Conservative Options Trades

SWHC:

http://finance.yahoo.com/news/smith-wesson-beats-street-1q-202431851.html

http://www.msn.com/en-us/money/stockdetails/fi-126.1.SWHC.NAS?symbol=SWHC&form=PRFIEQ

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

Trade:
with SWHC at 16.22
Jan 13/10 bull put spread for a net credit of $40
Yield = 40/260 = 15.4% in 141 days or 40% annualized
Prob = 70%
Expectation = .7(40) - .10(260) - .2(130) = 28 - 26 - 26 = -24

Price............. Profit / Loss........... ROM %
7.50.................. (260.00)............. -86.67%
8.00.................. (260.00).............. -86.67%
10.00................ (260.00).............. -86.67%
12.53.................... (6.70)................ -2.23%
12.60..................... 0.00................... 0.00%
13.00.................... 40.00................. 15.43%
15.00.................... 40.00................. 15.43%
17.00.................... 40.00................. 15.43%
20.00.................... 40.00................. 15.43%
 
This trade makes a couple of assumptions:

1. The bottom has been put in on the market turbulence.
http://stockcharts.com/h-sc/ui?s=spy
2. SWHC's earnings beat will serve to carry the stock through Jan
3. The 13 strike provides a short term support level for the stock

I must also admit I had a recent exposure to the S&W Shield and liked it very much and think it provides some traction for S&W against Glock.


The one negative is that Walmart has decided to end sales of 'assault style' weapons which will take SWHC's version of the AR15 off their shelves. I don't know the effect this will have on SWHC's earnings but am assuming it will not be visible prior to Jan.

http://www.nytimes.com/2015/08/27/b...ales-of-assault-rifles-in-us-stores.html?_r=0
 
Last edited:
oldnemesis said:
SWHC:
Trade:
with SWHC at 16.22
Jan 13/10 bull put spread for a net credit of $40
Yield = 40/260 = 15.4% in 141 days or 40% annualized
Prob = 70%
Expectation = .7(40) - .10(260) - .2(130) = 28 - 26 - 26 = -24
More...
I am new to this thread. Do you mind explaining what does Expectation means? I guess the .7(40) means 70% of gaining the credit of $40; 10% of 260 (Risk or Margin)? Why 10%? Delta 10? Last one .2(130), totally no clue.
 
OP explained it here.

70% chance of hitting max profit, 10% chance of max loss, 20% chance of price landing in between strikes. It's a 3 point version of expectancy, well described on the internet.

The probabilities come from a formula that uses volatility. Many brokers have calculators for it.
 
GAS:
http://finance.yahoo.com/news/southern-co-gain-12b-agl-200008659.html

http://www.investopedia.com/stock-a...llion-acquisition-gas-so.aspx?partner=YahooSA

http://www.msn.com/en-us/money/stockdetails/fi-126.1.SO.NYS?symbol=SO&form=PRFIEQ

http://www.msn.com/en-us/money/stockdetails/fi-126.1.GAS.NYS?symbol=GAS&form=PRFIEQ

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


Trade:
With GAS at 60.56
Apr 60/55 bull put spread for a net credit of $100
Yield = 100/400 = 25% in 230 days or 40% annualized
(with acquisitions probability and expectation cannot be meaningfully computed from price distribution)

Price................ Profit / Loss............... ROM %
45.00.................... (400.00).................. -75.00%
50.00.................... (400.00).................. -75.00%
54.82.................... (400.00).................. -75.00%
55.00.................... (400.00).................. -75.00%
59.00......................... 0.00...................... 0.00%
60.00...................... 100.00.................... 25.00%
65.00...................... 100.00.................... 25.00%
70.00...................... 100.00.................... 25.00%
75.00...................... 100.00.................... 25.00%
 
Last edited:
stevegee58 said:
OP explained it here.

70% chance of hitting max profit, 10% chance of max loss, 20% chance of price landing in between strikes. It's a 3 point version of expectancy, well described on the internet.

The probabilities come from a formula that uses volatility. Many brokers have calculators for it.
More...
Thank you.
 
 
Last edited:
AAPL:

http://finance.yahoo.com/news/apple-shares-slump-as-new-products-fail-to-surprise-220847161.html

http://finance.yahoo.com/echarts?s=AAPL+Interactive#{"range":"2y","allowChartStacking":true}


Trade:

Jan 17 145/150 bear call spread for a net credit of $95
Yield = 95/405 = 23.5% in 498 days or 17.2% annualized
Prob = 80%

Price............. Profit / Loss.......... ROM %
90.00................. 95.00................. 23.50%
100.00............... 95.00................. 23.50%
125.00............... 95.00................. 23.50%
145.00............... 95.00................. 23.50%
145.12............... 82.90................. 16.58%
145.95................. 0.00................... 0.00%
150.00............ (405.00)............... -81.00%
166.31............ (405.00)............... -81.00%
187.50............ (405.00)............... -81.00%
 
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