SRS calls

    Equity Only Put/Call Ratio

    Posted by racerick on 4th of Mar 2010 at 01:05 am

    Look at the April 6's.

    Reason why- Stock closed at 7.21 - Apr 6s closed at 1.30, so you're only paying .09 premium to the actual tangible value.

    Apr 7s closed at .61 - that's a .40 premium to stock's tangible value so in reality 6s are cheaper.

    Then look at Matt's chart posted tonite. Near term objective is call it 7.60

    As stock moves up more into the money the speculative portion of the premium will begin to shrink. Since there is so little in the 6s at this point, will probably remain constant whereas the 7's speculative premium will begin to shrink as it gets more into the money. As a percentage return you may make a higher return with the 7's, but in absolute terms you may make very little on a move to 7.60. If stock doesn't move very much in next few weeks then you'll definitely be better off with the 6s.

    As far as the 8's go, take the money you'd spend on those and go to Vegas. Just gambling. Stock would need to move a point just to break even, but a common mistake that many option traders make, which is the reason that most of them lose money.

    Another option, pun intended, is to buy the 6s and sell the 7's. This is a spread. You'd need to execute the trade with a .70differential. So what you would be doing is buying the 6's for 1.30, selling the 7's for 60, net result you're long the 6's for .70. As long as stock stays above 6.70 you make money but you're capped at .30 profit as long as stock stays above $7.00. But .30 on .70 is about 40% in 5-6 weeks.  Depending on broker, you may need to call trading desk if you're uncomfortable trying to execute yourself. Most will be glad to do. if they aren't change brokers.

    If you want a little more risk but with more upside potential then you can do same thing using 7's and selling the 8's. This would lower your effective cost on the 7's to about .40 which still leaves you more upside potential than the other but definitely reduces your risk.

    These latter 2 ideas are more the base hits as are the in the money 6 calls versus going for the home run. This how the professionals trade. Going for the home runs is a sure way to lose most your money. Forget all the crap you see about making 1000%/week propaganda, unless of course you've got some good inside info, LOL.

    Hope this helps

    SRS Calls

    Posted by racerick on 4th of Mar 2010 at 01:08 am

    Sorry, hit wrong reply button. reply was in response to piclez'z question on SRS calls

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