Hi all, What a week. AAPL announced and blew away the 'guesses'. FFIV also. So a long weekend with lots of time to pick our next weeks positions. If you are doing monthlys then you now have 4 weeks. If doing weeklys, it is start over time for next week. I will be posting all my choices for the coming sessions. There are lots of choices as we work our way through the reports. AAPL, FFIV LULU, GOOG, RIMM, CMG, PCLN, DECK, ISRG, OPEN and others. Just watch for reports and trends, as we have seen, the numbers can jump out of sight if you misstep.
Weeklies have certainly added a new dimension to option trading. We are all still working the bugs out of different way to utilize them. They certainly help with the time part of the equation.
I have yet to get into all of the ETF's and other various items to use but more will be coming as we all learn to use the tools available to us.
I hope the past week/month was kind to all of you. I really appreciate the kind way all want to share what is working for them. There are many ways to play these options and the important thing is to find what works for you with some degree of safety and comfort.
For you younger traders, if you start with 20,000 and are careful and can average 4% a month in 10 years you will be a millionaire. It can be done but with care and running your options like a business will get you there. Not shooting from the hip and trying to out-guess the market. Just plod along and it will happen.
Jerry
37 comments:
Crumb Results (on exp date):
Dec 5.4%
Jan 3.4%
Feb 2.9%
Mar 2.7%
Apr 2.9 %
And for this past 1 week period 1.4%
Compounded for the past 147 days 20.2%
This equates to over 50% compounded annual average return with very little effort or stress.
I'm lovin the Crumbs.
Sold to open: KLAC May $39 Puts
20 trading days to go, KLAC generates 12% of it's revenue from INTC, INTC is looking to spend more, KLAC should benefit from this.
Jerry,
I like this part.
"For you younger traders, if you start with 20,000 and are careful and can average 4% a month in 10 years you will be a millionaire."
Thanks always!
Jerry, when you say "younger traders", how young are we talking about? I feel pretty old for my age...
Young or old, 10 years is 10 years. And a million is a rather nice number.
Hi Jerry, from Italy. I have a question after reading your book twice. What about selling puts on indexes? For instance selling puts on SPX? What haopens in this case if index falls to the strike price? There are not stocks to buy so there is justthe liquidation on the position with a loss? I kow loss could be huge but I am interested in the theory.
Thank you!
Hi Gin&Tonic, I have not used many of the index's. I will probably give more time and thought to doing so in the future. Looking at the SPX, it has some interesting things going for it. Plenty of vol, you can drop down over 10% for the weekly and still get at least 1% a week with a put spread.
Regarding closing the position. You would have to either buy the option back or roll out to another week/month etc. Keep in mind that you do not have to wait until the current price of any option reaches the strike price. If the price is dropping, of whatever you are using, be it stock or index etc, give thought to closing or rolling etc. But it is certainly not necessary to wait until the price has gone through the roof. I usually use the double rule but often if I get that gut feeling that things are not going correctly, I make the decision to make some type of move..ie; close, reduce the number of options, roll out or wait it out while keeping a close eye on the position.
There are more and more indexes and various options choices, from leaps to monthly to weekly. I have had many questions regarding them but I have resisted learning or studying them as I like the KISS method. But as the market changes and evolves I will have to adapt. Good question from Italy...
Hope I helped and didn't confuse to much.
Jerry
It looks like we have a lot of companies having earnings this week which have weekly options. That makes it a little tough on picks....
NFLX 4-25, AMZN 4-26, BIDU 4-27.
Chris
NFLX reports on Monday (not sure if its before or after the bell).
I think Tues. would be a good day to get into this one (4 days). I have my eye on the 205 (currently $252.22).
Another thought of the market besides earnings is the FMOC meeting on the 27th... They could announce the end of QE2.
Jerry,
Could you please clarify your SPX comment ... "you can drop down over 10% for the weekly and still get at least 1% a week with a put spread."
Looking at the SPY option, I don't see where you can earn 1% on anything close to 10% down. In fact, with SPY trading at almost 134 on the week's close, the weekly option is only offered down to 123, less than 10%.
In my experience, I do like trading options on some indices, but you do not get the luxury of as much cushion compared to what you can obtain on an individual stock's option.
Jim,
Look at the SPX index instead of the SPY.
Here's the bid-ask spread for the weekly $SPX.X options (current price is 1337), at about 10% down:
1150: 0.10-0.15
1175: 0.20-0.25
1200: 0.25-0.45
1225: 0.30-0.40
If you're trying to get 1% on the 1175/1200 put spread, you need to get filled at 25 cents. My guess is that could be a challenge.
Good things about index option are that it is already diversified, so less risky as individual company and some of them are European settlement.
You got me Jim, I should have said you can drop down around 100 points and get the 1%. Monday as time is leaking out and assuming the market isn't down much the 1235/1240 should get an easy .05... Maybe the 1225/1235 will get a dime.
but around that point even if you have to go up to the 1240/45 should get .05 It might be worth waiting for Tuesday. You lose one day and turn the time factor even more in your favor. There should be some nickels waiting out there some where.
Jerry
Thanks a lot for the reply. I do not know if I am crazy or not but I am making a lot of backtest picking trades using Optionetics Platinum and searching for bull put spread on stocks and, recently, indexes. I rank the results using the % of probability of success (on indexes often over 98%) and picking only the put sold and not the one bought. Then I go on Tos (because I really like TOS for backtest) and place the trade. Consider that Platinum, in order to get a 98-99% of probability of success usually picks the put to sell at a very safe price.
I made about 20 simulated trades on indexes and always my puts expired well above the strike price with the total gain of the premium received. I got gains also choosing puts a few days before corrections of the market and all was ok. The only period I got bad loss was around sept. 2008 when it was impossible to sell puts with less than 30 or better 40% of safety cushion from the price of the stocks or indexes. I think that at that time it was totally mad to sell puts anyway.
Thanks for your attention.
Gin&T, If (when)we get into another bear market switch your strategy to selling naked call spreads. It is just as easy, same rules and guidelines, just the other side of the put spectrum. I have been doing some recently as a type of collar. That is where I have naked calls and puts in spreads both at the same time.
I have had a few notes from readers asking have I abandoned put selling for spreads. I still do naked puts but spreads are just naked puts with a little bit of back-up in the what-if world.
Lots of ways to skin this option..
Jerry
Jerry,
What's the call side of vertical put spreads (Bull put spread). I'm thinking "Bear call spread" but not certain. I'm sure your crumb method will work on the reversal (call) also. And we may be able to benefit from a bear or bull market in this way. I know this board is all about selling puts, so I respect you for showing us newbies the different plays that can be made. Even though your main cash cow is naked selling puts. I thank you for providing real world education on other "options" as well!
DR3Z
Hi DR3, Selling naked call or naked call spreads is just the reversal of puts. It is that easy. ex; xyz stock is selling at 100 You might look for a put around 75 or in a spread 70/75.. In a call situation you would sell the 125 call and buy the 130 call. The idea being If the stock ends up anywhere between 75 and 125 you keep both premiums for the sold put and the sold call and you are out the cost of buying the 70 put and the 130 call.
Most spreads in my way of using them are separated by 5 points. So if you can get a nickel (.05) the maintenance is $5 so the ROI is 1% but that is for a week.
The advantage of a naked put is assuming you could sell the 75Put for .10, you would get around 1.3%. You avoid the cost of buying the 70 put. You do lose the 'what-if' protection of the bought 70 put limiting you lose to 5 per option.
The same is true for the reverse...a naked call or call spread.
Hope that helps as there is confusion when learning the two different ways.
Jerry
Great input everyone! Jerry what are you picks for this weeks weeklys? John what about yours? or anyone else? I always like to see what you big dogs are doing haha.
I am thinking about using the index's for the weely for the first time probably SPX
Jerry,
Let me see if I get what you're saying.
Use the NP premium as "insurance" on the NC.
Use the NC premium as "insurance" on the NP.
Since they can't both be ITM at expiration.
That can work as long as you (a) get out if one side goes against you and (b) don't get in an extremely volatile stock, where you might get stopped out on both sides.
It's sure a better bet with 1 week to go, than trying to pick the direction of the market/a stock.
What do you call that? "Butterfly" is taken, as is "Condor"... maybe a Teradactyl? :-)
Ok I need some advice, I love the weekly's I just did my first last week with PCLN. But its Monday now and I am looking and the commissions are killing me. The return is 1.3% but when commissions goes through I end up with 0.4%. So it is difficult for me to find a good strike price around 10% below the underline. Any suggestions?
Is anyone dare try a weekly naked or spread on NFLX today before close???
Gssound, not me .. i will stay away until Tuesday. Why take a chance?
Fulgore,
I assume you are with a discount broker. Try telling them that their commissions are too high. Depending on how much $$ you are investing and how many trades you make monthly they may lower your rate. Also, credit spreads are expensive because you have two legs to trade. Depending on how much you are trading the reduced maintenance of spreads may be offseet by the higher expense.
Hi bernard, thanks for the reply. Ya I am doing vertical spreads because of the low maintanence i have available to work with. I am with Think or Swim also. So 1 vertical of 10 contract would cost almost $50. I can not do any nakeds due to my low maintanence.
Fulgore,
I'm am trading with Interactive Brokers. A 10 contract spread costs me about $15 total to put on ($7.50 for 10 contracts on each side, and I Do NOT have any special deals with them). MAYBE another $15 if I take it off. $0 if it expires.
Hi Bill, Thanks for the information. I am in Canada and I will see if that is available. That would be nice.
Bill,
That is CHEAP. You cannot beat that. Is IB user friendly?
Fulgore,
As Canadians, I believe our best option is IB. Nothing I've found comes close. $.75/contract is pretty cheap. You have to keep a Canadian broker as IB doesn't have RSPs/TFSAs.
dbernard52,
"Is IB user friendly?" It depends. It is not as easy as some other platforms but the options are virtually endless. Just don't get bogged down trying to learn how everything works. Try the IB Papertrader.
bobj, can you please email me i would like to discuss a couple of things if that is possible,
fulgore1234@hotmail.com
Hi all, I know this is a blog for SELLING puts, but as my only blog, I gotta ask you guys about buying puts on NFLX yesterday. I had a feeling it might tank like Google, and I bought 200 strike at $1.60. Today they went to $0.80!!! Looking at the options chain, with a $15 drop in NFLX, the only puts that increased in price were ATM or ITM. How is that?!?!?!? The Calls lost $$ across the board.
Ideas?? Might I/we learn something for AMZN??
Thanks!!
Baldy
I would reccommend using the "hand holding" method of setting up any account at IB. They are extremely picky about making sure that everything is just exactly correct. But customer service is very helpful.
As for the trading platform: it has so many options you'll get confused. Just pick a method (ONE method) -- you'll be ok.
Bald Harley,
Those NFLX 200 strikes had a premium built up in them due to the announcement of earnings. You can get some really juiced options prior to earnings or if the stock or EFT has alot of volatility. You just need to hope you are on the right side of the earnings or hope the stock price doesn't come close to the strike price. If the stock price doesn't come close after earnings are announce, the premium goes away like a deflating balloon. I did a couple spreads yesterday on NFLX, came out good on those.
Chris
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