A while back I bought some shares of the CME at $267.37 a share. I moved my stop up too close and got stopped out, but bought the stock back the next day.
At the time I originally bought the stock, I decided to track the August $260 call as an illustration of the problems inherent in trading short term options. To do this, we postulated a purchase of the August 260 call at $16.40 a contract.
The CME is now at $281.02 for a total profit of almost $14 a share. The call is at $21.85, for a profit of only $5.45 a contract. On July 30, the call was trading at $25.35 a contract (over $3 higher than today) while the stock was at $280.27 a share, almost a point LOWER than it is today. The return on the call has been hurt by two things: time decay and a drop in the CME's volatility over the past few days.
In general, give yourself more time for an option trade than you think you need. You will lose less to time decay that way, and give yourself some breathing room if your timing is slightly off.
About Me
- John Freed, President, ASJ International, Inc.
- I have worked in the securities industry for more than thirty years and founded a consulting firm (ASJ International, Inc.) in the financial services industry in 2009. I also trade stocks and options. I have a B.A. in Middle Eastern Studies from City University of New York and have been studying the Ancient Near East for over 40 years. I was formerly the Secretary of the Egyptological Seminar of New York and have lectured there and at City University of New York. I can read Akkadian, Sumerian and Ancient Egyptian.
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