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You have what I said correctly. MM usually
use time to expiration as the time for volatility calcs. The reason is
that most of them have large ratio write positions, unless things have changed
over the years.
<BLOCKQUOTE dir=ltr
>
----- Original Message -----
<DIV
>From:
sire@xxxxxxx
To: <A title=realtraders@xxxxxxxxxxxxxxx
href="">realtraders@xxxxxxxxxxxxxxx
Sent: Monday, February 16, 2004 5:56
PM
Subject: Re: [RT] Calendar Spreads
Ira,Thinking about your post on volatility leaves
mesomewhat confused again.You talk about the volatility of the
underlying,but the underlying has only one kind of volatility -
statistical,so are you saying that one trader might use the SV of the
last30 days, while another would use SV of the last year?So are we
talking about traders with differing specific purposes using different SV
of the underlying to get a price for an option, which may vary
considerably from the price given to the option by MMs?It would also help
to know what period SV is being used by the MMs.Neal
Yahoo! Groups Links<*> To visit
your group on the web, go to:
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from this group, send an email to:
realtraders-unsubscribe@xxxxxxxxxxxxxxx<*> Your use of Yahoo!
Groups is subject to:
http://docs.yahoo.com/info/terms/
Here is something to think about. Volatility varies with the
option expiration that you chose. If I am using an option for a position
that should move in 10 days that would be one volatility of the underlying, If
I used the September expiration, that would produce another volatility for the
underlying. The leap would have a still different volatility. So
there are many ways to price options and it depends upon what you wish to use
the options for how you would determine their value. Most market makers
price options with a volatility using the expiration data as the time.
So as time erodes, volatility changes. So fair value to me may be
drastically over or under valued to you. So in effect you can weight or
effect volatility by changing the number of days used. When they
first started printing up sheets of theoretical values in the early 70s they
used a one year volatility for the underlying. Things changed as time
passed and traders became more astute. -----
Original Message ----- From: sire@xxxxxxx To:
realtraders@xxxxxxxxxxxxxxx Sent: Monday, February 16, 2004 12:00
PM Subject: RE: [RT] Calendar Spreads
Mark, I do not know what point of Ira's you are referring
to. It doesn't appear to me that he says anything about
the effect of volatility on Ray's position. I agree that
downside price action would not be good for a covered call
position. Also, an increase in volatility would probably effect the
short call postion greater than the LEAP, so you may be right there
also. Ira, Thank you for your clarification, which
helped greatly. I asked questions because it seemed to me, in Ray's
#2 position diagram, that there would be profit if the underlying
was near the LEAP strike price or above. Therefore, Ray had 2
of the 3 market possibilities in his favor - he would be
profitable if the underlying stayed where it was or moved
higher. Another issue has to do with the
edge in options trading and the programs used to calculate fair
value. I may be wrong here, but it is my understanding that
all models used by these programs take the current price of the
underlying and assume that future price action from that point will
be purely random, given the current volatility. In other words there
is no weight given to the "trendiness" of a market and the effect
that may have on future price action. Whatever affect market
trend or fundamentals may have on future option prices must be given
to it, if it is at all, not by the computer programs but by the
individual discretion of the MM. Is this your understanding
also? Neal
Yahoo! Groups Links
------------------------------------------------------------------------------------------------------------------------------------------------------------
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. -----Original
Message----- From: mr.ira@xxxxxxxxxxxxx
[mailto:mr.ira@xxxxxxxxxxxxx] Sent: Monday, February 16,
2004 10:26 AM To:
realtraders@xxxxxxxxxxxxxxx Subject: 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. -----
Original Message ----- From:
sire@xxxxxxx To:
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 called options "an interest
bearing instrument"? That aside, I was
confused by your post in regards to what
your opinion 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 actions to be in your
favor. But then you admit that Ray's
position has 2 of the 3 things in its
favor. I guess that Ray's 2 things are
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
that you are relying on for your
edge?
Neal Yahoo!
Groups Links
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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. ----- 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
----------------------------------------------------------------------------
-- Yahoo! Groups
Links a.. To visit your group on the
web, go to:
http://groups.yahoo.com/group/realtraders/
b.. To unsubscribe from this group, send an email
to:
realtraders-unsubscribe@xxxxxxxxxxxxxxx
c.. Your use of Yahoo! Groups is subject to the Yahoo! Terms of
Service.------------------------------------------------------------------------------
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. -----Original
Message----- From: mr.ira@xxxxxxxxxxxxx
[mailto:mr.ira@xxxxxxxxxxxxx] Sent: Monday, February 16,
2004 10:26 AM To:
realtraders@xxxxxxxxxxxxxxx Subject: 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. ----- Original Message -----
From: sire@xxxxxxx
To: 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 called options "an interest
bearing instrument"? That aside, I was
confused by your post in regards to what
your opinion 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 actions to be in your
favor. But then you admit that Ray's
position has 2 of the 3 things in its
favor. I guess that Ray's 2 things are
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
that you are relying on for your
edge?
Neal
Yahoo! Groups
Links
----------------------------------------------------------------------------------------------------------------------------------------------------
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. ----- 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
Here is something to think about.
Volatility varies with the option expiration that you chose. If I am
using an option for a position that should move in 10 days that would be one
volatility of the underlying, If I used the September expiration, that would
produce another volatility for the underlying. The leap would have a
still different volatility. So there are many ways to price options and
it depends upon what you wish to use the options for how you would determine
their value. Most market makers price options with a volatility using
the expiration data as the time. So as time erodes, volatility
changes. So fair value to me may be drastically over or under valued to
you. So in effect you can weight or effect volatility by changing the
number of days used. When they first started printing up
sheets of theoretical values in the early 70s they used a one year volatility
for the underlying. Things changed as time passed and traders became
more astute.
<BLOCKQUOTE dir=ltr
>
----- Original Message -----
<DIV
>From:
sire@xxxxxxx
To: <A
title=realtraders@xxxxxxxxxxxxxxx
href="">realtraders@xxxxxxxxxxxxxxx
Sent: Monday, February 16, 2004 12:00
PM
Subject: RE: [RT] Calendar
Spreads
Mark,I do not know what point of Ira's you are referring
to.It doesn't appear to me that he says anything about theeffect of
volatility on Ray's position. I agree that downsideprice action
would not be good for a covered call position.Also, an increase in
volatility would probably effect the shortcall postion greater than the
LEAP, so you may be right there also.Ira,Thank you for your
clarification, which helped greatly.I asked questions because it seemed
to me, in Ray's #2 positiondiagram, that there would be profit if the
underlying was near the LEAP strike price or above. Therefore, Ray
had 2 of the3 market possibilities in his favor - he would be
profitableif the underlying stayed where it was or moved higher.
Another issue has to do with the edge in options trading
andthe programs used to calculate fair value. I may be wrong
here,but it is my understanding that all models used by these
programstake the current price of the underlying and assume that future
priceaction from that point will be purely random, given the current
volatility.In other words there is no weight given to the "trendiness"
of a market and the effect that may have on future price action.
Whatever affect market trend or fundamentals may have on future option
prices must begiven to it, if it is at all, not by the computer programs
but by theindividual discretion of the MM. Is this your
understanding
also?Neal ------------------------
Yahoo! Groups Sponsor ---------------------~-->Buy Ink Cartridges or
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Free s/h on orders $50 or more to the US &
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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/
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 ofscenarios......double the
volatility and take the price of the underlyingdown 10% and the
combination.I think Ray's strats are good except under conditions of
increasingvolatility.....and typically volatility is accompanied by
downside priceaction....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. -----Original
Message----- From: mr.ira@xxxxxxxxxxxxx
[mailto:mr.ira@xxxxxxxxxxxxx] Sent: Monday, February 16, 2004
10:26 AM To: realtraders@xxxxxxxxxxxxxxx Subject: 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 stagnantprice. I stated that it is used as
an interest bearing instrument because itappears that he is using the
LEAP as a surrogate for the underlying andselling premium against it to
earn from time decay. Straddles are not my cup of tea
either. I don't like options on bothsides of a position
being a wasting asset. I will use calls or puts andtrade the
underlying against the position. I will ratio back
spreadpositions. I will trade in and out of butterflies and
condors. I will useconversions and reversals to park profits until there
is a signal for aprice move. There are literally hundreds of
strategies that are usable withoptions if you trade them instead of
putting on a position that needs timeto be profitable. Volatility
and price are the two biggest factors in anoptions value.
As for an edge, there is very little edge left in options trading
otherthen understanding what you are doing and having a plan to do
it. With allthe computer programs that give theoretical values for
the various Greeks,the overvalued undervalued buys and sells are very
limited. If you have asystem for the underlying that is successful
then you have the basis forprice action and then options trading.
You also will need a program thatwill let you know what the option value
should be. There are ways oftrading overvalued situations without
abandoning the directionalcharacteristic of options. Hope
that this clears things up a little. Ira. -----
Original Message ----- From:
sire@xxxxxxx To:
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 called options
"an interest bearing instrument"? That aside, I
was confused by your post in regards to what your
opinion 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 actions to be in your favor. But then you
admit that Ray's position has 2 of the 3 things in its
favor. I guess that Ray's 2 things are 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 that you are relying on for
your edge?
Neal Yahoo! Groups
Links--------------------------------------------------------------------------------------------------------------------------------------------------------
Ray: Our basic philosophy for the use of options
is different. As shown byyour graph the greatest spread does occur
at the strike. You also look atyour position basis
expiration. I consider options a trading vehicle. Iuse them
as a hedge, as a profit source and not as an interest
bearinginstrument. In order to avoid a loss you will be forced to
do somethingwith the short options if price moves up or down through
your zero profitareas. Options are a
directional tool and that is the way I use them. Thereare three
things that can happen to a stock or future. They can go up
inprice, they can go down in price or price can stay the same. In
thisinstance 2 of these are bad for any long option position and perfect
foryour position which is dependant upon time decay and price
stagnation. Iwould rather have 2 in my favor. I like
it when I can make money if theunderlying goes up or if the underlying
goes down. I do undergo a problemif 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 optionswith different strikes
produces better results. In chart F1 buying 10 F JAN2006 15 Calls
(WFOAC) and selling 10 F SEP 2004 15 Call (FIC). produces anear vertical
chart. In other words, as you pointed out, the profitabilityrange
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
15Calls (FIC) the profile produces a profile with a "wider"
profitabilityrange. The trade off is that the total risk is double
(there is always atrade 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 byyour graph the greatest spread does occur
at the strike. You also look atyour position basis
expiration. I consider options a trading vehicle. Iuse them
as a hedge, as a profit source and not as an interest
bearinginstrument. In order to avoid a loss you will be forced to
do somethingwith the short options if price moves up or down through
your zero profitareas. Options are a
directional tool and that is the way I use them. Thereare three
things that can happen to a stock or future. They can go up
inprice, they can go down in price or price can stay the same. In
thisinstance 2 of these are bad for any long option position and perfect
foryour position which is dependant upon time decay and price
stagnation. Iwould rather have 2 in my favor. I like
it when I can make money if theunderlying goes up or if the underlying
goes down. I do undergo a problemif 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 optionswith different strikes
produces better results. In chart F1 buying 10 F JAN2006 15 Calls
(WFOAC) and selling 10 F SEP 2004 15 Call (FIC). produces anear vertical
chart. In other words, as you pointed out, the profitabilityrange
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
15Calls (FIC) the profile produces a profile with a "wider"
profitabilityrange. The trade off is that the total risk is double
(there is always atrade 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------------------------------------------------------------------------------
Yahoo! Groups Links a.. To visit your group on the
web, go to:
http://groups.yahoo.com/group/realtraders/ b.. To
unsubscribe from this group, send an email to:
realtraders-unsubscribe@xxxxxxxxxxxxxxx c.. Your
use of Yahoo! Groups is subject to the Yahoo! Terms of Service.
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<FONT
color=#000000>). 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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