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Lord DarkHelmet

01/18/12 10:19 AM

#2387 RE: Fossil-Fuel #2385

Here is why you messed up and should have emailed me first. You bought an "in-the-money" strangle. It is even more expensive than a straddle. Strangles should be purchased OTM. They have the benefit over the straddle that they are cheaper, but it takes a greater move to reach profitability.

Read this link...

www.investopedia.com/terms/s/strangle.asp#axzz1jp13bfUu

You bought the $6 CALL when BAC was over $6. That is ITM. You should have bought the $7.50 CALL. You bought the $7.50 PUT when BAC was lower than $7.50. That is ITM. You should have boughten the $6 PUT strike.

What did you pay for spread?

I attached a picture of your profit and loss (PnL) curve for your position if you had 10 contracts at todays opening price. you never sent me your "position" (like I asked) with your prices and # of contracts, so I can't perfectly calculate your position, but the graph gives you a sense.




I don't know if you can read it, but essentially it gives your breakeven points on Friday at BAC being either $5.92 or $7.27.

Those are not good odds. Likely you will take a loss on the position. You never know. I will watch it.