You asked me about options. I don't know much about them accept that they're risky.
If you insist on buying them then you better know what you're doing. Here's
an example of what a professional option trader does. You can send an e-mail
to Talontrade@aol.com. Write "IN" in the subject area and maybe "add me to
your list" down below and you'll probably start getting things in your mail for free.
Not as much fun as you might think. Cats changes his mind within seconds
as he uses a Nasdaq level 2 set-up which tells him what brokers are buying
before the trade goes through.
>>>Subj: INTC Trade Update - May 6
Date: 97-05-06 05:17:31 EDT
From: TalonTrade
To: CatsklPubs
BCC: FPalardy
Last week, I laid out a trade in INTC for those who felt they absolutely HQAD to trade INTC, well here is how the trade was suggested.
Buy 2 - INTC July 150 calls
Sell 1- INTC July 130 call
Buy 3 - INTC July 150 put
Sell 1 - INTC July 160 put
These were my actual entry prices when I laid out the trade
BOT - July 150 Call (INQ GJ) $12.625 each Position Cost for 2 - $ 25.25
SLD - July 130 Call (INQ GF) $27.375 Position Cost for 1 - $ 27.375
BOT - July 150 Put (INQ SJ) $6.875 each Position Cost for 3 - $ 20.625
SLD - July 160 Put (INQ SX) $12.25 Position Cost for 1 - $ 12.25
So the cost of the trade was as folllows,
INQ GJ (July 150 call) -25.25
INQ GF (July 130 call) +27.37
INQ SJ (July 150 put) -20.63
INQ SX (July 160 put) +12.25
Net cost (excluding commissions = $6.25
Lets look where this trade closed at 5/5/97 ........
INQ GJ (July 150 call) $ 18.25
INQ GF (July 130 call) $ 35.375
INQ SJ (July 150 put) $ 4.25 (Stopped Out on 2 at 5.75)
INQ SX (July 160 put) $ 7.625
Value of the trade as of today is ......
INQ GJ (July 150 call) +36.50
INQ GF (July 130 call) -35.375
INQ SJ (July 150 put) +4.25
INQ SX (July 160 put) -7.625
And we added 11.50 due to the stop loss order on 2 INQ SJ puts.
Net profit / loss as of 5/5/97 = + 9.245
Our cost for the trade was $6.25 per position.
Our current value of the trade is $9.245 per position
Our net profit for thisa trade so far is ...... 67.6% for 4 Days!
Now this is how Eagles like to trade! We had a very limited risk exposure because of the hedged positions and the backspreads, and we managed a net 4 day gain of 67%.
To update this trade for continued profitability ...............
1 - Buy 2 July 170 Call (This will now cover the July 130 short call)
2 - Sell 1 July 130 Call
3 - Place a stop loss on the 2 long July 150 calls at $15.00
* Do not place a BUY stop on the 130 Call! Just leave it alone.
4 - Place a BUY stop on the short put (at $9.00)
Leave the long put completely alone.
Reasoning:
If INTC continues to the upside, your long 150 calls will move up $2.00 for every dollar that the 135 Call does, so you do not need to alter that spread.
By selling the 130 Call against the 170 Calls, you are taking in substantial premium for the inevitable retracement. In either case, the second 150 call will move dollar for dollar with the second 130 call. The 2 170 calls will continue to gather delta and money as INTC moves higher. Eventually, of course the stock will retrace and we will then be able to close the 150 calls at a tremendous profit, while allowing the 170 calls to allow us to ride the 130 calls down for additional profits.
The Puts are now taking care of themselves. The shrt put is decreasing in value at a higher rate than the long 150 put now, so you are gaining money on that postion for each dollar INTC moves up. Soooo, leave it alone. If INTC begins to retrace, we have a stop in place to close the short put, which will allow us to now earn additional money on the long 150 put.
If INTC moves down from here, We will get stopped out of the long 150 calls at 15 with a net profit of 20%. But we will now benefit from the cost averaged short position which is now covered in the spread by the much cheaper 170 calls. As INTC moves down, the 130 calls are paying us $2 for each dollar that INTC drops. While the 170 calls only have about 5 dollars maximum to give up and will lose value at a rate of 25 cents for every dollar that INTC moves down. So we use the deltas to gather additional value in the position. The long put will now begin to increase in value as INTC retraces to the 150 range and will also add to the value of the total position.
The nice thing about this trade, is that you really do not have any need to monitor it on a daily basis. Lay it out properly and it has and will take care of itself. Whereas, we may not make 1000 percent on this one, it is clear that 1 net 100% profit is certainly within reach here.
Best to you. Catskill Eagle>>>> |
