Here's a comparison of the R/R for each position, just in case you're interested. Covered Call Max Loss = 100% Max Gain = $402 BP used = $1,267 True risk with stops = ~$100 Return on margin = 31.7% R/R = 4:1
Diagonal Max loss = 100% Max return = $362 BP used = $665 True Risk = ~$100 Return on Margin = 54% R/R = 3.6:1
I know u were (jokin around). Last time PAAS made my list was 09-Sep-06. Thx for the input regarding margin requirement with spreads/collars(?). I'm trying to weigh risk/reward scenarios (like with the FOTM short index calls) - to optimally make gains desired vs risk. Personally I couldn't allocate a significant position to a call (PAAS) that overnight could gap down. I get enuf jolts just being in this. But I hear ya. In theory one could simply take a portfolio and find some decent plays that make 30% fairly easy (sell high-yielding calls 3-4 mo out) from now to Oct and do it again till Jan. This may seem easy, but probably a nightmare waiting to happen. gA
I realize that this is the knee-jerk reaction, but it is actually less risky than the covered call. See the long OCT 20 calls have a delta of 91 and favorable gamma on an adverse move. That is, the long stock carries a delta of 100 so every dollar drop is a dollar loss. Conversely, a dollar drop only causes a little less than .90 loss on the OCT call. Consider also that a gap down will result in an IV jump of at least 500bp. So let's say you held 100 shares long and the stock gapped down $1.50; you'll have lost $150. OTOH the OCT call will likely only have dropped about $110. Additionally, it will lose money slower as the underlying continues to drop (resulting from the favorable gamma). Options traders must always use volatility because that is what makes them preferable to stock. It doesn't really matter what stock position somebody wants to take, you can almost always engineer an options position that will accomplish the goal better.
Haven't you heard? The Nasdaq GAPS up to a new high!! see: http://www.elitetrader.com/vb/showthread.php?s=&postid=1502177#post1502177 ; )pS
no CL...I passed on it and went with IOC. Unless things have drastically changed, the methods in place for almost 10 years will yield the predicable result (daytrading aside, lol) GaPs
I'm sorry CL, I may have - seemed - to come off wrong (with regards to daytrading). That wasn't my intent. I wasn't referring to your trade or reactions to the Naked Option Story. I get it wrong - more than my share, but I stay within my longer-term parameters. So I will stick to what (I'm telling everybody) I know works. Unknown to perhaps many is that a trade or even a week of trades or even a few years do not tell the whole story of how a manager's (trader's) methods stack up. (Much) time will tell. Paysense Humor me...but if I had to do the spx/djx/qqq trade over - I'd a dunnit the same
...well Atticus it seems you are just throwing up (over and over) on yourself. If you posted the whole quote it'd say I didn't feel these would turn out 'so easy'. But for instance, ENCY is perhaps a fairly decent play. It is now trading near historical lows (pull up all data) and rates pretty well amongst it's peers - whose group is realtively very strong. Even trades 2.5M+ shares daily So you buy the stock at 4.1 and sell the Oct 5 calls at 1. But the July's are selling at .9! .9/4.1 = 22% not called 1.8/4.1 = 44% in called Stop Loss target...unwind when stock reaches 3.2. Diversify beteen 3-4 industries/positions to do two or three times per year with large account - SEEMS - like easy money...but (like I said) probably not. Just to get you by...here are a bunch or famous sayings (that are easy to mock) from me so you can use them for your barf bag! ps good eatin' oh I'm sorry...it was empty?lol