Hi all, well the week is past and some good news and some bad. SPX was certainly a ride. It seemed that many, like me, had the spread 1300/1295. I was tempted to close mine for a small loss when the index jumped up to around 1308 late in the trading period. I held on and was rewarded by the index finishing just a fraction over 1300. Much to close for comfort!
I had many positions that were never in danger. But trading these index options you MUST leave lots of cushion.
I hope all noticed that the mkt has been down for weeks in a row. This certainly shows a trend of bearish activity. I am going to start trading more call and less put positions. Also when trading weeklies, I will wait until Tuesday or Wednesday to open new position. This market is not an easy market to plan your plays. Settle for less profit and keep the profits you have. Avoid the temptation to start thinking, 'the market is oversold', 'we have hit the resistance level' etc.
As most of you who have read my book know, I do not believe there is any consistent thing that predicts bottoms or tops or resistance levels etc. You certainly can see a trend with these things, but you can not bet the farm on these predictions.
I also recommend being careful with AAPL this week. A big conference by S. Jobs and AAPL should really bounce the stock BUT.. What if the announcement says that S. Jobs is retiring completely from AAPL and is very ill. The point is, trying to guess on these types of things can turnout either way. And guessing, if wrong can cost you.
I also would be very careful of doing plays with covered calls. You do not want to try and catch a falling knife.
And last but maybe the most important is the coming battle regarding extending the credit card that the U.S. uses to pay its bills. The government wants no restrictions on how much it can spend. As a citizen, I have to live on a budget; evidently the U.S. does not want to. I would not open positions until this is settled. The market could react severely if things do not go in a direction that stocks want it to.
Trade safe, this is a big week coming.
126 comments:
Just to comment on the market being down for weeks in a row. The Dow has had its largest drop for a five week period since 2002. Bumpy road ahead for sure! I think we all learn (me included) that we need alot of cushion for the SPX. Summer months are not a good time to be long on the SPX as well.
Chris
Jerry, Are you saying you won't trade til the do nothin/know nothin congress decides this matter? Could be extnded as long as August from what I read.
I might make some trades but VERY CARFULLY, and no SPX until this next dead-line is past. Once it has passed I will again open trades. But each deadline is a tripwire for ?? Again, avoid trying to out guess the big boys. These major things such as the budget issue are like earnings. Might be good, might be bad?? It is the same with AAPL's upcoming conference? For me, trying to out guess the outcome is messing up my so so golf game..lol
I agree, last week was a little tense..not exactly my idea of safe and simple. I too find the prognosticators with resistance levels, head and shoulders, triple witching ad infinitum to be basically apologists and revisionists of history, not the future. Next week the market will go up, or go down or go sideways, guaranteed!
I've been put spread selling pretty much the same stock for 8 weeks now, NFLX. This thing is a beast! Now I'm not saying that it's not ripe for a drop soon but if given enough cushion I still see it as a good play. Since earnings came out and it dropped 11% its been up and even set 52 week high's pretty much every day this week. I can honestly see this stock hitting 300. I'm looking at and around the 240 for my Tuesday trade. If it goes up or down I will adjust accordingly, but my target right now is the 235/240 put. 33 points of cushion.
Jerry I, like you, like trading on Tuesdays. Matter of fact, I've made it sort of a rule now. Research over the weekend, feel out the market on Monday and pull the trigger on Tuesday. Time decay + Cushion. I'm averaging 1.2% (after comm) a week ROI with this method.
Agreed about NFLX. Bot a call spread on Wed as market tanked, then watched netfiix defy trend toward 275 for a heart stopper. Made it out, with good return but now I know where my comfort is and where it ain't. No more SPX for me either.
Hi, about the Apple conference , historical data shows that the stock usually falls in the 3 days during the conference.
@Nic, Sorry I didn't answer sooner, work was really busy on Friday and couldn't get to the blog to read it.
BTW thanks Jerry for the new thread the other one was long lol.
I have the SPX 1280 / 1275 so I was not worried one bit. They expired worthless. I will look at how the market is going on Monday and see how I want to play next week. I most likely will be doing the SPX with around 60 points of cushion. I will look for a premium of .10 or so to get my 1.2% return after commissions.
I put in 1230 / 1225 put spread on the SPX. ToS shows a .10 return I changed it to .12. I will see if this goes through on Monday morning. This will be 70 points of cushion for 5 days. The SPX has only dropped over 70 points in the last 3 years 3 times.
Hi Fulgore, how do you put on a spread of 0.12 i thought spx options only allow .05 increments cheers
@ Paul, I am still very new at trading the SPX, so this is new to me. I have never had a .11 or .12 go through and maybe this is why lol. Can anyone verify this?
That's correct. It only allows 0.05 for me too.
Yes, I have tried to set 12 cents for SPX in the past and it wouldn't accept the order in TOS. It only accepts in 5 cent increments.
I will try for 10 cents on 1230/1225 as well tomorrow.
ok thanks all.
ODD it says it is getting me .30 return for the 1225 / 1200 on the SPX. If this is so then I may jump on this but currently the SPY is down .50 pre market. This would mean that SPX is down 5. If this is correct then I may be at a disadvantage if I do take this trade. I may end up waiting till noon to see how everything is panning out.
Currently everything is down pre market. We will have to wait for the bell to tell how things will turn out.
Microsoft is expected to annonce its new movide streaming service today. I believe apple is too. Gonna see how this pans out for NFLX before I decide what to do for tomm. Good luck to all!
I took the 1225 / 1200 SPX for this week. Premium was .30.
Now I did mess up and I did want to take the 1230 / 1225 because it was less maintenence. I will have to pay more attention to detail next time.
Opened 50 SPX put 1235/1225 @ .20
about 60 points cushion.
Closed out (BTC @ .05), on the open today, all my SPX positions that I entered last Friday (1100 @ .15 and 1125 @ .25). Money is safely banked away on those trades and now entered new positions (1150 @ .15). 1150's are as high as I'm going to go for selling naked puts on the SPX this week. Will establish more positions @ 1150 or revisit the 1125's if their premiums go higher...I feel safe at those strikes for this week. Mr. Market seems to be in a sell first, ask questions later mode...at least for now. Is this the sell in May and go away seasonal stuff? Whether it is or not, I'm still going to trade the SPX. Whatever goes on with our elected officials and their inability to keep their spending under control...don't care, I'm still going to trade the SPX. Apple's conference, don't care, I'm still going to trade Apple...currently short AAPL puts that were filled at market close last Friday (310's @ .30). So, we'll see what happens. GO STEVE JOBS GO!!!
@Fulgore, when you say that SPX has only dropped 70 points three times in the last three years, where do you see stuff like that?
@Nic, I took the list off of yahoo finance. I updated the list to show weeks only and I also updated it in excel to show me Mon-Fri as I do not trade the weekly's on thurs or fri.
I sent colour coded it to show each week and the MAX high and MAX low the SPX hit for that week. I then took the difference. This will not be super accurate but it will give you the worse case senario.
I am not good with computer or I could send you my file. Currently it is not complete yet though. I can probably email it to you. Send me an email if you want and say it is you so I don't delete it.
fulgore1234@hotmail.com
On the week of May 2 2010,
SPX High - low = 140 points
Opening - closing = -78
........
@ Hannah, The spx dropped 139 total points that week.
Week Of
May 3-2010
May 7-2010
High - 1205.13
Low - 1065.79
Diff = 139.34
Oh, The pain! Looks like the Dow might go under 12k this week, I'm stuck holding all these shares, oh well, this too shall pass.
I opened some 1345/1350 call spreads on SPX earlier today. SPX is trending below the 50 dma and I'm feeling a bit bearish this week. Good trading to all!
@Hentry, I think this would be a good move, I think that this week will be bearish for most stocks.
I am allowed 17 points a day for the SPX to drop. Today so far it is at 14. We will see how things go. Note to self make sure you wait till noon to trade on Mondays.
I tried to get 10 cents on SPX 1175/1150 (10 puts). Can't change my habit easily of coming to closer strikes :) Anyway this order didn't go through today.
@Avid, SPX strikes below 1200 are in increments of 25. Therefore your return is 10 cents divided by 25 = 0.4% before commissions?
Yeah, that's true. It is .4% a week, about 20% a year before commissions. I will opt for higher from time to time, or when market looks a little better.
nothing wrong with 20% a year --- my goal is 18% a year ---- crumbs.
For ThinkOrSwim customers (and maybe others?) there's an interesting specification found on the Trade tab called Beta. Beta is the correlation of a stock motion as the S&P 500 moves. Higher beta suggests (all other things being equal) that the stock price will move more rapidly than the S&P and vice versa.
If you look at the SPY or SPX you'll see their betas are 1. When I trade these I violate Jerry's sensible 20% rule because they generally move more slowly than some of our favorite underlings. But you still have to be careful and build, over time and experience, a sense of how and why it moves.
Trading the SPX and thinking the price is so huge "I want to give myself 50 points of cushion" is equivalent to trading the SPY with 5 points of cushion. The SPY traded today around 129 so 5 points is roughly 3.9% cushion. Scale x10 and you get the SPX. Still 3.9%.
We need to be mindful that huge trade prices don't equate to lower volatility. If the SPY moves down by a buck the SPX falls 10 bucks. If SPY falls 5, SPX falls 50.
Keep in mind there are many factors affecting sector and individual stock prices that are not revealed in the S&P500. Just look at NFLX today. That said, here are some betas from ToS as of this evening:
NFLX 0.4336
AAPL 1.336
CLF 2.016
CRM 0.981
FFIV 1.213
IBM 0.7267
ISRG 1.522
JOYG 2.054
OPEN 1.649
PCLN 1.125
Food for thought, I hope.
Cheers,
Hampton
@avid_kris:
The 1175/1150 SPX spread isn't a bad idea. There's plenty of cushion and the return is reasonable. 100+ points of cushion for a week sounds great! I think I might just do that. Thanks for the tip! =)
Some great food for thought, Hampton. Very interesting. I've used betas in financial calculations at work but never realized they were based on the S&P.
Fulgore, I'm sending you an email, thanks!
I also like the larger cushion and the smaller goals. Folks, these are some volatile times. With the coming debt ceiling being voted on and even the 'Weiner' scandal...lol What a fool..
But I did open some PCLN call spreads today. The 540/545..
Don't forget the old saying that the summer is not a good time to be long..
Jerry
One thing I'm struggling with is like Gary discussed earlier, time versus cushion.
Normally I can't open on Fridays because I'm using most of my maintenance, so I can't benefit from the weekend time decay, so either I open Mon or Tues and try to find something with deep cushion, or I wait until after Wed lunch or Thursday and get closer but with only a day or two left. Very hard to find a premium above .05 in either case though.
Anyone got a better strategy?
Sold to open FAS $23 weekly for .37, figured if I liked it at $26, I should love it at $23, the financials have really taken a hit, time to bounce back, or at least find some support at this level.
I find the better strategy is Jerry's original crumbs ... sell a monthly naked put some weeks away from expiration on a good stock that is about 20% out of the money. You get "real" cushion ... not the the relatively tiny few percent you're using with the weeklies. You can get good premium with this cushion ... about 1% per week is achievable.
It's being patient and "watching paint dry" as the time decay works its magic.
I think the weeklies are dangerous because the cushion you're getting, isn't really that significant. When things go against you, as they easily can do as evidenced by SPX last week, there's no time to adjust or see what the position will do because the week ends so quickly. With a monthly, there isn't the panic.
To me it seems that getting an ROI of 4% on a four-week monthly is far less dangerous than 1% on a weekly spread.
What I see is that monthlies don't have the gambling excitement that weeklies do ... and that seems to be the attraction lately.
Trade carefully ...
Hamton, Take you BETA to the next level. On your position screen click the blue button in the top left just under the words position statement.
Click on Beta Weighing then put SPX in the blank window. Done now look at the bottom of that window you should see your entire positions Beta Weighted to the SPX.
I'm 36 Delta with 2300 theta idea is to be Delta 0 with a healthy Theta
Nic, if you don't want to close on Thu. or Fri. can you slip in and buy a few more puts under you short? For a few nickels it should open up some margin. That is as long as your still playing for .15 or better if it's .05 just close it and open the new.
Jerry, I like the way the new blog works now that it has been fixed after it went down recently. The only thing I don't like about it is that the window that opens up for viewing comments is too small and cannot be re-sized. Is there any way that the webmaster or the designer of the blog service can enable the maximize button in the upper right corner of the window or give us the capability to re-size the window. It would be nice to be able to maximize the window to full screen size and would make reading longer messages easier.
"I find the better strategy is Jerry's original crumbs."
Well said, Jim. I couldn't agree more. My most profitable trading methods rarely produce emotional highs and lows, and are sort of boring.
After reading Nassim Taleb's Fooled By Randomness, and Black Swan, I am even more convinced that Jerry's original method (especially using spreads with index etfs)is a smart way to trade.
@Nic, I deleted some email today, I hope it wasn't yours lol maybe send it again and title is SELLING PUTS MY WAY.
Right now I am happy with 70-80 points of cushion on the SPX and getting a 1.2% return for 5 days. This is pretty safe to me. I have calculated 2 losses a year on this. And still a 50% return for the year.
Sigmund,
My take away from the Black Swan is there will be no safe short.
At least not on the put side. Going to be a big one.. :+(
I don't see it yet but it's out there. I'm thinking it have something to do with DC?
BIDU got a week 2 115/110 put off at .25
Fulgore said:
"Right now I am happy with 70-80 points of cushion on the SPX and getting a 1.2% return for 5 days. This is pretty safe to me. I have calculated 2 losses a year on this. And still a 50% return for the year."
Could you please explain the magnitude of your 2 losses per year. In my way of thinking, you may lose the whole spread, because of a gap down or a late Friday drop where you can't get out of a trade. If you lose even one whole spread during th eyear, when you're only getting about 1%, then you'll have lost money for the year.
For example, $50,000 at 1% in maintenance on a spread returns about $500 in premium. If you can do that every week, you collect about $500*52 or $26,000 in premium. That's great .. but if you lose even one spread at $50,000 ... yikes!
@Jim, My weekly's are PM expire on Friday. This means I can trade till the bell on Friday if there are any drops late.
About the cash settlement, I will never let my position get ITM. If my position gets within 5-10 points of my mark I most likely will close it. Although this has never happened yet but one has to have the discipline to close at a loss. This loss will be roughly 1.2% of my investment.
If the my stocks like the SPX behave like they have in the last 3 years there are 3 losses in this year of 70 points and over for the SPX for weekly's.
Of course this will never work out perfectly and there will be some losses gains that can not be accounted for BUT if one has enough discipline to close a position BEFORE it hits ITM one can do extremely well.
Yes there is that "what if" there is a flash crash and you try to get out before you hit ITM and it doesn't go through. There will always be the "what if's" and that is where the cushion comes in. I go as far away as possible to get a return of 1.2%. If i feel that this may be threatened by something going on in the world I will close it without even thinking.
We can never see the future but we can prepare for it.
@Gary,
Covered Bidu 105 naked put last week with a dime.
Today did 105/95 spread @0.24.Should have waited a bit longer..
@Jim, You mentioned about the monthly crumb method. I love this method, but when the weekly's came out I did some math.
If you took the SPX monthly at 20% you would have about 258 points of cushion for the month.
If you took the SPX weekly you would have about 70 points of cushion (the way I do it) for the week. That amounts to 280 points of cushion for the month. Overal this gives you more cushion then the monthly. Also on top of this I have quick time decay and I get to re-adjust my position every Monday.
The downside of course is if there is a quick dip in the stock for the week you will have to close out your position BUT you get to re-open it the next week.
Hannah
No kidding on waiting on BIDU. My upside is I'm also long stock and overweight Sep 120 and 125 puts. So i will ride it out.
Dave G,
I've had no trouble resizing the BLOG using Google's Chrome browser. It's an IE issue. I prefer IE, but OptionHouse & TradeKing like Chrome better..
Cheers!!
rick
Dave, I've found that if I click on 'comments' I get that tiny window whereas if I click on the subject headline it comes up as before.
Fulgore,Jim,etc.
I like the weeklies in the sense that a lot can happen in a month, but I think the gap in the weeklies argument is volatility. Since stocks regularly move up and down 5-6% even with steady direction or when trading sideways, a higher monthly cushion takes you outside that range. On the other hand, like Fulgore said, with weeklies you get the opportunity to readjust every week.
Tough market today... I cannot get a fill in SPX or PCLN. I've moved my prices .10 &.15cents below midpoint(PCLN / SPX respectively), and still no fills. *AT* midpoint has not been a problem recently. Fishy..
I'm gonna wait till Bernanke speaks. I like trading on Wednesday's.
rick
Well, stocks are up a bit today. There is no announcement yet but the more they go up right now the more cushion I have when the announcement comes out on interest rates.
As of right now the SPX has to drop 23 points EACH DAY in the next 3 days for me to get worried. I should be ok but you never know.
BIDU more fun than a ride at 6 flags!! Weeeeeeeeeee.
Gary - I'm at 28 Delta with Theta of 503. Does this type of theta spec indicate burn or something else? Can't imagine being Delta 0 with such a narrow range of underlyings and all in short puts (on this particular account).
Rick - Do you have access to Level 2 quotes? That would greatly help you understand where your trades are likely to get executed.
@Gary: Big time action on the buy side for $115 BIDU weekly's,
@ Dave G: What browser are using?
I have no problems viewing the comments in a maximized window, I'm using Firefox, if your using Firefox you can try this:
Enter about:config in the location bar
Look for dom.disable_window_open_feature.location
Double click it to toggle it to true
Hampton,
I stir many pots, I'm long stock long put protection on the stock I sell CC at the money calls. Also some at the money put selling and rounding all that out a few crumbs.
On your TOS platform open the Support/Chat tab click on Seminars
and then search
"Greeks, Greeks and Expiration trade logic"
Excellent Greek primer. But that aside yes theta is your time decay
Going the other way BIDU 140/145 calls .26
Closed out my SPX 1150's that I sold yesterday - another 1 day trade. I sold the 1100's and 1125's on Friday, closed them out on Monday, then sold 1150's yesterday and closed out today. This is my version of the GIGO (Get In, Get Out) trade. I have seen several different types of GIGO trades, this is the way I trade the SPX and since initially trading the SPX (first trade on May 3), my record is 25-0 (25 winners, 0 losers). I tried today to get filled on the 1175's @ .15, but no luck with that. Had I not been so greedy, I could of gotten filled @ .10 and been out of the trade 1-2 hours later. I'm still new to trading the SPX (just over 1 month now) and I'm still developing/modifying my trading strategy rules to accompany it, but so far the SPX has been like an ATM machine to me. I like the fact that I can GIGO these trades (get in, get out -- with the cash 1-2 days later). I'm limiting the amount of time my capital is exposed to the nuances of the market with this trading strategy to 1-2 days. I'm still working on developing this strategy and making changes by the week as I learn more and more about how to better trade it (SPX). I only trade the SPX weeklys as I love the accelerated theta decay that is naturally built into all short-dated option contracts.
Rick, I'm going to give Chrome a try...thanks!
Nic, that does work as you stated...thanks!
Nicky, I was using Firefox, but it locked up on me too much, so I unloaded it, but I'm going to reload it and give your suggestion a try...thank you also!
Another down day.....
Hey Nicky No Debbie Downers allowed..LOL
Also a reminder any one looking to roll anything next weeks weeklies they are available now.
Gary, There will be no new weeklys for next week. The weeklys for next week are the June monthly options. So, officially (so to speak) on Thursday morning, opening bell, the June monthly options become the weeklys for next week. Also, the SPX options for next week (June monthlies) will settle AM Friday instead of the normal PM settlement on the regular (real) weeklys.
Hey Gary, I'm going to try this GIGO method of yours, in the past I was reluctant to give back any part of premium received, but with the market the way it is, my Wheel of fortune method is not doing so well, not really my method, somebody here posted about it, will the real inventor of the WOF method please stand, I like the WOF method, I'll mix it up with the GIGO method, and I said I would not get back into buying options, but I might try my luck with a little funny money set aside, I love this trade I read about:
http://www.reuters.com/article/2010/09/27/us-airtran-calls-idUSTRE68Q5LA20100927
@DaveG, Thanks for the GIGO method, I may use that on my SPX for this week because of this bearish market. Don't want to risk anything. Also the settlement for the SPX on the weekly which is now the monthly is a little confusing to some people im sure. The important thing is to remember this. Each weekly you do in a month remember the 3rd one is an AM settlement on FRI and you have no control over trading this!!!
This is another reason I will most likely get out of my position on WED or THURS on the SPX. I have the 1125.
WOF that would be me.. I got it from Guy Adami some work great some take time to work out. My best one open is FFIV I sold ATM puts for three weeks before being put to 5-6 at 105. I have sold 105 calls for 4 weeks now at a buck plus.
My bummer is MCP put to me at 70.00but I'm long Sep. 60 puts so I have 3 1/2 months to sell weeklies it's not fun looking at a 13,800.00loss every day thought.
MVP will be my GS replacement I'm long GS from Feb. 16 at 140 I'm down 18,500.00 on it but I have long July 155 puts and a PL open of over 14K all from selling weeklies.
Dave G. I was pointing out that the next week weekly (June) is there now. Sometimes I forget. Or to put it another way EVERY thing has weeklies next week.
OK, please let me clear up a couple of things here. Gary, you're correct, every stock that has options has weeklys next week...kinda cool when you look at it that way. You're wrong however on where the WOF came from. Now, I'm not going to get into a tit-for-tat with you on this because it's simply not that important to me. I originally brought up the WOF idea in a message I posted on 03/31/11. I got the idea from an instructor named Russ Allen who taught at a trading school that I get my options training from. You can verify this by going back and looking at the blogs. Reference Jerry's blog from Monday, March 28,2011 "Some weekly option trades". My message on WOF was posted on March 31, 2011 12:18 PM. I have cut-and-paste that exact message below:
"Dave G said...
George,
Regards to your comment about vertical spreads and naked puts in an IRA account: it is the other way around for me - I can sell naked puts, but I cannot do vertical spreads. My IRA account is with TD Ameritrade and they have a 3 tier system for option level approval in an IRA account. Tier 1 - allows covered call and cash secured put capability, Tier 2 - gives you the capability to buy calls/puts and something new that they just started is Tier 2 IRA Margin which allows you to do spread trades in an IRA account. I have not applied for this new Tier 2 IRA Margin approval yet. So, Tier 1 approval gives me the capability to sell (100% cash secured) puts in my IRA account. In that account I do what we refer to as the "Wheel of Fortune" - sell puts till the stock is put to you and then sell calls against that put stock until it is called away and then sell puts again till stock is put to you etc. (i.e. "Wheel of Fortune"). The strike prices I choose for put selling in my IRA account are at prices that I am willing to be put the stock and then turn around and sell calls against that stock. I also only sell monthly options in my IRA account because I can go further out of the money and still bring in a pretty good premium as opposed to trading the weeklys. In my non-qualified trading account (where commissions are much lower), the put selling that I do on the weeklys are just trades. I do not want to take possession of the stock (no Wheel of Fortune on those). I just want to collect the put premium and will buy them back at a loss (if I have to) to keep from being put the stock. My goal is for them puts to expire worthless (not every trade works that way, but most do). So, I do the “Wheel of Fortune" using the monthly options in my IRA account and in my regular trading account the put selling of weeklys are just trades to collect the crumb premiums. I hope that answers your question George.
Dave G
March 31, 2011 12:18 PM"
Nicky, in your reply to my GIGO SPX message you referred to me as "Gary". I have been called many names in my lifetime, some good, and yes, some not so good. If you want to continue to call me Gary, that's fine, only thing is, when you refer to Gary, it could get kind of confusing when I and the real Gary reply.
Also, I now regret making the statement "but so far the SPX has been like an ATM machine to me". I, in no way, shape, or form want to refer to any trading strategy as being as simple as extracting money from an ATM machine. Although, I believe that the GIGO SPX trading strategy I made reference to is as safe as most any strategy out there, all strategies have risks and this one is no exception. I have to attend a webinar @ 1900 CST and after that, I'm going to post another message about the GIGO SPX trading strategy I made reference to in that earlier message. Nicky, Fulgore and anyone else interested in that strategy, please DO NOT TRADE that strategy until you have read my next message about the risks of that strategy. Again, do not trade that strategy until you have read my next message about the risks and caveats of that strategy.
My mistake Dave G, thanks for bringing the WOF and the GIGO methods to my/our attention, WOF has been great to me especially with TTWO, four months straight ATM puts, yet to be put on, others I have been put on, with success, now with the market down, I am holding a few, which I don't really regret, since I only write on stocks I don't mind owning, time to try GIGO, will be awaiting your post.
Dave I love the ATM machine comment, TTWO has been my ATM machine, once the dust settles, I get some things called away, I will get back to withdrawing from my old reliable ATM machine.
OK, I've had enough of sitting in front of this computer for one day. I just want to drink some cold beer, watch a little TV, and then hit the "sac-a-roo". I will post that message first thing in the morning.
Dave I find it interesting that it's no big deal but here is the date Dave posted WOF. OK no big deal but now I'm interested how do you look up old post? I will go back and find mine. The only thing I know for sure is Guy gave it to me Jan 2009.
And for the recorded my screen name at the time was RaginBullWinkle not sure how it flipped to Gary only that it did after not posting for a long time.
Any way I'm about 1000 and one 1/2% sure it was before March. It's so far back in fact I really can't even remember any post by a Dave G. When was your first? But again no big deal.
Wow, lots of comments.
Some trading ideas for those that do not have there personal WOF..lol Good term for option traders. But don't get locked on to one stock as it can become like blinders. Yu might miss the bigger pictures.
trades i opened today
NFLX 290/295 CALLS
PCLN 540/545 CALLS
PCLN 475/780 PUTS
gOOG 490/495 PUTS
GOOG 540/545 CALLS
AMZN 200/205 CALLS
AAPL 310/315 PUTS
---
All of these are for this week. good luck all
Jerry
Jerry, what premium did you manage to get on those? I tried some of the same ones at .05 without getting filled.
I agree with Sigmund & Jim; 3-4 week naked puts; I've BTC all my positions for profits; am left with LULU which I'll be riding to expiration. Earnings are coming up later this week (which I missed when pulling the trigger) but I have enough cash to cover if assigned.
Good day all.
Yes Jerry a lot of post, got me thinking when I started on this board there were what 10 post a week? I can recall a Hannah, Kiteman Mark and one or two more and that was about it. You could pop on here and read all post in 60 seconds or less. Ahhhhh The good old days..LOL
I hope all the new posters have bought Jerry's book. It was the 3rd book on my Kindle 3-4 months ago!!
Gary - Re Guy Adami's statements. I love that guy!!! Not nearly as 'stiff' as the other fast-traders. Even for a boy from Dallas, I like Guy's Jersey Boy banter.
rick
You need to meet him some time, chews gum snaps his fingers drops the F bomb and tells it like it is. Cool Guy IMHO and I don't like a lot of NY type people.
I also found out he swears at his dice at the craps table.LOL. This was at Green Vally Ranch in Henderson I have it on DVD somewhere If I can find it I will see if I can get the WOF part up on photo bucket,
I'm enjoying the discussion on WOF, GIGO, ATM, etc.
I'm doing less covered calls and more selling put options my way as well as testing the waters on weekly spreads, since it seems to be the new trend around here lately. Your comments are helping me to find my own way....thanks
Ok, I tried to post this entire message, but the Blog said it was too big (4,096 characters max). So here it is in separate messages:
First, let me start off by saying that I'm not the expert on trading SPX. I look to Jerry or Gary (i.e. RaginBullWinkle - which name do you prefer Gary?) as more definitive and experienced voices of authority in SPX trading. Although I have been selling naked puts for several years, I have only recently done so with SPX. The underlying concept is still the same, but trading SPX (i.e. "The Cash") does bring into play some differences as compared to regular equities. All that I'm going to say here is pretty straight forward and is common knowledge. This is a very simple strategy, and I just want to make sure everybody is aware of and understands the basics of this strategy. As I previously stated, I'm new to trading SPX, and if not by the day, certainly by the week, I'm learning more and more and making changes to my trading plan as I do. This is still a work-in -progress for me. I really did not want to post anything until I've had more experience trading it (SPX), but I decided to do it because I want people to point out the cons (the bad and the ugly) to this strategy. I want people to point fault at, or mistakes that I'm making, in what I'm doing here. I would rather learn now then after a big loss because of something I didn't know or consider. With that said, here is what I know about trading the GIGO strategy on SPX.
The major difference between selling naked puts on the SPX and stocks is that with reference to SPX, there is no underlying to be put to you should the settlement price be below your short strike. The trade is simply consummated in cash. When selling naked puts on the SPX, you're held accountable for $100 per point (per contract) below the short strike. The second difference is, the SPX is a European style option as opposed to options on equities, for the most part, being American style. That means that the buyers of SPX premium (person on the other end of your trade) can only exercise their option rights (if the option is ITM) on the day before the options expiration (and as a put seller this is a good thing). The third major difference (and this one should be pretty obvious) is we are dealing with a roughly $1,300 underlying here and when you sell puts naked against that underlying, you are responsible for every point of that underlying (from your short strike) all the way down to zero. Now, nobody really expects the SPX to go to zero, but none-the-less, you are still contractually obligated @ $100 per point per contract for every point drop below you short strike. So, if your short strike is 1200, you are contractually bound (at worst case scenario--SPX goes to zero) for 1200x100x1 (1 contract) = $120,000. On 10 contracts, that would be 1200x100x10 = $1,200,000. The fourth difference is (at least in my case since I don't have a PM account) is margin responsibilities. remember, we're dealing with a rather expensive underlying here (~1,300) and in my non-PM account my broker requires about $11,000-$14,000 in margin money per SPX put contract sold short. Gary (RaginBullWinkle) can comment on PM account margin money which it sounds like are much, much lower. Some may not be able to sell naked puts on SPX because of the margin requirements and some may say that they can make better use of that money...all good points. I look at it as somewhat of a plus because it keeps me from ratcheting up the number of contracts that I trade (control the greed).
Some quick general rules that I use (again, this is a work-in-progress for me, I'm learning/modifying every week how I trade naked puts on the SPX).
1. I target 25 points/day minimum for my short strike. This is subjective, some may be comfortable with 20, some with 15...the point is: risk is in the eyes of the beholder (or trader).
2. My short, naked strike is always a minimum of 100 points from current price of the SPX. Again, this is subjective...how much risk are you comfortable with?
3. I use to enter these trades on Thursday or Friday and hold them all the way to expiration. But, I quickly saw that the put premium would decay to bottom-level values (.00 bid x .05 ask) within 1 or 2 days usually. So what I do now is buy them back @ .05 (usually the next day and even sometimes the same day as I entered the trade) and re-enter new trades at higher strikes to buy them back the next day and then do the same process again. You could, with proper strike selection and a neutral to bullish market enter short put positions on Thursday (the first day the weeklys are published) and exit the next day on Friday, enter new trades on Friday and exit on Monday, enter new trades on Monday and exit on Tuesday etc. all the way to and including selling puts against the SPX on expiration Friday 20-30 points out that terminate that day. I have gone as many as 3 iterations on this concept (that being last week and this week). I'm now usually in and out of my trades in 1 day, two at the very most. I will probably not be able to do more than 3 or 4 iterations because as you get closer to expiration Friday for the weeklys, I'm finding that I have to break my 100 point minimum cushion and I just don't want to do that when selling naked puts (short put spreads yes, naked puts no).
4. The reason I want that 100 point cushion is 1. I'm naked on these trades and 2. Flash Crash, Flash Crash, Flash Crash. With short put spreads, your max loss is clearly defined, but when you are naked, it's not (well actually it is @ zero) and that's a scary thought. Could a Flash Crash happen again...who really knows?
5. When closing out a short put option trade, that margin money is not released back into my account until the next day (i.e. it's not available to me for trading with until the next day...T+1).
Again, I'm learning as I go on this strategy. A lot of this is simple and straight forward, a lot is subjective and to each his/her own. This is not a strategy for everyone. It's not a perfect strategy, it does have some very negative aspects to it. I may move on from this at any time. But for now, I like it and I will continue trade it and learn, baby learn. I welcome any comments no matter how bad they may be. There is nothing anyone can say to me on this blog that's going to hurt my feelings, so if I'm just plain wrong or incorrect or misguided, please let me know.
One more on Guy,
The group I was with was only about 50 people I remember coming back to our room form lunch and there was Guy. There were about 10 of us at that poin and he just did Q&A for 15 Min.
Then asked us if we watch the show and what we liked and what we would like to see changed. Like I said Cool Dude.
question for those that get assigned or routinely play "wheel of fortune"; do you automatically sell the covered calls the next trading day or wait for either an up day to sell the stock or to get a higher premium? Does it depend how far the underlying fell through your strike price?
Newport If I know I'm being put to not only do I sell the next week calls on that Friday I'm also buying puts about 4-5 months out and about 2 strikes down.
Case in point my bad one. MCP I was short 70 Puts 5-7-2011 I went long Sep. 60 puts at a cost of 7.00so that gives me 19 weeks to make up the 17.00 a share of my real 70+ 7.00 - 60.00 puts. It looks like I will be holding then out at 60 in Sep.
I had an order in on next weeks 60's at 1.05 and did not get a fill. This thing is turning into a real stinker. but as long as I can get over a buck a week I will turn a small profit. And In my book that is better than taking the loss to close it out.
Market today is up.. down .. up .. down .. I don't need Cedar Point today!
@Jerry, I will check you positions when I get time to see how much cushion etc.. you put on them. I gotta learn from the best!
Also its hot here in Windsor Ontario. 95F today with very high humidity.
Gary,
Thanks for sharing. I like your exit strategy when being put to the stock. The worst scenario would be the stock being called away by a sudden strong rally after you earn a couple bucks. Will you still keep long put for a while?
------------------------------------
Wanna ask if anybody using OptionHouse for IRA? Feedback?
Consider moving from TDA. Thanks.
Hannah,
I am new to Option House (6-7weeks) and am enjoying the 200 free trades. My IRA finally got moved over from E*Trade. I have now started trading credit spreads (puts & calls) in the IRA. 200 more free trades. Gotta love it!!
rick
Hannah,
I have my IRA with TDA also. Why are you considering switching...commissions?
Nicky
Can you confirm that your blog photo is a close friend, wife/sister Nikki, etc?? Until I saw your profile (male), I had to close the window when my wife was in the room :-)
Cheers all,
rick
ps - ladies on the blog. Please take no offense at my recognition of Nicky's blog photo. I am a true southern gentlemen.
Gary - Re Guy Adami
When I heard about their trip to Bellagio and his penchant for craps, I was online looking for plane tickets. I love the Bellagio, and I love the craps table.
Alas, I had family obligations. I will make a point to meet him at a conference or training seminar.
rick
ps to all - My risk tolerance at the crap tables allows for 100% loss. My investments, especially in my IRA acct is very risk averse!!
Hannah,
Something like FFIV put to me 5-6 at 105 I sold 105 calls for three weeks and last week rolled it up to 110 and 115 today I'm short 15 week2 115.00 and I rolled 5 week2 110's to June 110. I have half July 100 puts and half Sep 100 puts. I will keep rolling if it just hangs here and let half get called in July. If the stock motors up 15-20 points. (Don’t I Wish?)
I will take the July put and roll it to Sep or Oct? 110-115?
This is my twist on the WOF when Guy laid it out there were no puts involved. One look at MCP and you can see why I like them. As far as keeping the puts if you did get called away. I think yes it’s good protection to start selling fresh at the money puts and start over.
Gary,
Good to see you back. Where is John. I took a beating last week on the spx spreads. I have had 2 good months and 3 bad. That is the truth. All 3 times I sold with at least a 2 to 1 loss. All 3 times I would have been fine at expiration. I am still fine cuz I do not want to take a huge loss that takes forever to recover from.
Too bad we can not set up a Post on a 'best of' on a particular subject. Like SPX, wheel of fortune, or Selling calls with a standing order to buy the underlying .25 below the strike.
I have been really busy so I can't read this fast. I am going to take a speed reading class so I can keep up. Still a great blog Jerry and everyone else. Keep it going!
George the Kiteman
Harley,
My mentor the "Pirate" is friends with Guy, Pete and Jon Najarian the three are often guess speakers when he has a get together. They are also small groups like less than 80.
If one come up with Guy again I will try and remember to post here.
@ Gary: What do you got against "NY type guys"?
@newport: I like to wait for an up day to sell the covered calls, also when you take into account the premium received for the puts, your cost basis per share is lower than the put share price, so you can write calls at the same price you were assigned if you want out of the position, my best experience thus far was being assigned BGU @ $75, then it being called the next month @$82.
@Bald Harley - I wish I knew who she was, just a pic off the internet.
Hi all, yes the blog is getting a lot of comments. That is good as all contributors seem to be good people. No bashing or politics. Just great ideas and many different ways to trade these things. I did avoid the SPX this week as all the opec, budget and no-budget things can move the mkt to fast and far for my taste.
Nic, all my trades were for .05 and all for these weeks. I have some orders in for AAPL but no fills yet (the 305/310 @ .04)
I will start a new tread after tomorrow close.
Jer
@Gary - thanks for the info - I'm not yet authorized for naked call selling so I end up waiting until Monday to sell the calls; I was put FCX last month and the first week I held off selling the puts thinking the underlying would go up but of course not and sold lower than I could have on Monday; the following week I sold on Monday and on Tuesday FCX pops 3% - but was happy with the final results.
Jerry said: "I will start a new tread after tomorrow close."
Jerry are you a NY guy? That's just the way a NY guy would have said it, you gotta a problem with this tread?
@All, So far with the crumb method both monthly and weekly's since November of 2010 I do not have 1 loss. I have all wins.
There was one loss I had but I was new to Think Or Swim platform and messed up the trade haha so I am not counting that one.
Looks like the SPX is going to be flat line today (I hope). If so this gives me 60 points of cushion for 2 day!
I noticed you guys talking about greeks. I have been reading about them recently but still VERY new. On my TK for my put spread it provides position totals. Right now my Theta is for the position total is 114.76.
I know from my reading that Theta represents time decay. What does 114.76 mean? My time decay is 114.76 in a day?
Thanks!
LMAO!!!
I was wondering how long it would take for someone to mention the photo of Nicky!! Took about 3 weeks!
My over under was 1!! hahaha!!
Classic!
It sure is annoying when you're not getting filled. I had 8 orders in yesterday and not a single one got filled, but since all my maintenance was tied up I couldn't try anything except modifying existing ones.
Rick,
Glad that you are happy with OH:)
Dave G,
I like flexibility of trading spread and cash secured put.(not wof fan). I got 8.00 per trade commission for both IRA and Reg T margin Account.But contract fee of 0.75 is killing the profit, fast.
Every 100 contracts spread with 5 cent crumbs = $500-$158 = $342+ risk. I might as well give up and take a sweet nap! And then this one side margin with condor is not available at TDA...all the more reason.
I have been trading put spread last few weeks. I put in call spread this morning and was told "you are not allowed.." WHAT? Then this pain of changing the order is: you have to do the whole order all over again. I am not sure it's easier at TK or OH. One way to find out!
Nicky,
If you will allow me to broad cast in stereotype every time we would go to AC every one I came across would today remind me of Anthony I'm a toasted Weiner. But then again I have good friends upstate Binghamton way. So not all NY just the obnoxious weiner parts. Please tell me your not from Brooklyn, LOL
I also get a LOT of calls from brokers from NY and find them way to pushy.
Hey Kiteman, are you still reading the PO8 / WOW blog? I pretty much ran out of time for sitting in front of the computer all day. The way the market is going I figured I better keep an eye on the day job.
My son told me he heard Preston doing an ad on the opie and Anthony show yesterday. Should make for some mix at the next boot camp.
Hannah,
I trade IC's at OH and TK. Margin only required on one side!! I usually sell both sides of the IC in one order (save a little commish) but some weeks I start with a put spread, then later (or next day) sell a call spread on same stock/index, and the margin requirement is ZERO. Sweet...
rick
The weeks used to go by fast, but when I started trading weeklies, the week......goes.....by......so......slow. Let it be Friday 4pm already! LOL
Rick@BH - OH or TK? Why both?
Prefer which?
For Regular Margin Account OH allows naked put?I got out of TK because it's not much better than cash backed put)
If yes, what ratio margin(how many multiples of buying power? (the chat answers at their site are not necessarily accurate...)
Thanks for answering my questions.
In reference to the GIGO (Get In, Get Out) trade on SPX. I was filled yesterday (second time this has happened to me) 10 minutes after the market closed on my 1175 puts @ .10. I closed that trade out this morning @ .05 within 3 hours of the opening bell. I knew that was going to happen. This is getting to be just so easy. This is the first underlying I have found where I can work the outer fringes of the option chain and collect legitimate crumb action almost on a daily basis. Just like SEAL Team 6 (enter, do your business, exit), I've been able (for the last 2 weeks anyways) to get in, get the cash, and get out with each trade lasting no more than 1 day from enter to exit. Reference to that last trade I just made, my capital was only exposed to the market less than 3 hours of market time. Loving this strategy baby! I've now milked all I can out of this week's weeklys (and keep my 100 point cushion), onto next week's weeklys which are the June monthlies.
Hannah, I've been on a couple of plattforms now and nothing comes close to ThinkOrSwim, it is by comparison incredibly sophisticated but fairly easy to learn. Having said that I recently moved most of my funds to Optionshouse as their commission for options was killing me. Optionhouse on the other hand has a very basic plattform and their iphone app is borderline useless.
Nic, What do you pay at OH?
On TOS my margin rate is 3% and I pay a flat .85 for options no ticket charge. you need to ask for better rates. Not sure why they still charge for 20.00 for wires. when I was with TD it was a comp.
I'm goning golfing. You guys keep the mkt calm..
I am a west coast guy that can't type all that well...lol
Wow maybe a new THREAD is do tonight..getting long
Jerry
ps; I also was wondering how long before a Nicky comment..
@Dave G - I know you have a rule of 100 points of cushion for early in the week, but seeing as you're down to the final couple days, is it really that unwise to look at 75-80 points cushion? Not trying to sway you from your rules, we all need some, but just adding a thought.
I really wish I had the cash to trade the SPX naked like you've described. Very interesting!!
I pay .15 at optionhouse compared to $1.50 at ToS. Sure, I could definitely get a better rate, but not 10 times better, and I really hate to shackle with brokers. I then have to keep track so my special deal is honored, etc...
Dave, what premium are you looking at getting? And how do you make sure you're getting filled? Getting filled is actually my biggest gripe with crumbing, there is usually a 0 bid on many of these.
On my comment about NY people I was going to add something about the transgender and transsexual population but thought better of it. ;+)
Hannah,
First, that $8 ticket, I'm paying a 7$ ticket...was paying a $10 ticket, now it's $7. Everyone I know that has TDA has gotten them to lower the ticket from 10 to 7. You should be able to do the same. It's not much (8 to 7), but every little bit helps. I'm also paying the .75/contract. I don't mind the .75/contract, it's the $7 ticket/trade that I didn't like. That's why I switched my margin account to a broker that doesn't charge a ticket price. Credit spread trades are not allowed in a TDA IRA account, only debit spreads. TDA does only charge margin for one side on a condor trade in a margin account. If you can trade put spreads, you should also be able to trade call spreads, you need tier 2 options level approval to do them. You know, as a TDA account holder, you have access to TOS, an outstanding platform for trading options. Trading from within the TDA web site, especially with options leaves a lot to be desired...I don't care for it at all. Everything that TDA's web site trading is not, TOS is. I'm new to TOS and learning by the day and it really rocks once you become comfortable with it. There is a learning curve there, but once learned, it's probably the best platform for trading options...period.
Dave,
Again if you like were you’re at HAMMER them on rates. IF you’re an "Active Trader" they will want to keep you.
This is what I got back from Scott Sheridan at TOS don't F with customer service go right to the top. There E-mail is listed.
scott@thinkorswim.com
tom@thinkorswim.com
Gary:
I am looking at your trading over the last 3 days and I do not like the rate that you have of .75 per contract + $4.99 ticket charge as the ticket charge is really hurting you. What I will offer to do for you is lower you to a flat .85 per contract which I believe will be much better for your style of trading.
Let me know…
Thanks,
Scott
JimN, good to see you back posting messages on this blog. As usual, you make a valid point. I'm still a little bit struggling with that and if it wasn't for two words (flash crash), I would be all over that. I may indeed, at some point do just that. I'm also considering that at the point where I've milked all I can up to the 100 point minimum selling naked puts, switch over to selling put spreads like Jerry, you, and Fulgore are doing. As I previously stated, this is a work-in-progress...welcome back Jim!
Nic, Thursday, Friday, and Monday, I'm looking to get filled @ .15, .20, or .25 or more...nothing less than .15. Tuesday and Wednesday, because time is running out, I have no choice but to settle (usually) for .10 (and keep the 100 point minimum). Getting filled is usually not a problem. My brokerage platform has an audible message that tells me when a trade has been filled. When entering trades, they either meet my offer or I don't trade...I'm in control when entering trades.
I'm back in again on the 1175's @ .10. I also got filled on the June options 1090 @ .15. Could of gotten better fills on both strikes had I waited another 10 minutes as the SPX put premiums spiked up a little bit going into the close. I will be looking to add to my current positions tomorrow at much better fills after seeing what happened on the close today.
Hannah,
Great question... I was at E*Trade for years. Chose them bc of the baby commercials. I started trading very heavy in March, and racked up $5k in commissions. They would not budge, so I started looking. OH & TK are by far the cheapest with the .15/c. I also opened (unfunded) accounts at TOS, TradeMonster and others. OH has streaming quotes & positions. TK requires you to hit "refresh." I HATE that!!! But, I understand TK has a new platform coming. You should look at TM too. Great options platform, but their fees are a little higher, but less than TOS.
Re TOS, I cannot get the hang of the trading platform. I even wired them $10k to try it out, but the learning curve was steeper than I cared for. Credit spreads are pretty simple stuff. I understand the Greeks, but do not use/need them.
OH offered me $700 in cash (or a 27" Dell Monitor, and WSJ subscription), plus 200 free trades, so they got the nod. Their platform is just ok, so I kept looking. TK platform is just *less* than ok. I use TM for tools, scanning, streaming quotes, etc...
If you wanna give OH or TK a try, let me send you a link. We both get $50 bucks and additional free trades. We all ought to do this.
Cheers!!
rick
Another day without getting filled on most of my spreads. As an example the below weeklies didn't go through during the whole day:
SPX 1330/1325 CALL @ .05
SPX 1210/1205 PUT @0.1
Am I being to optmistic or does Optionhouse have a hard time getting their orders through? I can't remember have these low rate at TOS, my picks are closer to bid than ask..
@Nic, you may be a tad optimistic with the SPX put at 1210 (75pts cushion) with only 2 days left. I got filled today SPX 1230/1225 PUT @0.1 when the market was trending down towards the end of the day.
@Nicky - thanks for the input - being assigned not necessarily the worse thing to happen if you got the cash & the underlying has bottomed out not too far away from the initial strike.
@Fulgore - same here; 100% winners if you include being assigned as a "cash secured put".
@DR3Z - tradeking combines the greeks on the "option view" for the total number of contracts; divid those figures by your contract total to get the true greeks.
Chelski, I guess that makes sense. I wish there was a better way than looking at the bid and ask and making a guess inbetween. Someone mentioned Level 2 screens, but that doesn't work on options, does it?
Jerry, can we get a new tread? This one is getting pretty long.
@Nic,
Tradeking has a mid quote for just that reason. If I REALLY want to get my option filled I add TK's mid + the bid and divide by 2. That gets been the formula for getting a fill if I really want the position.
If im not too worried about getting the fill ASAP. I just start at the mid and adjust down to bid every 30 mins or so.
@Newport
Thanks, that makes sense!!
Still not understating theta 100% but that helps.
Thanks Dr3z, good strategy to adjust it downwards every thirty minutes or so.
Dave, I've looked into your GIGO model and have some questions.
First off, you probably have a lot more money than I do, because every contract I do naked on the SPX requires $17K in maintenance. Even at a .25 premium, for example 10 contracts would generate $250 minus commissions and require $170K in maintenance. That is fine for 2 hours but borderline when holding2 days I think.
The other thing I don't understand is that if you're buying them back after such a short time there still has to be .05 or .10 in value, right? This would then slash your profit down to $150-$200 while adding new commission.
And third, I assume the reason this works for you is because you're so far OTM that every day has a dramatic time decay effect? Since I've only been doing spreads since I went to OH, I'm obviously much closer than you to being ITM, but for example in the last week not only has the time decay been very slow but in some of my spreads even put me under water for a while. With the exception of my SPX 1300 I wasn't worried about them expiring ITM, but the dive in value really happened the last day or two.
I hope you don't take this the wrong way, I think the strategy is very interesting, and am just interested in your feedback on the above.
@Nic, I use ToS and it automatically gives me the "inbetween" premium when i choose a spread. It has always worked for me as far as filling orders, but I am only doing around 12 contracts. I know some of you are doing 100+
Come on Vancouver, pull yourselves together!
Hey Dave just to add to Nic's comment what kind of return on maintenance do you generate from GIGO trade? Depending on broker requirements roughly 0.1 -.2% ? Thanks for sharing your method
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