Ds Condor Adjust

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Sheridan Options Mentoring, Inc.www.SheridanMentoring.com

Mar 31, 2011Mar 31, 2011

Income Strategy AdjustmentsIncome Strategy Adjustments

for the Downsidefor the Downside

Dan SheridanDan Sheridan


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PagePage 22@ Copyright 2010. All rights reserved.

Options involve risks and are not suitable for all investors. Prior to buying or selling an option, a

person must receive a copy of Characteristics and Risks of Standardized Options. Copies are

available from your broker, by calling 1-888-OPTIONS, or at www.theocc.com. The information in

this presentation is provided solely for general education and information purposes. No statement

should be construed as a recommendation to buy or sell a security or to provide investment advice.

Supporting documentation for any claims, comparisons, statistics or other technical data in thispresentation is available at Sheridan Options Mentoring ([email protected]). Past

performance is not indicative of future results. Parameters relating to past performance of strategies

discussed are not capable of being duplicated. In order to simplify the computations, commissions,

fees, margin interest and taxes have not been included in the examples used in this

presentation. These costs will impact the outcome of all stock and options transactions and must be

considered prior to entering into any transactions. Multiple leg strategies involve multiplecommission charges. Brokerage firms may require customers to post higher margins than the

minimum margins specified in this presentation. Investors should consult their tax advisor about

any potential tax consequences. The views of third party speakers are their own and do not

necessarily reflect the views of Chicago Board Options Exchange, Incorporated (CBOE). CBOE is

not affiliated with Sheridan Options Mentoring. This presentation should not be construed as anendorsement or an indication by CBOE of the value of any non-CBOE product or service described

in this presentation.

DisclaimerDisclaimer


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Download The Presentation Slides!Download The Presentation Slides!

You can download the slides here:

http://www.sheridanmentoring.com/x/cboe22


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Portfolio PlanPortfolio Plan

SpeculativeStrategies

Long TermStrategies

IncomeStrategies


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Portfolio PlanPortfolio Plan

Long Calls/Puts,

Diagonal SpreadsOTM ButterfliesVertical SpreadsDirectional CalendarsLong Straddles

Calendar SpreadsDouble Calendar SpreadsDouble DiagonalsATM ButterfliesCondors

CollarsLEAPSCovered Writes/StraddlesLong Stock

Long Term Calendars


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How to Scale to a Larger TradesHow to Scale to a Larger Trades

and Run a Successful Option Businessand Run a Successful Option Business

Month Size

LiveTrades

PerMonth

Monthly

Profit

16 $10,000 34 Breakeven

712 $20,000 34 atleast3%

1318 $40,000 34 45%

1924 $80,000 3

4 4

7%

How many different strategies should I trade?

How many different vehicles should I trade?

Should I do the same trade every month?

How important is it WHEN you enter a trade?

How much money will I make?


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Asset AllocationAsset Allocationfor Monthly Income Tradesfor Monthly Income Trades


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VIX 15 to 19VIX 15 to 19

60% Long VEGA and 40% Short VEGA60% Long VEGA and 40% Short VEGA

z $10,000 Portfolio $1000 in cash for adjustments

z $5400 in Calendars and Double Diagonals

z $3600 in Condors, credit spreads and Butterflies

z

3-5 trades per month


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70% Short VEGA and 30% Long VEGA70% Short VEGA and 30% Long VEGA




z



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60% Short VEGA, 40% Long VEGA60% Short VEGA, 40% Long VEGA




z



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Credit Spread TradersCredit Spread Traders SPX Price ChartSPX Price Chart

Date: 3/16/2011Date: 3/16/2011 SPX Price: $1256.88SPX Price: $1256.88


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Credit Spread Before Down MoveCredit Spread Before Down Move

With No AdjustmentWith No AdjustmentDate: 3/8/2011Date: 3/8/2011 SPX Price: $1321.80SPX Price: $1321.80

Options Price IV Delta Trade

1280 Puts $17.10 19.7% -26.0 101270 Puts $14.90 20.3% -22.7 +10

APR(38)

Delta 33.1

Gamma -0.4

Theta 11.0Vega -85.6

Credit 2,200

Margin 7,800

Warning Signs: When the spread is starting to go bad

1. Delta of short

2. IV of short increases 10%

3. P/L down 30%-50% of max loss


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Credit Spread Before Down MoveCredit Spread Before Down Move

With No AdjustmentWith No AdjustmentDate: 3/8/2011Date: 3/8/2011 SPX Price: $1321.80SPX Price: $1321.80

How important is todays (T+0) graph?


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SPX from 1322 to 1257 in 8 Days!SPX from 1322 to 1257 in 8 Days!


Options Price Orig Pr IV Delta Trade1280 Puts $45.50 $17.10 19.7% -58.9 101270 Puts $40.40 $14.90 20.7% -54.0 +10

APR(30)

Delta 49.0

Gamma -0.1

Theta -45.6

Vega 42.7

Loss 2,900Margin 7,800

8 Days Later Starting Price $1321.80


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SPX from 1322 to 1257 in 8 Days!SPX from 1322 to 1257 in 8 Days!

Date: 3/16/2011Date: 3/16/2011 SPX Price: $1256.88SPX Price: $1256.888 Days in Trade Starting Price $1321.80


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Adjustment #1: Add a Long PutAdjustment #1: Add a Long Put



1280 Puts $17.10 19.7% -26.010

1270 Puts $14.90 20.3% -22.7 +101220 Puts $7.60 23.5% -11.5 +1

APR(38)

Delta 33.1

Gamma -0.4

Theta 11.0

Vega -85.6

Credit 2,200

Margin 7,800

Without Long PutWithout Long Put

Delta 21.5

Gamma -0.2

Theta -18.8

Vega 10.7

Credit 1,440

Margin 8,560

With Long PutWith Long Put


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Adjustment #1: Add a Long PutAdjustment #1: Add a Long Put



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Long Put Cuts LossesLong Put Cuts Losses



1280 Puts $17.10 19.7% -26.0

10

1270 Puts $14.90 20.3% -22.7 +101220 Puts $7.60 23.5% -11.5 +1

APR(30)

Starting Price $1321.80

Delta 16.0

Gamma 0.3

Theta -104.0

Vega 177.2

Loss 1,310

Margin 8,560

Delta 49.0

Gamma -0.1

Theta -45.6

Vega 42.7Loss 2,900

Margin 7,800

With Long PutWith Long PutWithout Long PutWithout Long Put

8 Days in Trade


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Long Put Cuts LossesLong Put Cuts Losses



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Adjustment #2: Directional ButterflyAdjustment #2: Directional Butterfly


Options Price Orig Pr IV Delta Trade Adj New

1290 Puts $22.80 18.0% -37.7 +10 +101280 Puts $20.30 $17.10 19.1% -33.1 10 10 201270 Puts $17.60 $14.90 19.8% -29.0 +10 +10

APR(35)

Delta 41.5

Gamma -0.4

Theta 4.5

Vega -68.2Loss 500

Margin 7,800

Delta -4.6

Gamma 0.0

Theta 15.2

Vega -17.1Loss -500

Margin 300

Before AdjustingBefore Adjusting After AdjustingAfter Adjusting

Starting Price $1321.803 Days in Trade


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Adjustment #2: Directional ButterflyAdjustment #2: Directional Butterfly

Date: 3/11/2011Date: 3/11/2011 SPX Price: $1304.30SPX Price: $1304.303 Days Later Starting Price $1321.80


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Stock Down More: Why Still Profitable?Stock Down More: Why Still Profitable?


Options Price Orig Pr IV Delta Trade

1290 Puts $35.00 $22.80 19.6% -49.5 +101280 Puts $31.00 $18.70 20.5% -44.2 201270 Puts $27.50 $14.90 21.4% -39.3 +10

APR(31)

Delta -4.1

Gamma 0.0

Theta 8.9

Vega -24.9Profit 200

Margin 300

Original Margin 7,800



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Stock Down More: Why Still Profitable?Stock Down More: Why Still Profitable?



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Stock Continues Lower: Still Profitable?Stock Continues Lower: Still Profitable?



1290 Puts $50.70 $22.80 18.4% -64.2 +101280 Puts $45.50 $18.70 19.8% -59.2 20

1270 Puts $40.40 $14.90 20.8% -54.3 +10

APR(30)

Delta -0.9

Gamma -0.1

Theta 21.3

Vega -22.4Profit 200

Margin 300




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Stock Continues Lower: Still Profitable?Stock Continues Lower: Still Profitable?



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Adjustment #3: Turn Into an Iron CondorAdjustment #3: Turn Into an Iron Condor


Delta -14.6

Gamma -0.4

Theta 34.1

Vega -155.5Loss 1,100

Margin 4,000


Options Price Orig Pr IV Delta Trade Adj New

1335 Calls $11.90 17.2% 31.5 +10 +101325 Calls $15.70 17.7% 37.1 10 10

1280 Puts $26.80 $17.10 20.3% -39.1 10 101270 Puts $23.50 $14.90 20.9% -34.7 +10 +10

APR(36)



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Adjustment #3: Turn Into an Iron CondorAdjustment #3: Turn Into an Iron Condor



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Iron Condor AdjustmentIron Condor Adjustment



1335 Calls $4.90 $11.90 19.1% 16.9 +101325 Calls $7.10 $15.70 19.9% 21.6 101280 Puts $46.40 $17.10 23.3% -55.2 101270 Puts $41.60 $14.90 24.1% -50.4 +10

APR(30)

Delta 2.2

Gamma -0.6

Theta 27.7

Vega -119.2Loss 1,000

Margin 4,000




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Iron Condor AdjustmentIron Condor Adjustment



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Synthetic Covered WriteSynthetic Covered Writewith all Optionswith all Options

C d W i i h All O i


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Covered Write with All OptionsCovered Write with All Options

Date: 3/8/2011Date: 3/8/2011 SPY Price: $132.58SPY Price: $132.58

Options Price IV Delta Trade Price IV Delta Trade

132 Calls $2.95 17.2% 55.6 10122 Calls $12.20 22.4% 81.3 +10

APR(39) JUN(102)

Delta 256.0

Gamma -37.6

Theta 14.0Vega 47.8

Debit 9,250

When to adjust short option? How to pick long strike?

C d W i i h All O iC d W it ith All O ti


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Covered Write with All OptionsCovered Write with All Options


Adj t t #1 T i t C l dAdj t t #1 T i t C l d


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Adjustment #1: Turn into a CalendarAdjustment #1: Turn into a Calendar


Options Price Delta Trade Adj New Price Delta Trade Adj New

132 Calls $1.85 41.0 10 10 $3.85 51.8 +10 +10122 Calls $10.35 75.9 +10 10

APR(37) JUN(100)

Delta 349.0

Gamma -36.5

Theta 10.4

Vega 81.1Loss 750

Margin 9,250

Delta 75.5

Gamma -22.2

Theta 13.1

Vega 107.2Loss 750

Margin 2,750



Adj t t #1 T i t C l dAdj t t #1 T i t C l d


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Adjustment #1: Turn into a CalendarAdjustment #1: Turn into a Calendar

Date: 3/10/2011Date: 3/10/2011

SPY Price: $129.94SPY Price: $129.94

Adj t t #2 R ll Sh t O t & DAdj t t #2 R ll Sh t O t & D


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Adjustment #2: Roll Short Out & DownAdjustment #2: Roll Short Out & Down

Date: 3/10/2011Date: 3/10/2011


Options Price Trade Adj New Price Adj New Price Trade

132 Calls $1.85

10 +10

131 Calls $3.60 10 10122 Calls $10.35 +10

APR(37) JUN(100)MAY(72)

Delta 349.0

Gamma -36.5

Theta 10.4

Vega 81.1Loss 750

Margin 9,250

Delta 259.5

Gamma -19.3

Theta 2.5

Vega 8.8Loss 750

Margin 7,500



Adj stment #2 Roll Short O t & Do nAdjustment #2: Roll Short Out & Down


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Adjustment #2: Roll Short Out & DownAdjustment #2: Roll Short Out & Down

Date: 3/10/2011Date: 3/10/2011


Adjustment #3: Take OffAdjustment #3: Take Off of Positionof Position


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Adjustment #3: Take OffAdjustment #3: Take Off of Positionof Position

Date: 3/10/2011Date: 3/10/2011


Options Price Trade Adj New Price Trade Ajd New

132 Calls $1.85 10 +5 5122 Calls $10.35 +10 5 +5

APR(37) JUN(100)

Delta 349.0

Gamma -36.5

Theta 10.4

Vega 81.1Loss 750

Margin 9,250

Delta 174.4

Gamma -18.2

Theta 5.2

Vega 40.5Loss 750

Margin 5,000

Before AdjustingBefore Adjusting

After AdjustingAfter Adjusting



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CBOE Real Trading with Dan SheridanCBOE Real Trading with Dan Sheridan

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Dan SheridanDan Sheridan

+1-800-288-9341

[email protected]@SheridanMentoring.com

Sheridan Options Mentoring, Inc.

http://www.SheridanMentoring.com/

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