Posts Tagged ‘Call option’

Hi all,

I am back from my holiday and as every holiday it was short. I tried not to follow too much of what’s going on, but I couldn’t ignore the bounce that the markets had. As I said I put my FTSE 4000 Call option for April in my friend hands because he holds the same option.

But I didn’t know when he closed the position. On Friday when I saw that the FTSE 100 is around 4100 and the option price is almost 200 I couldn’t resist the temptation and gave him a call. “I am sorry, but I closed the position a bit early at 99″. Dam! still I understand why he did it and it was wise to do so.

And the bottom line is that I made more than %100 on this option so I don’t want to be greedy. We bought it on March the second for 47 and sold it on 27/3 for 99. Not bad… if my friend would waited another week we would have made 400%. I just love options!

So what’s next? I don’t know. I am still in holiday mood and I need to read what I missed for the last 3 weeks. But I will continue to buy options against the trend.

After I bought it for 47 points (I thought it was 57… but the position was opened on 47) it went down all the way to 16 this morning. I was already though to write off this option. But then today came an amazing rally on the FTSE 100 and on the Dow and the option now worth 58 points. So for those who bought it this morning…

This is important week for this option. If the rally will continue tomorrow then the sky is the limit for this option. If not it will go back to 15-20.

This just prove that if you have patients with this market condition you can make lots of profit. When you have days that the FTSE is up or down by more than 4% you can double your money in just one day.

Hello all,

what a day… there is no other words than ‘sale’. The FTSE 100 has lost 5.3% in just one day. So when everyone are selling for me it is time to buy. Together with a friend of mine we bought the FTSE 4000 APR Call for just 57 points. We don’t risk a lot and when (it is not even if) the market will rally it will wroth more.

Remember there are still 7 weeks to go and unless we are going to see the FTSE 100 at 3000 this week I am sure buyers will back to the market. After all there are some good shares out there that are priced very cheap.

I will keep you updated about this Call option.

Yesterday I recommended to take the 4100 PUT option Feb 09 on the FTSE. The price was 59. Now it is 93 and it was during the day 141! those who took my advice had a nice profit and it could be more.

Did I take it? no. No? no. Why? because… it was late I was tired and god knows why.

Instead this morning I bought a 7740 CALL option on the DOW at 42. I though the DOW was way too down in the pre-hour market and I hoped it will bounced back. So I bought it when it was 7680. Now (19:30) hour an half before closing time my option worth nothing.

That’s ok sometime you lose sometimes you win. But my mistake was not to hedge my position. On that time I could buy the 7640 PUT at 55. Now it worth much more and it would cover my losses from the CALL. It is true that when you hedge your position you limit your profits but it is better to have little profits than big losses.

In the bottom line it is all depends what you are looking for. For me if I can make 10%-15% on each trade I am happy. For some they are looking for much more. But then when they lose they lose more.

It is quite common to go long or short on an index like the FTSE. But is it smart? would it be better to use options instead?

Lets check… The FTSE closed today at 4234. Now lets say you want go long and you think that the bottom is around 4000. So you open a position with stop loss around 3980. Meaning you are risking 254 points or 6%. Your aim is to have 10% profit or 420 points (4654)
Now lets check different scenarios:

1. The FTSE goes to your direction and by 20 of April it reaches your target and close the position with 10% profit.
2. The FTSE goes to your direction but doesn’t touch your target and you decide to close the position somewhere in the middle with 5% profit
3. The FTSE goes down and hit your stop loss. 10% loss

Now lets check what would have happened if instead of buying the index directly you would bought an option. The call option of 4650 for April cost 64 points to buy. Lets check the scenarios again:

1. The FTSE goes to your direction and reaches your target. In this case your option will be worth much more. It depends how close the expiry date is, but in some cases your option could worth 300 points. 468% profit.
2. The FTSE goes to your direction but not touches your target. Still your option will be worth much more. So if for example in beginning of March the FTSE will be around 4450 your option will be worth around 120 points. So you sell it before it way before it is due to expired. 100% profit.
3. The FTSE goes down – your options worth nothing and you lost 64 points or 100%.

As you can see your profit can be much more and the loss is less (although you lost 100% you risked less points) but more important is that the market moves up or down. With option you get the chance to stay in the game with low risk even if the market goes against you. Because you risked only 64 points. If you bet on the FTSE directly and decide to take the risk without using stop loss you risking much more and you could end up losing lots of money. With an option you just limit your potential losses and maximise your profits.

If you use it smart you can gain nice profits.