Tradervic

Kim, great article and thank you for giving us good advice with a focus on managing risk!

I have a CFA, took it some time ago. I found it more theoretical than practical. I already have an MBA so a lot of the stuff was nothing new. However it does make you appear that you know more than you really do, and builds confidence in people when they meet you. But as a certificate, I felt it was overated.

Kim: Help me out here. I believe I read your response to Kevin O'Brien on calendar spreads. I think you said using it during earnings was a bad idea. I am trying to understand why. If the front month has a high volatility, and the later month has a lower vol, after earnings is announced, the front month vol should drop. Since I sold that option, that should be good. But in trying different double calendar spreads, I notice that despite this drop in vol, the trades are not always profitable. It could be that the stock moves out of the breakeven points. But conceptually, why is the calendar spread a bad idea during earnings? Or is there a way to structure a calendar spread that would better position to profit during earnings? Thanks. tradervic

rod, that would be great if we could simply keep rolling a spread that went against us. But I think when you roll a spread that is in the money and has gone against you, it will be a debit, not a credit. For example, the RUT September 850/855 bear call spread is going for a mid price of 3.15 credit. Since RUT closed at 856, the spread is in the money. The same spread for October is going for 2.95, which means that if you rolled it from September to October, you will incur a cost of at least 0.2, probably closer to 0.3. So there will be cost to roll it over to the next month. Now say you roll it, and the RUT comes back down and closes at 848 at October expiration, you should be able to keep that credit. Now if you get into an OTM call credit spread, say September 860/865, the credit is $2.10. The same spread for October is going for $2.50. So it seems that if a spread is OTM, you get bigger credits the farther in time you go out. The reverse is true with spreads that are ITM; the credits are smaller. Someone like Kim could probably explain why this is so. But I don't think you can simply roll an ITM spread that has gone against you and still get a credit. Someone please correct me if I am wrong.

fieldy, are you saying that 12.14% was the average return per trade, and that you have a 250% profit from using $10K? Thats a very good return if one can tolerate the $2K losses every now and then.

Volley, when are you thinking of exiting? I tracked a similar trade today on AAPL and there didn't seem to be any profits at the close.

Thanks so much for your comments. I didn't realize Jeff wrote in SFO Weekly. I am digging out all his articles!

Ok, thanks. I didn't get that part....wait till last hour to enter. Looks like a gamble!

Marco,yes, I understand what you are saying and agree with you....... but look at Jeff's presentation.....when he talks about the short butterfly, he is selling the middle strike...and buying the outer strikes, getting the credit. In the presentation, he shows that credit rising, which would mean he is losing money. Thats the part I don't get.

Kim, dwilliams, cwelsh and all, help me out here. I went through Jeff's presentation on the short butterfly and it doesn't seem to make sense to me. The example he used is to sell the butterfly at 1 pm, getting a credit of $3.54. He chose the 615/620/625 strikes for AAPL, meaning that he is short the 615, long the 620, and short the 625. An hour later, the credit becomes 3.8, and 2 hours later it becomes 4.15. If he entered at a credit of $3.54, and it moves to $4.15, thats a loss of about $0.59. Is he saying that he wants the price to move outside the short strikes in the last hour???? I must be missing something here.

Volley, do you know what time is his speech?