Paul: a Perfect Example

Dr. Bill -- I would like to understand your example, but I'm having trouble with some of the unfamiliar terms. Here's what it sounds like to me, but please correct me where I'm wrong:


These are options on the 30 year treasury?


All of these options have the same expiration (in December)?


Based on your numbers, it sounds like one tick is 1/64th of $1000.


By buying 1 110 call, 1 113 call and selling 3 112 calls, your net was 15 ticks? This is about $234? Before or after commission? If before commission, how much is the commission?


Also, if I understand correctly, your maximum possible loss, although huge, is not infinite because even if interest rates go to 0, the (maximum) price of the 30-year treasury will be the sum of the (undiscounted) coupons and principal.

These are options on the 30 year treasury.They are extremely liquid.The typical bid ask is one or two ticks.One tick =$15.625.There is an expiration every month.I pay a commission of $4.00

per side.The credit I listed was after commission and you were correct approx.$234.00.you were also correct about the maximum loss.The basis of the trade was a number of factors.There was panic in the market and I received a good credit for a trade which had a chance to expire in my window.

Secondly ,if volatility came in the trade would make money.If rates went up but vol moved out I would make money.If rates moved up I would make money.I thought I was taking a "reasonable" risk.

My present position is the following in the January 30 year options and were done on 12/20/01

bot 3 january 98 puts sold 6 january 97 puts.

I did each 1/2 for 12 credit.I planned on scaling up as the market broke but after I did my first

"package" it was over.This trade settled at 5 credit yesterday and it is still a sale there.

Just what I thought..all talk.Here is the $5000.00

challenge.I will provide a copy of my latest option trades listed in the thread below.I will prove my former memberships in three exchanges.I will provide copies of the Wall Street Journal where I am quoted.Keep hoping. I will not waste my time on a wanna be.

It is nowhere clear how you can make near a million.


That would be a neat trick!


leroy

You idea makes sense, that a future shouldn't rise to more than the total value of the coupons on the bond theoretically contracted to be delivered. But it just isn't the real world.


In the real world, things are cash settled, there is no perefct aribitrage, people can get squeezed, some idiot can pay whatever he wants, weird unprecedented things can and do happen!


Like with the 1987 Crash, it is the assumption that something can't happen which causes it to happen. In the world of derivatives, someone has to back your promise to deliver, and you will be hard pressed to find a person still in business who will entertain capped-price assumptions.


leroy

According to your post to Paul - who probably actually is a "Dr." of something or other - you are not trading in 250 contracts but, rather, 9 contracts.


Which would explain the proportionaility of your $5,000.00 piker's bet.


leroy

Yes or no? $10,000 $20,000.It is a lock for me.Whatever you want to bet.BTW I am not a DR. and never said I was.So what

Where is your cash deposit, Dr. Bill?


And what claim do you wish to prove?


Certainly not that you are "making a living" trading bond options.


Not unless you are living in a cardboard box!


leroy