AskTheRiskDoctorQandA 17 121812
ASK THE RISKDOCTOR LIVE Q&A DECEMBER 18TH, 2012
Rarely Answered Questions
Question 1: Hi Charles, It seems to me that the biggest equity news these days is Apple. I am amazed at how much market value is made and lost the last few months. Looking back, would there have been a way to make money with Butterflies the RskDoctor way with all this volatility.
Also, always love to see the Gold chart.
Thanks!
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 1: (AAPL)
©2012 Charles M Cottle
www.RiskDoctor.com
Chart
: (GLD)
(Retiring)
©2012 Charles M Cottle
www.RiskDoctor.com
New Chart: (GLD)
©2012 Charles M Cottle
www.RiskDoctor.com
Question 2: In Exhibit 7-13 of your book you show “Two of the 16 Ways” to dissect the -10 Jan 75/ +10 Apr 65 Call Diagonal. I don’t see 16. I see two more on the Put side, since this diagonal is synthetically a Put Diagonal. I want to know if the remaining 12 dissections involve the middle strike 70.
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 2:
Oops! This has never been challenged before. My thinking was: ‘4 Verticals X 4 Calendars’. So I sat down to bang them out and discovered the error in my thinking. There is overlap so it is really 4 x 2 but I came up with 5 more synthetic doorways bringing the total to 13. There are actually a few more but that would be cheating as I will explain here.
You can use the 70 strike to create more but what if, in a Diagonal, there are no strikes in between?
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 2
:
(cont)
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 2
:
(cont)
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 2
:
(cont)
©2012 Charles M Cottle
www.RiskDoctor.com
Question 3: How many different Diagonal spreads are possible? I have shown two call Diagonals. These Diagonals have corresponding (synthetically same) put Diagonals, so I see a total of four diagonals? Are the two Call Diagonals same synthetically?
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 3: 1)
Besides the discussion in Question and Answer 2, I would say the answer is purely ‘1’ . For every Call Diagonal there is a synthetic, Put Diagonal and that is it. The above illustrates that the strikes and months are not interchangeable.
©2012 Charles M Cottle
www.RiskDoctor.com
Rarely Answered Questions
Question 1: Hi Charles, It seems to me that the biggest equity news these days is Apple. I am amazed at how much market value is made and lost the last few months. Looking back, would there have been a way to make money with Butterflies the RskDoctor way with all this volatility.
Also, always love to see the Gold chart.
Thanks!
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 1: (AAPL)
©2012 Charles M Cottle
www.RiskDoctor.com
Chart
: (GLD)
(Retiring)
©2012 Charles M Cottle
www.RiskDoctor.com
New Chart: (GLD)
©2012 Charles M Cottle
www.RiskDoctor.com
Question 2: In Exhibit 7-13 of your book you show “Two of the 16 Ways” to dissect the -10 Jan 75/ +10 Apr 65 Call Diagonal. I don’t see 16. I see two more on the Put side, since this diagonal is synthetically a Put Diagonal. I want to know if the remaining 12 dissections involve the middle strike 70.
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 2:
Oops! This has never been challenged before. My thinking was: ‘4 Verticals X 4 Calendars’. So I sat down to bang them out and discovered the error in my thinking. There is overlap so it is really 4 x 2 but I came up with 5 more synthetic doorways bringing the total to 13. There are actually a few more but that would be cheating as I will explain here.
You can use the 70 strike to create more but what if, in a Diagonal, there are no strikes in between?
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 2
:
(cont)
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 2
:
(cont)
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 2
:
(cont)
©2012 Charles M Cottle
www.RiskDoctor.com
Question 3: How many different Diagonal spreads are possible? I have shown two call Diagonals. These Diagonals have corresponding (synthetically same) put Diagonals, so I see a total of four diagonals? Are the two Call Diagonals same synthetically?
©2012 Charles M Cottle
www.RiskDoctor.com
Answer 3: 1)
Besides the discussion in Question and Answer 2, I would say the answer is purely ‘1’ . For every Call Diagonal there is a synthetic, Put Diagonal and that is it. The above illustrates that the strikes and months are not interchangeable.
©2012 Charles M Cottle
www.RiskDoctor.com
