My Options Play

[cnms2]

Quote from hankster:
Okay, let me use an example most of us on this thread are familiar with and that is APA.
...
In summary, this board is made up of all kinds of traders, the best and the rest. lol
I put myself into the rest category.
For the rest, longer term cost more to play but your chances of winning are far greater than the short term.
You have only to go back and read the great posts to see what I mean.
I enjoy the healthy and polite debate.
hank

If I'm getting correctly your scenario, you intended to prove the superiority of substituting LEAPS for the stock when selling front month calls on it. It works if your forecast is correct, but there are other scenarios that would prove as well that purchasing the stock would be more profitable, and scenarios that prove that both scenarios would drain your account.

I stick with my opinion that the strategy you suggest is too risky for me. If I were to use LEAPS, at least I would buy deep-in-the-money LEAPS.

When you put on any trade you should have a written trading plan that spells out clearly what you'll do if the trade goes against you: where's your stop-loss (or rolling point if that's what you plan to do).

I don't want to sound discouraging, and I respect your opinion, but please make sure that you understand your risk under all possible market conditions, considering the adverse movement of both price and implied volatility over the life of your position.

Check out these links:
calendar spreads (your LEAP play is a calendar spread)
LEAPS
LEAPS
LEAPS
LEAPS
LEAPS
LEAPS

Hope it helps.

 

[hankster]

With all due respect,
I have been successfully trading leaps since 1998.
Actually it is a diagonal calendar spread.

I run my own stock and options trading room where I have the privilege of trading with many good traders.
I don't mean to prove anything to you or anybody else.
I also trade many other types of options, including short term spreads, naked puts etc..

My objective in spending the time making the example I did was not for the successful short-term traders as yourself but for the novice or the beginner so his account does not get wiped out with the wrong trade.

I have taught some basic option classes although I like to think myself as a perpetual student.

There are many options to options. (pun intended)

Thanks.
hank

 

[cnms2]

Quote from hankster:
...
Actually it is a diagonal calendar spread.
...

I've attached the position you suggested graphed for the current implied volatility and for 75% of it (iv drop is unfavorable to this position), for 0, 15, 30, 45, 60 days from today. They show where this position will make and where it will lose money until January expiration.

Regarding profit calculations: to be fair they have to be done in relation to your risk, and not in relation to the money laid out. Why? Because either you buy the stock or you buy the LEAPS, you should define where you place your stop loss, and this should be decided based on your forecast and how much money you want to risk. This will determine the size of your position. So it is incorrect to calculate your profit in relation to the current value of the stock or of the LEAPS, because you shouldn't lay out the same amount of money for the two positions. If you did your LEAPS position would be substantially riskier for your account.

I think such discussions are meant to clarify our different points of view. We see the same things but we emphasize differently the risks, although objectively the outcome probabilities are the same. Most new and inexperienced traders make the mistake of not paying enough attention to the risk they get into, and this is where I can help.

 

[hankster]

All good points.

 

[iceman1]

Quote from hankster:

With all due respect,
I have been successfully trading leaps since 1998.
Actually it is a diagonal calendar spread.

I run my own stock and options trading room where I have the privilege of trading with many good traders.
I don't mean to prove anything to you or anybody else.
I also trade many other types of options, including short term spreads, naked puts etc..

My objective in spending the time making the example I did was not for the successful short-term traders as yourself but for the novice or the beginner so his account does not get wiped out with the wrong trade.

I have taught some basic option classes although I like to think myself as a perpetual student.

There are many options to options. (pun intended)

Thanks.
hank

with all due respect-- I'm sure you have more insight than 90% of the ET.com members - including (with all due respect) "cnms"! Personally I like your LEAPS strategy.

--- a lot of guys on this thread apparently are theorists --- all theory-- like they read some book last year-- and now became experts and-- like any (many) academic--- they need absolute 110% certainty or "testing" before they dip their toe in it ! But notice that they never offer any contrary or superior suggestions-- typically. Those that can DO -- those that can't - teach. But some can teach and DO!

That's the impression I get reading some of the precise analytical stuff on this thread and others---

--- lots of critics and "ANALysts" - but few traders-- and few input as to strategies that can and will work when utilized by experienced and nimble traders!

:eek:

Ice

 

[hankster]

Hi Ice,
I think you have been around a while also like myself.
I really do respect others trading styles if they work for them.
I only hope to help some newbie so that they will be spared some financial misfortune as I have in the past.
Thanks for your support.
hank

 

[iceman1]

Quote from cnms2: 11-03-05 08:31 PM


You're right: it's risky to buy now. It's always risky to guess reversals. There is a clear bullish divergence from June's low, as well as it is a clear downtrend started end of 2003.

Depending on the time frame you like to trade you could see a different picture. I remember an author writing that it's great to trade weeklies, but you have to do it without watching the dailies. Dr. Elder was writing something similar: if you're trading daily charts, you have to resist the temptation to exit based on the intraday charts.

her's an example of cnms2 finding fault with a suggestion ((I happened to make)--- to buy OVTI March06 15c when they were -- 75-80c (I will post that recommendation later)-- and the stock was 12.30 --

check out he bid price on those calls

"that were risky to buy now "

according to ANALyst-- --- cnms1

 

[iceman1]

Quote from iceman1:

10-14-05

one more to look at:

OVTI

long Mar06 15c (look cheap-- for a reason of course)

then, leg into Nov 15c OR sell front 12.50 calls on move higher next week, if any.


1. earnings report (currently) scheduled Nov 30 allowing for a counter trend move up into said report

2. heavily shorted stock, to-wit:

The stock's SI is up to 39%, in part because of concerns over "discrepancies" between statements made on the Q1 conference call and the subsequent 10-Q filing. This one could be a mover in either direction on its Q3 report (per briefing.com).

3. should trade above 12.50 into next Friday's expiry as this stock has a propensity to pin

4. TA positive: potential DB at 12 -- albeit on low volume ?

5. TA negative: bearish right triangle

6. Fundamentals: ??
http://www.fool.com/news/commentary...1.htm?logvisit=y&source=estmarhln001999&npu=y

have no positions in OVTI yet

iCE

 

[iceman1]

Quote from iceman1:

b.t.w. I entered these calls @.825

 

[iceman1]

Quote from iceman1:

anyone (besides me ) take my advice and enter OVTI --? (see above)

take a look - looking @ 14.50- 15, soon (16-17 also doable)


remember earnings are set for November 30th so that will be an action day-
Ice

I also posted this as a follow-up on 11-03-05-- I said

"16-17 also doable"

what's today's price? yep it was risky--- up almost 40% in how long?

by the way--- next time anyone on this thread finds any trade or investment without ANY risk-- please let the rest of us ---and for sure cnms2----- know about it -STAT!