Re: Pitchfork trading and discussion
Was in Costa Rica, just got back so I will catch up. I did not put on any PFs while I was away.
Re: Pitchfork trading and discussion
DonnaV wrote:
optioncoach wrote:Suggested Pitchform I am looking at:
ES at 1326.50
Sell 1 1360 JUL Put @ 47.00
Buy 2 1360 JUL Calls @ 14.25 (prices subject to change when market opens and spreads get little better)Net credit = 75.50 or $3,775.00 per 1:2 spread.
Current BE points (expiration) are 1284 - 1398 which is a good range given recent price action.
BEs are wider looking at 1:3 ration for credit of 90.00 or $4,500 per 1:3 spread.
Will see how we open and will try and slap one on.
uhmmm call me an idiot but HOW are you getting a net credit of 75.5 when you are BUYING 2 1360 calls???? I thought you were SELLING the straddle?
You are right I misstated the position. I was talking out loud and mashed up the position. Ignore my post so as not to confuse the good parts of the discussion on PFs 
Re: Pitchfork trading and discussion
jamesbp wrote:
Watching this thread with interest .....
Interested to see how others are going to trade the PF ..... wondering why Coach went for the 1P/2C variation on a negatively skewed Index .....Cheers
JP
As I was away I am sorry for the delay in responding.
Riskarb showed us the "short" PF selling the DITM call and OTM puts at same strike which has an upside-down ^ risk profile with peak at the strikes.
I wanted to reverse the thinking and look at a "long" pitchform which would be long DITM put and long OTM calls at same strike, 1:2 ratio. Your question was why?
I wanted to explore this because in theory I thought (in theory because I have not done it and only played around with it on analyzer) that since the profile is like a long straddle, if it has better greek characteristics than long straddle, i.e. less vega risk to upside, smaller theta, narrower v-shape for quicker profits on move in either direction.
I dont know the answers to these questions yet I was just playing with the strikes. On a down move you gain on deltas and vol increase. On a move upwards you gain on deltas but there is vol decrease that hopefully is minimized by the fact that OTM vols when becoming ATM will not suffer overall a significant drop in IV, allowing delta gains to take foot. The downside is the the same as with long straddles, theta which means if a move does not happen soon you could decay down in a week or two.
The idea was to try and use it before potential breakouts or prior to major news such as FED which is what I wanted to do. If I had internet access I was going to slap a 1:2 one on prior to the FED on Wednesday. After the fed on wednesday, ES slide about 50 points into Friday so delta gains would have offset vol changes as OTM calls became even further OTM, leading to a profit I would assume. Too bad I did not get to test it and see.
Re: Pitchfork trading and discussion
Interesting idea coach - thank you for sharing it. Would you be able to post a risk graph of both the 'traditional' PF and also your reverse PF?
With kind regards,
MK
Re: Pitchfork trading and discussion
Yeah no problem, I will try and post it during the day to compare it which should also show the greeks for both using ToS. Again this is my idea in theory so in practice it might not play out and I might only use it as risk has, but worth a look.
Re: Pitchfork trading and discussion
Strip vol is the risk associated with call-weighted PFs.
All your arb are belong to us.
Re: Pitchfork trading and discussion
riskarb wrote:
James -- awesome Brother!
Donna -- I can't recall trading an "upside" PF in stock index markets. The position will gain from strip vol in a rally, but sticky-delta hurts the position. I prefer 1x2s on "downside" strikes favoring puts.
RA
Would you please clarify how you define strip-vol and sticky-delta, and illustrate how they impact the position.
I have also heard Pitchfork's described as ratio straddles and Strips ....
Cheers
James
Re: Pitchfork trading and discussion
James, I refer to sticky deltas in post 46 on this thread.
All your arb are belong to us.
Re: Pitchfork trading and discussion
riskarb wrote:
James, I refer to sticky deltas in post 46 on this thread.
Got it .... I think ..... I tend to see this as sliding up and down the vol skew [..sticky deltas..] with static strip vol ..... but keep in mind that strip vol is inversely related to index move over time ....
Cheers
James
Re: Pitchfork trading and discussion
jamesbp wrote:
riskarb wrote:James, I refer to sticky deltas in post 46 on this thread.
Got it .... I think ..... I tend to see this as sliding up and down the vol skew [..sticky deltas..] with static strip vol ..... but keep in mind that strip vol is inversely related to index move over time ....
Cheers
James
Right, but upside strike vols are trading under atm, so the drop in vol on bull-trends is mitigated by stick-delta gains.
All your arb are belong to us.
Re: Pitchfork trading and discussion
riskarb wrote:
I always look to lose in the deep itm call. Recall that a 1x3 is selling 4x the otm premium as the call carries the embedded put premium in addition to it's intrinsic value. You really don't want a strike touch. Ideally, spot will trend lower, but large gains can be seen from a loss on the itm leg.
RA
- at what point do you look to lose the call
- would you then run the puts to expiry
Cheers
James
Re: Pitchfork trading and discussion
jamesbp wrote:
riskarb wrote:I always look to lose in the deep itm call. Recall that a 1x3 is selling 4x the otm premium as the call carries the embedded put premium in addition to it's intrinsic value. You really don't want a strike touch. Ideally, spot will trend lower, but large gains can be seen from a loss on the itm leg.
RA
- at what point do you look to lose the call
- would you then run the puts to expiryCheers
James
I never close the call early. I close all concurrently.
All your arb are belong to us.
Re: Pitchfork trading and discussion
riskarb wrote:
jamesbp wrote:riskarb wrote:I always look to lose in the deep itm call. Recall that a 1x3 is selling 4x the otm premium as the call carries the embedded put premium in addition to it's intrinsic value. You really don't want a strike touch. Ideally, spot will trend lower, but large gains can be seen from a loss on the itm leg.
RA
- at what point do you look to lose the call
- would you then run the puts to expiryCheers
JamesI never close the call early. I close all concurrently.
RA
My mistake ... thought you said you look to lose the DITM call .... whereas you said you look to lose 'IN' the DITM call .....
Are you planning to do a few pitchfork's so we can get a feel for how you trade them?
Cheers
James
Re: Pitchfork trading and discussion
glad you bumbed this as I did not finish my evaluations of this strat last time we discussed this. Glad to see it back and will re-read from the beginning.
Re: Pitchfork trading and discussion
DonnaV wrote:
James in looking at Jan your PF (for Feb I assume) may not have worked so well given its bullish bias...did you trade it Dec/Jan. I've done a variation and found as RA has said the premium melts off the calls more so than puts, thats why Ive leaned toward more calls short than puts.
Just to be clear -- the thetas are equivalent on the call and put, as they share a strike. I will post some index and share PFs when I trade them next week.
All your arb are belong to us.
Re: Pitchfork trading and discussion
...
Last edited by riskarb (2009-07-25 14:33:10)
All your arb are belong to us.
Re: Pitchfork trading and discussion
Ok kickstarting this again. Today with NDX at 1590 I entered into the following Pitchfork on NDX.
This is a 1*3 Pitchfork, the number of PFs not relevant:
-1 AUG NDX 1525 Call @ $81.30
-3 AUG NDX 1525 Put @ $16.72
Total Net Credit = $131.46
Re: Pitchfork trading and discussion
love the PF's...can you be more explicit in terms of how/why you chose those strikes...pretty please? 
Re: Pitchfork trading and discussion
Well using some of risk's guidelines I took the ATM (1600) straddle which was trading at about $77 which made me go out to the 1525 strike to price the 1*2 and 1*3 PF. I also looked at the 1550 since this gave me some more upside room in case we kept running higher on NDX. However 1550 presented a problem which was made clearer after talking to risk. If the market slid to 1550 and vols increased then the position (which is short vega) would suffer as the move was not enough to reduce the short call to compensate for increase in premium on the short puts. I compared 1:2 and 1:3 PFs and for me the 1:3 on the 1525 looked the best in the risk/reward profile as well as vega exposure.
The position will do well if we chop or bleed lower from these levels as the vol shift lower from the move of the OTM short puts to slightly less OTM from a slow market decline will compensate for overall vol increase on the market drop. In other words, my belief is that as the market drops and VXN increase, the skew which will cause the far OTM options to drop in vol as they move closer to ATM will offset each other if the drop is not major and the position will simply decay. Also, vols should remain flat given Aug and less companies reporting which should allow the position to do well over the next two weeks.
Range to the upside is limited up to 1650 or so, so I do well if we bleed higher and not explode from here. Since we have had so many consecutive days up I would like to believe that we will chop and retrace before moving back which will meanw e will not push too much further over 1600.
Right or wrong, dem be my reasons ha ha.
Re: Pitchfork trading and discussion
DonnaV wrote:
love the PF's...can you be more explicit in terms of how/why you chose those strikes...pretty please?
Using a 1x3 for illustration as the comparison to the atm straddle is more-straightforward.
Spot price 1500
ATM straddle 100
I will attempt to go as far otm on index put strikes to maintain the PF credit > 2*atm straddle credit. Discretion plays a role if you want to delta-bet.
All your arb are belong to us.
Re: Pitchfork trading and discussion
Thanks Boyz very informative...will put my study cap back on...ciao
Re: Pitchfork trading and discussion
Just to let you guys know that I have been trading the 2P/1C Pitchfork as an initial position on the FTSE100 Index in the UK for about 18 months or so now.
Personally, I think it is a great opening shot ...... I tend to open the position with 60 days to expiry ...... and look to close or button up the risk by 30 days to expiry.
if the market goes nowhere ....... lots of positive theta / negative vega
if the market really moves .... which has been its modus operandi over the last 18 months ..... then the position can easily be adjusted into straddles, strangles, wingspreads and slingshot type positions.
Performance YTD is approx +1000 points for each PF on an Index with an Underlying Value of 4500 points.
More recently, I have been adding an OTM call backspread ..... say -2C / +5C for a small credit ...... in preparation for when the markets rip upwards in a bear market rally ....
Cheers
James
Re: Pitchfork trading and discussion
Nice going James. >22% in the first half.
All your arb are belong to us.
Re: Pitchfork trading and discussion
The PF is an attempt to isolate skew under short volatility.
Index bull risk: -skew
Pros: limited deltas, strip vol gains
Cons: none
Index bear risk: -strips
Pros: skew, contamination gains
Cons: loss from strip vol are typically > gains from contamination
There is considerable risk below the strike, so I tend to write a strike as far ITM on calls as possible while retaining the PF credit > 2*ATM straddle credit.
Last edited by riskarb (2009-07-29 05:56:42)
All your arb are belong to us.