Is this a good idea for options??

Discussion in 'Options' started by lasner, Jan 11, 2010.

  1. lasner


    I've been looking at ways to add income to my commodity account.

    I've looked at different spread strategies and they all seem the same.

    I looked at writing naked calls also. I think I came up with a pretty good idea. let me know what you think.

    The dollar and gold are inversely related...they obviously move in opposite directions.

    I want to add minimal amounts of income to my account. So I'm going to write a June 1625 call in gold for $270 and at the same time write a June 90 call in the dollar for $250.

    Both can't go up at the same one goes up the other has to come down.

    I use a doubling effect in options when the $270 doubles in price I will exit.

    What do you guys think about this trade.
  2. its brilliant. i wonder why nobody else thought of doing that.
  3. lasner


    You think it's a bad idea
  4. heech


    If it was really a bad idea, he would go the opposite direction and make a good idea out of it.

    I think, just like many other option trades, it's a "fine" idea. You're probably right that not both options will be ITM at the same time.

    But there's no free lunch here, what you'll get out of it is still equivalent to the risk that you're taking.
  5. lasner


    You would have to have huge volatility to get stopped out of this trade.

    I use a doubling effect when I write a naked call. I don't like to write naked calls close to the money but far out. This gives me enough cushion to not get burned.

    For the gold 1625 call to double it would have to up in price by 125.

    Writing the dollar in addition to it kind of acts like hedge and gives more.

    I write the gold 1625 call for $270 and the dollar call at 90 for $250.

    That gold call has to go up to $810 for me to lose $270.
  6. "Both can't go up at the same one goes up the other has to come down."
    only a noob would say something like this. people used to say bonds and stocks cant go down at the same time. check the charts of bond funds to see what happened in the last crash.
  7. lasner


    For the most part they are always inversely related...if you could show a chart where they aren't
  8. heech


    Annualized gold volatility is running ~20%. Rising 125 (~10%) at *some point* in the next 5 months? From a probability point of view, it's *not* an unlikely event. You definitely would not need "huge" volatility to see gold move by 10% over 5 months.

    Uhm, except now you're also exposed to the risk of the dollar going up as well. Again, there's no free lunch here.
  9. lasner


    Yes but the dollar won't go up as well
  10. heech


    Yes, but do you not realize that if gold goes down, you now have additional risk of loss because the dollar has gone up?

    Anyways, this is as far in this discussion as I'm interested in going.
    #10     Jan 11, 2010