john,,,could you show me the math?
starting with and assuming 1 contract
stock at 30
short call at 5.4 strike 25
long put at 2.2 strike 30
net credit on option is 3.2
stock shoots to 35 at expiration
you are +5.0 on stock
you are -10.0 on short call
you are 0.0 on long put
so you have a loss of 5.0 plus your net credit of 3.2
3.2 minus 5.0 ....your max loss is 1.8 with a max profit of 3.2
so one contract of 100 shares...max profit = 320 max loss = 180
drjoe
--- In ConservativeOptionStrategies@yahoogroups.com, John Leavitt <johnjohnleavitt@...> wrote:
>
> check out the graph, support and resistance, what if it goes to $35, quickly, do the math, I believe you have a 1220 loss, plus the 320 credit, or -about 900
>
> --- On Tue, 6/1/10, Louis <loupi3@...> wrote:
>
>
> From: Louis <loupi3@...>
> Subject: [ConservativeOptionStrategies] Tell me what I'm not seeing
> To: ConservativeOptionStrategies@yahoogroups.com
> Date: Tuesday, June 1, 2010, 9:42 PM
>
>
> Â
>
>
>
> I try to look at strategies from different angles and sometimes I think I get mixed up in my own mathematics, so I've either come up with a good play, or it's totally (or partially) screwed up. Maybe somebody can tell me where I'm wrong.
> I started when I was reviewing a collar kind of strategy which involved a short call and a long put, each one strike out of the money (stock @30, CC@35 and long put @25).
> I then began experimenting with a short call and long put one strike in the money and here's what I'm coming up with using MED as an example.
> Stock closed today @30.01. Then STO June 25 call @5.40 and BTO Jun 30 put @ 2.20, net credit per contract $320.
> If stock drops to 20 at expiration, then I lose 1000 on stock, but gain 1000 with put, net gain $320.
> At 25,the stock is assigned, and I've lost $500 on it, but I gain 500 with the put (either selling it or exercising it and reselling the stock), net gain $320.
> From 30 and up both options are gone, and I have the premium.
> So, it seems that on a stock purchased at 30, with this strategy I make $320 almost whatever happens, a 10+% return in 3 weeks.
> I looked at MED and can see nothing that indicates any major changes.
> Now will someone wake me if I'm dreaming?
> Thanks.
> Lou
>
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