MS vertical put spread

[in4exto5]

(first post):clap:

I follow CNBCs Options Action just to keep my hand in options a bit. So I do not trade them often.

From last Fridays show(10/28/11) I placed (on mon-10/31)the MS vertical put spread by BUYing a combo.
Nov/2011
Sell 17 put
Buy 18 put
Attached screenshot shows the position.
My cost was 0.30 for the combo
0.39 for the 17
0.69 for the 18


Question is what is the outcome? If MS stays below 17 I believe it's subject to call on the Sell. But what about the value of the 17put. Will it increase in value (my credit continues to be earned)? Will the spread widen? Narrow?

 

[grass_hopper]

At the expiration, your best case outcome is +0.70 (difference between 17 and 18 minus your cost of 0.30) if MS goes below 17. Your worst case is -0.30 (cost of the spread) if MS goes above 18.

 

[in4exto5]

grass_hopper, thanks for the reply.

The in-profit spread has been averaging about $50-70 dollars...I think! Which means it's probably about as good as it may get right now.

On the topic of the SELL leg being called. At any time below 17 it's subject to calling? Is very likely to be called?

 

[grass_hopper]

SELL leg is not "called" it is "put". In the case of put option, the shares are "put" into your account (you buy them at the strike price) if the stock trades below the strike price at the expiration day.
If you sold a call option then they would "call" shares from your account (bought it from you) if the option rose above strike price.
If your case, you will end up buying MS at 17 if it goes below 17, then, since you are long another put at 18, the shares will be immediately sold at 18.
Alternatively you may close your position (sell long option and buy a short one) at the expiration day.

 

[Cadavre]

Question is what is the outcome? If MS stays below 17 I believe it's subject to call on the Sell. But what about the value of the 17put. Will it increase in value (my credit continues to be earned)? Will the spread widen? Narrow?

You done real good on dat `un, in4! Congrats. Did you close those positions Friday - who knows what the next dollar devaluation that will come out of the G20 this week end. The inverted dollar carry seems to have come back into play and the central banks work their collective fannies' off looking for ways to manipulate the the indexes and inflate stock prices through the longest running currency and counterfeiting game in history.

Greece may up and pull an Iceland on the Euro Zoners - that would be very common sensible - who knows

Any how, the model allows scenarios to be saves in XLS format. The dividend and rate rate risk scale to speed and time remaining to maturity, but my "dynamic IV" module, Forward pricing implied volatility, hasn't been bolted on, so the image and XLS use the market IVs for forward pricing the P/L's.

When you said "SELL the 17 PUT", I was not sure if you were writing or closing a contract you had already opened.

Here is what it looks to be with a static IV for your 17 and 18 PUT November expirations. The floor for the combo is just a tad deeper than the single contracts but the rewards look too cool:

The XLS for the the model(s) is here. You can "zero" out the "pre open" and "post close" cells to reweigh to schedule.