Re: [TheOptionClub.com] The Problem With Chasing GOOG [1 Attachment]

 

[Attachment(s) from Mike Cleveland included below]

Ricky,

Regarding not possessing adjustment skill, I'm right there with you. But this spreadsheet might help. It is what I use with my vertical trades (I don't do Iron Condors).

I hope it helps some.

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From: Ricky Jimenez <rickyjim@bestweb.net>
To: OptionClub <OptionClub@yahoogroups.com>
Sent: Wed, March 24, 2010 12:35:14 PM
Subject: [TheOptionClub.com] The Problem With Chasing GOOG

 

GOOG has a beta of 1.08. But the reason it attracts both stock and
certain options traders, I think, has to do more with its volume and
for options, the ratio, strike distance / stock price = 10/545 =
.018. So a less than 2% move in the stock price can get you to
another strike. That is comparable to a 55 dollar stock with a big
volume and a strike distance of 1. IWM is the only one I can think of
off hand. Can anybody tell me if any available screener finds others?

However, taking advantage of that to make a profit by often adjusting
GOOG as it moves, requires quite a bit of skill, which I don't possess
currently, and I will show you the mixed results of my March paper
trade. I have reported on all but the last of these adjustments
before but I will repeat them for viewing convenience. I have also
attached a graph of all 6 trades. They are named by the date and
approximate GOOG price when the trade was made.

On 2/22 GOOG at 545:
-2*530p +2*540p +2*550c -2*560c, (6.30, 10, 9.50, 5.80).
Brown

On 2/25 GOOG at 521:
2*510p -2*520p, (6.90, 10.50);
2*540c -4*550c +2*560c, (4.80, 2.65, 1.50).
Result: 2*510p -2*520p -2*530p +2*540p +2*540c -2*550c.
Purple

On 3/04 GOOG at 565:
-2*510p +2*520p +2*530p, (.60, 1.10, 2.00).
Result: 2*540p +2*540c -2*550c.
Yellow

On 3/05 GOOG at 565:
-2*540p -2*560c +2*570c (2.00, 9.70, 5.20).
Result: 2*540c -2*550c -2*560c +2*570c
Green

On 3/10 GOOG at 575:
-2*540c +2*550c +2*560c -2*580c, (30.40, 21.70, 13.60, 3.40).
Result: 2*570c -2*580c.
Red

On 3/11 GOOG at 580:
-2*570c +4*580c -2*590c (17.70, 11.50, 6.70).
Result: 2*580c -2*590c.
Blue

After 3/11 GOOG fell back to the 560s and expired on 3/19 at about
560. After the last trade, I didn't see how to get back into the
sweet zone without taking on more risk so I simply gave up, knowing
that I wasn't going to lose much. Now it could be argued that on
3/10, translating the condor to the right could have been done with
little more expense than going to the bullish spread and the condor
was somehow objectively better. I wish I could quantify that. By the
way, each of these trades costs about $14 in fees and commissions at
Options House.

Perhaps the best trading philosophy to take is that once you have a
risk free or high reward to risk position, just don't touch it, even
if the market moves away. If you open several trades each month, and
turn each into a high reward to risk, chance will cause a few to end
up close to the max reward area and you will end up with a profit for
the month.

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Attachment(s) from Mike Cleveland

1 of 1 File(s)

April GOOG Bull Put Credit Trade.xls

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