anyone watching the june spy deep out of the money puts?

robbie380 · Feb 21, 2009

i am as bearish as anyone but the prices are crazy. you can get credited almost 20 cents to do a 1:2 put ratio at the 40 and 45 strikes. what am i missing? this trade seems too good to be true.

dagnyt · Feb 22, 2009

Quote from robbie380:

i am as bearish as anyone but the prices are crazy. you can get credited almost 20 cents to do a 1:2 put ratio at the 40 and 45 strikes. what am i missing? this trade seems too good to be true.

Options require more than a strike price for identification. The month also counts.

It's a very likely winner - but you must consider the risk before making the trade. Does the small reward justify the (tiny) risk? No one can answer that for you, but I don't like the idea.

Mark

robbie380 · Feb 22, 2009

Quote from dagnyt:

Options require more than a strike price for identification. The month also counts.

It's a very likely winner - but you must consider the risk before making the trade. Does the small reward justify the (tiny) risk? No one can answer that for you, but I don't like the idea.

Mark

i included the month in the subject of the thread.

sell 2 june 40 puts @ .40

buy 1 june 45 puts @ .60

you make money all the way down to 349.80 on the spy. if the spy is between 350-450 you can make up to 5 dollars more.

dagnyt · Feb 22, 2009

Quote from robbie380:

i included the month in the subject of the thread.

sell 2 june 40 puts @ .40

buy 1 june 45 puts @ .60

you make money all the way down to 349.80 on the spy. if the spy is between 350-450 you can make up to 5 dollars more.

Most likely result: + $0.20, less commissions.
It that a good goal for you?
Obviously, that's a personal choice, but I'd like to make more than $20 per spread over the next four months.

Mark

robbie380 · Feb 22, 2009

Quote from dagnyt:

Most likely result: + $0.20, less commissions.
It that a good goal for you?
Obviously, that's a personal choice, but I'd like to make more than $20 per spread over the next four months.

Mark

...that is the basic trade... i like making what is almost free money. none of the other major etfs (dia and qqqq) pay a credit to put on a trade with a breakeven that is more than 50% lower in the next 4 months. the size and ratio is to be determined. what i am trying to figure out is whether or not i am missing anything but you don't seem to have any info but thanks anyway.

spindr0 · Feb 22, 2009

..that is the basic trade... i like making what is almost free money. none of the other major etfs (dia and qqqq) pay a credit to put on a trade with a breakeven that is more than 50% lower in the next 4 months. the size and ratio is to be determined. what i am trying to figure out is whether or not i am missing anything but you don't seem to have any info but thanks anyway.

You're not missing anything. That's the nature of ratio spreads. You have a high probability of keeping the small credit that you receive but you also have the potential for a big loss if the sh*t hits the fan. GOOG offers and even better credit for a 2:1 ratio at half the current price.

My take is, you can't earn 20 cts tomorrow or even this week? You need 4 months to do it? The time risk is far too high for such a small reward. But that's just my discomfort zone

Trader666 · Feb 23, 2009

The bid/ask spreads are huge. Good luck getting your 20 cents.

Quote from robbie380:

i included the month in the subject of the thread.

sell 2 june 40 puts @ .40

buy 1 june 45 puts @ .60

you make money all the way down to 349.80 on the spy. if the spy is between 350-450 you can make up to 5 dollars more.

robbie380 · Feb 23, 2009

Quote from spindr0:

You're not missing anything. That's the nature of ratio spreads. You have a high probability of keeping the small credit that you receive but you also have the potential for a big loss if the sh*t hits the fan. GOOG offers and even better credit for a 2:1 ratio at half the current price.

My take is, you can't earn 20 cts tomorrow or even this week? You need 4 months to do it? The time risk is far too high for such a small reward. But that's just my discomfort zone

yeah i saw goog and i saw aapl too. the gs puts are crazy too. actually, there are a lot of crazy 1:2's out there. i'm also in a call spread for gld but that is more of a bull play than a credit play.

nazzdack · Feb 23, 2009

Quote from robbie380:
......what am i missing?.......

1) ?......you'll have to remain in the trade all the way to expiration in order to make the "tiny" maximum profit.
2) A continued downtrend in the market will explode the premiums, to your detriment, even though you're "far-out-of-the-money"........(the bomb may have exploded "far away" but you'll get hit with radiation).
3) The position will behave as if you are "short" one of the 40-puts.

nazzdack · Feb 23, 2009

Quote from robbie380:
sell 2 june 40 puts @ .40

buy 1 june 45 puts @ .60

you make money all the way down to 349.80 on the spy. if the spy is between 350-450 you can make up to 5 dollars more. [/B]

1) ?......FWIW, I calculated a downside, expiration, break-even point, X, of 34.80.
[45-X-0.60+(2)(0.40)+2(X-40)=0].....X=34.80 :eek:
2) Remember, it's an expiration breakeven point. Volatility can "kill" you along the way.