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Ray:
Our basic philosophy for the use of options is
different. As shown by your graph the greatest spread does occur at
the strike. You also look at your position basis expiration. I
consider options a trading vehicle. I use them as a hedge, as a profit
source and not as an interest bearing instrument. In order to avoid a loss
you will be forced to do something with the short options if price moves up or
down through your zero profit areas.
Options are a directional tool and that is the way
I use them. There are three things that can happen to a stock or
future. They can go up in price, they can go down in
price or price can stay the same. In this instance 2 of these
are bad for any long option position and perfect for your position which is
dependant upon time decay and price stagnation. I would rather have
2 in my favor. I like it when I can make money if the underlying goes up
or if the underlying goes down. I do undergo a problem if price stays the
same. Two out of three isn't bad though.
May your spread well for you, Ira.
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
Raymond
Raffurty
To: <A title=realtraders@xxxxxxxxxxxxxxx
href="">realtraders@xxxxxxxxxxxxxxx
Sent: Thursday, February 12, 2004 11:09
AM
Subject: RE: [RT] Calendar Spreads
Hi
Ira,
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>I agree with everything you said, however I believe
that using options with different strikes produces better results. In
chart F1 buying <FONT
color=#000000>10 F JAN 2006 15 Calls (WFOAC) and selling 10 F SEP 2004 15 Call
(FIC). produces a near vertical chart. In
other words, as you pointed out, the profitability range is very
narrow. The same is true using the 12.50 strikes shown in F3. But
buying 10 F JAN 2006 12.5 Calls (WFOAV) and selling 10 F SEP 2004 15
Calls (FIC) the profile produces a profile with a
"wider" profitability range. The trade off is that the total risk is
double (there is always a trade off with options) but losses can usually be
managed.
As the man said
you pays your money and you take your chances.
<FONT face=Arial
size=2>
Good luck and good
trading,
<FONT face=Arial
size=2>
Ray
Raffurty
<FONT face=Arial
size=2>
<FONT face=Arial color=#0000ff
size=2>
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