Hi all, some thoughts regarding how to trade all of the available stocks etc that allow weekly’s. I seem to consistently find that trading later in the week pays dividends. I have a hard time waiting when positions close on Friday and then trying to wait, but it gives (pays) many benefits as you can get a real feel for the direction of the general market, the direction of your stock and the amount of cushion that might be needed for 2 or 3 days of life left in the potential position.
The downside is some loss in potential earnings (ROI) So when opening a position I would recommend that you wait a few days to open. Also have an escape plan. The plan should include, do you want to keep the position. If what happened is a one time blip or a real change in the direction of your stock. Is the whole market in some sort of correction. Is there outside (the world) forces causing unrest. Add these and any other things that might,in your mind cause problems.
Right now the big question is who is going to give with the US debt ceiling and tax cuts etc. For me, I will not open any new positions until this budget deal is somewhat settled.
Some individual stocks could weather this but for the SPX and other stocks that follow the trend, it could be a real headache
So trade careful this coming week!
69 comments:
Good idea, Jerry. Let's see what happens with the 'ol USA credit card.
Ok - so help me to see the light here (I'm just getting familiar wtih skinny dipping - not graduated to the calendars yet).
Last week I sold the 5 JulyWk4 GOOG570 puts at $1.15, which used up about $48k of margin total. After $5 commission it was a 1.2% ROI. Nice safe crumbs, right?
Now - checking the charts if I had sold a vertical put spread 570/565 I would have gotten a credit of about .30, which is a 6% ROI (call is 5.8% after $1 per contract commission). And instead of 5 contracts I could have done 96 of them for the same margin.
The latter sound a lot better, right? Both have the same risk profile...if the stock drops bigtime I can lose the entire $48k. But by Jerry's rules that 5.8% ROI would not be a prudent play since it's in the realm of "greedy" ROI for 1 week, right? So do I base the decision on the naked ROI and then take the extra as icing?
Also what's the best risk management for this position? Do I get out if the spread hits 2x the premium collected (.60) or watch the short put for a 2x trade as a trigger?
Lastly, are you guys putting in stop orders for exits in case the market dumps quickly while you're on the golf course? Stop market or limit (with some room for slippage)?
OK I'm done - thanks for the education everyone!
I am generally pretty good at getting out of most things by the end of the week. Even these "newfangled" calendar and diag. spreads we have been doing.
I love that "clean" feeling that comes of not having a thing to worry about over the weekend/Monday come hell or high water.
The one that I do still have open are a bunch of 40 Jan SLV calls. (the sold part were 41s which expired).
This is actually the first time I have had the sold part expire on me for any of these cal/diags. So I am curious about how I should time getting into the sold part. If the market tanks (and looking at the futures right at the moment there is a distinct possibility of that) and silver follows gold I could be in business.
At that point the temptation of just allowing them to stand as is may be kind of big. But I realize that SLV is incredibly volatile and the moment a debt ceiling deal is announced it could seriously tank.
So I should probably sell some calls too. Or just sell it off straight up if I see a good gain tomorrow.
Anyway, just doing a bit of thinking "out loud" here. Curious if anyone is playing with silver right now or if I am the only idiot touching that sucker with a 10 foot pole.
@Safe Yes thatnks for the heads up. There is no way they won't pass it, they have to. But the question is will they pass it to the liking of investors. The next two week will be unpredictable for the market. I too will most likely wait to open any positions until next week WED or THURS.
Josh, regarding your questions;
you used the 570 put for a profit of 1+% and using the same 570 you received 6% I would have dropped down when doing the spread and used a strike that received maybe 2 or possibly 3%. So that let you increase your profits and lower your strike for a safer position.
I do not generally put in a stop for my spreads. But if I am going to be away for any extended time (more than a day) I will.
Two main reasons for stops, one, to of course control your profits and limit losses and the second is that with a naked put your maintenance can continue to grow forcing you to close or reduce a position.
With a spread the maint. does not grow.
Skyzer said...
@Bald Harley
"On 7/1 I had 200 SPX spreads, and I should have been able to roll 200 contracts. I am assuming. Anyone confirm? "
=============================
Do you even realize what 200 SPX spread means commission vise?
Minimum commissions is about
$400 to just trying to move this pile of S*t (Even at IB) So you wanna spend $400 + loss and take another $400 in commissions and fees to roll it over and automatically another $400 in commissions to close position later, unless it's expired worthless..???? I'm sure brokers are more than happy to have such client. :)
===================================
Sky,
OptionHouse charges $8 +0.15/c, or $38 for my trade. I think thats right.
Thanks for the analysis folks re my ITM spread. I had a chance to roll 1320 spread on Friday when SPX was at 1318, AFTER having been ITM.
SH_T!! Since then, I've been averaging $800/wk. Just two more years :-)
rick
Placed an order for SPX 1220/1215 for 5 cents this morning. Just checked now and it has expired without a fill. Hope to find something tomorrow.
Some plays I am probably going to do tomorrow depending on the mkt.
Aapl 370/375 spread
Pcln 490/495 spd
Bidu 120/125 spd
Also some cal spreads
Maybe bidu 1/145 buy and sell the July 150 take in around 3.75
These of course depend on the mkt and the budget talks etc. If things look shaky I might put them off and re-evaluate on Wednesday.
Good trading all
@Bald Harley said
=================
OptionHouse charges $8 +0.15/c, or $38 for my trade. I think thats right.
=================
That's cool TD Ameritrade charging
$9.99 + $0.75 per contract
I can Use IB, for naked, to get cheaper rate, but in terms of Spreads, IC and calendars still using Thinkorswim for visual effects :) I wish they can lower commissions. Hey man, did you have blog or twitter? I wish to follow your trades ;) Thanks
Follow MY trades?? OMG, you must be into pain :-)
rick
Currently:
AAPL 380/385 put spread for .75
PCLN 530/535 diag OCT/JUL $30.80
AAPL OCT 425 call $10.25
rick
Got a couple put spreads this am:
AAPL 375/370 for .06
PCLN 495/490 for .06
GOOG 570/565 for .06 the other day
Josh
@Bald Harley
Follow MY trades?? OMG, you must be into pain :-)
==============================
Not really, not much going on...
Took Diag on Netflix yesterday
sold 285 weekly bought 290
and it drop more than I anticipated,
Didn't lose any, but don't make anything either, unless it's move up 10 points or so later
Now will do the same on AMZN..
Looks like those Calendar Diag.
More like Neutral strategy, and when earnings are coming out it's hard to take any direction.. Best outcome for stock is to stay flat or move a bit up or down.. Other than that, don't have much going on, exept I bought few AAPL 400 AUG
CALLS several days back, those are making me money so far, hoping for Debt ceiling resolution soon ;)
Is there any advantage in rolling an option vs 2 separate transactions: buying to close, then selling to open?
I would love an explanation of that as well. From what I can tell a concurrent deal automatically considers the maintenance?
I have asked this question elsewhere on other site but no one cared to give me an answer. Maybe that will be different on here???
Say you initiate a put or call spread that is slightly OTM. After you do this, the stock goes against you & sold short side gets ITM. Is there ever a possibility that the sold short leg could be exercised on you before expiration? The reason I ask is that a guy on another site I frequent had this happen to him. He did a backspread on LVS on Thursday (day before expiration) and when he checked back on Friday morning (day of expiration), his sold calls had been exercised because they were ITM and he was then short 200 shares of LVS. His TM rep called shortly after to tell him that a margin call had been placed on his small account so he had to rush out to buy 200 shares to satisfy the short.
Why did this happen? Are there special conditions that I need to be aware of because I also have a small account to play with right now? This would be a pretty scary situation for me to encounter so I realy need to try to understand what's going on.
Sorry for the long post here.
Thanks,
Hornet52
Nic/y,
At most brokers rolling a spread will incur one flat fee + their per contract fee. So YES you would save one flat fee. However, there are some brokers that have, or offer, flat rate fees per contract, with no "transaction/base fee". So, it would not matter if it was 1 or 4 transactions.
RE Maintenance changes - If you roll the same number of contracts, at the same spread ($5, $10, $25), the maint will not change. My brokers actually show the maint req in the pre-order window, and maint shows ZERO when rolling.
Cheers,
rick
Cannot find the option in Thinkorswim to display Commissions and fees in Order Confirmation Window.. I just want to see how much current transaction cost in fees before sending order out. Should be somewhere.. Anyone can help to turn that option on? thanks.
@hornet52
American options can be exercised at any time before expiration though they are usually not..
A bit more here:
http://en.wikipedia.org/wiki/Exercise_%28options%29
Hope it helps...
Thanks, Rick. Be careful this week, your AAPL is a bit tight for my taste with 3.5 days left.
I'm actually more worried about a US credit downgrade than than the political charade around the debt ceiling. A downgrade could hit anytime.
@Hannah
"American options can be exercised at any time before expiration though they are usually not.."
=====================================
And that's even worse, because in 99% I want them to be exercised, otherwise there is no way to close the position, other then buy them (options) back even deeper in the money.
Besides, if they are not exercised you are tight up till expiration date. I'd prefer them to be exercised right on the spot and then simply close position (sell
stock) that be always cheaper than buy back options deep in the money. Besides, sometimes, I'm selling naked puts in attempt to get the stock at lower entry..
Tried SPX upto 1250 with various strikes and 5 to 10 cents with no fills. In earlier weeks I used to observe volume in several thousands in the 1200 to 1250 range, but the volume seems to be much lower these past few days, not sure why. Anyone had success with SPX spreads this week?
Hornet, as Hannah said, few options are exercised early. That is because there is always more money in an option transaction that dealing with stocks. As long as there is any 'time' value left in the position there is hardly ever an early exercise. Also if not in the money ‘ITM’ it is unheard of to be exercised. It can happen but it doesn't (very rarely generally) Also it should be mentioned that the position can’t be exercised until after closing time. So if you position loses nearly all of the time value and is ITM, you still have until closing to exit the position without worry of assignment.
Thank you Hannah & Jerry for the clarification on early exercise of options.
With market pull back last two days:
AAPL put spread 380/385 still looks ok.
PCLN diag: rolled OCT 530 leg to AUG 525. Collected $11.95. Surprisingly new $10 (525/535)spread did NOT require additional maint. This should lock in current gains, and more closely follow any upswing as short leg continues to leak time value.
What are ya'll looking at for tomorrow??
Cheers all,
rick
I have some SPX 1250 5pt spreads for 5c today. Like Nic, I too am more worried about the credit rating downgrade than the debt ceiling decision, but both are interrelated issues for early next week!
added more aapl 375/370's today. Looking for a possible Bidu cal spread if we see a bit of a cont. pull back thur/fri. I like aapl and bidu for long/nuetral cal. plays going forward. Hey...don't listen to me though. market will do what market will do. keep dancin through the minefield and stay safe! I told my wife I'm gonna buy an ultra-classic at the end of the year! That didn't go over well. she likes to save.
Roadking2,
I had an Ultra-Classic from 2003-06. Wow!! What a sweet ride. I pulled it behind my RV to Colorado. The curvy two lane roads following the rivers were breath taking.
I doubt I can get a better response from my wife :-)
rick
ps - is this off topic?? The spoils of market profits...
I also got filled on SPX 1250 and 1240 spreads for 10c and 5c, respectively.
couldnt get any SPX 1225 and below t go through.
got the 1235/1230 with some hesitation and finally when it hit around 1308, all went.
also
AAPL 375/370's midday and then again at 3PM for a nickel
NFLX 245/240 midday
Finally my SPX went through today. Got 5 cents for 1210/1200 spread. Meagre return, but I am happy with it :)
two weeks of profits may be wiped this week. got too close on goog. have 595/590 spread and goog closed at 606 today. will be watching closely tomorrow to see if she dives some more. thought about bailing late today but didn't. still have 11 points cushion which isn't much but....I'll be on top of it tomorrow first thing.
I need to stick with the stocks I know cold. goog is one of those that I know but don't know WELL if you know what I mean.
@rick. Last yr I rode the 37 across Northern Cali. I did a month long trip around the country....my second time doing it. You know you are on a good motorcycle road when the sign reads curvy road next 87 miles....and there wasn't a straight stretch on it. Can't wait to do it again.
@Roadking2,
Thanks for sharing your story with GOOG. I had some loss this week too with NFLX. Had to bail out call spread to prevent more loss.
I'm going to attend motorcycle class at a local DMV this August. I always wanted to learn. what is good beginner motorcycle? I'm looking at Honda Shadow... any thought?
@kenny, Yes, Honda Shadow is good to start. Excellent idea to attend the riders safety courses. There is so much to learn in the beginning.
I use my motorcycle as therapy in a way. I know that might sound funny but its true.
Rick...my bad, it was RT 36 heading west out of Fortuna Ca. WOW!
Sorry for being OT here. Later, RK
I am holding AAPL 375/370. $10 drop yesterday was scary.. finger cross!
I sold the AAPL 375/370 as well. Tempted to sell some 60/65s as well...bad idea?
pulled the trigger on the goog position BTC/STC. went down right at the open so I said bye...took the loss and will move on. Can't be right 100% of the time.
My thoughts. I really think this debt ceiling thing is gonna go through making the market pop, next week. I bought VXX AuG puts and have some FXE puts as well. I have several calendar spreads which I am thinking I will not be rolling the sold side, I will just let them expire and keep the call side open. Those spreads are IBM, MSFT, GS NFLX and V. Might be a risk, but I can see congress being so stupid to let the US go to the garbage can.
Chris
Just a thought: Feb monthly income is $200B per month (approx 2.4T 2011). Enough to pay debt obligation, SS, medicare/aid, arm forces...Just not enough for all politicians' pet projects.
Last week and this week: Sold NFLX 330 call, AMZN 245 call and CROX 26 put for good premiums.
Lets hope this debt stuff is off the table soon. I love the idea of a balanced budget. But a 'no deal' will be bad for the mkt,,
I have aapl 368/371, 370/375, PCLN 490/495, 495/500, 500/505 all credit vert spd's
One calendar call spd aapl jan-400/ July-405, if aapl make a run tomorrow i will roll out to ?? maybe next week's 415 and keep the Jan 400 in place.
Ideas, If aap makes a move tomorrow at the opening i will open some more spreads 10 points below whatever the current stock price is around 7:30 or 8am
Also with PCLN, if up, i will open more put spreads also about 10 pts below the courrent stock price. Good luck all and lets get the debt thing done..
Jerry
Well, whaddya know, I'm in a difficult spot again. I'm sitting with SPX 1280/1275 since beginning of the week, and my closing order didn't go through today, which I failed to notice. I don't like the debt ceiling situation at all, I now only have 20 points cushion and feel I have three options:
1) I close as soon as the market opens. (That may be a significant loss looking at the futures right now.)
2) I buy back the short portion at open, or perhaps half of it, and keep the 1275 put. (With my luck that will most likely result in a debt deal and a massive reversal pop.)
3) I roll into 1280/1275 next week. (A default or downgrade could mean I'm stuck, but would it be worse? Could I keep rolling?)
I would really appreciate some honest thoughts on this, and obviously with a certain urgency.
Best,
Nic
Nic - If the market opens lower today, it is better to close this position immediately, your option #1. I am not sure of the magnitude of your loss and I haven't done any roll overs in the past, but this is a very risky position to have for today given the uncertainty of the debt deal. Please ignore my comments if they are not appropriate.
Nic,
I like your option 1. Get out of the short position at the open, by 10:30 at the latest. Sometimes the market reverses in the first hour after a big drop. But still I recommend buying back the short.
Hold the bought position, It will not be worth much anyway so it could save some losses.
It will be easier to sell 1 part of the position anyway.
Hope this helps.
George
Why not roll, guys? I could roll to a lower spread next week with a much smaller loss, wouldn't that make sense? I'm pretty sure they will come to a deal in the weekend at the latest.
Nic - Couldn't answer that part. Hope someone else gives better input. What I would say is, defer the decision of re-opening the position until Monday or Tuesday to make an informed decision. Wish you good luck!
Thanks, all feedback appreciated. I'm just trying to avoid a loss, but also see if I can find a strategy for the future.
How could my situation be worsened by rolling to for example 1245/1250 next week, and if that doesn't work do it again until I'm below 1200? I believe in long term stabilization.
Jerry? Others used to rolling?
What's going on with PCLN? How can it defy the market so dramatically. Sold the 545 on Wed with lots o' cusshion, now holding on for a good close tonite. It seems to me that each week at least one of my positions get too close for comfort. Guess options trading is not 'comfortable'.
I have BTC aapl 375/370 at $0.05
I sold it at $0.19, so still take in $0.14
I have to close it now as I can't stay awake whole night to keep my eyes on the market..
I am glad I can sleep tight tonight.
@Nic, I don't know, if I were you, I would close it at open. simply because I don't like the feeling of worry. The market is very volatile now until next week.
3X sold PUT as stop. Beware.
I I just experienced the unpleasant result of a premature stop. I set up a 1150/1125 Augwk1 put spread yesterday for 0.20. This had 155pts of cushion
I set the stop (as i was away) at
1) If the Sold PUT ask hits 1.70 sell the spread at market. In the past this would have taken a 50pt+ drop.
2) Well someone placed a 1.70 ask (when it was the only ask I guess) and i was triggered at a spread of 0.60. So 3 weeks of trade $$$ gone. I am okay if indeed the market really tanked (ie 50 pts on SPX) but 15pts??
The put now trades at 1.10
with SPX at 1290 (still 140 pts cushion)
Anyhow i have to rethink my "while i am away" put strategy
Any thoughts?
RH
I've had the same issues. This is the downside with verticals. The difference between sold and bought has a certain volatility even if the numbers are jointly decaying with a solid cushion. I don't think you can use stops like that for that reason, better to put stops on the stock price and watch the cushion.
Well, I still haven't sold as I've been contemplating a roll to next week, but now the decision is even harder as I suddenly have over 20 points cushion. But easy come easy goes...
When hands got itchy yesterday - I got some 1175/50 exp next Fri for mere 40 cents. Just now I got half of them covered at 0.40 (dropped from a dollar). Hmmm over trade.
Hi Nic
Yes I agree. I think the main issue is that at 100+ cushion the volume is low (even if OI is ok). The MM if they time it can have their ask (or put a trade thru) that meet the trigger. I am looking now at a few new "out of town stop" options) that are based on the SPX price (something the MM cannot control). Do you have any ideas on a good point (eg "If cushion is hit 50% sell etc)
Regards
@ Nic
Hang in there. Market moving your way!
Safe, thanks! I'm out! Took a 5 cent loss in the end but totally worth it, I had no business being in this week anyway.
I would still love to hear people's opinions on why it would be a bad idea to roll down into next week as a last resort option if ATM.
Nic - Nice safe exit.
I am looking at next week's option prices, I see 80 cents for 1100 at over 8000 in volume. Now this being the case, I am not sure why they won't open up more strikes on the downside for SPX where trading could occur based on current market conditions.
No clue how PCLN defies the rest of the market but I did take the opportunity to sell some more put spreads at 515/510 on top of the ones I already sold at 495/490. A few more hours...
My AAPL IC's are looking sweet w/ 15/25 points cushion expiring today.
I BTC the short legs of my PCLN diags with 33% profit, holding onto the OCT 525 calls. PCLN was up 20+ today, now up (only) 15. If the market pops next week, and assuming PCLN follows suit, I'll be dancing in the streets.
Otherwise, I'm staying clear until political issues are resolved.
TGIF everyone
rick
Ooops, I forgot I rolled the long PCLN OCT calls to AUG on Monday (aiding the 33% return) and with earnings out next week, why not sell with the 15pt pop today?!?!?
Profit is profit...
Bald, Jerry or anyone,
What determines your decision to choose the month for the long call on a diagonal, whether it's AUG, OCT or JAN 12 etc.?
Chelski,
I'll defer to Jerry, but for myself, I take into consideration that the further you go out, the slower the long call will move up/down. compared to short leg. I like to sell $5 higher than the long to ensure the time value leaks faster.
On PCLN I rolled to a closer (AUG) spread to take 1/2 the money off the table, and so that it would more closely track UP. The 25pt two day pop collected about 20pts. The JAN may have only gone up 10-12.
Clear as mud??
rick
Bald, thanks, no, clear as water!
Of course, selecting a long call like JAN 12 is just in case the stock drops like a rock so that you have enough time to recoup your losses.
Story of a good Cal/Diag Spread
I BTO PCLN OCT 530 Call, and STO 535 call for a net cost of $30.80. on 7/27 I rolled the OCT 530 to AUG 525 and collected $16.10 (net $14.70), then BTC short side $12.72 (net $27.42), then STC long calls at $37.79 (net -$10.37. $10.37/30.8 = 33.7% ROI.
My faith in diagonals is renewed!! However, I had to shuck-n-jive to maximize earnings. Had I made NO changes. ROI would have been ~$4.10/30.8 = 13%...Not shabby.
rick
bald,
what if you used pcln aug 525 for your long going into the trade?
what would be result?
Like most of you my spreads expired safe and sound..
Chelski, I have been using Jan. I have to admit for no special reason I like going out about 6 months and Jan fits that description. I will continue to try and figure out the best time frame for the long, but so far 6 months seems good.
Regarding that, with my AAPL cal spread (jan 400 -july 405) that the Julys expired today, next week I will sell the 405's or maybe the 400 for Aug 5. I treat them like a covered call. Of course the long call is depreciating each day as it has 38 points of 'time' in it. If i can make 3 to 5 per week and I have 35 of them it will be nice. That would be over 50k a month.
Hopefully by Monday the government has gotten the budget settled. If so the market should take off. If not by Monday, I would avoid opening any new positions, especially
SPX OR ANY INDEX!!
Tomorrow I will start a new post.
@All, I have been very busy as of late because of work and I am moving soon. I just got caught up on the last 20 posts. It seems most of you had all of your trades expire. Gratz all. I would have to read more into the diag stuff to really grasp it but i have been avoiding that because I don't want to open any new trading doors. I like the simple selling puts strategy right now. I like the simplicity.
Below is a list of my results for July for just selling put spreads mostly I have an IC in there too. All of the trades are SPX. This is mainly because my comms are so high that I need around .10 premium to get about 1% per week (net). All my positions this week were never in a spot where I was worried that I would have to exit.
All Trades are Monday-Friday Only
Week 1 - Puts - SPX 1275/1280 = +1.2% Net (After Comm)
Week 2 - Puts - SPX 1235/1240 = +2.2% Net (After Comm)
- Calls - SPX 1355/1350 = +.25% Net (After Comm)(Opened the IC to my put leg)
Week 3 - Puts - SPX 1225/1230 = +3.2% Net (After Comm)
Week 4 - Puts - SPX 1250/1255 = +1.2% Net (After Comm)
Total Return For July = 8.05% NET
My target is 4.8%, but there was free money on the table for 2 of the trades and I took it.
Note: as you can see if I get .05 on the premium my return is .25% Net (this makes me cry) haha. I only open this side of the put spread to make it an Iron Condor if I'm 100% confident I have enough cushion, otherwise I would rather not waste the money I have on my put leg for .25% return.
Next week - I will not open any trades until Wed or Thurs. The debt thing will have an effect on the market one way or the other. After the effect there could be a fill to correct the difference. (fill meaning it may return to what it started at before the move because of the debt thing)
We will see. Good luck all. Also I will post my results only on the new post for ease of viewing tomorrow or Sunday.
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