oldschool getting schooled

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oldschool

Trade #1:

Underlying - AAPL
Bias - Bullish
Bullish Rating - 7 (Max=10)
Time frame: 2-3 weeks.

Thoughts:

Don't think we'll see the recent swing low of 182-183 for the next few weeks. Possible rally to 213+. Thinking it's a logical window dressing candidate for end of '07 into beg of '08. If possible, would like to adjust to maintain a net long position in the stock if the trade expires profitably. I'm thinking with the recent rally, there's probably very little premium on puts, so I was thinking perhaps a ratio bull spread or something.

Max loss: $1,500
Max margin for trade: $5,000
Acct Bal: $30,000

Would love some ideas and questions if I have left out anything.

Thanks to the participants!
 
Quote from oldschool:

Max loss: $1,500
Max margin for trade: $5,000
Acct Bal: $30,000
More...

Well, since you asked, sizing your position and calculating your stops so that you're risking 5% of your account on the one trade is a bit outside the usual limits, but if you feel strongly about it, then you can do what Soros says you should do and 'be a pig when you believe you're right'.

Good luck on your trade.
 
Quote from oldschool:

Trade #1:

Underlying - AAPL
Bias - Bullish
Bullish Rating - 7 (Max=10)
Time frame: 2-3 weeks.

Thoughts:

Don't think we'll see the recent swing low of 182-183 for the next few weeks. Possible rally to 213+. Thinking it's a logical window dressing candidate for end of '07 into beg of '08. If possible, would like to adjust to maintain a net long position in the stock if the trade expires profitably. I'm thinking with the recent rally, there's probably very little premium on puts, so I was thinking perhaps a ratio bull spread or something.

Max loss: $1,500
Max margin for trade: $5,000
Acct Bal: $30,000

Would love some ideas and questions if I have left out anything.

Thanks to the participants!
More...

may I ask the specific trade? call? call spread...B-fly?

sorry...just re-read...you haven't placed the trade but are thinking of ratio spread...
 
Risk:

This is my options only account, & yes I am willing to risk 5% of the acct...doesn't mean I won't close it out at a lesser loss of course or adjust the position.

Thanks again....
 
A put the same distance from at the money as a call will virtually always have more premium.

For example if XYZ is at 50 the 45 put will virtually always have more premium then the 55 call. It has NOTHING to do with the directional bias of any market participant.

In addition to that call put parity always keep the puts and calls in the same strike perfectly inline with each other since calls and puts are the exact same thing to a professional.

In addition its not usually a good idea to assume your directional speculation opinion is shared by the greater market.
 
Trade #2:

Underlying - ESLR
Bias - Bullish
Bullish Rating: 8 (out of 10)
Time frame: 1-2 months

Thoughts:

I think we most likely see 18+ before we see 14 again.

Max loss: $1,500
Max margin for trade: $5,000
Acct Bal: $25,000

This stock being in the teens might be just bought, but I would prefer a little leverage.

Still waiting on thoughts for my first trade.

Thanks in advance to anyone who actually posts a trade for me.
 
<i>Underlying - AAPL
Bias - Bullish
Time frame: 2-3 weeks.

Thoughts:

Don't think we'll see the recent swing low of 182-183 for the next few weeks. Possible rally to 213+. Thinking it's a logical window dressing candidate for end of '07 into beg of '08. If possible, would like to adjust to maintain a net long position in the stock if the trade expires profitably.</i>

Per your market bias and trade-hold / execution parameters:

<b>AAPL</b>
Short Jan 195 put (APV-NS) closing bid price 12.80
Long Jan 185 put (APV-NQ) closing ask price 8.85

Net credit $4.00
Average share price: 195 less 4 = 191.00

*

(stating the obvious)

You would own AAPL at $191 per share basis if it closes at/above $195 Jan expiry. Exercise 195 short option at/after expiry to be net-long stock at 191 basis.

Downside risk: price trades below 195 before/at expiry. You then risk early assignment of short put, +4pt credit becomes a -6pt net debit.

Early assignment while position moves against you below 195 could increase that loss if price action rises after assignment but before long put option (185) is offset.

At -$1,500 max loss risk, two credit spreads would be roughly
-$1,200 risk and three would be roughly -$1,800 risk but could vary due to american style shorts.

**

<b>16.55 ESLR</b>
Short Mar 15 put (QLU-OC) closing bid price 1.75
Long Mar 12.5 put (QLU-OV) closing ask price .95

Net credit $0.80
Average share price: 15 less 0.80 = 14.20

stating the obvious)

You would own ESLR at $14.20 per share basis if it closes at/above $15 Jan expiry. Exercise 15 short option at/after expiry to be net-long stock at 14.20 basis.

Downside risk: price trades below 15 before/at expiry. You then risk early assignment of short 15 put, +0.8pt credit becomes a -1.70pt net debit.

Early assignment while position moves against you below 15 could increase that loss if price action rises after assignment but before long put option (12.5) is offset.

At -$1,500 max loss risk, nine credit spreads would be roughly
-$1,530 risk but could vary due to american style shorts.

Disclaimer: educational purposes only... hope this helps
Merry Christmas = Happy Holiday :p
 
No comment on ESLR, but AAPL vols are well-bid into MacWorld. I would but the Jan 180/200/220 fly for 6.50 based upon your parameters. Two lot at $1,300 debit + comms with max gain at neutrality of $2,700 less comms.
 
Quote from RichardRimes:

may I ask the specific trade? call? call spread...B-fly?

sorry...just re-read...you haven't placed the trade but are thinking of ratio spread...
More...

ratio spread would not fit all of your conditions. I like the B-Fly above,however if you are as bullish as the "7 "indicates you might do the 190/210/230,since max gain you HAVE to be at the sweet spot.

The problem with credit spreads especially put spreads as AustinP points out you risk getting assigned if you do go deep in the money. I'v had it happen to me on the Monday of expiration week and its a big pain to deal with.

One other "option"...your bullish...just go long...sell the put credit spread and buy the call debit spread that fits your parameters.
 
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