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If you do the trade you do it as a spread. There is no margin requirement
other then the spread deficit. If the short is exercised he can exercise
the leap. The margin in this case is the risk as long as the short call
expires Before the long call. You don't re-profile a trade. You do it at
value or you go somewhere else where you can. It is your money, it is your
trade and it is your risk. So do it by your rules. If the spread is worth
$2.75, put it in as a spread for $2.75 and let it go at that.
Ira.
----- Original Message -----
From: "Mark Simms" <mar.ko@xxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Wednesday, February 11, 2004 8:08 PM
Subject: RE: [RT] Calendar Spreads
> Looks good, but the issues I see:
>
> 1) can you really get the ASK on the short call ($1.05) ?
> Sometimes options executions are less than favorable. Likewise for the
> LEAP...can you really get the bid ?
> Why not re-profile this trade with $0.95 for the short call and $3.80 for
> the LEAP ?
>
> 2) won't the margin requirements for this be high if the broker does not
> allow the LEAP to act as a long stock position would ?
>
>
> > -----Original Message-----
> > From: Raymond Raffurty [mailto:r.raffurty@xxxxxxxx]
> > Sent: Wednesday, February 11, 2004 6:41 PM
> > To: realtraders@xxxxxxxxxxxxxxx
> > 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
> > << File: BMY1.gif >> << File: BMY2.gif >>
> >
>
>
>
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