covered call credit spread? GE

spindr0 · Mar 2, 2009

Quote from prc117f:

I bought 24 contracts (puts) GEWOU for 67 cents
I wrote 24 contracts (calls) GEWCU 1.31

You've turned your long position into a conversion.

Just curious... what was your reasoning for doing this?

spindr0 · Mar 2, 2009

Aside from all these technicalities, I do not understand why you also suggested that buying cheap long puts of GE is a bad idea in OP's situation. He really does NOT need them to go into the money to profit from the further slide in the stock price! Today, for instance, March 2.5 puts gained 150% of their value, rising from $0.02 to $0.05. If he had bought 50 contracts risking only $100, he could have made $150. Consider now that his 2400 shares brought in another $2K of unrealized loss today, and it's not hard to see that going long on puts is a much better "hedge" play than any type of credit spread in OP's situation.

Let's see if I have this right. In your earlier post you suggest buying deep OTM puts (the March 5's) is a good way for the OP to hedge his way out of his large loss on GE. And today you are trying to convince me that making $150 on 50 March 2.5 puts going from $.02 to $.05 accomplished that as the OP's position lost $2K today?

Even if you could have executed at those prices, it's no more than a good trade for a speculator (in terms of percentage profit not in terms of good trading). That's not good hedging and it's lousy money management. However, you are free to believe that it is.

Subdude · Mar 2, 2009

Quote from spindr0:

Let's see if I have this right. In your earlier post you suggest buying deep OTM puts (the March 5's) is a good way for the OP to hedge his way out of his large loss on GE. And today you are trying to convince me that making $150 on 50 March 2.5 puts going from $.02 to $.05 accomplished that as the OP's position lost $2K today?

Even if you could have executed at those prices, it's no more than a good trade for a speculator (in terms of percentage profit not in terms of good trading). That's not good hedging and it's lousy money management. However, you are free to believe that it is.

Your comments are laughable.

1. Yes, you could have executed at those prices - just look at Monday's range for the contract.
2. I would define lousy money management as incurring 50% unrealized loss in the first place. A tiny fraction of that recovered by some "clever" spread writing strategy is negligible. I merely pointed out a better trade, given what we have to work with today.

You get out of the way because you think that the underlying is going down or that you've reached your stop loss point. The problem is that the OP does not want to get out of the way. He wants to stay with the position and participate to the upside if GE recovers and has asked if his initial option stategy would achieve that.

3. Participating in the "upside" could have begun for him at a much better price point than $15. Do you not think the underlying has been going down for the last - oh, I don't know - 6 weeks???

Hey, I know of a better example - let me buy BAC at $20, wait for it to drop to $4 and start writing calls as I'm sitting on the position awaiting the "upside". That's what I call money management.

prc117f · Mar 2, 2009

Quote from spindr0:

You've turned your long position into a conversion.

Just curious... what was your reasoning for doing this?

I felt a bit bearish on opening

I saw a pretty wide hole between the call short and the long put of 7.50 Right now my long put and my short call are profitable.

GE did hit down hard today so it was nice to have the call and put in place.

Lots of bearish news, the GE CDS spreads getting pretty wide with upfront required. etc..

I felt the downside was a more risky end than potential big upswing. 19 days of time value.

I will be evaluating further tomorrow and keeping an eye on things.

Unfortunately I wish I was thinking all this stuff the few days prior to last friday

I guess you learn from your mistakes and figure out things etc..

Anyhow Been reading up on options I should have been learning more about options, pretty powerful stuff.

I got a few books I ordered in.

Anyhow thanks for the insight, trying to think outloud.

dagnyt · Mar 2, 2009

Quote from prc117f:

GE did hit down hard today so it was nice to have the call and put in place.

You no longer have any GE position. What you have now is PIN RISK, and you will neither make nor lose money on your 24-lots of a forward conversion.

Mark

dagnyt · Mar 2, 2009

Quote from Subdude:

Your comments are laughable.

That's quite a comment from someone who thinks that anyone could have bought options at the bid price, just because it traded at that price. And ditto for selling at the ask price.

And it's amazing that you believe th earn ose trades earned $150. Who is this broker who charges zero commissions for two 50-lots?

Mark

Subdude · Mar 2, 2009

Quote from dagnyt:

That's quite a comment from someone who thinks that anyone could have bought options at the bid price, just because it traded at that price. And ditto for selling at the ask price.

And it's amazing that you believe th earn ose trades earned $150. Who is this broker who charges zero commissions for two 50-lots?

Mark

I am constantly amazed by how many people here choose to pick a fight over the dumbest shit. Okay, you got me there - IB would charge $25 for this roundtrip trade, and $150 would be reduced to $125. Yes, one could have bought it at $0.02, if not Monday, then Friday for sure.

Your point???

dagnyt · Mar 3, 2009

Quote from Subdude:

Your point???

My point is that I think your referring to SPIN's comments as laughable was pretty silly.

I'm not looking to pick a fight.

Mark

Subdude · Mar 3, 2009

Quote from Subdude:
Therein lies the problem. Why not just get out of his long right NOW altogether, and pick up GE much cheaper later? The money saved by staying out of the declining market is as good as any income generated by option writing strategies.

And the best advice award in this thread goes to... (drum roll) ME! I know you have a cash account, prc, but man - how much of this brutality can you possibly take?

spindr0 · Mar 3, 2009

You're like the Pillsbury Dough Boy, subdude. Squeeze here and out pops an answer over there which has nothing to do with the discussion.

I get it. Your ideas are good (to you) even if they have nothing to do with what's asked or are even relevant or practical given the OP's situation. LOL...