Goldman Report on S&P 500

[kmukul]

Eric, pardon my ignorance, but can you run through the math on that trade?

 

If you wrote slightly out of the money puts on MBI and it drops to $0, how could you only lose if it drops over 70%? Thanks in advance man! :)

 

Okay, if the SPY drops 36% it will completely reimburse me if MBI goes to $0.  That's because the SPY exposure is 2.7x larger than the MBI exposure.

 

I am guaranteed a profit on this trade if SPY declines more than 36%.

 

you are master of all these option trades :)

Why not but IWM puts instead as you had said IWM falls  more then spy.

[ERICOPOLY]

Eric, pardon my ignorance, but can you run through the math on that trade?

 

If you wrote slightly out of the money puts on MBI and it drops to $0, how could you only lose if it drops over 70%? Thanks in advance man! :)

 

Okay, if the SPY drops 36% it will completely reimburse me if MBI goes to $0.  That's because the SPY exposure is 2.7x larger than the MBI exposure.

 

I am guaranteed a profit on this trade if SPY declines more than 36%.

 

you are master of all these option trades :)

Why not but IWM puts instead as you had said IWM falls  more then spy.

 

I closed out my IWM puts for a tax loss.  I can't get back in right away due to the wash sale rules.

 

But it doesn't matter.  Because SPY puts are cheaper, for the same total outlay you can purchase more notional exposure.  The market prices in the fact that IWM will fall harder (to some degree anyway... just look at how much more expensive IWM puts are as a % of notional insured value).

 

These are at-the-money puts (more option premium).  Originally when I was in IWM puts they were in-the-money (less option premium).

 

This time I'm purchasing at-the-money to match up with the fact that I wrote at-the-money puts on MBI.

[kmukul]

Eric, pardon my ignorance, but can you run through the math on that trade?

 

If you wrote slightly out of the money puts on MBI and it drops to $0, how could you only lose if it drops over 70%? Thanks in advance man! :)

 

Okay, if the SPY drops 36% it will completely reimburse me if MBI goes to $0.  That's because the SPY exposure is 2.7x larger than the MBI exposure.

 

I am guaranteed a profit on this trade if SPY declines more than 36%.

 

you are master of all these option trades :)

Why not but IWM puts instead as you had said IWM falls  more then spy.

 

I closed out my IWM puts for a tax loss.  I can't get back in right away due to the wash sale rules.

 

But it doesn't matter.  Because SPY puts are cheaper, for the same total outlay you can purchase more notional exposure.  The market prices in the fact that IWM will fall harder (to some degree anyway... just look at how much more expensive IWM puts are as a % of notional insured value).

 

These are at-the-money puts (more option premium).  Originally when I was in IWM puts they were in-the-money (less option premium).

 

This time I'm purchasing at-the-money to match up with the fact that I wrote at-the-money puts on MBI.

 

hmm thanks.. I would have assumed market to be efficient about mbi like they are for iwm but thanks a lot