Negative Delta & No Upside Risk!

This is Karl Domm with your Real P&L channel.  Recently, I was in the chat.  The chat talked about the bad effects of negative Delta on a vertical spread and I mentioned there are ways to have negative Delta without any upside risk.  And I initially tried to post a picture of this risk chart, but for some reason that post wouldn’t go into the comment section of a video.  So I’m going to make a video here of an example. 

This is one of my trade structures.  This is one of my back tests of one of my systems that I developed.  This is in 2014, as you can see, but this is very common with this particular system.  This is my 20 60 Fly.  That’s the name of this particular system, but this is one part of the back test and you can see here that the expiration line is positive. 

So there’s no risk to the upside and you can just keep going all the way here.  You’re not– there’s no upside risk.  And you can see that there is negative Delta.

Let me go through another day here.  You can see that Delta actually becomes more negative, but the upside risk remains that there isn’t any upside risk.  This could actually make money if this expires here.  But there is negative Delta so you kind of take an advantage of both sides of the situation both going down and going up.  And also you can see it’s only $12 and, you know, up $42.  I know it’s very little, you know, but this can be scaled up proportionately to any amount of money that you want to scale it up to.  I just put the lowest tranches possible on just to make it more simple when I do my back testing.  

So it is possible to put on structures like this.  Of course I’m not showing you the full structure here, because I don’t want to divulge all of my trade plan or my trade structure but I just wanted to show you that it is possible to have both 0 upside risk along with negative Delta.

I spend about a minute per day maintaining this account, and two or three days out of the month I spend about 15 to 20 minutes a day when I actually need to take off and put on new positions.  If you’re interested in how I manage my account you can learn the 12 principles that I use, also you can learn about my trade structure in my book called A Portfolio for all Markets which is available on Amazon and Audible and I left a link below to my book in the description.


A Portfolio for all Markets:

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