[RT] spread on ibm

[MikeSuesserott@xxxxxxxxxxx]

Hi 
Dom,
<SPAN 
class=541315818-14032002> 
<SPAN 
class=541315818-14032002>no offense, I hope, but the trade you suggest here is 
not very promising, IMHO. The risk/reward of 1 to 4 sounds good; however, 
this is not the correct number by which to evaluate this spread, for the simple 
reason that the attainment of that profit is very unlikely. <SPAN 
class=541315818-14032002>Probability calculations bear this out. To 
wit:
<SPAN 
class=541315818-14032002> 
<SPAN 
class=541315818-14032002>The range of profitability of this spread is extremely 
limited - only between, roughly, 102 and 108, which is a very small range 
for IBM to be in at expiration. If you exit the spread earlier, that range will 
be even smaller. In consequence, p<SPAN 
class=541315818-14032002>robability of profit is only 13%, and 
the mathematical expectation of the trade is negative, -0.72 points. Should 
volatility increase, those numbers will be even 
worse.
<SPAN 
class=541315818-14032002> 
<FONT face="Trebuchet MS" 
color=#000080>Why do a trade for which the probabilities are so unfavorable 
right from the outset?
<SPAN 
class=541315818-14032002> 
<FONT face="Trebuchet MS" 
color=#000080>Regards,
<SPAN 
class=541315818-14032002> 
<FONT face="Trebuchet MS" 
color=#000080>Michael Suesserott
<SPAN 
class=541315818-14032002> 
<SPAN 
class=541315818-14032002> 
<SPAN 
class=541315818-14032002> -----Ursprüngliche 
Nachricht-----Von: Dom 
[mailto:domenick@xxxxxxxxxxxx]Gesendet: Thursday, March 14, 2002 
17:27An: realtraders@xxxxxxxxxxxxxxxBetreff: [RT] Re: 
spread on ibm
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  <BLOCKQUOTE dir=ltr 
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    ----- Original Message ----- 
    <DIV 
    style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From: 
    Dom 
    
    To: <A 
    title=realtraders@xxxxxxxxxxxxxxx 
    href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx 
    
    Sent: Thursday, March 14, 2002 11:24 
    AM
    Subject: spread on ibm
    
    Here is spread that can be done now with good 
    risk/reward   .
    sell ibm 105 april put and sell 105 april call. 
    buy the april 100 put and buy the april 110 call. total credit 
    +4
    Max. loss -1 max gain +4 <FONT 
    face=Arial size=2>or anywhere in between.
     
    If comfortable using stops pocket total 
    premium of +9., place stops at 100 and 110. For myself I would use 
    choice.
    DomTo 
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