Conservative Options Strategy

tao - just for the record, I bought the spread in Sept when DBA was in low thirtys. Also I am bearish/neutral for the stock near-term so I expect the short call to expire zero.

I think both of us fully expressed our opinion. I'm content to let the market decide this one. And your opinion was expressed well, and I am keeping it in mind.
 
Yucca,
My humble apologies!!!!!!!!!!!

I now see that you bought the jan 2010 call spread.I was mistakenly looking at the Jan 2009 calls,and that lead to the confusion..





Quote from yucca_mtn:

tao - just for the record, I bought the spread in Sept when DBA was in low thirtys. Also I am bearish/neutral for the stock near-term so I expect the short call to expire zero.

I think both of us fully expressed our opinion. I'm content to let the market decide this one. And your opinion was expressed well, and I am keeping it in mind.
More...
 
hi yucca
If you are confident of direction with the long being a fundamental trade, you can still be wrong with a delta inversion
Thats when the underlyong moves faster than you hoped and the short gains on the long. (Go to Think or Swim and test this)
Being aware of deltas and the proper difference between the long and short in puts and calls is inportant to successfully
trade calendars
Merry christmas and happy new year

cheers john:p
 
Good thought appleseed. I am aware of your caution and realize I have to keep a close watch on the short positions. I'm prepared to take a small loss on the short call if the stock price seems to be moving up too much too fast. However equally true is the prospect of using brief market corrections to buy back the short positions at a profit, if the market signals an oversold, and you think a quick recovery is due. Sell the same call again when the market is higher.

Of course avoiding danger overtrumps trying to capitilize on a speculative move. (That leaves the long call without downside protection).
 
I also wanted to point out that the reason I am still here to talk about this, is the technique I recently talked about at length, which was rolling out the spreads in time.

That is taking a XYZ SEP08 40/50 and selling it (if it looks like it might be a loser), and replacing it with a XYZ Jan10 40/50, for nearly the same or lower cost. I talked a lot about it and gave a lot of examples.

This technique is the only technique I found that allowed me to possibly salvage a soon to expire OTM spread. This technique saved my butt from total wipeout this year.

My new technique to roll the short leg only, is a result of salvaging the losing spreads, and giving me more time to salvage some of the farout spreads that have gotten a little worse since I entered them.

The two techniques together make a versatile defensive strategy.

Of course, primary defense is getting out of losers early - easier said than done.
 
Hi Yucca,

Of all the things you have said,this is by far the most important.


Of course, primary defense is getting out of losers early - easier said than done

Any time you are "salvaging" a position by rolling,you are putting on new position.It has no bearing on the realised or unrealised losses incurred,nor should it matter.The only thing that matters is whether or not the new position stands on its own,and if you would put it on to open as opposed to "salvaging"....Simply put,the salvaged position must be the optimal for the deployment of your capital.

IMHO,rolling positions that are in the hole are rarely the best use of your capital..
















Quote from yucca_mtn:



That is taking a XYZ SEP08 40/50 and selling it (if it looks like it might be a loser), and replacing it with a XYZ Jan10 40/50, for nearly the same or lower cost. I talked a lot about it and gave a lot of examples.

This technique is the only technique I found that allowed me to possibly salvage a soon to expire OTM spread. This technique saved my butt from total wipeout this year.

My new technique to roll the short leg only, is a result of salvaging the losing spreads, and giving me more time to salvage some of the farout spreads that have gotten a little worse since I entered them.

The two techniques together make a versatile defensive strategy.

Of course, primary defense is getting out of losers early - easier said than done.
More...
 
Quote from yucca_mtn:

So if I make this move, I get 4.4 for the call spread, and .45 for the put spread, a total return of 4.85. A very nice return on my 3.8 investment
More...

1) the price you paid is 100% irrelevant.

You must consider the price of your position today.

2) Why would you settle for 4.85 for a box spread that is worth about $5?

Why would you convert one position to another - and not only lose those few cents, but be forced to pay 4 commissions?

3) The answer is really - honest - to sell the put spread in the first place.

4) An alternative is to just close the call spread. Take your profit, remove the risk of early exercise, and don't hold all the way through expiration. Let somebody else earn the last few nickels of the trade.

Mark
http://blog.mdwoptions.com/options_for_rookies/
 
Quote from yucca_mtn:

is the technique I recently talked about at length, which was rolling out the spreads in time.
More...

If you think about rolling as two separate decisions, you will find it easier to make a good decision.

1) Do you want to get out of your current position. If the answer is 'no', there is obviously no need to roll.

2) OK. You want to get out. So close it. That's the first step.

3) Do you <b>like</b> the potential new position, or are you rolling just for the sake of rolling. I believe it is wrong to roll just to roll. It's far better to take the loss and move on, rather than open a new position you do not <i>want to own</i>.

Mark
 
Since this is a thread for conservative option trading strategy, I decided to park some money this year as I think we are going to be up and down for awhile. So I've gone back to the basics and am buying COP and selling 2010 ATM LEAPS on it and settle for a 20% return. There is a risk COP could drop below my break even point of $39.50, but if it stops toppling that much, I'll use some of the $980 premium I took in and buy puts. I certainly would have been happy with 20% return last year.
 
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