Hi all, I am home and looking forward to more posting and getting back into trading. It was difficult while in places that had just so-so wi-fi.
Here is a trade many of you might be interested in. It is a calendar or vertical call spread. Using CMG but I have them in AAPL also.
CMG is trading around 365. Earnings are this week so ?? But I have bought the Jan 365 for around 48.25
I have sold this weeks 390 for around 2.20 This is a debit of approx. 46. Obviously you need at least 4600 per option of free cash to make the trade.
Here is the idea. If CMG makes a big move with earns, for example they go to 390 (up 25pts in a week) you can close the 390 for approx. $1. But your bought calls for the 365’s will go up approximately 10. So you would make the opening 2.2 and maybe 9 more for 11. If CMG makes a move but not as big then the 390 expire and you again sell calls next week. I am now staying at least 20 or 25 pt’s ahead of the current stock price. Next week without earnings coming the prem will be lower and I will fall back to just over 20 pts from the current stock price. This is a +4% a month trade this week and as CMG has good prem’s I should be able to get a decent ROI each week. I closed other spreads I have, as the recent run-up in stock price kept going past my sold call. This resulted in constantly having to roll-up and out at a loss and hoping the stock continued upward.(Read MSFT) It works unless the stock corrects and then the roll-up was for no reason. I also have some with AAPL and looking at others. ISRG’s is interesting but little volume. Also GOOG and PCLN probably SPX also.
As many of you commented on it is TAX season. It is a days job sorting it all out, but when done it is over for the year. Hope all have been making money as the earnings are settling down and trading might be easier.
Just another way to use options.
Jerry
70 comments:
Hi Dave, you might look also at MA..Mastercard.
earnings are coming on 2-2 But that is not all bad as you have some room for the stock to run up. I have some with the Jan 2013 at the 350 strike and sold the feb 3 @ the 365 strike. It is a little better than 4+% for the week. Not much downside unless it totally tanks but with the Christmas season and its lower PE plus a dividend to help support it, I like this trade.
Jerry
I am just a simple naked put seller. Some of these spread ideas make my head spin!
Hi
Geo, a spread is just a naked put or call with a another side that adds some protection and also lowers the maintenance that is needed. If I have not sent you my chapter on these easy to learn spreads, email me at putman3232@yhoo.com and I will send you a short chapter that explains them and how they might work for you.
Jerry
OOOp's Geo, that is
putman3232@yahoo.com
If you are a "simple put seller" I would check out the following site. This guy uses a very conservative method.
http://www.fullyinformed.com/put-selling-index/
I'm new to selling puts. I purchased Jerry's book several months ago and was so impressed, that I developed a complete, fully automated, system around the strategy (it's a curse to be a software developer), and started using it a couple of month ago. Jerry's approach to selling naked puts has been working like a charm so far. But I have a question which could have already been discussed. I'm curious how Jerry and all you guys and gals handled your positions during the declines in the last quarter of 2008 and first quarter of 2009? During those declines most if not all positions probably ended up in the money.
Beginner question,
Can you trade options at the stock market open? Tradeking was showing no bid or ask at the market open this morning. Is the bid/ask on TK delayed? I want to make sure I understand the details. For instance, will my stop order go thru at the open if the stock gapped down, or will the order wait another 20 minutes?
Thank you,
Dave
Alex; thanks for the nice words... do I owe you money? lol - Regarding the late 2008's. for me it was some set backs but once you recognize what is happening, don't get into denial. If it is a fact that stocks are falling you have a couple of options (excuse the pun)
1. use safer stocks. ones that have dividends, low PE's and low volatility. Go for lower profits and narrow your time frame. This is much easier now with weekly options.
2. stop trading..lol
There really was plenty of money to be made then and even in 2000/2001. You can even revert to naked calls.
HINNGISS, I also trade several accounts at TradeKing. I have not found trading at the opening expecailly slow? I have found that order execution is slower than some brokerages. They say they are working on that problem? But the commish rates are enough to put up with the short-comings.
@ Bill, Thanks for the link to the site, interesting read, the numbers confuse me though:
Capital Committed For 2012: $772,916.00
Total Capital In Use: $760,448.25
Income Earned To Date: $420.50
How can one have earned only $420.50 but have 760,448.25 in use??
Am I missing something?
Thanks Jerry,
CMG makes me nervous. SPY jumped so I closed my position. I got into the AAPL weekly at 445/440. I expect them to close the week strong. I intend to go back to the SPY weekly next week.
Dave
Nicky - I think his capital in use is not accurate. You can see his open put positions and with cash secured puts it is not even close. He only targets 1% per month and is extremely conservative. The income earned to date looks accurate to me.
Hi,
I think I made a really stupid trade. This morning I got into the CMG weekly at 360/350 for .43. My stop was .86 and I got stopped out in minutes. I want to learn from this, but I'm not very objective. I was too close to the stock price of 370 for such a fast moving stock right? Was my stop too close? I didn't want to just let the stock keep falling as I bled. What else did I do wrong? Now I want to sit back and wait for next week, as I have a tendency to react when I take a loss, and make matters worse. Maybe I don't have the right temperment for this? It seems I need to stick with safer and less volatile options. Any comments would be appreciated.
Thanks,
Dave
I forgot to mention, I was nervous about CMG with earnings coming up. But the earnings were close to expected. However, after hours trading yesterday got down close to 360 I believe. So I should have known that the stock could easily drop down to 360 again. You've go to take losses sometimes though right? I really want to learn from this.
Thanks,
Dave
Dave
I don't even know where to begin. How much experience do you have in this game of option trading? You need to go for safety first. Your capital is sacred, it is the only way you make money in options 'cause you need your capital for margin/maintenance. Cushion, cushion, cushion is what you should be working for until you gain knowledge/experience. Don't try for the homerun, go for singles. Trade what you KNOW and what you feel comfortable with. If you try for the homerun. know exactly what you will do in every potential event BEFORE you place the trade.
I don't follow CMG in particular, but you should have looked at the movement in the stock leading up to earnings to get a feel for how it traded going into earnings. Hi flyers like CMG can experience a sell the news event even if they blew away estimates.
I guess bottom line is stick with what you know before venturing into more volitile stocks, keep enough cushion and hit singles.
Thanks Taxman,
You are right, I should stick with stocks that I know well. You are also right about the cushion part. I consider myself a beginner, but I have studied options for over ten years. However, I don't have a track record of consistent success, so I am truly a beginner. Thanks for the advice.
I am glad though, that I stuck to my stratege, as flawed as it may have been. I headed straight for the exit when things went bad. That's $200 of lessons learned in real life.
I think my biggest issue is learning to take my emotions out of trading.
Thanks again,
Dave
Dave, That's where Jerry's rules come in, to take the emotion out of the trade. Easier said than done. One thing I continually remember from him is that if the premium is much over .10 he smells trouble. That of course doesn't always work because you can still get too close to the strike to get your dime. Don't know CMG but have had good luck with our usual suspect here, NFLX PCLN BIDU AMZN GOOG with LOTS of cushion. And you did it just right, when you feel uncomfortable, don't just sit there and watch it go down hoping for a reversal. Get out to trade another day. Now all I have to do is follow my own advice.
Dave, some great advise from Taxman there! I would consider your trade successful because you followed your rules and got out at your stop loss.
As long as you learn from the trade it was $200 well spent!
CMG is not on my list, nice trend but has some sell recommendations.
+4% return for a weekly trade is a huge return, you could of got a lot more cushion and still got a decent 1-2%.
Anyway just my thoughts, good luck with the trading, it's a lot of fun!
Damo
ihaveoptions, seems we were thinking a similar thing at the same time. You must be a faster typer then me though.
Thanks for the advice. I will work on leaving more cushion. That seems to be the consensus on what I need to work on most.
Dave
Dave,
I took the CMG 320/300 credit put trade for 22c a minute before market close & earning report yesterday.
CMG is thin, has wide bid/ask spread so a $50 cushion for 2 days. Look at a weekly chart to see how your stocks move to estimate the weekly cushion? and add some more...
Hard to find safe good premiums with such low volatility. I have some naked puts rvbd (20) bidu (90, 95) and nflx 145 naked call...as short term as possible.
Good Trading
Thanks Hannah,
Good job with CMG. The VIX is very low. Overall, I am still liking SPY for safety. You do have to get closer with your strikes, but the volatility is more predictable I think. Thanks for the comments.
Dave
I've got the NFLX 145 naked call also, looks like it will expire nicely tomorrow. Will look at doing it again next week.
Damo
I am struggling to find any good naked puts. I have been trading weeklies with AAPL, SNDK, KO, ORCL, MSFT and my higher risk tolerance has dabled in GMCR. Anyone have some good naked put candidates preferably ones that have weekly options?
Thanks
@BCG
I've been hanging out with CF lately. Not sure of your criteria but it has been working for me.
@Jaydari
My requirements or cushion depend on the past volatility per stock and the premium I seek hinges on the volatility as well but I will definitely check it out. Thanks
HI all, wow, I am sure happy to see so many of you do as I do and go for lower profits and higher cushion. To me cushion is the key for success. Any stock will do as long as it has most of our good points and the number one is cushion. Also AMZN was a great example of a super stock that has a PE of over a hundred and what can happen with a little bad news. For you newer traders, avoid stocks that are slowly heading south..ala RIMM etc. Use stocks with a little volatility, leave plenty of cushion, and use stocks that are favored by nearly all, ala AAPL. It really is that simple to make a good living or build for a retirement. Most traders that lose don't follow those simple rules. For you guys that like numbers, this blog has had over 200,000 views.. That's a lot for a boring investment site. Also my book has sold over 2000 copies. Who'd thunk it. Just trying to share my experience and save some traders from some of my stress.. Thanks to all of you for adding to the knowledge and spreading the ideas we all share.
Jerry
Hi all. First time on this blog. Just read Jerry's book yesterday. Been writing naked puts for several months, just on AAPL, which I know well. Used to do alot of bull call spreads. Wondering if doing bull put spreads would perform better and less risk than naked put. I'm taking a close look at that. I think you can probably be alot closer on your strike price to current stock value with less risk, since it's a spread.
TTWO reported earnings: income dropped by 65 percent in fiscal third quarter, TTWO also cut its outlook.
And yet the stock moved up to $16 after hours, no stopping this stock, I'm going to stick with whats working, sell TTWO naked puts indefinitely.
It looks like my CMG trade would have worked, but at what cost? I think the position went up about 500% and got to about 2 points from going ITM. My stomach would have been tied up and the risk would be HUGE. I'm so glad I bailed out of that stinker.
I rolled my AAPL position up (I know, not enough cushion). The jobs report certainly helped and the position looks safe now. I intend to wait to next week before getting back in. I actually finished the week up between SPY and AAPL, so I am thrilled. I need to make safer trades though.
I still wondering about setting stops. Even when you have a large cushion, the stock could move a little and double your option value very easily. How do you decide to close a position? I like to close a loss early, but I don't want to get stopped out too often. How do you strike a balance there? Or do you just use a large cushion and let it ride basically?
Thanks,
Dave
Anyone care to comment on AMZN?
Looks like a good candidate to sell a call on. The 200/205 Feb 10 pays about 1.6%. You have a lot of cushion. But if AMZN goes to 190, then the position has gone up about 400%. Of course, if this happens next week, then it won't look so bad. I'm trying to learn how to analyze these better. I don't see AMZN going back up above the pre earnings price of about 195. What do you think about this? Also there has been a strong runup in stocks, and the VIX is really low. It may be safer to go short? Or is this bull just too strong? 80% of the time when the DOW finishes january positive, the end of the year will be positive, just FYI.
Thanks,
Dave
Wow,
I just looked at the VIX and it dipped briefly below 16.5. The 52 week low is 14.27. This suggests an overall stock pullback may be looming?
henngiss, personally I don't think 15 points cushion for 5 days on AMZN is enough. Jerry recommends 5 points per day for weeklies so you would want at least 25 points. I've not followed AMZN but a quick look at the chart shows potential for 10+ points of movement per day.
Damo
Damo,
Thanks for your input, I can see what you are talking about. I am also looking at going short on SPY. It is near the top of its current trendline, and there is a lot of resistance from the first half of 2011. SPY is likely to pause here. Maybe if it goes up on Monday, that would be a good time to get in?
Thanks again,
Dave
MSFT has been unbelievable, too bad I got the short calls open, have no idea what I'm going to do with that, nice run up on the long calls, up almost $2.5 since I bought them, I might look into buying LEAPS now seeing how MSFT worked out so well.
Just entered a GOOG calendar LEAP spread. I am a chartist and the crossovers show a safe entry here. Bought the Jan 2013 450 LEAP and sold the near term weekly 600 for a 2% weekly trade. The LEAP has a delta of .90 and the short call has a delta of .30. This behaves just like a covered call on the upside. Use or flush.
Dave, One of my rules is to trade with the trend so I would only look at selling puts on SPY at the moment.
It does seem there should be a pause/pullback but as they say " the market can stay irrational longer than you can stay solvent”.
Damo
Thanks Damo,
Wise words, and don't try to lasso a rocket right? I do like NFLX on the short side. Seems there will continue to be pressure on the down side.
Dave
I've not heard lasso a rocket before, I like it.
I'll look at NFLX weekly calls on monday, no rush getting in. This week I got in on Wednesday and out today for a 1% return, I could have got a higher return if I got in earlier but I'm happy with 1% for 2 ½ days.
Damo
The trend could be turning with NFLX so would need to watch closely.
All, haven't posted in a while. Since last post I closed out the MSFT calendars for a loss due to the stock running up so fast.
I've been experimenting with both debit and credit spreads and going to look to see which ones work out the best.
Short TBT 18 naked puts- I think bonds are going to be a big loser for 2012.
Short CAT 115/120 call spread. Moving against me on Friday.
Short GE 19/20 call spread. Rounding top, should fall from here.
Short IWM 68/58 put spread.
Short GLD 175/180 calls spread. Gold has run up too far, too fast.
Long NTAP 37/42 call spread. In the money on this one. Needs to hold here next week.
Long VMW 90/95 call spread. Same as NTAP.
Keep in mind I am in small on all of these, my max loss is around $250-$500 max loss on all trades, with the exception of the TBT naked put spreads and the IMW spread. The IWM spread is pretty far from the money and should be safe.
You already know this, but I found this article interesting;
http://seekingalpha.com/article/341791-why-i-wouldn-t-sell-options-now?source=yahoo
Dave
As per the above link, we all see the premiums diminish as the volatility goes down. So you end up getting closer to the strike and thus less cushion with any kind of spread. Might be wise to lay back a bit right now as the author suggests.
Dave, the problem with that approach is that the VIX can stay low for many months. Take a look at a historical chart. I was thinking of that approach in December and the VIX just kept moving down. I think you have to take the trade and make the adjustment if the market turns around.
Yeah, if the market just keeps going up, the VIX could keep going down, or maybe go sideways for quite a while.
@options not stocks
I did a comparison of credit spreads v naked puts in an older post that you might find interesting. You can find it in the comments here:
http://sellingputoptionsmyway.blogspot.co.nz/2011/12/vacation-time-sort-of.html
If you can't find it let me know and I'll repost.
Damo
Damo - great information on your credit spreads vs. nakeds. I still trade a combo of naked puts and Calendar spreads using weeklies. Calendar's are tricky and the first few trades I made lost money. Once I figured out where to buy the LEAP and where to sell the short call, they have all been winners. The reason overall that I prefer calendars is there is less overall risk in a total market meltdown since you are essentially selling covered calls with about 30% of the capital invested as compared to covered calls.
Good trading all...
Hi bill can u tell us a little bit about your strategy of the parameters you are using to buy leaps and sell calls and also whats your average return per monht.Thanks
ali
Hi,
How do you deal with the quote spread generally? If the bid is .04 and the ask is .08, do you try to get .06? Or do you just take the bid? It seems that sometimes you can get the midpoint, but not always. Thanks for the input.
Dave
@Dave
I always try to split the diff. With a wider spread, I'll split the diff and drop back a few cents.Place the trade and if it doesn't fill in 5-10 min, you probably won't get it.
Hi doctorali - Basically you need to buy the LEAP when the stock is oversold and deep enough in the money so the LEAP performs like a covered call on the upside. Of course these trades will eventually lose money on the downside if the stock falls far enough. But if flat or positive, I see between 4-8% per month. I only buy the leap on a down day for the stock price and check the delta on the LEAP and only buy a LEAP with a delta of MORE THAN .80. Using Jerry's idea of 100 min open interest, I will sometimes buy even deeper in the money (higher delta) if this price point has more open interest. Then SELL the short term call with a delta in the range of .25 to .30. Ideally you need to start and maintain a trade where the ratio of delta's is 3X. Example - LEAP is .9 and the short call is .3. Here is a good article illustrating the delta advantage:
http://www.geldpress.com/2009/06/calendar-spreads-and-delta-advantage/
Thanks Bill. I'm at th first few calendars stage, having broken even on several attempts but never really getting it to work. I can see how the delta difference will help alot. Thanks again.
Jerry, RE: CMG Spreads for next week.
I'm not quite ready for calendar/Leap spreads but the 195/200 CMG call spread for next week yields 2% with a 6.4% cushion. Is that cushion normally OK for 7 days of trading? Thanks..Jim
Taxman,
Thanks for the information. I guess you need to become familiar with the way each security's options work. My orders seem to either go through fairly quickly (less than a minute) or not at all.
Dave
Hi Jim,
I'll let Jerry answer for himself, but do you mean the 395/400 spread? CMG is in a strong uptrend.
For what it's worth,
Dave
@Alex,
I'm interested in your program for selling puts. What criteria did you use? I'm looking to do something similar, but am not a programmer. I'm looking for something that will take my list of stocks, autofill the ask/bid at % cushion strike prices, factoring in premium received as a percentage of the current stock price. Can you help?
Oops, yes it't the CMG 395/400 spread.
Dave,
You don't need to be a programmer to automate it. I did it all in Excel. The only tricky part is getting stock prices and option chains from Yahoo using web queries. But once you know how to do this, core logic is not very complicated. You load an option chain for the first stock, loop through the optiona until you find an option that satisfies your requirements (Jerry's recommendation is strike 20% below closing price, OI at least 100, and ROI around 3%.) Then you load the next option chain and repeat the process. This is basically it. I would be more than happy to send you an example of how to get Yahoo data into Excel.
Alex
@Alex,
I would be grateful! My email is davidprobinson2000@yahoo.com
Thank you so much!
Help...caught on the AAPL cart and can't get off. Making some $ tho. Just thinking about Jerry's trip to the moon, then back to reality. Being careful but oh the temptations.
@AAPL
0.09 for the 475/470 put credit spread with 1 ½ days till expiry & 25 points cushion, very tempting, shame I've got no margin at the moment.
Hi Alex
I am interested in learning about the way you automate getting the option prices from yahoo in excel. If possible can you send me the excel sheet at trading4p@gmail.com
thanks
sk
@Optionsense, Thanks! I filled 10 at .14 (entered as a credit limit order) and 10 at .08 (entered as a market order--whoops). I had to raise my strike price to 475/480 to get the premium, but I'm happy with it and hope AAPL doesn't loose 15 pts of steam in the next 24.5 hours.
Thanks for the free money!
Dave
Nice Dave, good luck with it – should be OK. I finally got some margin freed up at the end of trading but the good premiums were gone by then.
Damo
Damo, I had to cancel some unfilled orders to make the trades, but I was happy to do it. I am grateful for folks like you shouting out good deals--I made the trade at Eintein Bagels from my phone while hanging out with my daughter while she was napping (11 months old). This is such a cool business--I get to be with my family, be where I want to be, and make money at the same time. I am so grateful.
@Alex,
I would be interested in your Excel prowess as well:) If you are willing please email to me as well. My email is bcgolden22@gmail.com I have manually loaded in 3 years of historical prices and then put in formulas to calculate week to week % changes. I used these % changes to form a spectrum of which I can determine a volatility range that a given stock trades in (by utilizing conditional formatting rules within excel). Then I seek out weekly options on naked puts with strikes in the very bottom couple of % in the range that any given stock has traded over the last 3 years. My problem is that to keep this up to date I have to manually enter in closing prices on a week to week basis. Additionally I only do this on a group of about 10 stocks that I am familiar with but I would like to expand the # of stocks that I track but in order to do so I need some sort of automated way that pre-populates quote histories. Any help you can provide is greatly appreciated. Thanks
Dave
I've been following your posts with Damo and I noticed the pricing on your AAPl spreads. 10 contracts @ .14 credit and 10 more @ .08 credit. What kind of commissions do you pay? I use brokersxpress and after commish, I wouldn't have anything left on those trades. Glad its working for you.
Rich
Just great, CNBC is jumping on the TTWO bandwagon, Kramer recommended it, Fast Money recommended it, causing it to go up after hours by 2.53 % to $16.60, I was hoping to sell the $16s but this will kill the premium, might have to go to the $17s.
Hi all i will start a new post, getting long and interesting
Jerry
@Taxman, I pay $9.95 for up to 10 contracts with brokersXpress.
Net on one set of 10 was $119.57 and the other 10 contracts net $59.57. I manage two accounts--one I entered to fill at market price, which dropped while I entered my order, and when it filled I checked prices and saw the drop, so I used a credit limit trade in my other account--started at .20 and when that didn't fill in 5 minutes, I lowered my reserve a bit until it filled.
Post a Comment