Hi all, I am now on Bonaire. Looking forward to some diving soon.
Had lousy wifi for the last week. sometimes ok and then in the middle of writing.. zip..
So now that Friday has come and gone and money made and loss, here is my take on the market and different strategies.
These dang calendar spreads have made some good money but have put me behind the curve with MSFT. I had 250 of them at one time and i see Nicky roller those. I closed the last of mine yesterday. Just got tired of trying to squeak out a few pennies. One problem with rolling them out and up is that when you bite the bullet with the loss thinking you will/can make it on the new amount with the in-the-money long ones..the stock after a while drops back and all the rolling was for naught/. Sometimes it works and some not..
Geo, I have no special connection or association with this broker but I use them and am pretty happy. Especially with the commission rates. I use TradeKing. I am not sure if they are the fastest as I seem to fill faster with some other accounts at Ameritrade but they beat the pants off of Ameritrade with commissions. The ameritrade accounts I trade are for other people that I trade for. If they are happy I have no worry? I have traded with TK for over a year now and have no complaints.
Still earning season so use caution and leave extra cushion.
53 comments:
Another vote for Trade King and Go Giants!!!!!!!!!!!! Every week they say we can't do it, every week we prove them wrong!
Hello fellow options traders. I have a quick question for anyone still selling puts.
I understand that most people want to sell short term puts but it seems to me that long term put leaps have significant advantages:
1. If over one year they qualify as long term capital gain and have significant tax saving.
2. They have significantly greater time value.
3. An in the money put can always be repurchased as the put approaches expiration.
I understand that a LEAP provides a longer time for the stock to decline but if I sell LEAPs on high quality stocks I think this risk in minimal.
For example, AT&T is currently trading at $30.42.
I sell the JAN 2013 in the money cash secured put at $32 and collect a premium of $3.95. If assigned the stock, I don't mind because I'm "getting paid" to buy the stock at the price I want.
That's a 12.34% return on my investment of $3200. And my breakeven point is $28.05. Plus AT&T's dividend yields about 6% so if assigned the stock I get to collect the nice dividend to for years to come.
For me, the point of selling an in the money put is to be assigned the stock. I want to go long the stock and get paid doing it.
Where am I going wrong?
BrokersXpress closed my AAPL 420 today--they sent the warning email this morning, I called them and said I'm watching it and all is good, and then they still BTC for .10, eating up half my credit spread (410/420) premium.
Am I right to be concerned about this? If they left it alone, I would have bought then sold the stock, and as it worked out, I wouldn't have been assigned at all.
How would you handle the phone call Monday I need to make? Ask for free trades to compensate for lost premium?
Thanks for any advice.
Are you 100% sure that premiums from selling LEAPS options over one year is a long term capital gain? I am not a tax lawyer, but was under the impression that all profits from writing options were STCGs
Dave, you called them and told them you were watching over it and they still closed it out, and you would not have been assigned at all, that's inexcusable, if I were you I would find a new broker, or when you call threaten to leave, with the intention of truly leaving unless they offer something significant for you to stay, 30 trades to use within a month won't get it done, consider moving to Trade King.
hi dave i am looking at the site.Their commission rate is really low at 0.006 per contract.However i dont understand why will they close the credit spread as that position is fully hedged with your account money.
Has anyone studied deltas on calendar spreads? You need to have a delta over .75 on the bought LEAP to make the trade similar to a covered call (.80 is even better). Golden rule I use: LEAP should be over .75 delta and the short near month sold call should be in the .25 -.30 range. This obviously does not apply to the weeklies. You want a 3:1 ratio for the LEAP vs. the short call.
I do check the delta when considering calender spread since the geeks are readily available on ToS platform (love the platform so much that I am still at TDA?? lol)
I find it tough to be profitable using calender spread (Jerry, how much do you charge for holding our hands in every trade? haha) Especially when the volatility is so low that the short term higher & safer call strikes are hardly worth anything.
Would have been more profitable if we just held on to LEAPS last couple months without selling short term calls as in the case of MSFT. No holy grail but the safe tiny crumbs from naked put (and/or spread) still rule. Just my 2c.
hi jerry..just wanted to see how has been your experience with trade king regarding tolerance for margin calls on naked put.Are they quick to close your position if things turn south.I am thinking of switching to trade king from options express since their commission is fairly low compared to 90 cent which i am paying.
HI all, Sitting here after some diving and watching the Patriots and Ravens game. Life is good. So getting to some questions
1. Dave, NO experience with broker express... I don't think I have ever heard of that? Probably in the small print when you sign up that they can make a move in either, their or your interest with your permission. As Nicky says certainly tell them how unhappy you are and that you are considering changing broker.. Who knows, they might make it worth your while to stay.
2. I have always treated my options as short-term as I never am able to hold leaps etc for all that long..
3. I agree with Nicky, give thought to tradeking
4. I agree with Doc.
5. to Hannah etc, you guys know my thoughts on Delta and the greeks. I just don't get the greeks. I know many of you find it all helpful and that is really good. Any help we can get is good to use. But I like my filters. If I could only get the wall st jor. for next week ..today... Now if I could only get paid to hold hands I would have been rich in high school..lol I enjoy trying to help where I can and I also learn from you guys.
Doc, Tk has one disadvantage regarding naked puts. They charge 25% maint and some brokerages are now at 20% Regarding tolerance for margin calls. I have not found them to be any more or less tolerant. Many rules that the brokerages go by are found throughout the market. I would have to recommend TK mainly because of the fees and the easy of setting up different types of plays. They have several ways to do Iron condors, or vert put/call plays or easy to do naked puts etc. I am not sure they are as fast as Ameritrade but easy to work with so far for me.
For the coming week I am going to wait until late Tuesday or Wednesday to open vert put or call plays. I am going to be especially careful with earnings reports.
Jerry
Oops forgot..Henry, longer puts do have some nice points but for me they are far outweighted by the time factor. With this world on the edge of who know what, I see to much that can totally upset the market. If Iran tries to shut down the straights or Syria gets even tougher, North Korea etc etc. I just want to be careful with things like long puts / calls etc. One of the few things you can control is the time value.
None of the positions I was looking at last week look viable today, have to wait until Wednesday after earnings for most.
You can get some good premium with 50 points cushion on AAPL weekly spread, who's game to play over earnings?
Got to be patient.
Damo
AAPL has been good for me. I am considering about 50 points cushion, as I am not adverse to being assigned at that level.
On TK as options broker, I've been with them several years now. Their pricing is the best, 50 to 75% less than Ameritrade/TOS and OptionsXpress. eOptions competes on price but I've heard they are pretty stipped down and you get what you pay for. I've traded naked puts extensively and they've been very accommodating on margin calls. They don't offer portfolio margin but have promised it in the near future. The lower pricing saves me about 6 grand a year and I'm not trading high volume.
Hello,
I am back to this blog after a long break. FYI, the holding period of an option sale is entirely dependent on the purchase and sale date. If your option expires, then that is the sale date. Of course, if you are short an option, the sale date is when you opened the position, the purchase date is the expiration date. It gets more confusing when the position is long term, because the sale is reported the year following the sale date. Everyone confused?
I don't think many of you have long term option sales though.
Dave
MSFT FEB $28 puts paying .22, seems like a nice safe play.
@tops
In the previous thread you mentioned you sell puts on ETFs and Indices, what sort of cushion would you aim for?
Damo
Nicky, I take it you're happy to be assigned MSFT at $28?
Anyone got anything worth looking at, I can't find any trades worthwhile – low volatility sure makes it hard!
My trade didn't go through, wish it had, the $28s are now @ .14, would I be happy being assigned @ $28? I wouldn't use happy but I'm willing to take that risk for the premium that was being offered at that time, in all my trades my puts have not been a problem at all, it's all ways the calls running away, after I'm done with this MSFT spread, I will go back to whats been good for me, naked puts, wheel of fortune.
I am in some weeklies w/SPX puts
at 1245/1220, 1265/1240 (put on Mon) and FAS 72/67
Last week I also placed put credit spreads on TNA, FAS, RUT and nakeds on IOC & FAS.
Everything is puts except 5 RUT Feb 830/840 calls. That one will give me heartburn I think. But its only 5 contracts. I also am hedged downside with TZA, SPY Mar puts and other bearish ETF's. Having a great Jan & Feb so far.
I'm back after life affirming if not life changing gains into AAPL earnings. Now I have a little more $ so 1% looks better. Long way from joining the 1% tho. Think I'll work with credit spreads for now, with great big cushion.
STO TTWO Feb $14 puts for .20, trading @ $15.26 now, earnings out 2/2, but everybody knows they will report a loss already, so I don't see earnings affecting the price much, this stock is all about 2013, that's when you will see this stock @ $20+.
Nicky:
About your WOF strategy. You sell a near the money put, get assigned, then sell at the money calls until you get called out. Is this right?
Just wondering what kind of reserves you have to keep if you are going to be assigned. For me, I don't keep enough $$ to buy the stock in the quantity of contracts I have sold. That's the whole point of leveraging naked puts.
If I limit the number of short puts to reflect the amount of stock I am able to cover, the ROI is way low. I'm sure I'm missing something...
First I sell 10 contracts, if the trade goes my way 10 more, wait, 10 more and so on, so I end up leveraging as well, for example in Dec I wrote Jan MSFT $25 puts, then MSFT spiked, so I knew that was a winning trade, so I started to write $26 weekly puts, without closing the $25, then when i saw the premium was dying on the $26 weeklies I went to the $26 monthly, then $27, all without closing out anything, I let everything expire, basically what I'm doing is not going in all at once, I want to see where TTWO goes, If it goes up a bit, I'll write $15 puts, down a bit more $14 puts, at the end I won't be able to take assignment of everything if it comes to that, I'll roll some, and take assignment on some.
I see people here are big on ROI, personally I'm big on monthly income, my goal every month is 3k-4k for now I'm satisfied with this, hopefully I can work up to 5k-6k and move up from there.
Seems to me that ROI is a fair indication of risk, the higher, the higher. I like income of course but whenever I get too far out there on the return, there is trouble. Just another way of looking at it I guess.
Nicky, PS I like your beach shot, wish I were there!
Does anyone have experience with selling puts on VXX? With volatility low, I am thinking it might be an attractive trade and might balance out a portfolio (if you get assigned VXX things are probably doing well with the rest of your stocks.) Volatility cannot go to zero. Of concern: VXX does not track VIX perfectly and, because of rollover costs, gradually loses value
Good job Nicky. How you love TTWO :)
Took a shot at nflx naked call $125 for 2.5 days. Too good a premium to let go. Phew!! Vertical spread ($60 cushion) with Apple worked out good...
Anyone scalping Emini or currencies? Used to scalp currencies for a season(didn't like the overwhelming leverage), but now I think I like Emini. It keeps me from exiting my option trade prematurely.lol
Hi,
I opened a SPY Feb 18 126/116 put credit spread for 0.45. Was this wise or unwise? Any thoughts? I chose 126 because the payout was good, but it leaves cushion being at below 1 standard deviation based upon implied volatility. I entered a stop at 0.90 if the trade goes bad. Is the stop too close? I like the index options because of built in diversification. If SPY continues up I will rollup. BTW, I use tradeking as well.
Thanks,
Dave
Dave
I usually trade SPX weeklies with either a 10 or 25 point spread and try to get as far from the SPX index as possible but still get a decent premium. I equate 1 SPX point to equal 10 DOW points. So if i can get a decent premium at 65-70 points below the currnt value of SPX, I ask myself what is the probability of the DOW dropping 650-700 points in one week given the current volatility.
I also try to hedge myself with back month SPX puts or bearish ETFs like TZA or SDS. IMHO.
Thanks Taxman,
Are you an IRS agent?
I may not know what I am talking about, but I like the looks of SPY better than SPX because of the volume. The spread is smaller isn't it? Is there another factor that makes SPX preferable? You have to buy more options with SPY, but this doesn't overcome the higher spread with SPX for me.
Dave
Taxman,
I might be starting to understand you now. Oh, and I like your comparision to the DOW, that helps my mind understand the SPX better. Are you saying that you don't use stops, but limit losses by purchasing longer term puts? I don't understand that entirely, but that would help with my spread issue.
Thank you,
Dave
Dave
Bite your tongue Dave. I am a CPA with a tax practice primarily with a large real estate development family in Delaware.
I really never addressed your question. SPY at 126 equates with SPX at 1260. You have a credit spread of 126/116 for Feb 18. With the SPX at 1315 you only have a cushion of 55 points for three more weeks. That would be TOO close for me. I try to use 65 point cushions in my weeklies. I curently have SPX 1255/1230 and 1235/1210.
I am used to the SPX. I have a sub to a credit spread newsletter that uses the SPX, RUT & OEX, so I am used to trading them. You also need to know how to negotiate with the market makers on those wider spreads. You NEVER put a trade on at MARKET, you always split the dif and the market makers work with you. That is just me, everyone on this blog has a comfort level with the companies/ indexes they use.
Since I am desk bound at work, I have the ability to have charts, accounts, blogs, etc up and running all the time. I watch the markets constantly. I also use deltas as a guide. I place spreads with deltas below 10 and closer to 5. I have a rule of thumb that I close weekly spreads when deltas approach 35-40 and monthlies when they approach 25 which also allows me to renter a monthly spread at lower/higher numbers.
Hope this helps
@Hannah, Love is the word, up today 2.83% to $15.63, yet the $14 put went for .05 higher today than I got for it yesterday, Mon I will look to sell more, I guess the premium is staying up because earnings due out 2/2, I don't think earnings will have a big impact on the share price, It's all about outlook.
Taxman,
Thanks for the information, it is helpful. I am a CPA in Colorado. I thought maybe you were the tax collector! How would I get access to that newsletter?
Thanks for the advise about spreads. I did negotiate the mid point on my spread. I can't watch the market all the time, so my stop order will get me out at the market. I'll take a closer look at my position this weekend.
Appreciate the help,
Dave
Taxman, do you have any rules you follow when you buy puts as a hedge? How many, what strikes, etc? Also, do you only buy them at times of low volatility like now?
Thanks
Damo
Has anyone written a computer/Excel program that grabs real-time put prices of a select group of stock options, then sorts them according to criteria such as
1. premium available as a percentage of the stock price (say 1%)
2. 5% of cushion per week
3. a few other things I'm forgetting right now...
I thought a real-time updating program would be invaluable. Is there anything like that available, or where would I go to get that program written? I'm not a programmer.
Thanks,
Dave
Damo
I don't have any strategy on hedging on the bearish side. I have been trading spreads for some 6-7 years. Would blindly place iron condors regardless of market trends or cushion. Went for the amount of the premium and quickly got burned when the market got volitile. The market today has only gone up since mid December and I can't figure out why with everything going on in the world. I know a correction is coming and I prefer placing put spreads than call spreads. So I have bought some TZA, ZSL and some March SDS puts. So now I figure that I have some downside protection if/when the market tanks. I am underwater on TZA cause the RUT only knows how to go up. But a correction has to come sometime. In the meantime, I am selling covered calls on TZA.
Thanks Taxman, I've been expecting a correction also but it seems like this slow grind up is going to continue.
I really like having rules in place to take away the emotions, I'm happy with my naked put rules but have no rules for hedging my portfolio so trying to get some ideas.
Dave, I don't know of any programs but there was someone on here that uses PowerOptions that highly recommended it. http://www.poweropt.com
It's an option screener that you can customise with your own criteria, it looks like a valuable tool and I think it starts at $60 per month, they do have a free trial which I've not tried yet but will soon.
Anyone on here have any experience with PowerOptions?
Damo
@nicky a quick question if you dont mind. In creating 3-4k per month what us the size if your account (100-200k? etc)
thanks
rhmoptions
Thanks Damo. I'm headed over there now to check it out.
Dave
@ rhmoptions less than 6 figures.
A random thought,
For those of you trading index options, are you taking advantage of Internal Revenue Code 1256? In other words, are you treating 40% of your gain as short term and 60% as long term? I believe ETF options may qualify as well, aren't they nonequity options? Just a thought about tax treatment.
Dave
@nicky. impressive returns 48k per year on less than 100k.
Yes, but 48k a year only happens if the market stays stable, if the market goes down big, I stop trading.
I have a question regarding tax preparation. Do most people here use a CPA or do it themselves? How difficult is it to prepare your own when you are selling options on both stocks and indices subject to the 60/40 rule. Thanks
Tops, Sorry cant help with the tax question, I'm in NZ so different rules.
In the previous thread you mentioned that you sell puts on ETFs and Indices, what sort of cushion would you aim for?
Thanks,
Damo
Dave, if you trial Poweroptions let us know what you think.
Damo
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
PS; I will post this a neew thread.
Tops - I use TurboTax Deluxe and have been trading for over 15 years. I just write "see consolidated Broker summary" on Schedule D and then copy my year end broker summary and report the gross profit or loss. Your broker statement should provide long/short term gains or losses. Never had a problem with the IRS. I have a few other trading friends that do the same.
Bill - does the schedule D and turbo tax account for index options subject to rule 1256 (60/40)? Is this an issue for you at all?
Optionsense - it depends on the market and volatility. Right now, my cushion on spx is under 10%
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