SPY put option idea

S

shortskirt

If one thought that the SPY may drop 10% by 12/30/13, selling a put option
seems to make sense.

Currently bid is $1.05 for the 12/30/13 SPY Put with a strike of $157 ( about
10% lower than current trading) so for a investment of $1000 one could buy ~952 options ( $1000 / $1.05 = 952 )

Now if indeed the market did drop below that strike price, say to $155, would
the profit be the following by exercising the put option to go short the SPY
at $157 and cover at $155?

(952 * 100) = 95,200 shares
95,200 * ($157 - $155) = $190,400 profit

Or is it more complicated than that? Does time decay have an effect?
 
Quote from shortskirt:

If one thought that the SPY may drop 10% by 12/30/13, selling a put option
seems to make sense.

Currently bid is $1.05 for the 12/30/13 SPY Put with a strike of $157 ( about
10% lower than current trading) so for a investment of $1000 one could buy ~952 options ( $1000 / $1.05 = 952 )

Now if indeed the market did drop below that strike price, say to $155, would
the profit be the following by exercising the put option to go short the SPY
at $157 and cover at $155?

(952 * 100) = 95,200 shares
95,200 * ($157 - $155) = $190,400 profit

Or is it more complicated than that? Does time decay have an effect?
More...

Just realised a mistake in the math ...obviously couldn't buy 952 options but only $1000 / ($1.05 * 100) = ~9 options

So profit should be;

(9 * 100) = 900 shares
900 * ($157 - $155) = $1800 profit

Not quite as attractive now!
 
Quote from shortskirt:

If one thought that the SPY may drop 10% by 12/30/13, selling a put option
seems to make sense.

Currently bid is $1.05 for the 12/30/13 SPY Put with a strike of $157 ( about
10% lower than current trading) so for a investment of $1000 one could buy ~952 options ( $1000 / $1.05 = 952 )

Now if indeed the market did drop below that strike price, say to $155, would
the profit be the following by exercising the put option to go short the SPY
at $157 and cover at $155?

(952 * 100) = 95,200 shares
95,200 * ($157 - $155) = $190,400 profit

Or is it more complicated than that? Does time decay have an effect?
More...
dude whats that math ... not only the options multiplier, but also what the 10 % otm put strike is.:eek:
 
Quote from shortskirt:

Just realised a mistake in the math ...obviously couldn't buy 952 options but only $1000 / ($1.05 * 100) = ~9 options

So profit should be;

(9 * 100) = 900 shares
900 * ($157 - $155) = $1800 profit

Not quite as attractive now!
More...

Your original post is all over the place. First off are you buying a put or selling a put? You seem to indicate both.

To clarify... if you think SPY is going down you would BUY a put or SELL a call. You would not sell a put, selling a put is a long strategy.

The math above is almost correct for buying the 157 put except:
1. You would not exercise your put, you would simply sell your put for $2.00 or more.
2. Your puts will be worth $1800, but your profit will be $1800 - the $1000 you originally spent = $800.
 
Quote from Strangler:

Your original post is all over the place. First off are you buying a put or selling a put? You seem to indicate both.

To clarify... if you think SPY is going down you would BUY a put or SELL a call. You would not sell a put, selling a put is a long strategy.

The math above is almost correct for buying the 157 put except:
1. You would not exercise your put, you would simply sell your put for $2.00 or more.
2. Your puts will be worth $1800, but your profit will be $1800 - the $1000 you originally spent = $800.
More...


I agree with this, the bearish put strategy is to buy the put (or conversly sell the call). Would you plan on trading these uncovered as well? You may need to take a hedge into your cost basis considerations as well.
 
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