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 MarketTrak Question/Comment Message

Posted By: WaltLandry   Date: Wed Mar 5, 2008

Title: Selecting short term option puts

  I like to trade put options short for a month or less. I am trying to utilize your system to get the right strike price for the option I select. For example XLE options sell in the 70s. For a March 21 Option expiration, how do I use your estimate of the closing price on that date to maximize the potential profit? How do I even estimate what you might consider the closing price for an XLE Put expiring on that date? The ideal price would be short of the closing price by a fraction of a dollar so that the option expires worthless and my profit is at a maximum for the trade.
  Or is your system of little use to me?

  First, we forecast the DJIA and not the energy spider XLE. While the DJIA is highly correlated with the SP500, it is only weakly correlated with XLE. If you were selling put options on DIA or SPY, you would be more likely to make money if our model was giving a strong UP signal as these options would probably expire worthless. Whether our system is of use to you depends on how you intend to use it.

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