar.
12 comments:
Thanks for posting the trade. It is a butterfly and calendar put together. What is interesting about the trade is the breakeven point 147.05-170.74
This is an actual trade I got in today, which I want to use as a case study for us to learn.
Hi Varum.
Why do you chose a calendar and a butterfly of all things?
what are your expectations as far as volatility?
I gather that you are bullish.
Thanks for your contribution.
Looks like a LTB ;)
IV tends to fall as stocks rise, hence the fly on top. IV tends to rise as stocks fall, hence the calendar below.
That's the basis of a LTB trade. It's similar to a dragonfly except that it's replaced with a calendar below.
However, i do notice something with oil that might invalidate this type of trades. Not sure if the rest notice this, but IV of oil stocks tends to rise when oil rises. Stark contrast from the norm.
You are spot on. I didn't realize about OIH exposure on vega was reverse.
Even though the trade is long vega, due to the fact we have OTM Butterfly (on call side) we are reducing the Vega exposure. The lowest point of Vega is around 160. On the Put Side we are exposed to Vega exposure. These trades are not good for really bullish or bearish stocks, but for generally range bound trading.
With Dragonfly we are limiting the vega exposure on both sides.
Another variation of the trade is if you are bullish on OIH you change the ratios of OTM butterfly
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Recap From Previous Post:
My expectation is for OIH to move to 160 or higher before coming down
The concept is not mine. Need to give where the credit is due. An optionetics instructor I have not met (Eloy) has used these kind of trades with success.
Also note when Ratio spreads are traded, the question is what if we are wrong. Reason I put it as a butterfly is minize by capital outlay, or else I could have done a CRC
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Lee and Varum
Thanks for all the info.
Since I like to emphasized the "system" and not just the "strategy", next, we should comment about the specific situation in which this trade would yield the best results.
¿What are the triggers that would make you choose this trade at a particular time? ¿Can we search for those opportunities using Platinum or iqCharts or Yahoo?
By doing this we could backtest the system and see if it works consistently.
The Laughing to Bank (LTB) trade was first mentioned by Eloy during last year's OASIS. I think he will be doing a refinement on this again.
The concept of adjustment is very similar to Juan's dragonfly. Open up the respective sides when trend starts. In fact, i would say, it is exactly the same criterion as the dragonfly except that this is done best on stock with IV at the lower-middle range.
Btw, anyone here attending OASIS 06?
Lee, two comments about Dragonfly vs. LTB.
The "Dragonfly" means to me that you enter a double butterfly with the long-term perspective (usually 1 year) that the stock will move sideways.
The LTB is short-term for what I can tell. In comparison to the Dragonfly, the LTB gives me a narrower sour spot, which is attractive in my mind. The function of volatility sounds critical here too. I would agree that when stocks fall, they usually do in high volatility, but there is never absolutes.
Again, we should focus on how to choose candidates for any trade. Knowing the strategy, per se, offers no better chance of success than tosing a coin (in my mind), but when you begin to recognize the situations in which the trade works best, then we begin to have improved returns. That is where creativity and experience comes in. You can gain a lot of experience without trading a dollar, if you use Platinum for backtesting your theories.
For what I can tell on Varum's suggestion, OIH is about to make a double top. This usually result in a jump to new highs or a strong reversal. It will be interesting to see what happens with volatility in a double top situation.
I have never attended OASIS. Based on my understanding on the discussion board this is what I got.
1) Good for stocks which has movement, with a bullish bias
2) Volatility risk is limited due to OTM fly on call side
I have also seen the trades being entered more from a longer term perspective, generally 5-8 months out (By Eloy). I prefer the shorter time frame as I am not patient enough to wait for the options to make me money. (Just a personal prefrence)
I was thinking to use the same system of finding the stock for which Juan has (high fliers). Then enter the trade via OTM Butterfly and OTM Calendar.
The research I started doing was based on the problem we had with DNA, on volatility drops with stock going down. Then stumbled on this concept via the discussion board.
Probable trades which I have backtested are as follows:
1) Sunoco
2) Broadcom
3) Apple etc.
Again this is all I have now is only the strategy to manage the trade, not the system. I like the following systems on finding good trades
1) Juan's High Fliers
2) Tom G. volume spike
3) Volex
4) George's 5 minute formula
Also I wanted to add one more thing. During summer periods the volatility generally drops, trading this way we protect our trades.
I am learning from you as well. Hopefully this case study I put forward can be a rewarding experience for all of us
We should consider this for momentum stocks that do not fit the PCCRC profile because their volatility is high, and likely to decrease.
My examples right now would be AKAM and AMLN....
What do you think?
This are high fliers with high volatility. We could back test this system under the "high flier" approach.
I couldn't get the nice looking graph, which I was able to get with OIH.
I have done a number of backtesting on LTB before. As you have said, this is best for high fliers. In fact, Eloy has done this successfully with AAPL a couple of times.
I notice for my backtest that the best type of stock charts for such trades would look like a EW5, attempting to break previous high. LTB risk graph for such stock patterns are usually the better ones.
Let me go thru my platinum folders and see if i can send you guys something thru email.
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