Hedged strategy using UYG/SKF Financials. What do you think?

Discussion in 'Options' started by JJacksET4, Nov 22, 2008.

  1. Update Market close Nov 25th:
    SKF close = 156.12
    UYG close = 5.55

    SKF 200 strike put Dec (Short) = 60.50/61.00
    SKF 150 strike put Dec (Long) = 23.50/24.50
    Worst case to rebuy = $3750
    Price if split bid/ask = $3675

    UYG 4 strike call Dec (Long) = 1.75/1.85
    18 contracts owned
    Worst case to sell = $3150
    If Sellable for $180 = $3240

    Net value = Worst case = -$600
    Net value = split bid/ask and get $180 = -$435

    Commentary:

    UYG continued to move up today, and the Dec calls went up, but not quite enough to show a profit on the position yet. The good news is that each call which is bid at $175 has $155 of intrinsic value.

    JJacksET4
     
    #11     Nov 25, 2008
  2. Update Market close Nov 26th:
    SKF close = 141.90
    UYG close = 6.03

    SKF 200 strike put Dec (Short) = 67.60/68.80
    SKF 150 strike put Dec (Long) = 26.40/27.50
    Worst case to rebuy = $4240
    Price if split bid/ask = $4125

    UYG 4 strike call Dec (Long) = 2.15/2.25
    18 contracts owned
    Worst case to sell = $3870
    If Sellable for $220 = $3960

    Net value = Worst case = -$370
    Net value = split bid/ask and get $220 = -$165

    Commentary:

    Financials continue to gain and UYG up and SKF down again. Net unrealized loss a bit better today. Will be interesting to see what Fri and next week bring.

    JJacksET4
     
    #12     Nov 26, 2008
  3. Update Market close Nov 28th:
    SKF close = 135.05
    UYG close = 6.30

    SKF 200 strike put Dec (Short) = 71.10/72.80
    SKF 150 strike put Dec (Long) = 28.90/29.60
    Worst case to rebuy = $4390
    Price if split bid/ask = $4270

    UYG 4 strike call Dec (Long) = 2.40/2.45
    18 contracts owned
    Worst case to sell = $4320
    If Sellable for $245 = $4410

    Net value = Worst case = -$-70
    Net value = split bid/ask and get $245 = +$140

    Commentary:
    Well, Financials rally again and now the position is either a small loss or small gain. Each UYG call now has $230 of intrinsic value. A few more good days for UYG would start to really help this position.

    JJacksET4
     
    #13     Nov 28, 2008
  4. spindr0

    spindr0

    JJacks,

    With a $1.35 gain in the $4 calls, I'd be looking at rolling them up a strike in order to book the gain - pulling out some of that hypothetical intrinsic value thst you've accumulated.

    Assuming that today's closing quotes are accurate, you could roll up to the 5's for an 80 ct credit. If they'd split the B/A, for 90 cts, I'd grab it. $1.40 gain locked in (extra nickel on the bid) and not much sacrifice on the delta (maybe .10). If that's a problem, you could buy 2 extra 5 strike calls for a total of 20.

    If it keeps going up, almost the same result on an 18/18 roll (reduced profit of 18 by 10 cts).

    If it keeps going up and it's the 18/20 roll, 2 extra calls provide better result. If it reverses, not as bad a loss since $2430 booked from the roll.

    Just tossing out an idea ...
     
    #14     Nov 28, 2008
  5. Spin,

    That sounds like a good idea. I'd probably seriously consider it if I was in this trade for real. I also like the idea of possibly pushing up the number of calls to 20. Nothing wrong with locking in some money, yet ending up with more calls.

    I think for now I will just continue to report the results of this paper trade without using adjustments. Of course, if a person was in this trade they could adjust or close out at any point, but I want to see what will happen to the trade with no adjustments.

    I might have done this trade myself, but I have too much money tied up elsewhere right now! (fortunately both bearish and bullish):)

    Thanks for the suggestions.

    JJacksET4
     
    #15     Nov 28, 2008
  6. Update Market close Nov 28th:
    SKF close = 174.65
    UYG close = 4.34

    SKF 200 strike put Dec (Short) = 47.40/48.90
    SKF 150 strike put Dec (Long) = 15.10/16.70
    Worst case to rebuy = $3380
    Price if split bid/ask = $3225

    UYG 4 strike call Dec (Long) = .85/.95
    18 contracts owned
    Worst case to sell = $1530
    If Sellable for $90 = $1620

    Net value = Worst case = -$-1850
    Net value = split bid/ask and get $90 = -$1605

    Commentary:

    Ouch! Financials tank and UYG calls take it on the chin. Plus, SKF didn't go up enough to make that spread cheap. So, fairly large losses build up on this position now.

    This is an example of where the idea from Spin above would have been a good idea.

    I will continue to update this position sometimes, but probably not everyday from here on. I was planning on less updates anyways, it was not just because of the drop today.

    JJacksET4
     
    #16     Dec 1, 2008
  7. spindr0

    spindr0

    Well, there's a perfect example of why I always try to pull gains out of positions. If a significant reversal occurs, not only have you given up your profit but you now have "X" days of time decay lost in the long positions.

    Stay tuned for my next decent suggestion. I get about one a month :)
     
    #17     Dec 1, 2008
  8. Update Market close Nov 28th:
    SKF close = 117.18
    UYG close = 6.11

    SKF 200 strike put Dec (Short) = 85.80/87.10
    SKF 150 strike put Dec (Long) = 40.10/41.10
    Worst case to rebuy = $4700
    Price if split bid/ask = $4585

    UYG 4 strike call Dec (Long) = 2.15/2.20
    18 contracts owned
    Worst case to sell = $3870
    If Sellable for $220 = $3960

    Net value = Worst case = -$-830
    Net value = split bid/ask and get $220 = -$625

    Commentary:

    Financials come roaring back on Friday, but not enough to make the trade profitable yet. One more good day for UYG would help alot now. One could consider selling the 4 strikes and moving up to 5 or 6 strikes to lock in some money. Also, a person might want to consider that financials might not rally enough in time for Dec exp., and considering rolling to Jan.

    JJacksET4
     
    #18     Dec 5, 2008
  9. Update Market close Dec 8th (Note, Prev close was listed as incorrect date):
    SKF close = 102.50
    UYG close = 6.86

    SKF 200 strike put Dec (Short) = 98.40/99.10
    SKF 150 strike put Dec (Long) = 49.80/50.80
    Worst case to rebuy = $4930
    Price if split bid/ask = $4845

    UYG 4 strike call Dec (Long) = 2.80/2.90
    18 contracts owned
    Worst case to sell = $5040
    If Sellable for $290 = $5220

    Net value = Worst case = +$110
    Net value = split bid/ask and get $290 = +$375

    Commentary:

    Financials gain again along with the market and now the UYG calls have gone over the $5000 mark. If I had this position, I would seriously consider rolling the 4 strikes up to 6 or even 7 strikes now (or close it) as time starts to run down.

    I have decided that I will now consider this position closed and stop updating it.

    JJacksET4
     
    #19     Dec 8, 2008