Safer option strategies

Discussion in 'Options' started by madbrain, Nov 10, 2011.

  1. spindr0

    spindr0

    It all depends on your trading style (size, frequency, etc).

    For me, per contract rate is best since that allows scaling in/out without that pesky flat fee per trade (t)humping.
     
    #41     Nov 15, 2011
  2. spindr0

    spindr0

     
    #42     Nov 15, 2011
  3. spindr0

    spindr0

    Ignoring arb positions, every option position is going to have a downside. There are an endless number of "Yeh But's" for anything you look at. The bottom line is that you should be looking for a risk graph that provides and acceptable amount of both.
     
    #43     Nov 15, 2011
  4. spindr0

    spindr0

    Re your put protection idea, the last thing to mention for tonight is the possibility of collaring your positions. Sell OTM calls to fund the cost of put protection (reduced cost for ATM closer to no cost for equidistant OTM strike).

    Since a collar has equivalent R/R to a vertical spread, the spread would be more desirable for opening positions, the collar for existing equity positions.
     
    #44     Nov 15, 2011
  5. If your thinking about selling options, there's a good thread somewhere on here which might make you think twice. Just search for it.
     
    #45     Nov 15, 2011
  6. madbrain

    madbrain

    Any hint on what that thread might be called ? Searching "selling options" in this forum returns way too many results.

    What are the risks you want to point out that haven't already been talked about ?
     
    #46     Nov 15, 2011
  7. madbrain

    madbrain

    I did the math on commissions with my strategy . This is over 1321 days for the data I input.

    Optionshouse (using $8.50 + 0.15) : $1333
    IB : $1847
    Fidelity : $3451
    Schwab : $2975

    The above assumes no partial assignments. If there are a lot of them, Optionshouse costs become close to IB.

    There is a total of 17 end-of-week assignments. Max number of early partial assignments with the 5 day window would be 85 . At $3.95/ETF trade it would be about $400 extra worst case. Optionshouse would still win for costs, though only by about $100.
     
    #47     Nov 15, 2011
  8. madbrain

    madbrain

    spindr0,

    Thanks, that certainly explains it ! Accounting for intrinsic value, the call is really 2.04 - .46 = $1.58 . The put is $1.27, but is $0.46 out of the money.
    I guess I'd like to see what happens to the weekly values the next time SPY closes on an exact dollar amount.

    Thanks, that helps.
     
    #48     Nov 15, 2011
  9. spindr0

    spindr0

    Take a look at conversions. The carry cost is the cost of holding the position and explains why calls are priced higher than puts (same month/strike).
     
    #49     Nov 15, 2011
  10. spindr0

    spindr0

    Downside risk is closer to 10% at exp, less if drop is sooner. Even less iinitial position was a collar (and short calls can be rolled down to mitigate some risk).

    Consider cost per day for protection as part of consideration for what strike to buy:

    Jan 2013 $30 put is $4.25 (99 cts)

    Jan 2014 $30 put is $6.10 (77 cts)

    Jan 2013 $25 put is $2.01 (47 cts)

    Jan 2014 $25 put is $3.30 (29 cts)

    See a pattern?
     
    #50     Nov 15, 2011