At a $60 credit, I see the math as (-240)*.0908 + 60*.8122 + (-90)*.097 = -21.79 + 48.73 - 8.73 = 18.21 which is an expected profit, as opposed to an expected loss at a $40 credit. I'd calculate the return as 18.21/240 = 7.59% (or roughly 13% annualized). (Apologies if you've already covered your rationale for defining the size of the credit. It's a long thread. )
ERIC: http://finance.yahoo.com/news/ericsson-misses-q1-earnings-revs-164105818.html http://www.bloomberg.com/news/2014-...dy-s-on-profitability-concern.html?cmpid=yhoo http://www.bloomberg.com/news/2014-...k-with-17-chip-tests-qualcomm.html?cmpid=yhoo http://finance.yahoo.com/news/bear-day-ericsson-eric-050043031.html http://finance.yahoo.com/q/ks?s=ERIC+Key+Statistics http://finance.yahoo.com/q/bc?s=ERIC&t=2y&l=off&z=l&q=l&c= Trade: With ERIC at 12.39 Jan '15 14/17 bear call spread for a net credit of $31 Yield = 31/269 = 11.5% in 218 days or 19% annualized Prob = 77% Expectation = .77(31) - .034(269) - .20(135) = 23.87 - 9.15 - 27.00 = -12
JJ: Yes more is better. If and when I submit an order I will try to get more... but the $40 gives me a (more or less) breakeven expectation (based on the probability distribution of past prices) and is thus looked on as minimum. That's why I call them 'conservative' option trades. In these trades I am always looking at the rationale of the opposition and why he is pricing as he is. If I see a trade does it mean I see something he doesn't? Hmmmm. Also I am wary of the market being over-extended and thus am less optimistic on bullish trades right now.
RL: http://finance.yahoo.com/news/bear-day-ralph-lauren-rl-050020646.html http://www.bloombergview.com/articles/2014-05-16/ralph-lauren-s-fading-fantasy?cmpid=yhoo http://finance.yahoo.com/q/ks?s=RL+Key+Statistics http://finance.yahoo.com/news/ralph-lauren-sees-2015-revenues-121905060.html http://finance.yahoo.com/q/bc?s=RL&t=2y&l=on&z=l&q=l&c= I do not think RL will see 180 again for a while. Trade: With RL at 152.45 Jan '15 180/185 bear call spread for a net credit of $45 Yield = 45/455 = 9.9% in 217 days or 16.6% annualized Prob = 90% Expectation = .9(45) - .067(455) - .033(228) = 40.5 - 30.5 - 7.5 = +2.5 Bid/ask on the spread is .40/.75 ... so if I can get better than .45 it will be a better trade. Price.................Profit / Loss...........ROM % 125.00................ 45.00................ 9.00% 152.45................ 45.00................ 9.00% 175.00................ 45.00................ 9.00% 180.00................ 45.00................ 9.00% 180.45.................. 0.00................ 0.00% 184.01............. (356.30)............ -71.26% 185.00............. (455.00)............ -91.00% 200.00............. (455.00)............ -91.00% 225.00............. (455.00)............ -91.00%
HSBC: How about a London bank? http://finance.yahoo.com/q/pr?s=HSBC+Profile http://finance.yahoo.com/q/ks?s=HSBC+Key+Statistics http://investing.money.msn.com/investments/financial-statements?symbol=HSBC http://www.fool.co.uk/investing/201...fit-with-little-risk/?source=uptyholnk3030001 http://finance.yahoo.com/news/hsbc-first-quarter-profits-fall-095105347.html http://www.fool.co.uk/investing/201...-profit-is-good-news/?source=uptyholnk3030001 http://finance.yahoo.com/q/bc?s=HSBC&t=my&l=on&z=l&q=l&c= http://finance.yahoo.com/q/bc?s=HSBC&t=5y&l=off&z=l&q=l&c=^GSPC http://finance.yahoo.com/q/bc?t=5y&s=HSBC&l=off&z=l&q=l&c=&ql=1 Trade: With HSBC at 52.21 Jan '16 40/35 bull put spread for a net credit of $68 Yield = 68/432 = 15.7% in 578 days or 9.9% annualized. Prob = 90% Expectation = .9(68) - .03(432) -.07(216) = 61.2 - 13 - 15 = 33.2 Expected yield = 33.2/432 = 7.7% in 578 days or 4.8% annualized (HSBC yields 3.8% in dividends... but without the $12.21 buffer that this trade offers. The disadvantage of this trade over holding the stock is what you may lose if you need to bail out early. This trade is a substitute for a long term investment in HSBC for income purposes )
Yesterday was flag day. It made me think of the first time I was in Paris and the first time I ever realized what an important role my father and his contemporaries played in saving the word from Nazi Germany. The above photo is captioned '28th Infantry Division march along the Champs Elysees, the Arc de Triomphe in the background, on Aug. 29, 1944'. On that date I was 1 year old. When I went to Paris for the first time in the early sixties I first saw this picture hanging in a hotel bar on the Champs Elysees, and was very surprised at how much the French loved Americans. Anyone there who remembered and spoke of those times couldn't refrain from kissing me. http://www.youtube.com/watch?v=wpZ3jPMM5Ac
COV: http://dealbook.nytimes.com/2014/06...hp=true&_type=blogs&partner=yahoofinance&_r=0 http://www.thestreet.com/story/1274...e-year-high-today.html?puc=yahoo&cm_ven=YAHOO http://dealbook.nytimes.com/2014/06/16/a-merger-in-a-race-with-congress/?partner=yahoofinance http://blogs.wsj.com/moneybeat/2014...club-on-medtronic-covidien-deal/?mod=yahoo_hs http://stockcharts.com/h-sc/ui?s=MDT http://stockcharts.com/h-sc/ui?s=cov Trade: Jan '16 75/70 bull put spread for a net credit of $80 Yield = 80/420 = 19.05% in 260 days or 27% annualized This is a trade where expectations based on the distribution of previous plays no role whatsoever. The real question is what is the probability that the deal will actually take place. Based on information in the financial press I estimate the probability at 85% Expectation = .85(80) - .15(420) = 68 - 63 = 5 Positive but no great shakes.
MOS: http://finance.yahoo.com/q/bc?t=5y&s=MOS&l=on&z=l&q=l&c=POT&ql=1&c=^GSPC http://finance.yahoo.com/q/bc?t=5y&s=MOS&l=on&z=l&q=l&c=&ql=1&c=^GSPC http://finance.yahoo.com/q/bc?t=5y&s=MOS&l=on&z=l&q=l&c=&ql=1 http://investing.money.msn.com/investments/financial-statements?symbol=MOS Trade: Jan '15 40/37.5 bull put spread for a net credit of $22 Yield = 22/228 = 9.6% in 212 days or 16.6% annualized Prob = 92% Expectation = .92(22) - .04(228) - .04(114) = 20.2 - 9.1 - 4.6 = 6.5
VSAT: http://finance.yahoo.com/news/bear-day-viasat-vsat-050025310.html http://finance.yahoo.com/q/ks?s=VSAT+Key+Statistics http://investing.money.msn.com/investments/financial-statements?symbol=VSAT https://www.viasat.com/ http://finance.yahoo.com/q/bc?t=2y&s=VSAT&l=off&z=l&q=l&c=&ql=1&c=^GSPC http://finance.yahoo.com/q/bc?s=VSAT&t=2y&l=off&z=l&q=l&c= Trade: with VSAT at 57.24 Dec 65/70 bear call spread for a net credit of $80 Yield = 80/420 = 19% in 183 days or 38% annualized Prob = 76% expectation = .76(80) - .14(420) - .10(210) = 60.8 - 58.8 - 21 = -19