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 kjones5159   Registered: Aug 2012 Posts: 134 09-23-12 05:45 PM ]I'm talking about a bull CALL spread, no puts involved, with a basis of holding until expiration. Buy ITM call, sell OTM call, a debit spread that starts in the green. I'd be buying the \$38 contract ITM, thereby giving me rights to buy stock at \$38, and since ITM are priced so that you'd break even (or be very close to it) if buying and exercising it at any one point in time, my thinking is to shave some cost off of it by selling an OTM call. Edit/Delete • Quote • Complain
 Put_Master   Registered: May 2009 Posts: 1029 09-23-12 08:38 PM <<< Prob JPM below 38 = 65% ; P/L = -\$251 Prob JPM Greater then 42 = 8% ; P/L = \$149 Prob between 38 and 42 = 1 - (.65+ .8) = 27% ; P/L = -51 (average)Probability wise a bad bet... unless you have information that the future for JPM is bullish. I don't get that from the chart: >>> Oldnemesis, we are in agreement the JPM potential trade is a low probabiligty one. However, we differ on why. You are basing it on a one size fits all, generic prob calculator formula. I'm basing it on common sense. The problem I have with these generic probability calculators is, they don't take issues such as tech support into account. For example, whether JPM is trading at it's all time high, or trading at strong tech support, or whether the strike being discussed was at strong tech support,... is all irrelevent according to the formula. Either way, the probability % answer the calculator spits out will be the same. However, in the real world, if a stock is currently trading at L-T tech support, and the desired otm strike is at an even lower L-T tech support area,.... that trade will have a higher prob of remaining otm, than a stock not currently trading at tech support, and with no tech support seen any where close to the desired strike. And yet, the prob calc will evaluate both trades as being equally likely to be successful. Tech support is 100% irrelevant to all probability calculators. For that and other reasons, I totally ignore all those one size fits all generic probability calculators. I prefer to use other criteria, such as common sense and experience, to evaluate a trades likelihood of being successful. Edit/Delete • Quote • Complain
 kjones5159   Registered: Aug 2012 Posts: 134 09-23-12 08:48 PM I was under the impression that I would exercise the option and "buy" the shares, but simultaneously sell them at the market/higher strike (for a spread) instead of taking posession of the shares outright. Point here being that if the sold option expires worthless, the profit of the trade is the premium recieved subtracted from the intrinsic value of the ITM option, for this to happen the spread is held until expiration so as not to be naked. Anyway, I've pretty much answered my own question. Edit/Delete • Quote • Complain
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