Hi all. Well a new week ahead. For me I will wait until at the earliest Tuesday, to make a move. I have AAPL Jan 400 that needs some calls sold, but, again I will wait for direction. If Monday is up and also Tuesday then I will make my move by selling calls for this week. Europe is a mess and we are not much better so guard you money, don’t be in a hurry to make a move.
Be careful in this market
43 comments:
GOOG is down $17 pre-market after announcement it is purchasing Motorola Mobility.
This is gonna kill my AUG spread, and JAN Cal long call.
rick
Won't last, you;re ok,
Hi All, I will wait till earliest Tuesday Also to open anything.
Right now I am looking at a counter trend or uptrend coming soon. Today will tell us.
SPX up huge premarket
Can you confirm that I am understanding the 'spread' though correctly?
-Bought AAPL 380 Call
-Sold Aug 20 APPL 400 CALL
I understand that you are trying to sell a call that is OTM and the purpose of this is to offset the cost of the Long call.
Example:
Bought AAPL 380 Jan Call for $34.10
then sold the AAPL 400 SEPT Call for $6.05.
$34.10 minus $6.05 = $28.05. Thus returning a 17.07% ROI and limiting your max lose to $28.05(total trade). If this expires worthless this is perfect because you can pick up the Oct's and try again.
Hi Ed, Yes I think you have the idea of what I do. I don’t necessarily think of it as reducing the original bought call, as thinking of the sold call as income. Of course the long range is to keep selling the calls out of the money and meanwhile letting the bought call increase in val. One problem of selling a month out is that the stock has time to go zipping past your sold one. You can still make money but will but it take some juggling. That is why I like to buy, say aapl at the 380 and sell the 400 etc. no set rule regarding how far out you go, but doing weekly’s allow you to each week raise the new sold strike price is the stock is rising.
The ideal situation is that you do recoup all of your investment and not only make money on the sold calls but have the Jan (or?) free and clear. How nice it would be to have the Jan 400 free and clear and the stock to be trading around 500 by Jan. As I have around 70 of these that would be a big jackpot. And it is quite possible. Well we can hope.
I've been reading and watching for a while, and think I have the concept of call cal. spreads. I'm wondering about doing them in my IRA acct. I know I can't do naked puts, but I think I can do calendar spreads. When you open a spread, do you open both sides as one transaction, or do you do two separately? The reason I ask is that I don't think I can do them separately in my IRA acct. Just wondering if the actual mechanism for placing the orders makes a difference...
How does this work?
IMO....Goog buying Mot is an admission of weekness. They are grasping at straws now! AAPL is in a great spot here and eating everyone's lunch. Play it how you like. Just imagine all the money that was taken to the sidelines during the last two weeks coming back into the market.
Additionally, Obummer needs this market higher for his re-election bid.
Long AAPL calls and selling weeklys! RK
@Jerry. Let's say AAPL goes up to 500 from 380 today. How much of that would you estimate you capture with your Jan 400?
Background to question: AAPL has gone up on average $10 a month the last couple of years, which is nice, and should admittedly accelerate percentage wise somewhat now, but $10 a month sounds realistic. However, your long call will only go up about 65-75% of that if you have a delta of 0.65-.75, and you will loose perhaps $3-5 a month in time decay, so of that $10 monthly increase you will see maybe $3 a month. (Unfortunately, on a possible longer term drop, the delta is typically higher, and you still have the time decay.)
I'm not ready to say it can't be done, but it sure would be interesting to hear your real life experiences so far. You said in a earlier post that you made between 1-5 points every week selling shorts, but the AUG 20 AAPL right now is at 40 cents, and you really only get above a point on the two closest strikes on the weeklies, which is very tight on AAPL.
I know similar things have been argued by previous posters (sorry, can't remember any names right now, speed read though older comments) but I haven't really seen any answer more than it will take care of itself. I've done calendars and diagonals before and had too many serious bites from them to enjoy it. Sooner or later you always have a drop that takes a huge chunk out of your long leg, and time decay and delta makes it hard to recover even if the stock price do. Having said that, I'm always interested in learning new things and since it seems to works for you I hope you will share.
John, you've made some very interesting comments, and I would bet I might be one of those previous posters you're referring to.
I feel diagonals have some strong sides, especially if one can capture the stock price increase in a company like Apple on top of the weekly income, but I took some hits a few weeks ago on spreads and am very cautious for the moment. I want to understand these better before jumping in, and have been doing simulated trades in Think or Swim's OnDemand function.
Everything you say makes sense to me, but my tests have shown that delta can be pushed to .8 by buying deep enough (i.e. you capture 80%). A couple of dollars in time decay every month can't be prevented though, and in my tests all my proceeds from selling weekly calls have been used to cover this. I also fail to get more than a buck from the weekly if I want two-three strikes of distance unless we are close to earnings. Are you picking closer strikes, Jerry? Right now I believe you're using 400 on the sold, correct?
Nic, I'm a newbie, but I've been following your comments and I think you are very insightful. Have you had any results from your thoughts that a diagonal call strategy would work, provided one keeps his eye on the deltas of the long vs. the short? My thought is that one would buy the call itm (as much as you can afford) 6 or more months out and sell against it weeklies at or slightly out of the money (ideally weeklies that have time value in them). The problem I see is when to bail, either for a profit or for a loss.I am interested in any ideas that you or any of the others might have. Thanks much.
Garbonzomark, I'm definitely not the expert here. On the contrary I'm just trying to find a model that generates some profit like everybody else. Most of us are learning from Jerry, although his latest ways with calendars are a little bit different than the puts it started off with, so at least I feel it warrants some extra precaution before embracing it.
I got a couple of 'hunches' that I think seems to make sense:
1) Buying deep itm gives a higher delta, which allows you to capture more of a possible stock increase. In other words, if AAPL shoots up your long will be able to follow the now itm sold call better. You also have less risk of needing maintenance if the stock drops. In fact, it seems to make more sense to to buy deep itm than buying far out. I'm still playing with this but it doesn't seem to make much of a difference if you buy 3 months, or 6 months, or a year leaps, if you roll them after a month anyway as they all will loose a couple of bucks the first month. A year leap may loose less relatively, but since they cost more it still going to be a couple of bucks.
2) If you sell your short call to close, i.e. at or slightly out of money, the chance that you end up itm at expiry is high with a volatile company like AAPL. In Jerry's case this may be by design, as he wants the high premium and as long as you're only a couple of bucks itm you're still profitable. This strategy clearly benefits from a higher delta on the long call.
3) In an ideal world the long call would be a 1:1 substitute for the underlying stock. That is not the case. Like John said above, the trick is to keep your long call 'alive' and not eaten up by time decay and dropping delta. I'm still working on finding a good model for that. Hopefully Jerry will let us in on the details.
Selling weeklies against LEAPs is pretty much one way to "have your cake and eat it too" (IF the underlying doesn't crash and burn....and stay burnt...)
My biggest issues regarding the latest downturn are that I picked a very poor moment (just prior to that insanity) to "experiment" with using some much shorter term long calls. Oh, and I picked them right at their peaks....
AAPL August 400
AMZN Oct 220
Both bought about the week before the debt ceiling niff-naw reached its peak.
Ouch!
I did recoup a good deal of the AAPL from selling the short side. The AMZN is currently the fly in my ointment; hoping a couple months will be enough for it to come back to the highs.
I was at least smart enough to buy some AAPL JAN12 360s though on the Monday after the downgrade. That has so far ended up being a really good move (though just wish I had waited till end of day to get those...)
I think the moral of the story is that shorter term longs are bad and LEAPs are good----they really are a different form of cushion. They are time-cushion instead of points cushion in the case of vert. spreads. So I think philosophically speaking they actually do fit in pretty nicely to the general strategy of this blog.
Nic,
have you tried experimenting with a DITM LEAP (delta at least 0.75-.8) about a year out and then selling only 70-80% of calls against it (ie long 10 DITM LEAPS, sell 8 weekly calls either ATM or slightly OTM)? Would be curious to see how that would affect the paper trades.
I am having VERY mixed results with cal spreads, more bad than good. My current longs are OCT AAPL and OCT GOOG, bought last month. Each have lost 70% of their value. The income from the shorts is insignificant in comparison.
I don't think deep leaps would make much difference, except 3x the investment.
I was getting 1-3% in weekly verts. That's where I'll be next week.
rick
Hi All, Today at about noon I put in an order for SPX put spread 1075/1070. ToS was showing .10 for this spread. I changed this to .15, and the order went through at 1:25pm EST today.
121 pts of cushion for 2.1 days. 2.1 because this is a Friday AM close.
This strike has ok volume so a dismount can be made if there is a rally down.
Also I wanted to add that the VIX is down to almost 30 which gives more support for my above position.
SPX MA is on a general uptrend for the last few days (4-5). It has just started coming down to a sideway market, which is still ok.
Picked up Apr 21 AAPL385 calls for 40 on weakness today. I think I can easily make the extra 10 premium from the Jan call in 90 additional days. Will sell some calls on market strngth later in the week (if it comes). Worked well last week, ie buying basic call, then later selling short term. Maybe a little more commish tho.
Hi all, since the sell off recently, I decided to focus on selling weekly options. On my first week, all options expired worthless. This week, BIDU is under pressure but still OTM. AAPL, PCLN, GOOG, AMZN, & NFLX are behaving well so far. Will stick with this strategy for now. I'm also having VERY mixed results with the diagonals, like Rick. So far, I prefer to stay naked, but only for short periods of time, and the shorter the better.
@Paul
Concur about sticking with the one leg naked put strategy. I have BIDU 110 and 115 but mostly cash on sideline. Keep a close watch on 115 put...with the sell off.
@Hannah
I have BIDU 130 under pressure (as of now price is around 135). Will see how mkt behaves today but may have to buy it back before Friday's expiration. My diagonal on BIDU is not doing well. Bought a Jan 13 last week and lost over 10% so far. I sold calls but premiums are low and close to the money.
@Paul Another reason for me to like naked put on strong stocks only is the adjustment - roll down or buy put one strike above if there is enough time left and the strike is close to atm.
Looking at calls - that is not much reward as compared to risk.
BIDU/AAPL/CAT..I noticed they always have very low premium for puts as compared to their calls. Didn't like to trade them too much except when opportunity arose like yesterday.Diagonals - I got rid of aapl 380 April 2012 yesterday with a little profit-I like worry free weekends.
Tomorrow first time unemployment claims - hope it's below 400K.
@Fulgore. Good trade. I opened the 1085/1080 for 0.15 yesterday and i am not worried.
RHM
@rhmoptions, I think we will be ok. We just have today to go and with premarket down 27 points we are at about 1170. This gives you 85 points for today and tomorrow AM and 95 for me.
VIX is still at 31.
If today end with 40 points or more I will keep my position. Any less and it may be risky going into the AM on Friday with no control. We will see how it goes.
Hi all, I have been away for awhile. The mkt is down around 450 as I write this. Wow..
My AAPL is down 14 or so? I am expecting a bounce one of these days if not right before and after earnings in Oct.
Naked puts can be dangerous until this market settles down some. If using them, leave LOTS of cushion. This is the kind of mkt that it is best to sit-out and wait for more stability. Like all the ‘PRO’S on Wall street, I certainly have no answers or even good ideas. It is tempting to pick and up-stock today and make a move. The odds are that tomorrow it is down and the others are up.. lol The classic whip-saw scenario.
Jerry
PCLN traded at 450.xx today! I am just flabbergasted.
Jerry,
I don't think anyone has answers to this chit. Some big players are making some big..no...HUGE moves. Just when you thought that the VIX was starting to go lower and BAM.
Later, RK
bailed out of my AAPL 355/350 puts for .25 debit and small loss. Couldn't stand the idea of watching this market all day, and second guessing my decision. Jerry says get out if your uncomfortable, well I'm uncomfortable.
SPX AUG settled at 1126.95, a little close to my 1095/1090 but still ok. Fulgore we live to fight another day. Ill be looking monday for another spread with alot of cushion.
rhm
@rhmoptions, There was no doubt that we would live this week from me.
Also can someone confirm I keep getting mixed signals.
For weekly and monthly options in the 3rd friday of the month it is AM settlement?
An individual i just talked to said that they are PM settlement for weeklys?
@fulgore its settled on the am opening on Friday morning which is determined once all 500 companies have traded at least once.
rhm
Woulda just made it on my AAPL355 puts (stock closing at 356) but might of had a heart attack. Glad I folded early. My AAPL long term calls not looking very good but guess there is plenty of time to get back via selling calls and share appreciation. Optimism rides eternal.
Jerry, I'm curious as to how you're handling your Jan 400 AAPL's? Are you holding out or considering some form of roll?
@rhmoptions, is that for both the weekly and the monthly on the 3rd friday of the month?
@fulgore the weekly option is the monthly option that week. That is there is no specific wk3 option the same week the monthly expires people just trade the monthly that week.
Rhm
Fulgone and rhmoptions,
I am pretty sure that for spx the weekly option is expired and settled at the end of the trading day on Friday.
For the monthly option on spx (normally the 3rd week of the month), it is expired on Thursday and settled after stocks are traded after openning on Friday morning. For option traders, you have more control over the weekly option than monthly; what you see is what you get on the weekly option, you have almost until the last minute of Friday 4 pm to see what s&p index
is doing to decide if you want to stay or get out of the trade. But for monthly SPX, you are locked in/out after Thurday closing, but the stocks in s&p can continue to trade in After-Hour market from 4 to 8 PM (4hrs), then trade again at Pre-Market from 4am to 9:15 am (5 hr). The total trading time after you are locked out is over 9 hrs! That is equal to another day of trading that you can not adjust you position at all. Unless you have a lot of cushion, I suggest you get avoid the AM settlement. In this crazy market time. There are so much news that can move the market dramatically almost every hour. Even if you have a lot of cushion, there is no need to a chance (take the profit or small loss to close the position before closing on Thursday). There is plenty of opportunity to trade in normal weekly or monthly options that settle on PM. SPX monthly is what you call a European Cash settled option style. It is not the same with SPX weekly which is American cash settled option style.
Good Luck to both of you,
TK
@all
I had my AAPL 330/335 put spread expired worthless.
I notice that the lowest put strike price for AAPL on AUG week4 is 335. It is very closed to the current price. Does anyone know why the choices of AAPL weekly strike price is so limited?
The equity market is very bearish now. I am thinking to sell put on GLD, since Gold has been bullish.
GDP report is coming out on next Friday. I think it would cause a big move (up/down?) on the market.
Trade safe everyone.
Ying,
I'm with you on the GLD trade. I may wait a bit longer to see if gold trades to 1900 or so. This thing is certainly parabolic now and is starting to look pretty ripe. Do not trade this one with money you will need anytime soon.
I was also thinking of buying VXX puts at some point as well. Just looking...... I will speculate from time to time. This next week could be wild due to Fri GDP numbers so I don't want to jump the gun on this one.
Rhm and Fulgore, Great job this week!
Rick, hope your trades went as planned.
Me: down some more this week because I had the AAPL 360/355's and had to bail out.
Later, RK
RoadKing2
Thanks for asking. My trades the last two weeks have been horrendous. My (dying) faith in cal spreads has cut me in half *TWICE* in the last 10 days.
I did have two verts that were just about to go underwater, and when I tried to roll them, I had lost too much equity to cover the margin for the new spread. APPL's two day collapse, with my arms tied, was devastating.
U N C L E!! I give up.
rick
Tk
Funny you mention the SPX monthlys. I am stayikng out during these last few weeks, but paper traded the 1110/1105 put for .10 on 8/15. SPX did not touch 1110, but the account shows a loss. I can only guess something it touched during after hours?
AndyB, If spx never reached 1110, your 1110/1105 spread should not lose monoey. Only thing I can think that could give you a loss is your commission + spx special index charges(some brokers charge this fee) are more than the gain from your spread option. This could happen if you trade only 1 contract. If you only trade 1 contract, your gain will be $10,and depending on your broker's commission, it is possible that you may see a small loss after all the fees and commission. If that is not the case, then I am at a loss also.
TK
Thanks tk
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