Several things come to mind as the week is ending. One of the most painful is being stopped out of the nflx puts earlier this week. I had some 175 strike and it ended up being safe but the big drop in nflx caused a big jump in the premiums and stopped me out for a loss. It happens, but is always discouraging. You have to trade these with discipline. Sometimes it hurts but more often it will save major losses and keep you in the game.
Next week we will have to open new position in both monthly and weeklies. A concern is to be sure and not miss the coming earning reports. Many major companies will report in Jan. Even if your stock is not reporting, it might follow the trend of the market. So do not always figure that you are safe right up until your particular stock reports. Use caution, leave lots of cushion and follow your rules.
There is plenty of money to be made, but use caution as the market has come a long way in a short time.
Good trading and enjoy the holidays.
26 comments:
Hi Everyone, I just wanted to point out if someone has not seen this yet, but LVS has been falling this last week, today it pulled up hard! thankfully:) BUT... for january puts, you can get a nice return of 4.6% with a strike of 30 when the stock is trading at 43.8 currently, thats about 31% cushion, and this month of december it has fallen about 15% from its highs, I do not think that in two months time LVS will fall a combined 46% which is almost half its price when it is doing very well right now. Just something to keep in mind.
Considering a position in Chipotle CMG JAN 175. CMG currently at 232.
175 Jan Put is 24% out of the money.
175 Jan Put bid is .80 (about 4.3% ROI on 18.30 maint margin)
175 Jan Put probability of expiration is 93%
CMG has been uptrending for quote some time.
Thoughts?
see CMG details at:
http://www.nasdaq.com/earnings/analyst_summary.asp?symbol=CMG&selected=CMG
CMG - it's a pain when the bid and ask is a mile wide if you want to cover....too illiquid.
great point on the spread -- too bad, cause everything else about CMG looks pretty good
Hey John,
How do you calculate the probability of expiration?
Also how reliable have you found it to be?
Probability of Expiration is a feature in both ThinkOrSwim platform and also the PowerOptions screening tool. It is based on current stock price, historical volatility, recent volatility with reference to strike price and time remaining. These probabilities are another way of looking at risk and not guaranteed, kind of like the weatherman forecasting rain. I prefer the probability of expiration to be above 90% when selling puts. But I also watch my positions like a hawk, too. ThinkOrSwim has a terrific iPhone app which I use to monitor my positions when not home. I can execute any order from the app, too. Hope this helps.
Thanks John. I'll check out ToS.
Non TOS traders can also "ballpark" Probability of expiring by looking at Delta.
CME with the PPS at 233.70 the 175 put is now 98% POE with a delta of .02
When John posted 90% the delta would have been about .10
Don't let this stop you from opening a TOS account as they have many cool tools.
On demand is a lot of fun and only comes with a funded acct. Let's you replay a day in the past in real time. Try doing some put spreads on expiration Fridays with a pinning stock
Like AAPL or AMZN last week. AAPL also is setting up to do it again tomorrow.
Look at the 320 volume on both the call and put side. Amazing stuff….
Gary,
Can you explain in more detail with specific real examples your process in "writing put spreads on expiration Fridays with pinning stocks" (e.g. what you look for, how much time before close, size of spreads,ROI tolerance, POS, etc) along with what you define as a "pinning stock." This seems like a very interesting strategy...THANKS!
It's still new to me also; this is what I did last week.
Go to the CBOE and get the weekly list every Wed. and set up a watch list.
If you see a stock trading near a strike look for the Volume to excide the open interest on both the put and call side In the first half hour or so. So far today AAPL and PCLN are at the top of my list.
This is last week’s trade. You have TOS go try this.
AAPL 10 lot Vertical Dec2 320/310 put 1.02 Credit I did this 45 min. after the open
Covered 45 min before the close .20 debit
Could have let go all the way but after NFLX last week I was not in the mode to see AAPL go sub 320 plus 800 to set in front of the computer for a few hours I will do every Fri.
Please note and this is KEY don’t put one on and walk away from the computer it faster and more stomach turning that the best coaster at six flags. Hint try the paper acct or On Demand FIRST!!
Also keep size in mind as once so far I have been assigned 500 shares of AMZN at 170 with the stock closing at 168.something.
Thanks Gary -- will certainly study this -- certainly not the CRUMBS method and not sure I could handle the roller coaster ride.
I get enough roller coaster even when my put strikes are 20% out of the money. But...I'll admit that I absolutely violated the CRUMBS rules today with RIMM 55 puts -- I got lucky on today's earnings report, but I need some Pepto.
I'll be happy to get rid of all my December positions tomorrow. I might even close all my January positions, too, just to take a rest for awhile. A couple of quotes from Jerry's book that I need to tattoo on my body are "Do not get greedy" and "Never hesitate to take profits/losses when in doubt." It's been a great couple of months, I just need to keep my head :-)
CHEERS!
hey john i sold jan puts at 180 strike for .85 cents. the spread was 80-90 and 4.2 percent trade isnt bad with 50 plus dollar cushion.
Hi, Jerry and Traders,
something from Jerry's book, as well as his comment today about other stocks affecting your stock (whose own earnings are after the Jan expiration).
Today voth Visa and Mastercard down 13% and 10% for 2 reasons. Discover's earnings out today (not good) and Fed weighing caps on credit card fees. Now Visa's own earnings report is after Jan expiration, but it was blindsided by Fed and Discover's earnings.
My takeaway from this is, to know the earnings date of the bellweather stocks in the sector that you're considering an option play.
Some S&P500 CRUMBS Candidates I screened via simple PowerOptions screen (I used current stock price greater than 40) all with JAN prob of expiration above 95%:
HAL (closed 40.27) JAN 32
CAM (closed 49.55) JAN 40
CTXS (closed 69.17) JAN 55
CLF (closed 75.69) JAN 60
ANF (closed 55.67) JAN 44
hey john that trade i was explaning in early comments was for cmg. i sold 180 puts at .85 cents for a 4 percent trade jan exp. the spread was 80-90. i knew you were interested in that stock so wanted to throw it out there. that leaves a 50 point cushion.
Thanks Fish,
I took a small position, too. I sold the CMG Jan 175 for .80
I felt pretty good about it. I will feel better when January 21 passes :-)
I think it fits the CRUMBS profile for the most part.
Jerry, your thoughts?
John
With earns in Feb and a decent PE you have to like CMG. Also a return of around 4% what's not to like. I think I will get some of the 180's also.
Jerry,
Thanks for the affirmation :-)
fslr looks pretty tasty as well. 133.81 sell 100 puts for jan exp .43 cents prem is 4.1 percent. with 30 plus cushion. i just traded fslr last week and let them expire today for 500 profit.
TorS ProbExp is 94% -- seems to be a broad 100-150 channel for the past 12 months. last time near 100 was June 7. Seems like a pretty safe play, except for recent downtrend over the past 45 days (20 pt drop since 153 high on 10/28). Analysts consensus target is 160. Next earnings Feb 17. I may jump in.
I jumped in FSLR JAN 105 at .55 - ProbExp was still at 92% - for an ROI of 4.9%. 105 was still over 21% cushion, but it FSLR goes south, I'll set my stop at .90. The recent downtrend makes me a little nervous.
Glad everyone likes CMG Jan 180's I’m in it yesterday at .80 also.
Something else I did with CMG was Dec. 1 when it first cracked I did a back ratio
I sold 10 March 2011 180 puts I bought 5 200 puts for a net credit of 500.00
Sure came close to a pay day, should have used the income to buy a OTM call.
Over all I can’t complain with two week to go I’m just over 2% for the month.
My greed trades today were IBM and PCLN out with nice bones for the week.
The one that did not work today was BIDU I’m getting put to at 100.
Thinking of closing out everything next Wed. and enjoying the Holidays.
There never is any Vol. that last week anyway.
Thanks, Jerry. Loved the book and I've been having a ball 'picking up the crumbs.' But it's been an up market for a while. That's good. The real test for me will be if the market treads water or moves down early next year. Let's hope not.
I have accounts at Interactive and Etrade. Neither appear to have the option screening ability Gary and John are using. Would love to have access to this kind of screening ability. Any suggestions other than opening a TorS account and reading this blog.
Thanks and Happy (crumby) Holidays to you all.
BogeyBrad
HI bogey
I have an account at Ameritrade and TOS comes with it. I'm an APEX trader so it might just come with my level?
good luck
Bogey, Open an accy. at TOS it's FREE the only thing they hold back on unfunded accts is On Demand and I thik chat and seminars. The rest of the tools are free free free!!
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