ETFC triple play

[newguy05]

Quote from spindr0:

1) I do not think much of a vertical spread that takes in less premium than the intrinsic value of the position. IOW, you sell a July 5/3 put spread that takes in $1.20 and will buy the stock for $3.80 if assigned. The current stock price is $3.55. What a deal!

You are missing the point, assignment is a risk not something i WANT to buy. Chance of a july non-dividend stock early assignment is not high.

I would use $1.2 credit to buy the stock at $3.5. As for the stock price going down from 3.8 to 3.5 on friday, that's not relevant for the discussion.

Quote from spindr0:
2) I would not consider a 1 unit position (1 spread and 30 shares) with $190 of downside risk on a $3.55 stock to be one of limited downside risk, particularly since this isn't far from being wallpaper.

As for it being wallpaper, that's your opinion on the outlook of etfc (looks like you do have an opinion on the outlook after all), maybe right or wrong, not the point. Go argue about that on yahoo finance instead. The downside risk IS limited... to $190, with great upside potential (my view).

Quote from spindr0:
3) Selling month over month covered calls on the underlying isn't going to do much to reduce your cost basis. What are you going to get for a $5 strike, 5 cents per month? (you suggested a bounce back to $5)

Feb 5 is .15-.2, 4 is .35-.45, considering underlying at 3.5 i say that's not bad.

Quote from spindr0:
4) If you insist on doing this position, sell naked puts instead of buying the stock and writing covered calls against it. Since they're synthetically equivalent, why bother with the extra slippage and commissions?

I dont think that's writing a COVERED call, where is the cover? Isnt that just a short strangle? you are betting a highly volatile sub $5 stock will stay within a trading range of 3(short put) - 5( short call), and in the process add an unlimited risk to your position. (what if amtrade buys etfc and it jumps to $10?).

 

[commiebat]

Quote from newguy05:

I dont think that's writing a COVERED call, where is the cover?

Umm... here:

3) Start selling month over month covered calls on the underlying to reduce your cost basis (but i would wait until after jan earning to start)

 

[newguy05]

but he's saying dont buy the underlying instead sell naked puts and write(sell) covered call. huh?

 

[commiebat]

Quote from newguy05:

but he's saying dont buy the underlying instead sell naked puts and write(sell) covered call. huh?

Naked put = covered call.

Instead of buying the shares and writing a call, don't buy the shares and do write a put. Same strike, same date.

If you don't think they're equivalent, pick a few strike prices and compare the two at expiration at a few stock prices.

 

[spindr0]

You are missing the point, assignment is a risk not something i WANT to buy. Chance of a july non-dividend stock early assignment is not high.

I'm missing the point? LOL!

Who's talking about early assignment? By selling the Jul 5/3 vertical put spread for a credit of $1.20, you are entering into a contract to buy the stock at $3.80 if you are assigned. You can buy the stock for $3.55 (Friday's close). Where's the edge in that "deal" ?

I would use $1.2 credit to buy the stock at $3.5. As for the stock price going down from 3.8 to 3.5 on friday, that's not relevant for the discussion.

1)Here's a hot tip for you... People sell options in order to collect time premium in order to reduce the cost of a position and provide some downside protection. Where's your time premium?

2) What's the big deal about taking an intrinsic credit and using it to buy more stock? If the stock goes nowhere, you lose since there's no time premium being collected (see #1)

3) Who cares how much the stock dropped on Friday? Or on Thursday? Or on any other day? The price of the stock is relevant to the time at which the options are traded.

As for it being wallpaper, that's your opinion on the outlook of etfc (looks like you do have an opinion on the outlook after all), maybe right or wrong, not the point. Go argue about that on yahoo finance instead. The downside risk IS limited... to $190, with great upside potential (my view).

LOL. My opinion is relegated to the fact that stocks trade at $3.50 for a reason. That's only $3.50 away from wallpaper status. Whether it's going bankrupt or up to the moon is for you to bet on. The simple fact is that it's $3.50 away from bye bye.

Feb 5 is .15-.2o, 4 is .35-.45, considering underlying at 3.5 i say that's not bad.

You are entitled to believe that 7.5 cts per month is not bad. But considering that you initially suggested selling CC's month to month and your quoting 2 month options, I'd say that you'd like it both ways.

I dont think that's writing a COVERED call, where is the cover? isn't that just a short strangle? you are betting a highly volatile sub $5 stock will stay within a trading range of 3(short put) - 5( short call), and in the process add an unlimited risk to your position. (what if amtrade buys etfc and it jumps to $10?).

Consider brushing up on synthetically equivalent strategies as well as learning what option components make up various option strategies.

Good luck with this position. Yep, you're right. It has a great risk/reward spectrum. And don't forget to come back and tell us "I told you so" if it works out for you.

 

[newguy05]

i read it wrong.

sell naked puts instead of buying the stock
and
writing covered calls against it

sell naked puts instead of
buying the stock and writing covered calls against it


Anyway i havent made the trade yet, waiting for the technical to become a bit more clearer.

 

[chrismontez]

This has gotten way too complicated, where did the naked calls come from? Your original position wasn't bad at all. There is some risk of it going to zero and you losing some $, but the risk isn't much and every trade has risk. I just wouldn't put out the $ for the 300 shares of stock. You can buy 3 Jan 09 sp 5 calls for 1/3 the price of the stock and still reap the $ if this gets a big pop on good news.

As for the fact it is at $3.50, I was selling naked puts on nortel when nortel was at $2.50 a few years ago. Kept meaning to buy a dozen or so sp $5 LEAPS as far out as I could and then just forgot about it. Would have been a nice 10 bagger.

 

[newguy05]

yes that's what i plan to do, use the credit from the put spread to buy the 2010 5 calls instead of the stock at about 30% of the underlying price to limit some additional risk.

I think tomorrow will be anotehr down day for etfc as it's the last day of the year, many will close their losing positions for yearend tax. Shorts will wait until next year to avoid paying taxes on their gains and begin to cover before jan earning.

jan will be an interesting month for etfc

 

[turkeyneck]

Quote from athlonmank8:

If I see 1 more E-Trade thread Im going to flip. I've had it.

WHAT VALUE DOES E-TRADE HOLD?! THEY ALMOST BROUGHT THE COMPANY UNDER, REDUCED THEIR ASSETS BY IM NOT SURE HOW MANY BILLION..

You guys act like there's nothing wrong.

Right.....said the same thing about AHM and NEW.

Comon guys.

Get real. Start playing stuff with some potential value.

And you clicked on this thread?