Big Board Toolbox

[boca_bobby]

How did you get the %Gain #'s your looking at? I want to see if we both are looking at this the same way. Here is what I see:

Buy March 22.50/Call @ .86 (ask is currently $.85)
Buy March 20.00/Put @ .95 (ask currently $.80)

For a move up I show the current Delta @ 39 for the Call contract. So:

+$3.00 in PPS of the stock = +$1.17 in option price
+$4.00 in PPS of stock + +$1.56 in option price

If we assume our Put contract expires worthless we always have the $.95 ($95) premium paid as a loss. We may may able to reduce this if we are lucky enough to sell the Puts at the last minute for whatever we can get. Keep in mind the comissions on the sale of the Puts as well when looking to unload. If this is the case then this is how I see the profit line:

+$3.00 pays a profit of $1.17 / cost of the Put @ $.95
+4.00 pays a profit of $1.56 / cost of the put @ $.95

1.17 / .95 = 23.2% gain
1.56 / .95 = 64.2% gain

These #'s are also before comissions and also depend on how many contracts are bought before we can find the real % gain. Personally I think this may be a lot to ask of the PPS to move before we can see profits. So this set up is asking for a min. $3 move to get a little less than 20% in profits.

And this $3 move needs to happen before 3/22/08! I know this only looks at the PPS going up but the same procedure can be said for the options with a PPS that goes down.

There may be a better way if you really want to play the options on MW. Make a decision and pick a direction of PPS movement up or down. With the way the market has been let's assume it will continue to fall. We could play a "short call spread."

To do this we Sell a Call at one strike price and but a Call at a higher strike price. It looks like this:

Sell March 22.50/Call @ .70 (Bid Price)
Buy March 25.00/Call @ .25 (Ask Price)

what we want is the PPS of MW to stay below $22.50 until after the contracts expire. If this happens we keep the difference gained from the cost of the premiums.

.70 - .25 = .45 per contract

I used this strategy last month and it paid off nicely. The only requirement is that I need to have enough cash in my account in case the Calls I sold ended up in the money. But if things are looking bad jsut reverse out of the contracts for a small loss.

Now if we think the price is going to go up we can do the same thing but on the Put side of the options.

Just a thought.....

Boca_Bobby