Friday, May 11, 2012
HI all, amrit... You are correct we all get tunnel vision regarding the stocks we get to know on a very personal level. But if we go overboard at times forgive us. We do like and look forward to everyone’s comments.
I had an Iron condor that just expired with aapl. I see that there are several other stocks and index that offer the same cushion and will be 1 to 1.5% weekly. I received a lowly 350 and used 19000 in maint but that is 1.8% ROI.. Jeeze and nearly worry proof. Maybe I’m doing it the hard way with the long calls and weekly sold calls?
We have all evolved and learned from each other. Keep up the good work. I am also posting this as a new post as the thread is getting long.
Jerry
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72 comments:
I too am having second thots about the buy the long call, sell the near call strategy. I'm down about 30% on my longs and feel trapped. Sure they will recover but that lack of liquidity and difficulty in managing the trade is a big downside. I love the weeklies b/c they are over on Friday and I can go about my weekend with impunity.!
I am new to your blog. As I have read through it I see that you have gone from naked puts to spreads.
Have you ever traded deep OTM short strangles instead of an iron condor or similar spreads?
Son of a B!!!! I got put on early on 11 contracts of TTWO, first time this has ever happened, I have to roll the remaining 67 contracts or I'm in deep....
Hi M&, I don't often do the short strangle. Mainly because there are other strategies that I like better. It has some good points with stocks that you can leave lots of cushion, but an Iron Condor is the same thing except that you have the bought part acting as some insurance. The bought also lessens the ROI but the insurance is nice in a horrible situation. Also with an iron condor you get to do both sides but only one side uses maintenance, which doubles your ROI. I still like naked puts except with the advent of weekly options I can get in and out of a position in days. This allows a slightly closer strike to be used especially when opening the position on a Tuesday or Wednesday.
Nicky; those TTWO’s you have used have scared me for a long time.. I hope it works out ok.
Thanks for the reply.
After reading your book, I read through your blog and comments as well as the thread on TK. Congratulations on the following you have developed.
I myself have been playing short strangles with the same basic premises of leaving "cushion" and picking up "crumbs" (great words) on the weeklies for about the last year with great success and was enamored to find a community that follows such similar concepts. I am a statistics (engineer) guy. Give me a high probability of success with an acceptable return for the risk. Thus, if I can get into a position that has a ~97% probability of success with a weekly 0.5-1.0% return (25-50%/yr) you are beating 99% of traders. And the 97% is the chance of success entering the trade, with a huge delta between current price and my strikes, the time/ability to adjust gives nearly 99.9% chance of not losing your ass.
For me, I take the daily average of the High-Low for a stock over the last 12mo and the multiply by the number of days left before expiration to determine the strikes I should be looking into. I then look at the past 1yr daily chart to correlate those strikes to current activity to make sure it feels "ok".
For example this week I am looking at three plays AMZN 260/195, GOOG 660/550, and LVS 57.5/45. Take the AMZN play for example, the daily High-Low avg over the last 12mo is 6.17. Thus, with 5 days remaining (assuming getting in on Monday), 227.68 +/- 30.85 (260/195). Boy, with earnings over, I just don't think there could be any news that could drive AMZN up to new 52wk highs or cause it to fill the gap earnings left. Actually after looking at it again, depending on the opening price, I might end up in the 250-255 upper strike for a little better return.
Enough about me, my question, as I read through your blogs, etc, you changed over the last couple months+ to iron condors and other more traditional plays that early in the blog and your eBook you discount. Did I miss an event or something along the way that brought on the change in strategy?
Jerry, re strangles v iron condors and margin, my broker (IB) only uses one side for margin with strangles also, they will use which ever is higher, the put side or the call side. Not sure if all brokers do this?
M&:M, your strangle strategy looks interesting, I've legged into a few strangles but mainly stick with naked puts or calls. A couple of questions if you don't mind:
1. Where do you get the daily average of the High-Low for a stock over the last 12 months?
2. Do you normally leg into them or enter both at the same time as with a normal spread?
Damo.
@ihaveoptions - when I find my long calls losing money then I move my written options down one strike, but with only half the number that I would have done, thus leaving some room for gains if the underlying runs up again. e.g. I have INTC aug 24 agains which I'm writing weekly 28's. If INTC moves down, I'll write weekly 27, but only half as many. If I have 10 longs then do 5 weekly shorts. This way you still make some money back and still have the ability to recover if INTC runs up. In my short history with this strategy I find this to be the more conservative method. Otherwise you become like the deer in the headlights.
@ M&M, your post left me wanting more, very interesting......
Amri, Thanks, I like that. It is difficult on a good day for the underlying to see the gain 'eaten by the short side. The difference in deltas should partially help and of course, if you get out at the end of the week before the short trike is breached, it doesn't matter.
Jerry, What are you doing with your long AAPL (not really LEAPs anymore)? Sold half of mine this AM to 'redeploy'.
Monday morning weeklies. Everything stops trading Thurs for Fri AM settle
NDX 2425/2400 .35 @ 2595 +175
SPX 1265/1245 .35 @ 1339 +74
RUT 730/720 .20 @ 782 +52
All deltas of the short puts were around 5-6. Playing the probability of the market dropping
740 more points by Fri open.
Taxman, Remember this is the monthly options expiration so they would settle at Friday close, correct me if I am wrong.
Nope, regular monthly cycle index options stop trade on Thurs and settle Fri AM. Weeklies do the same EXCEPT for SPX which stops trade & settle fri PM.
Receieved email from TradeKing: Dear Investor:
This email is to inform you of the dividend exposure associated with your spread position(s) in Microsoft Corp (symbol MSFT), which is trading ex-dividend tomorrow, May 15, 2012. If assigned on the short side of the spread(s), you will be short stock as of May 14th, and therefore responsible to PAY the dividend on the dividend pay date.
---------------------------------
I'm short MSFT Oct $28 calls, should I be worried?
Not taking any chances, rolled MSFT Oct puts to Jan, I should be safe now, right?
Rolled 47 out of 67 contracts of TTWO, holding onto 20 of the $13s for now, hoping for an up day tomorrow, based on a new game release, up over 1% today on a overall bad day for the market.
Nicky, Glad you are maneuvering around your TTWO positions.
@Nicky:
I also got emails and calls regarding my 25/28 MSFT cal call spread. I spoke to a trader at their desk and got concerned. I thought with more time value left than the difference between the option price and the trade price I would be ok, but they said no. I thought about rolling the Oct short out to Jan, just in case I was assigned, but realized that it was just about as likely to be assigned since it was the same amount ITM.
I ended up closing that position, just to avoid the risk of paying the dividend. I'm still not clear why I would have to pay it, if someone has some insight? I was holding the short OCT 28 call.
Meanwhile, still dealing with the repercussions of my weekly a couple of weeks ago with AAPL. I had sold the VPS and the stock ended up rolling right through my upper and lower strikes on the day of expiration.
Thought I could just roll down and out, but since the VPS was a $5 spread, that limited the amount I could roll down.
Initially I rolled up to the 600/605 with no loss, but last week I had to roll out and it cost me .60 to stay at the same spread.
I have been hoping for some lift, but no love for AAPL lately. This Wed or Thurs I will pick a strike to roll down to and hope it stays above that on Friday to get out.
Painful lesson. VPS = nice for limiting losses, but not so nice if you don't follow the rules and the stock runs down. Limited options in that scenario, pun intended.
I'm not trying to add insult to injury but you must act on credit spreads before the index/stock price rolls through your short strike. I follow the delta value and will adjust when the delta reached 35-40 on weeklies and 25-30
on monthlies. I have been that deer in the headlights many times and it is one of the hardest adjustments to make. Hope a rally is in your future.
Tax, So you watch the delta on the specific position, ie the short?
It is a rule of thumb the author of my credit spread newsletter uses. Much more goes into analysing the position before you place it. I first look deltas around 5, then I look at the point cushion and try to reconcile the volatility of the market that week and the possibility of the index moving thru my short strike. That is why I place more put spreads than call spreads. More cushion.
Then I watch the daily changes in raw numbers and the effect on the delta, how close to my short strike and the number of days till expiration. That is also why I trade weeklies more than monthlies.
Just my way of doing things. I placed some call spreads after noon NDX 2725/2750 for .20 @ 2609 and SPX 1400/1425 for .15 @ 1343.
Today is finished so now I have 3 days and Fri settle to worry about.
i have two shorts with a 6 delta, everthing else is a 3 or 4. My roi for the maintenace held this week is 2.1%. I place the call spreads further away from the underlying and they give my account a little kick to help increas the roi
@Tax
No insult, no injury on your comment. I had a fundamental misunderstanding of spreads. I thought they were like regular naked puts, in that I would be able to roll down and out, even if I was ITM.
Since I'm in Hawaii, I didn't see the drop through my short strike until it was well through it. Knowing what I know now about spreads, I would have closed it the night before for a (comparatively) slight loss.
The continued drop in AAPL sort of defies logic, based on fundamentals, but that's the stock market for you!
@ Kauai, So you bought back the Oct $28? Do you still hold the LEAP?
What's the best way to get out of this spread, buy back the short call or exercise the LEAP to turn the spread into a covered call?
@Nicky
I just closed both sides at the same time. I think yesterday was the last day to exercise the option for the ex div today, so you probably don't have to worry about that. Double check with your broker, but if you haven't been assigned already, then you won't get assigned for this div.
As for the overall trade, since it is so DITM, you will make more if you wait for the stock to rise. The higher it goes, the more the long gains over the short. I watched it as MSFT rose and fell over the last month, and the higher it goes, the better off the closing trade becomes.
Thanks Kauai, have not been assigned so far, hopefully that means I'm in the clear??
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STO MSFT Jun $28 Puts for .25
Nicky,
Somehow I dont feel like this is the optimal environment to sell naked puts. However if you are willing to own MSFT at $28, I guess its ok.
Delta of that strike (28) is pretty high and not enough cushion in my opinion.
Look at GM puts and HPQ puts. Some nice premiums, GM under $18 would be good to own.
I need some help--any advice is welcome. I trade naked puts.
I have the CSCO May 18 Puts, DITM. I think CSCO is going to rise back up, but I don't know when. Do I roll out a month at a time, so into the June 18s? Or go further out for more time for the stock to rise (or fall)?
Also deep ITM on ABX. I have two accounts--one has 5 May 40 puts and 30 May 38 puts, the other has 10 May 37s, 10 May 38s, 10 May 39s and 5 May 40s. I can't imagine it continuing it's downward trend, but then again I trade naked puts, so I'm always thinking things are headed up.
Naive? Should I roll the May puts into June puts, or further out?
Help!
Dave,
If it was me and I didn't want to take a loss I would roll out as far as needed so I can sell one less contract & still get a credit for the roll.
So if I had 5 CSCO May 18 puts I could buy them back at 1.47 or $735. Then sell 4 Aug 18 Puts at 1.93 or $772. So small credit and you have reduced your exposure and there is plenty of time for CSCO to get above your strike. If it doesn't you can keep repeating this untill you reduce the number of contracts to 1. It might take a while depending on how many you have.
If you don't think CSCO will get back above $18 you might be better to just take your loss now!
Apply the same to ABX.
Damo.
Forgot to mention, probably best not to trade naked puts over earnings, but you've probably worked that out now.
Damo.
Dave, watch out for the ex-dividend date on ABX, May 29th.
Thanks for the thoughts, Damo and Nicky. I'm taking it all in.
Nicky, if I roll out to the ABX June puts, am I responsible for paying the dividend?
Never mind, your short the puts not the calls, you don't have to worry about being responsible for the dividend.
Whew,
That was painful, I closed all my positions to limit further losses. I'll stick with paper trades for awhile.
Dave
@Jerry and all trading AAPL call spreads:
What is your strategy with the recent drops in AAPL? Are you guys still long, or have you closed it all? Sentiment on AAPL going forward?
I can't really imagine what is going on. GOOG AMZN PCLN all up, AAPL way down. Still holding 5 Oct 570 calls badly eroded but can't sell anything worthwhile against them this week. Don't see AAPL below 525 but I'm not very good at prognosticating. I do have a bunch of put spreads for July earnings and think that AAPL will rise from this debacle into earnings (maybe). Jerry, what say you?
i'm still holding my 2 Jan 570. Down about 35%, but my trade plan all along was that they would expire worthless. I am waiting for next weeks calls to open tomorrow to see at what strike I can sell a covered call. I assume this is an overreaction to something. I also have an appl 530/525 put spread expiring Fri. 2 spreads of 10 contracts each. Giving me a little heartburn today with 2 more to go.
All my other index spreads for this week R AOK.
Regarding Iron Condor trades, does anybody have a GET OUT RULE? How close to one of the strikes would you let it get? Thanks
What's everyone's Thought on market direction from here? It feels like it's being pushed towards the edge of a cliff and is about to drop off to me.
Bring on the volatility!
Damo.
Cliff - read my posts of May 14 @
7:25, 11:53 & 12:33. That is what I usually do. Last test is where is the index currently vs my short, what is the market currently doing & how many days left to expiration. I usually only trade index spreads. Individual stocks can get whiplashed by news events.
Damo - After 9 of 11 down days, I have to expect a bounce before another decline. I don't like what is happening in the EU nor Greece. I don't even like what is happening here. I will continue to play my weekly put spreads, altho I will probably wait till Mon/Tues to do something because I don't like this market.
Looks like Europe is about to fall off that cliff & take aapl with it.
Have 2 10 contract aapl 530/525put spreads for Fri.
Damo - look at a call credit spread on VIX. Great premium but only offers monthlies. They expire on a weird day also. I think it was tues/wed. Had 30/35, 23/28, &
25/30. They were placed about 2 weeks ago. Don't know if I would want to hold one for a month tho.
Well got sucked into closing 1 of the appl 530/525 put spreads on that last downdraft to 535. Hate it. Took a good hit. My trade strategy has always been STAY AWAY FROM INDIVIDUAL STOCKS. Indeces don't move that way. Another lesson learned. Still a very profitable week.
Does anyone else hate the code words we need to type in order to post. Can never make out the letter. PAIN
Taxman, how much did you close them at? I have some 525 puts and thinking of taking a loss if apple doesnt get a bid.
Tax, I hit about 75% on the code word thing, hope my investment average is better. Like your index trading. Think I'll be moving that way. Isn't there some kind of extra fees associated? Did some SPY sometime ago and kinda remember something. Now I'll try the 'code".
I closed them both on aapl downdrafts. My spreads closed this Fri but I didn't want to have to watch this market every minute for the next 2 days. I closed them at 1.25 and 1.05
I got CSCO closed for a loss of .04. Great.
Rolled ABX to next week for a nice credit, dropped some a strike price.
My month looks terrible, but I'm living to fight another day--it could have been much worse! Glad to have buying power back in my account--going to sit on that for a weekend, and get back into the market Monday or Tuesday.
Trade ideas for next week? I want to stay with weeklies because of the EU situation.
Taxman, What do you think, is it a good time to put on a vertical spread for SPX, May 25 expiry. 1225/1215 for 15-20 cents or just sit tight and wait for all hell to break loose since Fitch just downgraded Greece to CCC.
I wish they would just get done with Greece already.
Hosp
I was looking at that very trade. i asked myself if mr market could drop 1000 points in a week, then realized I'd be exposed for 7 trade days and I said "self, I don't think so" I'll wait till tomorrow or Mon. I have a meeting to go to at 3PM EDT and I'm short SPX @ 1285 and am worried. I'm contemplating closing it before I leave. I have seen a 32 point move on Fri AM settlement once and it wipped me out.
Ok will take your advice. I also got an over seas flight on Monday-Tuesday (18 hours) so dont want to be worrying about the market while I am 10,000 miles above the ground with no access to internet:)
Will take my measly profits for this week and be happy, atleast I avoided losing money.
Glad got out of those apple puts once we had a bounce around lunch.
Let me know when you put your next trades.
Closed those SPX 1285/1260 spreads.
Just do not trust a possible selloff into the close and a poor settlement in the AM. Broke even
That must be one h--- of a flight to be 10,000 miles above ground.LOL
Will post trades when placed.
Ooops, meant 10,000 feet :)
Will wait for your trades. Glad I am out of most of my trades while market is going down.
Taxman, thankyou for the infomation and Hosp hope your a bit higher than 10,000 feet or your going to have a great view. lol
Hi all, wow this AAPL dive is odd. Rated a buy by all analyst and a super PE and getting legal opinions left and right in patent cases? As Taxman said above i am hold on, not assuming the longs will make money. I am taking the weekly deposits and expecting a run into earnings next july as well as run towards new products etc. For my longs that were Jan 590 i rolled down to the Jan 555 and then can sell the 555 for each week until aapl heads north. I had to do less of them I went from 32 options to 28, but the new lower premiums are much better.
For those that continue to trade stocks like CSCO etc where you only have a dollar or two for cushion, that is flirting with danger. The SPX and GOOG, AMZN AAPL are all good prospects for spreads but if you are getting over 1% a week drop down a strike or two. Open spreads on a wednesday. ther eis no hurry to get them open. Give time to let the mkt tell you if a trade is worth opening. There is a saying in the market that refers to traders... Go away in May... When you top that proven wisdom with the Europe mess it is a great time either just watch or leave a ton of cushion. The swings in the market during a day is enough to cause a stroke.. Don't trade if you are without a good plan and good stocks.
Ended up closing my aapl 530/525 and an spx 1285/1260 in anticipation of a selloff into thurs close which we got and a possible bad opening for a fri AM settlement which doesn't look like it will happen. Still a profitable week but trimed about 60% from where it was. Looking already at a possible NDX 2300/2275 or 2275/2250 which just opened up for next week. NDX closed thur @ 2509 so that +200 points. See what mr market gives us today.
Can't stay away from the mouse
NDX put 2250/2275 @2502 .30 +227
SPX put 1200/1175 @1308 .30 +108
Sold 575 AAPL calls for next week against my Oct 570s for .85. Pulled the trigger a little early it seems but its been so long since we had a positive day, I was afraid it might get away. Those longs need to pay their way! If the stock is near 575 next week and threatens this position, I'll be happy for other 'long' reasons.
OK taxman, following suit:
SPX 27th May 1195/1175 for 30 cents @ SPX 1298.83.
Bought 1 SPY put 130, if SPX falls down 100 points, my SPY put should be 8 X.
Tax, not keen on being on that side of the VIX at the moment. Your SPX trade looks interesting though, will wait till the close, I think this sell off is going to continue like it has every other day this week – it's been great for SPY put day trades.
Those code words are even harder to deal with on an iPhone :(
M&M, are you still around? Would be interested in discussing your strangles some more.
Damo.
Tax, can you please remind me again what time those SPX options settle?
Damo.
weekly spx stop trading and settle at fri close all other weekly index options stop trade on thurs for a fri AM settle.
Thanks, might just wait till next week to enter, will be nice going into the weekend with no positions open. Now the SPX has broken 1300 I think it's going to keep heading south.
Damo.
WOW, losing it all, margin call will be coming soon, stick a fork in me I'm done.
Nicky, doesn't sound good, what happened?
Damo.
Optionsense, since finding this site, I check every now and then at the thread to see what Jerry has to contribute. I am disappointed that Jerry does not post as much as he used to.
Anyway, the way I play these works best with a stock that is trending sideways or moving up. A down position over punishes the value of the call kind of like an upward moving stock does not price the puts to their full value of risk. You have to watch value of the calls and puts making sure they are close or you can end up with a lower return that just selling the put alone.
One that I like right now is OXY. It was up today bouncing off yesterday so maybe it has found some solid ground. I am a huge stats fan so bare with me for a moment.
Statistically, over the last 12mo, OXY has never climbed more than 14% or dropped more than 15% in a week with a 3std deviation from the average high/low being 14% and 14% respectively. And over the last 5yrs (including 2008) its max high/low in a week is both 31% with a 3std dev from the average being ~17%.
I like that 17% figure, you have to go back to 2008/09 to find a time when this gal has moved more than 17% up or down in a week. No earnings or dividends next week but the caveat is oil is dropping so there is a little downward pressure on this one and with Europe in its state of affairs, nothing is a given right now.
However, even then, 17% gives me a range of 93/66.
I don't see it making a mad dash up to 90 in the next week and you have to go back to 2009 when this was last at 65 with a nice technical resistance at 70-72.5.
Using $10,000 margin as a nice round number for the example and today's closing options values. I can sell 15 65P for 94.25 (after commission) using $9900 in margin for a return of 0.95%. I can sell 12 65P and 12 90C for 151.90 (after commission) using $9837 in margin for a return of 1.54%.
I usually don't play anything until Monday+ of the week of expiration, the weekend just brings to many unknowns.
Thoughts?
M&M, Looks interesting. I assume you are comparing selling the naked puts vs the spread (don't know what you technically call this kind of spread). Also assume you are using weeklys. Guess I could check the option chains. +/- 3 std devs seems like plenty of cushion. I'll paper trade this one next week for fun (not profit). Jerry's 'rule' is $5/day which appeals to my KISS philosophy. D o you like OXY specifically because of low volatility?
As for Jerry, the weather must be getting nice in Seattle. The golf course beckons. Think maybe he's getting a little weary of same ol questions from a cast of new characters. Rarely see anyone from the days (approx) 9 mos ago when I first wandered here. Famous crack up stories 'wiped out' margin calls (see above) and entropy seem to take their toll. Its a difficult game that one must approach with discipline and patience. I tend to be too impulsive, and not curious about the details.
Nicky, Hope you survive to trade another day. Sorry for your troubles.
Just closed my long put weekly AEX en my last daily schort put AEX for this week. 7% ROI
It was a wild week i Hope you Guys did ok?
@nicky what happend?
P.s. Hate the code words two
@M&M - lots of stats laid out in an easy to follow narrative.
Thank you for taking the time to make such a detailed post.
Hi Guys & dolls, I have been busy with a lot of projects. Nothing exciting just routine.
M&M I might look at OXY I used them a year or so ago. I like the stats you sent showing low volatility. Whats with GOOG today? I haven't looked into the whys yet...
AAPL held its ground sort of today. It was up around 12 at one time. I worry about Nicky. Hope it wasn't to bad. Options have such leverage both up and down. Care must be taken and caution used in a time when Europe is in such flux and unrest. (go away in May if you want to trade another day) For newer traders, i must again say caution and cushion. Don't start using a stock and think it is the only one out there. evaluate each trade for the what if.. type move. My advice for bullet proof trades, open on a wednesday and look at weeklys with lots of cushion. If plain old naked puts are you style, pick up crumbs, don't reach for the whole loaf of bread. If spreads are you way then pick stocks to use on Wednesday and still lots of cushion. Look at Iron condors as they are just a spread on each side of the current stock price. Good luck
Jerry
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