StockFetcher Forums · General Discussion · Options Calculator - Please Comment<< >>Post Follow-up
four
5,087 posts
msg #136643
Ignore four
7/6/2017 1:20:08 PM

1. Is this correct for calculations?
2. Thoughts on the trade (if taken).
3. Improvements?

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BarTune1
441 posts
msg #136656
Ignore BarTune1
7/6/2017 10:28:34 PM

This doesn’t look like a great trade in my opinion.

Assuming you have a 50/50 chance of the stock moving up or down, you are only going to collect $1.51 on an upside move whereas you are at risk of a $11 loss on a downside move. Consider a $13 move from $973 to $960 or $986. You aren’t getting much for the up move because you’ve given away the upside by selling a $972.50 call and you’d get killed on the downside move because you are not protected until you hit the $960 strike on your put.

Rather than buying the shares and selling the call, an equivalent synthetic position would simply be to sell a $972.50 put. So, in effect, you are left with a bull spread using puts. You could get an equivalent position by buying a $960 call and selling the $972.50 call. The only difference between the call and put bull spreads is that you’d be paying approximately $11 for the call spread with a maximum loss of the same amount, and maximum return of $12.50. With the put spread you take in a credit for approximately $1.50 but could have to pay $12.50 to buy it back on expiration.

The actual spreads discussed above will be slightly different, primarily due to embedded interest in the option prices, which compensate for the cost of carry – or the lack of the cost of carrying the position had you bought the stock outright.

All that being said, you can get the same position in different ways and its usually best to use the least number of positions to minimize commissions and slippage costs and/or additional costs if the options are exercised and/or assigned which result in a full commission charge at my broker.

It also remains that, in my view, this doesn’t look like a good trade because you should maybe focus more on the risk/reward ratio. That is, you could be correct on this trade five times and one loss would wipe out all those gains. If I enter into a spread, I’d rather risk say $2 to make a potential $5 on the trade. Its all relative and in such a trade you’d likely have to go much farther out with the strikes and with the expiry dates.


ericeira
23 posts
msg #136657
Ignore ericeira
7/6/2017 10:30:55 PM

calculations are correct but why don't just do a vertical put spread and have less capital invested from the information you provided i presume you expecting the stock to go up.


four
5,087 posts
msg #136667
Ignore four
7/7/2017 11:34:16 AM

Reworked original - please pay attention to additional requirements for months chosen.

Please comment:

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ericeira
23 posts
msg #136676
Ignore ericeira
7/7/2017 11:42:58 PM


BUY STOCK 975.00
BUY PUT @975 Strike 43.03
TOTAL COST 1018.03
SELL CALL @975 STIKE 64.45

NET INVESTED 953.58

MAX PROFIT 26.42 UNTIL SEPTEMBER 980-953.58 minus call value
MINIMUM PROFIT 21.42 UNTIL SEPTEMBER 975-953.58 minus call value
MAX LOSS SEPTEMBER - DECEMBER 953.58 minus call value
Looks like the prudent trade is to close the trade at put expiration or spend more on protective puts .
If stock remains the same by September as well as time premium then you would have to spend an additional 43.03 on protective puts until December making it a 953.58 +43.03=996.61 probably a sure loss .




BarTune1
441 posts
msg #136679
Ignore BarTune1
7/8/2017 6:47:10 PM

The long shares and short december call can be replaced with a short put 980 strike. This is the same risk/reward - economic profile. The premium collected on the short put is less than the call, but that's because you don't have the cost of carry associated with having to make the cash outlay to acquire the shares (i.e., interest).

in any event, you are left with a calendar spread using puts. Typcially however, you would usually like to be long the longer dated option and sell the near term options and collect premium. With a calendar spread structured that way, once the near term option expires (hopefully worthless) you usually want to sell another near term option and collect premium again.

I'd stay away from combinations before mastering more simple strategies. As a general rule, i find that its usually better to buy intrinsic value and sell time value or premium.


four
5,087 posts
msg #136680
Ignore four
7/8/2017 8:06:11 PM

Thank you for the posts.

--

I have been reviewing this site and others:
http://www.macroption.com/#tutorials

--

Many sites discuss the "definitions" of the terms. However, how does one go about the analysis to determine when to put or call, sell or buy? In other words, what are the values for each of the "inputs"?

---
Volume > 300000 ?
Price > 10 ?
IV = ?
Delta = ?
etc...
---
Take a stock with 100% gain and do not wish to sell for tax purpose. A Covered Call on all shares versus a Covered Call on some shares. Versus Buy a Put on all shares or some shares and lose the premium if stock doesn't go down. A Put seems to protect the downside and the stock handles the upside. Less expensive to use LEAPS with Put.

Seams easy to do nickels and dimes -- but the account won't grow making 1% each year and what if 1 loser wipes out the little gains?


-- Looking for discussion on strategy and reason for doing an action--flowchart.
PS I believe my bolded paragraph is correct. Please feel free to comment/correct.

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