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Re: [RT] spread on ibm



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Hello Mike,
     Thanks for doing the 
further check.
Dom
      
<BLOCKQUOTE 
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  ----- 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: Friday, March 15, 2002 8:53 
AM
  Subject: [RT] spread on ibm
  
  Hi 
  Dom,
  <SPAN 
  class=071164512-15032002> 
  my 
  heart and mind was all set to write 60%, rounded from 59.8 which was the 
  number that OptionVue gave for your short straddle, but my fingers 
  wrote 30, for what reason I know not. Sorry about that. See attached for the 
  probabilities pertaining to your position.
  <SPAN 
  class=071164512-15032002> 
  I 
  would indeed consider a probability of profit of 60% to be OK for this 
  type of trade. Though that number is not cast in concrete, either. For 
  one thing, the probability refers to the current statistical volatility of 
  32%, and would vary inversely with it. If volatilities were to increase, 
  it would hurt the probability of profit; if they were to collapse, it would 
  benefit it. Furthermore, a probability figure cannot take into account 
  possible adjustments or roll-overs of the straddle. So that number is to 
  be taken with a grain of salt.
  <SPAN 
  class=071164512-15032002><FONT face="Trebuchet MS" 
  color=#000080> 
  <SPAN 
  class=071164512-15032002>Best regards,
  <SPAN 
  class=071164512-15032002> 
  <SPAN 
  class=071164512-15032002>Michael Suesserott
  <SPAN 
  class=071164512-15032002> 
  <SPAN 
  class=071164512-15032002> 
  <SPAN 
  class=071164512-15032002> -----Ursprüngliche 
  Nachricht-----Von: Dom 
  [mailto:domenick@xxxxxxxxxxxx]Gesendet: Friday, March 15, 2002 
  05:28An: realtraders@xxxxxxxxxxxxxxxBetreff: Re: [RT] 
  spread on ibm
  <BLOCKQUOTE 
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    Hi Mike,
      
      This trade selling 25 april ibm 105 
    calls and selling 25 april ibm 105 puts for a gross credit of 45,000.00 
    backed by cash which is collecting approximately 5% in Ginmae , is not 
    set in stone. When I deem appropriate I will sell more puts or calls 
    depending on where ibm is at. 
       The next cycle is for 25 days. In 
    the last 25 days  ibm highest close was 
    109.28 and the lowest close was 96.38.The beginning profit range (not 
    counting future selling) is 96.00 to 114.00. With possible more 
    selling at around the 110.00 and/or 100.00 areas.will bring the 96.00 
    lower and the 114 higher. 
       With the highest close in last 25 
    days being 109.28 and the lowest close being 96.38 on ibm , I don't 
    understand how you can get only a 30% profit probability, which you consider 
    good. I think a 30 % profit possibility is low. The trade is done and I 
    know it will be profitable.Option Vue does not agree. Check out option vue 
    by telling it the spread was bought rather than sold. It should come up with 
    70 %profit probability. The reciprical of 30%. 
     
    Best regards,
    Dom    
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      ----- 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 4:32 
      PM
      Subject: [RT] spread on ibm
      
      <SPAN 
      class=048215020-14032002>Hello Dom,
      <SPAN 
      class=048215020-14032002> 
      <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> 
      <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> 
      <SPAN 
      class=048215020-14032002>Best regards,
      <SPAN 
      class=048215020-14032002> 
      <SPAN 
      class=048215020-14032002>Michael Suesserott
      <SPAN 
      class=048215020-14032002> 
      <BLOCKQUOTE 
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        <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 
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          ----- 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. <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, 
          probability 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 
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            <BLOCKQUOTE dir=ltr 
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              ----- 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 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.
              <FONT face=Arial 
        size=2>DomTo 
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