COMPARISON/CONTRAST OF FOUR BULLISH TRADES IN ORCL

ORACLE

The Plain Jane "Spack" (Short Put/Acquire/Cover) Trade

Sell the June 15th 44 put

Metrics:
Probability of Profit: 75%
Max Profit: $69/contract
Max Loss: Undefined
Break Even: $43.31
Delta: 26.48
Theta: 1.17

The Plain Jane Covered Call

Buy Shares at 46.23/Sell the June 15th 48 call

Metrics:
Probability of Profit: 48%
Max Profit: $174
Max Loss: $4626
Break Even: $46.26
Delta: 66.29
Theta: 1.21

The 90/30 Poor Man's*

Buy the Sept 21st 37 long/Sell the June 15th 48 call

Metrics:
Probability of Profit: ~50%
Max Profit: $177
Max Loss: $823
Break Even: $46.23
Delta: 52.50
Theta: .55

* -- The back month bid/ask is wide in the off hours, but I wouldn't want this filled for anything more than a break even at where spot is currently trading.

The At The Money Net Credit Put Diagonal

Buy the Sept 21st 42 long/sell the June 15th 45 short put

Metrics:
Probability of Profit: ~50%
Max Profit: Undefined
Max Loss: $383
Break Even: $45.83
Delta: 21.29
Theta: .54

Comments: One of my frequent primary considerations is how much I want to hang up on the trade in buying power and -- to a certain extent -- that is depending on what kind of environment I'm working in (cash secured versus margin). As you can see, the Plain Jane covered call is quite pricey to put on, and I would probably never choose that option out of the gate because I don't like to buy stock at market: I'd rather sell short puts and get assigned shares that are lower in price and then proceed to cover instead.

Even the "Spack" trade may be pricey for some, depending on the environment in which you're trading; if cash secured, you're going to pay $4331 to put that trade on, although you could buy a cheap, throwaway long put to reduce that buying power effect substantially without giving up much (e.g., the 35 long, which costs .07 to put on at the mid, results in a "definition" of the risk to the width of the spread (9-wide) minus the credit received (.63) or $837 instead of the over $4k you'd be paying to "go naked"). On margin, doing that doesn't get you much in terms of freed up buying power, since you're likely to pay $860 on margin to put the naked on.

Out of all the plays, the net credit diagonal is cheapest to put on, but max profit is unknown since it will depend on how much you get for rolling the short put.

From a max profit standpoint, the Plain Jane covered call and Poor Man's are comparable in pure dollar and cents terms, but return on cap is much higher for the Poor Man's (21.5%) versus the Plain Jane covered call (3.8% cash secured; twice that if on margin). From that standpoint, the naked "Spack" trade is probably the worst if you go undefined in cash secured: a 1.5% return on cap risked, although if it's better if you play it on margin (8.0%) or go with the uber wide spread with the throwaway long, which -- weirdly enough -- almost no one ever does in spite of the fact that it (a) defines the risk; and (b) dramatically improves return on cap ... .

Takeaways: (a) Never covered call out of the gate; short put/acquire/cover instead; (b) there is little to no advantage of going naked over "wide defined" in a cash secured account; buy a cheap throwaway, define your risk, and conserve your buying power over tying up the large notional associated with a full-on naked; (c) Poor Man's have better return on cap metrics than virtually every other play; (d) for uber cheap buying power tie-up in small accounts, go with flexible, at the money net credit diagonal and opt for cost basis reduction with rolls of the short aspect over time.