In fact, the best example is GOOG. Looking at GOOG shares today closing near $610, who'd ever thought GOOG missed EPS by $1? That right there tells you this market's rally is intact.
Thankyou Forex Forex. I´ve never had any luck with debit spreads. I think I do not have the feel for them or something? Credit spreads I understand. I was contemplating a credit spread on the OEX for late tomorrow, expiring Friday, but do not think I will get the premiums needed to make it worth the risk. It is looking like straight plays are the best, buying and selling. I´ve been contemplating cutting back my size of trade move, to just double the commission, for faster action in this low volatility environment. It is hard to get a swing past the commission cost in one or two days, to make any money.
exactly what forex said, these are usually just debit spreads. I have started doing this when I see that the risk ratio is quite beneficial to me. Ex, the 34 calls were trading near $2 with AKAM at $34. Instead of a full $2 risk, I checked my notes and it showed AKAM had about a 14% run up or down from its previous close. I used 38 calls as the short which would make the run up at 11.7%, just enough room to catch the max gain. Instead of risking $2, and getting a potential return of only $4-$4.50, I'm now risking $1.45-$1.50 for a max return of $4. I went from a 1:1 risk ratio to 1.7:1 risk ratio. Just added another 0.70 gain for every dollar risk from just trading the long 34 calls. Hope that gives you a better idea as to why I jump into the debit spreads from time to time. Options have to be priced fairly expensive to do this too.
Thankyou Ryan for that insight. I get the general idea, but since I don´t trade stocks but indexes it probably would not apply. However your way of figuring the risk reward was interesting. I´m still not too clear on it, with the $2 bit, but I can certainly see there would be something in there, if I desired to learn more and persue it. Everytime I tried debit spreads I lost money in the past. It could be I don´t know how to figure it, for risk and reward, vs premium cost?
Put it simple this way, IV high = better risk ratio in debit spread. IV low = straight call/put. Can't get any simpler than that right atticus? Now, if the market can just open up so I can lock in the gains on AKAM, then I'm fine.
forget closing akam, I'm going to try to leg out of the trade, might even get a better exit. History shows AKAM should move an additional 3-4% from its opening gap. Should translate into a 1-1.50 point move above its opening price before stalling.