The Options Thread

[FirstConsul]

Since we aren't able to write options in Investopedia, we can't use many strategies that involve writing an option, i.e. spreads.
So please post up your trading ideas. PLEASE refrain from "Buy a call on XYZ because I think it's going to go up" or "Buy a put on ABC because I think it's going to go down" We're looking for something more sophisticated, like calendar spreads etc. A buy-write is also acceptable.

[gijoe9]

I have been buying puts and calls at the same strike price right on or near the money when I think the stock will move. It is cheaper than short or long on the stock but if it moves enough you get a profit. If it does not move enough you take a smaller loss then if you tried to guess which way the stock is going to move and guessing wrong. The other one a "stradle" I think I buy puts and calls out of the money and hope for the same big movement. The advantage of the second is it is cheaper to get into.

[WallStGolfer31]

Originally Posted by FirstConsul

Hmm, here's an interesting trade:
Buy 1000 shares of GM
Write 10 May 22.50 calls
Write 10 May 22.50 puts.
****
Long $22920 GM stock
Premium from 22.50 calls= $0.95/share or $950
Premium from 22.50 puts= $0.80/share or $800.
They will expire in 3 weeks, which is 7.63% in 3 weeks if GM stays above $22.50!
The breakeven for this strategy will be $21.17
However, if you do this with the June calls, you would receive $3100 in premium, or a full 13.95% return in 7 weeks with a breakeven of 19.82.

You're forgetting the rather large ammount of capital that writing naked puts will take up. This will reduce the ROC by a more than marginal ammount!

[cdj167]

Originally Posted by FirstConsul

Since we aren't able to write options in Investopedia, we can't use many strategies that involve writing an option, i.e. spreads.
So please post up your trading ideas.

more of a question but added a comment.

On current month contracts (2-3 weeks before end) or 6-weeks out has anyone seen/done a no cost butterfly on the major index's SPY, DIA, IWM, since the contract spreads are only $1 apart

The idea is to do (in and around) or at/the money progressive butterfly spreads, since during the day there is enough volatility % movement to get a no cost deal?

The other idea doing this is to do it on both sides PUT & CALL.

Comments ... suggestions, discussion?

[Drew]

I'd like to see more of these examples. Keep this thread alive!

[geminiball]

question, in your example of gm, did you write the call? seems to me that if you bought the call at .90 and it wound up in the money before exp date, you most likely would make more than 7% by selling it. Unless the exp. date was close. What am I missing?