|
PureBytes Links
Trading Reference Links
|
I am confused by your analysis.
You state that the trade will cost you $265 per contract.
You also state that, if BMY shoots over 32.50, and your short call is
exercised, you will have to exercise the LEAP @ 30. This will bring you
$250 per contract. 250 - 265 = -15, so, by my reckoning, you clearly
lose money at or above 32.50 at expiry.
Yet you claim you make money in the range 24.32 - 59.18.
My analysis ignores commissions, which only worsens the result.
Also, if BMY stays below 32.50, how do you project the price of the LEAP
at Sep 04?
Regards
DanG
Raymond Raffurty wrote:
>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>
>
>
>
>
>
>Yahoo! Groups Links
>
>
>
>
>
>
>
>
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/
|