My OPTION TRADES..... part 2
- Thread starter Put_Master
- Start date
I've got some GTC orders in, but they have not been filled yet.
Part of the reason is the down trend of the VIX has made it harder to earn the minimum credit I desire.
My most recent $10 GLW put, is a reflection of that lowered VIX messing with my ability to get the desired dollar and annualized % return I want.
Hence the reason I accepted a lower GLW annualized % return than I usually accept. I only got 11% on that deal, if I recall correctly.
Another reason is, because I was on a little more leverage than usual, up until my August contracts expired. Hence the reason I did so many trades in July. And not so many during the 1st half of August, as I waited until the August contracts expired.
But also because there has not been much of a correction in the market. Hence, it's harder to find trades I like.
It's all about "strike price selection" for me. Not trends, stories, rumors, ect.....
I may like a stock, but if I can't get the strike I desire, the trade is not initiated. And when you throw in a dropping VIX, I can't get the credit I desire either. And so I wait......
The only thing worse than waiting to get into a trade, is not waiting and wishing you did.
Quote from danshirley:
If have a 15/10 bull put spread on a stock and allow the spread to expire with the stock at 14.50 . My broker will allow me to be put and then sell the stock at 14.50 so I am at a P/L of .50 per unit. If I have gotten .35 for the spread my net loss is .15 per unit . If the dip is further into the spread the loss will be larger.
Exp
Price....................P/L
15___________ .35
14.50 ________(.15)
14__________ (.65)
13__________ (1.65)
12__________ (2.65)
11__________ (3.65)
10__________ (4.65)
9 __________ (4.65)
This, of course assumes I would let the spread go to expiration which I wouldn't.
AND
Try not to use hyperbolic phraseology like "Total Wipe Out". It makes us seem like boardies. If one loses a few dollars on a trade this is not a "WIPE OUT !!!!!!" for christ's sake.
While we're at it lets look at that same picture for a naked short put where I have gotten .50 for the naked put:
........................Spread...........Naked
Price....................P/L................P/L
15___________ .35_________ .50
14.50 ________(.15)________ 0
14__________ (.65)________ (.50)
13__________ (1.65)_______ (1.50)
12__________ (2.65)_______ (2.50)
11__________ (3.65)_______ (3.50)
10__________ (4.65)_______ (4.50)
9 __________ (4.65)________ (5.50)
8 __________ (4.65) _______ (6.50)
7 __________ (4.65) _______ (7.50)
Which is more 'conservative' .... I guess it's a matter of taste.
[/B]
Just a couple of quick issues about Dan's comments above:
In the ist part of the statement above, Dan states:
<<< If have a 15/10 bull put spread on a stock and allow the spread to expire with the stock at 14.50 . My broker will allow me to be put and then sell the stock at 14.50 so I am at a P/L of .50 per unit. If I have gotten .35 for the spread my net loss is .15 per unit . If the dip is further into the spread the loss will be larger. >>>
If the spread expires at $14.50 on Friday, you and your broker have NO IDEA what the stock will open at, or trade at on Monday.
Depending on how leveraged your account is, that will be a very long and nervous weekend for both of you.
And depending on how much leverage you are on, I wouldn't be so sure your broker will even let you wait over that long weekend.
In the 2nd half of Dan's statement he states:
<<< While we're at it lets look at that same picture for a naked short put where I have gotten .50 for the naked put: >>>
........................Spread...........Naked
Price....................P/L................P/L
15___________ .35_________ .50
14.50 ________(.15)________ 0
14__________ (.65)________ (.50)
13__________ (1.65)_______ (1.50)
12__________ (2.65)_______ (2.50)
11__________ (3.65)_______ (3.50)
10__________ (4.65)_______ (4.50)
9 __________ (4.65)________ (5.50)
8 __________ (4.65) _______ (6.50)
7 __________ (4.65) _______ (7.50)
...........................................................................................................................
The problem with the example Dan uses above is,.... there is no $7, $8, $9, or $10. They don't exist for the $15/$10 spread example Dan uses. Any drop "to or below $10", represent a 100% loss for the spread trader. A total wipe out of cash invested.
If the above single stock example represented not just one stock, but all the spread stocks in a spread portfolio, (at a variety of strikes), and they all dropped to the equivalent of 10 or below, that account would then be totally wiped out.
<<< Try not to use hyperbolic phraseology like "Total Wipe Out". It makes us seem like boardies. If one loses a few dollars on a trade this is not a "WIPE OUT !!!!!!" for christ's sake. >>>
If your spread gap is only a few dollars, and the stock only drops a few dollars below your upper strike, then you actually do have a "Total Wipe Out" of your cash invested in that trade.
And if what happens to the single stock, is representative of what may happen to the remainder of your spread portfolio, then indeed your account is "Totally Wiped Out".
You can use a different "phraseology" if you'd like. But the end result will still be the same.
While a drop to between $10 and $11, instead of 10 or below, may only wipe out about 80% of your account value, and is not quite as bad as a total wipe out,... that doesn't really seem like that great of a deal either.
Added note.... On the issue of naked put vs credit spread trader:
if you are the type of investor who manages their risk intelligently, and doesn't wait for major drops to take place before closing a credit spread trade, then you are better off closing a spread trade than a naked put.
It's only when you are over leveraged, (as most spread traders are), and you can't consider buying the stock(s), and you have allowed the stock to get too deep between your strikes,... that's when spreads can be so devastating to ones account value.
If you are a leveraged spread trader, (as most are), you simply can NOT allow a stock to trade between your strikes....(unless you have the funds to actually buy the shares of those stocks).
If not, that deep otm safety cushion you think you have is an illusion.
Close any spread trade even getting close to that upper strike.
Better a small and controlled loss, than a devastating one.
if you are the type of investor who manages their risk intelligently, and doesn't wait for major drops to take place before closing a credit spread trade, then you are better off closing a spread trade than a naked put.
It's only when you are over leveraged, (as most spread traders are), and you can't consider buying the stock(s), and you have allowed the stock to get too deep between your strikes,... that's when spreads can be so devastating to ones account value.
If you are a leveraged spread trader, (as most are), you simply can NOT allow a stock to trade between your strikes....(unless you have the funds to actually buy the shares of those stocks).
If not, that deep otm safety cushion you think you have is an illusion.
Close any spread trade even getting close to that upper strike.
Better a small and controlled loss, than a devastating one.
How do you know that most spread traders are "Over Leveraged"? Are you making this stuff up? The fact that you keep going on about this leads me to believe you are full of shit.
PS .... As far as I know you can't buy and sell options on margin. So how can a spread trader be "Over Leveraged"?
Diaoptions
Put_master has some sort of fixation about spread traders. I asked the same question you did in much greater detail...and the only answer I got was "It's common sese".
I tried to be as reasonable as I could in the remote possibility he had something real to contribute... but he is just nuts and creates and obfuscates to what objective I don't know.
There is only one answer left:
IGNORE
Put_master has some sort of fixation about spread traders. I asked the same question you did in much greater detail...and the only answer I got was "It's common sese".
I tried to be as reasonable as I could in the remote possibility he had something real to contribute... but he is just nuts and creates and obfuscates to what objective I don't know.
There is only one answer left:
IGNORE
Question for diaoptions:
Assume you have $25,000 to invest in a spread trade.
Pick one below, and tell me how many contracts you would be able to control for the strikes you selected, and much potential leverage you are controlling.... if any.
30/27.5
40/35
52.50/50
35/30
60/55
Assume you have $25,000 to invest in a spread trade.
Pick one below, and tell me how many contracts you would be able to control for the strikes you selected, and much potential leverage you are controlling.... if any.
30/27.5
40/35
52.50/50
35/30
60/55