Conservative Options Trades

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

  1. #221     Jul 20, 2012
  2. SPY:

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

    Create condor from put and call spreads each netting $20 after commissions:

    Put Spread
    sell 5 Aug 127 put and buy 5 Aug 126 put for a net credit of $35
    Commission = $15
    Yield = (35 - 15) /(500 -(35 - 15)) = 20/480 = 4.2% IN 26 days or 58% annualized
    Prob = 96%
    Expectation = .96(20) - .02(480) - .02(240) = 19.2 - 9.6 - 4.8 = 4.8

    Call Spread
    Sell 5 Aug 142 call and buy 5 Aug 143 call for a net credit of $35
    commission = 15
    Yield = (35-15)/(500 - (35-15)) = 20/480 = 4.2% in 26 days or 58% annualized
    Prob = 85%
    Expectation = .85(20) - .11(480) - .04(240) = 17 - 52.8 - 9.6 = -45.4

    Put spread is good, call spread is a loser based on probability.

    If done separately expectation = 4.8 - 45.4 = -40.6

    If done combined:

    sell 5 Aug 127 put and buy 5 Aug 126 put & Sell 5 Aug 142 put and buy 5 Aug 143 put for a net credit of $70
    Yield = (70 - 30)/(1000 - (70-30)) = 40/960 = 4.2% in 26 days or 58% annualized
    Prob = 90.5%
    Expectation = .905(13) - .02(87) -.08(87)= 11.8 - 1.76 - 6.9 = 3.14

    Can't be wrong both ways at once.
    :)
     
    #223     Jul 22, 2012
  3. #226     Jul 24, 2012
  4. NFLX Ctd:

    I have been unable to get a trade with a positive expectation because of the extreme volatility of the stock. My statistical methodology is not appropriate to these kinds of situations.

    e.g.
    Jan '13 90/95 bear call spread for $35
    Yield = 35/465 = 7.5% in 176 days or 15.6% annualized
    Prob = 90.5%
    Expectation = .905(35) - .074(465) - .02(232) = 31.7 - 34.4 - 4.5 = - 7.2

    Just as well...On NFLX I pass.
     
    #228     Jul 26, 2012