possibility

Discussion in 'Options' started by asdfghj7, Mar 25, 2009.

  1. This is a hypothetical question. Lets assume that we know ahead of time that tomorrows open will be at 100 and it will go straight up to 110 by the end of the day. Were assuming this is what will happen. Ok, at the 930 open, we go long 100shares at 110, and simultanously purchase one 3 month ATM 100 put for $5 (Why if you know its going straight up? Please bare with me.) We also sell two 3 month OTM 110 calls for $1.75 each. At the close of the day, if we sell our 100 shares for $10 profit at 110, and buy back the 100 put we purchased, will this amount offset the loss that we'll end up paying to buy back the two 110 calls we sold? Could the rise in the two premiums at the end of the day be more than $1100 based on each one closing at $7.25pt each from $1.75 each. And would a calendar spread of some sort gives us a better chance.
     
  2. My guess is that you're starting with options with something a bit over 100 negative delta[ (net delta somewhat negative when added to the stock). ATM calls have aprox a 55 delta so by a 110 stk price, you'll have 2 times that plus the put's delta for maybe a net of 130-140 delta. Offhand, I'd guess a loss of $200 to $300 in your scenario, assuming IV doesn't kick up.

    An ATM calendar would not perform well - an OTM 110 call calendar would. If the stock is rising, you want to be long delta.
     
  3. Maybe I read this wrong.

    1 covered call and 1 naked calls and long 1 put??

    What if it goes straight up to 148? (things have been wacky lately)


    No one can predict what a stock price will be at the end of the day.

    Not sure why if you are bullish why you would open 1 naked call positions and go long 1 put position.
     
  4. Lets keep things simple and use REAL numbers using AAPL.

    • AAPL @ 106.49
    • AAPL Apr 2009 105 call @ $5.75
    • AAPL Apr 2009 110 call @ $3.30
    • AAPL to $116.00 by end of day
    • AAPL Apr 2009 105 call @ $12.95 (about)
    • AAPL Apr 2009 110 call @ $9.25 (about)

    I would buy calls, the 110 pack the most punch. I didn't check the 115 or 120 calls though.





    forex-forex
    --------
    Guru
     
  5. I can't believe I did it again. My mother can. What does she know. Anyway the example should read, much differently now.

    This is a hypothetical question. Lets assume that we know ahead of time that tomorrows open will be at 100 and it will go straight up to 110 by the end of the day. Were assuming this is what will happen. Ok, at the 930 open, we go long 100 shares at 100, and simultanously purchase one 1 month ATM 100 put for $5 (Why if you know its going straight up? Its just to keep things simple for me.) We also sell three 1 month OTM 110 calls for $1.75 each. At the close of the day, if we sell our 100 shares for $10 profit at 110, and sell the 100 put we purchased, will this amount offset the loss that we'll end up paying to buy back the three 110 calls we sold? Could the rise in the three premiums at the end of the day be total up to more than $1100 based on each one closing at $360 each from $1.75 each. And would a calendar spread of some sort gives us a better chance. Basically, if we know tomorrows move is from 100 to 110, the goal would be to buy at 100 and sell at 110 which is all intrinsic vaule. The 110 calls we sold would only have time value. This is a day trade.
     
  6. If you know that the stock is going straight up in the morning, just buy the stock or deep ITM calls. BELIEVE is a better word than KNOW and HOPE is the most realistic of the three. If you want leverage, buy the OTM calls but the further OTM, the more right you'll have to be.