short 2009 put?
- Thread starter newguy05
- Start date
Thanks guys, all good points. Just want to clarify a few suggestion made.
XLF at $29.2
2) Short ATM put for next month - Example(using 1 contract) short XLFMC JAN 29 PUT at $1.10 = $110
3) If XLF goes up, then no action i pocket the $110 on expiration
4) If XLF goes down, short ITM Call - Example: XLF drops to $27. Short XLFAZ JAN 26 CALL
5) On expiration, buy the stock from the 29 PUT short, and sell it to the 26 CALL short
Is this the idea? My main question is how do you time step 4. Do you wait until XLF drops to 27? or as soon as it goes below 29 (your put strike price)? or wait until 1 week before expiration?
Sounds interesting, can you please clarify step 4
Sell -1 GS JAN 2009 230 Put (.ZGYMF) $43.00 ($4,300.00)
Sell -1 GS JAN 2009 230 Call (.ZGYAF) $24.40 ($2,440.00)
P&L
$162.80 $0
$200.00 $3,720
$210.00 $4,720
$220.00 $5,720
$230.00 $6,720
$240.00 $5,720
$250.00 $4,720
$260.00 $3,720
$297.20 $0
The advantage of doing this over a naked short is:
- reduce your exposure, for $6k profit using naked short at breakeven point of $160, i need to naked short about 3 contract of .VSDMP (JAN 09 180 PUT) vs 1 contract of the short straddle
The disadvantage is:
- Also adding an unlimited loss risk to the ceiling if price moves above $297 when already predicting the stock will go up by Jan 2009 (the basis of the original naked put idea)
Do you think the advantage outweighs the disadvantage? Is this a better strategy than doing the monthly trades?
1) Use financial index instead of single company to significantly reduce counterparty risk
XLF at $29.2
2) Short ATM put for next month - Example(using 1 contract) short XLFMC JAN 29 PUT at $1.10 = $110
3) If XLF goes up, then no action i pocket the $110 on expiration
4) If XLF goes down, short ITM Call - Example: XLF drops to $27. Short XLFAZ JAN 26 CALL
5) On expiration, buy the stock from the 29 PUT short, and sell it to the 26 CALL short
Is this the idea? My main question is how do you time step 4. Do you wait until XLF drops to 27? or as soon as it goes below 29 (your put strike price)? or wait until 1 week before expiration?
Sounds interesting, can you please clarify step 4
Using your example for 1 contract.
Sell -1 GS JAN 2009 230 Put (.ZGYMF) $43.00 ($4,300.00)
Sell -1 GS JAN 2009 230 Call (.ZGYAF) $24.40 ($2,440.00)
P&L
$162.80 $0
$200.00 $3,720
$210.00 $4,720
$220.00 $5,720
$230.00 $6,720
$240.00 $5,720
$250.00 $4,720
$260.00 $3,720
$297.20 $0
The advantage of doing this over a naked short is:
- reduce your exposure, for $6k profit using naked short at breakeven point of $160, i need to naked short about 3 contract of .VSDMP (JAN 09 180 PUT) vs 1 contract of the short straddle
The disadvantage is:
- Also adding an unlimited loss risk to the ceiling if price moves above $297 when already predicting the stock will go up by Jan 2009 (the basis of the original naked put idea)
Do you think the advantage outweighs the disadvantage? Is this a better strategy than doing the monthly trades?
which board was that? initials are ok
It was simply an example long a few deltas -- choose a strike that you're comfortable in holding. It's better in the sense that GS vols are well-bid into this selling, and the LEAPS carry far more vega that the monthlies. You want to be long deltas/short vegas if you're bullish.
Edit: I prefer the long fly [170/250/320] if you're bullish.
There are natural flies [all puts or calls] and iron flies [straddle + strangle]. They're all equivalent, but will trade at slightly different premiums due to financing. Here is a call fly:
Long 1 Jan09 170C
Short 2 Jan09 250C
Long 1 Jan09 320C
The debit paid is your risk. Best case is a trade to the middle [body] strike, and the risk is symmetrical, 240 and 260 will produce the same PnL, assuming a flat vol-smile. The above is an example of a long fly -- long delta, short gamma/vega.
Some of the individuals that posted before me are brilliant and wealthy traders. So take my comments with a little salt. But, if I was going to do this, I wouldn't do it with invesment banks. I'd let it play out for the next 12 months at least. The investment banks that posted the losses are only posting the losses that they had to. If I were a betting man, I would say that they have not yet recognized all their losses. I don't believe it is behind them. My opinion only which isn't worth anything.