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The Liability is that he has to deliver itwo stock on or
before the 3rd Friday in May. Since the stock is owned, the short call is
covered. I don't see why you would count the 14 points as a loss You might
count the 1 point increase as a temporary paper loss.(13-14)= -1.
.Dom
----- Original Message -----
From: <MikeSuesserott@xxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxx>
Sent: Tuesday, January 23, 2001 6:09 PM
Subject: AW: [RT] conservative?
> Steve,
>
> your calculation reminds me of this guy who had just bought a car on the
> installment plan, and now thought to himself, my car is worth $ 20,000,
the
> down payment was $ 4,000, hey I have a profit of $ 16,000.
>
> Even though the May 55 call you are short may not be in-the-money, it
still
> has a value; and since it is *you* holding this short position, this means
> that you are liable for the current value of the call which in our example
> was 14 points. To get your bookkeeping right, you would have to subtract
> that amount from your "profit".
>
> Hope this makes it a little more clear.
>
> Regards,
>
> Michael Suesserott
>
>
> -----Ursprüngliche Nachricht-----
> Von: Merkley, Steve [mailto:smerkley@xxxxxxx]
> Gesendet: Tuesday, January 23, 2001 19:49
> An: 'realtraders@xxxxxxxxxxx'
> Betreff: RE: [RT] conservative?
>
>
> Hi mike,
> If on feb. 15th the itwo is at 52, the may 55 short call would be non
> callable so his 13 points would not be in jeapardy. The stock would not
> have produced income, but no loss from it either. The feb 50 long put
could
> be sold at that point for a loss even if it were at 2.5, there would still
> be an overall gain of 5.5 points. (13 - initial prem. on short, less
9.5,
> the initial output on the put, plus the 2.5 sell price for the put when
sold
> at 2/15. So the gain seems to be 5.5 points for this particular scenario.
> Am I missing something?
> Steve Merkley
> -----Original Message-----
> From: MikeSuesserott@xxxxxxxxxxx [SMTP:MikeSuesserott@xxxxxxxxxxx]
> Sent: Tuesday, January 23, 2001 6:22 AM
> To: realtraders@xxxxxxxxxxx
> Subject: [RT] conservative?
> Ben,
> here is a possible scenario: come Feb 15, suppose ITWO shares trade at 52
> which is about the price you bought them. Suppose further that volatility
> has gone up by 10%. This is certainly a possibility for this stock - has
> happened almost every month during the past year. Then the Feb puts you
are
> long from 9 1/2 might be at 2 1/2, and the May calls you are short from 13
> might be at 14. Result: a loss of about $ 8,000 on your investment of $
> 50,000. This is what volatility plus time decay can do to an option
> position!
> In my years of trading options I have been there, done that, quite a few
> times, more often than I care to remember. But I learned, and have now
moved
> on to more sophisticated mistakes. <g>
> Ben, I don't want to spoil the fun for you, and I agree that this strategy
> is great in situations where you have high volatilities that you expect to
> collapse. But it does have its pros and cons, and produces income only if
> used at the appropriate time.
> Regards,
> Michael Suesserott
>
>
>
> -----Ursprungliche Nachricht-----
> Von: proffittak@xxxxxxx [mailto:proffittak@xxxxxxx]
> Gesendet: Tuesday, January 23, 2001 12:45
> An: realtraders@xxxxxxxxxxx
> Betreff: Re: AW: [RT] conservative?
> hello
> if on 2/15/01 the price is 52 then the put would not protect me,
however
> the July
> 55 call which lost 1 month out of 2 month premium will be down from
> 13 to 6.5 at best and to 8.5 at worst
> which is PLENTY protection,
> in addition.
> this is an income position
> since it produces 48000 per year income NET on a 50000 outlay,, it
is
> terrific!
> the day before expiration if the price is 52 then will buy the March 50
> put
> buy back to close the May 55 call
> and sell the July 55 call
> still netting an additional 4000 for the next month income
>
>
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