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Mike,
You're right about the confusion , I was only referring to the call in
isolation. It was sold at 13 and if current value is 14 a loss of 1 would
be reflected on books. I got that impression from your response to Steve.
Dom
----- Original Message -----
From: <MikeSuesserott@xxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxx>
Sent: Wednesday, January 24, 2001 7:29 AM
Subject: AW: [RT] conservative?
> Dom,
>
> for one thing, we have a confusion here of two completely different
numbers.
> One is the market value of a position held by the trader. This is the
amount
> of money we would get or pay if we were to unwind our position now,
> commissions and slippage and gapping markets aside. The other thing is the
> risk inherent in a position, as indicated by the margin for that position.
> Whether the short call is covered or not has no bearing on Steve's
> calculation of market value, only on the amount of margin required.
>
> Now as regards the calculation, please remember what Steve wrote (you
might
> want to re-read below). His calculation was profit = 13 - 9.5 + 2.5 -0.5 =
> 5.5. You may notice that the first summand 13, the premium received for
the
> short call, has already been accounted for in Steve's sum. It wouldn't be
> correct to add it a second time in a second calculation 13 - 14 to make
the
> loss appear only -1.
>
> Here is the real "profit" for the position:
> 13 - 9.5 + 2.5 -0.5 -14 = -8.5.
> As an alternative, we can compute the "profit" (the realized loss,
actually)
> of the long put separately as
> -9.5 + 2.5 = -7,
> and the "profit" (the unrealized loss) of the position that is still on as
> 13 - 0.5 - 14 = -1.5.
> Having realized and acknowledged to ourselves the first loss of -7, we may
> then call the remaining -1.5 a "temporary paper loss", if that makes us
feel
> any better.
>
> Regards,
>
> Michael Suesserott
>
>
> -----Ursprüngliche Nachricht-----
> Von: Dom Perrino [mailto:domenick@xxxxxxxxxxxx]
> Gesendet: Wednesday, January 24, 2001 02:29
> An: realtraders@xxxxxxxxxxx
> Betreff: Re: [RT] conservative?
>
>
> 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
> >
> >
> > To unsubscribe from this group, send an email to:
> > realtraders-unsubscribe@xxxxxxxxxxx
> >
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> >
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> >
> >
> > To unsubscribe from this group, send an email to:
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> >
> >
> >
> >
>
>
> To unsubscribe from this group, send an email to:
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>
>
>
>
> To unsubscribe from this group, send an email to:
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>
>
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