CBOE Volatility Index Bull Put Spread On The VXX [View article]
You're welcome. I enjoy these conversations and find that they can be a good learning experience. The GARCH forecasts used here are a consideration for this trade, but are not calculated into the expected return, not sure if I was clear about that.
CBOE Volatility Index Bull Put Spread On The VXX [View article]
If you look at GARCH, AGARCH, EGARCH, APARCH and GJRGARCH, they are all forecasting a rise in volatility in one month, the range between the different models is from a 1.01% increase to 1.72% increase. So, the consensus among these models is for rising statistical volatility. The probability on the VXX comes from the realized VXX volatility and a probability calculator, the theoretical profit factors in the implied volatility of the October 11 by 10 put spread. Great comments.
Thanks for the comment, always be cautious with the juniors, the old "pump and dump" scheme is alive and well on Wall Street. Today 08-30-12 at 11:00am PDT, this spread has earned about half of its full potential or $0.22 cents. Investors who want to be cautious ahead of Bernanke's Jackson Hole speech tomorrow can consider taking profits or partial profits.
A New Copper Deposit Announcement From Duluth Metals Limited [View article]
Sorry, I'm not familiar with those companies at all. I have a background in mining and have a strong interest in the industry and think that some of these mining companies may have some strong long term potential.
A New Copper Deposit Announcement From Duluth Metals Limited [View article]
Great comments, Bob thanks for pointing out that JJC is an ETN, they do carry credit risk and investors need to consider the credit rating of the issuing bank. I'd like to add that Morgan Stanley favors cooper over other base metals for the next six months and that Goldman has a price target on copper of $9000 per metric ton over the next 6-12 months. Commerzbank recently issued a report showing that Chinese imports rose to 419,741 tons last month and that global demand showed an 11.9% month to month increase after falling over the prior two months. Again, thanks for the great comments.
The $37.80 breakeven was at the June expiration if and only if the trader decided to take assignment after the first expiration and try to hold for JPM $37.80 or look to trade into a profitbale conversion by selling the June 37 calls for more than $0.80 cents. This trade initially yielded a profit of about 10% in two days, then with dynamic delta adjusting, by buying back the short calls as JPM declined in value and letting the long calls run, yielded further profits. In many of my trades, I am not as focused on the price movement of the underlying as I am the implied volatility of the options I am trading and my forecast for future volatility, both implied and realized.
I expect the implied volatility to come in on the front month as it only has a week to go and the implied volatility to remain fairly elevated for the June expiration. I am anticipating some mean reversion from JPM.
I use a few different ones, but for this article I ran the calcs on TradeStation. TradeStation is very user friendly, can be programmed and has a scanner so you can locate trades with high theoretical profits. I also have software from Larry McMillan that has a good expected return calculator, but it does not scan, however it is not very expensive at all. I just set up an account with LiveVol, but have not used their scanner yet, I'll let you know what I think of it. I also use Matlab and Excel with VBA programming, but that is on more of an experimental basis. For a trader, who wants to scan, run calcs, place trades and monitor them, TradeStation is very efficient.
Readers- Someone made a comment above stating that this trade had a negative expectancy, in other words that a trade with these parameters would lose money if repeated. That is not true. Always calculate the expected return of any option trade and only take those that have a positive expected return. The methodology used in the comment above is only valid for games of chance with fixed payouts. It does not work for games with a variable payout. Even though the max loss on this trade is $2,000 and the max gain is just over $1,000, the probability of a loss is much lower than the probability of a profit. The chances of the max loss occurring are very low.
If 2500 shares of JPM got put to you at $37, you'd have the long June $37 puts and still have only $0.80 cents of risk. You would be long 2500 shares, long 25 puts and have until June 16th with the same total risk.
Michael, you can't calculate the probability just based on the price of the underlying security. This trade had a positive expected return of $1,029, that means that if the trade could be repeated over and over under identical circumstances, you'd make money over time. You must use an expected return calculator that factors the difference in the implied volatility between the two different expiration dates. This trade has a positive expected return based on the current prices.
Apple closed at $566.71, so the spread expired worthless for maximum profits. Apple gained $1.46 for the week and this spread gained $1.90 with much less absolute risk.
12:22 pm PDT, little more than 30 minutes to go on expiration day and this spread is down to 0.06 cents and looks like it's on it's way to a worthless expiration for maximum profit. If still holding watch Apple closely for a decline and beware of pin risk.
11:53am PDT, with a little more than an hour to go in today's trading, this spread has narrowed to $0.55 cents. Apple is at $571.45, only $6.45 away from the short put. Taking profits or partial profits now could be wise. The risk/reward ratio is getting worse.
At 7:52am PDT on Thursday, May 10th, the spread has narrowed to $0.69. This is a day to watch Apple closely. You may want to take some profits or partial profits in this area. If the spread narrows even further and you decide to hold until expiration, the risk reward characteristics aren't very good.
CBOE Volatility Index Bull Put Spread On The VXX [View article]
CBOE Volatility Index Bull Put Spread On The VXX [View article]
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A New Copper Deposit Announcement From Duluth Metals Limited [View article]
A New Copper Deposit Announcement From Duluth Metals Limited [View article]
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JPMorgan Calendar Put Spread [View article]
JPMorgan Calendar Put Spread [View article]
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Apple Weekly Bull Put Spread [View article]
Apple Weekly Bull Put Spread [View article]
Apple Weekly Bull Put Spread [View article]
Apple Weekly Bull Put Spread [View article]