You are spot on. No one will disagree that the p&l on a one way move isn't better with the naked but it is all about probability of success over a number of trades. If I knew SPX was going to jump up 20 pts tomorrow, of course I would buy a call.
Question on directional trades
- Thread starter whenim64
- Start date
You are spot on. No one will disagree that the p&l on a one way move isn't better with the naked but it is all about probability of success over a number of trades. If I knew SPX was going to jump up 20 pts tomorrow, of course I would buy a call.
OK ...That's a good example and time frame. My numbers are slightly different but it won't affect the outcome.
- 1950/1955 at $1.65
- 1950 at $2.85
OK ...That's a good example and time frame. My numbers are slightly different but it won't affect the outcome.
- 1950/1955 at $1.65
- 1950 at $2.85
So based on your prices I am already ahead $140 per single unit, awesome.
UPDATE: Comparing the debit spread to a long only position.
The short option does nothing to prevent a loss, but it will cap the gains if the underlining has a good run in your direction. If you want to reduce the $$$ exposure instead of the 1950/1955 call debit spread buy just the 1955 call.
- After 1 day
- 1950/1955 call debit spread bought at $1.65, can be closed for $0. P/L -$1.65 -100%
- 1950 call bought at $2.85, can be closed for $0.10. P/L -$2.75 -96%
- Commissions not included.
The short option does nothing to prevent a loss, but it will cap the gains if the underlining has a good run in your direction. If you want to reduce the $$$ exposure instead of the 1950/1955 call debit spread buy just the 1955 call.
UPDATE: Comparing the debit spread to a long only position.
- After 1 day
- 1950/1955 call debit spread bought at $1.65, can be closed for $0. P/L -$1.65 -100%
- 1950 call bought at $2.85, can be closed for $0.10. P/L -$2.75 -96%
- Commissions not included.
The short option does nothing to prevent a loss, but it will cap the gains if the underlining has a good run in your direction. If you want to reduce the $$$ exposure instead of the 1950/1955 call debit spread buy just the 1955 call.
Wow, pretty twisted logic there. First you aren't getting .10 for that option and I am not closing it for 0 so let's just say they both go out worthless ok? What you are neglecting is that you invested $285 vs. my $165 so who really came out ahead? Yes I capped my profit because I didn't think we could get above 1955. You really think the long option buyer is holding on to that option if we had a huge gap up and theta is eating away at their profit?? Sorry, your logic just doesn't hold up but thanks for trying.
The values I posted are what the current bid/ask is at. Obviously nobody would close them at this time.
Both positions are at 100% loss, nobody came out ahead. If you want to reduce the dollar exposure just buy an option 1 strike further OTM. A debit spread isn't the way to save money.
I don't know what the buyer would do, that's a scenario that didn't happen.
We will just agree to disagree. Keep buying those OTM options.Both positions are at 100% loss, nobody came out ahead. If you want to reduce the dollar exposure just buy an option 1 strike further OTM. A debit spread isn't the way to save money.
We will just agree to disagree. Keep buying those OTM options.
You are the one that first mentioned the debit spreads in post #7 and you came up with the OTM SPX 1950/1955 call debit spread. Not me.
In response to your post I was just pointing out that debit spreads isn't a good way to reduce risk and the outcome of the SPX 1950/1955 debit spread that you posted showed that.
You are the one that first mentioned the debit spreads in post #7 and you came up with the OTM SPX 1950/1955 call debit spread. Not me.
In response to your post I was just pointing out that debit spreads isn't a good way to reduce risk and the outcome of the SPX 1950/1955 debit spread that you posted showed that.
I lost a lot less than you did on the 1950 call because it was hedged, so in fact the spread I posted proved that point exactly. YThe reality is you lost $285 and I lost $165 simple as that. Moving further out to pay less for a single option means you have even less of a chance of it being worth anything. And that gets back to my point, I am not saying the single option doesn't have the "potential" to make more, it is all about probabilities over a larger number of trades. Remember, you are the one saying verticals are useless I am not the one saying single options are useless. Anyway, that is enough of beating this dead horse.