|
PureBytes Links
Trading Reference Links
|
There are certain things that you have to know about calendar spreads. The
spread is widest at the strike price and collapses as price moves away from
the strike price. So if BMY is at 30 and has a certain degree of volatility
or is in a trend your best bet is to buy the near term and sell the far out.
Then all you want is movement, up or down.
What it appears that you are doing is using the LEAP as a surrogate for the
stock and doing a covered write. If price goes up do you roll the short
call, exercise your leap when the short call is exercised, Butterfly the
spread or turn it into an iron butterfly. If you are going to trade options
and options spreads you have to have a plan for every condition of the
underlying. It stays where it is, it goes to zero or to infinity. Don't
tell me about standard deviation, beta and alpha numbers, they don't mean a
thing when things start to run against you. You have to make all of
decisions before you put the trade on. If the underlying moves thiws way
then my move is this. You do that for each condition that you will face.
Then you will not be in a position of trying to defend a position or
watching it get away from you. Good luck with your spread. Ira.
----- Original Message -----
From: "Raymond Raffurty" <r.raffurty@xxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Wednesday, February 11, 2004 3:41 PM
Subject: [RT] Calendar Spreads
> Hi Rt's,
>
> I have recently been exploring calendar spreads using stocks other than
the
> QQQ (and similar vehicles). In case someone does not know a calendar
spread
> is buying a distant expiration call (or put) option, often a LEAP, and
> selling a closer expiration call (or put) at the same strike or higher for
> calls (lower for puts). The idea is that the LEAP acts as a low cost
> substitute for owning the underlying stock, while the short option
generates
> cash.
>
> I started by looking for stocks with low cost Jan. '06 LEAPS and relative
> high calls expiring in Sept '04. One that immediately popped up is
> Bristol-Myers Squibb (BMY) currently trading at $30.05 per share. The BMY
> Jan '06 30 Call (WBMAF) is bid at $3.70 or $370.00 per contract. The BMY
> SEP 2004 32.5 Call (BMYIZ) ask is $1.05 or $105.00 per contract. This
means
> that if one where to buy 1 WBMAF and sell 1 BMYIZ the net cost would be
$370
> - 105 = $265.00 per contract.
> As you can see from the attached chart this produces a very favorable
> risk/reward profile. Trading 5 contracts of each call the maximum loss
> would be $1325.00 while the maximum profit would be $2195.00 and the
> position would be profitable any ware with BMY trading between $24.32 and
> $59.18.
> Comments anyone?
> Good luck and good trading,
> Ray Raffurty
>
>
>
>
>
> Yahoo! Groups Links
>
>
>
>
>
------------------------ Yahoo! Groups Sponsor ---------------------~-->
Send the freshest Valentine's flowers with a FREE vase from only $29.99!
Shipped direct from the grower with a 7 day freshness guarantee and prices so low you save 30-55% off retail!
http://us.click.yahoo.com/_iAw9B/xdlHAA/3jkFAA/zMEolB/TM
---------------------------------------------------------------------~->
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/realtraders/
<*> To unsubscribe from this group, send an email to:
realtraders-unsubscribe@xxxxxxxxxxxxxxx
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
|