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JC,
Is this a 5 to 1 ratio write? Am I reading this right? That is very
aggressive!! They may like the odds
of Soybeans not breaking 625, but those odds better be less than 5% for this
to make any sense on a risk reward basis. When I was active in options, my
rule of thumb was if a 2 to 1 ratio write didn't cover a wide range of
exposue, the premium was too low and I would skip it. I would never do
anything greater than perhaps 2.5 to 1 and then that only rarely. I would
think of 5 to 1 as a 2 to 1 position with an additional naked shorts. Do
you want to be naked short calls in Soybeans?
Regards,
Norman
----- Original Message -----
From: "John Cappello" <jvc689@xxxxxxx>
To: <Realtraders@xxxxxxxxxxxxxxx>
Cc: <MedianLine@xxxxxxxxxxxxxxx>
Sent: Thursday, November 07, 2002 12:15 PM
Subject: [RT] Fwd: Trade Recommendation: March Soybean Ratio Write
>
> To Lists:
>
> Below is a Spread Trade. Does anyone have experience dealing with
> this firm. Allegedly 75% winners but means nothing if the 25% losers
> exceed that. I am considering a small account with them.
>
> Selling naked Puts will still be my main thrust since I can limit my
> downside by buying back the Put at a set stop loss or take in the
> stock if I really like the company.
>
> John
>
>
>
> ------------------ Forward Header --------------------
> Originally From: admin@xxxxxxxxxxxxxxx
> Subject: Trade Recommendation: March Soybean Ratio Write
> Date: 11/05/2002 02:35pm
> Received: from solomon.simonweb.com (solomon.simonweb.com
> [66.136.122.6]) by tom.po.com (8.12.2/8.12.2) with ESMTP id
> gA5LaTXF014303 for <JVC689@xxxxxxx>; Tue, 5 Nov 2002 16:36:29 -0500
> (EST)
> Received: (from jsumma@xxxxxxxxx) by solomon.simonweb.com
> (8.11.1/8.11.1) id gA5LZ7e26599; Tue, 5 Nov 2002 14:35:07 -0700
>
>
> MARKET: March Soybeans
> TRADE: March Ratio Write
> FILL REPORT:
> Bought 2 March Soybeans futures at $5.60 1/4
> Sold 10 March Soybean $6.40 calls for 7 1/4 cents ($362.50) each
> ENTRY DATE: October 31
> CREDIT AT OPEN: Collected $3,625 in premium for the options
> INITIAL MARGIN: $3,000
> EXPIRATION DATE: The options expire on February 22, 2003
> COMMENT AT OPEN: This trade is a standard ratio write. We are selling
> 10 March $6.40 calls and going long 2 futures contracts. Based on the
> current futures volatility level of 20 the options are overvalued.
> This allows us to initially collect $3,625 in premium while the
> initial margin for this trade is only $3,000. Just a reminder,
> though, that the initial margin requirement for this trade can change
> significantly through the life of the trade.
> ADDITIONAL COMMENT:
> There are a number of reasons that we like this trade in soybeans at
> this time of year. The tendency is for the volatility in soybeans to
> fall as the US harvest is completed and we head into the winter
> months. If this trend continues it bodes well for options to lose
> value. Additionally, the statistics show that soybeans rarely break
> their summer highs in the November-February time frame. This past
> summer the high for soybeans was approximately $6.25 which is still
> 15 cents below the strike price of $6.40. Only twice in the last 14
> years has soybeans broken the previous summer's high price in the
> November-February time frame. None of this means that it can't break
> $6.25 this winter, but we like these odds. By the way, based on
> the expiration and assuming we make no adjustments to this trade our
> upside break even level is approximately $6.68. On the downside of
> soybeans we might make an adjustment to the trade in the next few
> weeks to limit our downside exposure. As it stands now, with no
> adjustments the downside break-even on this trade is approximately
> $5.25.
>
> There is risk of loss trading options and futures. Trade with risk
> capital only. If you would like to speak to us about trading options
> on futures, call 1-800-972-3343 and ask for Jon Lubow.
>
>
>
>
>
>
>
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