The main reason is because the target of around 176-177.50 shouldn’t take longer than a week or so if the pattern and play works out. So giving ourselves 2 weeks should be enough time but not so so much time where we have to pay a larger premium for more time than I think we need is the way to go. If I gave myself 1 more week out to the 20th the cost would be about $2.50 compared to the cost of $2. This makes a pretty big difference in Risk v Reward: Risking $2 with a target of $6 give us $4 of profit for $2 risk (2X risk). Where if I pay $2.50 I only get $3.50 of profit for $2.50 risk (Only 1.4X):
If the target was more like $10-20 higher then I would give myself more time.
Tyson:
I put the trade on at 2.0 and got fill Fri. morning at 1.9,maybe at the open as I was eating at that time. .12 profit so far.
I did a Fib retracement on this and found 50% ~170.75 and 61.8% `172.6. If it hit only the 50% target of 170.75 what would the option be worth? I realize that this is a time function and late give less, but the reaches in a say or so?
It does depend on time but if it expires and price is at $170.75 and you own the $170 call then the intrinsic (real) value of the trade would be $.75. Assuming there is no time left in the option (Its at expiration):
Hope this helps
5 Responses
Hi Tyson:
On the GOOGL trade why did you pick options for Dec 13 and not longer? Was it based on expected move?
Thanks,
SP
Hi SP,
The main reason is because the target of around 176-177.50 shouldn’t take longer than a week or so if the pattern and play works out. So giving ourselves 2 weeks should be enough time but not so so much time where we have to pay a larger premium for more time than I think we need is the way to go. If I gave myself 1 more week out to the 20th the cost would be about $2.50 compared to the cost of $2. This makes a pretty big difference in Risk v Reward: Risking $2 with a target of $6 give us $4 of profit for $2 risk (2X risk). Where if I pay $2.50 I only get $3.50 of profit for $2.50 risk (Only 1.4X):
If the target was more like $10-20 higher then I would give myself more time.
Hope this makes sense.
Tyson
Yes, that makes sense. Helps to understand the logic.
Tyson:
I put the trade on at 2.0 and got fill Fri. morning at 1.9,maybe at the open as I was eating at that time. .12 profit so far.
I did a Fib retracement on this and found 50% ~170.75 and 61.8% `172.6. If it hit only the 50% target of 170.75 what would the option be worth? I realize that this is a time function and late give less, but the reaches in a say or so?
Hi Tarry,
It does depend on time but if it expires and price is at $170.75 and you own the $170 call then the intrinsic (real) value of the trade would be $.75. Assuming there is no time left in the option (Its at expiration):
Hope this helps