Quick Option Trading Question

Quote from options4me:

Using my Option Calculator here are the results of this "trade"...

60 Call with 179 days to exp @ $55 stock price.
Actual value would be $4.57 per option.

At only 30 days left and $75 stock price.
Actual option value is now $15.10

That should be a profit of $10.53 per contract.
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You might want to recheck those numbers
 
Quote from Mr. KISS:

Let me give a little insight. The trade I am looking at is a hedge against the Swine Flu becoming a major disaster like the Spanish Flu of 1918. One might argue if there is that big of a disaster, the markets will tumble but a study done by Fidelity for all the major flu outbreaks since the S&P was created showed the markets didn't crash, even during 1918, not even close.

The expiration would be in December or January giving plenty of time for the flu to take hold and the demand for vaccine to go through the roof. So at 30 days out, the event will already be in progress and most likely the stock price will only continue to rise.
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You might consider waiting to see some evidence that individual stocks or the market is reacting to something that hasn't happened yet. Or, you could invest in cemetery plots :)

Your own analysis there shows that if I sold the option 30 days out, I would make 1/3 the profit than if I exercised it at expiration.
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Do you think that might have something to do with a price of 75 at 30 days out and at 90 at expiration? (in his hypothetical analysis)

I rrreally need this lunch time dead zone to end
(eye roll)
 
I look at options as more of an insurance policy than as a big money maker. You can't buy health insurance when you have a pre-existing condition (at least not yet.)

But yes, I was thinking of just monitoring the CDC information over the next weeks to see if there was a pattern of an increase in outbreaks. I agree it would be prudent to hold off until at least there are some small signs the likelihood of the situation worsening rear their ugly heads.

There should be adequate vaccine to limit the deaths though this time around so I'll pass on the cemetery plots (LOL).
 
What's a good risk/reward on say an option expiring 6 months out. (That recommendation for that free software turned out to be $3000 software).

I was looking at some put options and calculating the return assuming a target stock price at expiration. I looked at 5 strike prices and the return ranged from 51% to 85%. Then just a minute ago by chance I saw one of the puts jump down so that the return would be 138%.
 
Quote from Mr. KISS:

I look at options as more of an insurance policy than as a big money maker. You can't buy health insurance when you have a pre-existing condition (at least not yet.)

But yes, I was thinking of just monitoring the CDC information over the next weeks to see if there was a pattern of an increase in outbreaks. I agree it would be prudent to hold off until at least there are some small signs the likelihood of the situation worsening rear their ugly heads.
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Options aren't like pre-existing conditions and health insurance. You can trade them anytime the market is open.

IMHO, the CDC info is irrelevant. It's the reaction to the news that you want watch for. When the media is blasting fear to the streets and the stocks starts reacting, that's the time to trade.

Waiting is a reasonable idea because you'll have approx 25 cts of time decay per month if you buy now. I'd rather have that in my pocket as dry powder and be able to buy more calls later if there's a reason to buy.
 
Quote from Mr. KISS:

Is there some low-cost software out there that you can enter (or better yet it will automatically read) all the parameters for an option for a number of different strike prices and months and you enter what you think the stock price will be at expiration and it will show you what the option would be worth over time (assuming the stock price changes linearly)
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Start with this website (and for educational articles/webcasts):
http://www.discoveroptions.com/public/pages/resources/tools.html

More software info:

http://www.option-trading-software.com/

http://www.hoadley.net/options/options.htm

http://www.voptions.com/
 
Quote from spindr0:

You might want to recheck those numbers
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Just caught that. I forgot to change the volitility to 25% from 42%.
With 179 days it is now $2.01
The end numbers still came out the same for 30 days left and at exp.
 
Before you speculate on the Swine Flu, Bubonic Plague or the next meteor to strike the earth, go read a few books on options.

"It is better to remain silent and be thought a fool, then to open one's mouth and remove all doubt."
 
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