Ken,
You're correct about the 'margin' trades in an IRA. I didn't bring it up, but it is an occasional irritation that I understand but don't want to understand when it gets in my way.
For instance, I'll do a buy write and it's a cash deal. I later decide to roll out the call, but can't do it online since the rollover is a spread trade which requires 'margin' and the software won't allow closing the CC, because it was classified as a 'cash' transaction.
Fortunately the Fidelity phone reps are quite good and will put the trade through as two separate transactions but with one commission.
Lou
--- In ConservativeOptionStrategies@yahoogroups.com, "Kenneth Ginsberg" <ken_ginsberg@...> wrote:
>
> Lou:
>
>
>
> Actually, in this case, margin and max loss are substitutable for each
> other. I also believe that if you check carefully, even though you are doing
> it in an IRA, it is actually being done "inside" of a margin account in your
> IRA. Even though you are not borrowing money from your broker, certain types
> of transactions are required by securities law to be done inside a margin
> account even in an IRA. For example, a cash secured naked put, even though
> you have 100% of the cash in your account, nevertheless it is being done on
> "margin", selling short any option (even if part of a spread with defined
> risk) must happen in a margin account as opposed to the purchase of an
> option which may take place in a "cash" account. The major difference
> between a margin account in an IRA and a non-IRA margin account, is that in
> a IRA margin account, you will not have had to sign any hypothecation
> agreement or any loan agreement since there cannot be any moneys borrowed.
> In other words, you are doing these transactions in a margin account, but
> doing it at 100% margin at all times (in the IRA margin account).
>
>
>
> SO getting back to your original question, in my mind profit percent would
> be premium received / max loss (which is in fact how much cash you need to
> tie up to secure the position at your broker).
>
>
>
> Ken
>
>
>
>
>
> From: ConservativeOptionStrategies@yahoogroups.com
> [mailto:ConservativeOptionStrategies@yahoogroups.com] On Behalf Of Louis
> Sent: Friday, July 02, 2010 12:29 AM
> To: ConservativeOptionStrategies@yahoogroups.com
> Subject: [ConservativeOptionStrategies] Re: VVUS again
>
>
>
>
>
> Ken,Dave,
> Thanks for all the information. It's quite helpful.
> I trade out of my IRA account so there's no actual margin involved, but the
> P&L is basically spread less premium/results at expiration or whenever
> position is closed. Since the spread less the premium is the same as the max
> loss then would it be correct when using unequal wings (which I had
> considered) to also use the proceeds divided by max loss?
> I am trying to make an option methodology the basis of an overall strategy,
> so I have a couple of other ideas I'd like to bounce off the group, but I'll
> open a new topic for that.
> Lou
>
> --- In ConservativeOptionStrategies@yahoogroups.com
> <mailto:ConservativeOptionStrategies%40yahoogroups.com> , "Kenneth Ginsberg"
> <ken_ginsberg@> wrote:
> >
> > There will be many differences of opinion but I do condors every month and
> > the way I figure profit is that I take the margin required to put the
> spread
> > on, (margin should only be required on one side of the condor but there
> are
> > some brokers that take it on both, if yours hits you for double margin you
> > should consider another broker) and divide into that the premium received
> > and that is my max profit percent. When the trade is done I use the actual
> > premium kept / margin to get the final figure. Margin should be spread
> > between the short and long of one of the pairs - premium received, since
> > this is your max loss at expiration (if it is truly an IC and is balanced
> on
> > both wings). In your case the margin required would be $100 (spread
> between
> > short and long call - $60 (premium taken in) - $40 margin (and max loss)
> and
> > max profit % would be 60/40 = 150%. This is HIGHLY unusual for an IC to
> > show a potential return of that size and it is due to what everyone on the
> > boards has been discussing about VVUS, the FDA committee's pending
> > recommendation. Your profit range at the prices you quoted are from $5.40
> to
> > $15.60. You keep all the premium you took in between $6 and $15 and max
> loss
> > is under %5 or over $16.
> >
> >
> >
> > One of the major factors, other than price that affects IC's is
> volatility,
> > so large volatility swings will also affect your "interim" profit and
> loss,
> > but at expiration, all vol is 0, so if VVUS is still between the strikes
> you
> > keep everything. Just the pain of waiting until expiration may get more or
> > less depending on vol and also gamma changes as price nears one or the
> other
> > short strikes. Remember, max loss and max profit is ONLY an expiration
> > number.
> >
> >
> >
> > Hope this helps.
> >
> >
> >
> > Ken
> >
> >
> >
> >
> >
> > From: ConservativeOptionStrategies@yahoogroups.com
> <mailto:ConservativeOptionStrategies%40yahoogroups.com>
> > [mailto:ConservativeOptionStrategies@yahoogroups.com
> <mailto:ConservativeOptionStrategies%40yahoogroups.com> ] On Behalf Of Louis
> > Sent: Wednesday, June 30, 2010 12:18 AM
> > To: ConservativeOptionStrategies@yahoogroups.com
> <mailto:ConservativeOptionStrategies%40yahoogroups.com>
> > Subject: [ConservativeOptionStrategies] VVUS again
> >
> >
> >
> >
> >
> > I finally took a little bite and entered an order for a couple of
> contracts
> > on a condor. This is my first condor so I just want to get my feet wet
> > without getting nervous.
> > The details (all July): long put @ 5, short put @ 6, short call @ 15, long
> > call @ 16. Net credit if filled .60 (between bid/ask).
> > Max profit 60 between 6 and 15; max loss 40 below 5 or above 16;
> breakevens
> > at 5.40 and 15.60. It appears to be a fairly conservative position.
> > Two questions I have:
> > First, how do I figure profit? I'm guessing something like the difference
> > between the short strike exposures (900) divided by the profit or loss, so
> > that if I made the max profit of 60, the profit would be 60/900 or 7%?
> > Somehow that doesn't seem correct. It would intuitively seem to me to be
> > 100%, but if that were the case, how would I figure a $30 profit, or a $20
> > loss?
> > Second, what surprises should I be watching for (other than the obvious
> > possible major price swing)?
> > Lou
> >
>
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