ORCL: http://finance.yahoo.com/news/Oracle-shares-slip-on-lowered-apf-2662818421.html?x=0&.v=1 http://finance.yahoo.com/news/Oracle-Sets-Date-Its-First-iw-1786244968.html?x=0 http://online.wsj.com/article/SB10001424053111904583204576544792017784886.html?ru=yahoo&mod=yahoo_hs http://finance.yahoo.com/q/ks?s=ORCL+Key+Statistics http://moneycentral.msn.com/investo...ent=10YearSummary&symbol=US:ORCL&stmtView=Qtr http://finance.yahoo.com/q/bc?s=ORCL&t=5y&l=on&z=l&q=l&c= Trade: Iron Condor For Jan '12 Sell 35 call, buy 40 call, sell 20 put, buy 15 put for a net credit of $66 yield = 66/434 = 15.2% in 134 days or 41% annualized ..............P/L Table..................... Price.............P/L..........Prob Curve 15..............(434).............3% 20................66...............15% 25................66...............40% 30................66...............34% 35................66...............17% 40.............(434)..............8%
MCD: http://finance.yahoo.com/news/McDonalds-shares-fall-as-key-apf-79241970.html?x=0&.v=11 http://finance.yahoo.com/q/bc?s=MCD&t=2y&l=off&z=l&q=l&c= Trade: Bear Call Spread With MCD at 85.03 Sell the Jan '12 100 call and buy the Jan '12 105 call for a net credit of $23. Yield = 23/477 = 4.8% in 133 days or 13.2% annualized. Prob = 90% Expectation = .9(23) - .05(477) - .05(238) = 20.7 - 23.85 -11.9 = -14 It doesn't pay to bet against Mickey-D Lets try a bull put spread: Sell the Jan '12 70 put and buy the Jan '12 65 put for a net credit of $25. Yield = 25/475 = 5.2% in 133 days or 14.4% annualized Prob = 92% Expectation = .92(25) - .04(475) - .04(237) = 23 - 19 - 9 = -5 Not as bad but options are priced against any of these trades today. An Iron Condor might actually have a positive expectation.
BAC: http://seekingalpha.com/article/293616-buffett-aside-a-look-at-bank-of-america?source=yahoo http://jubakpicks.com/2011/08/31/is...um=jubakpicks+rss&utm_campaign=jubakpicks+rss http://finance.yahoo.com/q/ks?s=BAC+Key+Statistics http://finance.yahoo.com/q/bc?s=BAC&t=2y&l=on&z=l&q=l&c= BAC should either go up a lot or down a lot. Reverse Iron Condor: http://www.optiontradingpedia.com/free_reverse_iron_condor_spread.htm with BSC at 7.05 Puts: buy the 5 and sell the 2.50 Calls: buy the 7.50 and sell the 10 Net debit and max loss = 173 Potential profit = 77 Price..................P/L 0.......................77 1.......................77 2.......................77 3.......................25 4......................(75) 5.....................(173) 6.....................(173) 7.....................(173) 8.....................(122) 9.....................(23) 10......................77 11 and above.......77 Potential Yield = 77/173 = 44.5% in 492 days or 33% annualized. Probably not a 'conservative' trade.
NFLX: http://finance.yahoo.com/news/Higher-Netflix-prices-equals-apf-1466852939.html?x=0&.v=8 http://www.marketwatch.com/story/netflix-momentum-story-stalls-analysts-say-2011-09-15?siteid=yhoof http://finance.yahoo.com/news/How-to-play-it-Did-Netflixs-rb-2622254959.html?x=0&.v=1 http://finance.yahoo.com/q/ks?s=NFLX+Key+Statistics http://stockcharts.com/h-sc/ui?s=NFLX Trade: Sell the Jan '12 300 call and buy the Jan '12 305 call for a net credit of $25 Yield = 25/475 = 5.3% in 127 Days or 15% annualized Prob = 92% Expectation = .97(25) - .02(475) -.01(237) = 24.25 - 9.5 - 2.4 = 12.35
GOOG: http://www.minyanville.com/business...s-apple-stock-price-google/9/15/2011/id/36906 http://finance.yahoo.com/q/bc?t=5y&l=on&z=l&q=l&p=&a=&c=&s=goog Trade: With GOOG at 546.68 Sell the Jan '12 350 put and buy the Jan '12 300 put for a net credit of $120 Yield = 120/4880 = 2.4% in 126 days or 7.5% annualized Prob = 97.7% Expectation = .977(120) - .005(4880) - .018(2440) = 117.24 - 24.4 - 43.92 = 48.92 I won't actually make this trade despite the positive expectation because the black swan carries too high a penalty. It's the same reason I don't drive on I-80 even though it is very close to my house. One accident on that road, no matter how improbable, would no doubt be my last.
GOOG I won't actually make this trade despite the positive expectation because the black swan carries too high a penalty. It's the same reason I don't drive on I-80 even though it is very close to my house. One accident on that road, no matter how improbable, would no doubt be my last. ----------------------------------------------------------------------------------- Besides the black swan issue ,a high priced stock like this and netflex require high margins. Is there a reason that this is not a consideration when selecting options to put on ? cheers john ps thanks for the journal
UTX: http://dealbook.nytimes.com/2011/09/16/united-technologies-explores-huge-deal/?partner=yahoofinance http://www.bloomberg.com/news/2011-...drich-offer-as-funding-sought.html?cmpid=yhoo http://finance.yahoo.com/q/ks?s=UTX+Key+Statistics http://finance.yahoo.com/q/ks?s=gr http://finance.yahoo.com/q/bc?t=2y&s=UTX&l=on&z=l&q=l&c=GR&c=^DJI http://finance.yahoo.com/q/bc?s=UTX&t=2y&l=on&z=l&q=l&c= Trade: Sell the Jan '12 55 put and buy the Jan '12 50 put for a net credit of $34 Yield = 34/466 = 7.3% in 126 days or 21% annualized. Prob = 94% Expectation = .94(34) - .02(466) - .04(233)= 32 - 9.3 - 9.3 = 13.4 Wait for market to react (or not) re Goodrich acquisition announcement.
Dan, A question which I would not be surprised if others asked it before: How come it is possible to find plays with positive expected value? As one can see, they exist because you are finding them. People's thinking might be something like : "The way options are priced renders the existence of such plays not possible in principle". If you have any comments, it would be appreciated. Good job again Dan, and best of luck!
1. If he diversifies, and the hit risk is taken from the profits, there is in fact really no risk. 2. My intuition tells me that the high priced stocks are the stocks that would be good for put options writing. Would be interesting to read any comments from Dan about my comments. Dan seems to know well what he is doing.