Quote from probe1957:
Don't tell Obama or the fools who voted for him.
yeah...90% of your party (i.e., Republicans) live in double wides and marry their cousins...tell the gummit to keep their hands off my medicare.....their real bright
My OPTION TRADES..... part 2
- Thread starter Put_Master
- Start date
yeah...90% of your party (i.e., Republicans) live in double wides and marry their cousins...tell the gummit to keep their hands off my medicare.....their real bright
LRCX:
http://www.reuters.com/article/2012...News&feedType=RSS&feedName=companyNews&rpc=43
http://finance.yahoo.com/q/ks?s=LRCX+Key+Statistics
NOTE THE HIGH P/E
http://investing.money.msn.com/investments/financial-statements?symbol=lrcx
Trade1: Short Oct 31 put
Trade 2: Oct 31/27 bull put spread
At Expiration:
...................Trade1..........Trade2
REQ:.............3035...............355
Price..................................................Probability
15................(1523).............(355)...........99%
20................(1023).............(355)...........99%
25.................(523)..............(355)...........99%
30..................(19)...............(53).............85%
31...................65..................45..............76%
35...................65..................45..............30%
40...................65..................45................3%
Yield ..............2.1%..............12.7%
Expectation of Trade2: .76(45) - .01(355) - .23(177)= 34.2 - 3.55 -40.71 = -10.05
Negative expectation for the spread..... once again we are not being paid enough for the puts to counter the statistical risk.
Atticus: "That tech stock seems too close for comfort for the teenies you're receiving"
i.e. Implied volatility is too low to support the trade.
PM essentially assigns 0% probability to the risk of a high loss outcome because he thinks he can 'always recover' via follow up trades. Since we have no model for the follow up trades we cannot compute that.
I can't do an expectation for the naked put because it is open ended on the down side. Something I would never ever do.
http://www.reuters.com/article/2012...News&feedType=RSS&feedName=companyNews&rpc=43
http://finance.yahoo.com/q/ks?s=LRCX+Key+Statistics
NOTE THE HIGH P/E
http://investing.money.msn.com/investments/financial-statements?symbol=lrcx
Trade1: Short Oct 31 put
Trade 2: Oct 31/27 bull put spread
At Expiration:
...................Trade1..........Trade2
REQ:.............3035...............355
Price..................................................Probability
15................(1523).............(355)...........99%
20................(1023).............(355)...........99%
25.................(523)..............(355)...........99%
30..................(19)...............(53).............85%
31...................65..................45..............76%
35...................65..................45..............30%
40...................65..................45................3%
Yield ..............2.1%..............12.7%
Expectation of Trade2: .76(45) - .01(355) - .23(177)= 34.2 - 3.55 -40.71 = -10.05
Negative expectation for the spread..... once again we are not being paid enough for the puts to counter the statistical risk.
Atticus: "That tech stock seems too close for comfort for the teenies you're receiving"
i.e. Implied volatility is too low to support the trade.
PM essentially assigns 0% probability to the risk of a high loss outcome because he thinks he can 'always recover' via follow up trades. Since we have no model for the follow up trades we cannot compute that.
I can't do an expectation for the naked put because it is open ended on the down side. Something I would never ever do.
If the vol is low and its trading where you want,you should not be selling 90% spot puts..BUY the stock or trade a bullish callender.
Selling these .30 options is not all it appears to be.Yes the annualised return is "there",but are you going to stay short them if they go to 0.10?
<<< LRCX vola is very low, haven't looked at historical, but it's got to be in the bottom two deciles.
If a stock is trading where I want it technically, and the strike price is at or below tech support, and the strike I desire is available, and the bid / ask gap is reasonable, and the trade is paying in the teens of 13 - 19%, and the company is financially solid and healthy, and the strike price offered is reasonably valued, and the contract date I desire is offered,.... do you really expect me to risk missing the trade, because the vol is a bit lower than I'd like?
If I waited, perhaps I'd get a slightly higher credit, or perhaps a slightly deeper otm cushion. But perhaps the vol might also linger or drop instead.
If all the other criteria I look for are there, really doesn't seem to be worth the risk of waiting, and maybe missing the trade entirely.
I review a lot of stocks each day, looking for ones that meet my multiple criteria.
Once everything falls in place, I'm not waiting on the hope that maybe I can earn a 17% return instead 13%.
I miss plenty of trades each day because they only pay 10% vs my minimum desired of 13%.
Thus once the trade % pays in the "teens", and my other multiple criteria are met.... I'm not going to risk missing the trade, on the "hope" for a slightly higher % return, which may never materialize. [/QUOTE]
Selling these .30 options is not all it appears to be.Yes the annualised return is "there",but are you going to stay short them if they go to 0.10?
<<< LRCX vola is very low, haven't looked at historical, but it's got to be in the bottom two deciles.
If a stock is trading where I want it technically, and the strike price is at or below tech support, and the strike I desire is available, and the bid / ask gap is reasonable, and the trade is paying in the teens of 13 - 19%, and the company is financially solid and healthy, and the strike price offered is reasonably valued, and the contract date I desire is offered,.... do you really expect me to risk missing the trade, because the vol is a bit lower than I'd like?
If I waited, perhaps I'd get a slightly higher credit, or perhaps a slightly deeper otm cushion. But perhaps the vol might also linger or drop instead.
If all the other criteria I look for are there, really doesn't seem to be worth the risk of waiting, and maybe missing the trade entirely.
I review a lot of stocks each day, looking for ones that meet my multiple criteria.
Once everything falls in place, I'm not waiting on the hope that maybe I can earn a 17% return instead 13%.
I miss plenty of trades each day because they only pay 10% vs my minimum desired of 13%.
Thus once the trade % pays in the "teens", and my other multiple criteria are met.... I'm not going to risk missing the trade, on the "hope" for a slightly higher % return, which may never materialize. [/QUOTE]
A naked put isn't "open ended on the down side", a stock cannot go lower than zero.
On Open ended downsides:
I live within commuting distance to New York City, and at one time I used to commute into Manhatten... not daily but several times a week.
The most direct route into NYC was for me to just get onto route 80 and drive on in to the George Washington Bridge and into Manhatten. I rarely did this. Instead I would drive a less direct lower speed route.
The reason was that the traffic on Route 80 was very high speed and to me high risk. I especially disliked having the big rigs come up behind me at 70-80 MPH and flash their lights to get me out of the way.
A lot people travel route 80 ever day and obviously they mostly survive.
But it would only take one bad accident out there to make me history. A small mistake on my part, or someone elses part could easily turn me into a red stain on the roadway, washed away by the next thunderstorm.
I don't go into Manhatten at all these days. The terrible consequence of the low probability event are not something I want to risk... no matter how unlikely.
I live within commuting distance to New York City, and at one time I used to commute into Manhatten... not daily but several times a week.
The most direct route into NYC was for me to just get onto route 80 and drive on in to the George Washington Bridge and into Manhatten. I rarely did this. Instead I would drive a less direct lower speed route.
The reason was that the traffic on Route 80 was very high speed and to me high risk. I especially disliked having the big rigs come up behind me at 70-80 MPH and flash their lights to get me out of the way.
A lot people travel route 80 ever day and obviously they mostly survive.
But it would only take one bad accident out there to make me history. A small mistake on my part, or someone elses part could easily turn me into a red stain on the roadway, washed away by the next thunderstorm.
I don't go into Manhatten at all these days. The terrible consequence of the low probability event are not something I want to risk... no matter how unlikely.
Hi PM,
A couple of questions.Do you do any simple simulations?
You say Dans stocks are trending up and yours are trending down.
What does that tell you other than that your stocks are closer to Zero than his are..
Do you think his stocks are more volatile? More risky? Do you think stocks close to 252 day highs are more/less volatile than stocks close to 252 day lows?
Is buying 252 day lows superior for your strategy than 252 day highs..
More to the point,if you could simulate your strategy regarding stock selection,you could get a fairly meaningful distribution of returns.At that point you have a very good starting point not based on "intuition"..
2 specific points...Your startegy of getting assigned and selling a subsequent is flawed.bad idea.
Anything you do can do with a naked put,you can do with a spread.Yoor logic is way off regarding "spread traders " freaking out if the stock drops to 7.70.Again,stop presenting the case of the dumberst person on the planet who happens to trade spreads.If a 11 dollar stock drops to 7.70,you are far better off being in the initial delta equivalant on the spread. A reasonably intelligent trader trades the spread for that very reason.Stop presenting ridiculous scenarios of massively overleveraging with spreads.
Trading a spread is no different than what you do,except you paid in advance a premium for a guaranteed stop loss level.I am not saying that premium is rich or cheap,but it does prevent the spread trader from freaking out when 11 doolar stocks dislocate to 7.70.
Your stop loss is when the price of the asset goes to zero,and I guarantee if you are fully invested in high beta stocks,you will freak out weigh before that and never recover..
Hence my strike of $9, with a BE of $8.70.
But also remember, I really don't mind if a stock gets put to me, as long as I can earn a double digit % return on it via a subsequent covered call.
Thus, while a drop to the $7.70 area might freak out a spread trader, I don't mind holding this financially healthy reasonably priced company, going through a temporary difficult time.
Hence the reason all my stocks tend to be trending down when I sell puts on them. My focus is on price.
. Going naked give me the choice and freedom to buy and hold if I want to.
But then again, because of that added risk and responsibility, I try to be very picky what stocks and what prices I select.
Your trade may be right, but if your TIMING is wrong with spreads,.... you can lose everything. Because of the excessive leverage, there is rarely an opportunity for buying and holding most trades with spreads.
. [/B][/QUOTE]
A couple of questions.Do you do any simple simulations?
You say Dans stocks are trending up and yours are trending down.
What does that tell you other than that your stocks are closer to Zero than his are..
Do you think his stocks are more volatile? More risky? Do you think stocks close to 252 day highs are more/less volatile than stocks close to 252 day lows?
Is buying 252 day lows superior for your strategy than 252 day highs..
More to the point,if you could simulate your strategy regarding stock selection,you could get a fairly meaningful distribution of returns.At that point you have a very good starting point not based on "intuition"..
2 specific points...Your startegy of getting assigned and selling a subsequent is flawed.bad idea.
Anything you do can do with a naked put,you can do with a spread.Yoor logic is way off regarding "spread traders " freaking out if the stock drops to 7.70.Again,stop presenting the case of the dumberst person on the planet who happens to trade spreads.If a 11 dollar stock drops to 7.70,you are far better off being in the initial delta equivalant on the spread. A reasonably intelligent trader trades the spread for that very reason.Stop presenting ridiculous scenarios of massively overleveraging with spreads.
Trading a spread is no different than what you do,except you paid in advance a premium for a guaranteed stop loss level.I am not saying that premium is rich or cheap,but it does prevent the spread trader from freaking out when 11 doolar stocks dislocate to 7.70.
Your stop loss is when the price of the asset goes to zero,and I guarantee if you are fully invested in high beta stocks,you will freak out weigh before that and never recover..
Hence my strike of $9, with a BE of $8.70.
But also remember, I really don't mind if a stock gets put to me, as long as I can earn a double digit % return on it via a subsequent covered call.
Thus, while a drop to the $7.70 area might freak out a spread trader, I don't mind holding this financially healthy reasonably priced company, going through a temporary difficult time.
Hence the reason all my stocks tend to be trending down when I sell puts on them. My focus is on price.
. Going naked give me the choice and freedom to buy and hold if I want to.
But then again, because of that added risk and responsibility, I try to be very picky what stocks and what prices I select.
Your trade may be right, but if your TIMING is wrong with spreads,.... you can lose everything. Because of the excessive leverage, there is rarely an opportunity for buying and holding most trades with spreads.
. [/B][/QUOTE]
Quote from HurricaneUS:
yeah...90% of your party (i.e., Republicans) live in double wides and marry their cousins...tell the gummit to keep their hands off my medicare.....their real bright
You might want to check your grammar, not to mention your facts, before you question how bright someone else is.
yeah..you've already told us how bright you are...dumb ass tool
A FEW REPLIES:
<<< PM essentially assigns 0% probability to the risk of a high loss outcome because he thinks he can 'always recover' via follow up trades. Since we have no model for the follow up trades we cannot compute that. >>>
Just the opposite. I assign a high probability to the possibility, of "any stock" experiencing a large % drop at anytime.
That is why I don't invest in stocks that have trended up, and are now more expensive, than if i wait for them to trend down to a more "value" price.
I don't invest in "trends". I wait to invest at "specific prices", for specific technical and fundamental reasons.
Nor do I invest thinking I can always recover.
I invest thinking about "recovery potential", because I'm aware any stock can drop at any time. That is why I am picky about my stock and price selection.
I think about my stock and cash safety concerns BEFORE I invest.
It's the spread traders who are more likely to invest without thinking about the probability of a sig drop or recovery potential, because they feel they are "protected" and can only suffer limited losses.
WRONG.
It's your brokerage firm that is protected via your spreads.
Meanwhile, you can suffer an 80 - 100% loss of account value, on a merely moderate and short lived correction, of just a few months.
So much for "recovery potential"..... OOPS!
<<< If the vol is low and its trading where you want,you should not be selling 90% spot puts..BUY the stock or trade a bullish callender. >>>
I agree that is a reasonable trade consideration.
But as I previously stated, I have no idea if a stock will rise, or how much it will rise, or when it will start to rise, or how fast it will rise, or when it will stop rising.
But I do have some idea of when a stock is likely to stop dropping, because the value oriented bargain hunters will eventually come in.
AKA..... my strike price.
<<< Selling these .30 options is not all it appears to be.Yes the annualised return is "there",but are you going to stay short them if they go to 0.10? >>>
First, you have to view those $0.30 credits in proper "context".
A $0.30 credit on a $9 stock, is the equivalent of.....
A $1.00 credit on a $30 stock.
A $1.50 credit on a $45 stock.
A $20. credit on a $600 stock...... (APPL after it drops to $600)
(The credit must also be viewed in the "context" of how deep an otm safety cushion the trade has, what the annualized % return is, how volatile the stock is, how strong the L-T tech support is, ect.....
It's about the overall "package").
If the credit drops to $0.10 I would consider closing the trade.
Depends on whether I'm on margin, if earnings report is pending, if I need additional cash for a new investment, how much time is remaining on the contract, how deep the otm strike is, ect.....
<<< PM essentially assigns 0% probability to the risk of a high loss outcome because he thinks he can 'always recover' via follow up trades. Since we have no model for the follow up trades we cannot compute that. >>>
Just the opposite. I assign a high probability to the possibility, of "any stock" experiencing a large % drop at anytime.
That is why I don't invest in stocks that have trended up, and are now more expensive, than if i wait for them to trend down to a more "value" price.
I don't invest in "trends". I wait to invest at "specific prices", for specific technical and fundamental reasons.
Nor do I invest thinking I can always recover.
I invest thinking about "recovery potential", because I'm aware any stock can drop at any time. That is why I am picky about my stock and price selection.
I think about my stock and cash safety concerns BEFORE I invest.
It's the spread traders who are more likely to invest without thinking about the probability of a sig drop or recovery potential, because they feel they are "protected" and can only suffer limited losses.
WRONG.
It's your brokerage firm that is protected via your spreads.
Meanwhile, you can suffer an 80 - 100% loss of account value, on a merely moderate and short lived correction, of just a few months.
So much for "recovery potential"..... OOPS!
<<< If the vol is low and its trading where you want,you should not be selling 90% spot puts..BUY the stock or trade a bullish callender. >>>
I agree that is a reasonable trade consideration.
But as I previously stated, I have no idea if a stock will rise, or how much it will rise, or when it will start to rise, or how fast it will rise, or when it will stop rising.
But I do have some idea of when a stock is likely to stop dropping, because the value oriented bargain hunters will eventually come in.
AKA..... my strike price.
<<< Selling these .30 options is not all it appears to be.Yes the annualised return is "there",but are you going to stay short them if they go to 0.10? >>>
First, you have to view those $0.30 credits in proper "context".
A $0.30 credit on a $9 stock, is the equivalent of.....
A $1.00 credit on a $30 stock.
A $1.50 credit on a $45 stock.
A $20. credit on a $600 stock...... (APPL after it drops to $600)
(The credit must also be viewed in the "context" of how deep an otm safety cushion the trade has, what the annualized % return is, how volatile the stock is, how strong the L-T tech support is, ect.....
It's about the overall "package").
If the credit drops to $0.10 I would consider closing the trade.
Depends on whether I'm on margin, if earnings report is pending, if I need additional cash for a new investment, how much time is remaining on the contract, how deep the otm strike is, ect.....
There is an easy way to take out another risk factor with minimal,if any, effect on your returns. only sell premium on diversified vehicles like etfs or indexes. specific stock risk is a big factor in put selling and indexes are not going to 0 anytime soon.
the fact that stocks are about 80-90% correlated to the market right now means its hard to add alpha with stock picking so why not eliminate specific stock risk.