Crap – didn't do it right. Think I bought way to many contracts. Bought 175 contracts on the 106 puts and I don't know how to do it as one transaction. Can I call you Red? Email me at monicajlevine@gmail.com
Monica, it doesn't work like that. You will only paid the difference between the two, not equal amounts on them. You do a Vertical Put Spread, and it's all one transaction, with you only paying for the difference between the buy price of the 106, and the sell price of the 101.
Now look at the price of the 106 puts. As of now, (and of course they will change some by the time you read this), the 106 has a bid of $1.53 and ask of $1.55. The 101 has a bid of $0.44 and ask of $0.45.
You must buy the 106 at the ask price of $1.55, and sell the 101 at the bid price of $0.44, for a difference of $1.11. Now, if the spy goes down to 101 by the end of the week, then the 106 will have a actual value of $5.00 plus whatever time value is left too.
The 101 will only have the time value left, and the volitility, which is determined by the price of the VIX. It will increase the value of both the 106 and the 101. Anyway, if the 101 is worth $1.50 because of higher vix, and the 106 is worth $5.50 (just guessing here), then the difference to close the position is now $4.00.
You would have paid $1.11 for each contract and sold them for $4.00… not a bad return, huh?
Wow – thanks again. Let's say I take just 10K to do this. Does that mean I should use 5K to buy the 106 puts and 5K to sell the 101 puts? If we get to 102 on SPY, what kind of return would I be looking at? I realize that I could lose it all.
The time decay works in your favor when you buy a “at the money” strike and and sell the “out of the money” strike. The further out the strike price, the quicker they loss value. Since you sold them for the higher price, which is used to help finance the purchase of the one's you bought, when you go to buy them back the time decay will make them cheaper.
So that way, you don't get killed on the time decay occurring on the one's you bought as much. They will also have time decay, but not as fast as the other's you sold, because they are further way from the actual price of the stock/etf.
I did the 106/101 because I don't see us going down any further then the 101-102 area before a bounce back up. That 102 area is the moving average line on the daily charts, and should produce a bounce.
I'll close out the spread when we hit that area, and wait until the bounce back up finishes, and then go short again. The next move down should take us to the moving average line on the weekly chart… around 980.
Thanks Red – really appreciate you helping me learn. Why did you buy 106 puts and sell 101 puts? How does that work? Why would you do a spread if you are convinced it is going down? I am long all bearish ETFs but I don't like the way they track and would like to possibly switch some over to options. Problem is everytime I have bought options, I have gotten screwed because of the time decay and the fact that I don't understand them 100%.
15 minute charts are ready to roll down, but the 60 minute chart is still going up. That's why it's choppy, and is putting in that minor wave 2 up that I talked about.
The larger time frames (Monthly, Weekly, and Daily) are all rolling over and will stop any advance the 60 minute chart makes.
Think of each chart as a rank in the military. The larger the time frame, the higher the rank. Lots of people thought there would be a rally, but as soon as the 60 minute chart finishes it's up, it will rollover and then start the minor wave 3 inside larger wave 3. That will probably be late today or tomorrow.
It could then be Black Tuesday, instead of Black Monday? Regardless, once all the charts are pointing down… it's bad news for the bulls!
Crap – didn't do it right. Think I bought way to many contracts. Bought 175 contracts on the 106 puts and I don't know how to do it as one transaction. Can I call you Red? Email me at monicajlevine@gmail.com
Monica, it doesn't work like that. You will only paid the difference between the two, not equal amounts on them. You do a Vertical Put Spread, and it's all one transaction, with you only paying for the difference between the buy price of the 106, and the sell price of the 101.
K – I am getting ready to do this. 8K on the 106 and 8K on the 101. Wish me luck.
Look at this link..
http://bigcharts.marketwatch.com/quickchart/opt…
Now look at the price of the 106 puts. As of now, (and of course they will change some by the time you read this), the 106 has a bid of $1.53 and ask of $1.55. The 101 has a bid of $0.44 and ask of $0.45.
You must buy the 106 at the ask price of $1.55, and sell the 101 at the bid price of $0.44, for a difference of $1.11. Now, if the spy goes down to 101 by the end of the week, then the 106 will have a actual value of $5.00 plus whatever time value is left too.
The 101 will only have the time value left, and the volitility, which is determined by the price of the VIX. It will increase the value of both the 106 and the 101. Anyway, if the 101 is worth $1.50 because of higher vix, and the 106 is worth $5.50 (just guessing here), then the difference to close the position is now $4.00.
You would have paid $1.11 for each contract and sold them for $4.00… not a bad return, huh?
Wow – thanks again. Let's say I take just 10K to do this. Does that mean I should use 5K to buy the 106 puts and 5K to sell the 101 puts? If we get to 102 on SPY, what kind of return would I be looking at? I realize that I could lose it all.
Once the 60 minute chart finishes it up move, we'll start to move down again. Should be done by late today, or early Tuesday.
The time decay works in your favor when you buy a “at the money” strike and and sell the “out of the money” strike. The further out the strike price, the quicker they loss value. Since you sold them for the higher price, which is used to help finance the purchase of the one's you bought, when you go to buy them back the time decay will make them cheaper.
So that way, you don't get killed on the time decay occurring on the one's you bought as much. They will also have time decay, but not as fast as the other's you sold, because they are further way from the actual price of the stock/etf.
I did the 106/101 because I don't see us going down any further then the 101-102 area before a bounce back up. That 102 area is the moving average line on the daily charts, and should produce a bounce.
I'll close out the spread when we hit that area, and wait until the bounce back up finishes, and then go short again. The next move down should take us to the moving average line on the weekly chart… around 980.
See the charts above…
Thanks Red – really appreciate you helping me learn. Why did you buy 106 puts and sell 101 puts? How does that work? Why would you do a spread if you are convinced it is going down? I am long all bearish ETFs but I don't like the way they track and would like to possibly switch some over to options. Problem is everytime I have bought options, I have gotten screwed because of the time decay and the fact that I don't understand them 100%.
15 minute charts are ready to roll down, but the 60 minute chart is still going up. That's why it's choppy, and is putting in that minor wave 2 up that I talked about.
The larger time frames (Monthly, Weekly, and Daily) are all rolling over and will stop any advance the 60 minute chart makes.
Think of each chart as a rank in the military. The larger the time frame, the higher the rank. Lots of people thought there would be a rally, but as soon as the 60 minute chart finishes it's up, it will rollover and then start the minor wave 3 inside larger wave 3. That will probably be late today or tomorrow.
It could then be Black Tuesday, instead of Black Monday? Regardless, once all the charts are pointing down… it's bad news for the bulls!
Very choppy. Can go in either direction (as usual :)). Trusting red, Serge and my gut. Staying short – will hang on through a bounce.