Welcome to the page that discusses Put Options

I want to start this blog by telling you that I have no 1-800 number, I am not trying to sell you any newsletter with the next great stock idea. I am not inviting you to come to my house and view a cleaning agent. I will not try to sell you plastic bowls or any other ‘can’t miss’ ideas. I do not have any life changing secrets and I cannot promise you a flat stomach.



I am going to share with you my daily option moves and the reasons behind them. My way of trading options are of course not the only way to utilize Put Options. This is a way that I have found to be simple and easy and not as complicated as some make this business. My hope is that you can develop a steady stream of income and continue to enjoy your life.











Friday, October 28, 2011

Which one..Calendar spreads, vert put spreads or naked puts??

HI all. Well a lot of chatter regarding the different kinds of plays while using options. For me I have pretty much rotated into calendar spreads. If you are not familiar with them, do some reading, they are easy once you get to know them. Also I hesitate to say this but it is hard to lose money with them. CaCa can happen but if it happens to calendar spreads the rest of the options market is in really bad shape.
But again there is nothing wrong with plain vanilla vert put spreads. They seem to give a pretty easy 1-3% a week. Naked Puts can usually match that but both have a potential downside. With calendar call spreads all the maint. needed is known up front. Each week or month should produce some profit . I only use weekly options but at times I might roll out two weeks to get some higher strike. Other than a major drop in the underlying stock, a continual problem with calendar spreads is the stock moves higher. This is both a curse and a blessing. Its true that it make it difficult to get decent prem’s at the same strike but and excuse the put ..A BIG BUTT, is that the bought call for Jan or ?? is going up and one day you get to sell that one.
EX; a stock is trading around 89, you buy a ‘leap’ for a year out at the 87.50 strike and sell this weeks 90 strike. All is well and then the stock starts moving up. You suffer through lower prems (but all positive) and in a year the stock has moved to 99. Well at that time you get to sell that bought call for over 10 when it might have cost you 5 or? Plus each week or month you made money. I am not saying these are for all traders as it takes some getting used to but for me it seems the easiest way to make money that I have found in the options market.

85 comments:

Nicky said...

Thanks for the post Jerry, and a big thanks for the blog itself, you've helped so many people, good karma for you, I guess I do have to get use to calendar spreads, so I rolled to Nov 4 with the MSFT $26, I tried looking at other options but everything else involved taking a debit, on the next roll there might be no other choice but to take a debit???

jbl said...

I'm experimenting with a double diagonal on MSFT with LEAPs. I have a Jan13 25 long call and 29 long put. I have a short calls and a short puts at 27. My thought is that each week 1 of the short strikes will be out of the money and easier to roll. A decent weekly premium on 1 will help offset a lousy weekly premiun on the other. The 2 LEAPS act as a hedge against each other.With the market making a strong rebound a large sell off may be around the corner. Any thoughts on this strategy. I'm sure there is a downside but I feel I can sleep pretty good with this strategy.

Raging Bull Winkle said...

Nicky yes pay for the calender, here's one I put on 10-20
With AAPL earnings out of the way the stock most likely chop around 400 till we get closer to next earnings and Mac-World also in Jan.

I bought Jan.12 385 puts 22.95 I sold Oct4 390 put 5.00 this week I sold Nov1 395 put 2.75
you can see in these two trades the last two days, just how much Vol has come out of the market. Jerry is right the game has changed VIX at 24 your going to really work for any premium you get.
My AAPL trade I have 9 more weeks to make bank, so pay up front collect on the back end.
T&T have been talking about this exact thing the last two days. Check it out some time.
Another low risk they did on 10/27 was UNG buy Nov 8 call sell Nov 9 call .55 debit it's mark .73 today.
Good Stuff!

DMK said...

Hi all, I have been doing the MSFT spread with puts for the last 3 weeks. I sold the $27 or $27 puts each week and netted .32, .38, .28. I bought the Mar13 $25 puts for $3.30. I am down .80 on the puts but up overall due to selling the puts. I took the puts since I have a more sinister look of the markets which may or may not pay off. I am thinking of getting in on some calendar call spreads as well to balance that out incase I'm wrong. Jerry - thank you very much for the board!

DMK said...

Bullwinkle - can you email me about tastytrade? dmk112@gmail.com

steveal said...

Bull Winkle,

I'm surprised you are writing near term puts with a higher strike price than your long term put.
Usually lower strikes are written, no?

Steve

Pascal said...

Just now I opened a call spread on Exxon mobile thanks for the tip Jerry I was looking for a oil company and Royal Dutch Shell just wasn't doing it for me so thanks for Exxon mobile.

Jerry what do you think about starting a call spread and a put spread at the same time on for example Microsoft?

rhmoptions said...

Opened SPX weekly put spread 1100/1075 for 0.15 today. 12% cushion 4 days left. Should be okay but will watch. Week 20 now so lets see.

Good luck everyone and happy halloween

rhmoptions

DMK said...

RHM - do you ever consider opening up a put and call at the same time so that if it goes against you one way it will likely even out on the other side?

ihaveoptions said...

DMK-You can open both sides of a spread called an Iron Condor with no additional margin, but of course only one can expire in the money. Therefore, you don't really have 'insurance' from the other side of the trade and can still incur a large loss. The sweet spot is for the stock or index in question to expire between the two strikes so you get to keep both premiums. Been there a few times on the SPX and other issues but it does require that you are not only right once, but right twice which in this game is asking alot.

Pascal said...

Today I bought back my Microsoft short call for $0.05 and sold the short call 26 four $0.46

Pascal said...

Nov-4

ihaveoptions said...

Pascal, Thanks for the idea, I'll try it.

ihaveoptions said...

Got it at .40 net. We might regret this come Friday.

Pascal said...

Yeah maybe but maybe not it worked for me last week and we have just three days left so fast time decay is on our side. We have to keep an eye on this position though

liong91 said...

@Pascal, ihaveoptions.I followed your idea and got it at .33 net.Let's see...

Fulgore said...

Hi All, I am staying out of this mess right now until WED or THURS a per usual the last couple of weeks.

Nicky said...

Could not resist picking up .39 for MSFT Nov $25 puts, sold 10.

Pascal said...

@Fulgore Wise decision!

@ Nicky Tricky but interesting

Pascal said...

Jerry what do you think about starting a call spread and a put spread at the same time on for example Microsoft?

DMK said...

Ihaveoptions- both can expire worthless as long as it stays in range. If you get a massive move in either direction you'll atleast win on one of them and therefore being less risky. Correct?

Pascal said...

@DMK I did a trade like that last week and made a nice profit. The more you move from your starting point eventually the delta's start to shift in your favor. It was a nice trade and I made a nice profit you have to give it some time though

rhmoptions said...

@dmk. Yes I use a call spread to grab an extra 0.5 from time to time. It increases the probability of a bad trade and at the cushion i like The call premiums are lower than puts. For my trade this week I did add a 1360/1385 for an extra 0.5 so I hit0.25 on the ic (0.20+0.5) but I do not do often.

Cheers

ihaveoptions said...

DMK- Not sure we are talking apples to apples (excuse please). If you just have a put an a call, with a massive move then yes one would be a winner, the other a loss. But if you have spreads put and call with strikes above and below the equity price(an IC), you get to keep the premium you received only if they expire OTM so neither is a big winner. The spread limits your gain and loss as well. You just have to keep an eye on it and decide when to get out if one threatens to go ITM .Jerry says, never let it get ITM, ie take your loss upfront before it gets nasty. Easier said than done, in my experience.

DMK said...

@ihaveoptions - the idea is to have both expire. yup.

@jerry - you touched on this in your blog post. If the stock really takes off, and you are selling weekly calls do you move up the strike price? And if you do move it up, you will take a loss on those weeklies, correct?

Hannah said...

We have been trying out 3 main strategies last 14 months since Jerry started the blog 13/14 months ago; naked put, credit spread & calender spread.....

I have been indulging some adrenal rush buying long calls and puts...earned a few K here and there and lost a few K here and there. Overall positive: IF and only IF I knew when to quit and keep the good plunder!lol

Back to good old crumbs:
Yesterday my orders were filled b4 close..
aapl spread 360/365 for 0.08
spx 1000/1025 for 0.15

Gssound said...

Hey everyone! It's been a couple month since I have posted. I see everyone is well. I have been following FSLR on the downward trend and selling against it. That's about it.

Chris

Gssound said...

Is anyone on twitter? Follow me at @Gssound

Nicky said...

The MSFT Nov 4th 26s hit a low of .12, might have been a good time to buy back, missed it.

ihaveoptions said...

Nicky- the MSFT 26 closed at .27 and since the stock closed at 26 it is all time value which will disappear come Friday (as would the .12 you saw midday) So it doesn't seem to me that it will hurt to wait to roll. I seem to rush the rolls and have seen that I would have usually done better to wait til Fri pm.

Selling Put Options said...

Hi all; Hannah, your spread on SPX is safe but only .6%. there seems to be plenty of safe ones with a higher roi. AAPL 380/375 2 days to go and 18 pt of cush and +1%
If AAPL up tomorrow do the 385/380 for much better than 1% in a two day trade.
DMK; Yes if a stock takes off i try to follow it up some... I don't rush into it as the stock might fall back some and you wasted a move. To make the trade a positive i might go out 2 weeks or even a month if necessary. but worse come to worse you don't have to roll out and up. No matter how far ahead the stock gets there will always be some money in the next weeks option at the same price. It just gets to be lower and lower amounts. Another bonus of rolling up is that eventually you get to sell the bought call and you will get all the difference between the two strikes.
Tomorrow new options come on line.

Pascal said...

@Jerry what do you think about starting a call spread and a put spread at the same time on for example Microsoft?

Jim said...

Today, I sold naked puts on MSFT for November monthly ... that's two weeks and 2 days. MSFT trading at $26, I sold the $23 strike for .09. 3.77% ROI for a strike that MSFT has not seen since the 2009 crash.

I also sold the same MSFT 23 put strike for December monthly at .27 ... that's 10.5% ROI for 6 weeks and 2 days. Doesn't use much maintenance for what I consider a safe trade.

I prefer naked puts and picking up their crumbs. I tend not to like spreads because of the bid/ask difference on both legs, which causes a greater cost in buying to close (if you're not waiting to expiration).

For November monthly, I also have these naked puts:

AAPL 360
BIDU 120
DECK 95
EBAY 26
FFIV 90
FCX 31
JOYG 75
LVS 40
SNDK 39
XRT 46

All with double-digit cushion and satisfactory ROI's.

Selling Put Options said...

Jim; If you can get 3+% for a two day trade why tie up all that maint for 6 weeks for just triple the 2 day trade. You can do the same trade 6 (weeks) times and get over 18% But we all do it different.
Pascal, It would certainly work to do both sides as one is almost sure to be a winner. I havn't done any only because there are so many trades that I am happy to guess on one direction at a time..lol.

Hannah said...

What did OWS do...watch this:

http://blog.independent.org/2011/11/01/staphen-colbert-takes-on-occupy-wall-street/

Nicky said...

LOL Hannah LOL: http://www.youtube.com/watch?v=DAwlx0aTBi4

Jim said...

Jerry,

My two MSFT trades are:
1) 3.77% for the Nov monthly (2 weeks and 2 days ... NOT just 2 days!)

2) 10.5% for the Dec monthly (6 weeks and 2 days)

These trades provide real cushion and 1-2% per week. The Dec monthly is using $10K maint for $1000 premium ... to me, that's seems reasonable.

The main advantage is big cushion. I find that the weeklies just can't approach that level of cushion.

Selling Put Options said...

I see Jim, and I like it more..lol I am the number one believer in cushion!!

Hannah said...

@Nicky
Ya..lol.
Colbert has OWS part 2.

Nicky said...

Wheres part 2?

Nicky said...

Found it: http://www.colbertnation.com/the-colbert-report-videos/401261/november-01-2011/colbert-super-pac---stephen-colbert-occupies-occupy-wall-street-pt--2

rhmoptions said...

Week 21 OK now. Spx weekly iron condor to expire Friday. This week saw $360 profit on 20 contracts (50k maintenance) Will look to do again Monday.

Rhm

Nicky said...

Need a down day today, got to roll these MSFT $26s.

Taxman said...

RHM
Would like to know your SPX strategy. Seems you let the weeklies expire on Fri and place a new position on Mon instead of rolling out on Fri and have to spend money closing the current weekly.
So now on Mon what are your parameters. Do you try to stay a certain number of points below the SPX (ie 125 from the current index) or do you look to book a certain premium like .25-.30 or do you use deltas. I can tell from your posts that you use a 25 point spread. Seems to be enough open strikes on the put side but never enough on the call side to get a decent cushion.

rhmoptions said...

@taxman. I use % as a measure if cushion. I look for cushion sitting 10% or more away and then pick away at the crumbs - usually requiring a 25pt spread (0.15-0.20 premium). Recently if the mkt feels okat I have been "topping it up" with again a 10% cushion call spread to make the IC. This can get you another 0.05 but it is covered by the same maintenance(commission too if you enter the trade as and IC from the start)The IC does however increase the probability of a bad trade. So far I have learned

Positives:
- Pretty safe trades, all hell has to break lose very fast for it to be bad.
- The returns are approx 2-3% a month

Negatives
- You can trade 20-40 contracts max then you cant get your premium so this approch doesnt scale up much beyond 50-100K maintenance so you can never "retire" with this :)

- IF all hell breaks lose then you can lose many years of income in one week if you get caught

Cheers

Nicky said...

Rolled MSFT Nov 04 2011 $26 to Nov 11 2011 $26 for .26 credit.

Hannah said...

Nicky,
MSFT Nov11 strike 26 is worth about 48c,or 50c a moment ago?
Wrong time for me 40 cents :(

Nicky said...

My trade was: BTC: MSFT Nov 04 $26 strike for .16

STO: MSFT Nov 11 $26 strike for .42

KauaiTrader said...

I also am rolling with Hannah and Nicky on the same schedule. I'm in the JAN 13 MSFT 25 CALL long and have been rolling the short position. I followed from 27 down to 26 in mid week, then rolled out today for a net of .19.

Just wondering what the strategy is for maximizing that spread on the roll out? Since this is where the profit is actually made, week to week, I would like to know what others are doing to get the most out of the weekly roll.

It seems like if you try to time it, buying the expiring call back on a dip and selling it again on a bump up, you can maximize your return, but both these numbers are in flux and there is no sure way to do the buy lower and the sell higher, right?

Hannah said...

@Kauaitrader
Wish there is a way to time it. I covered the current week strike 27 4c on Tuesday, looking for an up day to sell the next 3 days. Well it dropped 65c on Wednesday...Thursday it was red then turned barely green, then red again today.

So far covering earlier has never helped me, naked puts either. Think I'll roll forward/out as one process.

Taxman said...

MSFT 25 Leap/roll My thoughts
In getting my feet wet, I have 10 of the Jan 25 leaps and have been rolling at the 27 strike. Instead of incurring closing cost, I am waiting until Mon to sell the Nov 11 at the same 27 strike. I know I won't get much, but I think its better than rolling down to 26's and run the risk of a rally next week pushing MSFT back to 27. IF and its a big IF, MSFT gets back to 27, then you will have the same problem rolling the 26 into Nov 18's that Nicky had last week rolling his 26's, ie NO Premium.
I am going to wait till MON, roll at 27 for whatever I can get and see if MSFT rallies back up towards 27. If it doesn't, I will consider rolling down to 26's next
FRI.
My thiughts and 3.00 gets you coffee at starbucks. Good luck in whatever you do.

Fulgore said...

@All I opened some 1225/1230 SPX put spreads today. I did them late. About 1pm today. Work has been really busy, so I only had enough time to make the trade.

Anyways they expired worthless. They gave me about 30 points of cushion for 3 hrs of trading and the premium was showing .30. I changed it to .25 because it wasn't going through.

With this volitility I am seeing that positions on Thurs and now even Fri you can get some good cushion for some decent returns.

ihaveoptions said...

Taxman and other calendar watchers: here's the history so far on my 25 MSFT spread:
10/6 BTO Jan 19 2013 25 call - $3.70
10/6 STO Oct 7 2011 26 call .20
10/7 BTC Oct 7 2011 26 call - .48
10/7 STO Oct 14 2011 26 call .73
10/13 BTC Oct 14 26 call -.75
10/13 STO Oct 22 26 call .99
10/21 BTC Oct 22 26 call -.93
10/21 STO Oct 28 26 call 1.05
10/28 BTC Oct 28 26 call -.91
10/28 STO Nov 4 26 call .97
11/4 BTC Nov 4 26 call -.13
11/4 STO Nov 11 26 call .38
Initial BTO basis 9263
Net cash out 2709 so far
Current cash investment $6554 net of commish
These are actual numbers which show that if MSFT doesn't move around too much ( ie the criteria for a good Cal spread equity) it seems to work tho the net premium some weeks can be disappointing.

Selling Put Options said...

I all, I’m glad to see no horror stories.. yet..
IHAVEOPTIONS; I have about the same results with my MSFT. It’s a gold mine.
Many of you are talking of legging in or out trying to time the market. If you enjoy doing it my warning will probably not change your mind but it is considered a wrong thing to do by most experienced traders. Sometimes you get lucky but generally not a good idea. I roll some on Thursday if the time val is getting down to a dime or so. Otherwise I let them run until an hour before closing on Friday and then do it. There is no downside to doing it that way. The time leaks out of the near term and stays in the next week. The fear that the stock might jump up near closing and cost more to close is not valid. If the stock does move up the so does the next one and time will leak out of the near. Unless you have another use for the money or you do not have the time to keep a watch on them, it is always better to wait.
Here is a list of stocks that I now have positions in. These all work for me and if any of you like them, jump in also. AAPL, CLF, IBM, KO, MCD, MOS, MSFT, ORCL, POT, SLB, XOM.
These are all calendar spreads and make 2-5% weekly.
Good luck.
Jerry

rhmoptions said...

@ihaveoptions.

Good stuff but for roi etc you should also track the value of your 2013 long. "If you closed all positions today" what is the profit and net roi over that time.

Msft 25call 2013 was 3.28 today. Down 0.42 from your original purchase. So for 25 contracts that is -1100 (approximately) net commission. This should not be ignored.

Cheers
Rhmoption

ihaveoptions said...

rhm-I agree totally and do have that column on my spreadsheet as well as roi calculation where I track my positions. My point in the above post was that it seems that I can get net premium by waiting til the time value of the expiring call goes to (near) zero. Thanks for the clarification. Haven't been way out there on the time yet but assume that at some point, I own the long call at zero basis where the roi must be pretty good!

Selling Put Options said...

RHM, yes and no regarding tracking and comparing the value of the long call. This week it might be down but next week if the stock jumps up some then it is up and you might be back to even or ? So what did it tell you. The true value is how much cash was put into your account.
The long call is certainly a ‘wasting away’ position and you have to go into a calendar spread aware of that fact. In an ideal world the underlying stock will slowly go up in value and the long call actually makes money also at closing time. But I go into the position with the idea of making weekly gains on the short call and making much more than the intial cost of the long side. An example, you can buy the long MSFT call at the 25 strike for 3.30. The stock is trading at 26.31 so this call is in the money 1.31. If you can make just a dime a week for the next 61 weeks you have made around 6. That is roughly 70% ann return if the long call just expires worthless. Also if MSFT happens to go up .61 within the next year you get back at least 2 of the opening cost of 3.30 If it goes up more you not only made weekly income but a profit on the long call. The stock might make the 1 dollar move during the final month of Jan 2013. So each week your way of tracking the ups and downs of the long call meant nothing. The time it does matter is Jan of 2013. I look at the long call as an investment cost to make weekly income and if it goes up in value, it is a bonus. It is sort of like a person that buys a long and each week and looks to see how much he made or loss depending on the current price of the call. But there is no gain if you don’t sell it. That is the same with our long call side of the position.
I have several positions where I have already recouped the cost of the long call, so would tracking that value any more be worthwhile? For me I have a lot of positions and I add to them at times and subtract some now and then. It would be a nightmare of number crunching to keep an accurate running total of the long call.
However for those of you that like to track all the different moves of each side of a trade, more power to you but it is too much work for me.
Jerry

doctorali said...

So jerry do u buy ATM strike or little Deep ITM call.For example
MCD at93.81..would u buy 90 or 92.5call
IBM at 186..which one would u buy 180 or 185 or 170 which is really deep ITM.Is AAPl hard for doing calendar spread as it is fairly volatile..
thanks

Anonymous said...

All, I would appreciate a discussion of option spreads and taxation. Please refer to the below article, from what I'm getting out of it, any verticle spread is pretty much considered a straddle tax wise. From the article, maybe not a good ideal to carry a spread over the calender year as have to deal with extra forms.



http://www.optionetics.com/market/articles/2001/04/24/tax-tips-taxation-of-spread-transactions

ihaveoptions said...

The first one of these I did, I obsessed with the value of the long call. It was AAPL at a 'soft' point and it eventually scared me out of the trade. Then I realized exactly what Jerry says above. It really didn't matter. It was difficult for several weeks tho to get a decent premium. I even sold a few under the underlying long strike which worked ok for awhile til the underlying eroded further and I incurred a margin call. I avoided the margin call by rolling to the next week, generating the required cash but then chickened out and closed the position. I guess I learn best by doing, tho it gets a little hairy at times. Now I just stay above he long strike with the short position and sleep at night. Maybe I shouldn't admit this stuff but its nice being anonymous.

ska said...
This comment has been removed by the author.
ska said...

Selling "weekly" vertical put spreads on SPX with 10-15% cushion...if I do this every week, isn't it significantly increasing my probability of failure. What I mean is it will only take 1 ugly incident (like 9/11 or Italy defaulting) to wipe out all my money. I will not even have chance to get out without taking extensive losses. I know that such incidents happen once in a blue moon, but remember I am trading every week and thus increasing my chances to get caught in 1 of those incidents. If the same money was invested in stocks, I can hold on to them, but not options. This style seems like a ticking time bomb where time is not defined. Thoughts/comments?

ihaveoptions said...

Interested in the tax question as well on the calendars. Anyone held these over the end of a tax year?

jamesaliano said...

ska I think you are right about the risk with SPX trades, I read an article by a very experienced option trader on that exact subject he said just what you are saying. His reasoning is if you are doing trades at 95% prob. then about 1 out of 20 could go bad and of course the premium received from a bunch of previous trades is gone and now your losing.I also read a great article by John Summa in Investopedia about adjusting SPX trades that are going the wrong way this was written before weekly,s but the same strategy would apply. You might check him out he seems to be pretty smart. I have pretty much quit trading the SPX due to the extreme vol and the risk from Europe and our own gov.

rhmoptions said...

Keep in mind the spx has dropped and closed down 10% in one week 4 times in 42 years. Only once over 12%. That is approximately 99.85% probability or about once every ten years. Its not that simple but if you get a feel for the market you can exit well before Max loss. Also when things are nervous you can get great premiums at 20% or morecushion (the spx dropped 18% one week in 2008). Note 911 it did not drop 10%.

Rhm

Brian said...

on these calendars, what do you do it stock gaps down and you have to start selling calls with strikes below your long(far out) call strike. Do you roll your long call down or just keep selling lower strike calls even though that would then be a changing your risk if stock gapped up. I mean MOS mentioned above has 50% swings in a month.

rhmoptions said...

@Jerry and ihaveoptions. I have two calander spreads going msft and Intel.ill post my tracking when I am at a computer and not at my phone.

There is roi and then weekly cash flow. If you think of the long call as an asset or book value on an investment then roi is the return (profit) u make on the principal. So you can track it each week (cash in -commission -loss on long call for example) to get roi. Otherwise what you are framing is cash flow (like what ihavepoptions is going which is good)

If you take the approach that you asunder the long call will expire worthless then that's OK but in reality you have made no money until you cover the initial cost (ihaveoptions that looks to be another 15-18 weeks at current rate). So it can take approximately 24wks (1/2 a year) to start making money on the 9k investment provided the stock avoids a large and quick move down.


I am experimenting myself as I said with two csladers for 4 weeks now and trying to generate income while you hack away to get the initial long call money back. My rate as well maps to 20+ weeks..

Regards
Rhm

DMK said...

@RHM/James/SKA... Some thoughts on the SPX trades. I think that they are safer than doing individual stock trades, RHM is correct if you keep the correct cushion you "should" be ok, AND as long as you cut your losses quick you shouldn't lose everything. You may have a large set back but still be in the game. If something bad happens the average stock will be down more than the SPX. Look at NFLX... I think that's a pretty good example that if someone was trading any put spread they would be killed.

@MSFT, I'm actually doing calendar put spreads on it since I have a more bearish outlook on it and hope to capitalize on the downside. The tricky part is when it falls selling the puts gives you losses like this week.

ihaveoptions said...

rhm-Looks more like 12 weeks total to me unless I have to jump up a strike or two along the way. Or if DMK is right, then the premiums available would be much reduced or non existent. Some of the roll up can be recovered when closing the long at expiration ($500/$5 strike/contract). 52 week range for MSFT 23-29 . I still have trouble forgoing appreciation on the long leg on a stock like AAPL. Always tempting to uncover a couple of contracts to try for a score. That would just make me another market timer, which I have already proved I am not good at.

ska said...

I agree on one thing that selling vertical put spreads should be done on indexes, not on individual companies, which can be manipulated and/or lie/cheat to their investors. Also, cushion should take precedence over ROI when selling even if that means getting .05 or .10 on your 25 point spread. These two things, though boring, will keep you longer in the game.
Having said that I am wondering if a "sudden" ugly incident happens, how much damage you would have to take before you can get out given today's market volatility. Or, can there be a "sudden" incident ugly enough to eat your cushion?
Please keep your thoughts/comments coming...

DMK said...

@Jerry... Question for you. The MSFT cal spread make sense since it doesn't move much. However, trending stocks like MCD & AAPL, aren't you continually moving up your strike price and taking some heat?

rhmoptions said...

@ihaveoptions yes I double counted so 12-15 Wks cheers.

So let's say with a stock that stays flat, not tio much volatility, it takes 3-4 months to recover the long call cost. Then 8-9 months to make weekly cash as long as you can sell calls above the long strike.


Ill continue to run my intc and msft as well for 20 wks like I have with the spx and see

Rhm

Chelski said...

Jerry, ihaveoptions, and other cal traders,

Do you roll on Friday to next weeks weeklies instead of letting it expire and opening a new short call on Monday so that you get a better premium over the weekend?

jamesaliano said...

Re: SPX trades, it is true that it is very rare to close down 10% in a week, but how many times has it touched or got within spitting distance. I think a lot of traders will take a chance on the market turning in their favor sometimes you win sometimes you lose. The reward for all that risk is very small if your wrong. I guess it comes down to what your comfort zone is and do you have a plan to get out before you get killed. I am very wary of this market the big boys and the hi freq traders can and will move it big on any rumor so be careful.

rhmoptions said...

@jamesaliano - Yes true. As for your question I only have this

Closed 10%+ down - 4 times
Closed 9%+ down - 6 times
Weekly low touched 10%+ - 6 times (so it bounced back twice)
Weekly low touched 9%+ - 12 times (bounced back 6 times).

So maybe you could use 9% as a trigger point to roll a week. It should be noted that in the 4 times it closed 10%+, the week that followed provide weekly highs over rhe next two weeks to roll out at teh same strike without a loss even the 18% drop on 2008.


RHM

ihaveoptions said...

Chelski-So far I have always rolled on Friday. If you don't get the short near term established, you have no hedge should the wheels come off the bus over the weekend ie WW3 or more PIIGs defaults or whatever. Of course anything thats IYM has to be rolled. That said, last week I had some XOM 80/82.50 where the short expired worthless because my credit limit on the roll was not filled by Friday close. I can't generally sit at a computer all day which is one reason I like these calendars. So we'll see if I can get a better price early this week. Probably not good to have this exposure but....

Chelski said...

ihaveoptions, thanks. But worrying about not having a near term position established is only if you are playing the calendar puts and not the calls.

ihaveoptions said...

I don't necessarily agree as the two positions work in opposition on either side of the market. If you wtch your account balance, you see it fluctuate a little with both calls, but not much....only the difference in the deltas of the two. At least that is what it seems to me. Think it works the same with the puts.

Selling Put Options said...

Chelski, I only roll if the call is ITM. Otherwise i will usually let it expire. I try to avoid the temptation to guess if I will make more by rolling one that is going to expire. I just let it expire and sell on Monday.
DMK, yes there can be some rolling up with the sold call. But that is not all bad as each time you do that you are putting money in the bank with the long call. You of course have the option of going out two weeks- a month or more to breakeven, but I try to not go out more than two weeks when jumping to the next strike.. And then only if i am pretty sure that the stock will hold its new higher price.
Doctorali; i usually open a calendar spread with the long call at the strike right below the current stock price. EX; if the stock is trading at 81 i would buy the 80 and sell the 82.5 or 85 etc.
SKA; regarding the dangers in vert put spreads. Unless the 'bad' news is super ugly, there is generally not a one day drop so severe that you are ruined and even then you have the somewhat protection of the bought put. That is one reason that i only go 5 points diff between the strikes. I see many are using 20 diff on SPX etc. But in a disaster those 20 points could spell super trouble.
the post is getting long so about time for a new one. Some great ideas and questions floating around.
It is great to see all sharing their knowledge and experience.
Jerry

rhmoptions said...

WK21

Opened weekly 1120/1100 SPX put spread for 0.15 earlier today. Only 20pts needed this time. Will watch closely as always

Cheers
rhm

Brian said...

jerry, Im still confused with how do you handle when stock gaps down when in a calendar spread if you are long a call at higher strikes. Do you close it out or just keep selling lower the lower strike calls and just roll the short call if stock moves back up into the money

Raging Bull Winkle said...

Can you believe the NON move in PCLN what a gift for any one that sold a strangle today.

Thank you ...::+))

ihaveoptions said...

Are the markets closed on Friday? Do I need to roll my short options by the close Thurs? Would be bad news to miss deadline!

Ed said...

Markets are open for business on Friday.
For 2011 markets are only closed for Thanksgiving (Nov 24) and Christmas (Dec 26). The NYSE and NASDAQ will close trading early (at 1:00 PM ET) on Friday, November 25, 2011 (the day after Thanksgiving). Amex will end trading (1) for those products that normally cease trading at 4:00 p.m. at 1:00 p.m. and (2) for those products that normally cease trading at 4:15 p.m. at 1:15 p.m. The AMEX will start accepting orders for after-hours trading at 1:15 p.m. and all eligible orders will be executed by 1:30 p.m.

newbie said...

Hi all- a new wannabe options trader. Read Jerry's book and have started following these blog posts. No specific comments other than saying hi to you all. Love to learn and contribute!