A personal finance blog about trading, investing, and other wealth building strategies. Learn how to trade options, get trade ideas, and make money online from home.
If I were doing this trade I would sell the 26 call and buy the 28 call - same position but I prefer taking the money up front rather than later. It's not a trade I would make as I don't like having my short option with such a high delta - as you said market is basically saying this is a coin flip to make or lose money, though your analysis hopefully tilts the odds in your favor. I hope this trade works well for you.
Hey Sandeep, thanks for the feedback. Selling the 26/28 call spread is the same risk/reward as buying the 28/26 put spread, at least with the stock at $27.00 at the time of the trade they are even. So is the risk of loss should the stock hit my threshold of trade exit price, so the decision of which to use is purely a psychological preference.
I guess I forgot to mention in my original post that the play is really just a quick short based on the pattern and the reason I used an option spread rather than just short the stock is the capital requirement on this 5-lot is $500 where as its $2000 if I wanted to get short 500 shares.
Also, with the option spread I get to put it on now but if I was shorting the stock I would feel more comfortable waiting for a closer price to the technical line. Since I'm short an option against the long the cost of being long the put spread at a price closer to that line isn't a meaningful difference than what I got.
So I'm essentially being a little impatient and putting on a short because I don't want to try and pick the perfect price. I like the risk/reward of at least 3.5 to 1 unless we sustain a large up move outside option hours. Earnings are already out of the way and large gaps to the upside on this large cap stock aren't the norm.
I took this trade down just now on the market dip. I was able to pull in $200 of the maximum $500 in just under five trading days. There is still more than four weeks left until expiration so locking in 40% felt like the prudent move and I'll look to possibly enter again in the near future. I've got some long and shorts on the books so going to try and take things down when they are offered as long as this market stays volatile.
If I were doing this trade I would sell the 26 call and buy the 28 call - same position but I prefer taking the money up front rather than later.
ReplyDeleteIt's not a trade I would make as I don't like having my short option with such a high delta - as you said market is basically saying this is a coin flip to make or lose money, though your analysis hopefully tilts the odds in your favor. I hope this trade works well for you.
http://screencast.com/t/WbpJowXwhx4
ReplyDeleteHey Sandeep, thanks for the feedback. Selling the 26/28 call spread is the same risk/reward as buying the 28/26 put spread, at least with the stock at $27.00 at the time of the trade they are even. So is the risk of loss should the stock hit my threshold of trade exit price, so the decision of which to use is purely a psychological preference.
ReplyDeleteI guess I forgot to mention in my original post that the play is really just a quick short based on the pattern and the reason I used an option spread rather than just short the stock is the capital requirement on this 5-lot is $500 where as its $2000 if I wanted to get short 500 shares.
Also, with the option spread I get to put it on now but if I was shorting the stock I would feel more comfortable waiting for a closer price to the technical line. Since I'm short an option against the long the cost of being long the put spread at a price closer to that line isn't a meaningful difference than what I got.
So I'm essentially being a little impatient and putting on a short because I don't want to try and pick the perfect price. I like the risk/reward of at least 3.5 to 1 unless we sustain a large up move outside option hours. Earnings are already out of the way and large gaps to the upside on this large cap stock aren't the norm.
I see that your spread is up nicely - congrats.
ReplyDeleteWe've still got five weeks to go so anything can happen. But the more time I buy myself the better.
ReplyDeleteI took this trade down just now on the market dip. I was able to pull in $200 of the maximum $500 in just under five trading days. There is still more than four weeks left until expiration so locking in 40% felt like the prudent move and I'll look to possibly enter again in the near future. I've got some long and shorts on the books so going to try and take things down when they are offered as long as this market stays volatile.
ReplyDeleteI don't know man...feel like this is going to turn into a one directional trade anytime now.
ReplyDeleteNice trade.
ReplyDelete