Conservative Options Trades

Discussion in 'Journals' started by danshirley, Aug 21, 2011.

  1. SWHC:

    http://finance.yahoo.com/news/smith-wesson-beats-street-1q-202431851.html

    http://www.msn.com/en-us/money/stockdetails/fi-126.1.SWHC.NAS?symbol=SWHC&form=PRFIEQ

    http://stockcharts.com/h-sc/ui?s=swhc

    Trade:
    with SWHC at 16.22
    Jan 13/10 bull put spread for a net credit of $40
    Yield = 40/260 = 15.4% in 141 days or 40% annualized
    Prob = 70%
    Expectation = .7(40) - .10(260) - .2(130) = 28 - 26 - 26 = -24

    Price............. Profit / Loss........... ROM %
    7.50.................. (260.00)............. -86.67%
    8.00.................. (260.00).............. -86.67%
    10.00................ (260.00).............. -86.67%
    12.53.................... (6.70)................ -2.23%
    12.60..................... 0.00................... 0.00%
    13.00.................... 40.00................. 15.43%
    15.00.................... 40.00................. 15.43%
    17.00.................... 40.00................. 15.43%
    20.00.................... 40.00................. 15.43%
     
    #1041     Aug 27, 2015
  2. Entering bullish put spreads is probably lower risk at this point plus premiums are still pumped up from the recent drops.
     
    #1042     Aug 27, 2015
  3. This trade makes a couple of assumptions:

    1. The bottom has been put in on the market turbulence.
    http://stockcharts.com/h-sc/ui?s=spy
    2. SWHC's earnings beat will serve to carry the stock through Jan
    3. The 13 strike provides a short term support level for the stock

    I must also admit I had a recent exposure to the S&W Shield and liked it very much and think it provides some traction for S&W against Glock.



    The one negative is that Walmart has decided to end sales of 'assault style' weapons which will take SWHC's version of the AR15 off their shelves. I don't know the effect this will have on SWHC's earnings but am assuming it will not be visible prior to Jan.

    http://www.nytimes.com/2015/08/27/b...ales-of-assault-rifles-in-us-stores.html?_r=0
     
    Last edited: Aug 28, 2015
    #1043     Aug 28, 2015
  4. tonylim

    tonylim

    I am new to this thread. Do you mind explaining what does Expectation means? I guess the .7(40) means 70% of gaining the credit of $40; 10% of 260 (Risk or Margin)? Why 10%? Delta 10? Last one .2(130), totally no clue.
     
    #1044     Aug 28, 2015
  5. OP explained it here.

    70% chance of hitting max profit, 10% chance of max loss, 20% chance of price landing in between strikes. It's a 3 point version of expectancy, well described on the internet.

    The probabilities come from a formula that uses volatility. Many brokers have calculators for it.
     
    #1045     Aug 28, 2015
  6. GAS:
    http://finance.yahoo.com/news/southern-co-gain-12b-agl-200008659.html

    http://www.investopedia.com/stock-a...llion-acquisition-gas-so.aspx?partner=YahooSA

    http://www.msn.com/en-us/money/stockdetails/fi-126.1.SO.NYS?symbol=SO&form=PRFIEQ

    http://www.msn.com/en-us/money/stockdetails/fi-126.1.GAS.NYS?symbol=GAS&form=PRFIEQ

    http://stockcharts.com/h-sc/ui?s=gas


    Trade:
    With GAS at 60.56
    Apr 60/55 bull put spread for a net credit of $100
    Yield = 100/400 = 25% in 230 days or 40% annualized
    (with acquisitions probability and expectation cannot be meaningfully computed from price distribution)

    Price................ Profit / Loss............... ROM %
    45.00.................... (400.00).................. -75.00%
    50.00.................... (400.00).................. -75.00%
    54.82.................... (400.00).................. -75.00%
    55.00.................... (400.00).................. -75.00%
    59.00......................... 0.00...................... 0.00%
    60.00...................... 100.00.................... 25.00%
    65.00...................... 100.00.................... 25.00%
    70.00...................... 100.00.................... 25.00%
    75.00...................... 100.00.................... 25.00%
     
    Last edited: Aug 29, 2015
    #1046     Aug 29, 2015
  7. tonylim

    tonylim

    Thank you.
     
    #1047     Aug 29, 2015
  8. Time for a day at the beach and a rest from the market wars:

     
    #1049     Sep 3, 2015
  9. AAPL:

    http://finance.yahoo.com/news/apple-shares-slump-as-new-products-fail-to-surprise-220847161.html

    http://finance.yahoo.com/echarts?s=AAPL+Interactive#{"range":"2y","allowChartStacking":true}


    Trade:

    Jan 17 145/150 bear call spread for a net credit of $95
    Yield = 95/405 = 23.5% in 498 days or 17.2% annualized
    Prob = 80%

    Price............. Profit / Loss.......... ROM %
    90.00................. 95.00................. 23.50%
    100.00............... 95.00................. 23.50%
    125.00............... 95.00................. 23.50%
    145.00............... 95.00................. 23.50%
    145.12............... 82.90................. 16.58%
    145.95................. 0.00................... 0.00%
    150.00............ (405.00)............... -81.00%
    166.31............ (405.00)............... -81.00%
    187.50............ (405.00)............... -81.00%
     
    #1050     Sep 10, 2015