Dan Harvey's laddered boxcar

[Michael B]

On Jan 20th Dan Harvey presented his modified version of the boxcar where he's using a laddered structure for the debit spread side and also sets it for credit.
May I please ask few questions?

1. What are the benefits of using two debit spreads vs. a single wider one? Playing in TOS I can manage to build a boxcar with roughly the same greeks when using a laddered spread vs. as a single one. Is it the more flexibility you have if deciding to close some on the debit side?

2. Is there any debit / credit ratio that would be good to achieve at launch? For example the older boxcar version looked for 1.2 to 1.4.

3. This new setup gives up on the idea of starting with a negative delta. Is the negative delta at launch not that great after all?

Thank you!

 

[DGH]

Hi Michael. Here are my thoughts on your questions: 1. Yes, a key benefit is greater flexibility if adjustments are necessary 2. I don't have precise metrics on this version. The only required parameter is that the entire trade must be launched with a net credit 3. A negative starting delta is not necessary.

Comparison of the "standard" version versus the laddered version: The "standard" version is launched with somewhat lower risk since the debit spread long leg is placed near the money and the spread width is wider. However, the trade starts with a net debit which must be overcome by theta decay. Also, if the market rallies sharply, the debit spread component must be addressed quickly to avoid a losing trade. A sharp rally will still permit a profit in the laddered version since it was launched with a credit.

In my view there is no "right or wrong" choice. I usually study both setups.

 

[Michael B]

Dan, thank you very much!

 

[JohnC1]

I'm currently in the boxcar alert service and would love to find out more about this trade modification. Where are these presentations happening, is it a private group / forum?

 

[Brian M]

John -- I had the same question and learned that this was a presentation to Trading Group 1. A Gold Membership will get you access to videos in the Library older than one week, including this one. In my opinion well worth it; there are actually several videos about variations on the boxcar.