Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Option Spreads, Credit my Debit -- Ignore unavailable to you. Want to Upgrade?

To: umbro who wrote (1557)	7/29/2000 11:45:18 PM
From: KFE	Read Replies (1) \| Respond to of 2317

Umbro, (last trade was 11 1/2 by 17, it has narrowed a little) Actually the spread has widened. The closing bid/asked spreads were 11-11 7/8 and 17 5/8-19 1/8. If you sold at the bid and bought at the asked the same spread would now cost you 8 1/8. I did better than splitting the bid/asked on a limit order spread entry so I would think that you would have no problem buying or selling the same spread for 7-7 1/2 at the current OEX level. Never use the closing price of an option to determine a strategy because it may have no relation to the current quote. The underlying may have moved substantially from the last option trade. This is a big problem with some option screening services because the great looking trades they are touting have no relation to actual executable prices. Given the big move down, shouldn't this spread have widened more? Not really. Calendar spreads do not yield quick profits and the spread has widened about the amount I would have expected given the change in the OEX and amount of increase in the IV. Isn't the spread supposed to be at its widest when at the money (OEX closed 776.18)? Yes, that would normally be the case. What's your profit objective for this spread? If the OEX was at the current level(776) at August expiration and the IV stayed at the current level then I would expect a profit of about 150% on the 5 3/4 pts invested. When I put on the spread I figured that it would be profitable if the OEX was between 740-805 at August expiration. If there was a rise in IV as I hoped then the profitable range would be wider. The closer the OEX is to 770 at August expiration the greater the profit will be. As August expiration approaches I will continually evaluate the position to determine if the risk/reward justifies unwinding the position or to continue holding it. I have no plans to hold the long Sept. puts after the August expiration date. The FOMC meeting is two days after August expiration. Regards, Ken