Sunday, May 27, 2012
Hi all, Well this May is some proof that the old saying in the stock market that says ‘Go away in May,’ sure provided some insight. With world events and even those closer to home in a confused stage, I advise anyone that is trading to be very careful and avoid holding positions over weekend (especially long weekends like this memorial weekend.)
There are just too many things going on. Will Greece pull out of the euro? Will Iran get the bomb. Will U.S. bonds get downgraded again etc etc.
There are plenty of positions that will open on Tuesday or Wednesday that offer cushion and little time left in their life. An example is the SPX (sometimes with different brokerages called $SPX.X) It is trading around 1317 and you can buy the 1225 and sell the 1230 put for around 1% in a 4 day trade. You can also add to the same trade and turn it into a condor by selling the 1365 and buying 1370 call. This also makes around .05 so it now is a 2% trade. The put side has 87 points of cushion and the call side has around 50 points of cushion. There are other examples using a stock like CMG with the 330/335 put. I certainly would not use a stock that doesn’t offer weekly options. I would not be holding a position over several weeks as there are just too many factors pulling the market in different directions. You want to expose yourself to little time and keep lots of cushion. There is no reason to open dangerous positions just because you ‘think’ the stock has fallen as far as it can, etc.
The point is to not get close to any current stock price. The market is just too volatile. I want to emphasize that you need to be very careful in this market. There is plenty of money to be made using common sense and careful positions.
Cushion and Caution…
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62 comments:
@Taxman
You are right it is basically a straddle. you gave me an idea...... I'll let you know how it turns out.
Thanks M8
Jerry's point on minimizing market exposure by opening weekly spreads on Tues or Weds, not previous Fri, is solid advice. A bit less income but you're out of the market 40% of the time, and not on Mondays. The biggest crashes (e.g. '29 & '87) seem to happen on Mondays.
Fri trades
SPX 1220/1200 put .15 @ 1320 +100
NDX 2350/2325 put .25 @ 2526 +176
Futures up looking good.
Will be looking for additional SPX, NDX & Rut put spreads. Lots of potential vol this week.Jobs report, GDP revision ISm, EU, etc, etc. From Hill St Blues "lets be careful out there"
Tues trades
RUT 735/725 .25 @773.88 +39
SPX 1270/1250 .30 @ 1330.23 +60
NDX 2400/2375 .25 @ 2544.73 +144
RUT & NDX settle fri AM
SPX settles Fri PM Fine
Thanx Tax for posting your trades. Like your system. Seems to be working great. Gotta unwind some AAPL stuff, then I think I'll join you. c
Glad to be out over the weekend--I didn't think much about what will happen in the markets on Tuesday over the weekend. It was nice having my brain a little less consumed. Good advice, Jerry.
Anyone trade any options on Facebook?
Damo.
Took my first loss of 2012 when my naked puts on AAPL at 580 fell from 640 down. I bought them back at 550 and 560 at a loss, and purchased AAPL shares and immediately started selling calls at 580. I might be called away this Friday, but I am back in the black from the losses with the shares. First time all year I have owned shares. Will re access the situation on Friday
@glenn,
I also think that iv tends to increase as weeklies age. It seems that a new weekly at 25% iv on
Thursday with 9 days to go, will tend to be at 30%plus by the time there are 4 or 3 days left. Seems that way anyhow.
all the more reason to wait before entering a weekly spread.
Dave
@tax
Do you roll the rut weeklies or let theme expire? If you let them expire doesn't the Am settlement add an element of uncertainty?
Sunil
I usually let the RUT & NDX expire.
I am always aware of the delta and the amout of cushion. If I think I am too close, then I will close.
Usually I have such a large cushion that I just let them expire. For a lottery play, I just placed a
NDX 2450/2425 put for 1.25 @ 2527
delta is 11 but I have 77 points cuhion and two days trading. That would be an additional 3% drop in the NDX by Fri AM. I keep a short leash on this one, 5 contracts.
@tax
Thanks..
If i remember correctly, you exit when the delta reaches 30 or up...
Also what kind of cushion do you prefer. Jerry recommends 50 , but i think that is for spx.. for rut and ndx do you have a preferred cushion?
Sunil
I don't have a preferred cushion. I start with the delta. It has to be below 5 with approx 1% roi. Then I look at the cushion in actual points betweeen the short strike and the index. Then I look at recent weekly movements in the index and if my cushion is substantially higher than the weekly movement of the index I place the trade. So if market has hi volitility, my cushion has to be pretty large or I won't place the trade that Fri. I'll wait till Mon rarely Tues. The past three weeks, I have placed some very profitable NDX trades on Wed like I did this morning. See above. I keep the # of contracts small and use them as a lottery play.
HI all, Sunil; I go for the bigger cush when opening early such as monday. If opening today with 2.5 days of trading i might drop if necessay to get a decent ROI. But there are still some great roi with SPX, trading around 1313 and you can drop to the 1245/1250 put spread for 1.5% in two and a half days of trading. Even with the mkt down today the SPX is only down
19, the above trade leaves you 63 pts of cush.
TAX; I like the NDX also but you only have the 25 pt spread between strikes available. So the protection of the lower strike can still get you hurt in a really bad situation. But they do seem safe for a good ROI.
A goofy market this month so trade careful not careless. Cush might save your tush...
I can't get much today, all my orders remain unfilled. Lesson learned...don't force it. Next week perhaps?
As long as the markets don't tank 3% tomorrow all my RUT/NDX expire worthelss. Lighting candles tonight for a decent ADP jobs report.
Makes me feel better--I only got one fill today. Sticking with weeklies, not tempting myself with those juicy monthly premiums.
Good to see that I wasn't the only one not getting anything filled today. Did a SPX for the first time, did not know it had an additional fee on top of broker fees. Got a 1255/1260 1350/1355 condor going now, hopefully adjustments will not be needed, especially with fills appearing sketchy now. Will now probably just sit until Friday and get my usual PCLN call spread.
Anyone selling AAPL calls against long positions. Strikes? Sold my 575's today in a fit of fear and panic about a big runnup after Tim Cooks presentation last night and subsequent price action today. Burned about $3.50 in time value. Shudda waited til Friday.
Ihaveops
I'm short the 6/1 575 against my long Jan '13 570. I'll wait until late Thurs/Fri to hopefully roll up & out to 6/8. Got 3.25 last week. Hope to get something like that this week. Not worried about assignment due to large time value in the options.
Deltas on 6/1 weeklies all under 7
Change is a com in': How might this affect what we do?
http://communities.cboe.com/t5/What-s-On-Our-Minds/A-Change-for-Weeklys-by-Mark-Sebastian/ba-p/2821
Ihaveoptions, it will be interesting to see how this affects premiums and time decay!
Tax, with all the SPX spreads you do you should be able to notice any changes.
Damo.
fyi on aapl
A writer in a newsletter I sub too who uses elliot wave theory (which I have great difficulty understanding) had an article on aapl. His charts showed a reverse head & shoulder pattern for aapl with the head at 522 (recent low) and the neckline at 577. Aapl broke that neckline to the upside yesterday. H&S theory holds that a neckline break should continue in the same direction with a target high of 577+52 (neckline + the diff of the head low 522 and the neckline 577 = +52. So does that mean aapl is headed to 629?? Time will tell.
cboe article
Just read it. News to me. I guess CBOE will have 4 weeks of weeklies open at all times. Guess thats good. Now you can choose between 1,2,3 & 4 week spx options. I think I will stick with a true weekly since that gives you the fewest days exposure to this crazy market. My wish is the cboe combine ALL settlements of index options whether weekly, monthly or quarterly as of the Fri close. Trying to remember if my spx spread is a true weekly and settles at fri close or a true monthly which settles fri AM drives me crazy. Not to mention the exhileration (sp??) of an AM settlement. really can get the blood preasure rising. As for the spreads on index options, you have to learn how to negotiate with the market makers.
Love seeing that green on my screen
Hope ADP report is decent.
Amen on the closing times. My first RUT this week so am anxious about Thurs close and Fri AM settle. What if the wheel come off the bus after the close this evening?Still a bit of cushion to 730 tho.
Any idea how much the price can jump from today's close to tomorrow's Am settlement for RUT?
I'm still concerned that Europe will bring the market down, has everyone sold in may and are gone now?, the market needs to go down to the 200 day sma to take a breather, the US recovery is not strong enough to combat the Europe situation, time to go down again?, goog and aapl are almost the same price again, random thoughts, last run on...
Sunil
The worst settlement I saw in my 10or so years of trading spreads was SPX settled DOWN 32 points one time. I can't remember RUT. See where the market is near the close. Feel comfortable with your cushion based upon RUT daily movements this week. Rut has moved 12-15 points low to high the past 5days. That is daily movement not opening value. Do you understand how settlement is calculated?? It is NOT opening index value, but the opening print of every stock in the index plugged into the index valuation formula. Not every stock opens exactly at 9:30AM.
Looks like we gonna be a ok on the RUTs. If Europe can hold together for one more day. A little spending $ for the weekend?
Thanks @tax.
I am in the process of finding the diff between rut closing value and settlement value (RLS). Looked through one year's weekly settlement values and it seems that 12-15 points is the difference.. of course as they say that is no indication of how it will perform in the future. Currently my short put is 730. Hopefully that cushion will be enough
Sunil
The data you really need is the opening value of RUT vs the settlement value. The two are NEVER the same because of how settlement is calculated. I'm short
about 25 RUT 735's. You can close the spread for about .15
Tax, You closing or hanging on? I'm of the 'hanging on' school myself as price seems to be moving our way.
Brother, these new number thingies at the bottom are getting obtuse. NO I'm not a robot!
IHO
As of now I'm hanging on. I'm short @ 735, so if rut gets below 750 I might close. I think I can close for .15. Have good profits for the week in SPX & NDX so a break even in rut is OK in my book.
It is definitely getting worse with the robot thing
@Tax
Can you thro some light on why i would need the opening value of the RUT vs the settlement.
What i was doing is finding the closing value of RUT on Thursday and the value of RLS (Settlement symbol for RUT) on Friday and see the difference between the two.
Wanted to figure out what would be comfortable cushion to allow the RUT to expire and when it would warrant a roll.
Sunil
The overnight futures will effect the opening value and settlement. If a monster rally or drop in the futures, equities that make up the rut will open higher or lower. It is the opening print of all 2000 rut companies plugged into the value formula that gives you the settlement number. Settlement is much different than the opening value of rut because company #1 may open up first print and the very next trade the price changes. Company #2 opens up 1 second after #1 but #1 prices have changed, follow that through for all 2000 companies, all are opening up at different times and their prices will change with the very next trade. The closing price of rut has no bearing on the open nor the settlement.
It rut closed right now at 758, my short is at 735 so I have 23 points of cush. There would have to be a monster gap down for me to get into trouble. At this stage I'm a hold into tomorrow. However i have thrown out a close order at .10 and I will still make a profit. For .10 I won't hold overnight. I'm not closing all my rut spreads either.
I would NOT roll out either. If the short strike is violated then the market is very bearish. You will have to roll out for substantially more contracts to break even and then ALL your contracts are ATM. NOT GOOD. Take the loss, never roll a bad credit spread. Place a new spread with sufficient cushion and manke up your loss gradually.
to all
As I have stated before, I have been trading various option strategies for 10-12 yrs. i have been asked to post my trades/share my experience. I have no problem with that. I think this blog is great, gives us all info and education. One thing I have noticed based upon postings is that some of you are still learning. PLEASE, PLEASE be knowledgeable about the option strategies you are using. Please don't just place a spread becuase that is what I have posted. Understand what you are getting into. A spread gone bad is as ugly a thing as you can imagine. For example. Take a 10 contract 20 point SPX spread where you might make .25. yes thats a +1% roi. But if that spread is completely violated, you have just lost 20,000
Please understand what you are doing. I am happy to answer any questions you might have because we are all learning here and getting some great ideas.
Thanks tax....
My short is @730 so i have about 30 points cushion at this time..still keeping a watch as the last hour can bring lots of volatility...
About the opening print for rut 2000 settlement, isn't that same as the ticket RLS? I thought RLS provided the settlement value for RUT,,
RLS IS the symbol for the settlement value. Because ther are 2000 companies in the rut, the actual settlement value usually takes till late morning or even noon to be calculated. However, if you are far enough away from the index, your broker should release your margin way before the RLS is calculated. My broker has released margin within an hour of the open in cases where my short wsn't even close to the open index value much less the settlement number.
Thank Tax..Now i see why you said to compare opening value of RUT to RLS.
Your advice here has been invaluable :)! Thanks for all the help
I'm a $5 spread guy=$500/ contract kinda guy. Ten contracts max on any given position or less than 3% of my measly portfolio. One thing I have absorbed from Jerry is to be very conservative. It takes a long time to make up for a big loss. In any case, it looks like a happy ending for those of us in RUT this week. Thanks for the headsup and the guidance going forward. We all take our own chances when we do this stuff and fully acknowledge such.
Let me just say pertaiing to my 735/725 rut put spread that I was very comfortable with rut dropping to even 745 before I would have contemplated closing this position. With a 10 point cush, there would have had to be one heck of a gap down at tomorrows start to place my short 735 in trouble. I would have taken that risk. I guess it goes to "gut" feel and the years experience trading these things. I had 7 spreads and 2 covered call positions in my main account and taking a small hit on this one position would not have hurt.
Hey all!
I've been selling options for about 2 years and learning from ya'll for about 6 months - I've started a couple of calendar spreads that are proving fun and profitable (so far)...
Here's a question for you - I'm still trying to learn...
After selling some CC's on my deep ITM leaps, I'm wondering why I couldnt also sell them against a far OTM Leap? It would be 'cheaper' to get in, and if I buy a GOOD company that is down and now trending up, there's some serious potential for winning on both ends.
Am I missing something?
THANKS all---
Michael
Here are some points to consider regarding where to buy the long side.
Let’s say you pick AAPL, now trading around 578. You could buy the Jan 2013 600 for around 56.50. but you can’t sell a strike below 600 or you start using maintenance quickly. So you could sell the Jan 8- 600 strike for around 2.10 that would be a ROI of around 3.7% for the week. But if the stock drops, again you have to sell the 600 the following week for an even lower premium.
Now if you open a Jan strike of 570 for 70.5 you could then sell the next week 580 for 8.25 for an 11.7% ROI and still have the ability to drop down to the 575 or 575 in the following weeks for a better ROI. So generally it is better to buy as low a strike as possible and then you much more flexibility when picking a strike to sell.
Hope that helps
Jerry
Think Jerry means today in the above "So you can sell the June8-600 strike for around 600' Just a clerical problem. Been doing these for sometime and it seems to work. Right now I have the 570 Oct longs and will sell the 600-0r 605s for next week.
Jerry,
Love the blog and avid follower for several months after reading your book. Have switched from selling puts to primarily selling weekly call spreads and occasionally condors, lately mainly call spreads going with the flow of a down market. I still haven't grasped the strategy of buying a leap and then selling a weekly "against" it. Would appreciate some explanations of the how's and why to do this strategy.
Thanks,
Ray
oh boy this doesn't look good. what a bad jobs report. plus bad news from china. wish I had the resolve to short facebook.
wow, i can't begin to read the letters below. I tried to listen to them, but i cant understand that either. are robots really that good? i guess the "words" are from old texts, how silly.
this is a good test of my paper trade in tna. I bought 100 shares and am selling weeklies against it. the plan is to sell at about 2 points from the stock price, rolling to the next week on thur or friday. If there is a big move during the week I will roll up or down to bring in more premium, or to stay otm. I'll move if there is about a 8% move either way. I will try to stay far enough from the stock price to avoid whipsaws. I think the plan is to move 4% if the stock moves 8%, I have the plan written down on another computer.
Dave
Looks like we'll definite test the 200 day sma on the broader indexes, but will they hold? before we at least had the slow us recovery going for us. maybe im overreacting, but this looks very bad to me.
Taxman, I am also short the SPX 1270 weekly. I guess what are the chances that SPX falls down another 12-15 points, I guess quite possible. What do you suggest I should do??
Also, I think its a good time to open another trade....maybe 1180/1165 or something like that for next week.
Hosp
SPX weekly trades today. Only RUT/NDX have this AM settlement.
Watch SPX for the day and close if necessary.
I may not place any trades today.
Will be away Mon. I was very interersted in Jerry's and another post about opening trades on Tues/Wed. Being exposed for 40-60% less time. I also noticed that placing trades on Wed, the premium is still decent, you are only exposed for 2 days and can still get lots of cush. I placed a NDX
2400/2375 put spread, got 1.25 with 75 point cush and 2 days exposure. I think I'll wait. Mondays seem to be crash days.
I'm not getting to optimistic, but I think I will survive RUT settlement. I think all RUT stocks have opened by now 3 min into trading. Rut at 747, give somemore downside on the settle calc and I'm short at 735. Should be OK. Nice jobs report.
My broker already released maint on my NDX positions. Rock n roll.
How 'bout them jobs. Good thing I don't need one.
Hope everyones Friday AM settlement went OK!
What are you guys using for your news reports? I currently use Finviz but is there a better option?
Damo.
closed my long call and putt weekly AEX en my daily short call and put AEX for this week. 9.3% ROI
Pascal, do you mind giving a brief description of this weekly/daily trade you're doing? You seem to be getting great returns each week! Do you have many losing weeks/trades with it?
Damo.
Hey, I think they used a picture of my mail box in the "prove you're not a robot" box!
FYI Rut settlement was 745.48
@ Optionsense
Right now i use 3 types of trades.
1. long put or call and sell a daily short put or call. Whit this one you have to make a choice, is it going up or down.
2. If the index is for example on 300 i'll buy a call and putt 300 that still has 1/2/3/4 weeks left (i got the best results whit 2 to 3 weeks time left). Than i sell a daily put 299 and a daily call 301.
3, I buy a simple straddle.
As soon as the exchange starts to move 1/1.5/2 points in either direction three things move in my favor:
1. Delta
2. The fast time decay of the daily option
3. The increasing value off either the put or call option (this is where the delta starts to move in my favor) one side increases in value faster than that the other side decreases in value.
Also the time decay of the weekly/monthly options are much slower than the time decay off the daily's. Al of this together gives me enough profit to make up for the losing side and end up with a plus.
Up til now i have had 1 losing trade whit strategy 1. I got the quickest results whit strategy 2. Whit number 2 a trade takes about 2 or 3 days. sometimes i can do this twice a week.
Wonder if this (#2) strategy would work on Thursdays using this weeks calls or putts short again next week or a monthly several weeks out? (For those of us without access to dailies). Might be especially useful now that CBOE will offer 4 weeks of options at all times. Comments from students of delta, if you would be so kind...
correction for poor typing 'this weeks calls or puts against longs for next weeks or monthly several weeks out?' Opinions?
@ ihaveoptions
No that will not work because you need to sell new dailys the next day and do that for at least 2 or 3 days.
And the delta of a weekly versus a delta of a monthly dos not have that good of a affect like a daily versus a monthly.
HI guys time for a new post as this is getting long.
Jerry
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