Durgesh,
Let me stick my nose in here and let you know what I think. You actually have two separate strategies: a Covered Call and a Bear Put Spread.
Lets look at the Covered Call first. Your break even is 111.07. The maximum you can make is 893.
Buy 100 (ICE) $115.27 $11,527.00
Sell -1 ICE JUL 2009 120 Call (.IHHGD) $4.20 ($420.00)
Total Debit $11,107.00
Current Price: $115.27
Price Profit / Loss
86.45 ($2,461.75)
98.65 ($1,242.15)
111.07 $0.00
111.49 $41.64
120.00 $893.00
124.32 $893.02
137.16 $893.01
150.00 $893.00
Usually a Bear Put Spread is not done so far OTM, since it is a debit spread and it will only cost you money if the stock doesn't at least move down below your break even point of 103.10. So just looking at this spread, if ICE falls to 80, your spread will be worth $810, which is the max you can make on it. The spread looks like this:
Buy 1 ICE JUL 2009 105 Put (.IHHSA) $2.65 $265.00
Sell -1 ICE JUL 2009 95 Put (.ICESS) $0.75 ($75.00)
Requirements
Total Debit $190.00
Price Profit / Loss
71.25 $810.00
85.23 $810.00
95.00 $810.00
99.94 $315.60
103.10 $0.00
105.00 ($190.00)
114.66 ($190.00)
129.37 ($190.00)
144.09 ($190.00)
Here is a Bear Put Spread that would have a better chance of paying off since the break even point is 112.63, much closer to the current ICE price and limits your downside risk.
Buy 1 ICE JUL 2009 115 Put (.IHHSC) $6.50 $650.00
Sell -1 ICE JUL 2009 110 Put (.IHHSB) $4.13 ($413.00)
Total Debit $237.00
Price Profit / Loss
82.50 $263.00
94.32 $263.00
106.76 $263.00
110.00 $263.00
112.63 $0.00
115.00 ($237.00)
119.20 ($237.00)
131.65 ($237.00)
144.09 ($237.00)
Doing the closer strikes puts your break even points almost equal, but limits your gains on both sides. Worse scenario is if ICE does nothing, but at least you will have the stock and be able to write some more Calls.
Jeff W.
--- In OptionClub@yahoogro
>
> Vikas,
> I will let you know what I am doing , let me know what you think. I will give example of ICE since I own that one and am implementing Options on it. All Prices as of Friday evening.
> 1. Buy 100 ICE @ 115.27 2.
Sell 1 July 120 Call - Credit 4.13.
Buy 1 July 105 Put - Debit 2.654.
Sell 1 July 95 Put - Credit 0.75
> This in my Opinion is better than the Super Put and Protects me better and morerealistic.
1. If ICE goes up to 130/140/150 by July 17, my gain is ( 120-115.27 ) + 4.1 -2.65 + 0.75 = 6.9 which is a return of almost 4-5 % in one month.
> 2. If ICE goes down to 80 ( 44 % drop ) , my Loss is (115.27 - 80 ) = 35.27 on
> the Stock.
Credit of 4.1 by Selling the Call . Credit of 25 by Buying the 105 Put .Debit of 15 by Selling the 95 Put . So , total Loss = -21.17
> 3. If ICE falls to 100 ( above the Lower Put ) My Loss is (115.27 - 100 ) = 15.27 on the StockCredit of 4.1 by Selling the Call. Credit of 5 by Buying the 105 Put .The Lower Put expires worthless. So , total Loss = -6.17 Let me know if there is something better I can do. The Super Put would'nt have done this for me, since the Long term Put would',nt have adjusted to an Overnight Gap Down of ICE the way this Trade has done. The Super Puthas too much Time Premium to adjust rapidly to rapidly Changing market. Let me know your Opinion.
> Durgesh
>
>
> --- On Sun, 6/21/09, Vikas Basantani
> <vikas.basantani@
>
> From: Vikas Basantani <vikas.basantani@
> Subject: Re: [TheOptionClub.
> To: OptionClub@yahoogro
> Date: Sunday, June 21, 2009, 3:34 AM
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> Hi Durgesh, if the stock goes to 30 on 17th July, the short call will kill you regardless of whether you are holding the superput position or the synthetic calendar...
>
> If assigned in a synthetic calendar position, the stock delivery at 22.5 can be done by buying the stock at market price (which means a loss of $750 purely on the stock) or by exercising the long call (which may not be a very good idea as you will lose the time premium on the long call).
>
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> If assigned in a superput position, sure you are already long the stock so you can use it to handle the assignment. But don't forget that you have just sold stock at 22.5 when it is trading at market price of 30 (which is again a loss of $750 purely on the stock). Further, you will now be left with a long put with a significantly lower value. Let's see the numbers again...
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> Have a look at Diagram 4 which shows an approximate loss of $115 (assuming SID is at 30 on 17th July) for the synthetic calendar position.
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> Compare this with Diagram 5 which shows an approximate loss of $110 (assuming SID is at 30 on 17th July) for the superput position.
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> Both are pretty close, right??? This is, again, a result of pure synthetics.. .
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> The bottom line still remains the same - synthetically equivalent positions will have similar risk/reward characteristics in all circumstances.
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> Cheers Vikas
>
> http://options101. wordpress. com
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> In case of calendar, the delta of the short call will be pretty close to -100,
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> On Sun, Jun 21, 2009 at 3:53 PM, Durgesh Mantri <drmantri@yahoo. com> wrote:
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> Vikas,
> Your Put-Call Parity Analogy is Good. However , Consider this Situation.
> If I am Long Dec'09 22.5 Call , and Short July'09 22.5 Call as you mention.
>
> What happens if Stock goes to 30 on July 17 ( Expiraton Date ) . I need to deliver the Stock and my Long Position of Dec'09 cant help me much since it wont rise in value as much . But my Short Call will kill me.
>
> Durgesh
>
> --- On Sun, 6/21/09, Vikas Basantani <vikas.basantani@ gmail.com> wrote:
>
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> From: Vikas Basantani <vikas.basantani@ gmail.com>
> Subject: Re: [TheOptionClub. com] SuperPut - SID [3
> Attachments]
> To: OptionClub@yahoogro ups.com
> Date: Sunday, June 21, 2009, 12:30 AM
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> Thanks Jeff for sharing the video and Bob for sharing your initial experience with superputs...
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> After listening to the video and reading Chris comments (some of them are really good points), I just thought of providing some numbers/risk graphs to illustrate some important points for everyone's benefit:
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> Let me start with the prices I picked up from the video:
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> Long Stock SID @ 22.29 (100 shares)
> Long Dec 09 22.5 Put @ 3.91 (1 contract)
> Short Jul 09 22.5 Call @ 1.44 (1 contract)
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> This superput position is plotted in Diagram 1 and shows a buying power reduction of $1358.5.
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> Now look at Diagram 2 which is nothing but a combination of Long Dec 09 22.5 Call (synthetic equivalent of Long 100 Shares + Long 22.5 Put) and Short Jul 09 22.5 Call - this is the synthetic call calendar as mentioned in Chris' post.
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> Watch how close Diagrams 1 and 2 are to each other - similar risk, similar reward, similar greek values etc - pretty close profit/loss if SID moves 10% up or down etc... There is no surprise here as the two positions are synthetically equivalent to each other...
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> One difference, though, is that the second position requires a buying power reduction of only $216 which is a much smaller number as compared to the first position (due to the long stock).
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> Another point to note is that maximum profit on the above two positions occurs when SID is exactly at 22.5 at expiration. Both positions lose money if SID goes significantly away from 22.5 in either direction, thus providing evidence of the range-bound nature of these positions.
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> Now compare these with Diagram 3 which is a simple covered call (Long 100 Shares + Short 22.5 Jul 09 Call) - as anyone can notice, the maximum profit still occurs at 22.5 but remains at that level if SID continues higher after 22.5, thus providing evidence of the bullish (actually neutral to bullish) nature of covered call positions.
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> And Bob, the superput position is not equivalent to a collar (but to a calendar) simply because of the fact that the long put and short call are expiring in different months (Dec 09 and Jul 09 respectively) .
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> Just like superputs, other terms which are used for similar stuff are Married Puts (long stock + long put) and Radioactive Profit Machine (used by Kurt Frankenberg at Radioactive Trading).
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> Bottom line
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> We, as traders, must understand options synthetics as they can help us in clearly identifying "hidden" relationships between long/short stock, calls and puts and that can help us in taking our trading to the next level.
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> Hope it helps some on this group.
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> Cheers Vikas
>
> http://options101. wordpress. com
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> On Sun, Jun 21, 2009 at 11:20 AM, Christopher Smith <chris@theoptionclu
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> Bob,
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> Happy to help. Trading options is one area where a little knowledge can get you in a lot of trouble. On the other hand, if you take the time to really learn this stuff it can translate into a tremendous benefit.
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> One thing that I will suggest is that you take advantage of this Options Mastery home study course give-away. It really is an excellent course and with Options University giving it away it is difficult to think of a reason not to register for a free copy of it.
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> http://www.optionsm asterycourse. com/giveaway
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> Christopher Smith
> TheOptionClub. com
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> --- In OptionClub@yahoogro ups.com, Bob C <bobc0923@> wrote:
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> > Hi Chris - Thank you very much for replying to my message and correcting me in what I was attempting to do. Luckily the naked puts I had expired yesterday. But before I do any more I had better do some more homework and quick. I guess my inexperience is showing. - Bob
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