Contributor since: 2011
Company: SogoTrade
I have this trade at a +.11 delta. also lots of premium. nearly $27.00 be prepared to lose a significant amount of this prem. if the stock doesn't move much. that is why in my trade analysis ( not recommendation) I suggest a cheaper strangle (in premium terms ) with a long bias.
thanks, stand corrected. learn something new every day.
with three days to go , this was not a volatility play, but a play on movement
There is no volatility in the 210 line. calls are no bid and puts are parity. $ was made on pure movement
$6.80 straddle worth $10.50 today
excellent analysis. appreciate the feedback, you may well be correct.
I respectfully disagree with your assessment of the importance of understanding Implied Volatility. Understanding Implied Volatility is the singularly most important part of option trading. Volatility skew is the second most important aspect.
These option trades ideas are only offered to those who have already made an investment decision and/or have a bullish or bearish bias.
Stay with what you are comfortable with. Good luck with your trading.
I try to provide trades for investors with divergent views. Seeking Alpha editors actually encourage a balanced view in the articles.
If you have a long term positive outlook on AAPL, you should employ options to bolster returns or provide downside protection.
Options are incredible hedging and income providing instruments. They should be a part of every portfolio.
Good stuff. Options content written by people who know options. good work.
short squeeze? relief rally? not sure, but the trades were winners if you had the conviction.
No worries. just happy that people are reading the article.
If you believe that $JCP will stay range bound, the two most common strategies to employ would be:
1) Sell an ATM ( at-the-money) straddle
2) Sell a strangle.
These strategies are especially compelling when the Implied volatility is elevated and hence the premiums that you collect are high.

Beware: If you employ these strategies, you have both upside and downside risk.

Note: I am not recomending that you use these strategies. That decision is entirely based on your appetite for risk
Excellent point and observation. One thing to consider is that the Aug options when listed will most likely carry a higher IV then July. based on the earnings 'event' Do you want to pay more in IV? Maybe you do, maybe you don't. I believe it is an open question whether the extra IV prem is worth it.
I appreciate the constructive insight into JPM's fundamentals, Vandooman. I apologize for incorrectly stating that the near term low was $27.85. My error. I stand by the rest of the article and it's main thrust. The main point of the article is option related and not fundamentally based. If (if,if,if) you believe there is more downside, then we offer a trade idea. ' To take advantage of abnormally elevated downside implied volatility skew and to benefit from any further downward pressure in JPM stock in the next couple of weeks and before earnings in July.
I am just presenting three different option plays that might work if you have a certain inclination towards CHK. The article does not take a bullish, bearish or neutral stand.
Right on. As underlyings go lower, IV almost always go higher. Conversely, as stock go higher, IV almost always contracts. Another reason for this behavior that I did not mention in the article is that the IV calculation is a mathematical one based in some aspects on % moves in the underlying. Normally, lower price stocks have greater % moves than higher priced ones.
sounds like a great strategy especially with such high premiums. Good luck.
Thanks, Steve. Just be careful with the price of the puts. They will be over fair value by a significant amount. However, this premium may be worth it because if you can't short the stock or have to pay an usurious rate to borrow the stock, this may be the best alternative.
100% correct. I wish authors/experts? of option articles would be more careful in advice the give readers.
Rough outcome today. $6.75 in prem. basically all gone
friendly advice: be careful making statements like this:
' I am completely confident that the trade recommendation I am writing about will work like a charm.'
People make may follow your advice and if they did, they are out the the whole investment.
it is more responsible to say something like this:
' if you believe this or that, then try this strategy"
Theoretically the calls go down and the puts go up. The difference is $4.855, not 11 cents. The reason why the calls were up on the day was because the underyling was up significantly. They would have been up ( theoretically) $2.485 more if not for the dividend.
The Jan '13 600 calls went down approximately $2.485 ($71.31- $68.825 = $2.485)
The Jan '13 600 puts went up approximately $2.37 ($71.40- $69.03 = $2.37)
I don't necessarily disagree with your analysis, but I tend to put more emphasis at the current standing of an underlying when making my analysis. Factors such as a large short interest, increasing industry headwinds and 30 day HV higher than 30 day IV shaped my view that the straddle was worth a shot. It appears that the post earnings move will be in 5%-7% range today, so the straddle is slight loser and the other two ideas appear to be washes.
Jan 31 2011 numbers are wrong? 1.96% move should not have equaled a 10.86% return.
Just sell the puts and avoid the double commissions. You are advocating synthetic puts. A buy write is just a synthetic put.
really? TD & RY are both twice the mkt cap of Barclays
Basically sellling OTM call spread and OTM put spread. Good strategy when IV is high, but remember what happened in NFLX. underlying rose 22%, much more then historical moves. Straddle was pricing in a 8-9% move. In AMZN, right now the 215/220 call spread is $.80 and 170/165 put spread is .70. sell both for $1.50 risk is $3.50 if there is blowout either way. Is that good risk/reward? anyone guess, there is no right answer.
that is not what is written. read the sentence again. nothing about % gain. i thought you meant over $10 the options would move faster then the underlying in real terms, not % terms. that is how it reads, anyway.
maybe rephrased like this:
these options would gain value percentage (%) wise at a faster rate than the stock itself.
"These options would be worth nothing if the stock isn't above $10 per share at expiration, but if the stock trades past that level, these options would gain value at a faster rate than the stock itself."
I believe the statement above is misleading, if not outright nearly 100% false-
The options would very very unlikely not gain at a rate faster then the stock unless there was a huge explosion in implied volatility. The delta of these options is of course not greater than 100, the delta of the underlying.
How would the options move faster then the underlying? Unless IV exploded.
$17.43 upside break even. article said $17.73 max gain .57 max risk .43 not sure if that is tremendous upside or is a good value on a risk/reward metric. seems fair to me.
The highest open interest as of today was 1154 Dec 80 calls. Doesn't seem that high to me.
The straddle is almost $12. If the VXX moves $1 up or down, you will lose money if the IV ( implied volatility ) contracts. The break even by Dec expiration settlement) is $20 or $44. The numbers in the article make no sense. The vega is .074 and the IV is approx 73%. If IV collapses, you are a huge loser in this trade. If the VIXX stabilizes around this level or slightly higher or lower, you are a big loser. only a doomsday scenario or complete return to normalcy allows you to win buying this straddle.