Conservative Options trades

Carry is priced into the option .. that is correct, but the stock position still has a cost of carry. Stock doesn't carry for free
 
It is a little bit of a joke, it is called the jelly roll, sometimes used by market makers, it really has little usefulness to retail traders as the commissions are high compared to market makers. This example is two calender spreads that cancel each other out for a essentially riskless trade and net zero profit excluding commissions. So a very conservative trade that only has interest rate risk as this trade is still sensitive to rho.
 
Quote from tommylove3:

I have a near risk-less trade, the only risk is interest rates. Get your jelly rolls ready, here it is.

+1 NDX DEC09 1725 CALL
-1 NDX NOV09 1725 CALL
For a credit of 19.65

-1 NDX DEC09 1725 CALL
+ NDX DEC09 1725 CALL
For a debit of 19.65
More...

It's not a jelly roll, it's a long call calendar spread. The first and the third cancel each other out and you are left with a short Nov call and long Dec call.

Next time proof read before posting.
 
Quote from ajacobson:

Carry is priced into the option .. that is correct, but the stock position still has a cost of carry. Stock doesn't carry for free
More...
And that's the whole point. Since the carry cost is priced into the options, if you ignore the carry cost of the stock, then the CC looks more attractive than the NP.
 
Actually since I have my account at IB, who pays no interest on cash up to 100K, my effective carry cost is zero. Even if I was getting MM rates as I do at OptionsXpress its not much different than zero.
 
AMN
AMN is an infrastructure supplier that will do well on recovery:

http://finance.yahoo.com/q/pr?s=AMN
http://www.ameron.com/

The company has a solid 10 year history of positive earnings:

http://moneycentral.msn.com/investo...l=AMN&lstStatement=10YearSummary&stmtView=Ann

and while the company has had a substantial decrease in earnings during the recession, earnings have never gone negative:
http://finance.yahoo.com/q/is?s=AMN

http://finance.yahoo.com/news/Ameron-Reports-Solid-bw-2260256271.html?x=0&.v=1

The stock price reached a minimum in late 2008 but has been slowly increasing over the past 5 months:

http://ichart.finance.yahoo.com/z?s=AMN&t=2y&q=c&l=off&z=m&a=v&p=s

Trade:With AMN at 66.44
Trade 1:
buy the December 60 call and sell the December 65 call for a net debit of $380.00. At expiration:
........P/L
60....(380)
65....120
70....120
-----------------------
req: 380
Yield: 32% in 60 days or 192% annualized
Random Variable Probability of AMN > 65 = 52%

Trade 2:
Sell the Dec 55 put and buy the Dec 50 put for a net of $25.
........ P/L
50....(475)
55.....25
60.....25
65.....25
70.....25
------------------------------
req: 475
Yield: 5.2% in 60 days or 31% annualized
Random Variable Probability of AMN > 55 = 85%
 
The dollar is falling in value and I would like to have some protection for that. How much protection and in what form?

As a start I will put in place a bull call spread on UDN:

http://finance.yahoo.com/q/pr?s=UDN

http://ichart.finance.yahoo.com/z?s=UDN&t=2y&q=c&l=off&z=m&c=GLD,^DJI&a=v&p=s



Buy the UDN June 26 call and sell the UDN 28 call for a net of 1.55:

...........P/L
25.....(155)
26.....(155)
27......(55)
28.......45
29.......45
-----------------------
Req: 155
Yield: 29% in 241 days or 43% annualized.
 
IF we have inflation then we should see commodity prices increase, plus if we have a recovery from the recession we should also see commodity prices increase. That's two ticks for rising commodity prices.

I will put on a bull call spread for DBC the commodity index tracking ETF:

http://finance.yahoo.com/q/pr?s=DBC

http://ichart.finance.yahoo.com/z?s=DBC&t=2y&q=c&l=off&z=m&a=v&p=s

With DBC at 24.09 buy the April 23 call and sell the April 25 call for a net of 1.15

.........P/L
22....(115)
23....(115)
24.....(14)
25.....85
26.....85
-------------------------
req: 115
Yield: 85/115 = 74% in 178 days or 149% annualized.
 
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