Conservative Options Trades

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

  1. 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%
     
    #31     Sep 8, 2011
  2. 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.
     
    #32     Sep 9, 2011
  3. 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.
     
    #33     Sep 15, 2011
  4. Filled BAC condor at 168 this AM making my potential profit 82 or 49% (36% annualized).
     
    #34     Sep 15, 2011
  5. 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.
     
    #36     Sep 17, 2011
  6. 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
     
    #37     Sep 17, 2011
  7. 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.
     
    #38     Sep 17, 2011
  8. 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!
     
    #39     Sep 17, 2011
  9. 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.
     
    #40     Sep 17, 2011