The thought of getting More Aggressive!
We begin with a simple out right vertical spread (BULLISH)
This is a 50x purchased. @ $0.90 cents debit
Strikes $28.00 Debit $2.71 x 50 or - $13,550.00
Strikes $30.00 Credit $1.81 x 50 or +$9050.00
the total spread cost out of pocket $4500.00 actual capital outlay.
Understanding the probabilities on a vertical spread is a factor of Risk /Reward.
the max gain on the spread is $2.00 or the distance between the strikes on the spread, in this case the 28-30 = $2.00
we have paid $0.90 (debit) / (max gain) $2.00 = $1.10 total possible gain after cost.
total max gain / (spread with), or $1.10/ $2.00 or 55 percent probability of failure.
(Simply take the inverse for Credit V.S. Debit Spreads)
(Simply take the inverse for Credit V.S. Debit Spreads)
Please don't let the math bog you down, think about it conceptually, if we paid $0.50 cents to make a dollar, in the options world it would equate to a 50/50 shot.
Break Even Point on the vertical if left alone till Expiry is $28.90
In the above case, we have paid $0.90 to make $1.10, so our odds are conceptually almost then fifty fifty. Actually 55/45 against us because we can make slightly more then we are risking here. Don't let this detoured you- as this will be combined with and additional trade structure to alter the odds of the total package holdings.
This is our way of getting more *Aggressive* with our trade selection, which has both benefits and hindrances. In Theory people always want to risk one to make ten, not realising that this is a trade off and will fail 90% of the time, if not more from mental exhaustion alone.
The upside, is that it sounds ideal to always make more then we can risk, the downside is that this moves our break even point father away from the At The Money pricing, and it has to make more of a move just to break even.
After brain storming with J. L Lord, from RandomWalkTrading.com the idea of and overlaying a split strike BWB, seemed to be pricing out.
This position fits our ideal situation, in many regards- as from our original post on asymmetrical trade structures, its a hedge that cost us Zero out of pocket, (excluding margin and commission) and doesn't weigh or drag down underlying its hedging, and has the added benefit of proving some, Key word *SOME* protection.
this was done 25x times and was not and exact one to one ratio but just a way to cushion the exposure, as FB is still very new- and we are just getting comfortable with the underlying.
The Risk graph of this position alone looks like this.
On July 18th we entered and Exit order on our 50x vertical at $1.50
bot at .90 Sold at 1.50 or .60 gain x 50
or exactly $3000.00 Gain.
we are left with the split strike bwb.
To be continued DRAFT NOT COMPLETED
