Conservative Options Trades

BA:

http://www.bloomberg.com/news/2014-...ir-s-11-billion-737-max-order.html?cmpid=yhoo

http://news.investors.com/090814-71...ir-deal.htm?ven=yahoocp&src=aurlled&ven=yahoo

http://finance.yahoo.com/news/boeing-feels-strong-pressure-increase-195742014.html

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

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

Trade:
With BA at 127.98
Jan '15 110/105 bull put spread for a net credit of $37
Yield = 37/463 = 8.0% in 129 days or 22.6% annualized
Prob = 95%
Expectation = .95(37) - .02(463) - .03(232) = 35.15 - 9.26 - 6 = 19.89
 
MIND:

http://finance.yahoo.com/news/bear-day-mitcham-mind-050020325.html

http://www.thestreet.com/story/1273...s-earnings-report.html?puc=yahoo&cm_ven=YAHOO

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

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

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

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

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

MIND pays no dividend

I believe investors have given up on MIND and have little reason to stay invested

Trade:
with MIND at 10.82
Dec 10/7.5 bear put spread for a net debit of $65
breakeven is at 9.35
Potential yield = $185
185/65 = 284% in 100 days

Price.......Profit / Loss......ROI %
5.00.........185.00..........284.62%
7.00.........185.00..........284.62%
7.50.........185.00..........284.62%
8.74...........61.30............94.31%
9.35.............0.00..............0.00%
10.00........(65.00)........-100.00%
11.00........(65.00)........-100.00%
12.00........(65.00)........-100.00%
15.00........(65.00)........-100.00%
 
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oldnemesis said:
BA:

http://www.bloomberg.com/news/2014-...ir-s-11-billion-737-max-order.html?cmpid=yhoo

http://news.investors.com/090814-71...ir-deal.htm?ven=yahoocp&src=aurlled&ven=yahoo

http://finance.yahoo.com/news/boeing-feels-strong-pressure-increase-195742014.html

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

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

Trade:
With BA at 127.98
Jan '15 110/105 bull put spread for a net credit of $37
Yield = 37/463 = 8.0% in 129 days or 22.6% annualized
Prob = 95%
Expectation = .95(37) - .02(463) - .03(232) = 35.15 - 9.26 - 6 = 19.89
More...

Newbie here excuse the dumb question but how are you getting the second part of expectation.
I assume Prob 95% is derived from Delta and 37 is max you can get. 463 is Max loss, where is the 2% coming from? Likewise, where is the 3% and 232 coming from?

Thanks
 
xexx12345 said:
Newbie here excuse the dumb question but how are you getting the second part of expectation.
I assume Prob 95% is derived from Delta and 37 is max you can get. 463 is Max loss, where is the 2% coming from? Likewise, where is the 3% and 232 coming from?

Thanks
More...

Three point estimate of square wave... top, bottom and middle.
 
what does not kill me makes me stronger

Friedich Nietzche..................Twilight of the Idols


On September 11, 2001, 19 militants associated with the Islamic extremist group al-Qaeda hijacked four airliners and carried out suicide attacks against targets in the United States. Two of the planes were flown into the towers of the World Trade Center in New York City, a third plane hit the Pentagon just outside Washington, D.C., and the fourth plane crashed in a field in Pennsylvania. Over 3,000 people were killed during the attacks in New York City and Washington, D.C., including more than 400 police officers and firefighters

http://www.history.com/topics/9-11-attacks
 
Thanks that helps a lot.

Are you ever considered of vega risk when it explodes since you're plays are so long dated? The vol's are relatively low for some of the trades here...just curious.
 
xexx12345 said:
Thanks that helps a lot.

Are you ever considered of vega risk when it explodes since you're plays are so long dated? The vol's are relatively low for some of the trades here...just curious.
More...

Yes this is a concern. In my terms I would phrase it that the price I am being offered for the insurance policy I want to sell may be too low to justify the risk.

I don't use the greeks to estimate the risk so much as I use the company fundamentals, past and projected financial performance and market environment.

Also, when I put on a trade I am expecting to hold it until expiration, so that if there is transient increases in volatility (and option price) I am not overly concerned. It only concerns me If I want to exit the trade. If I want to exit the trade I am mostly concerned with the price of the underlying.

e.g. I like to sell puts on a company that has had recent business success and is projected to have continued or increased financial success in a stable or rising market.

In addition I pay a lot of attention to price levels (support and resistance) and try to place my trades favorably in relation to those rather than rely on abstractions like the dedicated option purveyors in this board do. Option parameter trading is for the very short term.

I absolutely do not sell puts because they are expensive. When puts are expensive they are expensive for a reason. It may mean that the company is carrying risk that the market fears. All the analysis of greeks will not tell you the likely outcome of the company's financial risks and promises... you need to understand the company, it's business, it's financial condition and the market the company operates in and what promises and threats there are on the horizon. I am much more concerned with debt and cash levels, profit margin, projected incomes, past and future execution and the market the company operates in than I am with the greeks. Thus in the trades I outline I give references to these factors. Plus I pay attention to the yield the trade will bring me, I do not pay much attention to option parameters like volatility per se.

If the trade will bring me a 20% annualized return I am happy... regardless of the volatility.
 
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Thanks for explaining the rationale. I suppose if you are fine holding the trade all the way to expiration, volatility does not matter. You would have to be able to hold unrealized loses for quite some time.

How have the trades fared so far for you? If you like the price level and fundamentals of a company, why not purchase the underlying outright?

I'm not sure how accurate the BSM model is for far OTM options i assume tail risk is understated (assuming that is where you obtain your Probability/Delta) but your collection is around 1/10th the width of the spread. Only takes 1 loser to wipe out 9 winners.

I'm looking to tail a few trades doing something similar - Thanks again
 
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