Hi all, like most of you I have not found any trades yet. AAPL NFLX and GOOG up. I will see if tomorrow opens up any decent plays. I am still bothered by Rick's situation. As someone mentioned, spread your exposure among several plays. Regarding when to close a spread I have not really decided what I want to use as a trip wire. Maybe falling back to the standard of a double of the ask? But the main point that I think we should take with us is to not let your losses run. Most that I have closed didn’t end up in the money but I wasn’t going to wait and see.
Some points..
--If you look at a position, and you think, you would not open it now.. Then it is probably time to close it.
--If your gut is telling you, this is getting ugly… close it.
--Develop a trip wire that you stick to. Avoid the trap of giving it ‘just one’ more day.
-- I have decided that I do not like opening both sides of an IC until I know which way the market is heading. Last week I had none.
I usually have so many options open that I do not think of a spread as any protection at all. For me it is just a way to limit and stabilize the maintenance needed. There is some truth that in a world collapse, it would give some limits, but for everyday trading don’t figure on it as stop loss position.
Think cushion and caution. If you can’t find a good trade,,,,don’t trade!
67 comments:
Got filled on the 490/495 PCLN at .1 which would have made me happy last week before Rick's problems but now I'm a little gunshy. Have to find trades tho and given todays action, this one looks ok.
I'm waiting for one down day for more cushion on SPX put. Hard to get filled today....
Jerry,
you made some excellent points. We all have had the gut feeling, or the I shouldn't have bought this. Emotions are a killer in trading. Last week we all though we had cushion, more than others. The trap traders get caught in is thinking that the market will reverse. We can't out think the market. But we certainly will do this, just like I thought the market would reverse last week. Traders have a hard time with getting out of losing trades. We all must stick to our rules, just like some that you outline. Losses will bring us back down to earth and make us smarter as a trader. I will gladly take a loss as long as I can learn from it. But losses like last week make me recalibrate my trading style. Live and learn. This blog has taught me a ton.
Chris
I know that we are mainly DIYers here as far as options trading is concerned but one thing that has alleviated a lot of stress for me is having a very capable autotrading financial newsletter.
Been splitting my account in two with half being allocated to the newsletter and me doing half of the kinds of trades we talk about on this blog. So far I'm up about 30% so far for the year with the autotrading side. He does monthly spreads with the RUT, SPY and MNX (mini nasdaqs) mainly. Sometimes uses ICs but always legging into later and with great caution. Uses great caution in general; does a ton of research and times entries so well.
I know it sounds like I am trying to sell something. I swear I have no business relationship with these folks; I am just saying how successful it has been for me and would like to help out anyone that wants to make it easier on themselves and I have been with them long enough to see sustained success.
It's not *perfect*. Nothing is, of course; the first almost-hiccup happened last month with so many weeks in a row of decline. Even then most of the positions ended up fine; he ended up rolling out of one of the RUT spreads and the total loss on that ended up being very minimal. But until last month I can't even remember the last time a position caused me any anxiety that these guys entered. (I wish I could say the same for my own choices, heh)
Anyway, for anyone that is interested the place in question is
http://www.monthlycashthruoptions.com/
Gremjun,
Email me at Gssound@aol.com. I have a couple questions for you.
Chris
Don't think I'm going to open any positions this week on SPX. The VIX is too low and it's a short week.
And gremjun, some interesting info posted there. I never knew there was such thing as auto trading.
I gotta Seeking Alpha email today suggesting a GOOG put spread:
7/8 510/505 @$1.50 or 30% ROI.
I can barely afford 80, and $12K sounds pretty sweet after last week.
How do ya'll like my new avatar?
rick
back from vacation & reading the previous 3 threads; WOW - some unfortunate situation came up; hope all will be ok Rick and others affected by the huge run up last week.
None of my positions closed while away and look good so far.
STO VECO 40 @ .25
STO FCX 40 @ .25
STO APKT 45 @ 20
STO DECK 65 @ .25
It's tempting to close some or all these out and look for something else but I'm happy with the ROI I'm getting for this cushion & the past week reminds us that the market can run up or down very fast.
I am guessing the GOOG put spread you mean is the 16th, not the 8th and with earnings set for 7-15 ummm...maybe not.
ps well, he's bald all right
Good point on the GOOG earnings Charlie.
Anyone else have anything to add on Bald's GOOG? I'm not vertern enough to comment :")
Rick, I agree with Charlie, it looks like for that amount of premium, that spread trade is on the July monthlies, not the 7/8 weeklys. GOOG reports earnings on the 15th AMC, so holding that spread till expiration does carry that earnings risk with it. I like it...I also like Charlie's comment!
Nice picks newport...
I look forward to your selections.
Jul8 NFLX 265/255 got .05
The GOOG spread was a poor attempt at comic relief...along with the scull & cross bones ;-)
rick
I just did a GOOG put spd --
goog tradinga around 536 & going north, I did the 510/505. the order was for 50 of them but so far only 30 went through at .09
I should have added that these are for this week. Thought being, goog has to drop 32 pts in the next two days. Cushion and caution
@Jerry, thanks for your trade post. It is a good one. Do you mind if i ask what your total comm was on that trade and profit after the comm? For me it would be $49 for the comm and so 0.646% return after comm. I just want to compare your ROI with mine after comm.
guys puts are too risky...u end up losing your shirt if your not careful..covered calls are safer
Peter Guest,
Put spread is what we primarily trade. naked puts is what your are referring to I think?
Anyway, we all have varying methods. If you like covered calls, go for it.
RK
Fulgore, you mentioned earlier that you're aiming for 40% return and that this includes three losses a year. I'm curious on how you calculate the losses? Is that three aborted trades at 3x initial premiums or is this more severe losses?
VMW has been going strong - new breakout to above $100.
STO $85 for $0.10 (@103, about 17.5% cushion for 7 trading days)
Exp = 15 July
Earnings = 19 July.
This is naked put. You may loose your shirt, so beware.
Just kidding.
$860/contract for maintenance - real crumbs from those who are covering to roll up. Cash backed put or Reg T account leaves about 20% extra cash....:)
Fulgore,
I opened the spread for 50 @ .09 and only 30 went through
I lowered it to .07 for the last 20
So I ended up with two different commish cost. If it would have gone through all at .09 or .07 etc it would have been cheaper. But here is the cost etc
Netted 374.73 after all cost--
All comish & fee's etc = 35.27
Used 25,000 maint so an overall result for a two day trade is --
374.73 / 25,000 = 1.498 %
More important than the actual return is that I feel safe with the trade.
I assume that Peter Guest is familiar with naked puts but not how much we practice big cushion and discipline.
Covered calls are not the answer for me. I sie them some but with deep in the money calls. I have done a zillion of them over the years but.. Buy apple today for 351 and sell a CC. Sounds great and then aapl drops to 330 within a week and it might take you a long time to get even. Many ways to skin an option. The only real safe way to do options is to buy next months newspaper- today..
Jerry
I'll take a subscription to that one!
I already subscribe but the darn thing is always a month late.
Peter,
I agree with Jerry...I started out doing covered calls thinking I could do 20% plus a year on average. It worked out well till this last down trend we had for almost 8 weeks. The result was I gave back to the market all the profits cc had given me since last December. I now do selling puts Jerry's way and with lots of cushion and caution....so far so good.
Paul G.
Jerry said: "I usually have so many options open that I do not think of a spread as any protection at all. For me it is just a way to limit and stabilize the maintenance needed. There is some truth that in a world collapse, it would give some limits, but for everyday trading don’t figure on it as stop loss position."
Important stuff this. Twice in the past few months I was on the wrong side of some crude oil futures option spreads. In both cases, the futures settled right around my short option - the longs were totally useless, and provided no help at all.
In both cases, I could have sold a naked option much further out of the money, for the same or better premium and remained safe from the market moves.
Of course, the naked options would take up much more margin - but that's a safety valve in itself; less overall risk (and less overall gain, of course).
Conservative is the name of the game for me.
Steve
Jerry, what do you think of the price action in VECO? +7% drop today wow. One week left...
hi jerry,
sometimes, i see you breaking your own rules like selling options on VECO which is a stock priced around 50 dollars at the time u sold put.I would like to know your advice about the postion in this scenario.To all folks,this again show maintaining discipline and sticking to rules is much harder that what it appears.
OK, I gave up SPX this week.Instead opened NFLX and GOOG.(All weekly)
NFLX 265/270 Put
GOOG 510/515 Put
I just checked and my SPX trades have expired. I guess I have to give up on my SPX for this week as well.
Hoping to look for GOOG/NFLX tomorrow. Need atleast .05 :)
Steve and other skinny dippers,
As you may have read, I lost 90% of a very significant portfolio last week. Had I not been using spreads, it could have been 2-300% or 1000%. These were fairly "safe" trades when made, albeit not as safe as Jerry recommends. This is a portion of the activity in one of my accounts:
Cash in lieu of SPXW $120,875
Opt Assign 125 SPXW ($183,375)
Cash in lieu of SPXW $293,400
Opt Assign 200 SPXW ($393,400)
This is less than half of the blood bath I suffered, and I thank GOD for those positive entries. Had everything been naked, well... I'd be crying in a cardboard box under a bridge.
I was 'selling calls my way' and it ate me alive. This blog, and Jerry's book is about cushion and caution. I know many of you can afford naked options. I don't understand the logic. It wastes margin, and limit your ROI.
In closing, please excuse this soapbox rant. I mean NO disrespect. I have suffered immensely from a lack of cushion & caution, and naked options scare the hell out of me.
If my loss, and the lessen learned can protect even one of you, that will be a nickel towards my personal recovery.
Cheers all,
rick
ps - I sold the same GOOG put spread Jerry did today, but $5 higher (go ahead, say it). In the immortal words of Paul Newman in "The Color of Money," I'M BACK!!
...but if that sucker even starts to move against me, I will bailout immediately.
Rick, one thing that would help me tremendeously in terms of understanding what happened would be to hear more on where you feel you would have had a chance to exit. You mentioned you were looking at a 70% account loss, which I assume were at the end of Thursday when we approached 1320? How could it be that severe at that point?
Nic,
My lowest/worst spreads (shown above) were 1320/1325. When the SPX got to about 1318, the 1320 price jumped several dollars, and the spread became $2-3 dollars. As I recall (again, extremely fuzzy), I could buy the sold side for ~$60k. Unthinkable then, but in hindsight, I could have MADE over $200K just on the 200c 1325 put.
I also considered rolling to 1325/1330. As I recall, that was about $30k. Again, unthinkable, because a)it was only $5 more cushion, b) I "knew" there would be a pull back on a holiday Friday.
Then on Friday, That's when the cost went from 60-70%, and then to 100% by noon.
I even called the OH "Coaching/Education" dept (another free perk) hoping they had an idea I could not see. They were ZERO help. The guy said I was "like cattle in a pin for slaughter", and "that's why the pro's don't sell credit spreads". I was highly offended.
That's what free coaching gets you. Had I paid even $1, I might have a lawsuit.
rick
Dukes, regarding the Veco trade..
opened 6-13 closed 7-5
the 40's opened for and closed for a net gain of $99.0
the 41's opened and closed for a net gain of $122
I had 25 of the 40's and 30 of the 41
so around 221 gain for a new stock. I closed as i didn't like the way VECO was trending down and I had a profit. So money in the bank.. I believe in the old saying,, you are never wrong to take profits.
Jerry
myself I'm still holding VECO - ugly day - never good when the stock is on all the "top losers of the day" lists - my premium X2 hasn't triggered so still open
I am in the veco trade with a 39 put sold for .15 and now back at .15. I am getting out tomorrow. Too jumpy for my stomach.
Rick,
I missed last week with a lot of family events. I am truly sorry to hear how things blew up on you. I wish you a return to happy days. I don't wish you luck because it is obvious that you have the experience to recover. I hope that it happens quickly.
George
Jerry, kudos to you for exiting the VECO trade for the reasons you stated. I very much respect disciplined trading and your VECO trade is an example of that. I also agree with your "old saying".
Gssound,
the profit taking on NFLX is over I belive. 300 this week?
Got all IC'd up this AM, now for the long wait 'til Friday afternoon. I'm really more of an Iron Butterfly kinda guy.
Rick,
A few years ago I went through it as well.
I did NOT tell my wife! :-)
RK
George,
Thanks for the kind and encouraging words. This blog has been exceptionally comforting to me.
RK - I thought about not telling my wife, but this was our sole source of income. With the $40 left, and 24/7 attention to detail, I might earn 4-5K/mth. That's only 1/2 of our expenses. My attention to that damn Casey Anthony trial last week REALLY took me outta the game. Shameful!!!!
My wife has not taken it well. She is assuming the worst, and looking for a job. I hate that.
I might make a whopping $900 this week. I'm damn proud of that cause my confidence was really shattered last week. I'm guarding this $900 like a hawk :-)
I already bailed on an SPX call. Bad memories. I lost $80 bucks. The very best $$ I ever spent. LOL!!
Cheers all,
rick
@Nic, My losses are approximately 3X my initial premium (which is really 2X after you minus the orginal premium you received). This works out to about 7.2% loss for the year. There is also a safety factor in there (cushion).
ROI of 1.2% per year X 52 Weeks = 62.4% ROI per year BUT I may not always trade if there is no position i like (i think it is to risky)
62.4% - 7.2% losses = 55.2% return / year after losses.
55.2%-40% = 15.2% cushion / safety factor. This extra 15% is for stupidity and plays that may be 4X my premium by the time I got out.
Please keep in mind that this ROI per year is high and I would like to go lower when I can. If i could receive a good ROI at 0.05 premium I would open some positions there for sure. But with the comm this is not worth it for me. This is why I like the SPX for right now as it jumps by 0.05 increments and i can get a fill at 0.10 easier with a decent cushion.
Also please note I only open positions from MON or later to FRI if it is a weekly (which i usually play)
@Jerry, Thanks for the explanation. I hope to be able to do those trades in the future, but just not enough maintenance yet. MAN i love your comm's cost, i hope to bring my broker down to a lower cost, but for now i am stuck with them.
@Bald, This too shall pass, Thing will turn around for sure, all things happen for a reason.
My current SPX position 1275 / 1280
(I think this is a correction to my previous post I think I posted 1175 / 1180)
This gives me 72 points of cushion for 1.5 days of trading as of right now.
@Bald So I trade a measly 30k in this stuff which should generate $300/week using Jerry's guidelines. I usually stretch it to $400/500. If you are getting $900 on 40k you are out there on the ROI curve in 'danger land' if I am reading Jerry correctly. Unless of course the market is imperfect and you are finding 'bargains' ie larger premiums than the associated risk. I have often wondered about this. Is the market 'perfect' in expressing risk? Can we find the bargains? My guess is that most of us try.
@All, I am not sure if anyone has any SPX this week but I would NOT suggest opening the call side right now. For the 5 point spread they only give you 20 points of cushion.
I would wait to see if there is a pull back today. If so then there may be an option to open a position tomorrow that will give you 30-35 points of cushion for 1 day of trade. BUT as always CAUTION and CUSH CUSH.
@All,
Take a look at LULU monthly put expiring next week. I see some decent premium with good cushion such as 97.5/95 @0.05.
-Kenny
Close all call spreads!! The market has gone vertical for two weeks.
Lovin my PUTS.
rick
Safen,
Yeah I tend to push for 2-3%/week. I had a 3mth run with ZERO losses. The key was watching my positions, and rolling/closing **BEFORE** anything got scary. I became complacent last week. I had EVERYTHING in SPX IC's. I had never been 100% invested, or had everything in ONE stock/index. I violated every rule (mine & Jerry's).
2% doubles your money in 9mths, and quadruples in 18. I must admit, any ROI over 2% is pure greed.
I've sold may SPX's at 5%, and maybe 6-8% while using IC's. I did however have to close one side of the condor a few times.
BE SAFE!!
rick
S&p up 14 and Vix only down .39. Hmmm, do we see a pullback coming. Watch tomorrows job report come in with horrible numbers and market tanks.
Chris
Rick, thanks for sharing, in my case I was following the SPX continuously though. My problem was that I felt it was so incredibly unlikely that there wouldn't be a breather on the Friday, that i wasn't really worried even when it closed at 1320 on Thursday (I had 1330/1335). I got really worried when it opened at 1328 though, but decided to give it an hour or two. At that time my loss would have been larger than if it closed one point ITM so it sounded like a reasonable bet that even if it didn't sell off and even went up three points it would still be a reasonable gamble. Of course, it then continued up 12 points, the fourth largest total weekly increase in 8 years.
So my point with this is that I'm trying to get to know myself better and recognize that I obviously have an issue with exits. I survived the 1300.16 by a hair, and the same thing at the 1368.45 (I had 1365) so it was really bound to happen sooner or later for me. I need to learn to accept the 'unthinkable' and cut my losses instead of gambling in the heat of the moment. I think 2% a week would be great, and I'm kind of willing to take a slightly larger risk than many here in return for keeping a closer watch, but only if I trust my exit strategy. So far it seems as if most disasters I've heard about could have been limited losses if rules were followed. Hopefully people here will continue to share their stories when they have close calls so that we all can learn.
Incidentally, when you say 1% I take it that means .05 and 2% means .10, right?
Fulgore, your strategy seems very wise, however I'm very surprised you can get .10 with your cushion requirements so late in the week. I personally find it extremely hard to get filled.
I know you're on TOS. Do you use the mark or last x when you look for entry points? I'm using Optionhouse for trades but have TOS up in parallel.
Safen, could you give an example of a butterfly? I've read that it has the same strike in the middle? How does that work?
Safe,
I would like to know what you are trading with a butterfly spread? That is a neutral style trade, where you don't want the stock to rise or fall. I'm curious.
Chris
Safe, I'm all ears too. I'd like to hear your story. thanks
I can see that my poor joke has not hit the mark. I really don't know how the butterfly spread works, can barely do the IC's. More like a admission of generational angst. Now I'm all stressed out about making money. Sorry to all for the confusion.
be careful with weeklies, thats all I will say.
I have been a put writer for nearly a decade, but working through weeklies and havnt dabbled yet.
The risk/reward scenario doesn't make sense to me.
For example, currently the SPX is range bound, volatile and prone to swings seemingly inverse to any news.
To me, the trading world has changed and the charts and some indicators are now MORE important than fundamentals. We are just in a fundamentally strange trading world it seems. It seems most of the time, nothing makes sense.
On the chart - you simply HAVE to keep away from writing options inside the 1250-1360 range. Clear bottoms and tops there.
I am very comfortable below 1250 - if the Japan and Greece plus everything else bottoms couldnt drive the market below this, I have a little more faith in the level.
Within 2-3 days, this market could be anyway between 126-136.
To me, the weeklies put you in this range, and just need to be avoided.
Reading the tough story yesterday, really hit this home.
Use strong support/resistance levels.
They now mean more to me that most fundamental jargon, because quite frankly, the market seems to keep ignoring it. It has a mind of its own.
Dont try to predict it, or will it. Simply let it tell you what to do. The market is in fact very good like this, it gives you the information you need.
Good Luck, but do yourself a favor and leave as little to luck as possible.
Well said, Smokin!
Steve
Smokin, so what is your trading model and what monthly returns do you get?
If I had enough funds I would most likely trade naked to get far enough out, but I think I would still do weeklies. Seems to me that the longer the period the larger the risk we bump out of the range.
Hi Guys,
I basically write puts, with deep cushion well under proven support levels. I dont trade on earnings at all. I generally dont trade more than 20 trading days, ie in 5 week option months.
My "get out" is when my major support level is broken.
For example, two of my trades this month are:
SPY 119's, BHI 60's.
With SPY - my alarm bell goes off if 125ish is broken and confirmed broken, I will not wait for it to then hit 119.
With BHI - if 66.5 is broken, I will head for the hills.
I am not in American, so I am using CFD leverage - 20x on puts and calls. I then aim to make 5-10% per month, return on margin that is.
The extra leverage lets me write further away.
I sell calls just as easily, when my overall feel of the market is sideways to down.
Right now, I am moderately bullish and wont enter short positions, ie sell calls.
I think whenever the SPX breaks its trading range we will see a big move to that side.
Hopefully it stays like this for another 6 months, as its easy money for option writers especially if we get a vix spike around option writing time.
Having thoughts on the overall market is also a good idea.
take last week - before that with Greece etc, there was SO MUCH negativity, so much doom and gloom being factored, yet not really represented in the main markets.
Even the small caps held up ok.
Any sort of good news was going to see a big move to the upside - this market simply does not SEEM to want to tank.
I didnt think it would be that dramatic, but thats what you get.
Interesting to see todays job report, as a good one may give it the push it needs to blow through the upcoming resistance.
smokin - have you made a consistent living doing this. what are you average annual returns?
i am relatively young and thinking about leaving a relatively good paying gig to go full time with my put selling strategy. I'm wondering if anyone has taken this plunge and had success. i.e. over 200k in annual earnings consistently
Yes and Sort of* DJ, my average return is 5-10% each options month.
Sure, there are bad months and months I get out for much smaller profit or even loss, but that is the fun of the game.
There are two things which IMO I had to mentally overcome before I was totally convinced within myself.
1. The fact that the returns are so good and why arent there smarter than me doing them? Well, I have spoken to investment bankers, traders, investment gurus etc - and after a little while I realised these guys arent half as smart as they think they are, and they are stuck in the "University" learning mentality.
They are convinced 10% per annum is what you earn, and everything above that is too risky.
With a straight face they try tell me a buy and hold strategy is less risky that a buy-write or naked put (they are identical remember) strategy!
HUH?? So it is more risky for me to have 10-15-20% buffer in a 20 trading day range, than to hold the underlying in todays volatile market.
Thing is - most of these 'gurus' must be 100% in stocks and are mandated to do nothing else. They have their hands tied. Most countries regulations dont allow these guys to trade or write options bar a basic covered call for clients anyway.
2. Know you will get out and preserve your capital.
Firstly, if you want to do it full time ensure you are earning a lot more each month than you need as income.
Ie if you want to take 5K out of the market each month, you would want to be earning over 11-12K each month at least. A - it allows growth, B- you have tax - C - you will have months that dont always go your way. Spreak your risk over at least 6-8 instruments.
But when you prove to the negative nelly in your own head that you have the discipline to get out, not take a massive loss due to stubbornness and "live to trade another day", you rest easier relying on this income.
Can it pay you 200K?
Wall Street has the potential to pay you more than any employer can.
The market could pay you $100 million annually and not even blink it is that liquid. The individual investor really is irrelevant in the whole scheme of things.
It is all percentages - there are enough stocks, ETFs and instruments for everyone to go around 10x.
Know when you are going to get out, before you go in, and you sleep at night.
* I could trade and live off it, but honestly I do not. I do run businesses and have a 'real job'. I do invest based on option "income", so I am relying on the income like a job in many ways.
I do plan on doing nothing else but collect income from the market sooner rather than later though.
It is the ultimate lifestyle IMO.
Great income, no staff, no customers, no complaints department, no boss, no alarm clock in the morning unless you want to, no need to work any day you dont want to etc..
Really, does it get any better?
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