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By idk0098
hello noob here
why we should use bull put spread when you can just long call they both have limited loss both in long call you have unlimited profit why limited it with bull put spread?
thanks in advanced
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By Kim
On January 27, one of our long term members posted the following post:
We booked nice gains ranging from 18% to 37% on CF pre-earnings calendars in the previous cycles, but this one was different. We usually don't bet on the earnings date (we did it once and got burned). But the risk/reward of the trade looked very favorable: if the earnings date will be on the second week of February, the spread should keep its value and probably produce 15-20% gain. But based on previous cycles, it was very likely that the earnings will be on the third week of February.
Based on this information, some members started building positions around 0.75-0.85:
I started scaling into the spreads last Thursday around $1.00-1.05 and officially, we had a full position by Friday close at cost base of 1.025 per spread.
Sure enough, after the Friday close CF announced that they will be reporting earnings on February 18, the third week of February. On Monday, the week2 options IV decreased as expected since those options now expire before earnings, and the monthly options IV increased. We sold the spreads between $1.55-1.75, booking 62% gain in two days of holding, without taking any directional risk.
Some members did even better:
Again, what is especially remarkable about this trade idea is the fact that it came from one of our members, who took the time and the effort to follow and learn our strategies. In SO community, the learning never stops. I am extremely proud of our community that allows us to share ideas and find new opportunities every day.
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By Dave W
@Yowster or others,
I'm hoping to get some advice. I occasionally trade unofficial hold through earnings (HTE) calendars and have run into a recurring issue. After earnings, sometimes the price jump in the stock results in my calendar becoming deep in the money. When I try to close out the deep ITM calendar, the market makes it very difficult or impossible for me to close out at a reasonable price.
For example, this recently happened to me on RHT. I had an 82C calendar spread March 31 short / April 7 long and at the close before earnings on March 27 the stock price was $82.32. About an hour after the open on March 28, RHT stock was at $86.93. So my 82C were $4.93 ITM. But the mid-price to close out the spread was in a kind-of 'backwardation' (yes, I know that isn't the exact right term, but the situation seems similar). The mid for the short leg was $5.00 and the mid for the long leg was $4.90, so a debit of $0.10 to close the spread. Paying a $0.10 debit to close the spread (or even closing at $0.00) seemed unreasonable given that if I held the short leg through expiration, any premium to close the short options would be gone and hopefully the long option would recover some premium ($0.10 to $0.15 based on my review of other RHT options in different time periods). So I held the spread through expiration and got assigned. I closed out the position the following day using a combo stock / option order on TOS.
I'd like someone who has done a number of these HTE trades to help me understand:
1. Has this ever happened to you? How would you recommend closing the trade when the price to close out the calendar spread is "way off" from what seems reasonable (e.g., having to pay a debit to close)?
2. If I do hold through expiration and get assigned, am I still 100% covered by the long option? In other words, will the changes in the long option prices offset changes in the short stock position exactly? I'm guessing the answer is no, but I haven't really looked at this yet and am not sure the best way to model it.
I appreciate the advice. Thank you!
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By tjlocke99
Kim and SO Friends,
I posted this under the RUT calendar post as well, but I know not everyone will see it there.
I am interested in a general practice for managing a triple calendar however I am providing my specific example below. Thanks!
I am currently in a RUT triple calendar 820 Put, 840 Call, and 860 Call:
long Jan 03 '13
short Dec 27 '12
I have a very small position.
I entered the trade last Thurs with RUT at 828.
Current the trade is slightly profitable with the 820 put down 22% though. However I have no idea how to close this. Should I close the whole trade or leg out and if so which should I leg out of first? I am thinking of closing the 840 which is up over 30% and than closing at the next available move towards 820 or 860.
Thank you!
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By tjlocke99
I would love some feedback on this.
I purchased an AAPL bullish diagonal and bull call spread about a month ago and despite the stock going up my positions did not increase as expected. In both trades I had an ITM long at a strike of around 630 and a OTM short around 680 with the stock was around 660. What happened was that the OTM short somehow increased in value just slightly less than the ITM long position (in absolute dollars) and thus my gains were minimal.
What I started to notice recently just by looking at some option tables is that some strikes seem to have a "better price" than other strikes with the same expiry. Rather than describe this in detail I now realize that there are likely better diagonal and vertical positions I could enter if I am bullish or bearish on the stock that will be more profitable. However I am not exactly clear how best to analyze the trade that is the best value.
Let me use AAPL (Apple computer) as an example.
If I want to enter a bullish AAPL diagonal am I better off:
1. Buying a deep ITM call and selling an ATM nearer month call?
2. Buying a near ATM call and selling an OTM call?
3. Buying an ATM LEAP and selling an near ATM call.
. . .
There seem to be hundreds of possible combinations.
Could someone help me or point me to a resource that would help me understand this better?
One mistake I know to avoid is do not be short an ATM or near OTM call that expires just after an earnings announcement or major product launch. The IV increase will also eat into your profits even if the stock goes up.
Another thing I know is deep OTM options lose most of their value PRIOR to the final 30-40 days before expiration. As far I know this NOT true of ATM or slightly ITM options which decay the most in the final 30 to 40 days.
Therefore this leads me to believe that typically if the short in my vertical or diagonal is going to be around 2 months out, then I want it to be reasonably far OTM so that if the stock remains flat I can still breakeven or even make a small profit.
Thank you VERY MUCH for reading this.
Richard
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