Wishful thinking?

Discussion in 'Options' started by asdfghj7, Mar 26, 2009.

  1. This inquiry includes a trade setup that is only hypothetical to aid in a visual image for understanding the basics of the method. It is only a daytrade. Here it is.

    Our trader observes that the average true range for XYZ each day is generally 10pt give or take a pt.

    XYZ is currently at 120. Our trader decides to buy 100 shares at 120 and simultaneously purchases a 1 month 120 put for 5pt. After this, two 1 month 130 calls are sold for 2.5pt each.

    After getting in all positions, the goal would be for the stock to rise to the 125 to 130 before the end of the day. Lets assume the stock goes to 130 with thirty minutes to close. Observing this, our trader sells the stock for 130 gaining a $1000 profit, the 120 put he bought for $5 is sold for $1.50 losing $350 and the two 130 call he sold are bought back for $5 each losing a total of a $500 loss.
    Adding everything up, there is $1000 / n$350 n$500.
    Total profit $150

    Is there a better way to do this, or a slight tweak I'm overlooking?

    I'm studying the Delta relationship and it
    looks like it might be the key prior to entry.

    Do the greeks help us by setting up the perfect time to
    trade this idea?

    Is this even a feasable concept?

    Could something else be superior.
     
  2. Are you serious? Are you asking: Among the millions of possible option trades, you want to know if the one you suggested is absolutely at the top of the list? <b>Can anything else be superior?</b> If that's a serious question, then your answer is YES.

    Mark
     
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  4. Your right. Thats nutty. I forgot to add is there a smarter way to do this trade if you do this instead of that. You know, that kind of thing. It was a vague statement. Sorry Mark
     
  5. It's ok.

    I just want you (see other reply) to think about your questions.

    What I see is someone who is so anxious to learn (a good thing) that he keeps asking questions withour understanding exactly what he wants to ask.

    You are clearly trying to buy one call and sell two calls. Buy you insist on doing the buy call as a synthetic. Ask yourself why.

    That 1 x 2 spread works just fine under certain conditions, and very poorly when the market surges.

    I am on your side.

    Mark
     
  6. I'm just curious, How many ways (and times) are you going to ask the same question?

    For your info, if you use lower IV options, the debit cost of the options will be more but the loss will be less if your stock rises 10 pts. If you use higher IV options, the debit cost will be less (or a credit) but the net loss at 10 pts higher will be greater. Riddle me this, which is better?