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Ira brings-up a
good point regarding VOLATILITY and it's effects on Ray's "not quite a covered
call" strategy......
if I were Ray, I
would re-run the position P&L with a couple of scenarios......double the
volatility and take the price of the underlying down 10% and the
combination.
I think Ray's
strats are good except under conditions of increasing volatility.....and
typically volatility is accompanied by downside price
action....
I would like to
see Ray run similar P&L's using leap PUTS instead of CALLS, and of course
selling a near-the-money PUT as the cash-producer.
<BLOCKQUOTE
>
<FONT face=Tahoma
size=2>-----Original Message-----From: mr.ira@xxxxxxxxxxxxx
[mailto:mr.ira@xxxxxxxxxxxxx]Sent: Monday, February 16, 2004 10:26
AMTo: realtraders@xxxxxxxxxxxxxxxSubject: Re: [RT]
Calendar Spreads
I am sorry that you misunderstood what I wrote or
that I wrote it poorly. His position has only one way to be profitable
that is with a stagnant price. I stated that it is used as an interest
bearing instrument because it appears that he is using the LEAP as a surrogate
for the underlying and selling premium against it to earn from time decay.
Straddles are not my cup of tea
either. I don't like options on both sides of a position being a
wasting asset. I will use calls or puts and trade the underlying against
the position. I will ratio back spread positions. I will trade in
and out of butterflies and condors. I will use conversions and reversals to
park profits until there is a signal for a price move. There are
literally hundreds of strategies that are usable with options if you trade
them instead of putting on a position that needs time to be profitable.
Volatility and price are the two biggest factors in an options value.
As for an edge, there is very little edge left in
options trading other then understanding what you are doing and having a plan
to do it. With all the computer programs that give theoretical values
for the various Greeks, the overvalued undervalued buys and sells are very
limited. If you have a system for the underlying that is successful then
you have the basis for price action and then options trading. You
also will need a program that will let you know what the option value should
be. There are ways of trading overvalued situations without abandoning
the directional characteristic of options.
Hope that this clears things up a little.
Ira.
<BLOCKQUOTE dir=ltr
>
----- Original Message -----
<DIV
>From:
sire@xxxxxxx
To: <A
title=realtraders@xxxxxxxxxxxxxxx
href="">realtraders@xxxxxxxxxxxxxxx
Sent: Monday, February 16, 2004 12:55
AM
Subject: Re: [RT] Calendar
Spreads
Ira,I guess you were talking very loosely when you
calledoptions "an interest bearing instrument"?That aside, I was
confused by your post in regards to what youropinion is of Ray's
strategy and how your strategies differ from his. You say that
your use of options is different from Ray's,since you like to have 2 of
the 3 possible market actionsto be in your favor. But then you
admit that Ray's positionhas 2 of the 3 things in its favor. I
guess that Ray's 2 thingsare different from your 2 things. Is that
what the difference is?It seems your favorite strategy is straddles
or something similar.Is this just your preference or are there some
statistics thatyou are relying on for your
edge?Neal Yahoo!
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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. ----- Original Message ----- From: Raymond
Raffurty To: realtraders@xxxxxxxxxxxxxxx Sent:
Thursday, February 12, 2004 11:09 AM Subject: RE: [RT] Calendar
Spreads Hi Ira, I agree with everything you
said, however I believe that using options with different strikes produces
better results. In chart F1 buying 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. Good luck and good trading, Ray
Raffurty
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 face="Times New Roman"
size=3>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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