Monday, August 18, 2008
Back In the Game
Oh it seems like an awfully long time but we are finally back in the game with a new play placed 30 minutes before the market close Friday.
Again it is a call side only play which means we have no risk to the downside.
Not much happened Friday with the SPX adding 5.27 points to close on 1,298.20.
Anyway I received a question from a subscriber which I print below as I feel the answer is useful for you all to see.
"This is a Sept expiration and I am in on the autotrade program but usually I have noticed you go into a play very close to expiration to minimize the exposure, right now we have 4 weeks to Sept expiration is that a concern or do you plan to get out sooner?"
Our strategies the past few months of playing close to expiration and sitting out months it wouldn't work was more adapted due to the market conditions than choice! No strategy is set in stone, so as market conditions change, strateiges must change.
Over a year ago we used to make a full condor play (both calls and puts) on the next Monday following every expiration Friday without fail!
Now we are still wary of the downside but having watched the market closely this year I think it is fair to say that the US and the World economies are in for some tough times the next 18 months or so. On this basis making upside risk only plays would make sense.
Anyway the reason as to why the play has been placed now rather than in three weeks time is one of trade offs. The longer the time you spend in the play the greater your risk as you will need to endure five weeks of movement. However in return you will get a bigger barrier. If we are right on our belief the market will generally drift lower then this really helps us.
Therefore the shorter the time to expiration means a lower barrier.
With five weeks to go we are in the markets for a long time but we also have a fairly high barrier which given the current market conditions one would hope would not be reached! As the time progresses on this play the time value of our options will reduce and thus make us money.
If after a few weeks it becomes clear that there is little chance of 1380 being hit then the value in the options will reduce significantly. It is at that point we may well consider buying the options back and seeing if there is another play out there to put on.
Any more questions on the above then please email me.
Until next time.
Again it is a call side only play which means we have no risk to the downside.
Not much happened Friday with the SPX adding 5.27 points to close on 1,298.20.
Anyway I received a question from a subscriber which I print below as I feel the answer is useful for you all to see.
"This is a Sept expiration and I am in on the autotrade program but usually I have noticed you go into a play very close to expiration to minimize the exposure, right now we have 4 weeks to Sept expiration is that a concern or do you plan to get out sooner?"
Our strategies the past few months of playing close to expiration and sitting out months it wouldn't work was more adapted due to the market conditions than choice! No strategy is set in stone, so as market conditions change, strateiges must change.
Over a year ago we used to make a full condor play (both calls and puts) on the next Monday following every expiration Friday without fail!
Now we are still wary of the downside but having watched the market closely this year I think it is fair to say that the US and the World economies are in for some tough times the next 18 months or so. On this basis making upside risk only plays would make sense.
Anyway the reason as to why the play has been placed now rather than in three weeks time is one of trade offs. The longer the time you spend in the play the greater your risk as you will need to endure five weeks of movement. However in return you will get a bigger barrier. If we are right on our belief the market will generally drift lower then this really helps us.
Therefore the shorter the time to expiration means a lower barrier.
With five weeks to go we are in the markets for a long time but we also have a fairly high barrier which given the current market conditions one would hope would not be reached! As the time progresses on this play the time value of our options will reduce and thus make us money.
If after a few weeks it becomes clear that there is little chance of 1380 being hit then the value in the options will reduce significantly. It is at that point we may well consider buying the options back and seeing if there is another play out there to put on.
Any more questions on the above then please email me.
Until next time.
# posted by Paul @ 5:21 AM 
