Conservative Options Trades

are some of these posts just "theoretical" trades?

I ask because,
looking at the option pricing for SGG [for example],
the spread is very very wide,
and doesn't appear very liquid.

don't get me wrong,
I enjoy reading your posts

marc
 
Some of the trades I outline DO turn out to be unfillable because of liquidity. I try to high-light those but don't always do that. I don't really know until I submit the order and see if I can get a fill.

Many times an order that I think I might have trouble with will fill immediately because someone is lurking to sell what I want to buy and buy what I want to sell.

Other times I can't get a fill. e.g. I have been trying to get a fill selling a CWT put but get no takers at the price I want. I have been the ask on the contract for about two weeks. It doesn't bother me... I can wait... or not get the fill. My rule about these trades is get the fill at the price required or pass on the trade. Otherwise my stats are off and maybe the trade is not worth it.

e.g. I am asking .75 for the CWT contract and lots of contracts go off at .70 . I have redone the stats on that contract to see if a .70 is acceptable and the answer is no. So I'll wait. Costs me nothing.

I don't have any worry about filling SGG at the prices outlined.

e.g. the Aug 70 Call closed bid/ask 3.70/4.90 and the Aug 80 Call closed .85/1.80. This means there is at least one contract immediately available at that price. Thus I would be getting the call spread for 4.90 - .85 = 4.05 if I buy on the ask and sell on the bid. How many contracts can I get at that price? My guess would be at least 5 before the price moves because the market makers have set this up and I can probably move at least 5 contracts before they notice they are moving and change their offers should they want to. I don't trade in the volume that would worry the market makers so I don't usually see the bid/ask move in response to my trade.

Also: I don't submit orders to execute all the trades I post. What I post should be viewed as 'trade discovery'... not portfolio management. Maybe market conditions and/or my portfolio status are such that I decide that I don't want the trade. Sometimes I'll look back and take the trade later. Sometimes not.
 
MELI:

http://online.barrons.com/article/SB50001424053111903964304577420434178221746.html#mod=BOL_hpp_pandp

http://seekingalpha.com/article/621571-amazon-s-next-victim?source=yahoo

http://finance.yahoo.com/q/ks?s=MELI+Key+Statistics

http://finance.yahoo.com/q/bc?s=MELI&t=5y&l=off&z=l&q=l&c=

Trade:
With MELI at 71.82:
Jan 2014 90/120 Bear Call Spread for a net credit of $460
Yield = 460/2540 = 18.11% in 592 days or 11.2% annualized
BE at 94.60

Price.............P/L
70................460
80................460
90................460
94.60.............0
100.............(560)
110.............(1550)
120.............(2540)
130.............(2540)
 
SGG:

saupload_octobersugarseaonal-1024x762_thumb1.jpg


http://www.insidefutures.com/article/674718/Sugar Based Ethanol Boost.html

http://www.bworldonline.com/content...tion-approaches-target-for-crop-year&id=52981

http://www.brecorder.com/component/...aters-down-sugar-content-in-brazil-cane-.html

http://www.greaterkashmir.com/news/2012/Jun/4/sugarcane-juice-to-become-expensive-25.asp

http://fuelfix.com/blog/2012/05/10/sugar-cane-grows-on-oil-as-71-billion-bet-outspends-d-c/

http://stockcharts.com/h-sc/ui?s=sgg


SGG closed at 74.15

...........P/L from
August Bull Call Spreads

Price.....70/80.............75/80
65..........(595)............(325)
70..........(595)............(325)
75...........(87).............(325)
80............405..............175
85............405..............175
 
MMM:

http://www.fool.com/investing/general/2012/06/06/stocks-for-the-long-run-3m-vs-the-sp-500.aspx

http://finance.yahoo.com/q/pr?s=MMM+Profile

http://finance.yahoo.com/q/ks?s=MMM+Key+Statistics

http://investing.money.msn.com/investments/financial-statements?symbol=MMM

http://finance.yahoo.com/q/bc?s=MMM&t=5y&l=on&z=l&q=l&c=

MMM closed at 86.00

Looking for a bull put spread with 95% confidence

Exp........Days........Sprd........Prob........P/L.........Ann Yield
Jul..........42..........75/70.......97%......11.00........19.5%
Oct........133.........70/65.......95%......30.00........17.5%
Jan'13....224.........65/60.......96%......32.00........11.1%
Jan'14....588.........55/50.......96%......42.00.........5.6%
 
MMM: Update

This morning I submitted the Oct 70/65 bull put spread to be sold for a limit price of .40. The bid ask on the spread at the time was, and is now, .35/.45

Thus I submitted halfway between bid and ask. It filled at 3:57 PM. (i.e. just at the close) after sitting all day.

OptionsXpress lists the prob that MMM is above the spread on expiration at 95.76%, the prob that MMM is below the spread at 1% and thus the prob that MMM will be within the spread is 100- (95.76 +1)= 3.24%

Thus my estimate of the expected P/L on the trade = .9576(40) - .01(460) - .0324(230) = 38.3 - 4.6 - 7.45 = 26.25

Expected Yield = 26.25/460 = 5.7% in 133 days or 15.7% annualized.

OptionsXpress uses a separate method for filling spreads over and above each individual arm:

https://onlineint.optionsxpress.com/welcome/risks/xspreads.aspx

The use of expected values in trading options is treated to some extent in all books on options (e.g. McMillian) also :

http://www.amazon.com/Mathematics-Options-Trading-C-B-Reehl/dp/0071445285

http://en.wikipedia.org/wiki/Expected_value

SGG:Update

http://stockcharts.com/h-sc/ui?s=sgg
 
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