Murthy is correct.   Gis has a short box and has locked in a $100 loss if he holds it to expiration.   The shorts are too close in to adjust into a traditional DD, but if I read Gis correctly he is looking to calendarize the box.   I'm surprised Gis would ask this advanced question in this forum.

 

Neal  

 

-------------- Original message --------------
From: Murthy Nyayapati <thinker65@...>

Gis,

 

Hmmm. Not my style of trading, but hey it's your money and more importantly your time. Who ever your broker is, they will be a very happy!

 

Here is my analysis (please correct if I am wrong anywhere. It is easy to make a mistake, so excuse me in advance):

 

Price

700   1 Long Call  and  1 Short Put

690   1 Short Call  and 1 Long Put

 

This position is a FIXED $100 loss!! Yes, sir. You got $900 and no matter where RUT ends up, you will lose $1000, yes including in the middle - think about it! So the net loss is $100.

 

620   3 Short Put

610   3 Long Put

 

Well, you got $100 (total $300 for 3 contracts) for this trade. I hope you do realize that you could have potentially lost $2700 (which you still could, if RUT tanks below 610 in the next one week). I don't know were RUT was when you entered the trade, so you got lucky. Not my idea of a good risk/reward ratio.

 

On a single contract basis, you made nothing after all that work (now your profit potential is just $200). Much ado about nothing.

 

You bet on RUT going up and that's what is making you money. You could have entered a simple bull call spread where your risk/reward would have been more defined.

 

I don't get the "I will do fine" and "milk that position a bit more" comments. Sorry, if I am missing something.

 

Murthy

----- Original Message ----
From: gismeu <gismeu@...>
To: OptionClub@yahoogroups.com
Sent: Wednesday, April 9, 2008 12:52:59 PM
Subject: [TheOptionClub.com] saving Theta

Hi,

following question, I am trading the RUT

I had 3 April put credit spreads put on (short 620 and long 610) for a
credit of $100 each. When the RUT dropped too far down, I sold one
690/700 call credit spread against it for a credit of $500.

RUT went up all the way to 720 and today came down to a bit below 700.
That I used to turn that call position into a box by putting on the
April put 700/690 for a credit of $400.

So together with the 3x 620/610 put credit spreads I will do fine.

However, I have been thinking about Theta of my long box options and
wondered if I couldn't milk that position a bit more?
If I turn that box into what is called I believe a Double Diagonal and
move the long options further out in time, is that not a trade where I
can't loose?

If the RUT closes between 700 and 690, then I roll the short options
out too, otherwise I have to close.

Am I right in my thinking?

Many thank s for any help, gis

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