Identifying a possible option strategy

Discussion in 'Options' started by moolah, Jan 3, 2019.

  1. moolah

    moolah

    I am fairly new to options trading and came up with a possible option strategy (i think)

    Assuming bearish market conditions, stock is at $100 and do not own shares in this stock. Income received is from net premiums received.

    What i want to do is to sell a Call at $110 (i.e. 10% above its current market price of $100) and also, for protection, to buy a Call at, say, $108. The $2 spread is so that in the event the stock is in an uptrend and blows pass $110, I do not end up with a naked option position.

    Its essentially half of iron condor (the Call side).

    Is there an existing option strategy that does this or do i have to put in 2 separate single trade, one for the sell Call and one for the buy Call?
     
  2. Robert Morse

    Robert Morse Sponsor

    A little hard for me to follow with your terminology. Are you looking to buy the 108/110 call spread with the stock trading at 100? If you buy the 108 calls and sell the 110 calls, that would be a debit spread. If that is true, you can enter that as a spread with a complex order ticket.

    With this spread, you only profit if the stock goes up past 108 more than the debit.
     
    tommcginnis likes this.
  3. what do you hope to gain by trading options in the first place? selling is for deep pockets and ice water, not blood in your veins and buying for fools who believe it's safer. mix the two and your wasting time making nothing, but the clearing firm will profit for sure. this is exactly why clearing firms promote this style of trading it bleeds your money slowly so they can get the maximum commissions out of you in the process.
     
    Last edited: Jan 3, 2019
  4. Robert Morse

    Robert Morse Sponsor

    Wow. Not sure how that helps him.
     
    tommcginnis likes this.
  5. true i admit it will probably not help him at all. it's hopeless until he has no money left, then he will get it.
     
  6. Palindrome

    Palindrome

    I have had such a difficult time making money from options, I still mess with it trying to develop profitable systems but the results are always average to below average.

    I used to trade them, I don't anymore though...but still trying to figure them out. Seems like selling options/spreads, you can make a couple bucks, but not much unless you like a ton of risk.

    Buying them is an art, that is what I've been studying lately...so difficult.
     
  7. moolah

    moolah

    All along i have only been selling (or writing) a Call at, for this example, at $110. Hoping that the stock price stays below $110 so that the option expires worthless and receiving the premiums.

    However, this single one-legged trade is quite risky as A) its a naked position B)if the stock price goes above $110 and gets exercised, I would have to go out and buy the stock at the current market price and sell it at $110.

    Hence, in order to protect myself, to also simultaneously buy a Call option at $108. That way, my losses is only restricted to $2.

     
  8. Robert Morse

    Robert Morse Sponsor

  9. Metamega

    Metamega

    The 108 call will cost more then the credit received for the 110.

    Just because the strikes are 2$ apart doesn’t mean your loss/gain is 2$. Option pricing is more complicated then that.
     
  10. qlai

    qlai

    Nicely put! (pun intended). But what about using options to enhance (leverage/hedge) stock/futures trading?
     
    #10     Jan 3, 2019
    MarkBrown likes this.