Re: [TheOptionClub.com] Re: OIH BWB

A few things can be said about the trade....

The original bases for the trade is the fact the
S&P Energy Sector Bullish Percent Index ($BPENER)
is approaching 10 and oil prices are near recent
low we could see a turn around.

Based on that contrarian / Bullish point of view
I may cut off the CALL side of the trade and just
collect the 0.34 credit on the PUT side.  There is
also some support for OIH at $80 so that is why
I wanted to to the BWB instead of a bull put credit spread. 
Basically if I am wrong on the down side I am hoping I am
not completely wrong :-)

I added the CALL side of the trade mostly because of greed...
It looks promising but I tend to be rather conservative unless
someone can convince me otherwise.

The adjustment plan is more of a see what happens and adjust
from there, not really because I am cool like the other more
experienced traders that can take a total loser trade and some
how magically make 500% by the end of the month, it is mostly
because I really don't know what I am doing.

All this talk about 10 contracts and paying loads of commissions
1.  My bank roll is not that big... I am captain one contract
    I trade in the 1% per trade range for my own risk aversion needs.

2.  You need to check out www.interactivebrokers.com
    Poor platform, but can't beat the commissions.

Joey




On July 11, 2009 at 8:55 PM Adam Green <adam.cell.phone@gmail.com> wrote:

 

Thanks for posting an interesting trade -- it gave me something to chew on.  I don't trade ICs other than as novelties and I don't purport to be any option genius, just a humble hedger.

These sorts of trades are appealing -- makes my calendars seem pedestrian : )  -- I like having ample time to analyze the trade, seemingly good probability, minimal capital tied up, very low and slow risk (you'd have to go to sleep for a 10% move in OIH

I have some observations,  which I'd like to post,  to learn a little  about this  trade, but  first, two or three questions:

1.  Trade Plan.  What's the trade plan for this trade?  Would you buy say 10 contracts, take in $640 after commish, tie up $4,660 in capital then adjust if OIH moved above say  $101 or below $78?

 

2.  Position Management.  It seems that as far as capital utilization goes, this is good trade.  What would be done to protect capital, preferably to keep a break-even or nominal loss exit?  What would be the exit strategy or loss limit?  Would you trade OIH with additional positions before Aug expiration?  I guess it's possible to set up a closing trade triggered on the underlying price?

3.  Why this trade?  Having looked at the trade plan and decided this is a good, smart trade, what is it about OIH or this trade per se (or the sector or industry or technical analysis) that points to this being a trade worth putting on?  Just looking at the price action post-crash (Nov to date) it seems that OIH is capable of finding either side of the trade (and unlikely to just flatline inside) but what analytical or numerical method are you using to estimate price at Aug expiry?

Observations.
In my humble, this is a broker's wet dream. : )  Lots of contracts, lots of commish.

$17.70 commish on each broke 'fly for one contract  (50% of the up-front gain)

$27.95 on two contract s (taking $ 68 down to $ 40.05 on the  put side for  example)

$99.95 on ten contracts per fly (taking $860 down to $640.10)

 

If you have to adjust  it or get out  of it, the commish  eats the whole  meal, you take  all the risk  ($466 per) to a max profit of $534 on the tips of Batman's ears.  In simple terms, it seems relatively low risk -- risk a buck, to make a buck.

Much as I like to trade on tos, this seems like a trading practice that would require a better commission plan.  What would other brokers' commissions be on this trade?

I've heard folks like Tom Sosnoff at thinkorswim explain how these trades can work on the right underlying, but that's a lot of work and more complex trade than I'd care to take by the wings and try to fly it.  : )

It would be great to have someone point to a site that explains how it could unfold or be lifted or morphed to expire favorably.

Adam

On Sat, Jul 11, 2009 at 9:12 AM, Rob Hansen <robhansen5252@ hotmail.com> wrote:

Joey, I can't make out what your margin is on this trade. The profit loss graph looks very good from what I can see.

Thanks,
RFH

--- In OptionClub@yahoogro ups.com, Joey Huckabee <trading.ocyg@ ...> wrote:
>
> Hey gang,
>
> Just thought I would ask... I was thinking of putting on a BWB on both sides
> (Calls and Puts)
> and wanted to know what everyone thought about doing this or should I stick with
> an IC.
> Is the Lottery ticket on the wings of the IC worth it?
>
> Here is the trade and I attached the a TOS pic as well:
>

> +1 OIH Aug 09 85  PUT
> -3 OIH Aug 09 80  PUT
> +2 OIH Aug 09 75  PUT  (0.34 Credit)
> +1 OIH Aug 09 95  CALL

> -3 OIH Aug 09 100 CALL
> +2 OIH Aug 09 105 CALL (0.52 Credit)
>
> Thanks,
>
> Joey
>

 

--
Adam