Monday, February 23, 2009

Paper Trade Time Again

The March 195 straddle in SKF is "72 bid".

There are 26 days until expiration.

I say we short it.


Taylor Conant said...


Zero-percent of this post was comprehensible for me. I don't know what a straddle is, I don't understand the expiration (I think I understand this is an option contract) and I don't know why you decided to short it.

Can you explain? I feel really stupid and would like to better understand posts in which you describe straddles.

ps. I cashed out of all my UltraShorts except for SKF (I wasn't quick enough and the market closed before I got the order off). So, I am out of SDS, DXD, QID and SRS today, still have a position in SKF, I have a long-running position in FXY and I bought a small position in SWC today. I'm trying to figure out how I can avoid the ETF decay and still be positioned in the ultrashorts to profit from this inevitable crash... any suggestions? I am going to be angry if the market goes down and I don't get a nice piece of it for my troubles!

Anonymous said...

are you suggesting that you *write* a straddle? That is, sell a call and a put?

CaptiousNut said...

Short it, sell it, whack it, write it,....all refers to the same trade.

We are selling the call and the put.

Since it's a *paper trade*, we are doing it in SIZE.

-5000 SKF Mar 195 calls
-5000 SKF Mar 195 puts

for a credit of $36,000,000.


Get to work. Draw a P&L graph if at expiration, the underlying closes at 195, 180, ...., 210, 250, ....

X-axis = stock price
Y-axis = Profit/Loss

Where are your *breakevens*.

I taught myself this stuff when I was 21. I'd hate to spoon-feed you the answers and deprive you of this auto-educational opportunity.

Remember when we shorted the OSX straddle?

Taylor, this isn't a high level math thing either. If you saw all the barely high school-educated clowns in the trading pits trading straddles (and far more complicated spreads) you'd be disabused of any notion that this is beyond your ability to readily understand.

Nice work on your shorts. Though I suspect you may have held that QID too long. Did decay get you there?