Crow's thoughts on the Market
I am a happy crow. But I am alone. I need to lick my own wounds constantly. This is the place where I do it.
正文
It is great to hit a double or triple in the trade. But we have to focus on the more reliable, lower-return trades.
Using option calendars to trap the near-month premiums seems to be a good strategy. Of course, one cannot double his money in such trades. However, one can have very high winning rates.
Take FXI as an example. Currently, the market is overbought. FXI closes at $109. We estimate there will be a pullback, but we are not sure when this will happen exactly. Let's buy more time for ourselves: FXI 08/2007 109 puts. We can get them for $6.1. At the same time, FXI 05/2007 106 puts can be sold for $1.3. Today is 05/03/2007, 11 days before the May option expiration day. If we build this calendar, we can estimate our profit potential as follows:
1) FXI closes above 115 on OE day. Our long puts will lose values, but they may still have half values. Our net loss will $1.75, because we get some compensation from short legs;
2) FXI closes around 109 on OE day. We estimate that long puts will lose a valie of $.20. However, we will book all the profit from the short leg. As a result, we will have a profit of about $1.1;
3)FXI closes around 106 on OE day. We may book a proft of about $1.1 from the short leg, considering some loss in the spreads. From long legs, we estimate we should have about a profit of abou $1.7, because the stock has dropped $3. Now, we should be able to have a net profit of about $3.
4).FXI closes around 105 on OE day. We may be able to buy back the shorted puts for the original prices. However, we should able to have a profit of about $3 from long puts, since the stock has dropped about $4.
5). FXI closes below 105 on OE day. We will have reached our profit limit, which is about $3.
For a whole spectrum of possible closing prices on OE day, we should be able to win in most cases. We lose only if we are absolutely wrong: FXI has a runaway. Eevn if FXI goes up $2, we estmate we will be able to break even.
How much money can we put in this trade? $2000? $3000? If it is $2000, we expect 4 pair of puts. If it is 3000, we expect 6 pair of puts.
Using option calendars to trap the near-month premiums seems to be a good strategy. Of course, one cannot double his money in such trades. However, one can have very high winning rates.
Take FXI as an example. Currently, the market is overbought. FXI closes at $109. We estimate there will be a pullback, but we are not sure when this will happen exactly. Let's buy more time for ourselves: FXI 08/2007 109 puts. We can get them for $6.1. At the same time, FXI 05/2007 106 puts can be sold for $1.3. Today is 05/03/2007, 11 days before the May option expiration day. If we build this calendar, we can estimate our profit potential as follows:
1) FXI closes above 115 on OE day. Our long puts will lose values, but they may still have half values. Our net loss will $1.75, because we get some compensation from short legs;
2) FXI closes around 109 on OE day. We estimate that long puts will lose a valie of $.20. However, we will book all the profit from the short leg. As a result, we will have a profit of about $1.1;
3)FXI closes around 106 on OE day. We may book a proft of about $1.1 from the short leg, considering some loss in the spreads. From long legs, we estimate we should have about a profit of abou $1.7, because the stock has dropped $3. Now, we should be able to have a net profit of about $3.
4).FXI closes around 105 on OE day. We may be able to buy back the shorted puts for the original prices. However, we should able to have a profit of about $3 from long puts, since the stock has dropped about $4.
5). FXI closes below 105 on OE day. We will have reached our profit limit, which is about $3.
For a whole spectrum of possible closing prices on OE day, we should be able to win in most cases. We lose only if we are absolutely wrong: FXI has a runaway. Eevn if FXI goes up $2, we estmate we will be able to break even.
How much money can we put in this trade? $2000? $3000? If it is $2000, we expect 4 pair of puts. If it is 3000, we expect 6 pair of puts.
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