Monday, May 29th, 2017

“Foolproof” option strategy: where is the risk?

In learning about options trading in my virtual account, I always wonder “what conditions this position to lose money?” I’m testing a strategy and can not find where you can go wrong. Here goes: The current price of SPY is about 90. I created two OTM calendar spreads in SPY, a position and call one, 10 points behind, with my longest side using the September contract and my short side of the course next month. In just three months since 2000 SPY moved more than 10% in one month, so I’m pretty sure I will not get worked on. (I would take steps to avoid this if the market started to move much anyway.) In the eyes of my novitiate, at the expiry of July, the shorts will expire worthless and my longing is for sale. Regardless of how the market moves, a contract value will increase and decrease long one but the effects cancel each other out. For me, beyond the rare case a 10% one month move, this seems foolproof, but not a fool I know I must be missing something. Can anyone help? Well, what the movement is better to buy and sell September August 2 and 3 months going out instead of 1 and 3? On the side since I have 2. 15-1. 39 for a network. 76 debit card. Elderly per month (assuming no change) I have one. 39 &. 43, o. 96 credit for letting me relax. 22 profits. For the next call you receive. 92 &. 48 (net -. 44) and then 1. 13 /. 62 and below. 62 /. 11. The networks from scratch, but when combined with the extension. 22 because I still do. 22 to 1. 2 invested, a profit of 18%. What you should learn better is what happens to prices as the underlying to one or other of the spreads. Do not really offset or gain / loss will depend on whether it is a sale or OTM spread?

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One Response to ““Foolproof” option strategy: where is the risk?”
  1. zman492 says:

    While I agree there is not a whole lot of risk or being assigned, there is not much profit to be made either. Let’s look at the prices as of Tuesday’s close:

    July 100 call: Bid 0.00, Ask 0.04
    July 80 put: Bid 0.05 , Ask 0.09

    Sept 100 call: Bid 0.90, Ask 0.94
    Sept. 80 put: Bid 2.38, Ask 2.48

    Assuming all trades took place half-way between the bid and ask, you would collect 0.09 from selling the July options and pay 3.35 for the September options. The most you could make from the July options expiring is 0.09. However, if there is a collapse in implied volatility the price of the September options could easily drop by over one third due to vega (sensitivity to implied volatility) and theta (time decay) to create a loss of over $1.00 on the September options, swamping your potential profits on the July options.

    A calendar spread is much more about expecting an increase in implied volatility then predicting the price of the underlying. Remember than changes in implied volatility have more impact on the price of longer term options than on the price of shorter term options.

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