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“Yes” should have read “No” apologies kaveman – at least you got what I was trying to say.
Now back to the fun: from the clues I’ve gathered that we need a net credit position, time decay is not a factor in strategy, and stock shouldn’t be used as margin if 188% return is a target.
Assuming IV of 30% & 5.5% interest rate, 30 days to expiry & ignoring dividends:
Stock XYZ - last price $20
Sell $18 Call $2.16
Sell $22 Put $2.07
Buy $19 Call $1.35
Buy $21 Put $1.26
Net Credit $1.62 - Exercise can be covered by both long call & put regardless of share price movement -EXCEPT when price finished between short & long gaps (ie between $18 & $19 for the calls, and $21 & $22 for the puts)
In these cases at the expiry date only the intrinsic values should be req’d to buyback open positions (+1c for the greedy MMs?), being a maximum of $1 this leaves a minimum net credit of 62c at the end of the month minus brokerage and stamp duty. The positions are relatively covered so margin requirements should be reduced (TIMS only calculates the net risk after taking into account all option positions).
money tree or anyone else please feel free to pick apart any obvious flaws, this is the only strategy I could come up with without a net debit to begin with or an exercise risk
Now back to the fun: from the clues I’ve gathered that we need a net credit position, time decay is not a factor in strategy, and stock shouldn’t be used as margin if 188% return is a target.
Assuming IV of 30% & 5.5% interest rate, 30 days to expiry & ignoring dividends:
Stock XYZ - last price $20
Sell $18 Call $2.16
Sell $22 Put $2.07
Buy $19 Call $1.35
Buy $21 Put $1.26
Net Credit $1.62 - Exercise can be covered by both long call & put regardless of share price movement -EXCEPT when price finished between short & long gaps (ie between $18 & $19 for the calls, and $21 & $22 for the puts)
In these cases at the expiry date only the intrinsic values should be req’d to buyback open positions (+1c for the greedy MMs?), being a maximum of $1 this leaves a minimum net credit of 62c at the end of the month minus brokerage and stamp duty. The positions are relatively covered so margin requirements should be reduced (TIMS only calculates the net risk after taking into account all option positions).
money tree or anyone else please feel free to pick apart any obvious flaws, this is the only strategy I could come up with without a net debit to begin with or an exercise risk
