Sharing+Discuss Option Trades/Strategies

Xflat,
It's tough to express one's entire thought process on a position in a simple post.
I hear what you guys are saying, and agree with it,....to some extent.
This is where we part ways, a little.
I am in for a small amount.
I charted this with the following parameters for the current rally in mind, and back checked earlier news events on this stock to establish extreme S/R levels both good and bad news cycles.
even if it pulls all the way back to the 23.6% line on the current rally Fib. settings
It will still be around $5.48 a share, well within striking distance of being called out.
If it gives back the entire rally, it will be around 4.90.
Yes, it could tank to 2-3 bucks.
Historically speaking, this particular company has made some very dynamic and somewhat opposite movement in the recent, and distant past.
again,
these are but a few reasons I entered the trade.
I saw an opportunity with this company, (which I have traded very successfully a few times before), to have a basic cost, (not usually calculated with the CC I know), for less than the recent trading range since March.
It's range has been high 5's and low to mid 6's since then.
I think everyone views the overall market a little bit differently from one asset to another, from one sector to another.
I saw the possibility to own this stock again at a discount.
I might be wrong, I might not.
I wouldn't mind holding this stock, as I have held it before.
I look at stocks / ETF's and other investment vehicles like property assets.
why not collect rent when they are idle?
I am not pushing any philosophy over another, nor am I trying to state I know more than anyone else.
I know I don't know a lot.
I might be dead wrong viewing this position this way.
Yourself and Atticus might be 110% correct and know 1000% more than me and be much better at trading, etc.
Have a great day, and good luck with your positions.
Steve
 
Fair enough but I like to get things clear and straight just in case others are reading along; I would hate to think they got bad info. Whether you traded this stock successfully before is meaningless, you could tell us you traded bails of cocaine successfully too and it would be about as relevant. I don’t see anywhere earlier in the thread where you indicate you even knew about the pending FDA event so as I already mentioned I find it hard to believe you researched it. This news event is unlike others since it’s an FDA announcement and each one plays out differently.

You don’t own the stock at a discount, you strictly own the stock at 7.10 and you're short the options. There is no opportunity to own the stock at a lower cost and there is no possibility to own it at a discount, you own the stock where you bought it period.

Stocks and ETF’s are not like real estate assets. For one thing the markets in stocks and ETF’s are vastly more liquid and there are derivatives associated with them and the tax treatments are different. While selling covered calls may be a viable strategy in some cases, history has shown it’s not a particularly good long term strategy and its worse if you do it across the spectrum of your portfolio.
 
<<< PM, let's calculate your return on a spread with expiry in Sept. (you couldn't find the stikes you desired in July???) >>>

The lowest July strike I saw for TOL was $14. Did I miss it?
It's too risky a stock not to trade with a protective put.
Thus I selected Sept for its $14/$12.50 strikes.


<<< .30 credit on a $1,500 spread for 106 days... comes back with a theoretical probability of profit of 11%. You've lowered your standards. >>>

My standards remain unchanged.
Assuming the stock drops to the $17.50 area, and the trade gets initiated in the next several days, I calculate the potential for profit at 76 - 78%.
Calculating an annualized % return on a trade 20% OTM and with a 1.5 strike gap, doesn't seem particularly useful or relevant.
Thus, I view it from the perspective of ROI.... which calculates out to 25%.
I'm willing to risk $4,000 to earn $1,000,.... on a 14 week trade, with my upper strike near strong L-T downside tech support, 20% OTM, with a 76 -78% probability of earning some or all of that $1,000.

http://finance.yahoo.com/q/bc?s=TOL&t=1y&l=on&z=m&q=b&c=

Putz Master
 
Turns out I won't have to wait until next week. My order TOL order was filled. I anticipate quite a bit of up and down price fluctuation over the next 3.5 months. But I'm optimistic about it not dropping below $14.
It's a difficult sector, but rates are not expected to rise much over the next few months if at all, rates are already low, first time owners have a new $8,000 credit to apply to its purchase, the housing charts seems to reflect prices have stopped dropping, ect....
It's certainly a risky bet and sector. Thus the reason i wanted a 20% otm cushion and strong L-T downside tech support.

Putz Master
 
"Black Wednesday" happened.

That's what folks in the mortgage industry call May 27, the day that mortgage rates zoomed upward half a percentage point or more. Like a bouncing rubber ball, rates have gone up and down since then, in ever-smaller increments.


Bottom line: Rates are substantially higher than they were a couple of weeks ago, when many would-be borrowers were floating instead of locking. They were gambling that mortgage rates would decline further or stay the same. They lost.

The benchmark 30-year fixed-rate mortgage rose 20 basis points to 5.65 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.44 discount and origination points. One year ago, the mortgage index was 6.26 percent; four weeks ago, it was 5.27 percent.



Nice research
 
Quote from Putz Master:

<<< Assuming the stock drops to the $17.50 area, and the trade gets initiated in the next several days, I calculate the potential for profit at 76 - 78%.

Putz Master
More...

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.
 
Quote from atticus:

Well, we can't both be right. Your cost-basis is not $3.90. Any more so than someone buying GOOG at 440, selling a GOOG 100 call at 340.01, and stating their cost basis on their GOOG covered-call position is $99.99.

I can assure you that you're in the minority in assigning some significance to the $3.90 number. It's meaningless.

You cannot earn more than 1.10, period. So, your cost-basis is $6.00, plus commissions. It's not open to interpretation.
More...


$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.
 
Thanks Beb,
exactly how I see it.
even if the news is bad, I will not sell for a loss. Unless a stock goes to zero, there are ways to make it pay.
Patience is the key for me with this kind of thing.
Having only 3.90 per share skin in the game is what I mistakenly referred to as my "cost-basis" which was misinterpreted, and rightly so.
My fault.
I look at that as my absolute maximum risk exposure.
Again, I looked at this trade from a slightly different approach from the normal buy-write standards.
I never meant for this particular trade to be so over analyzed and bantered about.
I closed a position early, and found this while hunting for July possibilities, did some due diligence, and opened my position over several days.
If I have to own it for awhile, I don't mind.
There are ways to manage "underperforming stocks".
 
Quote from travelboysteve:


If I have to own it for awhile, I don't mind.
There are ways to manage "underperforming stocks".
More...

You do realize that biotech stocks perform entirely differently than your generic "stocks." There is no reversion to the mean in biotech stocks. This could be a binary event. It may not be possible to "manage." Did your research tell you how many profitable products SVNT has or that may be under development? Many biotech stocks have gone to zero after the main product they were counting on failed to pass FDA criteria.
 
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