Conservative Options Trades

WM:

http://www.cnbc.com/id/100680314?__...wms-earnings-miss-estimates-1q-164001779.html

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

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

http://finance.yahoo.com/q/bc?t=5y&s=WM&l=off&z=l&q=l&c=&ql=1

http://finance.yahoo.com/q/bc?s=WM&t=2y&l=off&z=l&q=l&c=

TRADE:

Jan '14 33/28 Bull put spread for a net credit of $25
Yield = 25/475 = 5.3% in 265 days or 7.2% annualized
Prob = 95%
Expectation = .95(25) - .01(475) - .04(237) = 23.75 - 4.75 - 9.48 = 9.52
 
HUM:

http://finance.yahoo.com/news/humana-reports-strong-1q-earnings-155502614.html

http://news.investors.com/business/...t-quarter-earnings-beat.htm?ven=yahoocp,yahoo

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

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

http://finance.yahoo.com/q/bc?s=HUM&t=2y&l=on&z=l&q=l&c=

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


Trade:

NOV 62.50/57.50 bull put spread for a net credit of $60
Yield = 60/440 = 13.6% in 196 days or 25.4% annualized
Prob = 84%
Expectation = .84(60) - .07(440) - .09(220) = 50.4 - 30.8 - 19.8 = 0

(to get a positive expectation back the spread off either in time or price to get a lower % yield)
 
HUM:
Ctd.

Humana is down for a second day today:

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

after earnings reported on Wednesday.

http://finance.yahoo.com/news/humana-reports-strong-1q-earnings-155502614.html

http://finance.yahoo.com/q/bc?s=HUM&t=2y&l=on&z=l&q=l&c=

With the decline put options are increasing in price, and while HUM may indeed continue to decline I decided to make the plunge, albeit at a lower price and lower risk:

Trade (as filled):

Nov 57.5/55 bull put spread for $25.
Yield = 25/225 = 11.1% in 195 days or 21% annualized
Prob = 91%
Expectation = .91(25) - .05(225) - .04(112) = 22.75 - 11.25 - 4.48 = 7.02
Oh good.... by backing off I got a higher expectation as I said I would above.
:-)
 
Hi, oldnemesis
Would you please help elaborate how do you get the 0.04 below? I read earlier post, it is for half way down between 57.5 and 55. And the delta or probability is around 7-8%.
Appreciate your help!

-fpga

Expectation = .91(25) - .05(225) - .04(112) = 22.75 - 11.25 - 4.48 = 7.02
Oh good.... by backing off I got a higher expectation as I said I would above.
:-)
 
Hi, oldnemesis
I guess you are using the probability between 57.5 and 55? If so, that will make sense.

Thanks!
-fpga

Expectation = .91(25) - .05(225) - .04(112) = 22.75 - 11.25 - 4.48 = 7.02
Oh good.... by backing off I got a higher expectation as I said I would above.
:-)
 
TSRX:

http://www.cnbc.com/id/100707074?__source=yahoo|finance|headline|headline|story&par=yahoo&doc=100707074|Cramer%27s+Home+Work:+A+New

http://seekingalpha.com/article/139...-trius-creates-an-entrance-point?source=yahoo

http://finance.yahoo.com/news/zacks-recommends-trius-therapeutics-153500769.html

http://finance.yahoo.com/q/bc?s=TSRX&t=2y&l=on&z=l&q=l&c=

Trade:
with TSRX at 6.50
buy the Dec 5/7.50 bull call spread for a net debit of $135

Price...................P/L
5.00..................(135)
6.50.....................15
7.00.....................64
7.50....................115
9.00....................115
10.00..................115


fpga: yes... you have figured out how I do the expectation estimate. congrats.
 
AAPL:
With AAPL at $450
http://online.barrons.com/article/SB50001424052748703591404578453031263334260.html?mod=BOL_hpp_dc

http://online.barrons.com/article/SB126091970802092803.html

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

http://finance.yahoo.com/q/bc?s=AAPL&t=2y&l=on&z=l&q=l&c=

Trade:
Sell the Jan '14 325 put and buy the Jan '14 320 put for a net credit of $40.
Yield = 40/460 = 8.7% in 257 days or 12.3% annualized
Prob = 93.7%
Expectation = .937(40) - .054(460) - .01(230) = 37.48 - 24.84 - 2.30 = 10.34

note: If you are doing spreads on slim resources you need to allow for the possibility that AAPL suffers a disaster and that you are put the stock at $325. A hundred shares will require $32,500 to buy at that price. Be sure what will happen to your account in such an eventuality.
 
Hi,oldnemesis,
Thanks for the confirmation! :-)

The question I have is when do you decide to enter the trade? I can find positive expectancy spread using something like SPY now using the formula. But I do not think you will just based on expectancy, right?

Thanks for your answer! :-)

-fpga
 
Low Implied Volatility:

Looking for trades for the week and coming up empty.
(Except for the stupid AAPL trade above)

e.g.

In 2012 I sold the 17.50 CWT put three times, each time with 4 months worth of theta on it, for $80, $60 and $100.

http://finance.yahoo.com/q/bc?t=5y&s=CWT&l=off&z=l&q=l&c=&ql=1

Today the 133 day CWT put (Dec) will net me $20.

Not worth the risk. This is proving true all across my low risk stocks. Can't construct a decent positive expectation trade.

What we need is a good disaster to kick the market into gear.

Or maybe it's just time to 'go away in may'.

I could sell snow cones at the pool...

:-)

fpga: No I do not enter a trade based on expectation. The expectation calculation is simply a last minute check to see that the trade is not idiotic.
 
[note: If you are doing spreads on slim resources you need to allow for the possibility that AAPL suffers a disaster and that you are put the stock at $325. A hundred shares will require $32,500 to buy at that price. Be sure what will happen to your account in such an eventuality. [/B][/QUOTE]

Hi Dan

I was always under the impression
that the long leg of the spread would potect against this type of assignment, during any period befoe experation.
I understand the long would be worthless on the last day but wouldn't it have value (long) if it occured befor the last day.
(i recall this topic ,somewhat , -with you and putmaster ??)

cheers john
 
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