eLROY

eLROY,see my posts below.How about an answer before I leave town tomorrow...Thnaks

Dr. Bill wrote:


"Well I will be interested to see your exit strategy or why you expect this trade to make money. Where is it going and why?And what you will do if you are wrong...

Sell the March 7.50's......IF THERE IS STILL MEAT

ON THEM!!!!!!"


eLROY writes:


Your short-option trade is a serious capital-eater, and a time eater in terms of thought and attention required. I picked the trade I liked best given the subset you established to work with - specifically, the CPN 7.50 puts with a lot of "meat" in them. I cooked up my favorite strategy given the ingredients you put on the table, moreover, choosing a strategy that was contrary to your ideas (the habitual necessity of needing someone to take the other side was more than a small part of the strategy I chose.


Plus, you have people like Wildbill and Javelin saying the sickness has spread too far, it's overdone. But CPN is in a "downtrend" to my eyes. In other words, I'm going contrary to three out of three! It has always been my experience that, no matter how good an idea is, if the other traders in the room all agree with me I should steer clear. But what fun would steering clear have been in this case?


Only, I agree with you, buying long, shallow, options on Thursday was a bad idea. So this way, I make my short delta bet, but postpone it, and go short immediate volatility at the same time. I figure if it's going to go down it will go down only after a pause, chewing through the kneejerk contrarians. Maybe I am trapped in an antiquated bull-market fantasy world, picturing there are all these poeple buying stock, and selling puts just because the news is bad - which is what people learned to do for a decade.


Again, I don't know greeks, but my trade seems like a good way to sell volatility, at the same time as betting on a continued downtrend. Even if implied volatility rises, I expect actual price volatility to go sideways, and let me out of the short Feb even if, somehow, the later-period implied volatility in the April rises. Plus, I am bearish on both the stock and the imvol, so I want to hedge my short short-term volatility.


The original, uncompletely-stated entry is actually long the Aprils 2-to-1 (notice the ">" sign), and really to get a better price on the Aprils by selling the Feb. But I think both legs can stand alone. This way, I can do three things with one commission in the April, I can hedge my near-term delta, reduce my margins/risk, and bet on long-term delta whichever way imvol goes.


So far as exits, I do not see buying back the Feb Once the April becomes standalone, I'll sell it whenever either the downtrend looks over, or the volatility gets too high, and no sooner. As I stated in another post, I have the unusual practice of staying in a trade when I have no clue, and waiting for a sign, at whatever price it may come.


Uhhhhhhhh....


I know I left something out here...


I guess you could call my theory "rolling panic"...


This trade reminds me of Lucent a year or two ago, or of crude in late summer/fall 1997.


eLROY

Here is my call on January 18, 2002 [img]/images/smile.gif[/img]


http://www.twoplustwo.com/cgi-bin/ne...s.pl?read=1730


Too bad I didn't make a dime.


eLROY

It still comes out to the following.If the Febs

expire worthless you will be long the April 7.50

puts at

about 1.25.(yicch)If they expire in the money you will be long the April 7.50 calls at 1.25(still yichh).All that other stuff you posted is obfuscation.

You made a good call about CPN going lower.Personally my position would prefer to see

it move sideways to higher but I don't have a strong opinion either way..I am just not that smart.

You talked about margin requirements...mine was only a couple hundred bucks for each option

sold so I don't know why you call this trade a "capital eater".

JUst sell the July 5 puts for a dollar +

and relax.You think too much.Sometimes you just have to go with your gut.

If CPN goes to 0,and it may I will still be in the game and on to the next trade.

This is my gut. What are you talking about!?


Okay, sold 1 at .50, bought 2 at 1.75.


Where do you get 1.25 at 7.50 at Feb exp.? That doesn't seem right. I expect more. I've never even tried any of my software to do that kind of thing, and yet my "gut" tells me I can get more.


I hope it goes to 0!


Besides, what you described sounds like a pretty cheap way to buy 7.50's no?


This is not "obfuscation." Okay, maybe it is, since I'm not sure what "obfuscation" even means! I've never heard that word employed, except as a debating tactic among halfwits. For instance, you say "You crashed my car." I say "You ran me off a cliff." You say "That's obfuscation - you were driving." I say "That's obfuscation..." and so on. Please don't waste my time with that, or at least be more clear.


I would presumably be a seller of any call assignment - if it happened tomorrow morning under expected conditions - I'm bearish. You, on the other hand, would be long the stock. So what?


You said,


"That spread will collapse if we go up, sideways."


Yes, but not as fast as the long puts alone, obviously. And certainly not as fast as short stock at 10, which is my other alternative. And if we go down AND imvol increases, my spread expands, no?


It is also possible for the spread to expand in other ways that become significant, given that the capital and brainpower tied up, and the commissions, are sufficiently low - given that size is large relative to cost and worry.


Anyway, why push me to articulate a first-instinct trade into an elaborate explanation, and then accuse me of obfuscation for elaborating? What am I obfuscating? Does obfuscate mean conceal? What am I concealing?


The reason I responded to your silliness is because I thought you might actually be exhibiting some well-founded stress about your silly option-writing habit. But I guess not! Options USUALLY expire worthless. You will usually make money selling them.


If it goes to zero "so what?" So then your trade sucked, and you will have to write 15 more and have them expire worthless just to get even, not to mention your trouble! What is this "so what?" You're the one telling me my spread amount is insignificant, and I'm telling you that if your loss is insiginificant, your profit is even more insignificant! It's all just playing!


I like the fact that I can make money if it rises at it expires and volatility expands, for instance. Meaning, I like being long the 7.50 puts when you are trying to take your profits, you give me a bid WHICH CAN MAKE ALL THE DIFFERENCE!


No matter what happens, there is sure to be bids in those April 7.50's, giving me better than fair value. Enjoy.


eLROY

I thought you did the puts one to one .Your current position if we are below 7.50 at Feb expiration is long one April 7.50 straddle at 3.00 If we are above 7.50 you would be long two april 7.50 puts at 1.50 each. YICCHHH!!!!!

Plus, I like this option stuff.


I haven't thought about options in years, and my brain is getting soft, thanks for the stimulation!


When you say 1.50, are you saying 1.75 minus 50/2?


Have you run the numbers on the Aprils at Feb exp./7.50?


Or are you sticking with 1.25?


leroy

And one more thing..Lets say you were going to do 50 of your spreads.Buy 2 aprils at 1.75 sell one feb at 50.Why not just buy 42 of the april puts outright? you spent the samr debit and assumed much less risk.

And yes most options expire worthless,however there are some fundamental reasons which lend support to selling the July 5 puts.I won't go into them because they are debateable.

What is not debateable is this...if there is any attack on the U.S. or in the Mid East and energy concerns are an issue,all of CPN's gas and

geothermal reserves are U.S. based.That is one of the reasons I like CPN.It helps me feel comfortable with the stock down here.Ask yourself

one thing "would you rather be long or short down here".If you want to be short ,keep loading up on those April 7.50 s till you choke.God forbid

if this stock establishes any type of trading range.The bids will vanish.I wonder how much short interest there is in CPN.I am guessing alot.

Has it hit bottom yet...toss of the coin.

I will sleep at night being long,knowing I will have a chance to sell calls above the market if we continue down.

I could not sleep being short.