Re: [SuperTraderKarenStudy] Re: 4 trade day as well


Dec 21, 2015

 


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#5607 Dec 21, 2015

Tom,

Good stuff!

I also had 4 trades. Closed one of my three short SPX PUTs, booked $270. But the main reason was to lighten up from carrying three, per our conversations. I was in total agreement there.

Then I did three completely experimental plays. All of them expire Friday.

#1516898919, SOLD -5 VERTICAL NFLX 100 (Weeklys) DEC4 15 117/116 PUT @.45 ISE, ACCOUNT 87*****99



#1517101019, SOLD -5 VERTICAL AMZN 100 (Weeklys) DEC4 15 662.5/660 PUT @1.20 ISE, ACCOUNT 87*****99



#1517157623, SOLD -3 VERTICAL CMG 100 (Weeklys) DEC4 15 527.5/525 PUT @1.20 ISE, ACCOUNT 87*****99





These are very interesting to me from a max profit, max loss and BP requirement perspective.

For someone starting to play the ES, these may also interest you. Analyze one (they are all the same) and let me know what you think.

Rob



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#5609 Dec 21, 2015

Hello Rob,

Your NFLX 117 strike is currently ITM and from the look of the charts the 116 strike should be ITM by the end of tomorrow.

Do you have a plan to manage trades that end up ITM?

The AMZN trade is OK for now but it could see a 653 target if it turns around.

CMG is ITM and may have a target of around 501.

I think you may have been better off on the call side...

Keep in mind that my crystal ball doesn't work very well.

Tom



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#5613 Dec 21, 2015

Tom,

No management on these after the initial entry. They are short term directional shots, sort of like a ES play. :)

However, these have fixed defined risk, profit and time. Let's take a look at NFLX knowing the other two are the exact same, just slightly different numbers:

NFLX

Sold 5 of the 116/117 PUT spreads, taking in (.45 x 5) credit = $225

Max profit: $225.Max loss: 5 x [(117-116) - .45] = $275

Buying Power required: $500 (hardly ever see that!)

Upside risk: $0Downside risk: $275

If NFLX is 117 or greater..(ignoring the .45 credit) on Friday, this expires and I keep the $225.

If NFLX is below 116, I lose $275



And yeah, you could do it with calls or puts. The entry is at the money, so it just depends on which direction you are betting the stock is going.



Basically it's like this. You risk $275 to make $225 and you get the following odds:

--stock goes up (if you did a put spread)--stock goes nowhere--stock can go down less than your premium collected (can prob ignore this one)

So you have a fixed risk, and you get two of the three possible ways a stock can move. Combine that with some smarts and maybe you can win a lot more times than you lose.

Rob



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#5614 Dec 21, 2015

Hello Rob,

Interesting...

Just be sure that you don't end up with one strike ITM and the other OTM.

Tom



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#5615 Dec 21, 2015

Tom,

Doesn't matter. I used to think that too..

Risk is defined when you first sell it and doesn't change. Even if the stock price splits your strikes at expiration..

Do the math. I finally did and the guy telling me was correct.

(happens sometimes)



:)







Rob



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#5616 Dec 21, 2015

Rob,.

You are right in theory that the risk doesn't change even if the stock is between the two strikes at expiration.. But in practice you would have to close out the short position near the close this Thursday - 1 PM EST.

And, the spreads near the close, when you have to buy to avoid owning stock over the long weekend, may be wider than you have anticipated.. This is particularly a problem with CMG where the spreads can be nasty right up to the close. .

NFLX and AMZN are more forgiving with tighter spreads.

When considering trades like these with small potential rewards, I also take into account the two commission charges for exercise should both sides be in the money. .

Larry



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#5617 Dec 21, 2015

Hello Rob,

Here is the math...

If NFLX expired today you would have the 116 put out of the money and it would expire worthless and the 117 put in the money.�� If whoever is holding that 117 put decides to assign it you would be responsible for 500 shares of NFLX at 117.

This means that you would pay 58500 minus the 225 you collected initially.

Now if the person holding the put you sold doesn't act you are off the hook, but the risk is that they will act and since your out of the money put expired worthless you end up with stock.

Risk is defined when both strikes are in the money but not when you have one strike in and one strike out of the money.

Tom



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#5618 Dec 21, 2015

Larry,

Good points. All of them. I appreciate the insight.��

Closing things right before expiration is a good way to control things. Things like this and things like after hours moves coming into play.��

Thanks, Rob

Sent from my iPhone

On Dec 21, 2015, at 11:24 PM, Larry Friedman LMFriedman@... [supertraderkarenstudy] supertraderkarenstudy@yahoogroups.com> wrote:



��Rob,��

You are right in theory that the risk doesn't change even if the stock is between the two strikes at expiration.�� But in practice you would have to close out the short position near the close this Thursday - 1 PM EST.

And, the spreads near the close, when you have to buy to avoid owning stock over the long weekend, may be wider than you have anticipated.�� This is particularly a problem with CMG where the spreads can be nasty right up to the close. ��

NFLX and AMZN are more forgiving with tighter spreads.

When considering trades like these with small potential rewards, I also take into account the two commission charges for exercise should both sides be in the money. ��

Larry







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#5619 Dec 21, 2015

Tom

Half of me wants to believe this and this was the basis of my discussion a few months ago with someone else on this group.��

I made the exact same case you just did and he talked me out of it. But it may have only been regarding the SPX which is cash settled and does not get assigned.��

I think I will call our pals at amtd tomorrow and see what they say. But my lean is to agree with your reasoning.��

RM

Sent from my iPhone

On Dec 21, 2015, at 11:34 PM, poast@... [supertraderkarenstudy] supertraderkarenstudy@yahoogroups.com> wrote:



��Hello Rob,

Here is the math...

If NFLX expired today you would have the 116 put out of the money and it would expire worthless and the 117 put in the money.�� If whoever is holding that 117 put decides to assign it you would be responsible for 500 shares of NFLX at 117.

This means that you would pay 58500 minus the 225 you collected initially.

Now if the person holding the put you sold doesn't act you are off the hook, but the risk is that they will act and since your out of the money put expired worthless you end up with stock.

Risk is defined when both strikes are in the money but not when you have one strike in and one strike out of the money.

Tom



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#5620 Dec 21, 2015

Rob,

On high priced stocks you may see greater stock price moves near the close on expiration days and the bid/ask spread may widen as the near the money options prices reflect the fact that few option traders are likely to want to take delivery.

This week with expiration early on Thursday trading will be light and the spreads may widen more than usual.

If I were holding a put spread on one of these stocks and it was trading close to the short put strike, I would look to get out well before the Thursday close.

Larry



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#5621 Dec 21, 2015

Hello Rob,

I didn't respond until I had checked with the trade desk.�� I use NFLX as the example.

Please check with them on the underlyings you have positions in, then ask about SPX.�� In SPX things may be different because you can't own shares in SPX.�� It settles to cash.

Tom



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#5622 Dec 21, 2015

Point taken and I was already thinking about that as well. Based on your prior info.��



Rob

On Dec 22, 2015, at 12:27 AM, Larry Friedman LMFriedman@... [supertraderkarenstudy] supertraderkarenstudy@yahoogroups.com> wrote:



��Rob,

On high priced stocks you may see greater stock price moves near the close on expiration days and the bid/ask spread may widen as the near the money options prices reflect the fact that few option traders are likely to want to take delivery.

This week with expiration early on Thursday trading will be light and the spreads may widen more than usual.

If I were holding a put spread on one of these stocks and it was trading close to the short put strike, I would look to get out well before the Thursday close.

Larry



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#5623 Dec 21, 2015

Roger that.��

Rob

On Dec 22, 2015, at 12:29 AM, poast@... [supertraderkarenstudy] supertraderkarenstudy@yahoogroups.com> wrote:



��Hello Rob,

I didn't respond until I had checked with the trade desk.�� I use NFLX as the example.

Please check with them on the underlyings you have positions in, then ask about SPX.�� In SPX things may be different because you can't own shares in SPX.�� It settles to cash.

Tom



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