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<SPAN
class=048215020-14032002>Hello Dom,
<SPAN
class=048215020-14032002>
I
agree that the theoretical range would be 101 - 109. Including moderate slippage
and commissions, OptionVue gives 101.23 - 108.77. See attached. In the lower
left corner you'll find the other numbers, 13% probability of profit and a
mathematical expectation of -0.91 points at current prices. This shows that this
"conservative approach" is conservative only in that losses are limited;
unfortunately, they are also almost certain (87%
probability).
<SPAN
class=048215020-14032002>
Dom,
the strategy you suggest - the sale of a straddle - is fundamentally
sound, and by placing your stops at 96 and 114 you attain a 30% probability of
profit at current volatilities, which is OK for that type of trade. The problem
was simply that in trying to be extra conservative you suggested "insurance"
(the long options); that insurance was so expensive that the position had hardly
any chance left to become a winner.
<SPAN
class=048215020-14032002>
Best
regards,
<SPAN
class=048215020-14032002>
<SPAN
class=048215020-14032002>Michael Suesserott
<SPAN
class=048215020-14032002>
<BLOCKQUOTE
style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000080 2px solid">
<FONT face=Tahoma
size=2>-----Ursprüngliche Nachricht-----Von: Dom
[mailto:domenick@xxxxxxxxxxxx]Gesendet: Thursday, March 14, 2002
21:32An: realtraders@xxxxxxxxxxxxxxxBetreff: Re: [RT]
spread on ibm
Hello Mike,
I do this as a collar
spread. I sell the put and the call. Net credit of 9.00. The profit range for
ibm would be between 96.00 to 114.00. I place stops at 96.00 and
114.00.
I presented a most
conservative approach. With this conservative approach the profit range would
be 101 and 109. These figures would be 105.00 strike plus/minus the 4.00
credit=101.00 and 109.00. How did you get 102 and 108?
Best regards,
Dom
<BLOCKQUOTE
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
<A title=MikeSuesserott@xxxxxxxxxxx
href="mailto:MikeSuesserott@xxxxxxxxxxx";>MikeSuesserott@xxxxxxxxxxx
To: <A
title=realtraders@xxxxxxxxxxxxxxx
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx
Sent: Thursday, March 14, 2002 2:37
PM
Subject: [RT] spread on ibm
<FONT face="Trebuchet MS"
color=#000080>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. 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
<BLOCKQUOTE
style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000080 2px solid">
<BLOCKQUOTE dir=ltr
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
<A title=domenick@xxxxxxxxxxxx
href="mailto:domenick@xxxxxxxxxxxx";>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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Attachment:
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