Of course the long leg of the spread DOES protect you. I wrote that caution because the strike involved is so high. I rarely get involved with stocks like AAPL because of the high strikes. IF AAPL should descend past your short strike, and does not descend to your long strike, AND you are put, AND you do not have the money to satisfy the put .... I am simply saying that you should ask your broker what will happen in case you don't know. Your broker may take the put for you and simply sell the stock charging your account for the difference between the put and the sell price plus a fee. OR he may exercise the long put for you and you will end up with the width of the spread as your cost. i.e. loss = (Short strike - long strike) - premium. It's no big deal but I have seen from other posts that some people play options with very small accounts and those people will want to avoid playing with very expensive stocks for that reason. I would imagine your broker will be less likely to go out on a limb for you if you have a mini-account. I would never have mentioned it but this small issue was the be-all and end-all of PM's existence and I thought I would throw it in in his memory.
True Religion: http://finance.yahoo.com/news/towerbrook-buying-true-religion-826m-140822873.html $32 a share. The $30 put is bid at $35. Free money.
CORN: http://news.investors.com/investing...dities-summer-shortfall.htm?ven=yahoocp,yahoo http://finance.yahoo.com/news/grains-etfs-building-momentum-160704314.html http://finance.yahoo.com/q/bc?s=CORN&t=2y&l=on&z=l&q=l&c= Sell the Nov $36 put and buy the Nov $33 put for a net credit of $50 Yield = 50/250 = 20% in 186 days or 39% annualized Prob = 70% Expectation = .7(50) - .17(250) - .13(125) = 35 - 42.5 - 16.25 = -24 Does the negaive expectation make it a dumb trade??
ATK: http://www.forbes.com/sites/abrambr...-afraid-of-making-more-guns/?partner=yahootix http://finance.yahoo.com/news/alliant-buy-caliber-company-205003987.html http://www.investopedia.com/stock-a...uns-growth-atk-rgr-mo-lo.aspx?partner=YahooSA http://finance.yahoo.com/q/bc?s=ATK&t=5y&l=on&z=l&q=l&c= Trade: With ATk at 76.64 Sell the Nov 55 put and buy the Nov 50 put for a net credit of $50 Yield = 50/450 = 11.1% in 184 days or 22% annualized Prob = 98% Expectation = .98(50) - .01(450) - .01(225) = 49 - 4.5 - 2.25 = 42.25
I did place the order after market open with IB smart but ask has been at $5debit, now IB model value shows the spread for $20
@ $20 Expectation = .98(20) - .01(480) - .01(240) = 19.6 - 4.8 - 2.4 = 12.4 Still positive but not worth the risk. I won't take it for less than $50
------------------------------------------------------------------------------- Mid option purchases are rare after a stock has been on a tear for several days and the market is up I think you are late. when the church bells are ringing.... SELL When there is blood in the streets BUY Elchanan Rothschild (During the 1800s, when it was at its height, the Rothschild family is believed to have possessed by far the largest private fortune in the world as well as by far the largest fortune in modern world history)
Why is it I don't know what the hell anybody is talking about?? What is a 'mid option' ? Any trading in this stage of the market is 'late'... everybody knows that... so what??? I haven't done any real trades in two weeks. What the hell do I care about Rothchild and what has he got to do with option trading?? NOTHING. I usually keep everybody on ignore so I don't have to listen to this 'how clever I am' drivel... which I will go back to doing. If you have so much to say start a thread and show us your trades. Otherwise, for christ's sake SHUT UP.