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Message
re: BOIL has become predictable
Posted on 7/30/14 at 2:21 pm to L S Usetheforce
Posted on 7/30/14 at 2:21 pm to L S Usetheforce
Calls closet to strike always carry the largest premiums. When you say selling at a discount could you give me an example of this and I'll try to explain as best I can. Five me the UNG month and strikes you're looking at.
Posted on 7/30/14 at 2:29 pm to Iowa Golfer
User - Please see below as further explanation regarding maximum loss and maximum profit potential on the calls spreads I was talking about.
Jan. 27 Expirations
.178 4.50 Call Buy
.092 5.00 Call Sell
.086 Cost ($860) Max Risk
Maximum Profit: .414 ($4,140)
Dec 26th Expirations
.149 4.50 Call Buy
.069 5.00 Call Sell
.080 ($800) Max Risk
Maximum Profit: .492 ($4,920)
This was as of this morning. I'm not pulling the trigger yet, but will be by no later than Mid-August.
The long call spread on Dec and Jan contracts seems to set up nicely, and I think a $4.50 strike price is decent. What I anticipate will happen is that whatever I sell the $5 calls for will deteriorate in value after I sell them, and I will buy back at a lower premium and keep the $4.50 long calls to maximize gain per trade.
If the trade goes all to heck, what I've done by selling the $5's is lower my entry cost and maximum loss.
I think I'm also going to sell uncovered puts and collect premium. Margin is full futures contract margin, premium collected and some other percentage. Still if I sold both Dec and Jan $3.50 puts I'd collect $1,800 per trade. It would tie up capital (margin), but when you take it as a percentage return on capital over the short length of trade it seem attractive to me. NG would need to get awfully close to $3 to cost me money, and I can buy these back at a loss at any stop loss I choose.
Jan. 27 Expirations
.178 4.50 Call Buy
.092 5.00 Call Sell
.086 Cost ($860) Max Risk
Maximum Profit: .414 ($4,140)
Dec 26th Expirations
.149 4.50 Call Buy
.069 5.00 Call Sell
.080 ($800) Max Risk
Maximum Profit: .492 ($4,920)
This was as of this morning. I'm not pulling the trigger yet, but will be by no later than Mid-August.
The long call spread on Dec and Jan contracts seems to set up nicely, and I think a $4.50 strike price is decent. What I anticipate will happen is that whatever I sell the $5 calls for will deteriorate in value after I sell them, and I will buy back at a lower premium and keep the $4.50 long calls to maximize gain per trade.
If the trade goes all to heck, what I've done by selling the $5's is lower my entry cost and maximum loss.
I think I'm also going to sell uncovered puts and collect premium. Margin is full futures contract margin, premium collected and some other percentage. Still if I sold both Dec and Jan $3.50 puts I'd collect $1,800 per trade. It would tie up capital (margin), but when you take it as a percentage return on capital over the short length of trade it seem attractive to me. NG would need to get awfully close to $3 to cost me money, and I can buy these back at a loss at any stop loss I choose.
This post was edited on 7/30/14 at 2:32 pm
Posted on 7/30/14 at 3:28 pm to Iowa Golfer
Discount is probably the wrong term. The ask right now on UNG Jan 15 $17.00 calls is $4.35, vs. $2.25 for the $20.00 strike. So the break-even is lower for the $17 relative to the $20, at $21.35 vs. $22.25, respectively (assuming they are held to/near expy). I know this is an overly simple analysis and the answer lies somewhere in their extrinsic value.
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