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Hi Mark,
Thanks for the response. There is no margin requirement for this type of
spread. The reason for this is that I own the 2006 call LEAPs. My broker
(OptionsXpress) would not allow me to exercise them unless I had sufficient
funds in my account to cover the trade, $7500.00 in my margin account,
however I can buy and sell them. If I was exercised on the short Spt. 32.50
calls, he would immediately exercise the LEAPS at 30.00 and sell the stock
at 32.50 for a 1250.00 profit excluding commissions. The only requirement
with OptionsXpress is that I have a minimum of $2000.00 or the net cost of
the spread (in this case $1325.00 plus commissions) which ever is greater.
I may have caused some confusion re. the option prices. I meant to say
"The BMY Jan '06 30 Call (WBMAF)ASK is at $3.70" and the "The BMY SEP 2004
32.5 Call (BMYIZ) BID is $1.05". The charts reflect the correct prices, I
inadvertently reversed them. Actually I almost always try to improve the
position by splitting the bid/ask prices. OptionsXpress allows limit orders
on the spread's net. Unfortunately, I have never had much luck getting
fills this way. Most experts recommend that one not "leg" into a position,
but I have had much better results when I submit the long side of the order
at a limit some ware between the bid and ask and then, when filled, do the
same on the short side.
Good luck and good trading,
Ray Raffurty
-----Original Message-----
From: Mark Simms [mailto:mar.ko@xxxxxxxxxxx]
Sent: Wednesday, February 11, 2004 11:09 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: RE: [RT] Calendar Spreads
<html><body>
<tt>
Looks good, but the issues I see:<BR>
<BR>
1) can you really get the ASK on the short call ($1.05) ?<BR>
Sometimes options executions are less than favorable. Likewise for the<BR>
LEAP...can you really get the bid ?<BR>
Why not re-profile this trade with $0.95 for the short call and $3.80
for<BR>
the LEAP ?<BR>
<BR>
2) won't the margin requirements for this be high if the broker does not<BR>
allow the LEAP to act as a long stock position would ?<BR>
<BR>
<BR>
> -----Original Message-----<BR>
> From: Raymond Raffurty
[mailto:r.raffurty@xxxxxxxx] <BR>
> Sent: Wednesday, February 11, 2004 6:41
PM<BR>
> To: realtraders@xxxxxxxxxxxxxxx<BR>
> Subject: [RT] Calendar Spreads<BR>
> <BR>
> Hi Rt's,<BR>
> <BR>
> I have recently been exploring calendar spreads using stocks other
than<BR>
> the QQQ (and similar vehicles). In case someone does not know a
calendar<BR>
> spread is buying a distant expiration call (or put) option, often a
LEAP,<BR>
> and selling a closer expiration call (or put) at the same strike or
higher<BR>
> for calls (lower for puts). The idea is that the LEAP acts as a
low cost<BR>
> substitute for owning the underlying stock, while the short option<BR>
> generates cash.<BR>
> <BR>
> I started by looking for stocks with low cost Jan. '06 LEAPS and
relative<BR>
> high calls expiring in Sept '04. One that immediately popped up
is<BR>
> Bristol-Myers Squibb (BMY) currently trading at $30.05 per share.
The BMY<BR>
> Jan '06 30 Call (WBMAF) is bid at $3.70 or $370.00 per
contract. The BMY<BR>
> SEP 2004 32.5 Call (BMYIZ) ask is $1.05 or $105.00 per contract.
This<BR>
> means that if one where to buy 1 WBMAF and sell 1 BMYIZ the net cost
would<BR>
> be $370 - 105 = $265.00 per contract.<BR>
> As you can see from the attached chart this produces a very
favorable<BR>
> risk/reward profile. Trading 5 contracts of each call the maximum
loss<BR>
> would be $1325.00 while the maximum profit would be $2195.00 and
the<BR>
> position would be profitable any ware with BMY trading between $24.32
and<BR>
> $59.18.<BR>
> Comments anyone?<BR>
> Good luck and good trading,<BR>
> Ray Raffurty<BR>
> << File: BMY1.gif >> << File: BMY2.gif
>> <BR>
> <BR>
<BR>
<BR>
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