I sold a big call credit spread.

Discussion in 'Options' started by KINGOFSHORTS, Aug 21, 2009.

  1. Short GE 15, long GE 16 (250 contracts) for september
  2. I don't know that I would call that a big credit spread - just a large number of a small spread :)

    I assume you are quite bearish on GE then? Looking at the quotes, it appears you probably got about 17-20 cents maybe per spread?

    Do you have any stop area in mind if GE moves up? And if GE falls will you close early or hold until the end?

    I don't pretend to know how it will do in the future, but looking at the price of GE the thing that would worry me about it is that it has gone from 11.47 on Jul 20th to now 14.16 on Aug 20th.

    Good luck in any event.

  3. If you are that bearish, why dont you take a small portion of your credit and buy a put or two as well? You could even spend it on a long term put. Just a though.

  4. I will close out early if I am satisfied with the return. I got 18 cents per spread.

    I see GE staying around the mid 14's with a potential drop in a couple of days back the the 13's range.

    strike price effects on the underlying pushed it to 14's it will correct.
  5. That is a dangerous move... The market is not going to be kind to you. In our hedge fund we focus on selling premium. That's all we do... And the main trader (I am junior trader-analyst) has a saying they don't give you that money for free. He would not touch a play like under any circumstance.

    Personally I would have played the 16-17 spread, but hey that's me...
  6. where is the big spread you were talking about?

  7. Patience my friend, this is like cooking roast nice and slow so you get real tender and tasty meat come Friday.

    GE is gonna float around the 14's and then it will start touching the upper 13's
  8. donnap


    Perhaps that would work for your fund, but for the average retail taking a nickel credit isn't worth it.

    Risk/Reward = .95/.05 Really bites.
  9. Donna, that ratio sucks no matter who looks at it and no funds are sitting around selling call spreads and staying in business.
  10. Now it hurts me to disagree with you Xflat (cause I have respect for your experience/knowledge) but to me there are no ratio that sucks in itself, its all about probabilities... I'll explain:

    If you have 99,99% chance of doing 0.05$ versus 0,01% of loosing 0,95$, to me it is still a good bet:

    so its a positive 0.049895$. Thats a positive expected return so statistically its acceptable.

    However in the specific case of that trade, I don't like the odds...
    #10     Aug 24, 2009