Today I took a position in he Chinese company SOHU. I sold a bullish put spread: Bought Jan 11 $55 puts and sold Jan 11 $80 puts. Max profit potential is $1,665 with a maximum loss $835 per contract. A risk/reward of 1:2.
Because of the volitility of this stock I only did one contract.
I will keep you guys updated.
I also sold bullish put spreads with Jan 11 expiration on DRYS. I sold 10 contracts. I bought the $2.5 puts and sold the $5 puts for a total $110 per spread. Max profit potential on this play is $1100 with a maximum loss of $1400. As I think a loss in this play is unlikely, this is reason the the un favorible risk/reward.
ReplyDeleteUsing the the stock price caculator that I used based on probilities there is a 15.51% chance of it finishing below 2.5 and a 44.92% chance that it will finish between the two strikes and a 39.56% chance of it finishing above the upper strike price.
Either way if I have to I will sell the bottom leg (2.5 puts) and just take delivery of these Drys shares at an average price of $3.90 and go from there.
Jason Replied...
ReplyDeleteThis is exactly the kind of play I like to do. It takes the daily guessing of movement out of it. If you're correct on a short-term theme you can do well. If it goes bad and you get in something at a price you're comfortable with, then no harm. You can always take possession and then sell covered calls until you break even. I see only two risks to this type of trade. The first is the company literally goes out of business, usually highly unlikely. The second is that the stock falls drastically, volatility falls drastically, and by the time you take possession the available opportunities to sell call options look pathetic. Example: you take possession at a cost average of $3.90, the stock is at $2.00, and the $5 covered call has a bid of .05. If those are the two worse case scenarios, then I like this type of trade.
Send me the link again to the calculator you use to give you the percentage break downs on expected standard deviation moves.
The website is http://www.optionistics.com/f/probability_calculator
ReplyDeleteI have also simulated the SOHU position that I put on with real money today in my simulation account with two additional legs, just to see how it plays out. I have bought a call at the $105 strike and bought a put at the $30 strike. This alters the risk/reward slightly. But because of the volatility I am interested to see how this plays out.
ReplyDelete