Conservative Options trades

Discussion in 'Options' started by danshirley, Oct 18, 2009.

  1. ajacobson

    ajacobson

    Carry is priced into the option .. that is correct, but the stock position still has a cost of carry. Stock doesn't carry for free
     
    #11     Oct 18, 2009
  2. It is a little bit of a joke, it is called the jelly roll, sometimes used by market makers, it really has little usefulness to retail traders as the commissions are high compared to market makers. This example is two calender spreads that cancel each other out for a essentially riskless trade and net zero profit excluding commissions. So a very conservative trade that only has interest rate risk as this trade is still sensitive to rho.
     
    #12     Oct 19, 2009
  3. MTE

    MTE

    It's not a jelly roll, it's a long call calendar spread. The first and the third cancel each other out and you are left with a short Nov call and long Dec call.

    Next time proof read before posting.
     
    #13     Oct 19, 2009
  4. spindr0

    spindr0

    And that's the whole point. Since the carry cost is priced into the options, if you ignore the carry cost of the stock, then the CC looks more attractive than the NP.
     
    #14     Oct 19, 2009
  5. Actually since I have my account at IB, who pays no interest on cash up to 100K, my effective carry cost is zero. Even if I was getting MM rates as I do at OptionsXpress its not much different than zero.
     
    #15     Oct 19, 2009
  6. #16     Oct 19, 2009
  7. AMN
    AMN is an infrastructure supplier that will do well on recovery:

    http://finance.yahoo.com/q/pr?s=AMN
    http://www.ameron.com/

    The company has a solid 10 year history of positive earnings:

    http://moneycentral.msn.com/investo...l=AMN&lstStatement=10YearSummary&stmtView=Ann

    and while the company has had a substantial decrease in earnings during the recession, earnings have never gone negative:
    http://finance.yahoo.com/q/is?s=AMN

    http://finance.yahoo.com/news/Ameron-Reports-Solid-bw-2260256271.html?x=0&.v=1

    The stock price reached a minimum in late 2008 but has been slowly increasing over the past 5 months:

    http://ichart.finance.yahoo.com/z?s=AMN&t=2y&q=c&l=off&z=m&a=v&p=s

    Trade:With AMN at 66.44
    Trade 1:
    buy the December 60 call and sell the December 65 call for a net debit of $380.00. At expiration:
    ........P/L
    60....(380)
    65....120
    70....120
    -----------------------
    req: 380
    Yield: 32% in 60 days or 192% annualized
    Random Variable Probability of AMN > 65 = 52%

    Trade 2:
    Sell the Dec 55 put and buy the Dec 50 put for a net of $25.
    ........ P/L
    50....(475)
    55.....25
    60.....25
    65.....25
    70.....25
    ------------------------------
    req: 475
    Yield: 5.2% in 60 days or 31% annualized
    Random Variable Probability of AMN > 55 = 85%
     
    #17     Oct 20, 2009
  8. MCD
    Nov CC on SSF:

    Bought the MCD Nov SSF for 58.96 and sold the Nov 57.50 Call for 2.10.
    Req: 5896/4 = 1474 - 210 = 1264
    Yield at 57.50+ = 64/1264 = 5.1% in one month or 60% annualized.

    (carry cost of the one month 1474 is about $3 if I were getting 3% on my brokerage cash, which I'm not)

    http://ichart.finance.yahoo.com/z?s=MCD&t=3m&q=c&l=off&z=m&a=v&p=s


    :)
     
    #18     Oct 20, 2009
  9. The dollar is falling in value and I would like to have some protection for that. How much protection and in what form?

    As a start I will put in place a bull call spread on UDN:

    http://finance.yahoo.com/q/pr?s=UDN

    http://ichart.finance.yahoo.com/z?s=UDN&t=2y&q=c&l=off&z=m&c=GLD,^DJI&a=v&p=s



    Buy the UDN June 26 call and sell the UDN 28 call for a net of 1.55:

    ...........P/L
    25.....(155)
    26.....(155)
    27......(55)
    28.......45
    29.......45
    -----------------------
    Req: 155
    Yield: 29% in 241 days or 43% annualized.
     
    #19     Oct 21, 2009
  10. IF we have inflation then we should see commodity prices increase, plus if we have a recovery from the recession we should also see commodity prices increase. That's two ticks for rising commodity prices.

    I will put on a bull call spread for DBC the commodity index tracking ETF:

    http://finance.yahoo.com/q/pr?s=DBC

    http://ichart.finance.yahoo.com/z?s=DBC&t=2y&q=c&l=off&z=m&a=v&p=s

    With DBC at 24.09 buy the April 23 call and sell the April 25 call for a net of 1.15

    .........P/L
    22....(115)
    23....(115)
    24.....(14)
    25.....85
    26.....85
    -------------------------
    req: 115
    Yield: 85/115 = 74% in 178 days or 149% annualized.
     
    #20     Oct 21, 2009