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Sharing+Discuss Option Trades/Strategies
- Thread starter Put_Master
- Start date
Quote from RobtF:
Are we talking about TOL? Would you mind telling me how you calculate the p/p at 76-78% Are you using Black Scholes? The current IV alone today was 57.5.
Below is the probability calculator I'm using.
Factoring in todays close, the premium received and thus a base price of $13.70, and a Sept expiration, the probability that I will not lose money on the trade is 77%.
http://www.optionistics.com/f/probability_calculator
<<< Bottom line: Rates are substantially higher than they were a couple of weeks ago, when many would-be borrowers were floating instead of locking. ....>>>
My analysis is not based on this or that week. That's just silly talk. The issue is the trend of mortage rates over the past year, and whether they will remain at reasonable levels over the coming months.
Even if they have risen, and rise a bit more over the next few months, they are still very reasonable.
Those reasonable rates, together with the drop of home prices, together with the $8,000 credit, ect.... are helping to make homes more affordable.
We are also now 18 months into the recession, and that is the average recession length. So hopefully, we will be coming out of it soon.
But is not a date specific. It's a "process".
Bottoming is always a gradual "process".
And that's what I see occuring in the housing sector.
"A bottoming process", with some states recovering sooner than others.
Interest rates have been rising recently, but so has the stock market.
Want to see them drop? Wait for the market to drop and trend down for a while.
I don't want to get into nit picky discussion with you over the relationship of the market and mortage rates,... so I'll just say there is a relationship, and let it go at that. It's not a direct 1:1 relationship, but they have tended to "trend" together.
Putz Master
My analysis is not based on this or that week. That's just silly talk. The issue is the trend of mortage rates over the past year, and whether they will remain at reasonable levels over the coming months.
Even if they have risen, and rise a bit more over the next few months, they are still very reasonable.
Those reasonable rates, together with the drop of home prices, together with the $8,000 credit, ect.... are helping to make homes more affordable.
We are also now 18 months into the recession, and that is the average recession length. So hopefully, we will be coming out of it soon.
But is not a date specific. It's a "process".
Bottoming is always a gradual "process".
And that's what I see occuring in the housing sector.
"A bottoming process", with some states recovering sooner than others.
Interest rates have been rising recently, but so has the stock market.
Want to see them drop? Wait for the market to drop and trend down for a while.
I don't want to get into nit picky discussion with you over the relationship of the market and mortage rates,... so I'll just say there is a relationship, and let it go at that. It's not a direct 1:1 relationship, but they have tended to "trend" together.
Putz Master
Quote from bebpasco:
$3.90 number is the downside breakeven. If at expiration, the stock is $5+, he makes the maximum of $1.10 less commissions. Between $3.90 - $5.00, at expiration, the profit is the stock price less $3.90. Below $3.90, at expiration, he's got a loss.
Yeah, I was stressing stock entry less extrinsic premium, but of course Steve is correct that his B/E is at 3.90. The talk of 45% threw me off. My apologies, Steve.
Quote from Putz Master:
Below is the probability calculator I'm using.
Factoring in todays close, the premium received and thus a base price of $13.70, and a Sept expiration, the probability that I will not lose money on the trade is 77%.
http://www.optionistics.com/f/probability_calculator
OK. Thanks for sharing. I see how you got it.
Am I correct that if I had decided to initiate a $14 horizontal spread(s) on TOL vs the $14/12.50 vertical credit spread I initiated for Sept, my risk reward would probably end up being similar?
If so, why would investors select one strategy over the other?
Is it simply a matter of preference, depending on which strategy one feels more comfortable with?
Might one strategy have a slightly higher/lower probability of being successful?
Is it that the horizonal has the "potential" to be more profitable than the vertical, if the stock has a late run up, if/when only the long call position remained active?
I'm considering doing some horizontals on some future trades that I would normally do a credit spread on. But if they have similar R/R and probabilities, for the desired potential income, I'm not sure why I would want to consider that change.
I'm viewing this from the perspective of selecting strike prices I think a stock will NOT drop below. That's what I'm comfortable doing.
I really have no idea "IF" a stock is going to rise, or "WHEN" it's going to start rising, or "HOW MUCH" its going to rise, or "HOW FAST" its going to rise. That's all just guess work for me. So I don't mess with strategies that rely on that.
That's why I'd rather focus on strategies that are dependent on estimating prices a stock will NOT drop below... per unit of time.
I'm generally pretty good at selecting prices that investors stop selling at, and/or prices that attract bargain hunters.
Thus the reason I do credit spreads, and am now considering horizontal spreads. But I'm still wondering why I would select one over the other.... other than the horizonal having more potential for growth, if the stock continued rising later on, during the remaining long contract.
Any thoughts on these issues would be appreciated.
Putz Master
If so, why would investors select one strategy over the other?
Is it simply a matter of preference, depending on which strategy one feels more comfortable with?
Might one strategy have a slightly higher/lower probability of being successful?
Is it that the horizonal has the "potential" to be more profitable than the vertical, if the stock has a late run up, if/when only the long call position remained active?
I'm considering doing some horizontals on some future trades that I would normally do a credit spread on. But if they have similar R/R and probabilities, for the desired potential income, I'm not sure why I would want to consider that change.
I'm viewing this from the perspective of selecting strike prices I think a stock will NOT drop below. That's what I'm comfortable doing.
I really have no idea "IF" a stock is going to rise, or "WHEN" it's going to start rising, or "HOW MUCH" its going to rise, or "HOW FAST" its going to rise. That's all just guess work for me. So I don't mess with strategies that rely on that.
That's why I'd rather focus on strategies that are dependent on estimating prices a stock will NOT drop below... per unit of time.
I'm generally pretty good at selecting prices that investors stop selling at, and/or prices that attract bargain hunters.
Thus the reason I do credit spreads, and am now considering horizontal spreads. But I'm still wondering why I would select one over the other.... other than the horizonal having more potential for growth, if the stock continued rising later on, during the remaining long contract.
Any thoughts on these issues would be appreciated.
Putz Master
Try an option book for beginners. Look at and compare the pretty risk/reward graphs for each strategy. And for the really daring, read the book.Quote from Putz Master:
Am I correct that if I had decided to initiate a $14 horizontal spread(s) on TOL vs the $14/12.50 vertical credit spread I initiated for Sept, my risk reward would probably end up being similar? If so, why would investors select one strategy over the other? Is it simply a matter of preference, depending on which strategy one feels more comfortable with? Might one strategy have a slightly higher/lower probability of being successful? Is it that the horizonal has the "potential" to be more profitable than the vertical, if the stock has a late run up, if/when only the long call position remained active?
I'm considering doing some horizontals on some future trades that I would normally do a credit spread on. But if they have similar R/R and probabilities, for the desired potential income, I'm not sure why I would want to consider that change.
I'm viewing this from the perspective of selecting strike prices I think a stock will NOT drop below. That's what I'm comfortable doing. I really have no idea "IF" a stock is going to rise, or "WHEN" it's going to start rising, or "HOW MUCH" its going to rise, or "HOW FAST" its going to rise. That's all just guess work for me. So I don't mess with strategies that rely on that.
That's why I'd rather focus on strategies that are dependent on estimating prices a stock will NOT drop below... per unit of time. I'm generally pretty good at selecting prices that investors stop selling at, and/or prices that attract bargain hunters. Thus the reason I do credit spreads, and am now considering horizontal spreads. But I'm still wondering why I would select one over the other.... other than the horizonal having more potential for growth, if the stock continued rising later on, during the remaining long contract. .
Putz Master
Quote from spindr0:
Try an option book for beginners. Look at and compare the pretty risk/reward graphs for each strategy. And for the really daring, read the book.
That idea has been suggested to him dozens if not over 100 times on all of the boards he plays the same game on. I would not expect him to take the advice of a single person he enounters on a board no matter how good that advice is based on his history.
Despite selling naked puts for years in the face of others telling him how risky that was he did not take that advice until he had massive losses in 2007 and 2008 and was forced to delete hundreds of posts to cover his tracks.
Responding to him is generally a waste of time.
Created a put credit spread on "T" for July.
Used 36 contracts.
Bought the $21 putz
Sold the $22 putz.
Credit of $0.14
Overall, I like the companies blend of fundamentals, with respect to the kinds of numbers, trends and consistancies I like to see.
Technically, I like the downside tech support I see in the $22 area.
It's only spent about a week below $22 over the past year or longer.
http://finance.yahoo.com/q/bc?s=T&t=1y&l=on&z=m&q=b&c=
Probability of not losing money on the trade.... 83%.
Personally, I put more failth in my analysis of a stocks fundamentals and L-T downside tech support, than a generic probability calculator. However, I consider them all "tools" to use for the analysis.
The trades R/R of 6:1 is nothing to smile at. However, viewed from the perspective of it being a S-T trade, with an 83% chance of not losing money... the R/R is not too unreasonable.
I could improve the R/R by selecting a longer contract and/or higher strikes,... but that would lower the probability of success.
I also view my trades from the perspective that having a more narrow gap between the strikes, helps maintain the value of my credit better, than a wider gap might, if the value of the stock were to deteriorate. That being, less credit erosion than a wider gap.
On the one hand, I'd receive a slightly higher credit on a 2 point gap vs a one point. But once the credit is established, the value of the credit is subject to less erosion with a more narrow gap, if the stock begins to deteriorate.
That being, even with the higher initial credit of a 2 point gap, I would lose less less money closing down a one point gap during difficult times.
Hence the reason when I analyze the R/R of a potential trade, I view it from more than just a simple perspective of the potential cost of a stike gap.
Any other opinions?
Putz Master
Used 36 contracts.
Bought the $21 putz
Sold the $22 putz.
Credit of $0.14
Overall, I like the companies blend of fundamentals, with respect to the kinds of numbers, trends and consistancies I like to see.
Technically, I like the downside tech support I see in the $22 area.
It's only spent about a week below $22 over the past year or longer.
http://finance.yahoo.com/q/bc?s=T&t=1y&l=on&z=m&q=b&c=
Probability of not losing money on the trade.... 83%.
Personally, I put more failth in my analysis of a stocks fundamentals and L-T downside tech support, than a generic probability calculator. However, I consider them all "tools" to use for the analysis.
The trades R/R of 6:1 is nothing to smile at. However, viewed from the perspective of it being a S-T trade, with an 83% chance of not losing money... the R/R is not too unreasonable.
I could improve the R/R by selecting a longer contract and/or higher strikes,... but that would lower the probability of success.
I also view my trades from the perspective that having a more narrow gap between the strikes, helps maintain the value of my credit better, than a wider gap might, if the value of the stock were to deteriorate. That being, less credit erosion than a wider gap.
On the one hand, I'd receive a slightly higher credit on a 2 point gap vs a one point. But once the credit is established, the value of the credit is subject to less erosion with a more narrow gap, if the stock begins to deteriorate.
That being, even with the higher initial credit of a 2 point gap, I would lose less less money closing down a one point gap during difficult times.
Hence the reason when I analyze the R/R of a potential trade, I view it from more than just a simple perspective of the potential cost of a stike gap.
Any other opinions?
Putz Master
Thus far I've receive the type of useless responses and discussion I expected to receive from spindro and xflat.
They've both been angry and upset with me for years, because I dare to share and discuss my trades in real time, for all to observe, monitor and discuss. Plus I've always refused to kiss their rude and obnoxious butts.
To answer my own question, I do credit spreads vs calender spreads, because they seem more predictable and easier to manage than horizontal calender spreads. Just wondering if others had a different perspective.
As a side note, now that I've responded to spindro and xflat's useless and rude comments, I anticipate multiple other similar responses. I will not be responding to them.
I'm here to share and discuss option trades and strategies, as the name of this thread I initiated indicates.
Putz Master
They've both been angry and upset with me for years, because I dare to share and discuss my trades in real time, for all to observe, monitor and discuss. Plus I've always refused to kiss their rude and obnoxious butts.
To answer my own question, I do credit spreads vs calender spreads, because they seem more predictable and easier to manage than horizontal calender spreads. Just wondering if others had a different perspective.
As a side note, now that I've responded to spindro and xflat's useless and rude comments, I anticipate multiple other similar responses. I will not be responding to them.
I'm here to share and discuss option trades and strategies, as the name of this thread I initiated indicates.
Putz Master