Hedge my ITM leap position - need help
- Thread starter seotrader
- Start date
I'm happy you are all laughing.
But my bank account laugh at you back ( after I'm profit much more in 2009)
And this is without my online marketing biz.
Anyway -
I was a moron in 2008 , after I just started to study about investing and trading ( read 100 books maybe)
Enjoy your day "genius"
But my bank account laugh at you back ( after I'm profit much more in 2009)
And this is without my online marketing biz.
Anyway -
I was a moron in 2008 , after I just started to study about investing and trading ( read 100 books maybe)
Enjoy your day "genius"
You are basically trying to use a form of "collar" with a DITM LEAP as a substitute for the underlying. Perhaps do a search for strategies on trading option collars.
Since you are both buying and selling option premium, volatility works against you both ways...no way around that. Your "cheapest" protection is the longest term PUT you can afford (take a look at the theta decay per day to compare the different time frames...long term is always cheaper over the long run). However, if the move goes in your favor, the put loses value as well.
One method might be to set a point where the stock has moved against you by so much and then buy the put...In this case, if the underlying moves in your favor without breaking that point, you never purchase the put...The downside is a big gap will affect you. A second possibility might be to purchase the put, but buy it back if the stock moves "x" in your favor...either way, you eat commissions and the spread, which eats in to your profits.
You are buying insurance, and if you are insuring a risky proposition (i.e: a volatile stock like GOOG), it's going to cost you.
My $0.02.
Since you are both buying and selling option premium, volatility works against you both ways...no way around that. Your "cheapest" protection is the longest term PUT you can afford (take a look at the theta decay per day to compare the different time frames...long term is always cheaper over the long run). However, if the move goes in your favor, the put loses value as well.
One method might be to set a point where the stock has moved against you by so much and then buy the put...In this case, if the underlying moves in your favor without breaking that point, you never purchase the put...The downside is a big gap will affect you. A second possibility might be to purchase the put, but buy it back if the stock moves "x" in your favor...either way, you eat commissions and the spread, which eats in to your profits.
You are buying insurance, and if you are insuring a risky proposition (i.e: a volatile stock like GOOG), it's going to cost you.
My $0.02.
AFAIK, the entire proposed concept was flawed, But assuming that one wanted to stumble down that path, the pseudo collar could be achieved better via a diagonal (one of the OP's ideas).
I think that mid tem long legs are better than the furthest LEAP because they cost less and in the event of a sharp down turn, the draw down will be less and the cost per day won't be significantly higher.
It's true that in terms of cost per day, the "cheapest" protection is the longest term PUT. But in terms of an adverse move, the loss will be far greater (think parity).
In general, I think diagonals intended for monthly writing are better served by 4-6 month long legs. The maximum profit will be a bit less when right but the maximum losss will be a LOT less when wrong.
Quote from spindr0:
Hate to agree with Spind... but this time he is right on the money...
...In general, I think diagonals intended for monthly writing are better served by 4-6 month long legs. The maximum profit will be a bit less when right but the maximum losss will be a LOT less when wrong.
Yes, helpful post, interesting, buying protection after it moves against you....(I know some folks will bitch on that, but I am going to think about it)
I think you are saying (and these are also my thoughts) running without protection is actually a hedge of sorts, if you get away with it, you "saved" that cost. If you get caught, now you pay, you can decide if the risk is worth it.
I have been re-looking into the type of general strategy the OP presented. I traded MP a number of years ago and the broker made money as I dwindled away. The general market conditions were not right for the trade but we kept on doing it.
There is a good site that presents a lot of data on using puts on the underly to hedge your CC.
But again you are putting on three positions, and you have to manage them.
I have also looked into a hedge using another index or the vix or some other, and have not found anything that makes sense to me.
Also just the short call itself does give you some degree of hedge.
And the long DITM call has a hedge factor compared to the cost of the underly.
To the OP I would ask have you considered just simple verticals?
That is where I have come to instead of doing any kind of CC.
I think you are saying (and these are also my thoughts) running without protection is actually a hedge of sorts, if you get away with it, you "saved" that cost. If you get caught, now you pay, you can decide if the risk is worth it.
I have been re-looking into the type of general strategy the OP presented. I traded MP a number of years ago and the broker made money as I dwindled away. The general market conditions were not right for the trade but we kept on doing it.
There is a good site that presents a lot of data on using puts on the underly to hedge your CC.
But again you are putting on three positions, and you have to manage them.
I have also looked into a hedge using another index or the vix or some other, and have not found anything that makes sense to me.
Also just the short call itself does give you some degree of hedge.
And the long DITM call has a hedge factor compared to the cost of the underly.
To the OP I would ask have you considered just simple verticals?
That is where I have come to instead of doing any kind of CC.
Hello all,
The most normal solution I found for this calender protection:
buy the JAN11 580 PUT (!!!!)
sell the JUN10 500 PUT
*** reminder - beside that we have the 410 JAN11 call long
the theta of the protection can be positive ( in case we sell another call after the JUN10 expired)
assume you keep the JAN11 until expiration
if the stock will be above 500 by JAN11 the maximum loss will be 4000$ .
And this is without selling another put or collecting monthly covered call premium.
For the upside the break even point is 615$ ( not to high for my opinion)
Wanted to know what do you think about this solution.
And if you have good ideas what to do when it drop below 500$ . ( I guess there is a good chance for that )
Thanks
The most normal solution I found for this calender protection:
buy the JAN11 580 PUT (!!!!)
sell the JUN10 500 PUT
*** reminder - beside that we have the 410 JAN11 call long
the theta of the protection can be positive ( in case we sell another call after the JUN10 expired)
assume you keep the JAN11 until expiration
if the stock will be above 500 by JAN11 the maximum loss will be 4000$ .
And this is without selling another put or collecting monthly covered call premium.
For the upside the break even point is 615$ ( not to high for my opinion)
Wanted to know what do you think about this solution.
And if you have good ideas what to do when it drop below 500$ . ( I guess there is a good chance for that )
Thanks
i personally think that google is going to 1000$.
but the guys with the big money speculate on it-they buy constantly till every monthly option expiration,and after,they see,that nobody is ready to pick up the stock,they buy OTM puts at lowIV and start strong sell off of their longs-to put fear .......the stock goes down rapidly for a short time,and than again they start building up the position at much lower levels........
that why its highly volatile.
you have a chance to predict them-if there is a sell off,which is contunies for several days,without any reason-look when the IV of google starts to fall-thats the time,when they start cashing their puts-they lower the IV.....this is a time,that google will turn around again.
and when its going up and IV continiusly falls-as much as it falls,as better chance there is,they will go to sell again.......they aim,that with low IV ,they can triger bigger sell off with theirs.
google is my favorite and i closely watch it since april.
u can hedge it with buying OTM puts ,which are 2-3 months out-you almost pay nothing for time decay,and u buy the puts cheap-when IV is low ang google rises......with a fall u get money from delta,but the real deal is the blow of increased IV into the vega of 3 month OTM put......
if google moves with 10$,u make 1000 on your option...just use half of them for hedge-either buy OTM put,either OTM calendar put spreads on near months.
right now dec/jan 550 calendar is 500$.
if within 2-3 weeks google falls to that level,u can make about 200-300%......
if google continues to rise,you dont lose all the money-with exp. of the dec short,you still have the jan 550 put left.
so,if you use half of the gain,to hedge,you will build several calendar spreads and woudnt realy mind google to make a correction sooner or later....
thats how i play it,but mu hedge is mercedes(DAI),instead of google,for which a lot of people are making fun of me how big a moron i am.......
but if they just see the last couple months and compare the chart of google vs daimler......they might start thinking over what i am trying to explain them.......
good luck with google man,i think there is still a lot money to be made on it
just be very carefull at the end of each month,or when the VIX falls too low!