Conservative Options Trades

ORCL:
http://finance.yahoo.com/news/Oracle-shares-slip-on-lowered-apf-2662818421.html?x=0&.v=1
http://finance.yahoo.com/news/Oracle-Sets-Date-Its-First-iw-1786244968.html?x=0
http://online.wsj.com/article/SB10001424053111904583204576544792017784886.html?ru=yahoo&mod=yahoo_hs
http://finance.yahoo.com/q/ks?s=ORCL+Key+Statistics
http://moneycentral.msn.com/investo...ent=10YearSummary&symbol=US:ORCL&stmtView=Qtr
http://finance.yahoo.com/q/bc?s=ORCL&t=5y&l=on&z=l&q=l&c=
Trade: Iron Condor
For Jan '12
Sell 35 call, buy 40 call, sell 20 put, buy 15 put for a net credit of $66
yield = 66/434 = 15.2% in 134 days or 41% annualized
..............P/L Table.....................
Price.............P/L..........Prob Curve
15..............(434).............3%
20................66...............15%
25................66...............40%
30................66...............34%
35................66...............17%
40.............(434)..............8%
 
MCD:
http://finance.yahoo.com/news/McDonalds-shares-fall-as-key-apf-79241970.html?x=0&.v=11
http://finance.yahoo.com/q/bc?s=MCD&t=2y&l=off&z=l&q=l&c=
Trade: Bear Call Spread
With MCD at 85.03
Sell the Jan '12 100 call and buy the Jan '12 105 call for a net credit of $23.
Yield = 23/477 = 4.8% in 133 days or 13.2% annualized.
Prob = 90%
Expectation = .9(23) - .05(477) - .05(238) = 20.7 - 23.85 -11.9 = -14

It doesn't pay to bet against Mickey-D

Lets try a bull put spread:
Sell the Jan '12 70 put and buy the Jan '12 65 put for a net credit of $25.
Yield = 25/475 = 5.2% in 133 days or 14.4% annualized
Prob = 92%
Expectation = .92(25) - .04(475) - .04(237) = 23 - 19 - 9 = -5

Not as bad but options are priced against any of these trades today.
An Iron Condor might actually have a positive expectation.
 
BAC:
http://seekingalpha.com/article/293616-buffett-aside-a-look-at-bank-of-america?source=yahoo
http://jubakpicks.com/2011/08/31/is...um=jubakpicks+rss&utm_campaign=jubakpicks+rss
http://finance.yahoo.com/q/ks?s=BAC+Key+Statistics
http://finance.yahoo.com/q/bc?s=BAC&t=2y&l=on&z=l&q=l&c=

BAC should either go up a lot or down a lot.
Reverse Iron Condor:
http://www.optiontradingpedia.com/free_reverse_iron_condor_spread.htm
with BSC at 7.05
Puts: buy the 5 and sell the 2.50
Calls: buy the 7.50 and sell the 10
Net debit and max loss = 173
Potential profit = 77

Price..................P/L
0.......................77
1.......................77
2.......................77
3.......................25
4......................(75)
5.....................(173)
6.....................(173)
7.....................(173)
8.....................(122)
9.....................(23)
10......................77
11 and above.......77

Potential Yield = 77/173 = 44.5% in 492 days or 33% annualized.
Probably not a 'conservative' trade.
 
 
GOOG:
http://www.minyanville.com/business...s-apple-stock-price-google/9/15/2011/id/36906
http://finance.yahoo.com/q/bc?t=5y&l=on&z=l&q=l&p=&a=&c=&s=goog
Trade:
With GOOG at 546.68
Sell the Jan '12 350 put and buy the Jan '12 300 put for a net credit of $120
Yield = 120/4880 = 2.4% in 126 days or 7.5% annualized
Prob = 97.7%
Expectation = .977(120) - .005(4880) - .018(2440) = 117.24 - 24.4 - 43.92 = 48.92

I won't actually make this trade despite the positive expectation because the black swan carries too high a penalty. It's the same reason I don't drive on I-80 even though it is very close to my house. One accident on that road, no matter how improbable, would no doubt be my last.
 
GOOG

I won't actually make this trade despite the positive expectation because the black swan carries too high a penalty. It's the same reason I don't drive on I-80 even though it is very close to my house. One accident on that road, no matter how improbable, would no doubt be my last.
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Besides the black swan issue ,a high priced stock like this and netflex require high margins. Is there a reason that this is not a consideration when selecting options to put on ?

cheers
john
ps thanks for the journal
 
UTX:
http://dealbook.nytimes.com/2011/09/16/united-technologies-explores-huge-deal/?partner=yahoofinance
http://www.bloomberg.com/news/2011-...drich-offer-as-funding-sought.html?cmpid=yhoo
http://finance.yahoo.com/q/ks?s=UTX+Key+Statistics
http://finance.yahoo.com/q/ks?s=gr
http://finance.yahoo.com/q/bc?t=2y&s=UTX&l=on&z=l&q=l&c=GR&c=^DJI
http://finance.yahoo.com/q/bc?s=UTX&t=2y&l=on&z=l&q=l&c=

Trade:
Sell the Jan '12 55 put and buy the Jan '12 50 put for a net credit of $34
Yield = 34/466 = 7.3% in 126 days or 21% annualized.
Prob = 94%
Expectation = .94(34) - .02(466) - .04(233)= 32 - 9.3 - 9.3 = 13.4

Wait for market to react (or not) re Goodrich acquisition announcement.
 
Dan, A question which I would not be surprised if others asked it before: How come it is possible to find plays with positive expected value? As one can see, they exist because you are finding them. People's thinking might be something like : "The way options are priced renders the existence of such plays not possible in principle". If you have any comments, it would be appreciated.

Good job again Dan, and best of luck!
 
Quote from Appleseed:

GOOG

I won't actually make this trade despite the positive expectation because the black swan carries too high a penalty. It's the same reason I don't drive on I-80 even though it is very close to my house. One accident on that road, no matter how improbable, would no doubt be my last.
-----------------------------------------------------------------------------------

Besides the black swan issue ,a high priced stock like this and netflex require high margins. Is there a reason that this is not a consideration when selecting options to put on ?

cheers
john
ps thanks for the journal
More...

1. If he diversifies, and the hit risk is taken from the profits, there is in fact really no risk.

2. My intuition tells me that the high priced stocks are the stocks that would be good for put options writing.

Would be interesting to read any comments from Dan about my comments. Dan seems to know well what he is doing.
 
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