Risk reward sucks for options

[wxytrader]

Looking at 5 contracts of the Aug9 NVDA 112 call @ 4.75 for a total cost of 2375

If we have the following outcomes by AUG8 these are the results:

1SD move is 115.64 (@ 3.97) = pnl of -390 (risk reward = 6:-1)
2SD move is 119.03 (@ 7.08) = pnl of 1309 (risk reward = 2:1)
3SD move is 122.72 (@ 11.02) = pnl of 3136 (risk reward = 1:1.3)

So basically if we use a 1:1.5 risk reward as a minimum benchmark you pretty much need a 3SD move to maintain that ratio.

These calcs are with 10% adj for vol to increase from the current 58% to 68% which is the current IV for the 103 Call which is roughly 10 itm.

 

[poopy]

Looking at 5 contracts of the Aug11 NVDA 112 call @ 4.75 for a total cost of 2375

If we have the following outcomes by AUG8 these are the results:

1SD move is 115.64 (@ 3.97) = pnl of -390 (risk reward = 6:-1)
2SD move is 119.03 (@ 7.08) = pnl of 1309 (risk reward = 2:1)
3SD move is 122.72 (@ 11.02) = pnl of 3136 (risk reward = 1:1.3)

So basically if we use a 1:1.5 risk reward as a minimum benchmark you pretty much need a 3SD move to maintain that ratio.

These calcs are with 10% adj for vol to increase from the current 58% to 68% which is the current IV for the 103 Call which is roughly 10 itm.

durrrr. there are no Aug11s.

 

[Coin Flip]

Risk reward sucks for options

Looking at 5 contracts of the Aug11 NVDA 112 call @ 4.75 for a total cost of 2375

If the risk reward sucks for the option buyer, shouldn't it then be awesome for the option seller?

So sell the option.

 

[wxytrader]

durrrr. there are no Aug11s.

drrr aug9

Hey D can I join your group yet?

 

[poopy]

drrr aug9

Hey D can I join your group yet?

lol it has to unanimous so imagine that's a no.

 

[wxytrader]

The Aug9 112/115 bull spread is better than a double at 115. The 100/115/116 fly is a double above 115 risking the debit (bull RR via spread). Asym upside above 112.

I've looked at fly's and basically a lotto ticket...sure you don't risk much but that shows on the pnl chart. I can't stand spreads of any kind...all they do is suck away profits. Over time I question whether the money you save on spreads will outperform the money you leave on the table.

 

[MarkBrown]

only sell options

 

[wxytrader]

lol it has to unanimous so imagine that's a no.

 

[TrailerParkTed]

Looking at 5 contracts of the Aug9 NVDA 112 call @ 4.75 for a total cost of 2375

If we have the following outcomes by AUG8 these are the results:

1SD move is 115.64 (@ 3.97) = pnl of -390 (risk reward = 6:-1)
2SD move is 119.03 (@ 7.08) = pnl of 1309 (risk reward = 2:1)
3SD move is 122.72 (@ 11.02) = pnl of 3136 (risk reward = 1:1.3)

So basically if we use a 1:1.5 risk reward as a minimum benchmark you pretty much need a 3SD move to maintain that ratio.

These calcs are with 10% adj for vol to increase from the current 58% to 68% which is the current IV for the 103 Call which is roughly 10 itm.

 

[poopy]

Simple fly +exp

NVDA unimodal risk against index. Bounded risk.