hrosas
27 posts
msg #37085
- Ignore hrosas |
7/26/2005 9:33:42 PM
maxreturn:
Straight answer before I become repetitive:
1) How far out of the money: with Google at least $30 below the current price. Others like BBBY, EBAY, MMM etc. the first out of the money.
2) How far time wise: 30 days or less on Monday, Tuesday or the first week after the previous expiration the 3rd Friday of the month (Expiration) where premiums still high.
3) Strike apart: One level, $5 on sotcks under $100. With Google $ 10
On May I sold 240/230, June 280/270, now in July 270/260 with credit (income) of $2100, $4000, and $2400 for July for 10 contracts each. Even if I was forced to close the spread today I could buy it for only $500and keep the other $1900.00 (GOU TN / GOU TL, .90/.40)
In general (personal opinion), vertical credit spreads whether Puts or Calls have limited potential profits and the risk is greater than the potential income, but the risk is limited too. However the probabilities are superb: if the stock is droping and you write the vertical Call spread you have 2 out of 3 chances of making money, one if the stock does not move that much, two if it keeps dropping. Viceversa with the Puts if the stock is moving up.
Remember that with out of the money options people are paying for time, speculation, hope, for calendar vs. trading days, etc. Sometimes we get nasty surprises like July 7 with the London bombing, MMM dropped $2 to $3 immediately and I was getting $1 with $4 risk. It reversed and finally was all right, but those things happen. Besides I balance positions with stocks that are moving down and up. Over all it is a good source of steady income.
Commissions will make a severe dent if you use OptionsXpress or any other discount brokerage house that charge high minimums. I pay $2 per spread with Trade Station and MBTrading. MBtrading I had to do it manually and it is a hassle. Trade Station charges $ 99.95 a month for the use of the platform but you click on the spread itself rather than negotiating two sides. It is very easy and fast.
Final tought, I never, never write naked puts or calls. Many years ago when I was a Broker for a major House, a colleague of mine accumulated over $ 1 million in profits in less than 5 years,writing NAKED way out of the money Puts and Calls on two issues only: OEX and IBM, and then on the CRASH of October 17, 1987 (THU, FRI and that Monday) he lost over $ 1.7 million. That week he emptied his desk and went out to file for Protection. He earned the 1/16 on his calls but his 1/16 puts became $40, $50, $60 Puts. Since then I can not understand why anybody will recommend or write straight naked options.
HR
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hrosas
27 posts
msg #37086
- Ignore hrosas |
7/26/2005 9:50:07 PM
maxreturn: Sorry I missed the timing tool(s): mostly daily CCI(14) over 0 and/or Aroon(25) Oscillator crossing above 0. I will start looking closely if Aroon UP(25) crosses below 70. And sometimes emotional attachement to the up or downside moves. HR
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cocky_pusher
12 posts
msg #37108
- Ignore cocky_pusher |
7/27/2005 3:05:12 PM
Hrosas, let me tell you your opinion on goog is a very good one. I missed some of the action on qcom back in 1998 because I was playing with the price patterns, and I know what it feels to miss a 10 bagger and to ride one. I totally agree with your bullish comments on goog, but I wouldn’t buy right now.
By the way the put spread info is also very good, thanks for your comments.
___________________________________________________________________
Financial Genetic Programming Research
www.tau-zweig.com
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maxreturn
745 posts
msg #37112
- Ignore maxreturn |
7/27/2005 4:47:29 PM
Thanks Hrosas!
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TheRumpledOne
6,411 posts
msg #37117
- Ignore TheRumpledOne |
7/27/2005 7:48:46 PM
This will show you when to long/short GOOG:
MAY ALL YOUR FILLS BE COMPLETE
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markcrisp
187 posts
msg #37151
- Ignore markcrisp |
7/29/2005 8:13:53 AM
It doesn't add up.
I can't find any decent profits from selling one option and buying another on a vertial credit spread. You are talking $50 profit on average..BEFORE commissions.
EG: GOOG September 260 put $1.80
250 Put $0.90
Credit = $90 - brokerage fees......And many other stocks it's a lot less than this. Not worth the effort.
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cocky_pusher
12 posts
msg #37159
- Ignore cocky_pusher |
7/29/2005 1:43:50 PM
What I understand horsas is talking about is a bear spread.
Example: GOOG @ 289
Buy put Aug 05 strike price 300 @13.6 GGDTT.X
Sell put Aug 05 strike price 310 @22.0 GGDTB.X
If GOOG ends up running as it has done lately and ends above 310 by Aug 19 2005 profit will be:
300 strike price put is worthless so you lose 13.6 but you keep 22 from GGDTB.X
Total profit: 22.0 - 13.6 = 8.4
The risk involved is that you will not make money if the stock doesn’t rise. But analyze this; if you buy GOOG @289 and sell @310 where it must end in order to profit you make 21.0 and 21 > 8.4 !!!!!
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