Hi all, I thought that I would share some of my 2011 new years resolutions for option selling and safety. After doing this daily for 14 years I still find it hard to always use good sense. Maybe some resolutions will help me with my goal of smaller profits and more safety.
1. I will not roll up to soon.
2. I will always use a lower strike price when in doubt
3. I will be satisfied with lower returns.
4. I will take losses sooner rather than later.
5. I will be more aware of using different stocks.
So there you have it. Short and simple. As you can see most of these come under the title of being greedy or pushing the envelope. We all do this for profits and enjoyment of our labors but always trade smart. Let the people that continually lose money take all the risk.
I know many of you are younger and are trying to build your wealth. This is good, but never lose sight of the real goal and that is to enjoy your life. The ultimate goal is to be a good person, have a happy life, be healthy and enrich the lives of others.
Smile at everyone you meet. Always say thank you to yourself and others. Tell your spouse that they are beautiful. Call your parents and tell them you love them.
Lets all have a happy and prosperous New Year.
Jerry
25 comments:
Jerry,
Thank you for sharing your wisdom, and AMEN to "...be a good person, have a happy life, be healthy and enrich the lives of others..."
PEACE, ALWAYS
Jerry, well said lets keep this information in mind when the stress of life approaches.
CMG on upswing this morning...breathing a little easier :-)
TCK up almost 3% at the bell. The time decay along with the underline price will make the premium drop fast this week.
I just had a very proud trading moment. I just bought back a losing position early! On 12/21, I sold DECK JAN 70 PUTs for .40 -- since then, DECK has dropped from 87 to 79 with no upward reversal in sight. Rather than wait for my premium to double or price to drop further, I bought the puts back at .68 for a manageable .28 loss, and also freed up my margin for better opportunities. This is a very big deal for me -- in the past, I probably would have let it ride and hoped it would have turned better. I may be technically wrong, and DECK may go back up, but it just didn't feel right. Fortunately, my other JAN positions have made for this loss.
One thing I really like about this method of trading is that there's not enough time to become emotionally attached to a particular stock/option.
I have been selling puts on low priced stocks as I do not have the capital to provide large margins. I sold 5 Jan 5 puts on ISPH for 0.34 last week. The stock dropped 58% this morning and premium is now 1.65. So much for a safety factor of 200%!. I am now trying to decide if I get out now or wait for a pull back. Maybe I should try credit spreads instead although I like the crumb method.
Gideon, Sorry to hear. I sure hope it recovers for you.
I find that pharmaceuticals are extremely volatile and sensitive to any news (especially about drug trials) or analyst recommendations.
Good Luck
G' MORNING,
Gideon, sorry to hear of your trade going south on you. As John said, those dang Pharms's can be trouble. I avoid them except for big ones where one product doesn't take the company down. At this time I have no pharma's in my stock selection list. Another thing to take into account when picking stocks. The higher priced stocks allow you to pick a strike that is far enough away that a few dollars drop in price relates to an incremental rise in the premium. I pretty much stay above 50 for a stock price. That of course is just a number but for me it is a pretty good starting point. Also keep in mind that it is return on maintenance and not how many you can do. one position that gives you 2% return is better than 10 that gives you 1.75 return. You might have to take your loss and bite the bullet but there are other stocks out there that will work for you.
John, I use DECK quite often also. Glad you did the right thing and pulled the plug on a position. For me I just write off a bad play and forget it. I often look for what I did wrong in the selection process and if no mistake show up, then that is just trading and we can't win them all. I also was glad to see CMG on an uptrend. I assumed that the selling last week was year end related. However it certainly was a relief to see 'em going up today. Over +10 at this time..
Jerry
Hi Gideon, I am in the same position as you. I am working with about $5000 maintenance right now.
I found that if you use vertical spreads then you can take advantage of the higher stock prices. For example you will be about $5000 maintenance on a $50.0 stock to sell 10 puts, but if you use a vertical then you only need approximately $1000 depending on your stike price. I am currently using Think or Swim to calculate this (it actually does it on it's own). You may have more success using this method.
I was in the same position as you having to choose from lower stocks but i found that the strike prices are to close and it is difficult to find a good stock to go with. Let me know.
Jerry, Is there a reason you didn't go with DECK? I am just wondering why John went with it and you didn't? Was there a warning you saw that didn't make you comfortable choosing DECK? This way we can all learn
Hey Gideon,
Sorry about your loss. If you like the stock you can wait (hope it comes back) and if doesn't take assignment and then write covered calls against it. At this time there is an 83% chance you will be assigned. You will have to go out in months to get a decent premium. You can get .50 in June if it stays here.
You can roll out to another month. Buy back your current position and sell another month. This will give you more time to recover. Normally we would like to roll to a lower strike but this does not appear practical with ISPH deep in the money and the limited stikes.
Another defense is to sell the 5 written puts and sell 3 or 4 strangles in the next month. You would want fo this for a net credit. Again, we are limited by the limited strike and ISPH being DITM. See TBT to see how this would work. It has many strike prices and narrow spreads.
Sometimes it is just best to take the loss. When they gap down big it makes defending the position difficult.
Hope this helps.
Good advice all.
Fulgore, No special reason this month. Just that the prem's didn't add up to a good trade with enough cushion. No special flags though.
G'day all,
BIDU is looking tempting (nice candlestick today so far); but since this is my first trip into "Put selling land" I'm going to paper trade this one.
Mark
Waiting on a fill MCP at 39 strike. Got a partial fill of 1 waiting on the other 9. been waiting hours. 30% below stock cost. Not for the faint of hear. Incredible volatility. But willing to take assignmnet for a 30% discount. Right now 95% it will expire.
Re: DECK
Of course, right after I closed the position, DECK's price bounced back up a little bit, from 79 to 81 - and the 70 PUT premium dropped back down to .40, where I originally sold it in the first place - so I may have reacted a little too early. Part of my issue is that I have over a dozen positions so I get *very* nervous if I see something going south too quickly. I had lost 10% of the 20% downside cushion in DECK, so it just didn't feel good to me anymore.
If it continues to recover, this will validate it was a good pick after all, but at the same time, I'm still very pleased with my trade discipline at at peace with my decision this morning. I'm trying to stay below 75% of my margin to keep some cushion.
In fact, with today's market rally, I'm reducing some of my positions and taking a little profit. Sleeping at night is a critical factor for me.
John, Great job checking yourself, I think you made the right decision.
jsence, I am currently showing MCP at a little less then 80% it will expire. be sure to verify your choice with some research that Jerry has mentioned in his book and John has posted in another area of this blog.
Sold my first put contracts today, UYG Jan 11 $59 @ .27, UYG closed today at 68.83, a little different trade than the ones done by the pros here, I believe this to be a safe trade as the banks are doing well.
Hi Fulgore, I hope your crdit spreads work well for you.
The probability of beiing assigned on a put is roughly equal to the absolute value of the puts delta. A put with a -.40 delta would have roughly a 40% chance of being in the money at expiration.
I did, out of curiosity run the numbers on a probability calcualtor. (I will try to include the link to it. Don't know if it will take)
Using a stock price of 57.50 an 18 calendar days to expiration and the 39 strike and using the Historical Volatility of 87 The probability of the stock being above the target price of 39 is 97.7%
Using the Volatility of the option at the curent strike 118 the probability of the stock being above the target price is 93%
Right now MCP has a delta of -.05. Thus rougly a 95% chance of expiring.
Link to probabilty calclator
http://www.optionstrategist.com/free/analysis/calcs/probability/index.html
Hope everyone had a good trading day......I sold a bear call spread today on NFLX 190-195 Jan expiration.....collected $200 on a couple of contracts....if my 155 NFLX Jan puts expire worthless and this credit spread does too....than that will be a nice $400 bucks or so.....I'm a winner if NFLX stays between 155 and 190. Hopefully it does.
Hi Jerry,
Great to know your blog alive...
Happy New Year 2011.
I will like to know how to buy your book as I don't have Amazon Kindle.
I look forward to your reply.
Thanks.
Simjs,
You can download the kindle application at amazon.com and read it on your computer. Also, Kindle app for iphone, ipad, etc...
Sold Crude calls today.
Hi Jerry
I have a question regarding the flash crash of market last year. I read on one of message boards where someone posted about his friends trade where IB automatically closed his sold put during crash resulting in acoount moving from 150k to -50000.I did ask my broker options express about their policy in such conditions ,they told me that its not automatic or computer driven, theres someone who is watching the market and as bid and ask spread was huge ,it was not done. I didn’t trade during that period so I don’t know what would have happened to the account.Iiwas wondering if your sold puts were assigned and more importantly your input how to manage accounts to prevent suc h catastrophic event.Anyones else experience and input regarding flash crash is appreciated.And lastly thanks again for being so helpful.
Hi John,
Thanks for the info. Currently I am outside of US so basically I can't download Kindle applications or use it.
Hi Jerry,
Please help.
Thanks.
Hi Sim. email me at putman3232@yahoo.com
I can send the book via pay pal as a word document.
Doctorali; I have never experienced that problem. During the flash crash all of my puts were so far out of the money that I wasn't effected hardly at all. Especially since it was corrected quickly. I was not contacted by my brokerage at all?
Jerry
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