Regarding the overall market, this Europe stuff keeps affecting the market, next is Spain and France. My advice is leave lots of cushion and leave as little time as necessary. You don’t need to take excessive chances with options to make money. Even with the Europe problems etc, there is still plenty of money to be made with options.
Nicky; I would be careful following that advice regarding MSFT. That is a lot of time to give for bad news to come out. I have over 250 MSFT in my calendar spreads so I like the steady action of MSFT but caution should be the by-word with any naked put. There is a name for traders that take bigger chances on what ‘seems’ to be a safe play… they call them ‘broke..’ so be careful.
55 comments:
Jerry,
So now we have a price drop in MSFT. I know several of us are in the 25 longs and now have shorts that expired last Friday. I think you probably have something similar in your portfolio.
Can you give us some guidance as you move forward with regard to MSFT? I don't think there is any reason to be concerned about the long position, but I am wondering what you will do this week with regard to short positions.
I think it would be useful if you could let us know as you move into and out of your short positions with regard to this specific stock, since calendar spreads are not as cut and dried as naked puts, and it seems more of an art than a science.
Hi Kauai, Yes if the options expired on Friday this is perfect, you are in the golden zone.. lol Now just sell the Nov 25 at the 26 strike for .08 or what looks as an alternate is sell the Dec 27, 27 strike for .15. for me I like the .08 and only one week. MSFT is a gold mine. Just a little work each month and money in the bank.
I am also liking SNDK, trading around 49 For new positions buy the Jan 2013-- 47 for around 11.05 and sell the next week 50 strike for .60. That gives a 5+% weekly ROI and more money in the bank.
I get or have received many comments regarding the current price of the bought options such as the Jan 2013 option. Some traders want to constantly compare the current income to the current price of the Jan options. For me and many traders this is not the way to look at the trade. An analogy is rental income. If you buy a house for x amount, do you look each month at the market price of the house and compare it to the rental income? No, you figure you are making money and using the bought price as collateral. Many ways to skin an option..
Jerry,
This question has been asked by many in the past, but no clear answer. I ask here again: what if MSFT stock price drops below long call strike of 25? If the stock price is below 25, there will hardly be any weekly premiums for short call 26. How would you handle such situation? I am sure many of us would like to know this.
hi jerry can u give some good sugestions for monthly puts for december.I think that market will again take a deep nose dive .Greek default is almost a certainity and november deadline appears set to expire without any fiscal plan,all these things makes me feel like there will be huge volatility in december.
Wow the us government is really a disfunctional group of children (no offence). I used to say i like the us system better because i thought (incorrectly) that its better to cast a vote for a person and then a local rep. But now that i see it work when both sides cannot compromise..its no better than greece,italy etc in accomplishing anything. If i am germany i would laugh in the us face if thet try and tell me what to do.... Ill take canada any day...once a govt wins a majority in a single house..they can govern. I expect finch to join moodys before the year end in downgrading the us. I plan to start buying spx puts at 900 and below for january. Ill still play my spx put spreads just further out. Ill hold on opening up any more calendars.
Cheers
Rhm
Where's our 'up' week?
Hi
Opened up 1075/1050 spread for 0.25 11.5% cushion from open (140pts) and good premium. OEX did not have strikes far enough away this week so i passed on them.
This week (wk23) is a bit scary so ill watch very closely.
Best regards
rhm
Jerry,
My question above becomes very relevant now that MSFT is below 25. Which means this/next week there won't be any premiums at short call 26. Again, how would you manage such situation? Do you close the entire position including long call? Thanks!
I just closed my MSFT 25 long calls
Why close now? Time is on your side, lots of positives coming for MSFT, just a bump in the road here.
@ Nicky I just don't want to sell below the long prize. It's okay though I still made a profit on Microsoft. And I still have XOM, MCD whom are doing very well
There is a very high probability greece will default by next friday. Opposition leader refuses to sign the agreement, ec says no signature no 8 billion euros...default. Italy yields at over 7% tonight, belgium now up 1% to over 5% and their books are better tha france...dow futures dropping 110 now...i better monitor my spx tightly
Rhm
Pascal, and others concerned with MSFT. Again I feel you are misguided in worrying about the current price of the long. Yes we would all love each trade to work just right and to our ’plan’. But you have to understand why we bought the Jan of 2013. To give the markets and MSFT time to absorb the hic-cups. The question that seems foremost on many minds ‘what strike to sell with the near option.’ Two main choices, the weekly that for the 25 strike at approx. .12… or go out to Dec and use the 26 for .20.
If you use the 25 for this week then be prepared to roll it if necessary out to the next week after that or to the Dec 26 etc. In an ideal world you will have sold the 26 strike for the week and each Friday the stock ends at 25.80. But this isn’t a perfect world so we have to make do and adapt to the market. There is plenty of money to be made with MSFT. Just play along and make money each week or month when necessary.
As RHM.. says and I have been saying for months. Europe is dangerous and requires you to be EXTRA cautious. The US government is addicted to spending and many if not all owe their seat to special interest. Will they listen to people or continue to spsend?
When opening a position, think, ‘is this safe in the real world? We will get through this, but there will be lessons learned by the ones that are not careful. I am using stocks that have dividends, low PE’s, big market share and good BOD’s. Don’t take flyers on NFLX, GRPN, green mountain coffee, amazon etc. I love AMZN and we use their service on many items.. But I would not trade with a stock that has a PE of over 100 such as amzn. Don’t try to catch a falling knife with NFLX or RIMM. All of these might MIGHT make a great comeback story but along the way many will lose a fortune.. it isn’t necessary! Careful good stocks and prudent investments will make you money and let you sleep.
Jerry
I bought MSFT Jan2013 calls today $25 for $2.65 and will start to do the calendar spreads. I'm selling the puts I bought for $3.05 for $3.75. I sold $25 calls for $.20 which is 7.5% in one week. I'll take it!
After a long gap of selling put spreads on SPX, I bought 10 MSFT Jan 2013, 22.5 strike call for $4. I sold $25 call for Dec 1 weekly at 0.20. Let us see how it goes.
HI all, Just a thank-you to all on the board and the readers for your good information and constructive help that you share.
My family has had a fantastic year in so many ways. This Thanksgiving Day finds us healthy, happy and enjoying life. I wish all of you a happy year ahead. Smile at strangers, thank a serviceman and live by the golden rule.
Happy Thanksgiving
Jerry
Thanks to Jerry for this wonderful forum and everyone that shares all valuable information here. Happy thanksgiving to everyone!
Happy Thanksgiving to all, and thank you Jerry for giving us traders a great forum to share trade ideas and learn new strategies.
Happy Thanksgiving Jerry & Friends!
Lower lows, lower highs has been the story of this market. I know we don't try to predict the direction of the market and just take the crumbs off the table but this recent action reminds me too much of what went on in August where we kept selling for several days and then really crashed down. I think there is a pretty good chance the bear continues here and takes out these recent lows. I don't think it's a bad idea to think about taking out some OTM puts just as a hedge in case it really gets ugly. I bought some today on some of my long positions. I also bought some VIX call spreads since I can't help myself but to take a directional bet.
At the CBOE site they talk about: - Buying Index Puts to Hedge the Value of a Portfolio
http://www.cboe.com/Strategies/IndexOptions/BuyIndexPutstoHedge/part1.aspx
I have most of my money in IRAs. Which of the brokers allow this type of trading is my quesiton, and what are their fees for these less expensive (pennies) priced options. My optionsxpress wants to charge $30 per transaction, vs. their standard ~$9.00. This is a huge expnse.
Thanks.. Jim
Texas Jim, Check out Tradeking. I trade there in my IRA. Kinda a clunky platform but it works in its simplicity and I sometimes prefer it to my more info rich sites that are harder to navigate. Way cheaper too.
Hi Jerry,
Really appreciate all the great comments and your advice!! Back in Oct. of this year, you wrote the following comment. On this MSFT trade, were you talking about the PUT side here?
Buy the Jan 2013, 25 strike for 3.70
Sell the calls for this week at the 26 strike for .20 -- .20 div by 3.70 = 5.4% ROI for week after week for around 66 weeks. For fun numbers but not unreasonable.. Starting with $10,000. By Jan of 2013 your account could be worth over $80,000. You have to make a plan and not jump around to much unless necessary.
but it is possible and many are doing it..
Good trading, Jerry
Thanks Bill Neslon
Hi all, I am still full of turkey, I hope all of you also had a great holiday... Thanks for the nice words but you guys are the meat and potatoes of the blog.
The markets. Wow last week no DOW stock was positive, today all up? I am happy with my calendar spreads and I now have a few vertical put spreads. There sure seems to be some ‘free’ money out there. But do use caution as last week demonstrated this goofy market and can turn and burn very fast. Let’s hope this market holds onto these highs for awhile. For you traders with calendar spreads, this rebound shows that holding the long call instead of bailing out demonstrates why I like the Jan 2013. This long call a year out gives plenty of time for a stock to climb north and/or rebound from hic-cups. A quality stock that follows a trend downward will come back sooner.
Leave lots of cushion and don’t go out on a limb with wild guesses.
Jerry, after re-reading your comments from Oct. in my previous post, I see that you did refer to CALLS. But could you reiterate any important thoughts on selling premium against a Leap as in that MSFT Example?
Thanks Bill Nelson
How about GPRN, I was thinking about selling the Dec $15's, when the $15 put was good for a 37%+ cushion, today GRPN hit a low of 14.85, wow.
*GRPN
Thanks ihaveoptions on the Tradekind idea..Jim
I'm a newbie, and trying to get things figured out a bit. I read Mr. Lee's book and am really excited to get going a little faster.
What are the simple naked put traders here working on? I'd be grateful for any ideas, as I'm just not ready for calendar spreads--I hope to be soon, but my mind just isn't fully wrapped around it.
Thanks in advance for ideas!
Dave
The simplest strategy to start trading naked puts that I like to use is: think of a stock you like, that you were going to buy anyway, now instead of buying the stock, name your price for the stock collect the premium, sit back and let it expire, roll it if you want or get assigned if you want, and turn around and sell calls on it, if you want, you're your own boss in this game.
Hi Dave, I just sent you some info on various kinds of plays using vertical put spreads and calendar spreads. Take your time and ease in to options. It is an intriguing and fun way to earn money.
Nicky, I would b careful with GRPN. For me it is one of those stocks that is a rocket both up and down. Don't be the one at the musical chair event that is left standing. For me there are QUALITY stocks galore, I avoid the shaky start-ups etc.
A note regarding vert put spreads. Here is an example of a good trade that I have done and do recommend….
AAPL trading around 376
This weeks 350 can be bought for .24
You can sell this weeks 355 for .40
So you make .16 and the maint is 5 ea one you do = .16 / 5= 3.2% for a four day trade. That gives aapl 21 points of cush for a 4 days. Tomorrow if aapl has dropped you can drop the above strikes and still make good money.
Just some ideas.
Jerry
Hi Dave:
Welcome to the group! I try to follow the rules Jerry has laid out as closely as possible. This is especially true in this kind of market, where it is up 250 one day and down 250 the next.
This month I am in DECK, BIDU and doing MSFT cal calls. Like you, I am still learning the ins and outs of cal calls.
I think the two most important rules of Jerry's strategy are to pick a good, "healthy" stock, and give yourself lots of cushion. I watch Cramer every night not because I particularly agree with his style or picks, but because it gives me some insight into the psychology of the market.
I had been playing AAPL and AMZN until recently, but AMZN in particular has taken a real perception hit. It's no internet darling. AAPL is not as bulletproof as it once was, but is still solid, imho. I will continue to use it going forward.
DECK is a real golden child right now. Lots of people love this company, and it has solid fundamentals.
BIDU is the only Chinese stock Cramer recommends, and so while I do play it, I always give myself as much cushion as I can.
Good luck! Let us know how your trading goes...
Another Call Spread to consider is the IWM (Russel 2000) which trades at 69.79. The 72/.4 and 73/.26 gives a 23% potential profit in 4 days with a 3.2% safety factor.
Good ideas from these guys!
Regarding AMR today. Years ago I saw a big time trader talking and he said something that has always stuck in my mind...
If you want to be a millionaire.. Take a billion dollars and buy airline stocks...!
so true today.
As Kauai said above, pick good stocks with good fundamentals. Don't try to pick a 'turn-around' stock. Don’t fight fundamentals. The options market has probably made more millionaires and more bankruptcies than anywhere else.. and quicker. Folks you can be ruined with good stocks, don't take on the added risk with shaky stocks.
Just Jerry's opinion
@Jim from Texas, extremely scary trade. I would stay away from it.
Jerry, I have a question about calendar call spreads. For ITM calls, you automatically roll out on the Friday afternoon of the expiration.
Do you automatically roll out on the Monday after expiring worthless? Or do you hold off until later in the week and try to time reentry into the short leg?
Last Friday, after sitting on the side all week, I sold the MSFT 25 weekly for this Friday. If it expires on Friday worthless, would you automatically sell it again on Monday, or maybe wait for an up day and lose some of the time value?
Hi Kauai, I nearly always sell the next one if the previous has expired, on MOnday Morn. That is true for weeklys. If going out for a month return or only using stocks that have monthly, then no hurry. For weeklys I try to resist the 'wait a day' for better returns, as even if the stock goes up some the time is leaking so fast that you don't usually win by waiting.
If I do miss some better returns by going into the new position to soon, it is more than made up for by the ones i win on..
hi - I've been a lurker here for a couple of months after reading Jerry's book. Have been trying out the weekly calendar spreads on INTC, MCD, MSFT and KO with success (and now HD also). I decided to go back and analyze what-if scenarios using different strikes, and weeklies versus monthlies. My thinkorswim account allows me to go back to any day and get the price of any option. Surprisingly I'm finding that weeklies and monthlies even out to about the same. The weeklies loose some of their advantage with the more frequent commissions. Can't post spreadsheets here otherwise I'd happy to share the results with you folks.
I'm going to change tactics and try doing only monthlies on some of the stocks. Psychologically it is harder to switch because the weekly gives you the feeling of being more in control of the situation.
Ska,
agree with you in the IWM trade, it was just an example of a stock to consider. Thanks..Jim
amritsari - interested in your weekly vs monthly analysis. Would appreciate a cc of spreadsheet to my email address - mccglenn@gmail.com
Thanks in advance
Amritsari;
I agree that often the results are very close. But I do like the control of weeklies. Such as, if the stock starts moving up (as today) Then next week you can roll to a newer strike before the stock totally runs away from you. With monthly's you often have to wait for quite a while before the timing is correct.
qqq
Amritsari,
I would appreciate a copy of your spreadsheet also.
Thanks in advance..Jim
jimword1@gmail.com
Closed my MSFT diagonal spread today as MSFT started running off. Call Jan 13 22.50/Dec1 25. Will reopen again later.
Thanks for the welcome!
I put on the trade Jerry mentioned last Tuesday, and it looks like I'll "win" with my first vertical put spread this Friday! Monday didn't have enough open interest for the rules, so I waited until Tuesday when open interest jumped up, and at 9:30 am AZ time, where I got .18 credit. If I would have waited much longer into Tuesday I would not have made much in the way of spread.
Is anyone selling another day-long DecWk1 put spread on AAPL? What is the thinking after a big run up like today?
Thanks again--I am thrilled to be here.
Dave
Rolled out of MSFT 25 today into JAN 26. With only .03 time value remaining, I was concerned about being assigned. I would have rather waited until fri to see if MSFT closed below 25. Ended up with a .19 credit, so still a positive move.
Jerry, was I right to worry about early assignment with such little time value left, or would you have waited it out?
jerry and all others,i have a question about wash out sale rule..does it apply to pure options traders like us..i did some research online and only at one place i found that option trades on index listed stocks and indexes are exempted.any input will be highly appreciated
So much good stuff here with Jerry & All leaving excellent crumbs of advice-----I have cut & pasted almost to WORD from the start. It's like having another timely by Jerry & Friends full of salient points worth re-reading and putting into safer trading practice.
Thanks Jerry et al!!
Bill N.
Hi all some answers and comments;
Kauai, it is always important to be aware of potential assignment. That being said I have the same position and will let it run until tomorrow afternoon. So be aware but unless a dividend is coming etc you are ‘usually' safe with .05 or more. Very few assignments happen before expiration..
Doc, regarding wash out rules etc I enter [tax return] all my option trades on an excel sheet as it comes from the broker. I submit it and have never had a problem.
A trade today that might interest some of the calendar traders;
INTC at 24.72
buy jan 2013 25 strike 2.68
sell Dec 9 25 strike for .31
*That is an 11% ROI in 9 days
I did this trade this morn so prices might be off a little now?
Good trading all
I will start a new post this afternoon after closing.
Thanks for the answer, Jerry.
I'm wondering what your strategy will be for Friday if MSFT finishes around 25.25. Do you sell the next week 25 ITM, or do you try to roll up to the 26?
It seems like if you just keep rolling at the same strike, week to week even if ITM, that your ROI would be the equivalent to all the time value of each week. Rolling up tends to eat into your profits, no? Any disadvantage to rolling week to week ITM?
Hi Kauai, the deciding factor on which strike is which one makes the most $$.
If I you can roll to the same strike you get more return. But I don't want the stock to run away from me, so it is kind of a guess on where to roll to. If the stock is generating more and more up pressure i will go to the next strike and maybe out a week or month?
It is important to remember that rolling up for a stock that has moved up even if a neutral roll, is not all bad as you get the new intrinsic value.
EX; you have sold the 25 strike and the stock has moved to 27. To buy-to-close the 25 might cost you 2.10 and the next month’s 27.50 sells for 1.50. On paper you have lost .60 to roll up and out. But remember that you now have gained 2 of intrinsic value and also the bought call has gone up in price..(there will come a day when you want to sell that one)
So on paper three things have happened.
1. you lost .60 on each contract
2. you have gained 2 of intrinsic val in the sold one.
3. you gained the intrinsic value of the bought one.
The one danger is that all of a sudden the stock drops back to 25 and then the .60 you lost is really lost..lol That is why it is a balancing act of when to roll and how far. Intuition, experience and gut feeling is the answer. Oh yeah a crystal ball helps.
I am posting this also on a new posting.. Jerry
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