BD,
Mind if I chime in here?
1) Where's your downside protection? Selling puts AND buying calls mean you participate twice in the profits if the stock is going up. If it goes down, you lose twice (your long calls get cheaper and short puts get more expensive AGAINST you). It's a very bullish spread and you have to be right in the stock direction.
2) With that size trade, I would hedge with some protection and buy some March 25 strike puts for possibly half the position. Sure, you outlay some dough, but you prevent catastrophic meltdown that could cost you big.
3) The timeframe from Feb to March is a short one. It's usually 5 weeks between monthly contract expirations. This one just happens to be 4. You've got a week less time than normal.
4) Where did the 25 1/2 number come from? Are you factoring other trades that you haven't told us about? You're downside protection is non-existant, as I said, you have no hedge, just a double long position.
5) Here's what happens with the stock at 29:
a) Your 93 long calls at 35 are worthless
b) someone puts 9300 shares to you, and you're out 9300 bucks (9300 * $1) for a while.
If you think the stock will be at or near 35 by the third week in March:
1) Do a hedge by selling the March 35 puts, and hedge this by buying the March 30 puts to protect your downside. If you're ballsy, you could leg into it (do one side and hope the trade goes with you to juice the profits before you do the other), but I might do both side of a large trade like this at the same time.
2) Buy X number of long 30 calls, and sell the same number or some portion thereof in short 35 calls.
1 and 2 are a little different in "flavor". 1) takes in money (net cash inflow), 2) expends (net cash outlay). However the profit for the each type is known when you make the trade. There is no infinite upside, or downside if you make your hedge perfect. If you sell a partion hedge, than you participate above 35 on #2.
Have fun. |
