My Options Play

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Quote from cnms2:

I'm suggesting VZ for a short play:

bto VZ Nov 32.5 put VZWZ
sto VZ Nov 30 put VZWF

It can be opened now for $1.6 (VZ ~$30.5).

Source: Tue 10/25/05 Schaeffer's Contrarian commentary on Barron's bullish assessment triggered my looking at VZ's charts.

Reason: down trend; retracement to 20EMA completed; short term bearish divergences give an entry signal.

Comment: weekly bullish divergences show possible trend change, but it doesn't look imminent.

IV: ~24% in the highest readings over past year, recently as low as 16%; seems better to open the vertical spread selling the ATM put.

Quarterly report: Oct 27; makes this play riskier, but probable subsequent IV collapse gives upside to this spread trade; also, my analysis shows no short term market upside

Stop loss: underlying at ~$31.5.

Exit target: underlying at ~$29.2.

Time frame to exit: 1-2 weeks.
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try this play

+ dec 32.50p
-Nov 32.50

for .10-.15c

VZ will trade back to 32.50 or higher by November expiry

just an opinion


in any event buying the front 32.50p isn't best idea when you can buy Dec premium for a few pennies more!

Ice
:cool:
 
Quote from iceman1:

try this play

+ dec 32.50p
-Nov 32.50

for .10-.15c

VZ will trade back to 32.50 or higher by November expiry

just an opinion


in any event buying the front 32.50p isn't best idea when you can buy Dec premium for a few pennies more!

Ice
:cool:
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The long calendar spread. Why not use the 30's though so your constructs are ATM and you can get a pure time decay? I guess you believe the underlying will move into the $32.50 area sooner than later.
 
Quote from Cluseau:

The long calendar spread. Why not use the 30's though so your constructs are ATM and you can get a pure time decay? I guess you believe the underlying will move into the $32.50 area sooner than later.
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-- you can use the 30s also
 
Quote from iceman1:

try this play

+ dec 32.50p
-Nov 32.50

for .10-.15c

VZ will trade back to 32.50 or higher by November expiry

just an opinion


in any event buying the front 32.50p isn't best idea when you can buy Dec premium for a few pennies more!

Ice
:cool:
More...

You didn't mention how many spreads to open for your alternate proposal, so I considered two situations:

1) same $ invested

IV days spreads symbol strike exp p/c bid ask

0.25 23 10 VZWZ 32.5 Nov,05 put 2.05 2.15
0.248 23 -10 VZWF 30 Nov,05 put 0.45 0.55
0.212 51 -100 VZXZ 32.5 Dec,05 put 2.15 2.2
0.25 23 100 VZWZ 32.5 Nov,05 put 2.05 2.15

2) same # spreads opened

IV days spreads symbol strike exp p/c bid ask

0.25 23 10 VZWZ 32.5 Nov,05 put 2.05 2.15
0.248 23 -10 VZWF 30 Nov,05 put 0.45 0.55
0.212 51 -10 VZXZ 32.5 Dec,05 put 2.15 2.2
0.25 23 10 VZWZ 32.5 Nov,05 put 2.05 2.15

Please see the two graphs attached. They show that for my outlook my position outperforms, for your outlook your position outperforms.
 

Attachments

I can? Thanks. :)

I want to setup HUM but am finding little volume and open interest to flap thy wings so i may just stick to the underlying. Any thoughts on possible option constructs for HUM?

EDIT: cnms2, how difficult was is it to setup your excel sheets to run options analysis?
 
Quote from Cluseau:

I can? Thanks. :)

I want to setup HUM but am finding little volume and open interest to flap thy wings so i may just stick to the underlying. Any thoughts on possible option constructs for HUM?

EDIT: cnms2, how difficult was is it to setup your excel sheets to run options analysis?
More...

I use a few Visual Basic routines that I wrote myself. I preferred this solution because I can customize it when I want, and it suffices me.

I heard that Hoadley offers a very good and inexpensive Excel add-in:
http://www.hoadley.net/options/options.htm
 
Quote from Cluseau:

I can? Thanks. :)

I want to setup HUM but am finding little volume and open interest to flap thy wings so i may just stick to the underlying. Any thoughts on possible option constructs for HUM?

EDIT: cnms2, how difficult was is it to setup your excel sheets to run options analysis?
More...

I see HUM in uptrend in all time frames, with a recent "healthy" retracement about 7% bellow 22 day EMA. Intraday charts indicate a possible long entry point.

IV is high 40-45%, from recent values of 28-32%.

Quarterly report is scheduled for Mon, Oct 31. HUM has a beta of .38, so it's not much affected by the market trend.

I'd go for a bull call spread Nov 40/45, placing a limit order around $2.6 if I traded only a couple of contracts, maybe a dime higher if I traded more because the volume is pretty thin (although there is enough open interest). The Nov 40 call bid/ask spread is wide at $0.4, but there were a few trades at $3.6 just a few minutes before closing.

Another possibility would be to try to leg into the spread opening the long leg firstly, then place an aggressive order for the short leg, and hope for some price action help.

My stop loss would be for the underlying around $41.5 (risk about $1.4) and the exit target around $46-47 (return around $3.1). This seem a reasonable reward/risk ratio, and it is about the same for the spread too.

I would go for the spread instead of the long call because of the high IV. The next lower strike is 35. The Nov 40/45 (HUMKH/HUMKI) bull call spread outperforms the long Nov 35 (HUMKG; in a ratio 3/10 for even money) if I'm right on my outlook, with a maximum performance around $45 which is close to my exit target.

But this is again a play straddling the quarterly report.

A calendar spread might bring a better return if the price doesn't move much, but would be more susceptible to a gap than a vertical spread. As expected: you can't get more without risking more.
 
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