My strategy to earn money with no risk.

Quote from boots:

What if you just roll down the Put and leave the Call alone?

(The more I learn the more I don't understand how I have been doing so well....dumb luck I guess)

boots
More...

Simplistically, rolling down just the PUT is widening the vertical i.e. you are adding risk to the position.

The collars you are trading are relatively high probability and given a bull market you will most likely have been experiencing the max profit on these verticals more often than not!

Hey, if it ain't broke, don't fix it. Go fishing and don't worry about it :)

MoMoney.
 
Actually I have just started using these collars. Most of what I was doing was high risk covered calls and I would have to go back and look but I don't think a single one did what it was suppose to. I had to roll up and down and over and under and I have had a ball fooling with it.

Which brings me to another area of questions (since you guys have been so helpful).

Lets say you have a stock like TLAB right now:

Stock at 10.8
Aug 10 call at 1.20
Assume a stop on the stock at 9.

Now I plug this into a Monte Carlo with the days till expire, the Volatility, the call strike and the stop price and run probabilities of it hitting the stop, closing between the stop and the strike and it closeing above the strike. This then gives me an "Expected Return". In this case the Expected is $25.17 which is about a 50% annual return.

Is it valid to assume from this that if I traded these over a long time period I could expect on average the "Expected" return? Have I done this right?

The one problem I see is if the stock hits the stop I then really need to buy the call back. Is there other follow up action to help with this?

thanks

boots
 
Quote from momoneythansens:

Alas, downside protection does not equal no loss. The downside protection max loss is the debit paid for the synthetic CALL (long stock + long PUT).
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OK, I thought you were saying that the more the underlying goes down the more you would lose.

So it would seem that (long stock + long put = synthetic call) plus short call is just a strangle. You can sell a Jan 07 WLP 77.50/75.00 strangle for about $10 right now.
 
Quote from boots:

Actually I have just started using these collars. Most of what I was doing was high risk covered calls and I would have to go back and look but I don't think a single one did what it was suppose to. I had to roll up and down and over and under and I have had a ball fooling with it.

Which brings me to another area of questions (since you guys have been so helpful).

Lets say you have a stock like TLAB right now:

Stock at 10.8
Aug 10 call at 1.20
Assume a stop on the stock at 9.

Now I plug this into a Monte Carlo with the days till expire, the Volatility, the call strike and the stop price and run probabilities of it hitting the stop, closing between the stop and the strike and it closeing above the strike. This then gives me an "Expected Return". In this case the Expected is $25.17 which is about a 50% annual return.

Is it valid to assume from this that if I traded these over a long time period I could expect on average the "Expected" return? Have I done this right?

The one problem I see is if the stock hits the stop I then really need to buy the call back. Is there other follow up action to help with this?

thanks

boots
More...

Yeah, you do need to buy the call back, otherwise it's a naked call which can be very dangerous.

What Monte Carlo do you use? Is there a free one available?
 
try this one, it is free.

WWW.hoadley.net/options/barrierprobs.aspx

A note to clarify...what I have been doing the most is ratio writes. Just closed one I had on WFR. Opened it on June 13th with 2 to 1 July 30 calls. Rolled it a few days ago to August but just sold one Aug 30 call and bought one Aug 30 Put. Just closed it for a 22.8% return in about 37 days.

OOPS...I am still short the call so I guess I am legging out but the return is based on the stop I have on the call. If I could just do this on a regular basis I would be real happy.

boots
 
Quote from Eliot Hosewater:

OK, I thought you were saying that the more the underlying goes down the more you would lose.

So it would seem that (long stock + long put = synthetic call) plus short call is just a strangle. You can sell a Jan 07 WLP 77.50/75.00 strangle for about $10 right now.
More...

Hi Eliot
I think you've got things a little mixed up. A long call, whether synthetic or not, has limited risk. If you then sell a call against it you end up with a long bull call spread, as momoney has already mentioned - not a strangle, as you were stating. A long strangle is a position made up of a LONG call and a long put of different strikes.
Best
daddy's boy
 
Quote from Eliot Hosewater:

Yeah, you do need to buy the call back, otherwise it's a naked call which can be very dangerous.
More...
The call is not naked - it's covered by the stock, hence it's called a "covered call" (aka synthetic short/naked put). Iow, the covered call position acts like a naked short put, which, of course, has large potential risk if the underlying gaps south (e.g. cnc a few days ago or yhoo on 7/19 - your stops wouldn't have saved you then).
Best
Daddy's boy
 
Quote from daddy'sboy:

Hi Eliot
I think you've got things a little mixed up. A long call, whether synthetic or not, has limited risk. If you then sell a call against it you end up with a long bull call spread, as momoney has already mentioned - not a strangle, as you were stating. A long strangle is a position made up of a LONG call and a long put of different strikes.
Best
daddy's boy
More...

Yeah, you're right, I don't know what I was thinking (except whether or not to sell my DIA puts before OE).

Anyway, would you touch the $10 strangle, or is the volatility too high? Is there any way to protect it with some flying beast (butterfly, condor, etc)? I haven't studied those at all yet. Or will you always either have some risk or no profit no matter what combinations you put on?
 
Quote from daddy'sboy:

The call is not naked - it's covered by the stock, hence it's called a "covered call" (aka synthetic short/naked put). Iow, the covered call position acts like a naked short put, which, of course, has large potential risk if the underlying gaps south (e.g. cnc a few days ago or yhoo on 7/19 - your stops wouldn't have saved you then).
Best
Daddy's boy
More...

No, his stock hit the stop so it was sold, so the short call is now naked.
 
Quote from Eliot Hosewater:

No, his stock hit the stop so it was sold, so the short call is now naked.
More...
I see - I didn't realise he'd sold his stock.
Best
daddy's boy
 
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