Saw what I feel is a great shorting technical pattern on UTB.
What are the methods one could use to trade this with options?
Sell calls-- buy Puts---would be interested in how you could play it I'm sure there is more than one way.Would be great to watch it being traded.
positivecashflow
25th-May-2005, 10:52 PM
Hi Tech/A,
Is there a possible price target you have in mind? And the possible time target if you have one in mind?
Will look into it!
positivecashflow
25th-May-2005, 11:34 PM
Let's evaluate the possible limited risk option trades for UTB.
Tech/a has a bearish view, so you have:
Buy Put
Bear Put Spread (debit)
Bear Call Spread (credit)
Put Ratio Backspread
We will not even think about selling naked calls.
First and foremost let's check the IV of UTB options:
Checking the attached image and the table, is IV currently high or low compared to previous levels?
wayneL
26th-May-2005, 02:46 AM
Agree with Pos,
Our view is down, but how far, and how fast. We must have a view of this.
This will determine the strategy, strike prices and expiries.
So thats what we want to know where to, and when...and and how much risk of a move against us.
tech/a
26th-May-2005, 07:05 AM
Ok I can do that.
Timing is the NEXT bar thats DOWN (And breaks the lower trendline of the wedge).and I expect that to be TODAY---Tommorow.
The setup pattern is invalid if there is a breakout topside of the rising wedgiee.
So Id place a price of $13.75 as failure but dont expect it to reach there.
Time This is going to happen very soon.Today ---Fri at the latest.
My bet is today will be a down day.
The setup will be CONFIRMED on a breakout BELOW the bottom of the wedgiee.
How far will it go.
I expect a retest of the low.
How long will that take.
2/3 weeks max.
Sorry now I know what you need I'll be certain to give it to you.
positivecashflow
26th-May-2005, 08:39 AM
Ok so we expect the move to happen in the next 2-3 weeks. Your target is the low of $11.
Let's keep it simple and buy the July $13.00 ATM Put. Can anyone provide the bid/ask spread (ASX shows blank prices :headshake)
wayneL
26th-May-2005, 11:22 AM
Ok, with IV's at around 22% it's pretty hard to go past the straight put...theoretically at least. You'll have high gamma and it looks as though we're in the lower quartile of the IV range so vega is more likely to help than hurt. Theta is negative, so the faster it happens the better.
BUT....the dirty rotten MM's have nasty habits down here. If you have a technical sell signal such as you're waiting for, they'll start moving the ask up and make you cough up, particularly in illiquid option series like this one.
Not a lot of harm done if it moves strongly in your favour, but if you play it like a normal stock play, they'll also hurt you on the exit if the pattern fails, by playing with the bid...not nice.
In this situation, unless the dirty rotten MM's want to play fair, I would *personally* just short the stock.
You could forgo some potential profit and do a vertical or a diagonal spread and double the position size. Depending on how you intend to defend your position in an adverse move, would dictate what to do.
Scenario 1/ If a failure of the pattern means you would like to take advantage of the upside, I would buy july 13.50 calls and sell july 12.00 calls...a bear credit spread.
If the pattern fails you simply buy more of the 13.50 calls to convert it to a call ratio backspread and make money from the move in the opposite direction.
Scenario 2/ If pattern failure means you will just want to exit, I would put on a sort of inverse diagonal spread...buy the 13.50 july calls and sell 12.00 calls as far out as I could find...2007 expiry if available.
Both of these are theta positive on the south side of $12.75 but unfortunately gamma negative, so a move past say $11 would'nt realise the profit the straight out put would.
But with these types of spreads you can get creative with position sizes, expiries and strike prices to get the sort of risk reward you want.
I can't understand people who don't use a strategy modeller because you can fiddle till you get it right...impossible to do in your head.
Cheers
PS the normal disclaimers apply, this is not advise, do your own research, consult your advisors etc blah blah
tech/a
26th-May-2005, 11:24 AM
Pos
For you.---No interest in short side.
wayneL
26th-May-2005, 11:30 AM
LOL Tech
I'm not used to seeing chains like that.
Let do some US ones. HAHAHA
wayneL
26th-May-2005, 11:33 AM
Is the market open? LOL
Another advantage of the US...options market is OPEN during normal market hours. None of this late start and closing down for lunch rubbish!
Cheers
positivecashflow
26th-May-2005, 01:30 PM
HAHAHA thats why i was scratching my head... they don't even display the model price?
positivecashflow
26th-May-2005, 01:32 PM
LOL Tech
I'm not used to seeing chains like that.
Let do some US ones. HAHAHA
I'll pick one tonight then just for you mate.
tech/a
26th-May-2005, 07:51 PM
Still like this setup.(Personal opinion dont go out and short it!!)
DTM
26th-May-2005, 08:55 PM
Very nice setup, one I'd like to trade if there were more open interest, actually, any open interest. That's the problem with trading options in Australia, not enought traders providing liquidity. :D Actually, I do provide good liquidity to the market at times.... :sly:
If you can get a good price, it would still be a good one to buy. If there were no sellers, just exercise and sell at market.
tech/a
27th-May-2005, 11:19 AM
Up 26c in the first Hr and now straight back down again.
I see this as the last exhaustive bullish thrust by buyers---the weight of sellers cant keep UTB climbing by the look of it.
If its still down tonight at close then its likely to play out soon.
tech/a
27th-May-2005, 05:59 PM
Patience.
Now I know why I have a price trigger before taking a trade.
tech/a
2nd-June-2005, 10:33 PM
Well it did happen after an exhaustive move
RichKid
2nd-June-2005, 10:42 PM
Well it did happen after an exhaustive move
Tech,
Funny how you find an 'ideal' trade like this and there's no way to trade it short (except for traditional short selling). Options are useless (see earlier posts) and there aren't any warrants on it, CFD's may be the only other method. Darn.
Have a good trip and see you when you're back (btw, checkout BNB on the breakouts thread- another Macquarie in the making?).
tech/a
2nd-June-2005, 10:48 PM
Rich
Tech,
CFD's may be the only other method. Darn.
Yes seems the go 10:1 leverage bit scary just use small sum I spose.
Have a good trip and see you when you're back (btw, checkout BNB on the breakouts thread- another Macquarie in the making?).
Think pullback here bit late now.
Thanks for the wishes looking forward as you can imagine.
In the air 11 am.
