Saturday, April 4, 2009

04/04 EWZ Double Diagonal

EWZ went wild as soon as I placed the trade. It hit 1.5 st. deviation on the volatility cone within 2 trading sessions.

At this point a few things are worth noting: First the fact that P&L is not soo bad, we are down 8%, compare it with the MNX 45-day condor, and you will notice it is down more and the price is still inside the cone.

Second, there is a lot of potential profit on the table, so one could consider adding some up-side insurance. I have not done this in the past, however, I'll look at this possibility in a decision-tree to see if it makes sense.

As far as probabilities are concerned, there is 78% historical and 62% implied probability the trade will stay within the break even zone. For Monday, there is 91% chance it will be adjustment-free.

Bellow are historical probabilities, dashboard and risk profile charts:

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