StockFetcher Forums · Filter Exchange · BEST STOCKS TO PLAY PERIOD--FAZ --FAS-THEY MOVE 17% A DAY<< 1 2 3 >>Post Follow-up
drew9
171 posts
msg #73489
Ignore drew9
4/12/2009 11:21:18 PM

MFM what are you using for your block trade aftermarket data provider? How can we track these?

Thanks,

Drew

Eman93
4,659 posts
msg #73535
Ignore Eman93
modified
4/15/2009 7:34:44 PM

Ok I am trying this in virtual account..... coverd call on FAS, I banked 10.5k and bought the put for 3.25k as a hedge..

If someone could help me calc my max risk on this trade I would like to know...

I cant get my head around it........ but I think its if the stock is below 7 i keep the stock, if I calc my cost basis on the stock which is 7.77 - (10.5k/5000)-= 5.67 then add the price of the put 3250/5000 = 6.32 total cost basis

so if FAS stays above 6.32 i break even? right, I dont think the put will gain much value unless we go to 4.00 or less..

My max profit is 10.5k - 3.25k = 7250

Thanks for any input.


Image and video hosting by TinyPic

FuriousThug
256 posts
msg #73538
Ignore FuriousThug
modified
4/15/2009 11:57:56 PM

Calc for considering max risk on a Collar:

Stock price + put premium - put strike - call premium

$7.73 + $0.65 - $5.00 - $2.10 = $1.28 max risk

Your max reward is $0.72...half of what you're estimating...you're not taking into consideration the possibility that FAS rockets and you need to sell all your shares at $.73/share loss upon exercise.


Ideally, with a collar, you'd like to sell calls that are a strike ABOVE where the stock's currently trading...for, among other reasons, it's a bullish strategy and the likelihood that you'll get exercised on the calls at expire is great...and you've bought your stock for more than the strike price, so you'd have to sell it at a loss upon exercise. (If you're indeed bullish on FAS, just leave off the puts and that would get you the Covered Call you might be looking for; still you'd want to sell calls one or two strikes above the stock price). Also, collars are generally long-tem strats (like 1 to 2 years). Also, a stock like FAS is so volatile atm so option premium will be high (for better or worse). Being a low yield, conservative strategy, you want option premium to be low...it's really more about the insurance for a long-term hold in this particular strat...and you want the sold calls to basically offset the insurance premium...which, additionally, you can do by mixing the long-term short calls with shorter term put options which will have a lower premium and just have to be renewed over the course of the hold.

Is this what you were looking to do?



Eman93
4,659 posts
msg #73549
Ignore Eman93
4/16/2009 10:06:03 PM

FT,
Thanks for the info.. yes I should sell the call above the stock price........

Bull or Bear I dont know what it is going to do 5 days from now it could be at 15 or 5.

If the stock stays below 7 I am good right? I dont have to sell the stock and take the loss I am hedged if it goes under 5.

So I keep the stock and repeat the same drill next month, collecting say 5 to 7k a month in premium on 30k to 40k right?

so lets do the math 6000/40000 = .15 or 15% per month now if you compound that by 12 months 12 * 15 = 180% per year.

I think I would buy the hedge because the lower the stock price the lower the option price.... the only risk is being called away..if you never sell the underlying you will never take the loss on the stock price.....the only time you would dump it is if it went under 5.

Please tell me what I am missing....it cant be this easy.

FuriousThug
256 posts
msg #73550
Ignore FuriousThug
modified
4/16/2009 10:52:53 PM

You're depending on call premium remaining high which, in this case, it probably will.

One thing to remember is that this is a net debit strategy...a $31,400 net debit. So assuming even 6 months of nearly identical call to put premium, you'll still just be at breakeven (sure, you'll still own the stock, but there's something called "opportunity cost" that translates into things like interest you could have made on the $38,650 (bonds, for e.g.) or other higher-yielding trades that you might net from using that capital).

Have you done comparisons with longer-term option expires? Can you make a better return when there's more time built into the premium? Do you think you only need the put insurance for the short term? Sometimes with collars, this works well, though just from briefly looking at FAZ premiums out through Jan 2010, your method might be pretty reasonable. Curious to see how it works out.

Looking at FAZ call premiums makes me think there's some serious conviction that financials have bottomed and there is no more downside...given the volatility (200+%) I'm wondering why those 10 calls for the remainder of the year are so reasonable.

EDIT: I need to look at the FAZ/FAS option pricing and interest more...something looks strange...while the FAZ premiums look priced reasonably, some of the FAS look undervalued...so FAZ calls tell me financials have bottomed, but FAS premiums tell me they're not going up?

Eman93
4,659 posts
msg #73552
Ignore Eman93
4/16/2009 11:19:24 PM

Now think about this, the ideal sitiuation would be to buy the stock and sell the call option at the same price, limit buy FAS at 9.00 and when that order executes sell the 9.00 May call and buy the 7$ put for a hedge.

Ok I will set this up in my virtual account.......... so if i plan on keeping the underlying if its below 9 and above 7 my max profit is lets use the same numbers for this example 10500-3250= 7200 so my risk is if it goes below 7 and I want to dump it. remember I don't have to sell.....would be 2 * 5000 = 1000-7200=3250 so my risk reward ratio is 7200/3250= 2.22

So I just need to win 1 out of every 2.22 trades to break even. not counting the damm broker fees.....


Eman93
4,659 posts
msg #73555
Ignore Eman93
4/16/2009 11:34:50 PM

Tell me a way to make 15% a month and I wil do it.......... I know you will not win every month, you could lose every month also. It is a risk reward...... the idea is to have the price either above the strike or just above your break even point.
Now the put should go up in value as the stock get closer or below the strike........ as long as you blow out of the position at break even you should be locked and hedged.... with a 7200/5000= 1.44 so 9.00 - 1.44 = 7.56 is your break even but the put should start to pick up value so your break even is sliding.......

The put is only for if you wake up one monday morrning and FAS gaps down to 0.50 because the government took over half the banks in the country over the weekend ......

FuriousThug
256 posts
msg #73557
Ignore FuriousThug
4/16/2009 11:59:16 PM

You could always leg out on a steep drop below 9 and just buy back the calls (at a profit)...then either sell the calls again when/if your 9 stop is hit again or just leave your upside uncapped if you think FAS will rocket.

It's like printing money, right?

My only reservation (and it's just a personal one) is selling ITM options while purchasing the underlying. I like a cushion that will at least yield SOME profit on the underlying if I'm exercised...after all, it IS a pretty hefty cash outlay.

FuriousThug
256 posts
msg #73559
Ignore FuriousThug
4/17/2009 12:08:37 AM

Eman93
- Ignore Eman93 4/16/2009 11:19:24 PM

Now think about this, the ideal sitiuation would be to buy the stock and sell the call option at the same price, limit buy FAS at 9.00 and when that order executes sell the 9.00 May call and buy the 7$ put for a hedge.

Ok I will set this up in my virtual account.......... so if i plan on keeping the underlying if its below 9 and above 7 my max profit is lets use the same numbers for this example 10500-3250= 7200 so my risk is if it goes below 7 and I want to dump it. remember I don't have to sell.....would be 2 * 5000 = 1000-7200=3250 so my risk reward ratio is 7200/3250= 2.22

So I just need to win 1 out of every 2.22 trades to break even. not counting the damm broker fees.....
------------------------------------------------------------------------------------

Think about this: FAS drops to $7 at expire. Your puts expire worthless (debit 3250); your calls expire worthless (credit 10,500); your loss per share on the underlying is $2.00 (debit 10000).

NET: (-$2,750 or -7%)...not an ideal scenario on a $37,750 cash outlay.

So now you own the stock at -22%...what's the next move?

FuriousThug
256 posts
msg #73562
Ignore FuriousThug
4/17/2009 12:32:04 AM

So your capped loss is $2,750.

Here's another option:

Instead of selling $9 calls, sell $10 calls.

You add an additional potential $2,000 loss. But you add a potential additional $3,000 gain if FAS closes above 10.

I guess the point here is that you're laying out a lot of cash for the underlying that, under your strategy, has no chance of seeing any upside but has potential of seeing downside (i.e., you can not realize any gain to the underlying by selling an ITM option).

StockFetcher Forums · Filter Exchange · BEST STOCKS TO PLAY PERIOD--FAZ --FAS-THEY MOVE 17% A DAY<< 1 2 3 >>Post Follow-up

*** Disclaimer *** StockFetcher.com does not endorse or suggest any of the securities which are returned in any of the searches or filters. They are provided purely for informational and research purposes. StockFetcher.com does not recommend particular securities. StockFetcher.com, Vestyl Software, L.L.C. and involved content providers shall not be liable for any errors or delays in the content, or for any actions taken based on the content.


Copyright 2016 - Vestyl Software L.L.C.Terms of Service | License | Questions or comments? Contact Us
EOD Data sources: DDFPlus & CSI Data Quotes delayed during active market hours. Delay times are at least 15 mins for NASDAQ, 20 mins for NYSE and Amex. Delayed intraday data provided by DDFPlus