Buying Swing: NEW OPTIONS LAWS STOCK OVER if strikes are
Posted: Fri Jan 04, 2013 11:50 pm
Buying Swing: NEW OPTIONS LAWS
STOCK OVER
if strikes are 5 bucks apart
RULE 3
(would of impacted AAPL 530 IC)
NO CREDIT SPREADS WITH LESS THAN .40 = oversized
this means that if we have a butterfly where if we were to turn it into a larger credit spread it makes the play .30 = oversized then we don't do it
INSTEAD WE LOCK IN DEBIT SIDE OF THE BUTTERFLY
that means both the long and the short leg making the remaining play smaller not bigger.
exemption num 1 to this rulle = IF WE GET OVER 4.00 long exit (entered into bellow 2.00) plus replacement leg costs 1.00 or less
(Leaves 2.00 worth of additional risk but you have 2.00 worth of profits)
If we only have 2 bucks worth of additional risk it makes it easy for us to create another opposite CS with over 1.50 spread creating IC or IB
RULE 4
On a deep in the money long leg replacement NEVRER ADD MORE THAN 4X RISK
Example
*AAPL puts (.85= OVERSIZED) 550 calls sold at 23.00 replaced with 525 calls bought at 1.20
(Equals 3.20 worth of risk or 3.7 X oversized risk) THIS IS EXEMPTIBLE
*AAPL puts (.85= OVERSIZED) 540 calls sold at 11.50 replaced with 525 calls bought at 1.20
(Equals 4.7 worth of risk or 5.5X oversized risk) THIS IS NOT EXEMPTIBLE
(now we got out even worse at 9 bucks lets say so if we exit at 9 bucks we have to not rely on 525 as replacement leg but look for a replacement leg much higher so 540 - 9 = 531 SO THIS MEANS WE HAVE TO GET 530 as replacement and if thats not available then 535
This trade is one part of a larger strategy so please look back at Previous posts to see the whole picture. AND IF YOU ARE NEW, PAPER TRADE FOR AT LEAST A FEW MONTHS because this is ADVANCED OPTIONS TRADING !!
STOCK OVER
if strikes are 5 bucks apart
RULE 3
(would of impacted AAPL 530 IC)
NO CREDIT SPREADS WITH LESS THAN .40 = oversized
this means that if we have a butterfly where if we were to turn it into a larger credit spread it makes the play .30 = oversized then we don't do it
INSTEAD WE LOCK IN DEBIT SIDE OF THE BUTTERFLY
that means both the long and the short leg making the remaining play smaller not bigger.
exemption num 1 to this rulle = IF WE GET OVER 4.00 long exit (entered into bellow 2.00) plus replacement leg costs 1.00 or less
(Leaves 2.00 worth of additional risk but you have 2.00 worth of profits)
If we only have 2 bucks worth of additional risk it makes it easy for us to create another opposite CS with over 1.50 spread creating IC or IB
RULE 4
On a deep in the money long leg replacement NEVRER ADD MORE THAN 4X RISK
Example
*AAPL puts (.85= OVERSIZED) 550 calls sold at 23.00 replaced with 525 calls bought at 1.20
(Equals 3.20 worth of risk or 3.7 X oversized risk) THIS IS EXEMPTIBLE
*AAPL puts (.85= OVERSIZED) 540 calls sold at 11.50 replaced with 525 calls bought at 1.20
(Equals 4.7 worth of risk or 5.5X oversized risk) THIS IS NOT EXEMPTIBLE
(now we got out even worse at 9 bucks lets say so if we exit at 9 bucks we have to not rely on 525 as replacement leg but look for a replacement leg much higher so 540 - 9 = 531 SO THIS MEANS WE HAVE TO GET 530 as replacement and if thats not available then 535
This trade is one part of a larger strategy so please look back at Previous posts to see the whole picture. AND IF YOU ARE NEW, PAPER TRADE FOR AT LEAST A FEW MONTHS because this is ADVANCED OPTIONS TRADING !!