Hi Traders, Well NFLX disappointed some but when the dust settled if you were using them and left anything over a 10% cushion you were safe. You were worried but safe..
NFLX is getting more and more competition from many directions so be careful when using it. With a PE of 66+ it is still priced pretty high, so leave a good cushion.
I seemed to have broken my own rules once to often. I had a loss on an SPX spread. The return was 1.7% when I opened the weely position. That equates to about a 7% gain in a month. As I said in my book when getting over 6% a month you are pushing your luck. I pushed once to often. No big deal but it serves as a reminder to me to 'follow the rules'...lol
We all will have losses now and then but our goal is keep them to small losses and not very often.
Most the heavyweights have reported but still some out there. PCLN is coming next weeks so I will avoid that puppy..
Pick your positions with care, leave lots of cushion and go for smaller profits...
Good luck this week and month.
58 comments:
What is the best strategy for getting in on the option?
Do any of you just go in at bid? Or do some use the mid? What I've been doing is going at the middle of the bid/mid. If mid is .10 and bid is .05, I'll put in a limit order (credit) at .08 (or .07). This has worked for me so far but I feel as if I'm leaving a .01 or 2 on the table (which is huge). Anyone care to share their strategy?
Thanks!
hey dr - depends on if I really want the position or not; if I really do I'll give the market maker a little extra to fill the order if not I'll see if I can squeeze a little bit more out of him
Well it looks like the market opened on a high note today with alot of positives showing up on the radar.
Right Now I have the
GOOG - Put Spread - 520 / 515 Weekly
GOOG is down right now but with the signs of the market being postive I would expect it to shoot back up by midday.
Dr3Z:
I never place market orders. Most of the time, I'm somewhere between bid and ask, but of course, by the time I've futzed around with the order, the market has moved, so I change the limit price, then the market moves and etc. :-)
When I'm exiting a position under pressure, I just get out, so I'll pay what the market maker wants -- still not a market order tho.
Take a look at PCLN, so tempting to open spreads. IV is so high.
I sold the PCLN weekly 490/485 for 39 cents ... almost 8% ROI for 5 days with 65 points and more than 10% cushion.
Yes, I know that earnings are out later this week, but the price I was getting was very attractive.
The problem is that with the wide bid/ask spread, it may not be possible to buy back this position at a profit at any time. My preference would be to buy back before the earnings are announced. We'll see how that turns out ...
Jim,
I decided to pass up this time, it's tempting but not my style as Jerry suggests(avoid earnings week)
Jim,
I took the same spread on PCLN as well. I got the spread for .55, and was going for some time decay prior to earnings. Hope that happens. I am having a hard time talking myself into any other weekly spreads. There isn't much popping as far as weeklies go.
Chris
I did the NFLX 210/215 put for .15 At the time it was a 15 point cushion but has since gone up. NFLX is trading after hours at 240!
Looks like I have 25 points of cushion for 4 days. I'm liking it so far.
PCLN had me this morning but I won't trade on an earnings week again after google three weeks ago and NFLX (dropped 22%) last week.
Good luck to those that did!!!
Jerry,
Which weeklies are you looking at now? Since the volitility is so low, it's hard to find a decent return.
HI, it is hard to get a decent return. I put in a couple of orders today and nothing much went through. I did sell some pcln puts. Monthly at the 440 strike with PCLN trading around 555. so a 115 pt cush. Even with earns you have to take 115 pts of cush. Any good puts or spreads out there?
Jerry
Still learning, but also having a hard time finding anything worthwhile. Maybe my expectations are too high. I'm very curious though on what others feel are 'crumbs', $2-300, $1,000, more? Given that naked puts requires so much maintenance and risk it seems to me as if one really need a certain return to make it worth it.
Giving an example using AAPL. Let's say I have $100,000 in my account. A monthly return of 3% would be $750 a week. With $100K I can buy around 28 contracts with AAPL around 350 and a 10% maintenance, right? This means I would have to find a premium of .27 not including commission. A 10% cushion would place me at 310 for a measly .03 premium.
Am I missing something or just looking at the wrong stock?
I wish there was a way to edit comments, looking at my previous post not even I understand what I meant. :o)
So what I meant was that if I have $100K to use as maintenance I can buy 28 (x100) contracts and if I want to make $750 with that, I need to find a premium at .27 but looking at AAPL right now I wouldn't get more than .03 if I wanted a 10% cushion. I would have less than 5% if I wanted .24.
Sold To Open TTWO May $16 Puts for .50, 14 trading days to go, earnings come after expiration, May 24th.
Hi Nic - for myself my goal is "only" 1.5% a month (18% a year). This affords me extra cushion, no stress and a great night's sleep :)
With 3 days to go in this week's weeklys you aren't going to find anything worth the ROI. Wait until Thursday when next week's weeklys come out and then start looking.
For anyone looking for a monthly, APKT looks ok with earnings out last week. Price 78.18 strike 65 16.8% cushion .30 premium 4.4% ROI
This thing is way over bought and had an ugly candlestick yesterday - be very careful or bypass altogether. I am NOT play with this one myself.
Pretty slight cushion Nicky.
Are you looking to acquire this stock.
Just wondering.
Crumbs -
I take it real easy. Sometimes they are so little and sometimes a little bit more. So long I am not losing money :)
Usually i leave extra 20-25% after margin requirement for price fluctuation. Margin call is a nightmare though it's still 'safe'. Isn't it?
Hannah - yeah I had that happen; received a margin call on NFLX a couple of months back; but luckily I was able to close out the position and still walk away in the black. Lesson learned: don't max out your available margin. I probably only use about 50% of my margin. Again, for myself, steady winners, with lots of cushion and restful nights :)
Nic, many of us, Jerry included, are doing much more with put spreads these days, so that frees up a TON of maintenance. Also would definitely look around at multiple offerings. If a premium isn't at a good spot for one company (usually due to decreased volatility at the time) find someone less, uhh, stable.
Hi Nic,
In your example of Apple, if you have 100,000 in your account and apple did not move down from the 350 level and you sold the put at 310 with .03 credit, you can do about 21 contract. However, if Apple moved down to 315, you now need to have $155,000 to maintain the margin requirement in this trade. This is the danger that you face if you used all the money when you enter the trade. Also, if Apple went down to 315, at that point your 310 option premium will likely worth more than .03, which means it will cost you more to buy buck to cover your naked put contracts to reduce the maintenance amount or to get out of the position at a loss. So, do some paper trading first.
I had a couple margin calls on one to three thousand dollars 2/3 days before expiration (still uncomfortable though). By the time I transferred more money in, it was never acknowledged!!
But it is a good reminder always.
Newport can I follow your trades? haha
@ Hannah - LOL - Jerry's method is AWESOME isn't it? - I wish I'd learned about his technique in January 2008 when I started trading or should I say when I started losing money on ever trade.
Unfortunately I'm too stupid to paper trade first.
tk, how did you come up with the $155,000?
Hi from Italy again! I am not sure if this is the right place to make this question but I hope it is!
I would like somebody test this trade and have a look at the risk/reward chart. I would like to have an opinion from some expert. Which are the real risks of these strategy?
BUY 3 BAC call July 16 @13
SELL 1 BAC call May 21 @11
I am shocked by the graph and would like to know where is, if there is, the trick.
Thanks a lot!
Hi Nic,
you can download a spreadsheet that Henry gave us awhile back in March. "http://www.mediafire.com/?i9zn6pu7vo24a4j". enter 21 contract in Qt.for Apple,stock price 315, strike price 310, premium .03. You will see the margin requirement in Margin1 and Margin2, always use the higher no. in this case it is 154,900. If you change the stock price to 350, the margin is 99,800. Also, the formula for Margin2 calculation may need to be revised per your broker's rule. The spread sheet that Henry uses is 10% of strike price + premium. With Fidelity Brokerage, it charges 15% of strike price+ premium. So, you will need to have some knowledge about Excel spreadsheet to change the equation accordingly. The Margin1 no. came from the 25% rule (25% of stock price- the OTM spread between stock and strike price + premium). Good luck. Don't forget to thank Henry for the spreadsheet.
newport,
APKT reported earning last week, but it is scheduled to have a shareholders meeting on May 5th- this week.
Kenny, did you see PCLN took a 15pt plunge today...Luckily I still have about 40pts of cush. Wowee!!
I've been using the SPX weeklys. With 70pts cushion you can still get .10-.15 cents. Sweet... except that's only about a 5% cush :-o
Fortunately this week, I'm using call spreads, so the market decline is comforting.
Bald Harley,
I did jump in and opened PCLN CALL spread today. May expiration, 640/650. ROI is more than 5 % for 18 days remaining. I think 100 pts of cushion is not bad even after earnings report.
Im in the same boat on PCLN. I did a weekly spread 485/490 for .55 and an iron condor 435/445 and 650/660 for 1.20 as well. Hope all these work out. I wasn't looking at holding the weekly through earnings.
Also holding a couple SPX weekly spreads too, 1315/1320 (done as a mistake) and 1380/1385.
Chris
Chris
Jerry, you opened a position in SINA this month. How do you feel about the price action today? I still have 15% cushion, but the stock is so volatile.
For you guys using call spreads this week, what are the biggest factors you consider when deciding to go bull or bear for a week? I know there is no magic formula for this sort of thing but just curious to know what kind of things you may be looking at. (Because I sure wished I had gone bear this week......scary day today for me)
gin t,
i posted your BAC spread question over at elite trader options forum. see if any of the folks over there have an opinion.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=220010
tk,
Thanks for the link to the Naked Put Margin Calculator. Is there a similar calculator available for Put Credit Spreads? I tend to use these more often than naked puts.
Thanks,
Terry
Thanks a lot T Lux!
Hornet 52,
Again, Thanks to Henry:-the one below is for credit spreads, which includes commission fees. Cheers!
"http://www.mediafire.com/?rup0xuflw3bho3n"
March 20, 2011 10:36 AM
tk, that was great, thanks to you for pointing me to it and and of course Henry for making them.
Does anyone know if these percentages apply to ThinkOrSwim?
Kenny,
I sold a PCLN weekly 500/510 put spread just before the close for .60!! It filled instantly. I might have gotten .70 cents. Damn those spreads are big!! SURELY 40pts is good for two days, after its freefall.... 12% for 2 days is spooky. Wowee!!
TTWO
@ED I really like the stock, so much so, that today I sold 10 more contracts for the May $15s for .30, I even put in an order for another 10 @ .35 but that expired, so now I have 10 of the $16 open and 10 of the $15 open, I doubt I will get put on at $15, I might get put on at $16, if it happens it's not a bad thing, as I only write puts on stocks I would not mind owning, they are releasing a new game on the 17th, I think this will lift the stock, they report earnings on the 24th, I will take 2000 shares of the stock before earnings if they want to sell them to me, this stock is going to be $20+ soon, This is the 4th consecutive month I've written puts on this stock, I'm yet to be put on, only difference this time I went up to $16, before I stayed at $14 and $15, see what happens, it's the wheel of fortune, let it spin.
And you're welcome! =)
Those chinese internet stocks are getting hit hard this week. =/
@ Harley, becareful as PCLN reports earnings tomorrow and anything can happen.
Fulgore,
OMG!!! Now I remember why I passed on PCLN last Friday. My paper acct at TradeMonster gave me the warning....I'm trading real $$ with OptionsHouse.
I may bailout at the open. As wide as the spreads are, I might make a penny or two anyway :-)
From the past 3 days, I would like to point out the importance of sticking to rules. I took out weekly spreads and have just lost thousands stopping the bloodshed considering I do not know what will happen the next 2 days. Read the book and make sure you have the discipline.
Two weeks ago, I was stopped out of a trade too soon that was for a large loss due to market orders at the ask spread (selling the bought put still has low premium while buying the sold put dramatically increases in price). It was suggested to watch the weekly spread than keep a stop order active.
Even with lots and lots of cushion, I kept watching and watching and the bleeding continued (EWZ, POT, SLV). The increase in volatility offsets any decrease in time value. In order to sleep tonight, I closed out the losing positions. I know it might rally back tomorrow or Friday but do not want to risk all the maintenance.
What I'd like to emphasize is the need to have an exit plan. With naked puts, we have the double the premium rule. Not sure how to handle the spreads properly as of yet. Roll lower when the higher put doubles to offset the loss? What about "don't catch a falling knife?"
@vos
Brother, I hear you about wanting to sleep at night. Don't think my situation is quite as bad as yours but I have a couple things going (a monthly SINA and a weekly SPX, particularly) that are starting to weigh a bit heavily. I am trying to take comfort in the probability models which claim that the odds are still pretty well in my favor, but after these last couple days one has to wonder.
I am trying to come up with a coherent exit plan as well involving spreads. The bedeviling factor is how often one can be rewarded for NOT following the exit plan; but I know that that's the greed talking, but damn does it make a convincing argument so often. I just have to learn to beat that sucker down with rational, systemic and disciplined thinking, because greed seems to always lose in the long run.
@voskoboy, good decision to get out while you can still breath. If the knife goes in too deep you won't be able to. Remember the book and simple rules. When I was doing naked I put a stop at double the premium.
this has an advantage that you don't have to watch it like a hawk, BUT also the dis-advantage that if there is a spike it may double the premium but then fall right back down and there was no danger.
I personally like my spreads right now for a couple of reasons.
1. I can't do nakeds because i don't have enough money haha.
2. I don't have to worry as much. My max loss is the spread.
Good luck for the rest of the week.
Right now I have GOOG put spread - 120 / 115. GOOG trading at 135 with 3 days to go. If there is a large loss in the next 2 days i will pull out. If not then it should expire worthless.
PS. watch out for PCLN today. BUT tomorrow may have some good premiums for 1 day!!!
new weeklys coming out this morning ----- let's see how they pan out towards the end of the day
This is weird, SINA is scheduled to report Q1 on May 11th, but the date on yahoo says June 08. And I have a put spread for SINA the month of May. Should I close?
@Henry, verify first before you close, you still have some time.
http://earningswhispers.com/stocks.asp?symbol=SINA
whisper says NOT CONFIRMIED so you are ok i think until next week.
For the new weekly's i have to wait for my maintanence to free up for this week to open any new positions. So that said i will have to wait until Monday. Which is not so bad because I miss any weekend hiccups, but then again i lose out of time decay there. Its a give take relationship :)
So I look towards all of you to check out this weeks weekly's so i can pick up the good ones on Monday. Let the lists start :)
I saw that on Sina as well...hmm strange. That stock has been an interesting ride this month wow! I like the idea of straddling this one using the same margin. You can sell 20-30% cushion on puts and 20-30% calls which will both probably expire worthless and gives you a hedge as it falls or rises rapidly.
I also had some slv but unloaded it on Monday luckily!
I thought I was safe at the start of this month but a few of my positions have taken me on quite a ride. I'm surviving but looking forward to May 20th ;)
@ Nolan
Sina has been a roller coaster this month and continues to be so. I started out with 40% cushion and now I'm sitting around 15%. Lesson learned, avoid high P/E and stick to solid fundamentals.
I think the chinese stocks are being affected by renren the chinese facebook ipo.
so some bad trades that I made this week....
I got into a PCLN spread on the 28th but did not notice the earnings today. I had a chance to get out on monday even but did not take it. I was thinking of getting out on Wednesday I opened the 500/495 sperad for .51 on the 28th. I closed on Tuesday for .90. lost 490. Still learning.
On Bidu I opened a May regular expiration put at 125 fro .28 on 4/28. I should have gone for a weekly but still it looked good as a 3 week trade. I got out yesterday for 1.20 as it spiked down to the 50 day moving average and I did not know if it would hold. That is more than 4x the .28. I lost 945 with commissions. Now it is at .61 and both trades will probably close above the strikes. Still I am not sorry to be out. I am still in the game.
It was not good watching the premium move so quickly against me.
PCLN was down $6 early, then up $8 by 11am, now (1:30EDT) is down a few pennies...
I can't take the pressure!!!
After Market - PCLN drops to $510, then up to $547 now... Down $25 --> Up $8 all in 10 minutes ?!?!?!?!?
I need a drink!!
PCLN now up $12
The gods love PCLN. Prayer works too!!
A new post to start another thread..
Jerry
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