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Hi
John,
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I'm a
little confused here. When you say "<FONT face="Courier New" color=#000000
size=3>If option prices [selling a put and a call] are one standard
deviationfrom the current price" what
do you mean? Are you referring to the option's strike price being one
standard deviation from the current price of the underlying? If that is
your assumption then you would just sell 1 far out of the money call
at and 1 far out of the money put (a short Strangle). In this
position losses are unlimited and maximum profit is limited to premiums received
from the 2 sales. If your assumption is correct that "<FONT
face="Courier New" color=#000000 size=3>there is only a 0.3% chance the strike
price will be hit" then you could take
consistent small profits at the risk of an occasional big
hit.
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size=2>
With
the QQQ's at 35 +or- what would be the strike price for 3 standard
deviations? Knowing this you can calculate the max profit (the
current sum of the option prices received) and the two break even
pointes: Upper break even = Call strike + call premium + put
premium lower break even = Put strike - (call premium +
put premium).
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size=2>
Good
luck and good trading,
<FONT face=Arial color=#0000ff
size=2>
Ray
Raffurty
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<FONT face=Tahoma
size=2>-----Original Message-----From: jvc689@xxxxxxx
[mailto:jvc689@xxxxxxx]Sent: Tuesday, November 04, 2003 9:05
PMTo: Realtraders@xxxxxxxxxxxxxxxCc:
MedianLine@xxxxxxxxxxxxxxxSubject: [RT] Neutral Position
SpreadsI am throwing myself into this to see if
there is a mechanical way to dodetermine the best strike prices to use to
sell a Put and sell a Callagainst a current price.From statistical
definitions, it can be stated that:1. If option prices [selling a put
and a call] are one standard deviationfrom the current price, then there is
a 32% chance the strike price willbe hit.2. If option prices are two
standard deviations from the current price,then there is only a 5% to 10%
chance the strike price will be hit.3. If option prices are three
standard deviations from the current price,then there is only a 0.3% chance
the strike price will be hit.I am rusty on my statistics...so any help
in doing the calculations wouldbe appreciated. Hopefully, one based on an
example...let's say the closingprice of ECZ03 or
1.1482.Sincerely,JohnDear
Dale,I know how you feel...but we are at an awkward spot. I will send
you achart. Today was a 0.5 or 50% retracement of the slide and we hit
thewarning line today. I printed the chart and we need a 0.618 or 61.8
%retracement past the warning line to hit 1.1521 approximately.Let's
talk and make the decision in the AM.Greed is good but also can turn a
breakeven into a loser.Sincerely,John>
john>> i am feeling a little bit of greed coming on and i think we
should> cancel the 109 option buy back and go fo a win ? the market
has> dropped 400pts since ive been in and im down a couple hundred bucks
i> think for what we have been through a small move up here turns
a> profit>>>> daleTo
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