Wednesday, June 29, 2011
Ideas regarding rolling up
Hi traders, a lot of talk of rolling up, out and how to take profits. First a note of caution, never forget before you roll up an option to capture a little extra profit.. You opened the first position hoping to make that money. Then things go your way and you can't wait to roll to another strike price to make more. Two things can happen...it works and you make a little more profit or.. the stock turn against you and your roll up, for a few pennies’s more cost you thousands. Be very care on these roll-ups. Try to keep in mind how happy you were to make the first profit. Try to resist the temptation of endangering 'made' profits for the little gain of rolling. I do it sometimes but generally I try to be happy with my opening position. As I have said before, most of my losses come from rolling either to high or to soon. Learn to enjoy your hard earned profits, not endangering them.
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104 comments:
Great point jerry! We're technically getting "free money" so wanting more is being a bit greedy. That said, I guilty of rolling up just to capture extra premium haha
@All, Sorry to overkill this BUT, the rolling thing with TOS,
If i wanna roll my put up to a closer strike I would basically close out my current position and then open a new one?
If I choose the option "creating rolling order" it only gives me the option to roll to the next month / week.
Can anyone verify my stupidity haha?
SPX up about 50 points this week so far WOW.
Fulgore, I'm afraid I'm not much of a help with the rolling thing, haven't really got the hang of it myself but isn't it the same as closing your position and open a new one?
For my understanding, and I know we've discussed this in a previous blog, but isn't rolling up or down in effect, closing out your position and opening a new one? So, for spreads, like I mentioned recently, it is not feasible to close out a spread as the minimum net premium you have to pay is .05 and therefore if you initially received .1 you would be giving up 50% of your premium to roll up or down to make .05 or say .1 but after all the commissions to close out and then to open a new positions would eat into your .1?
Is my reasoning correct? Thanks.
@All, I was hoping to add on to my put spread and jump in on an IC for this week on the SPX but right now they are only showing a 1335 / 1340 spread max (for a spread of 5). This is still to close I was hoping they would open more up. I will wait till tomorrow to open this trade depending on which way the market is going and how much cushion it leaves me.
Well, speaking of horror stories, I'm in one, again! I had SPX 1300/1295 when it closed at 1300.16 and I had SPX 1265/1260 last week when it closed at 1267, and now I have some 1330/1335. My stomach is protesting.
This is a great example where greed combined with IC's gets to be a problem, and at a low premium.
I know some of you don't want to talk about resistance and support, but many seems to agree that 1320 is a very strong level, and it's been tugging at the whole morning. I'm thinking of buying back my 1330 call and keep the 1335 call if it passes 1323.
Impossible situation, any advice?
Nic, if I put my "greedy' hat on, I would truly open the 1335/1340 or in your case the 1330/1335 to expire tomorrow PM. Why? Because we have clearly seen (with a little help from the Greece situation) that this run-up in the market has been "window-dressing" by the mutual funds for Q2 end (today). With 1316 being the 200 DMA, together with the 1320 resistance, together with Friday being the 1st day of the next quarter (mutual funds would liquidate some positions as they don't need to window dress), together with we are going into a long w/e, investors will also sell tomorrow as they don't want to be long going into the weekend, then I think it won't end the week at anywhere near 1330......but then again!?!? To reach 1330, the S&P would have gone up 4.9% in a week! Wow! I like the 1335 strike as it's over the psychological 5% and people would start selling if they made 5% in one week!
@Bald, I check rolling up but it is not worth it. I will hold my position and be happy with 1.2% return this week after comm, unless the IC looks good tomorrow then we can increase that to 1.6% after comm.
Chelski, first off, sincere thanks for your advice!
I'm probably thick here, but when you say "open the 1335/1340 or in your case the 1330/1335", what do you mean? I should keep, right?
I agree with everything you say, every bone in my body says a 1330 close is extremely unlikely, and so far 1320 have been a brick wall. But it is psychology, I'm worried that some of the numbers tomorrow could trigger a bump at the open. It is also very nasty to have 1.5 days left with only 10 points of cushion. The market seldom behaves as expected. In the meanwhile the 1330 call keeps increasing in value. Muhhh.. :o)
@Nick, Are you sure yo don't have the June 30 SPX that expires in 3hours. In that case, you are probably ok.
Nic, yes, I mean you should keep, but please don't take my advice in deciding! LOL. I really want to STO the 1335/1340 and get 2% ROI, given all that I said, but I won't as I will not be greedy and I've made 2% already this week. Given that you have held on to your past 2 trades that close, I don't think your position will get anywhere THAT close, just my opinion and therefore you should have the stomach to stick it out.
Are the weeks passing by slower now or is it just me?
Don't worry Chelski, I won't hold you up to it! :o) But it is nice to have someone in the ring corner.
I do think the weeks are passing slower and slower. In fact, this one feels like it's come to a complete stop.
Chelski, what is your take on next week. I'm thinking of rolling it in worst case, as I think SPX needs to retest 1300 and it seems a little early for earnings call run up.
Fellow crummys,
I wanted to know how long you sit on an open order before you cancel? I dislike having my margin used for orders which have not gone through.
Also, does a week go by where you are not using all of your available capital?
Today, I'm not finding any trades that look good to me. I certainly do not want to go too far out on that proverbial limb.
I'll keep searching! Later, RK
Nic, I'm still trying to fully understand rolling and waiting for an answer to my first comment on this string. In rolling, wouldn't you be closing your spread and opening a new one next week?
Wouldn't closing a spread mean you you will not lose a lot of money. E.g. You initially received .1 premium and to close the spread the difference between bid and ask is now .3. So you in effect you "return" the .1 and end up losing out on .2 in total?
I think I have a good case for keeping your 1330/1335 with events for today and tomorrow, but next week is a whole new ball game! If I'm right people will sell tomorrow not to be long into the long w/e but will buy next week and the market could well run up to when earnings season officially starts i.e. when Alcoa releases in I think the week after next.
Absolutely, for me rolling means I would close the 1335/1330 and buy the same next week instead. I would take the loss on this one but regain the money next week when the premium is higher. It is really only kicking the problem down the road, and probably more clinging to hope that the market will go in my direction than nothing else, almost a bookkeeping thing where the loss doesn't show up until you exit completely. If SPX goes below 1330 next week, everything is fine, but I locked my maintenance and it is really a completely new trade. So I agree with what you're probably thinking right now, the money is probably better spent on a better deal.
I think the reason 'rolling' has become a popular term is that some plat forms have an automatic order entry for it (and perhaps discounts you) when you go to the exact same strike the week after, or a different strike the same week. At least this is my interpretation.
RK,
I covered all my trades in one account last Tuesday waiting for good opportunity...But I missed a good window on last Wednesday as I was working on the other account...Wish I didn't get out leaving some good $$ behind.
Don't have to trade all the times as some experts would tell you - not to over-trade. I had a good time messing around with some long put with small money and earn some change while the main orders are waiting...No fill so far.
=================================
Month of July 2011 has 5 Fridays, 5 Saturdays and 5 Sundays. This happens once every 823 years.
This year we're going to experience four unusual dates.
1/1/11, 1/11/11, 11/1/11, 11/11/11 and that's not all...
Take the last two digits of the year in which you were born - now add the age you will be this year,
The results will be 111 for everyone in whole world.
It worked for me. Interesting stuff there Hannah...thank you for that posting.
Nic,
I was right there with you when the SPX closed at 1300.16. Wowee!! In a pinch too this week. One spread is the 1320/1325, and the rest are 1335/1340.
I started to close out the 1320 today, but I still have faith that the market will correct tomorrow. I'll never settle for 50pts cushion on a Monday morning.
I can roll down to 1325/1330 for 10% of what I'll loose it it goes to 1324.99. I'm not sure thats a good buy. I could roll to next week for a small fee, but who wants to go into next week with 5-10pts cushion.
btw - SPX futures are down 2.80 as of 8:28CDT.
Good luck everyone.
rick
Hey Rick, I was actually calmed by Chelski on this, I think he makes perfect sense and he had some arguments I hadn't thought about, such as investors hesitant to stay long over 4th July weekend and funds pulling back after the quarter.
Still a bit nerve wrecking, and I just have to stop doing this.
@Jerry I should know this because I traded it at your suggestion but what is the origin/difference between the SPX that expired 6/30 (last night) and the SPX that expires tonight? Loved it, it worked out great and this am I have a little more maintenance to go 'crumbing'
Ajajajaj, so of all the great arguments I had for SPX not reaching 1330, the tiny little argument that there could be a surprise in one of the reports crawled up in focus. :o)
At this point anything I do is pure gambling, so all suggestions and ideas are greatly appreciated! I'll be busy writing my suicide note.
Safe n simple. SPX has quarterly options and weekly options. Thursday expiration was the quarterly (end of June) Today’s ex. are the normal weeklies.
Traders, be careful with the coming July options. It is a major earnings season. Just because your stock doesn't report does not mean that they are unaffected by other reports.
Crumbs and cushion...
Nic, at this time you are only in the money by about .27. I would not be surprised to see the SPX settle below 1330.. But then it could go the other direction?
When I get into the fixes, and the premium drops to a price like .27, I usually watch close and set a limit such as .30. If it reaches that I close. Period. And I keep a sort of mental trailing stop. EX, if the premium drops to .20 I move my mental stop to maybe .25 etc.
Good luck.
Jerry
Its only money, Nic...just like 'Monopoly' Sorry for your pain tho, been there, done that and hopefully never to return. Don't really know how to get out but it seems to me that the rolling, etc just kicks the can down the road. Maybe things will soften up a bit this afternoon as people ready their portfolios for the holiday.
Thanks Jerry, Your tip on the quarterly SPX saved me mucho anguish this week!
Hannah, like the facts! Except for kids born from 2000 onwards, the result will be 11. :)
Nic, the way the market has gone up this morning hasn't surprised me, but I still expect it to sell off this afternoon as people head out early. With the market gone up close to 5% this week, who is silly enough not to take some money off the table going into the long weekend! I think luck is always on your side, given how close you were in your other trades the past 2 weeks.
Thanks guys, the price action unfortunately doesn't suggest any weakening.
Lesson learned (again), the market will never behave as expected.
Hi Chelski, then or course there is the old song, three times a lady.
Well, this has been fun. I'm now at the point where it can't get much worse so I might as well stay in and hope for some form of implosion.
Ironic that I have all my other spreads below 1200, but then I just wanted this tiny little extra premium by adding a maintenance free tiny little IC on the top. :o)
Fulgore, lucky you didn't add that 1335! I think I'm done with IC's for a while.
I remember reading somewhere on the blog that the market can go in 5 directions: up a lot, up a little, stay flat, down a lot, and down a little. So if you trade put spreads there's a 80% chance of success, but if you trade iron condor it's 60% chance of success. Who would've thought the market would be positive for 5 straight days!!!
I have been trying various strikes for next week from 1175 to 1225 this morning with 5 to 10 cents but no success. Anyone has any luck trading this morning for next week?
AAPL JUL8 325/320 put. .05 available now.
RK
@Nic, Yes I was lucky, like i said i took safety over greed, as i didn't like the cushion it was giving me if i put my spread into an IC.
@All, holiday here for me today and what a crazy market today. SPX up like almost 20 points woweeee. I thought i would expect a sell of but it is 3:11pm and still nothing.
Good luck Nic & Safe on your positions
Yep, I was counting on a sell off as well, otherwise I would have tried buying back my puts and keep my 1335's, which would have repaired the damage.
Oh, well.
Anyone willing to open an ITM (in the money) Spx call spread, an hope for a pull back!!! 5 days straight up like oil gushing from a rig!!! The first ounce of bad data and we will see the market get crush and come to it's senses. I had a horrible week.
I would like to add on rolling up down or whatever. I'm my past experiences, don't wait till the last day of expiration. You will be hard pressed to find any additional credit on you new spread. I rolled my spread with some time and got additional credit, but it's underwater, so I'm hoping for a pullback. Something similar to snatching candy from a kid, real fast, quick and big. Ok, thank you market makers, now handle mine and others request.
Fulgore,
Look at a Verticle roll. I have always rolled by first selling out of the condors by buying back on side of the condor and then creating a buy and sell order all at once, with the quantity of a negative. Sometime you will pay and sometime you will get credit. It's all in rolling and having a chance to get your money back.
Chris
WOW! What a crazy week! As always, Jerry is right, never try to second guess this market! and never be greedy (well, at least I heeded to this one)...I would've laughed in their face if someone told me the S&P would go UP 72pts in a week. 72pts down, yes, but up?....speechless.
The call side of SPX always trades only about 40 to 60 points from current value which I don't like! I mentioned the same in the forum couple of weeks back. I like being in the put side for now atleast about 100 points away in the start of the week. Until I get burned there :) Lessons will always be learned no matter what I guess.
@Roadking2 - Thanks for the AAPL suggestion. I had a SPX 1225/1210 that didn't go through. Will wait for Tuesday now.
Like Jerry said, most of the losses come from rolling up or in this case legging into another position. Wow, crazy market action this week! Hope everyone has safe holiday weekend!
Whew...I'll take luck over brains anyday!
It was not easy week, and we will have hard time to find decent premium on put side especially with this low VIX.I learned a lot from this week market.
Here's a little good news from a week that has been good to me. Yesterday near close and today near the open I was able to sell 140 July11 ESI 52.50 puts for a dime each.
The bid/ask was so wide I didn't want to scare the buyers by bargaining and thereby dragging the sell price down incrementally behind me, so I sold @ market.
I wish I could have shared the goodness with all of you but I've, first, got to pay Jerry back for sharing with us his 'no fear' put strategy.
Happy and safe Independence Day to those in the US, and to those in Britain... sorry, but I wasn't around when we depowdered your wigs.
@Fulgore,I was able to control my greed too , not jumping in on IC at 1335/1340. safety over greedy :)
@All, happy weekend.
I was certain that my 1340/1350 spread would be safe. Who would've guessed a 40 point rise in 2.5 days after already a 30 point rise the previous 2 days??? Had to close out for a huge loss in late afternoon but didn't want to be ITM on a cash-exercised option. Considering the price action/large movements that sometimes happen after 330 PM, I couldn't take it anymore.
However, it closed at 1339.67...thirty three cents away. The same thing happened weeks ago to me when it closed at 1300.16....unbelievable. Hindsight is 20/20
As Nic said, Lesson learned (again), the market will never behave as expected.
@Gssound, thanks for the tip i will look into that
@Ying, nice gratz on your expiration . Like I said this week coming up i will wait till thurs or fri to open an IC to add to my put spread on the SPX. If it doesn't give me 40-50 points of cushion for 2 days i may turn it down yet again.
@Chelski, yes crazy market, Like i said before the SPX has not moved more then 70 points in a given mon-fri week except about 3 times in the last 3 years. BUT of course this can happen and as we all saw this week it did. BUT as the headlines state the market has been "BEST WEEK IN 2 YEARS". So this movement doesn't happen often but it does happen. We just need to have the will power to get out of our position if it is in trouble.
On a side note this is the factor which i have placed in my calculation of ROI per year. I give myself about 3 losses per year and still get a return of over 40%.
Please keep in mind that you are always fighting greed and you just need someone to slap you in the face whenever you think you can get more money and say "YOUR GETTING 40% RETURN PER YEAR ISN'T IT ENOUGH"
Have a great Independence day all!!!
OK, I have to admit, I'm in a state of "shock-and-awe" at what has happened this week in the markets. Never, never expected this. I'm a "perma-bear", I make my most money when the markets are going down and the VIX is going up. This week hurt. Although I didn't lose any money--it's the opportunities lost that hurt. All my positions I opened last Thursday/Friday were closed out this Monday/Tuesday, so I was flat Tue-Wed watching in somewhat disbelief the raging-bull price action in the markets. I got one fill on Thursday (STO 1100 puts @ .15 for w/e 7/8). I didn't do as many contracts as I now wish I had because like many others, I thought Friday was going to be a down day and I could then use that saved margin money to get some decent fills...it never happened. All my potential fills at 1075, 1100, 1125, and 1150 never got filled today. I knew when the market spiked on the ISM number it was over for the day and I threw in the towel. I live-to-trade for when there is a spike in the VIX and although I will still make money when the bull is in control and the VIX is on "life support", I make much more money when the markets are bearish and the VIX is on the rise. But hey, bulls...congratulations, a very, very impressive week. I read today that with this next installment of aid, Greece only has enough money to pay their bills through September and is now in negotiations with the IMF to get more financing beyond that. With more PIIGS countries "on the brink" and all the problems the U.S. has, it's only a matter of time before the bear once again gets its fangs and claws back and starts to kick some butt again in the markets. Until then, I will just "muttle along" making some money, just not as much money. Long live the bear baby!!!
I was following along with great interest what was taking place in the blog this week. Rick, I would really like to hear from you how you handled your positions based on this truly remarkable (and depressing IMHO) price action this week.
Fulgore/Ying, I too, almost took that 1335/1340 short call spread trade. For a while (short while) this week, it looked like a fairly solid trade. Luckily I didn't. Sometimes your best trades are the ones you don't make.
safensimple, good move on getting out of the call side on your GOOG IC when you did.
Hampton...nice, nice trade!
Not to brag but I had my best week ever selling puts I open and rolled up twice on two position and three times on one. And now I'm all cash, it was the second highest weekly gain in 2 years. Good for puts but not for IC I guess
So with that all being said what is looking good for next week? I am having a hard time seeing anything... May just go towards some monthly spreads.
Chris
Hi all, I will start a new posting Sunday. But I wanted to say a few things regarding the losses and close calls many had this week.
1. Do not try to out guess the market. It can not be done..Period! Take what the market gives and if it is a.05 take it and smile. Do not try for the extra .10 because you think the market will probably be over sold or undersold or...?
2. Many have said wow the S&P is up 70 etc... So what. It could be up 170 or? Do not guess... It can and will do what it does. Do not try to out guess the market.
3. Do not open positions until we get direction from the market... And do not even trust that..
4. Regarding the S&P, Leave 100 points of cushion or more. As the week progresses lower it some but not much!
Road King, again, do not open AAPL positions until we have a feeling for the stock.
------
Not to gloat etc, but I had no position in trouble this week. I had hundreds and hundreds of positions. I had 900 AAPL stock and sold the ITM calls to get some premium without worrying if it went up or down, just give me some money.
Squeaking some extra profit can cost you big if things turn against you.
I am not preaching but I worry about all of you. I see people pushing the limits of what I see as danger. Folks, there is just a thin line of difference between us and losers. Do not cross the line. It is hard enough to make money under the best of times.
Today I received a note from a trader asking why I don't post more of my trades. Starting this week I will do that. I don't have all the answers but I do TRY to make safe trades. So from now on I will post my trades ASAP. I have no magic but I do trade as safe as possible. I am aggressive but in my stock trading I have learned that 10 wins of .05 is canceled by 1 loss of 1.50 etc. I really appreciate the way all of you try to share and learn. There is no ‘smart ass’ ‘I know it all’ etc type of traders on this post. We all want to learn and share. But be aware that when the mkt turns against you it can be devastating.
This is serious business.
Jerry
I have been strictly selling puts on ETF's (IWM,SPY,XLF) the last couple of months or so. The reason being is that with a individual equity, it can gap down significantly overnight. I got stop out of 1 position for a significant loss. I avoided earnings,and any major news but what if your stock issues a guidance 5 weeks before earnings (unannounced) or if a law is passed that effects a the stock.
I have yet to see IWM gap down more than 10% overnight; during the flash crash IWM gap down almost10% but a lot less than individual equities which can gap down 20% overnight or during the flash crash.
I had been in all cash for about 4 weeks until two weeks ago. I had went to the traders expo in Dallas a couple weekends ago. Tom Sossnoff spoke and he was actually very bullish because of the major selloff. He was very bullish on financials - (XLF).
I know this blog is mostly put sellers but has anyone tried calendar spreads. I have been trading them for about 4 months now with pretty good results, here are some examples. BTO 2 FDO jan12 45 calls @ 482.50 each then I have been selling near month calls at the 55 strike , I have reduced my cost basis to 192.50 each if I close out now total return would be about 196% ! not bad. I have did T jan and oct 27.5 and 29 calls and sold near month calls at 31 strike and closed out at 7.9% for 12 days and 10.8% 8 days. I just closed Out TIBX Jan12 22.5 calls and near month covered calls for 30% return for 21 days. I am looking at DD SLV HON and maybe T again for next week.
@Jerry, Thanks for the info, and reality check as always. I look forward to viewing your picks for this week / month coming up.
Anyone trading SPX again next week? Last week was something else, let's see how the market trends.
Hi,
Has Jerry ever spoken to the point of selling puts in weekly options? Instead of selling puts 20% out of the money in monthly, how far out of the money is appropriate with weeklies? 5%?
Thanks, Chris
Hi Chris, I only have two positions with monthlies.
1. 25 VECO puts at the strike of 40
2. 30 Veco puts at the strike of 41.
Other than that I normally have all weekly positions. I have found that weekly’s fit my temperament better. I am finding it harder and harder to wait a month for the returns. When I wrote the book weekly’s were not available. Also with weekly’s you can 'fine-tune' your positions and choices as stock and world events change. Also a negative with monthly’s is that if XXX stock is reporting earnings during the month, I would not use them. With weekly’s I can still get a few plays using that stock.
At this time I am looking at some plays for the coming week. It is a short week but a factor that must be considered this time is coming earnings. So, a deeper level search is required. I will report my choices as soon as I make up my mind. I will start a new posting with my choices of potential plays before tomorrow night.
Also I have had several request regarding how to get on board as a contributor. If reading this and you want to be one, go to the extreme bottom of the opening viewing page and there is a link to click on to add your name.
Good and safe trading all.
Jerry
@jamesaliano,
interested in your calendar spread trading. do you have a set of rules for trade selection and exits?
@traderlux I get most of my selections from the IBD top 50 also I look at some of the blue chips such as ATT. I have only been trading these for about 4 months so I am still learning myself however I use good solid companies and when entering the trade the delta of the long call must be at least twice that of the short. The reason for that is if the underlying increases significantly the price of the long call will increase enough to enable you to buy back the short and close out out with a decent profit. Usually the delta of the long will be 70 or higher. If the underlying decreases then we sell calls each month until we can close out at a profit. One thing to watch for is the delta of the short call if it gets close to the long then its' time to get out, usually by then the short call will be double the premium recdeived . I do have a couple of losers and I will probably close out at least one at a loss but that's just the way this business is, they won't all be winners. Of course charting would help but I am not a very good chartist, I do some fundamental analysis and try to set up the trade when the underlying is cycling up. BTW I got this idea from an outfit called Compound Stock Earnings, also Investopedia has a very good article in their articles section on these trades written by John Summa. It's really just a covered call but at much reduced risk and higher return. I am still learning but so far I like the technique due to the high returns and reduced risk.
hi fulgore,
i was wodering in your calculation of 3 losses per year,whats your cutoff for closing spread.Because if u r closing spread when short side is within 10 points and even with one day left u might have to pay close to 80 to 90 cents for spreas which u might have sold for 0.10.In contrast to closing naked puts, closing spread almost always happen at ask price which means paying 3 to 4 times the premium to close the positon.Thanks
@traderlux I forgot something, when setting up a calendar spread ( some call em leap spreads ) the return from the short call should be at least 10%. I mentioned TIBX I BTO Jan 12 22.50 calls for 5.25 and sold Jul 28 calls for .60 for 11.4% return if not called out, if assigned we would have a called return of 16.1% . In this case the stock price increased about 4.00 per share and the long calls went from 5.25 to 7.95 also the short calls went from .60 to 1.72, I closed out with a gain on the longs of 270.00 - loss of 112 on the shorts net= 158.00 total return = 30% . Very good for 21 days of course you can't count on that but 10% monthly would be great.
@jamesaliano
thanks for the info. i have been looking into calendars. i have traded vertical credits, but i am concerned about their dark side, which i have finally gotten a good understanding of. calendars seem to have a risk/reward relationship that looks better to me. also, going more diagonal and shorter term with the calendars, looks good to me.
jamesaliano,
You bring up a good a good trading style. TOS (Think or Swim) just sent out the new issue of Think Money which has a nice write up on Diagonals, which are the short term outlook of a calender spread. Read up on it.
Chris
@gssound,
what issue and pg #? cant find it. thanks.
@doctorali, Well typically for a weekly it is 3X my premium. If the premium hits 3X my initial premium received i will get out BUT it also depends on the market at the time, time remaining on the position, and points of cushion left when this occurs.
Of course this is all relative. If the market dips 20 points the first day i may hit my 3X premium BUT I may still have 80 points of cushion left so it is all in how you want to play the position.
I will not make any trades until tuesday morning / noon time. I want to see how the market is doing first.
Trader,
TOS Think Money.
Summer 2011. Issue 12 page 20
also, check out the book Jerry speaks of, Options as a strategic investment, by lawarence mcmillan. Amazon has it. Or any options book. Hahaha
chris.
Dave G,
I was wiped out. 90% account loss. I considered getting out Thursday, but it would have cost me 70% of the account. I was tied to the rails in front of a runaway freight train.
It's been a devastating 48hrs. My wife and I have cried all we can cry.
I cannot blame anybody but myself....and perhaps that #$%@ing Casey Anthony trial for keeping me away from the computer most of Wednesday & Thursday.
This was the first time I had ever been 100% invested, and every dime in SPX IC's. If I just could have remembered the name of this blog..ie PUTS. And I'm generally a bullish guy. Damn (bear) calls swallowed me whole.
Everyone - learn from me. Get OUT when your option premium triples against you. I've read Jerry's book 3x, and I still fell for what appeared to be an easy 5% week.
I've got less than $40K to live on. So I have about 4mths to find a $120K/year job. Does AARP offer job search services??
Adios for now,
Rick
@Bald Harley
Sorry to here man. I got wiped out this week using iron condor, but it was paper trading. It's really difficult to control the greed factor... Maybe there's a book on that?
@Bald - Very sorry to hear that. When you mentioned "I have faith" the earlier day, I almost wanted to write in the blog to say "no" to faith, instincts etc. Low probability and being far away on either side is the only way to make it, if at all I guess!
@Rick,
I am so sorry for your loss, You have my deepest sympathy. This week I learned that this kind of selling options is a double-edged sword. We all get wiped out eventually. It is just a matter time... I wish you all the best man...
@Bald Harley , man I hate hear that, I didn't have any SPX calls or puts so I missed out both ways.
I know many here preach cushion, but I think just as important is posistion size. One rule I have learned very well is limit each trade to a % of your account my personal limit is no more than 20% in any one trade. This market is jittery and very dangerous safety must come first, hoping for success in the future for you.
Rick,
I'm almost in a state of shock here. I did not expect this. I very much apologize for asking you how things turned out with your positions. We have never met, but I think one can get a sense (somewhat) for the type of person someone is based on the composition/verbage of the messages they post online, and my feeling about you (based on reading your messages) are that "Rick is a good guy, Rick is good people". I enjoy reading messages from all contributors to this blog, but I do have my favorites (those people whose messages I pay SPECIAL attention to) and for me, you are one of those "favorites". I respect and value your opinions and advice and that has not changed. Whatever the future holds for you, I wish you and your family nothing but the best. Rick, I'm very, very sorry about what has happened and as I write this, my gut feels like it's tied up in a knot...you're still one of my "favorites"!
Rick,
I'm in shock reading this too and feel sick to my stomach for you. Keep strong, you'll pull through!
@Rick, So sorry for you and the wife, man. I plan to use that sick feeling in the pit of my stomach to remind me of the perils of these things. I have enjoyed your posts on this board and know if it can happen to you, a clear thinking and writing individual, it can probably happen to any of us. Good luck to you and remember, Jerry got wiped out a time or two and survived to thrive later....
Rick,
I'm totally shocked, and I'm so sorry. It is moments like these that remind me how serious this business really is. I took quite a beating myself, and although I wasn't wiped out, my retirement certainly got delayed. It is an extremely painful event, but try to remind yourself that it could be worse, someone in your family could have been in an accident, etc, and even though it doesn't feel so now, at least it is only money. Like others have said, Jerry got wiped out as well, and learned to tell his story.
Just like me, I'm sure you will go through this in your brain a hundred times. Some people will feel you took a too big of a risk, and that this couldn't have happened to them, but the problem is that all of these comments and opinions are in hindsight. What happened last week was extraordinary in that there has only been three weeks in the last 8 years that have had a larger increase in the SPX, in fact, there has only been 9 times during the last 8 years where it has increased more than 50 points. Almost everybody I asked, or analyst blogs I read, were more or less convinced that there would be a sell off before the long weekend after such a run. I certainly don't make my decisions based on other people, but I also personally felt that it was completely unrealistic that the market would go up 8-15 points a day the whole week, and then go up another 20 on the Friday. Really, it would be as unrealistic as if it would go up 20 a day for a week, which I know some use as rule for cushion. In hindsight I should of course have aborted, but I wonder how many on this board would have, with an already noticeable loss and all signs pointing to a sell off. Yes, it's all water under the bridge now, but for some of us it is now a question of learning everything possible from this week and move on, or quit altogether and just accept that this has a way too large element of gambling to it.
Rick,
WOW...just WOW! I can only hope that the rest of the people on this blog can learn from your experience. I ALWAYS set advance conditional orders after entering a position. Set up your escape route. You have to GET OUT before the devastation hits.
Wishing you well. RK
Rick, regardless if you ever get back into this one sided game, I wish you the very best!!!!!!!!
Cliff
@Roadking2 Do you actually set an order some way or is it just a mental stop to be exercised when you see your limits approached. How do set a conditional order?
We all need to be more careful, Thanks
Hi all, Oh my,
Bald. I feel terrible as I know your pain. I have enjoyed your contributions and now wish you the best. Kenny, Dave G, hockyguy roadking and all the rest have expressed their thoughts and prayers for your family’s happiness and peace.
To all the traders that have the chance to learn from this disaster for Bald, let me emphasize that options are a serious business.
This week for what ever reason I had no IC’s. I have mixed emotions regarding them. I leg in and then only if the market is helping me. I like the put side first with lots of cushion and if the market is level or falling some I do the call side. This week the mkt continued up so I never did the call side. I hope this is a lesson for all traders. Cushion and caution!!!! Do not get caught up in counting your percent gains. Just plod along making small gains. These points are not for or meant for Bald but for all traders of puts and calls.
A few days ago I received a note from one of our regular contributors. He asked if I was concerned regarding the direction of our discussions on the blog. I told him no, as I enjoy all contributions and only wanted to emphasize safety points.
The upsetting news from Bald certainly cast a pall over the 4th. I am sure Bald, with your knowledge and experience you will prevail and prosper. Now is a dark time for you but hang in there as many of us have been down and out and bounced back to do well.
Jerry
safensimple,
No...I set an actual advanced order which reads something like: IF stock price last = xyz dollars then execute market buy/sell of spread option. The problem is that sometimes we need to be away from the computer for some reason and during that time a lot can happen.
I must admit that I too have been more prone to risk taking at times. Sometimes it just looks too easy to increase profit by 1 percent.
I have traded stocks for over 20 years and have been very stern with my limits. Set your limit and stick to it....PERIOD. My spread trading experience is limited but an option is an option. My old technique of buying ITM calls of rising stocks gave me an ulcer. Won big and lost big......BUT....still in the game because of limit setting. I absolutely believe that if you do not stick to some hard and fast rules, you will get caught one day....even if you think you are safe.
Not sure if anyone has taken a statistics class? If you are around long enough you will get hit with one of the outlying curves.
Thank you Jerry for your advice....cushion/caution...not too greedy...take the small.
Good luck to all. RK
Rick, I feel your pain. I lost big on two positions. One through an alert on Wednesday (Visa, which rocketed sky-high) and of course the SPX trade. Yes I rolled on that, however it still is money wrapped up. The Visa trade made a serious dent in my account as well as my mind, as a couple others followed me into that trade as well. The only thing I can say about the week we just had is that it will bring us back down to earth on our trading psychology.
Chris
Roadking, do you then adjust as the week progresses? The problem with setting a fix price to me seems to be that the premium is dependent on when in the week it hits that price, i.e. if it hits it in the beginning of the week the premium could be 5-6x and if later obviously much less.
What I find messes it up psychologically with spreads compared to naked puts is that the time decay is much more visible on nakeds. If I sell a naked early in the week with a nice cushion, the premium will gradually get lower as the week progresses, if the cushion gets smaller the premium will stay up longer, but eventually it goes down unless the decline in stock price is so fast that it is time to get out. This is not so clear cut with a spread. As the week tugs along and the price of my sold put drops, so does the bought side to an even greater extent, keeping the price up.
Same thing if the cushion starts to get smaller, the sold put will then increase to a greater extent than the bought one, again creating a more dramatic increase in the premium, even if there is still plenty of cushion left.
This "non-linear" premium action in spreads makes it much harder to determine a suitable exit in my opinion. Since option premiums are more 'negotiated' than stock prices, it is also difficult to exactly determine what the current price is (you most likely won't get filled at it anyway) and this gets twice as random with a spread, being a combination of teo prices. At Optionhouse the value of my spread bounces up and down dramatically as it follows the legs.
Perhaps this would be a good time to share some experiences on exit strategies? I've touched upon this earlier and someone commented that new option traders always want a ready solution for all situations, but this is obviously such an important part of trading that it can't be underestimated.
Very sympathetic to Bald, been there and I felt like the stupidest fool on earth. I was taken out in the 01 tech wreck.I was margined so wiped clean. Try to look ahead now, whats done is done.
Put premiums seem low, but I would stay way out and use more contracts rather than coming in tighter. 1250 or less on the SPX. And thats the weeklies! Any equity suggestions for put sales?
Hello All - I tried to analyze the circumstances which lead to the devastating SPX run up for July 1 weekly and Rick's loss. From what it appears to me, one could have coolly closed the SPX spread at a mere 3x multiplier no matter on what day you had bought the 1340/1335 spread, except on the very last day (Friday).
So I am not sure when Rick stated above that he couldn't close the position on Thursday because of a 70% loss he would have to take. My analysis doesn't show it this way.
The way I did this analysis is to use the thinkback option one of the nice features provided by TOS.
There is one shortcoming of the analysis though. The prices that I had to take based on the thinkback option would be the last price the option was bought/sold. But still I would say the margin of error should not be much on the trades throughtout the day for the spread itself.
Because I have done this on a spreadsheet, I am not sure how to upload it here. If someone can suggest a place, I can upload this so that we can have a healthy discussion. It is possible I might have missed something, I would love to hear back your feedback and views on this analysis.
If this analysis is correct, it reinforces to me that spreads far out in the money may not be as fearsome as I have been imagining as long as you close it the minute you think it is not working out. Fortunately in the current scenario that day happened to be Jun 30th where the 1340/1335 could have been closed atmost for a 3x loss, if not lesser.
Please let me know.
For now, I am going to cut and paste from the spreadsheet the price variation for the 1340/1335 starting on Jun 23rd when the July 1weekly opened until the last day. Here it is -
Dates SPX Close 1340 1335
1-Jul 1340 0.05 4.7
30-Jun 1320 0.3 0.45
29-Jun 1307 0.18 0.25
28-Jun 1296 0.31 0.4
27-Jun 1280 0.15 0.2
24-Jun 1268 0.1 0.2
23-Jun 1283 0.25 0.32
Assuming we had bought the 1340/1335 on 23rd June, the first day the July 1 weekly opened, we could have bought it for 7 cents (.32-.25). Notice how the difference of this spread varied every day like - 10 cents, 5 cents, 9 cents, 7 cents, 15 cents (Thursday), which is what would have been the profit/loss of closing this spread on any day sans commissions.
Only on July 1, the last day when SPX almost hit 1340, the spread widened to $4.20, which would have been the worst day to close it.
It will be nice to do a put analysis on a bad week and see how that works out. I will do this as well sometime.
All,
A most sincere thank you for your well wishes and kind words. It means a lot. Tho we have never met there is a certain kinship that develops here. Thank you Jerry.
Dave G - right back atcha!!
I wanna jump back in the saddle tomorrow and find my next 1-2% winner, but honestly I'm overcome with fear of losing another months expenses or even a weeks. Too little fear (and attention) last week and paralysis this week.
40-400k at 1.5%/wk = 12 years. 9 years at 2%. So the market cannot support my current lifestyle for maybe 5-6 years. I still have a lot of old consulting clients. Consulting part time will supplant the market loss of income and our plans to travel more will just have to be business trips.
All I lost was money. Still have my health, loving wife and healthy kids and grand baby. I still have MANY blessings to count.
Thanks
Rick
Avid Kris. Thanks for the help but I had a few skeletons. I had 200 1325/1330 as well as 100 1330/1335 and 560 1335/1340. Most were BTO on Monday. By Thursday afternoon it was going to cost over 300k to close everything. Maybe it was 200k Thursday and over 300k Friday morning. As you might imagine it's still kinda fuzzy. I do recall an 80k exit plan on Wednesday that I considered for about 30 seconds.
Thursday night (@1320) I would have bought more 1335/1340. No way it'll go up another 20 pts after that four day rip. Thank god I didn't.
Thanks again,
Rick
@Rick - I feel so sorry about your loss.. Wish you & your family stay healthy and happy.
Last week was a very good experience for me to witness the crazy movement of SPX, and the danger of greed.
@Bald, my thoughts and prayers are with you, and I still look to you for knowledge and intelligence on the market and life.
@All I will look at the market today and see which way she wants to go. I may not jump in today, it just depends on the cushion and the market.
@Avid_Kris can you send me and email, i would love to pick your brain regarding TOS platform.
Fulgore
Nic,
Yes, you can adjust your exit price as the week goes by. You have to know what loss you are willing to accept. I usually set my stop price a dollar above my sold put and then watch the position like a hawk. If I have to take a loss I will. If the price action starts to go against you though, it does not mean you should immediately exit. As the week goes by the price erodes in your favor.
Remember, you can never EVER let the price of the underlying go below the sold put....EVER. (or call) You should be out of the position prior to this event.
I been trying to stay so far away from the underlying asset price that my stop price is not usually a factor. It is more of a comfort mechanism for me than anything else.
Hope this helps. RK
One more thing. I don't really ever have problems exiting a position....I have problems entering. Maybe this is because I am a cheap...looking for high probability of expiring worthless. Anyone else have the same problems?
There really isn't much this week for weekly trades. Anyone find anything good? Also, has anyone looked at ZAGG for selling puts on? I have been looking at it for a couple weeks, would like some other take on it.
Chris
GSSound
NFLX what more do you need?
Ohh I saw NFLX, up 21 on new subs in the future in Latin America. This is only the start... You got the rest of the world. I'm not going to stand in the way of that one!! I would see profit taking a bit after today
@All, I haven't made any trades yet, because I haven't seen anything I like.
The problem with working with low capital and large comm's is you have to choose wisely or take a really low ROI, because you are limited to spreads because any nakeds cost to much of your capital. Right now If i take .05 my ROI is 0.2%. I will wait it out ot see if something opens up for me.
If it comes to thursday or friday and there is still nothing I will take my 0.2% ROI for this week and look to next week.
@All, I had an order in for the SPX at 1180 / 1175 put spread for about 1.5 hrs. They were giving me 0.05 premium, which I changed to 0.10. With 7min left to go until the bell (4pm) it filled to my suprise.
So for 3 days of trading I have 60 points of cushion. I will be watching very closely as the headlines are talking about this possible pull back. I hear nothing coming that will pull the market back really far except the unemployment report on Friday.
Good luck all. I will be hawking this trade as always.
I assume you mean 1280/1275...otherwise, it is "free money". Yes, I don't see anything either. At the open, I opened CMG monthly 340/350 calls since I thought it was due for a pullback. Didn't like how it was going so I closed out for a loss.
Remember, lots of cushion and don't outguess the market.
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