StockFetcher Forums · Filter Exchange · BEST STOCKS TO PLAY PERIOD--FAZ --FAS-THEY MOVE 17% A DAY<< 1 2 3 >>Post Follow-up
Eman93
4,659 posts
msg #73635
Ignore Eman93
4/17/2009 7:06:03 PM

Thanks FT I will think up some more questions!!!

What about the iron condor with FAS?

Eman93
4,659 posts
msg #73643
Ignore Eman93
4/18/2009 5:55:14 PM

So FT I have a question?
If you are swing trading........you set your target form what evere stratgy you are playing...should you not sell the calll near that strike price? You can then use that to protect your down side on the trade...like the bleow.... it I bought 5000 shares of FAS i would sell at 12.... but you are not underwatrer until it hits 8.00

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FuriousThug
256 posts
msg #73650
Ignore FuriousThug
4/18/2009 11:54:23 PM

Exactly. That's why I like buy-writes if I plan on holding a stock for any period of time. Your upside's capped each month but you're reducing your actual per-share cost basis with each call you sell against your shares. So, if FAS rockets over 12, you not only keep the premium you sold, but also the gain in share price from your purchase price to the strike. And if FAS falls below 8, you're at a loss...but you still own the stock and can sell the next months calls further reducing your cost basis in the underlying.

The only time this sucks is when there's a steep drop and then volatility dries up, reducing the premiums you get from selling calls. Eventually, you'll collect less and less premium until (and if) the stock rebounds.

Say FAS drops to 8 by expire...you're breakeven. What's the 12 call going to yield you the following month? Much less than the prior month...so do you consider selling 10 calls instead? You'll get a little more premium than the 12 and you'll still realize a small gain on the underlying should FAS rebound. And in the meantime, any of that premium is essentially just reducing your per-share cost...that's the real strength of the buy-write, for stocks you're bullish on but see short to medium term weakness. I look at it as the smart man's "averaging down;" instead of buying more of a sinking stock to reduce your basis, you're instead trying to recoup the basis of your holding...like instead of throwing good money after bad, you're just taking back some of the bad money you already threw in...heh.

W/r/t iron condors: I've never traded them. I see them really as more of a leg up strategy (i.e., adding a spread to an already existing spread depending on what happens). I know your max reward is basically the net credit which never seems to justify the risk (at least in the stocks I look at). I think this is the kind of strategy you want to find the absolute best yielding spreads for each leg while finding the right stocks with options that have reasonable interest in the strikes you want to trade while being damned sure the thing's going to be rangebound until expire. Personally, a little more than I want to bite off atm.

Eman93
4,659 posts
msg #73662
Ignore Eman93
4/19/2009 12:11:22 PM

You would still use a stop loss of some kind right, exit out of the option buy to close and sell the stock?

This would seem to be a good play for high dividend stocks, too ...set this up in the month that the divd is paying, you not only get the write money but the dividend too.....

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