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CXMelga

RIC (or short butterfly) and IC together

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After reading another of Kim's excellent posts (Kim, you have a good writing style, explain things nicely)

The following came to my mind, and wanted to know what people think (don't worry I have been called an idiot before)

If you did 

 

 

 

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sorry, did not complete the above

if you did a 

RIC (perhaps with very tight strikes/short butterfly SBF) and an IC together on the same stock XYZ

if XYZ does not move that much in either direction you win on the IC but loose on the RIC/SBF

if XYZ goes outside the short strikes of the RIC (or SBF) but 'not' path the IC short strikes you make on all positions

if XYZ goes beyond 'one leg' of the IC, you win on the RIC (or SBF) and lose on 'one' leg of the IC

I am just thinking (providing the buyers are there for the relevant strikes) if you have a stock with medium volatility in price action (moves up and down in a reasonable range but not too wild you may be able to get your strikes right to win on both, on one trade.

What do you thing ?

Thanks

CXMekga 

 

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2 hours ago, CXMelga said:

sorry, did not complete the above

if you did a 

RIC (perhaps with very tight strikes/short butterfly SBF) and an IC together on the same stock XYZ

if XYZ does not move that much in either direction you win on the IC but loose on the RIC/SBF

if XYZ goes outside the short strikes of the RIC (or SBF) but 'not' path the IC short strikes you make on all positions

if XYZ goes beyond 'one leg' of the IC, you win on the RIC (or SBF) and lose on 'one' leg of the IC

I am just thinking (providing the buyers are there for the relevant strikes) if you have a stock with medium volatility in price action (moves up and down in a reasonable range but not too wild you may be able to get your strikes right to win on both, on one trade.

What do you thing ?

Thanks

CXMekga 

 

I can see what you are shooting for with this, but I see one potential problem.   With your RIC being close to ATM, the risk/reward setup for it will not be good - it winds up costing a lot as a percentage of the wing width, 3.50-4.00 for a 5-wide RIC when using ATM strikes.  When paying that much for the RIC, the gains will grow slower as the stock price moves and there is only so much the price can increase.   So ....

  • if you get a big stock price move your IC losses could easily equal or exceed RIC gain.
  • if the stock doesn't move then IC gains and RIC losses would counteract each other to a large degree so your max gain% would likely be pretty low.
  • you can potentially move your RIC strikes out,  but then you have a situation where a lot of the gains in one trade are counteracted by losses in the other.

Also, you now have an 8-leg trade with more chance for slippage and more commissions.   I

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Thanks very much for the replies Yowster and SBatch

As I have very recently started learning I get these crazy ideas pop into my head as I learn about the different strategies (at the end of the day all a combination of puts or call)
I will have to be careful otherwise I will turn into a gun gunslinger with a ten gallon hat, and that is a shore fire way to lose money (unless you consistently an extremely luck person, and unfortunate I am not) 

 Thanks all on my quest for knowledge 

CXMelga

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