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Volatility, Smile, Frost Strategy *PIC*

KC EOD Straddles: (N 11940)
M EXP 119.40
N 120 strd 465/495, 18.3% -0.5%
Q 122.5 strd 750/790, 19.1% -0.5%
U 122.5 strd 980/1020, 20.7% unch
Z 125 strd 1475/1525, 21.4% unch
H 127.5 strd 1890/1950, 22% unch

DF EOD Straddles: (N 1759)
N 1750 strd 78/86, 17.7% -0.3%
U 1750 strd 118/128, 17.25% -0.2%
X 1750 strd 150/162, 17% -0.15%
F 1750 strd 178/192, 17.15% unch

There are many ways of going long with options. Some setups are very aggressive and carry the most risk while some are moderately so. Traders in the forum have stated that its too early to consider a frost strategy. But the following can be implemented any time and prepares a trader for either a damaging frost as well as the negative reaction of the market if winter is mild. What I often do to prepare for such uncertain circumstances is to set up the following position:

As an example, I would buy puts in Sep and buy futures against them as my delta would require. I would possibly buy 10 Sep 120.00 Puts at 3.91 which carries a delta of .42 and so I would buy 4 Sep say at 121.70. These figures are all based on Friday’s settlements. If the market were to rally the futures part of the strategy would come into play, and if the market were to drop the puts would become the profitable position. This strategy can also be implemented by buying calls and selling futures. It is a synthetic straddle. Whichever, the delta can be traded by increasing the hedge as the market drops and reducing it as prices rise. Out of the money puts and/or calls can be sold to defray the cost. Striking prices can be chosen based on market expectations. As a regular activity, with or without implementing such a strategy, I buy calls and sell puts when I feel that the market has bottomed and sell calls and buy puts when I feel that the market is topping. Many trade futures based on the possibility of an event but I choose not to make decisions based on possibilities. Nagual, who was once a Black Jack dealer, will tell you that you can either stand with 17 or ask for another card. Trade the probable and not the possible.

Messages In This Thread

Volatility, Smile, Frost Strategy *PIC*
Re: Volatility, Smile, Frost Strategy
"Very interesting post Tango" *PIC*
Re: "Very interesting post Tango" (dirt)
Re: "Very interesting post Tango" (dirt) *PIC*
Re: "Very interesting” (CoffeeSpec12)
"right before #COFFEE prices tripled" *PIC*
Re: "right before #COFFEE prices tripled"