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You win 75%, or 3:1 on a trade where the payoff is 1:4, hmmmmmmmm.
Regards
DanG
"M. Simms" wrote:
>
> Keep in mind, Vic Niederhoffer bankrupted his hedge fund in 1997 when his
> naked S&P put options went thru the roof in one nasty day. With naked
> options as Vic has taught us, the risk is unlimited.
>
> With credit spreads as Ira has so well explained, there are two problems:
> 1) increase cost of initiating the position relative to naked-only options
> 2) very expensive to unwind the complete position.....
> although you can unwind the short side of the position and keep the long
> side exposed which is normally not a good idea if the market's move begins
> to reverse.
>
> Credit spreads have an "automatic" stop loss built in which is nice, but
> usually the risk/reward ratio is poor for them....usually 4:1 meaning you
> can "win" $2500 on the position at the risk of $10,000.
>
> More important: Why are these strategies fairly reliable ?
> High win percentage....
> some gurus saying 90+% for the best combination of strikes......
> my experience shows that 75% is more like it.
>
> > -----Original Message-----
> > From: John Cappello [mailto:jvc689@xxxxxxx]
> > Sent: Thursday, September 26, 2002 10:52 AM
> > To: ira; realtraders@xxxxxxxxxxxxxxx
> > Subject: [RT] Interesting Puts
> >
> >
> > Thanks Ira,
> >
> > I think I get it now.
> >
> > John
> >
> >
> >
> > ------------------ Reply Separator --------------------
> > Originally From: "ira" <mr.ira@xxxxxxxxxxxxx>
> > Subject: Re: [RT] Interesting Puts
> > Date: 09/26/2002 07:35am
> >
> >
> > If you sell the 25 put you buy the 20 put or the 17 1/2 put that
> > limits the
> > risk. Not only is the risk reduced, so is the margin requirement.
> > The
> > profit is also reduced, but then again you can sell more spreads for
> > the
> > same margin as one naked option and net the same amount of money.
> > The key
> > is the risk. At $20 you know what your risk is. It is $20 less the
> > option
> > premium taken in. If you can afford to buy the stock you can afford
> > the
> > loss on the option. If you feel that you want to own the stock then
> > why not
> > buy a 2 year leap and just trade the stock short against the leap.
> > Each time
> > you get a sell signal, short the stock. When you cover the short
> > stock you
> > are automatically long with the leap. You can adjust your deltas any
> > way
> > you would like. The nice thing is that you are always in a position
> > of
> > limited, defined risk.
> >
> >
> > ----- Original Message -----
> > From: "John Cappello" <jvc689@xxxxxxx>
> > To: "M. Simms" <prosys@xxxxxxxxxxxxxxxx>;
> > <realtraders@xxxxxxxxxxxxxxx>
> > Sent: Wednesday, September 25, 2002 8:33 PM
> > Subject: [RT] Interesting Puts
> >
> >
> > >
> > > For my own and possibly others, how does one convert the sale of a
> > > put to a credit spread.
> > >
> > > John
> > >
> > >
> > > ------------------ Reply Separator --------------------
> > > Originally From: "M. Simms" <prosys@xxxxxxxxxxxxxxxx>
> > > Subject: RE: [RT] Interesting Puts
> > > Date: 09/25/2002 11:14pm
> > >
> > >
> > > All you have to do is convert the naked position to a credit spread
> > > position.....
> > > it's easy.
> > > but greedy people (like Vic Niederhoffer) don't do it....it reduces
> > > profits.
> > >
> > >
> > > > -----Original Message-----
> > > > From: ira [mailto:mr.ira@xxxxxxxxxxxxx]
> > > > Sent: Wednesday, September 25, 2002 8:14 PM
> > > > To: realtraders@xxxxxxxxxxxxxxx
> > > > Subject: Re: [RT] Interesting Puts
> > > >
> > > >
> > > > Selling naked options can be very risky. There are many other
> > > > ways to trade
> > > > with the same or better profit potential and have limited risk.
> > > > As a market
> > > > maker and as a trader, I have always abided by one rule. " Never
> > > be short
> > > > more options then you are long" That rule stood me in good stead
> > > until I
> > > > retired and in the 18 years thereafter. Ira
> > > > ----- Original Message -----
> > > > From: "John Cappello" <jvc689@xxxxxxx>
> > > > To: <realtraders@xxxxxxxxxxxxxxx>
> > > > Cc: <MedianLine@xxxxxxxxxxxxxxx>
> > > > Sent: Wednesday, September 25, 2002 12:44 PM
> > > > Subject: [RT] Interesting Puts
> > > >
> > > >
> > > > >
> > > > > Yesterday I sold Dec. puts on GE with a strike price of 22.50.
> > > Nice
> > > > > premium.
> > > > >
> > > > > Today, before market rise I sold Dec. puts on JPM with a strike
> > > price
> > > > > of 15.00. Nice premium.
> > > > >
> > > > > My concept is that if the strike prices were hit I would not
> > mind
> > > > > owning the stocks at those prices. If not struck I keep the
> > > premium.
> > > > >
> > > > > I had previously sold Sept calls on GE with a strike price of
> > > 35.00.
> > > > > Premium became mine when options expired.
> > > > >
> > > > > I am looking for other ideas that have value along these lines.
> > > > >
> > > > > John
> > > > >
> > > > >
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