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Archive for January, 2010

Follow up to “The DEPOT and out of the money options”

January 22nd, 2010 TraderChris Comments off

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I received an email the other day pertaining to my previous Blog on using OTM options within the DEPOT.  I thought they were exellent questions so I thought I would list them for you all.

If you have not read the blog i would encourage you to do so before you read on.

 

I would like to actively trade AAPL and would prefer using @ a 90 delta since this is a quick 'in & out' play and I want to maximize it quickly. Therefore, using your method, I should try and find a delta around 40-45 and by twice the amount of contracts which I can afford. The aapl 90 delta calls were around $20/contract, but the 45 deltas were $5.

 

QUESTION:

1.      What are the pro's and cons using this method? – Pro – It’s cheaper.  Con – if the trade goes against you it will take longer to make up your loss.

2.  Do you use it on all trades? – No – It just depends on the price of the higher delta option.

3.  What do you do if you want a 'equivailant to a 90 delta' (using 45 delta), BUT the only deltas availabe are 30 and 50 deltas?  I would take the .50.

4.  If I buy a 55 delta and double the contracts, that would give me the equivalance of a 110 delta. What happens when the two deltas EXCEED 100?  Stock always trades at “Par.”  If you were using options as insurance policies (as they were originally intended) and you purchased a .90 delta put to protect your one hundred shares of stock you would essentially be protecting 90% of the value of the stock.  If you purchase two .55 delta put contacts to insure the same stock you would be insuring it for 110% of the value – that does not make sense.  If you are trading options, and not using them for protection, you are really insuring something that you don’t own.  So if you have two .55 delta put contracts you are actually getting 10% more return than you would if you were trading 100 shares of  the stock.

 

Hope this helps.

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Hot Option Opportunities for the New Year!

January 5th, 2010 angie_c Comments off

If you watched Greek Speak yesterday on WizetradeTV-HD or subscribe to Wizetrade Alerts, you know that Jason Ramus brought some great opportunities to the table for the upcoming year & some even for the next couple of years. With the market pulling back today, some of these entries are even better than they were yesterday! So I've decided to share some of them again. Keep in mind, these are yesterday's quotes so use your best judgement if you're considering following along with it.

AA- Buy the Calls -  Option Jan 2012  $12.50 Calls for $5.80 per contract = A Debit of $580.00 per contract

This stock was a $45 stock a year ago and hit a low of around $5 in March of 2009. It has bounced to fill the gap and is currently trading at $16.12. This stock has room to move much higher especially if the economy does make a recovery in 2010, also if car sales pick up this will move higher. You can look at the Jan 2012,  $12.50 Calls around the $5.80 area. It has a delta of .74 and also $3.68 of intrinsic value and only $2.12 of extrinsic value. Also we are giving this trade 2 years to make us money. Breakeven on this trade is only $18.30 in 2 years.

Jason Ramus 1/4/2010 8:18:00 AM CT
C- Buy the Calls -  Option Jan 2012  $2.50 Calls for $1.45 per contract = A Debit of $145.00 per contract

Ok so here is my best speculation trade for the year that we can make some big returns on. If the government can get out of Citi Groups business and they can actually make money and hire people without pay restrictions, then there is a chance this company can be a $10 stock within the next year I believe. The trade is to buy the Option Jan 2012  $2.50 Calls for $1.45 per contract. the stock is currently trading at $3.31 and we have $0.81 of intrinsic value and only $0.65 of extrinsic value or speculation money and have 2 years for the stock to be above $3.95 to breakeven on this trade.

Jason Ramus 1/4/2010 8:21:29 AM
GLW- Bull Call Spread for the Jan 2011 - Buy the Jan 2011  20 Calls and Sell the Jan 2011  25 Calls = a Debit of $155.00

I love this stock going forward because the TV sector is becoming big and the things we will be able to do with our TV's in the future will be, 3-D TV, WIFI on your TV, a computer built into the TV's and the new LED TV's that will be coming out and making LCD's the thing of the past. This company is 1 of only 3 company's that make the glass for LCD and LED TV's. Now this is a slow moving stock that is currently trading at $19.31. The trade is a Bull Call Spread for Jan 2011.  I am looknig at the Jan 2011,  20 calls and sell the Jan 2011,  25 calls for a net debit of around $1.55 or $155.00 with a profit potential of $3.45 or $345.00 if this stock is trading above $25.00 by the end of this new year. I love the Risk vs Reward on this trade, the only thing is you will need to be patience for this trade and wait until near the end of the year for this trade to really work out.

Jason Ramus 1/4/2010 8:25:36 AM
Happy Trading!!
Angie C
follow me on twitter: www.twitter.com/WTV_Angie
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