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I am sorry that we disagree, but there is risk in his postions. The assumption
is that he can roll, or that he is deep in the money on one side or another.
What happens when the put expires and price is between the strikes, now he is
exposed. What happens if the call is exercised? There are a lot of what ifs
in the position. As for the put spread equivilant, your chart shows one thing,
but if my thinking hasn't gone all bad on me, then the maximum value that a time
spread has is at the strike price and the spread collapses as price moves away
from the strike price. By the way a time spread is one in which both the long
and short are at the same strike price. I don't believe, that your example used
the same strike prices, therefore, not a time spread. The principle of a time
spread is to sell it at the strike and buy it as it moves towards the strike.
Now our terminology may be mixed, but those are my thoughts on the matter. Ira.
MikeSuesserott@xxxxxxxxxxx wrote:
> Ira,
>
> please look at the chart "ben.gif" that I sent previously. Now read the
> caption. It says,
>
> Long 2000 QQQ
> Short 20 Apr 36 Calls
> Long 20 Mar 34 Puts.
>
> Isn't this exactly what you just confirmed Ben wrote? "Ben is long puts and
> short calls and long stock," you said. So the chart "ben.gif" depicts Ben's
> position. Is this understood? Are we agreed? OK so far? Can you live with
> that? :-)
>
> Now when you look at that chart, you see that this position has no unlimited
> risk anywhere. Can you see that? Risk is limited to about -$2,700. That's
> the lowest P/L level that curve will reach during the lifetime of the
> position. You see that?
>
> So we have now established that there is no unlimited risk in Ben's
> position, in contrast to what you promulgated here.
>
> Next. My point was that Ben could have established an equivalent position by
> doing a calendar spread. So what I am saying is that the long puts/short
> puts calendar spread shown in the second chart looks exactly the same and
> has the same risk/reward characteristics as Ben's original position.
>
> The blue curve in the first chart shows Ben's position.
> The red curve in the second chart shows a calendar spread position.
> I said these two are equivalent, meaning, "blue curve is same as red curve."
>
> The charts prove that this is so.
>
> Regards,
>
> Michael Suesserott
>
> > -----Ursprungliche Nachricht-----
> > Von: Ira Tunik [mailto:irat@xxxxxxxxx]
> > Gesendet: Tuesday, February 19, 2002 21:30
> > An: realtraders@xxxxxxxxxxxxxxx
> > Betreff: Re: [RT] Selling Covered Calls
> >
> >
> > Once again you have the wrong information. Ben is long puts and
> > short calls and
> > long stock. Definitely not long puts and short puts. Check your
> > input again.
> > Put in long 35 puts and shourt 36 calls and see what you chart
> > shows you. Ira
> >
> > MikeSuesserott@xxxxxxxxxxx wrote:
> >
> > > Ira,
> > >
> > > I am so glad to hear that you were able to retire early (I was,
> > too), and
> > > that you believe you understand options.
> > >
> > > Unfortunately, your analysis is still totally wrong. Ben's
> > original position
> > > is indeed equivalent to a calendar spread, and furthermore,
> > risk is totally
> > > limited here.
> > >
> > > To prove this, please find attached two charts. The first one, ben.gif,
> > > shows Ben's position as originally indicated by him. The second
> > chart shows
> > > the equivalent calendar spread. If you were to superimpose
> > them, you would
> > > find them exactly congruent.
> > >
> > > You may also notice that there is no unlimited risk, and that
> > the greatest
> > > profit potential is to the upside.
> > >
> > > Regards,
> > >
> > > Michael Suesserott
> > >
> > > > -----Ursprungliche Nachricht-----
> > > > Von: Ira Tunik [mailto:irat@xxxxxxxxx]
> > > > Gesendet: Tuesday, February 19, 2002 17:31
> > > > An: realtraders@xxxxxxxxxxxxxxx
> > > > Betreff: Re: [RT] Selling Covered Calls
> > > >
> > > >
> > > > Reread what I wrote. I didn't say he should fear anything. He
> > > > actually put on
> > > > a collar of sorts for a credit. using the 34 puts and the 36
> > > > calls to net a
> > > > profit. His maximum risk is 1 3/4 to the downside with 2.40
> > > > income. net profit
> > > > at 0 on the stock is 2.40-1 3/4. On the upside he makes 1 point
> > > > on the stock
> > > > plus the 2.40 in premium less the cost of the put. Having been a
> > > > market maker,
> > > > trading my own account and able to retire 17 years ago, I think I
> > > > understand
> > > > options. Ira
> > > >
> > > > MikeSuesserott@xxxxxxxxxxx wrote:
> > > >
> > > > > Ira,
> > > > >
> > > > > your argument is in error. In Ben's original position, being
> > > > long 2000 QQQ,
> > > > > why should he fear that position to go to 100?
> > > > >
> > > > > Even if the stock were called away early, it would mean for
> > Ben to have
> > > > > realized his profit sooner, and to still own the long puts.
> > > > >
> > > > > The equivalence of the two positions is a mathematical
> > fact. Just do the
> > > > > math or feed the positions into some option software, and
> > you'll see for
> > > > > yourself.
> > > > >
> > > > > Regards,
> > > > >
> > > > > Michael Suesserott
> > > > >
> > > > > > -----Ursprungliche Nachricht-----
> > > > > > Von: Ira Tunik [mailto:irat@xxxxxxxxx]
> > > > > > Gesendet: Tuesday, February 19, 2002 16:53
> > > > > > An: realtraders@xxxxxxxxxxxxxxx
> > > > > > Betreff: Re: [RT] Selling Covered Calls
> > > > > >
> > > > > >
> > > > > > Wrong. You do not have a calander spread, you have unlimited
> > > > > > risk. to the
> > > > > > upside. The stock is the protection against the stock going to
> > > > > > infinity. Look
> > > > > > at where you are with the stock at 100 and then tell me you have
> > > > > > a time spread.
> > > > > > Ira.
>
>
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