I'm probably also buy a starter stock position of 50 shares just to keep it on my screen.
Here's what I'm looking at: Selling 4 May $30 puts for around $4 each.
- My stop loss is $27.20 for a loss of around $70 (using 90 days left til expiration)
- My exit is around $30 for a max profit of $564 (using 90 days left til expiration)
See analytics below:
Relatively high short interest:
See the wedging symmetrical triangle with the 50 SMA & 20 EMA converging:
*Stochastics are bouncing off oversold support
I'm confused on the calculation for max loss of $70 on this position. If you've sold 4 puts then this means you're only losing $70/400shares = .17 each. If the stock moves from $27.96 to your stop loss point of $27.20, that's a .76 loss on the underling asset. Why would ITM puts only lose .17 if the underlying moves .76? An ITM put $2 away from strike price has to have a delta above 50, which means it would move roughly 50% to the underlying. So my rough guess of the loss would be a minimum of .76 x .50 x 400 shares = $152. But that is conservative as an ITM delta would have to be above 50.
ReplyDeleteGood question running the calculator again but that's with 90 left to expiration or by 02/19/10.
ReplyDeleteI would reccomend that you understand how the calculator works and what the results mean for your position. Just running the numbers without understanding what they mean is a waist of time. If you look at the Greeks on your risk profile that you posted you will notice that the total Delta for the 4 put is 188, suggesting that you have the same exposure as 188 shares. Meaning that the Delta is less then 50. But like Jason said the rule of thumb is that the deeper ITM options tend to have a Delta closer to 1. But this is only one input the the option pricing model.
ReplyDeleteI guess what I am trying to suggest is that you find out how this tool works and what the outputs mean before you use it.
Hey Mark, I'm just now learning the Greeks myself and I don't feel I'm ready to trade them yet. I've a few chapters in to a good book that's definitely perfect for where I'm at right now. I'll bring it to dinner on Tuesday so you can take a look. I think I paid $25 new so it's well worth it. I would agree with Dom that none of us should be trading based on a tool we're not familiar with yet. Our worse case scenario should be that we know exactly what we're doing, we took a known risk, and lost. That's just going to happen sometimes.
ReplyDeleteReally sucks when you're right. Up over $200 since I put the position (stock & puts) on at the open. Approaching the $29 gap. Shorts are running.
ReplyDeleteWhat is the change in short position interest today versus yesterday to show the rise in price stems from short-covering? Regardless of why it's moving I hope you hit your target of $30 and cash out. When that happens you should keep track of the prices of your options at exit versus your prediction to see if you can gain any knowledge of how these instruments react to price changes in the underlying.
ReplyDeleteAwsome! You the man!
ReplyDelete