Ouch. $3 to $60 in a year and a half. That's just as bad. Someone made a killing off those two.LOL, same scenario for Teck Resources back in Mar 09.
Any good stock pick suggestions??
- Thread starter Apple15
- Start date
And you forget to mention that you might buy a truckload of those in TFSA, say $5000 each in 2009, 2010 and 2011....all the way up and once you cash in, the capital gain tax will be ZERO.
Think about say $90K capital gain tax free, thanks to TFSA. Aren't you feeling the urge to give Jim Flagherty and Stephen Harper a big hug?
Man, this is better than having an orgasm with an uber hot lady, civilian or pro.
The basic strategy is sound and if the S&P goes up you will do very well
I am glad you mentioned "not for the faint hearted or someone who has a low risk tolerance" as it is a leveraged directional bet within a limited time frame.
I personally do not place very much weight on "With very few exceptions this strategy has worked for the last 15 years"
The markets are generally driven by earnings, economic news and geopolitical events.
The Chaos in Egypt may get worse before it gets better.
As you said closure of the canal would not be a good thing for someone long Index options and a closure is still a possibility.
However if it floats your boat you can try and time the market with options (I certainly do not and try to time the market and view options as a a tool to hedge risk)
The way to analysis this is to estimate the value of the calls and the puts in three scenarios on expiration day
1) The Index goes up
2) The index goes down
3. The index goes sideways
Selling the out of the money puts will provide financing and will increase the return on the play if you are correct about the direction of the movement.
If you are incorrect and the Index goes down you will have to buy back the puts at much higher prices or buy the index at the strike price (assuming the down movement makes the puts n the money) in addition to the loss of the premium on the call.
If the market goes sideways you lose the call premium which is partially offset by the lower premium received by selling the puts.
Out of the money puts will sell for a fraction of the premium for in the money calls so there is little upside relative to the risk, which is incremental and directionally the same as the risk you are taking on when buying the calls
If you need the financing , then this game is not appropriate at all.
Better just to make the directional bet on the calls and hope you are correct
An alternative is to buy both the calls and the puts (at the same strike price- Straddle. A strangle if they have differing strike prices)
Of course the movement up or down must be big enough to overcome the combined premiums.
If the index stays the same you will lose money
A couple of general points
a) the VIX or volatility is priced into the offer on any option (and then some) and
b) Most options expire worthless (A lot of positions are covered before expiration, both profit taking and lose covering)
c) You can take profits or cover losses on one leg of a two legged option play before expiration, however you are then exposed (risk) in one direction.
d) The options markets is dominated by institutional traders who are very sharp and who eat, sleep and dream this stuff and who have teams of Mathematical geniuses backing them up and dreaming up new strategies every day.
It would be a mistake for any retail investor to think they know options inside and out.
Anyone considering options investing / speculating should make sure they have a very sound understanding of all of the possible outcomes for the positions you are considering
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[singing] We are family...
You guys both make some good points. I enjoy reading either and find the personal attacts not necessary, but amusing
You guys both make some good points. I enjoy reading either and find the personal attacts not necessary, but amusing
Why so tense?
Can you not stand a little constructive criticism?
I responded in a very respectful way
I indicated your strategy is sound and just pointed out a minor flaw with your suggestion of financing by selling the puts.
You are receiving very litte reward for taking on additional incremental risk over and above the call risk (and in thesame direction)
Do you understand the risk / reward trade off?
Secondly I think danmand indicated he could not understand what you were trying to communicate, so I thought I would add a little clarity by explaining in a straightforward manor.
What I wrote is correct.
Please be very specific if you attempt to prove it incorrect.
Jargon and guesses about trader behavior will not cut it
I personally do not believe in investing via the calender by trying to copy something that "has worked almost 15 years in a row"
I did not say you were full of shit or it will not work this year.
I even said "if it works for you, then good for you"
I simply stated what I think drives the market and I do not put any weight behind any market timing schemes.
I disagree with you on this point and so do a lot of very successful (sophisticated Ha Ha- that breaks me up) investors.
Just because I disagree with you feel obligated to hurl insults?
News flash for you, people will not agree with you on occasion, perhaps you may wish to learn how to deal with that.
If everyone agreed with you then it would not be much of a market now would it
This is where your arrogance shows
If you re-read my post. I said
"Of course the movement up or down must be big enough to overcome the combined premiums."
That is exactly the same thing as you just said
The part you omitted is a strangle or straddle also significantly reduces the risk if you are wrong about the direction
Of course the Great Kingfisher could not be wrong about the direction could you?
Pick an option chain, then a strike price and compare the potential downside to the payoff of what you described vs. a straddle for a 15-25% price decrease.
If you do not report your findings I will understand and assume you finally understand or were too arrogant to even attempt it
As for stock picks I gave you 20 to 30 a month ago, exactly how fucking many do you want?
You did not like them, OK then do not buy them
As for staying out of your posts ??
Ha Ha, thats funny
Its a chat board.
Perhaps no one told you. If you post something, it is subject to critique
I responded to what you wrote in a respectful manner, no insults, nothing directed at you personally, I have yet to question your qualifications and I stuck to the facts
You had a golden opportunity to defuse this war of words and you responded with arrogance and insults.
I have no desire to to poke holes in your investment ideas, but I will respond when my abilities are questioned and I am insulted or if I disagree with something.
Next time I may not be so pleasant
As I said earlier I will post as I see fit, get use to it.
I am all for that and I can add a lot of value (and I am not above learnng from others)
However KF insists on making it personal and insulting me if I question anything he posts.
I am more than willing to stick to the facts.
But when insulted, called a liar and
......then I respond as most people would
BTW I am correct about his put financing trade.
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I trade in and out of LVS; like the volatility between 45 - 50. Sold before earnings report, bought after at a little over 46 and wait till it gets back up. Don't think I have long to wait. BTW, I also picked up Ford (F), and Celgene (CELG) on current weakness
When Silver Wheaton (SLW) went down to $29 on the NYSE, I picked up some. Back up now to around $34. It is easy to accumulate stocks at this price range. I also jumped in when F5 (FFIV) tanked $40 to 108. Now around 118. Look for stocks that miss slightly analyst projections, and watch for oversold conditions. There is bound to be a rebound.
Is it purely coincidental that you suggested the stock the same day it jumped by
15% to its 52 week high to a level nearly 400% above its 52 week low?
not sure what you're implying but yep I'm enjoying the gains and think this has more legs...
There was absolutely no need for you to make any reference to straddles and strangles to get your point across.
That was just a cheap shot at me.
And you want me to stay out of your posts?
Dumb??
WTF
Did you plot out the downside of your trade like I asked.
You sold puts valued @ 0.20 -0.40 (financing ????) and assumed a liability of maybe $2 -6 or more if the index drooped.
Thats the definition of dumb.
The straddle cost more ($ 1) but you make a profit on a big move up or down
I guess because you did not read it in your "Sophisticated Investor newsletter", it can not be a valid trade ?
Your orginal idea was for the SPY
So on Friday the closing prices for in the money 130 calls, the 130 puts and an out of the money 125 put was as follows
SPY
Close Feb 4 11 131.15
130 Feb 11 Calls 2.04
130 Feb 11 Puts 0.87
125 Feb 11 Puts 0.21
If you bought the 130 call and sold the 125 put your net cost is 1.83 and the breakeven price is 131.83
Assume SPY goes up by 10% by expiration to 144.27 , your profit is 12.44
Assume SPY goes down by 10% by expiration to 118.14 , your loss is (8.79), of which 6.96 is due entirely to the puts you sold for 0.21
6.96 is a lot to lose for 0.21 of "financing".
Thats just a plain bad risk to reward ratio and a dumb move
If you skip the "financing" , then your breakeven goes up to 132.04 thats a 0.2% increase and you are not taking on a world of hurt if it goes the wrong way
The straddle is
If you bought the 130 call and bought the 130 put your net cost is 2.91 and the breakeven prices are 132.91 and 127.09
Assume SPY goes up by 10% by expiration to 144.27 , your profit is 11.36
Assume SPY goes down by 10% by expiration to 118.14, your profit is 9.05
You stretch the upside breakeven point out with the straddle by a little more than a dollar
The downside is a maximum of 2.91 (the combined premiumns) and you are profitable for any move (up or down ) larger than 3.1%
If you get the big move (up or down) you still make money and get to sleep well at night knowing you have not outsmarted yourself.
I suggest you may wish to consider the possibility that you have an opinion and not the definative truth
So on Friday the closing prices for in the money 130 calls, the 130 puts and an out of the money 125 put was as follows
SPY
Close Feb 4 11 131.15
130 Feb 11 Calls 2.04
130 Feb 11 Puts 0.87
125 Feb 11 Puts 0.21
If you bought the 130 call and sold the 125 put your net cost is 1.83 and the breakeven price is 131.83
Assume SPY goes up by 10% by expiration to 144.27 , your profit is 12.44
Assume SPY goes down by 10% by expiration to 118.14 , your loss is (8.79), of which 6.96 is due entirely to the puts you sold for 0.21
6.96 is a lot to lose for 0.21 of "financing".
Thats just a plain bad risk to reward ratio and a dumb move
If you skip the "financing" , then your breakeven goes up to 132.04 thats a 0.2% increase and you are not taking on a world of hurt if it goes the wrong way
The straddle is
If you bought the 130 call and bought the 130 put your net cost is 2.91 and the breakeven prices are 132.91 and 127.09
Assume SPY goes up by 10% by expiration to 144.27 , your profit is 11.36
Assume SPY goes down by 10% by expiration to 118.14, your profit is 9.05
You stretch the upside breakeven point out with the straddle by a little more than a dollar
The downside is a maximum of 2.91 (the combined premiumns) and you are profitable for any move (up or down ) larger than 3.1%
If you get the big move (up or down) you still make money and get to sleep well at night knowing you have not outsmarted yourself.
I suggest you may wish to consider the possibility that you have an opinion and not the definative truth
Not really, however as I pointed out the argument is still valid @ 3%
BTW I would not plunk down my money on any option trade with such a short time horizon.
The whole purpose was to correctly point out the risk in selling the puts for such a low reward
The Straddle was put forth as alternative to consider
Now I may be guessing, but apparently you do not like that idea much or are you still sitting on the fence on this one?
If you do not like it, do not use it, but there is no need to be such an obnoxious prick.
Thats fine with me, as long as everyone understands the risk and evaluates the reward relative to the risk.
In my opinion 0.21 is not worth taking on any downside risk
Generally I always feel that I can learn something from everybody, if they are respectful, open minded and articulate their point well
In your case, not so much.
Lets be real clear, I was not making a recommendation, rather pointing out the downside risk in "financing" by selling puts
Why do you insist on making this personal?
Why can you not stick to the facts?
This type of comment is totally inappropriate
I will ask again, have you completed the tests?
If you have not, then is this an another example of you having a strong opinion while in reality you do not have all the facts / understanding
As long as you submit your request in this manner, I do not think I can help you
So, no I am not going to go away
Well you did not become totally obnoxious about the minor constructive criticism until Feb 4.
Thats when I grabbed the quotes.
No intention to muddy the waters
Pick another option chain at the beginning of next month and run through the math, if you dare, you will get the same result
Lots of downside risk for very little reward in selling the puts.
Now I am going to politely ask you to cease and desist with the profanity, insults and character assignations.
I am not going away.
I think that you are intelligent enough to make a rational and compelling agreement, defend and explain your ideas without making it personal.
I have my doubts, however that your ego will permit constructive criticism.
Either way I am getting tired of the personal attacks
I am trying very hard not to respond in kind but this has the potential to get really ugly if you continue down that road.
Be smart and tone it down
I think if both of you would spend some of your profits on some cute sp's, then maybe, you would have less energy to fight .
You both have valid idea's. It always comes down to how much risk and a little luck, no matter how much info you have.
As far as the previous examples, keep them coming. You're teaching terbites a lot more than they get from their brokers.
You both have valid idea's. It always comes down to how much risk and a little luck, no matter how much info you have.
As far as the previous examples, keep them coming. You're teaching terbites a lot more than they get from their brokers.
B
burt-oh-my!
I haven't traded options as a retail investor, but I imagine the costs of trading would be quite large, not so much commission as the bid-ask spread. Brokers love these strategies because they can get 3, 4 5 times as much in commission as from the guy who just buys and holds. And it tends to be an ongoing thing.
I would prefer to just act as a market-maker in illiquid options.
I would prefer to just act as a market-maker in illiquid options.
B
burt-oh-my!
I know people who bought stocks 40 years ago, and never sold. It has worked out spectacularly for them.
From 87 peak to 91 low, the returns were alos negative. After that the returns were great. To me the market is like a spring: if you suppress it, the longer you do the better the returns will be later on. So I'd say buy and hold going forward will probably be once again a spectacularly successful strategy.
From 87 peak to 91 low, the returns were alos negative. After that the returns were great. To me the market is like a spring: if you suppress it, the longer you do the better the returns will be later on. So I'd say buy and hold going forward will probably be once again a spectacularly successful strategy.
