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American Capital Agency Corp. Message Board

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  • arwen_imaginary arwen_imaginary Jan 9, 2013 10:47 AM Flag

    option play on biotech..

    to give you a more specific answer on the spread, it is very good BUT i don't think it can go up that much that fast due to overall market condition , i fear the markets deserve a Nice and juicy correction that would cost me bucket loads. :(

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    • ""... i don't think it can go up that much that fast due to overall market condition"

      Arwen,

      The thing about the spread is that you employ it WHEN you don't think the market is going to go up a great amount. You get the spread at a BE to the current PPS, so anything above the current PPS at OPEX is profit. Do you understand that part?

      That spread I recommended at the time had a BE of 6.05. If we finished at Aug OPEX at today's PPS(6.50) you would make .45/spread. You could also close out the spread closer to OPEX for a lower profit, but nonetheless a profit. Employing the straight Call, you have more potential profit IF the PPS moves up greater than 8.00 PPS, but you have to overcome 1.05 of capital appreciation before you see the same gain as in the spread(baring spread divergence).

      I cannot comment on your portfolio because I am not intimately familiar with any of your holdings other than the mReits, hence my 98% cash holdings all year, except short duration incisions into the market with options.

      Good Luck!

      DocReits

 
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