Options Installment Strategies by Michael C. Thomsett
Author:Michael C. Thomsett
Language: eng
Format: epub
ISBN: 9783319998640
Publisher: Springer International Publishing
You need to complete short trades every eight days, or slightly more than once per week. This seems to be a very close call. However, each trade, even if opened one week before expiration, does not have to be left open for the entire week. In the example given, a trade was opened on Friday and closed on Tuesday. That leaves 3 days to expiration, and a new trade can be opened the same day the first trade was closed. Time decay over 3 days will be accelerated, so chances of closing at a profit or allowing the position to expire worthless are very likely. At the same time, a subsequent one-week trade can be entered on expiration Friday for the following week.
This is a high-maintenance strategy. It demands constant watching. As a result, if you are not willing to enter such a marginal strategy, you can look elsewhere. For example, another situation presents itself. A 40-strike long call is currently priced at the ask price of 18.15 and can be opened for $1820. It expires in 210 days. The current 40 short put expiring in one week is priced at a bid of 1.10 and can be opened for a net of $105. You plan to let this option remain open until last trading day and closed close to zero or allowed to expire. Assuming you can earn a net profit of $90, how often would a similar trade have to be executed?
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