Doug,
Forgive me if I'm being a little thick, but my head is swimming with numbers and that can be rough on us English majors, but see if I have your suggestion correct:
Consider selling either a call or put further out AFTER the stock moves.
> I'll help reduce your cb. It reduces possible profit, but reduces cost and risk.
> When it moves up $3, call an atm call. Will give you a call spread, and a put.
> Mirror on the downside.>>
For the purposes of this example let's assume that if I'm assigned on the short call, I'll be using the differential between market and strike for this computation (since we obviously can't predict the option price).
I currently have a 37 call and a 34 put, both long. If the stock goes up to 40, I've made $300, less premiums paid. At that point you're saying I should sell a $40 call which will lower my costs. If the stock goes back down that works great. But if it keeps rising, for every point it increases, I lose $100, which will wipe out the premium immediately. But since I have the 37 long call, that will wash those losses,and I'll be left with the profit of $300 (40-37) on my original position. So I've lowered my cost some and capped my profit at $300.
An interesting idea as opposed to closing the entire position at a roughly 10% profit. And I can do the same thing on the put end if the stock should drop. You've given me some more numbers to play with.
But I've capped my profit at the $300 figure for a relatively small cost reduction, haven't I? As opposed to closing the position and opening a new one.
Lots to think about. Thanks.
Lou
--- In ConservativeOptionStrategies@yahoogroups.com, "Louis" <loupi3@...> wrote:
>
> I'm not sure I follow. My instinct is to take my profits, sell what's left of the OTM section and close the position once it's moved 10% or so and then move on. The market in general is so volatile that gains can disappear quickly.
> Lou
>
> --- In ConservativeOptionStrategies@yahoogroups.com, rdmacarthur <rdmac@> wrote:
> >
> > Your thinking is right.
> > Consider selling either a call or put further out AFTER the stock moves.
> > I'll help reduce your cb. It reduces possible profit, but reduces cost and risk.
> > When it moves up $3, call an atm call. Will give you a call spread, and a put.
> > Mirror on the downside.
> > Doug
> > rdmac@
> >
> >
> >
> >
> > On Jun 11, 2010, at 12:44 PM, Louis wrote:
> >
> > > Lately I've been experimenting with straddles (I hope I've got my terminology correct)where I buy a put and a call about one strike apart for the same month. As far as I can see, max loss is the cost of the two options and max gain is basically unlimited regardless of whether the stock goes up or goes down. I dipped my toe in a bit with BP and BAC, figuring their volatility would give me some practice in using this method. The past two days have been interesting watching them ride up and/or down on the u-shaped P&L graph.
> > > Any thoughts on this?
> > > Lou
> > >
> > >
> >
>
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