Hi traders, I could not resist the drop in aapl this morning right before earnings. Who doesn't thing aapl will have blow-out earns this month (today). I had some maintenance sitting around, so to finish the week I bought a thousand shares of aapl at 335.42 I sold some calls at the 330 strike.
I sold the calls for 11.15 for 11,150. but I will take a loss on the stock if called away of 5.42 for a net gain of around 5.7 So if aapl stays above 330 I make a nice 5,700, for the next three days. I see in after hours that appl is trading up so it looks good for now. Not naked puts but you have to be adaptable in this mkt when opportunity knocks on your door. The three methods of trading I keep handy are-
naked puts,
naked calls
and covered calls
each has a time and place.
42 comments:
Jerry,
What was your rationale for doing a covered call at $330, instead of a naked put? I would expect the net premiums and break-even points to be similar.
Curious, Why not sell the 330 Put? Wouldn't this be an equivalent trade?
G'morn, The thought behind the trade revolved around the best way to play an EXPRECTED good earnings report. If I had done the puts at the 330 strike I would have had only 5 points of cushion. I don't remember the going price of the put, but if AAPL had disappointed it would have made for an immediate loss.
If Apple dropped, by owning the stock i could still sell covered call to recoup the losses.
If I were going to do puts I would have used a strike down around 300/310. As you know I would never use a strike only 5 pts below a stock on the day before earnings.
In hindsight selling the puts would have been a better way to go. I would not have had to spend the money to buy the stock. But hindsight is pretty clear.
So the safety of playing a possible drop was better odds to use the covered calls. This opportunity doesn't happen often. Few stocks trade like aapl especially with the S. Jobs factor thrown in. I hope that helped to explain the move. It was just an opportunity that comes along once or twice a year.
Clever move for high prob trading, Jerry. Hard to see it drops below $330 next 2.5 days. Will see :)
Correction
I was watching $330 put and call
At about $327 call Approx $5.00 put approx $7
At about $342 call approx $16.00 put approx $2
(+-a dollar or two)
But I didn't do anything though I am all cash since last Friday LOL -too scared to get stuck.
Hi Jerry can you explain how you calculated the 5.42 from your trade which would be the loss if called away. Can you also explain what happens in that instance as I have never put myself in that place before. You had purchased 1000 shares and sold calls, so whomever bought them can exercise them if say the price stays above your strike. What happens to your 1000 shares when they are called away, do they just dissapear? I believe the opposite thing would happen if you were selling puts and they were exercised, you would be put shares to you in which that case you would have to buy x amount of shares?
Thanks
Jonathon
A couple of things. My wife of 45 years and I are on a road trip to AZ, cal, and a little mexico. So my post are delayed until nighttime. I closed the covered calls this morn before leaving. I locked in a good profit as I could see AAPL dropping slowly. This evening when on line i see it continued to drop. I wish i had sold the stock at the hi and let the calls drop for an even bigger profit. But as I mentioned this morning..hindsight is very clear.
Hannah pointed out the drop in FFIV. Holy smokes, does that ever point out the importance of
a. not doing puts in an earnings month...
b. Cushion cushion... You can't get enough.
forgive the shorter post as we are on the road.
Hi Jonathon,
On 1-18 bought the stock 1000 AAPL 335.43
on 1-19 sold the stock for 343.73
made 8.30 on the stock..or 8300
CALLS
1-18 sold the 330 calls for 11.15 or +11,150.0
on 1-19 bought calls to close for 14.1 or -14,100
so when the dust settled i lost 2.95 on calls but
On the stock i made made 8.3 or 8300 on the stock for a net of +8300 stock - the loss of 2950 on the option = 8300-2950 = 5350 net profit.
I hope that helps explain it
Jerry
WLT's been on a wild ride all week -- especially today. Thank goodness for cushion. Expiration can't come soon enough!
Good Morning Options Expiration Friday :-)
Yes, glad get some of these earnings behind us. Be careful picking your stock for Feb. Only pick ones that do not report during the coming period.
This weedend I will see what I can find, and try to post the ones that I like.
I had a question on options expiration: i understand options expire today. Does it mean that options expire at 4pm today? is that the time of the last trade? CBOE says options expire on saturday. Does it mean options buyers must tell OCC to exercise their options and is there a time window for that after 4pm today??
the options actually expire i think at noon at sat and your account will reflect the changes on sundays.
I'm sure this question would cross our minds from time to time - how much profits do you guys normally generate in an average month selling naked puts? $2000? $5000? $10,000? Personally, I try to net anywhere between $2000 and $5000 in any given month depending on how the market does. Of course, some months are better than the others.
KJ
A more appropriate question is what percentage returns.
I think in the current market 3-4% monthly is reasonable.
If market goes south, 1-2% would be awesome.
John
I agree with John. It is about percentage. If you start with 5000 or 100000 it is managing your account and growing careful and sustainable amounts.
Around 3% is a great goal. Not as easy as it sounds as we all hit bad months now and then. Most of are using the crumb method. We just keep picking up the small crumbs and we watch em grow. When you get in a race for bigger and bigger profits, sooner or later it will hurt you and a hurt can wipe out an account.
I generated a return of 30% between 1/10 and 5/10 and then lost 24% in 5/10. I quickly figured out I was being too aggressive and did not have a good way of determining the market was turning before it hit me. I also had to rethink how my portfolio was constructed and how much margin I was using at any one time. I ended 2010 with a 34% return on a Portfolio Margin (PM) account and now shoot for 2.7% - 3% in a normal month, with the goal to have no losing months and to find 2 or 3 months where conditions let me generate +5% returns.
Jeff,
Do you trade with Interactive Brokers?
Using Crumbs for the past 2 months,
my monthly results are:
at Dec Expiration 5.4%
at Jan Expiration 3.4%
My Jan would have been better, but my current Feb DECK 65 options liquidation value brings this down (given the bad week DECK had) -- good news if DECK holds or rises, then my Feb returns could be better than Jan, since my loss is already built in to Jan numbers.
I should have listened to Jerry and waited a few weeks before jumping into Feb DECK too quickly.
Question on Expiration:
I ever asked TDAmeritrade personnel the determining cut off price, I was told it is at 4pm Friday.
For example Bidu $100 put strike: Friday expiration at 4pm it's $100.15.
But after market, it went down to $99.95.
According to what the broker/clerk's answer, I wouldn't be assigned because the underlying asset price was at $100.15 at 4pm Friday.
Hey John / All, Since I'm still new my inventory list is short. I have looked through it and really can't find any good trades (minus the ones that have earnings coming out). I am working with about 5,000 in maintenance. I was wondering if anyone is watching any good picks for the next monthly's. With the maintenance i am using it seems to work out to stock that are in the $50 range. That or a good vertical spread.
KJ - Trade with TOS, and they do take a bite. Working on ways to reduce commission, one of which is to trade less Crude contracts this year. Had months where I traded over 2,000 Crude contracts and they get a bit pricey. That being said, I made money and commissions are part of the costs of doing business.
Had good luck with selling Jan UYG puts, sold the $59 and the $65, UYG closed Friday at $69.58, earnings are out of the way, I think this one will trade sideways for a while, I might go big with the Feb $65 puts, bid is at $1.39.
hello, i am new to this site but not new to options....im am reading your book Jerry but do you ever do put spreads(instead of naked) to reduce the margins used or not really because the long puts would reduce the profit too much ?
also, how did you crumb method work in the big down markets like 2008 and in this historically tight trending market since fall 2010 selling puts has been pretty good but what about now with volatility starting to creep up the puts premiums will start to pick up so do you just compensate a more volatile market by buying farther out of the money than 20% if the premiums allow still for your yield targets.....as having an entire portfolio full of naked puts when vix is low and investor apathy scares me if a spike those out of money puts will spike quickly
Jeff TOS is just like a casino the more you play the more they give you. E-mail Scott and ask him to review your account and make sure your on the best comp. program. LOL
My YTD commission is over 1100 so far this month and I'm paying .85 a contract I'm also paying 3% on my margin. I guess I fall in there active trader range but not enough for .50 a contract yet. Never hurts to ask.
scott@thinkorswim.com
So I read the book a little less than a month ago and even though I am not following the rules all the time I just had a great month..........I am definitely looking forward to entering some trades on Monday. I am a bit bearish right now, not really long term but just through earnings season and maybe a short time beyond. Last month I made money off of NFLX 155 puts and I escaped a NFLX 190-195 call spread....only because of a rough final trading weeek for NFLX did I end up winning this position. A trade that I think looks great (even though earnings are WED) is the NFLX FEB 220-225 bear call spread. It nets 0.42 based off of Friday's close....if it finishes out of the money then it returns 9.2 percent. NFLX is SOOOOOOO pricey.....this is a great trade. Enjoy the weekend everyone.
My list right now for Feb Monthly's that i am looking at:
All are Selling Puts
DECK - 72.90 - Vertical at the 60 / 55 = .25
CRM - 132.24 - Vertical at the 105 / 100 = .18
FFIV - 110 - Vertical at the 90 / 85 = .22
TCK - 59.11 - Naked at the 47 = .26
TCK - 59.11 - Naked at the 46 = .22
CREE - 51.26 - Naked at the 42.5 = .20
FFIV - 147.41 - Vertical at the 115 / 110 = .14
But earnings with them this months
Basically all of these are a 92-94% probability they will expire.
Any thoughts please on these?
This month seems tough to get some good prob of expire with some good % return keeping in mind the 20% cushion. I still have to do more research and go through the safety checks yet again. But at a glance i will be choosing one of these for FEB monthly. Please let me know.
FFIV is definitely not trading at 147.41
Correction - That was suppose FSLR
FFIV - 147.41 - Vertical at the 115 / 110 = .14
looked at PCLN 390 weekly on Friday; didn't pull the trigger though; could have gotten close to 1% on 8.6% cushion. But the weak close didn't give me a warm & fuzzy feeling. Stayed in cash over weekend.
fulgore - i was looking at CREE also, but after earnings that didn't meet and the not so cheery recommendations I've dropped them from my list; looks like it's heading to 48 area of the previous swing lows; just my guess.
On DECK, other than half the planet wearing Uggs now & many imitators out there, does DECK have more exciting products? Looking at their website of products I hadn't heard of any other than Uggs.
SHLD did a Preannouncement 1-11 Earnings after Feb18
Sears Holding (SHLD $76.56 +5.96) provided Dec total Same Store Sales down 1.7%, with Kmart +2.3% and Sears Domestic -6.0%.
Additionally, the company issued upside guidance for the fourth quarter saying it expects to see earnings in the range of $3.39 to $4.12, well above the $3.09 Thomson Reuters consensus.
Gary,
Thanks, just looked and have paid $3,900 this month so far. Paying $1.00 on indexes and $2.00 on Crude (futures). Had an email exchange a while ago with Scott on Crude, and he claims I have the lowest commission possible for futures, obviously, I need to query him again about indexes.
Thanks.
Jeff,
Your not an active trader your down right busy. I'm not sure what the lowest for indexes or futures is but now is the best time of the year to ask. 3900 in three weeks? You should be getting a happy ending every Friday at that level...LOL
Brian are you blo from po8? if so did you ever talk to Kevin and did he really take a 70K hit last week on pinning?
hi gary, yes im blo from WOW....i never talked to him but those guys are crazy on that forum risking their entire portfolio on 10:1 pinning trades....i dont have stomach for that stuff, i've been right on direction/price for the 4 pinning trades i've tried but 3 of them jumped too much for me that it hit my stop loss but i would have been profitable if i let them play out....just not for me
Brian, set your profile so I can send you PM's
I don't think every one this board is interested in WOW. but I don't want to post this there ether,
Pinning:
crazy yes and even if you nail it your not out of the woods. 11- 13 I was short AMZN 170's
it closed 170.00 and I was still put stock. I hope some one from his office checks in with Kevin to see if he is all right, that can really F one up. I'm speaking from first hand knowledge.
Hi all, I finally found a Starbucks so that I can get on line. I will start a new post as this is getting LONG
I was wondering what readers here feel is the most effective way to find candidates for their watch list for Jerry's criteria....seems that since we need to find stocks with put premium as far as 20% OTM that the stocks need volatility priced in to have an premium so i was thinking of running a screen for any stocks over $50 with beta above 1.0 ?
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