The edge the way I see it: If you initiate the original diagonals at intrinsic value for the long options. You keep the premiums from the weekly short options. At IB I can call then put 100 shares of stock for $1.00 and get my intrinsic value back. But one may have to adjust the short options during the week to stay profitable.
I do not have any results yet to back up my hypothesis.
The following 2 users say Thank You to Tiberius for this post:
I did a rough analyzes from the idea. I do that to see and understand clearly with what I deal. In this case it is a combination of a diagonal put and a diagonal call . If I would implement that strategy, I would have to treat each side ( Diagonal call and diagonal put ) separately.
As the strategy deals with sold options, volatility is a very important point to watch. If the option volatility falls and we are not aware of that, we will get in troubles. Better would be if the option vola would rise. Following a few screen shots, which give a rough picture about the above comments and the Stuud strategy.
That is the same position after option volatility rised: http://i40.tinypic.com/23w07sp.png ( We are far more above the zero line compare to the last picture. By the way: Being and coming over the zero line is the main target in any option strategy which is implemented )
Analyze picture from the diagonal call : http://i41.tinypic.com/6r7hj9.png ( You see, that the right foot has moved up and is more near the zero line compare to picture two and three. This happens because of the different risk profile from a pure diagonal call compare to the whole Studd idea ).
Have a nice weekend
Last edited by Delta_Panther; January 15th, 2012 at 03:46 AM.
Reason: In jargon they are called : Diagonals and not calendars. It is a bit like blue and bluish.
The following 3 users say Thank You to Delta_Panther for this post:
Yes, you are very right and thanks to mention it. In jargon, there is a diagonal call and there is a calendar call and we should not confuse them. I changed the names now in the mentioned post from you to diagonals, as we must be correct with names. There are so many names for option strategies and often the name changes when nearly nothing is changed in the strategy by it self..Here we only change the name because the long term options is itm and not atm like the short term options.
In jargon, for a diagonal call we use long term deep in the money calls ( which substitutes the share ) and sell short term higher strike calls. And this exactly is what is shown here: http://i40.tinypic.com/n1weu9.png
( As I did a rough analyzes, I only recognized the short term and long term option and valued it as calendar spread with out thinking about the itm options and atm options. Sorry, my mistake )
Even than, it doe's not change any thing the way I look at the strategy. The different names of the spreads mean nothing to this view. It is like moving from blue to bluish and nothing more or less.
The risk profile in any strategy is one primary point and the way the strategy is implemented in the market is an other primary point.
Last edited by Delta_Panther; January 15th, 2012 at 03:58 AM.
The following user says Thank You to Delta_Panther for this post:
Thanks @Delta_Panther. I am going to work with this aspect of IB TWS with your suggestions and drill down in the user guide. I am going to leave this window open during by trading day to adjust if I must. I am currently in Florida, USA. Thank you warm weather.
Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).
My other Stuud strategy.
The following 2 users say Thank You to zsike for this post: