FinTrader wrote:In your example, where you bought 10 contracts at a price of 90 and bought additional 10 contracts at a price of 100, how many calls do you write with strike price of 95?
20 (the full position)?
What are you doing, if price is further rising? Your profits won't increase because you've written calls. So you have to buy new contracts and sell calls again, at what prices?
"... So you have to buy new contracts and sell calls again..." -FinTrader
No, no you don't
Our focus is the survivability of SPACE & income through SIZE and WRITING.
"... Your profits won't increase because you've written calls..." -FinTrader
Your profits, from long Futures, won't increase when price moves sideways or down either.
Take into consideration the fact that options expire & how likely it is that price will just go vertical instead of:
a) price moves sideways/down and expires below:
the options are worthless and the payday is yours.
b) price moves sideways/up and expires above:
we don't receive as much as we could have but we still get paid.
the thing that bothers us the most is if we cannot quite reach our
original stop position (00) when we reenter; in this scenario, reentering
for 16 lots would give us 25% more 'stop space'.
c) price moves down:
If we spent $6000 on puts then we would need the 20 calls to decline in
price by $300/ea before we could offset our writes; this should easily be covered by the options intrinsic value.
reducing our contract size to 16 would push back our stop by 25% of the remaining space and the 8 puts would then 'over cover' our position equal to 16/8 or twice the remaining space.
Covers and Collars are our main strategy, not our only strategy.
If you don't understand the Space Wars strategy then this will probably seem like the dumbest thing you have ever seen in print.