Ratio Back " CallSpread " ... Just a few questions
- Thread starter md2324
- Start date
Adding on to the Backspread strategy as a whole .....
If we use the tools that are provided through TorS trading platform ( other platforms may have these features as well )..... Then if we look to put on a Backspread trade, with at minimum ..... 45 - 60 days till expiration , we can look at that months Options ( as a whole ) on TorS , and know what the Implied Volatility / Expected move is in terms of a $ amount , and using this ..... in conjunction with the ITM and OTM tools that TorS offers ...... we know ( mathematically and statistically speaking ) , what the odds are , that the Options we BUY ( for our Backspread ) , what the Odds are , that the strike that we buy will be " exceeded " , as this assumes a Bullish Callspread that we are doing.
And in knowing the Math and probabilities of certain strikes being " Hit " before and or come expiration ..... we can give are selves an advantage , and only buy OTM calls , that have a 70% chance of being " Touched and or exceeded " during the time we place the trade, and up until expiration.
( I have Attached Screenshots , that show the Exact things I am writing / mentioning below in the following example ) .......
Say we get a trigger from are chart(s) to go long on XOM for example , and XOM is trading at $81 ( as of 7-28-2015 )
So to put on a Bullish Backspread..... we sell the ATM $80 and buy 2 OTM $85
The Net Credit is $1.35 ( I think this is for a credit, but I'm NOT 100% sure .... it shows a minus sign in front of the $1.35 , and usually on the TorS , when the trade is put on for a Credit, the background for the trade/order shows up as a red color and not a green color as it is showing up in this example ).
Anyways ..... The Expected move ( 1 SD ) from now until the expiration of the SEP15 ( 52 ) options is showing around $5
And also, the IV Rank indicators 1 month expected move , is also showing a $5 " expected move "
So given that the two are nsync with eachother, that helps add confirmation that $5 is a likely expected move/target , and would put XOM trading at either $86 or at $76
Since we're Bullish and are expecting a nice upward move in XOM , then by BUYING the $85 calls in the Backspread , we are actually " Below " the expected move " Range " of $5 from where XOM is currently trading at $81, and so ...... we in a way are giving are selves better odds and thus the probabilities in are favor, since the Calls we are buying, are " Less than " the $5 move ( If this makes sense ? )
Hopefully my Example and comments didn't confuse anybody,
But I attached the chars that show real time quotes , stats and numbers
that I hope will clarify what I am trying to explain and Convey
If we use the tools that are provided through TorS trading platform ( other platforms may have these features as well )..... Then if we look to put on a Backspread trade, with at minimum ..... 45 - 60 days till expiration , we can look at that months Options ( as a whole ) on TorS , and know what the Implied Volatility / Expected move is in terms of a $ amount , and using this ..... in conjunction with the ITM and OTM tools that TorS offers ...... we know ( mathematically and statistically speaking ) , what the odds are , that the Options we BUY ( for our Backspread ) , what the Odds are , that the strike that we buy will be " exceeded " , as this assumes a Bullish Callspread that we are doing.
And in knowing the Math and probabilities of certain strikes being " Hit " before and or come expiration ..... we can give are selves an advantage , and only buy OTM calls , that have a 70% chance of being " Touched and or exceeded " during the time we place the trade, and up until expiration.
( I have Attached Screenshots , that show the Exact things I am writing / mentioning below in the following example ) .......
Say we get a trigger from are chart(s) to go long on XOM for example , and XOM is trading at $81 ( as of 7-28-2015 )
So to put on a Bullish Backspread..... we sell the ATM $80 and buy 2 OTM $85
The Net Credit is $1.35 ( I think this is for a credit, but I'm NOT 100% sure .... it shows a minus sign in front of the $1.35 , and usually on the TorS , when the trade is put on for a Credit, the background for the trade/order shows up as a red color and not a green color as it is showing up in this example ).
Anyways ..... The Expected move ( 1 SD ) from now until the expiration of the SEP15 ( 52 ) options is showing around $5
And also, the IV Rank indicators 1 month expected move , is also showing a $5 " expected move "
So given that the two are nsync with eachother, that helps add confirmation that $5 is a likely expected move/target , and would put XOM trading at either $86 or at $76
Since we're Bullish and are expecting a nice upward move in XOM , then by BUYING the $85 calls in the Backspread , we are actually " Below " the expected move " Range " of $5 from where XOM is currently trading at $81, and so ...... we in a way are giving are selves better odds and thus the probabilities in are favor, since the Calls we are buying, are " Less than " the $5 move ( If this makes sense ? )
Hopefully my Example and comments didn't confuse anybody,
But I attached the chars that show real time quotes , stats and numbers
that I hope will clarify what I am trying to explain and Convey
