Our Aggressive Virtual Portfolio Doubles in the First Half; Now Shooting for $100K [View article]
Yep, that's all there is to it. With a trade like that you are either on or off track so USO is currently $37.29 so you are paying .21 of premium with 4 days left to trade so you need USO to go up at least .05 per day to break even, which is about a .15 gain in oil so you're looking for $95.60ish on Friday (now $95).
The other thing to watch on a bull call spread is your net Delta. The Delta on the $37s is .59 and the Delta on the $38s is .31 so net .28 is how much you will lose or gain if USO moves up $1. That's kind of nice because it means if USO falls below $37, that's just down .30 and you should only lose a dime so if you figure that's your stop out (below $37) then you shouldn't be risking more than .15 to make up to .50.
Of course the Deltas change over time and depending on the VIX et al but it helps so know what to expect as, perhaps, if you make a quick .15 gain tomorrow on a pop to about $37.50, you would then know that's a nice move and maybe take the 30% gain off the table as you'd be ahead of your 4-day schedule.
Our Aggressive Virtual Portfolio Doubles in the First Half; Now Shooting for $100K [View article]
CMG/Convoluted - I like those trades too but I liked this spread as it was a chance to collect a straight-up positive payout on CMG so I have NO worried to the downside. If we did a put spread, then if it turns out this Emperor has no clothes - then we might end up scrambling to cover front-month sales that are deep in the money and we'd rather press our bets if CMG goes higher then lower as, fundamentally, we're pretty comfortable saying they don't justify a $10Bn market cap ($10M per restaurant vs. $2.7M per restaurant for MCD and $675,000 per restaurant for YUM).
Your idea of a bull put spread is good too but we tend not to bet against ourselves on the same trade, rather, for example, as we had these bearish trades into the weekend, we took advantage of today's drop to add a couple of bull call spreads on indexes to cover in the $25KP so now, if the indexes recover - we get paid and, if they don't, we assume our MoMo shorts will pay off.
Also keep in mind that, for Members, we're on top of these trades every day in Chat so we're not waiting if we have to make rolls or if an opportunity comes up to make profits.
Ah, I see from your second comment that you are more of an options strategist. I'm not that at all. I'm a fundamental investor who uses options for leverage and hedging so we don't pick CMG based on a slightly higher Theta profile or anything like that, we pick CMG because they broke over our max valuation of $300 and we were able to sell the $310 calls for $18.50 which gave us almost a 10% cushion but, because CMG is a very dangerous stock to short - we backstop the trade with the long calls because we are confident that we can work our way out of trouble over time.
So it's the stock that drives our selection and THEN we look to see if there's an interesting way to play the options.
In today's chat, for example, my 10:35 comment to Members had a trade idea to short NFLX July $300 calls for $5.50 because they had spiked up on a bullish GS call and we let those sheeple rush in and then took all their money. Those calls finished the day at $2.50 for a quick 54% gain and we're done because NFLX is a stupid Momo stock and there's no sense in being greedy.
So it just depends on the situation on a particular stock and how we decide to take advantage of it at the time.
Good explanation Josh but I don't like those vertical ratios too much as you have no Theta advantage, which can often save you - especially when the stock tends to have juicy front-month premiums to sell. Also, our goal is to try to keep things simple, mostly hit and run trades so if we make a quick $1,000 on CMG in the $25KP then it's mission accomplished and we move on to the next trade as we need to make 50 $1,000s to hit our goal by the end of the year so we can't really afford to set and forget a September spread and tie up a bunch of cash.
In case you are interested, our 3 longs today for this portfolio were:
DIA July $125/126 bull call spread at .50 (100% potential gain if Dow gets to 12,600 on Friday) USO July $37/38 bull call spread at .50 (100% potential gain if USO gets to $38 on Friday) TNA July $86/88 bull call spread at $1 (100% potential gain if TNA gets to $88 on Friday)
10 contracts each for $2,000 which can make $2,000 if the markets come back tomorrow and, if they don't, we'll probably kill them with a $300-600 loss. Of course, if the markets don't come back - our other trades will be looking pretty good!
Even WYNN got back on target this afternoon.
We also went back to the well on GLL, with 20 Aug $22/23 bull call spreads at .50 so bearish on gold at $1,550.
Our Aggressive Virtual Portfolio Doubles in the First Half; Now Shooting for $100K [View article]
The other thing to watch on a bull call spread is your net Delta. The Delta on the $37s is .59 and the Delta on the $38s is .31 so net .28 is how much you will lose or gain if USO moves up $1. That's kind of nice because it means if USO falls below $37, that's just down .30 and you should only lose a dime so if you figure that's your stop out (below $37) then you shouldn't be risking more than .15 to make up to .50.
Of course the Deltas change over time and depending on the VIX et al but it helps so know what to expect as, perhaps, if you make a quick .15 gain tomorrow on a pop to about $37.50, you would then know that's a nice move and maybe take the 30% gain off the table as you'd be ahead of your 4-day schedule.
Our Aggressive Virtual Portfolio Doubles in the First Half; Now Shooting for $100K [View article]
Your idea of a bull put spread is good too but we tend not to bet against ourselves on the same trade, rather, for example, as we had these bearish trades into the weekend, we took advantage of today's drop to add a couple of bull call spreads on indexes to cover in the $25KP so now, if the indexes recover - we get paid and, if they don't, we assume our MoMo shorts will pay off.
Also keep in mind that, for Members, we're on top of these trades every day in Chat so we're not waiting if we have to make rolls or if an opportunity comes up to make profits.
Ah, I see from your second comment that you are more of an options strategist. I'm not that at all. I'm a fundamental investor who uses options for leverage and hedging so we don't pick CMG based on a slightly higher Theta profile or anything like that, we pick CMG because they broke over our max valuation of $300 and we were able to sell the $310 calls for $18.50 which gave us almost a 10% cushion but, because CMG is a very dangerous stock to short - we backstop the trade with the long calls because we are confident that we can work our way out of trouble over time.
So it's the stock that drives our selection and THEN we look to see if there's an interesting way to play the options.
In today's chat, for example, my 10:35 comment to Members had a trade idea to short NFLX July $300 calls for $5.50 because they had spiked up on a bullish GS call and we let those sheeple rush in and then took all their money. Those calls finished the day at $2.50 for a quick 54% gain and we're done because NFLX is a stupid Momo stock and there's no sense in being greedy.
So it just depends on the situation on a particular stock and how we decide to take advantage of it at the time.
Good explanation Josh but I don't like those vertical ratios too much as you have no Theta advantage, which can often save you - especially when the stock tends to have juicy front-month premiums to sell. Also, our goal is to try to keep things simple, mostly hit and run trades so if we make a quick $1,000 on CMG in the $25KP then it's mission accomplished and we move on to the next trade as we need to make 50 $1,000s to hit our goal by the end of the year so we can't really afford to set and forget a September spread and tie up a bunch of cash.
In case you are interested, our 3 longs today for this portfolio were:
DIA July $125/126 bull call spread at .50 (100% potential gain if Dow gets to 12,600 on Friday)
USO July $37/38 bull call spread at .50 (100% potential gain if USO gets to $38 on Friday)
TNA July $86/88 bull call spread at $1 (100% potential gain if TNA gets to $88 on Friday)
10 contracts each for $2,000 which can make $2,000 if the markets come back tomorrow and, if they don't, we'll probably kill them with a $300-600 loss. Of course, if the markets don't come back - our other trades will be looking pretty good!
Even WYNN got back on target this afternoon.
We also went back to the well on GLL, with 20 Aug $22/23 bull call spreads at .50 so bearish on gold at $1,550.