marameo
Registered: Aug 2012
Posts: 40 |
10-17-12 12:30 AM
Quote from JJacksET4:
I saw ADBE and did this trade on paper before market close:
-10 31 Strike Sept Calls - $231 each - IV ~119
+20 35 Strike Oct Calls - $61 each - IV ~ 35
Credit = $1090
If ADBE were to fall below $31, you could keep the credits. Otherwise, you hope the extra qty of calls for Oct and the fact they still have about a month to go allows you to close out for a reasonable price. If ADBE moves up enough of course, there could be good gains.
What led you to think so?
(for the sake of simplicity I will assume multiplier is 1)
By selling short those ten C31SEP for $231 each, you get a credit of $2310 which will pay for thirtyseven C35OCT long options, no actual cash outlay for this position. You should compare deltas!
So, your strategy now looks like the following:
-10 31 Strike Sept Calls - $231 each - IV ~119
+37 35 Strike Oct Calls - $61 each - IV ~ 35
If ADBE were to stay or fall below $31, you lost nothing (besides fees/commissions). What if the market rises? By giving up the opportunity to make money if the market stays or fall, you are gaining the opportunity to make some, if the market rises.
Now let's get this a step further:
-10 31 Strike Sept Calls - $231 each - IV ~119
+50 35 Strike Oct Calls - $61 each - IV ~ 35
$740 actual cash outlay, so a small debit. Suppose the 31 Strike Sept Calls expires worthless, in order to break even, your 35 Strike Oct Calls should be pricing 14,8 each, at least ($740/50 long options). What if the market rises? I'll leave it up to you...
Againg, compare deltas!
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