My Options Play

[cnms2]

Quote from hajimow:

It might be opened for $0.10 but the natural price is only $0.05 less $0.025 in commissions at oX, with a margin requirement of $560 per contract. This means about 0.5% return on margin.

Disclosure: I will not do the trade that I mentioned because I am already loaded. If I could do the trade, I would not change my credit from 0.1 to 0.05 to make the order a market order. I will pay 1.5 for commission so credit will be $8.5 per contract.

I have to have (20% 29.5 - 2.5)x100=$340 per contract.
So the profit will be $8.5/$340 x100=2.5% in 5 weeks.

If the market goes down and the stock dips, you can get more than 10 cents from the spread.

My broker is IB.
Another disclosure: No trade is safe. We just believe they are safe and profitable. Once we enter the trade, time might prove we were very wrong.

I think you may have an error in your margin calculation. These are oX margin guidelines for naked puts and calls:
"25% of the underlying market price + the premium - amount out of the money OR
10% of the underlying market price (or strike price for O-T-M puts) + the premium, whichever is greater."

Even considering your fills, I guess your -2.5 should be -0.25?

oX trade calculator gave me $560 margin for the current quotes.

 

[pinabetal]

Quote from cnms2:

DELL's both weekly and daily charts show a bearish trend, but both exhibit bullish divergences for a bullish setup. See attached weekly and daily charts.

I would say a sideways trend (sideways on daily chart..bearish trend on weekly) since the 1st Nov. And yes it is about to change trend to up or down. The weekly chart shows demand coming back in. Should be able to tell more about which way it will trend monday. I lean toward bullish.

 

[hajimow]

to cnms2:

First I should say that I enjoy your and everyone else responses and I believe in this way we can all learn more. I believe none of us want to hear that everyone agrees with us. So if you see that I am wrong please keep responding me so we can come to a conclusion.

20% or 25% or even 30% depends on the broker. I know that Fidelity asks for minimum of $1000 for selling naked call or put while IB asks for only $250 as minimum. I also found a bug in calculating the margin requirements for naked PUT in ameritrade and reported it and asked them if I am right, to give me 3 free trades and after two weeks I go a letter from them saying that I was right and they were going to fix it but they never did (it was about 2 years ago) and I closed my account. The bug was that for naked PUT when the stock was going up and in your direction, the margin requirement was still 30% of the current stock price!!! so If you sold naked put for DELL for 27.5, and the stock would go to $200, you were in trouble because you needed 30% of %200 as margin requirement while your trade was going in your direction.

Now back to our discussion. This is what I got from IB's website for margin requirement for naked PUT.
100% * option market value + maximum (((20% * (underlying market value) - out of the money amount), 10% * strike price, $2.50 * multiplier * number of contracts). 20% above is 15% for broad based index options. Short sale proceeds are applied to cash.
Lets assume DELL is 29.5 and we want to sell naked PUT for 27.5 and option market value is 0.2. It will be:
0.2 + Max of {(5.9-2), (2.75),(2.5)} that would be 0.2 + 3.9=4.1
Since you get 0.2 from selling the option , you only need to put $3.9 per share to sell the option. For each contract you will need $390.
Am I missing something?

 

[hajimow]

Even considering your fills, I guess your -2.5 should be -0.25?
No it should be 2.5

oX trade calculator gave me $560 margin for the current quotes.

I recalculated based on your formula from OX and my formula from IB based on the exact numbers of DELL =29.4 and option price of 0.225 (middle of 0.2 and 0.25)

OX : (0.25% x29.4-(29.4-27.5)x100 + 0.225=567.5
IB : (0.20% x29.4-(29.4-27.5)x100 + 0.225=420.5

Since in both cases we already get 0.2 per contract, the margin will be:

OX: 547.5
IB: 400.5

Of course, if the stock goes up, you will need less margin to hold the position but in IB case, it will never be less than $250 per contract.

 

[hajimow]

I would say a sideways trend (sideways on daily chart..bearish trend on weekly) since the 1st Nov. And yes it is about to change trend to up or down. The weekly chart shows demand coming back in. Should be able to tell more about which way it will trend monday. I lean toward bullish.

I agree with you. DELL will be market performer and slightly leaning toward market outperform because of correction.

 

[cnms2]

Quote from hajimow:

Even considering your fills, I guess your -2.5 should be -0.25?
No it should be 2.5

oX trade calculator gave me $560 margin for the current quotes.

I recalculated based on your formula from OX and my formula from IB based on the exact numbers of DELL =29.4 and option price of 0.225 (middle of 0.2 and 0.25)

OX : (0.25% x29.4-(29.4-27.5)x100 + 0.225=567.5
IB : (0.20% x29.4-(29.4-27.5)x100 + 0.225=420.5

Since in both cases we already get 0.2 per contract, the margin will be:

OX: 547.5
IB: 400.5

Of course, if the stock goes up, you will need less margin to hold the position but in IB case, it will never be less than $250 per contract.

Thanks for clarifying this margin discrepancy. I don't do this type of trades, so I was not aware of oX's more restrictive margin guidelines.

 

[iceman1]

Quote from pinabetal:

I really thought VLO would trade below yesterday low already but it hasn't which does indicate a "little" demand coming back in. By the close should have a better view for monday. Nevertheless, some money could have been made on the drop from 98.25 to 95.41. I just figured it would have already traded down lower. It could close high or low just have to wait and see.

Hmmmmm - will VLO reach 100 today - stay tuned?!

wish it had not gapped up

99.10 HOD

 

[iceman1]

Quote from hajimow:

A "rather" safe trade on DELL:
Sell Dec 27.5 Put and buy 32.5 CALL for December with the credit of 10 cents.
If DELL stays between 27.5 to 32.5, you will get 2% profit in 5 weeks. and if it goes above 32.5, you are the king and if it goes below 27.5, you will start to lose. This is not a screaming trade but a safe trade and you can sleep. You can find lots of trades like this.

hajiimow

did u consider buying Dec 30c - selling Nov 30c ?

I mentioned it in an earlier post at which time it could have been done for -.45. The scenario (plan) was (is) to have front month expire worthless and then have DELL trade up to at least 31 post-expiry.

((plan B would be to sto Dec 27.50c IF one believed DELL will trend even lower into year-end- doubtful) OR simply scratch the Dec 30c after Friday-- or IF stock moved up significantly to where 32.50c began yielding decent premium- sell (ratio) that strike ))

Ice

 

[pinabetal]

Quote from iceman1:

Hmmmmm - will VLO reach 100 today - stay tuned?!

wish it had not gapped up

99.10 HOD

Getting real close. Friday some demand came back in but so far hasn't been enough to push it up to 100 today monday 14th. Nevertheless, after it fills the Gap it could head north again before the day ends. Just have to wait and see. Or it could slide south more.

 

[hajimow]

hajiimow

did u consider buying Dec 30c - selling Nov 30c ?

I mentioned it in an earlier post at which time it could have been done for -.45. The scenario (plan) was (is) to have front month expire worthless and then have DELL trade up to at least 31 post-expiry.

((plan B would be to sto Dec 27.50c IF one believed DELL will trend even lower into year-end- doubtful) OR simply scratch the Dec 30c after Friday-- or IF stock moved up significantly to where 32.50c began yielding decent premium- sell (ratio) that strike ))

A good strategy. I will analyze it carefully tonight and maybe I will put a trade tomorrow. Thanks.