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Below is a Spread Trade. Does anyone have experience dealing with
this firm. Allegedly 75% winners but means nothing if the 25% losers
exceed that. I am considering a small account with them.
Selling naked Puts will still be my main thrust since I can limit my
downside by buying back the Put at a set stop loss or take in the
stock if I really like the company.
John
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Originally From: admin@xxxxxxxxxxxxxxx
Subject: Trade Recommendation: March Soybean Ratio Write
Date: 11/05/2002 02:35pm
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MARKET: March Soybeans
TRADE: March Ratio Write
FILL REPORT:
Bought 2 March Soybeans futures at $5.60 1/4
Sold 10 March Soybean $6.40 calls for 7 1/4 cents ($362.50) each
ENTRY DATE: October 31
CREDIT AT OPEN: Collected $3,625 in premium for the options
INITIAL MARGIN: $3,000
EXPIRATION DATE: The options expire on February 22, 2003
COMMENT AT OPEN: This trade is a standard ratio write. We are selling
10 March $6.40 calls and going long 2 futures contracts. Based on the
current futures volatility level of 20 the options are overvalued.
This allows us to initially collect $3,625 in premium while the
initial margin for this trade is only $3,000. Just a reminder,
though, that the initial margin requirement for this trade can change
significantly through the life of the trade.
ADDITIONAL COMMENT:
There are a number of reasons that we like this trade in soybeans at
this time of year. The tendency is for the volatility in soybeans to
fall as the US harvest is completed and we head into the winter
months. If this trend continues it bodes well for options to lose
value. Additionally, the statistics show that soybeans rarely break
their summer highs in the November-February time frame. This past
summer the high for soybeans was approximately $6.25 which is still
15 cents below the strike price of $6.40. Only twice in the last 14
years has soybeans broken the previous summer's high price in the
November-February time frame. None of this means that it can't break
$6.25 this winter, but we like these odds. By the way, based on
the expiration and assuming we make no adjustments to this trade our
upside break even level is approximately $6.68. On the downside of
soybeans we might make an adjustment to the trade in the next few
weeks to limit our downside exposure. As it stands now, with no
adjustments the downside break-even on this trade is approximately
$5.25.
There is risk of loss trading options and futures. Trade with risk
capital only. If you would like to speak to us about trading options
on futures, call 1-800-972-3343 and ask for Jon Lubow.
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