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Victory Spread

Discussion in 'Options' started by da_ksk, Feb 1, 2016.

  1. da_ksk

    da_ksk New Member

  2. GreenZone

    GreenZone Well-Known Member

    A Victory spread is a ratio diagonal.
    In other words, you start with a diagonal, and then add additional longs at the same long strike.

    They are "deceiving", because the risk graph looks fantastic when you set them up.
    But once you've had some experience trading any calendars or diagonals, you'll start to notice that the entire expiration line itself (not just the T+0) can move up and down.

    Here's an example of a setup for an earnings play.
    Looks fantastic. Almost no risk.
    Victory-1.jpg

    And here it is after earnings came out, and price went in the intended direction.
    Victory-2.jpg
    Not so nice anymore....
     
    mallums, Capt Hobbes and Samer11 like this.
  3. tom

    tom Administrator Staff Member

    Looks interesting.

    On this video at you can see the trade involves a short option in Sep and three long options in Oct. Put it in back trader:

    Date: Sep 4, 2009
    Symbol: HRB
    SELL 1 of the 15 SEP call for $1.45 (was about 1 standard deviation below the current price and 10 days to expiration)
    BUY 3 of the 17.5 OCT call for $0.30 (was about a a 30 delta)
    You start out in the valley of death but a 75% PP in the trade.
     
  4. tom

    tom Administrator Staff Member

    Ron is right about the trade being deceiving as vol does affect it. It's the same with the OptionEtics Tarzan Loves Janes (TLJ) trade. You can start with a risk graph that appears to have no risk. Have you found the perfect trade?

    Hardly.

    The trade can get killed with volatility, just like this one...it's the risk you don't see that will hurt you.
     
  5. Samer11

    Samer11 Active Member

    Ron,

    many thanks for the post. Would it make sense to hold this "earnings" trade prior to earnings and close it right before earnings announcement? So if I open the position two-three weeks before earnings announcement and then close it right before the event, would it make a profit? In general, the trade is long vega. Now, I know that front-month IV will rise more than back-month IV. However, the back-month IV also goes up and vega of the long-options is much higher... What do you think?

    One might have to give it a try...

    Thanks a lot!
     
  6. GreenZone

    GreenZone Well-Known Member

    Samer11 likes this.
  7. Samer11

    Samer11 Active Member

    Thanks Ron!

    But the earnings scenario is a special scenario where you have rising IVs... The trade in my thread got killed because IV fell... In the weeks prior to earnings announcement, IV gradually increaeses... That was my point.
     
  8. da_ksk

    da_ksk New Member

    I was thinking in a similar approach for this strategy... Enter around three weeks before earnings and and go out the day before the announcement.
     
    Samer11 likes this.
  9. GreenZone

    GreenZone Well-Known Member

    Watch my weighted vega presentation.
    I cover "earnings calendars" in there.
     
    Aditya and da_ksk like this.
  10. Aditya

    Aditya Active Member

    Hi Ron - I really was blown away by your weighted vega presentation (being a beginner trader, am glad that I could correct the misconceptions I've learned from reading else where).
    Just wanted to clarify one of the takeaway
    - For longer term spreads such as butterfly/condors (DTE > 30), the true vega of the spread would roughly be sqrt(30/DTE) * Vega_shown_by_software ?
     

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