Friday, May 18, 2012
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. What’s 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 too 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 weekly’s 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
Subscribe to:
Post Comments (Atom)
69 comments:
Alex, please send me an email at anausied *at* gmail.com. The email address in your Blogger profile bounced.
(Sorry, no substance to add here!)
M&, thanks for the explanation. Like ihaveoptions I like to keep things simple so when you start getting into standard deviations it kind of goes over my head.
I liked how you explained it in your previous post, using the daily average of the high low for the last 12 months and multiplying that by the number of days left till expiry. I managed to get a spread sheet sorted to do this.
So it's best to make sure there's not to much difference between put and call prices.
How do you mange these if they go against you, do you use any type of stop loss like Jerry uses, premium doubling or something?
I'll play around with some over the next couple of weeks.
Thanks, Damo.
Tony, I've sent you an email. I've also fixed my profile.
Here is a nice little one to review.
Take a look at the chart for WLT. Last week somebody forgot to pull the parachute.
Now the weekly and monthly calls are pricing a HUGE shift upwards. Weekly 40P ($9 from current price) is priced at 3% return while the 60C is priced at 4.5% return with far more open interest on the upside than downside.
Something tastes funny here.
For those that don't like statistics, I use this as a check valve. I always make sure I am outside the current monthly straddle on a weekly play.
Take AAPL, current June 530CALL/PUT straddle is valued at $38.65. So people are assuming (based on current news) that AAPL will move up or down more than that amount in the next month.
You always want to be outside that range on a weekly play. If the market is betting that amount over the next month, they dont know when it will happen but they believe something is going to drive it up or down atleast that much between now and expiration.
M&M, I like your OXY play.
Will try to get a credit of 15 cents by selling 65 put and 90 call on Monday. Keep up the good work.
However, would stay away from WLT. Extremely high beta stock, can move 10-12% in one day.
I haven,t posted for awhile but I have been watching the blog,i sure hope Nicky survives to trade another day. I know this has been said a million times but safety comes first, the big boys move the market and all we can hope for is crumbs as Jerry preaches constantly, it is great advice for any time. For me personally I not only leave a lot of cushion but I never have more than 5% of my account in any one trade and in total i will only be about 25-35% in options total. The broker I use keeps a risk score at the of the page so it,s right there staring at you all day, this past week mine went to 4 which they call excessive.I will try to get out it back down to 2 which I think is very safe. Be very careful there are a lot of things going on which could blow up any time and send the market way down.
I was on GOOG this week with a 650/655 call spread so the sudden drop did not hurt me. However, I did contemplate putting in a 610/605 put spread in when the stock was hovering around $620 with around two hours to closing. Luckily, a wise inner voice reminded me that I was up over 2% for the week just sit back and don't be greedy. Thank God, I didn't make that move. I would have been hurting as the stock dropped below both strikes. I think my lesson is to let well enough alone.
Sorry for being a broken record, but aapl has sped up the fall on higher and higher volume. There were buyers at 530, but the sellers overwhelmed them. I don't see anything stopping until the 200 day ema of 480. I may get in again at that point, not sure though.
Dave
oh yeah, stupid robot words, i can never read them. i like craigslist, if you type something kind of close, it lets you in. i have tested this by purposely typing incorrect letters, it is very forgiving. now i;ll type mipatio dsecum and see if that proves i;'m human.
Thanks M&, your explanation on the AAPL straddle pricing makes a lot more sense to me then standard deviation stuff.
Still interested in hearing how you manage postions if they go against you.
Damo.
Weeklies
NDX 2625/2650 call .25 +135
NDX 2300/2275 put .40 +181
SPX 1360/1385 call .15 +65
Deltas 4-5, NDX expires fri AM
SPX fri close. 3 days trading on NDX & 4 days trading on SPX. Was looking at RUT but open strikes are to close to underlying index.
Alright who lite up aapl
Thanks Tax, I'm following along.
Nicky
You still out there? You still with us?? Hope there wasn't too much pain.
IHO - I don't guarantee success. Just trading my system. You R on your own.
This is a good test, will aapl hold at the 100 ema of 530, or will it test the 200 ema of 480? I still have a feeling it will test the 480 level, judging from how fast it dropped to the 100 ema. I don't trade on feelings though, I'm staying out for now.
Tax, Following on paper this week awaiting AAPL recovery of my positions. I'm definitely on my own!
Often to my detriment.
Hi All; Well FB was a flop.. did apple buyers come from FB?
Regarding aapl, an extra 4 million shrs over normal daily average. The last trade was for 2900 shrs at over a million and a half. That is serious buying. Maybe institutions getting in at the cheap price. Time will tell !
This also demonstrates the importance of cushion for these kinds of days. Also as some have said the index options avoid some of the high volatility of individual stocks. The SPX gives a ton of cushion and still decent premiums. For the 1% a week crowd this can be a road to big money in just a few years.
An example of the spx possible plays…
Put spread buy this weeks 1230 and sell the 1235
For more profit at no more maintenance turn that trade into and Iron condor buy buying the 1375 and selling the 1370. You might get .05 for each and that is a 2% ROI. Let the market tell you what is going to happen. If I were doing the above trade and I probably will… I will do it Wednesday morning. I might have to adjust the strike prices some but it will still be there.
Thanks for all the comments these past few days. Lots to digest. Very relieved to see AAPL free fall stop, at least for today. I had the MAY 525/530 Put that looked safe at 610 when I got in, but we all know where this stock has been.
I rolled it out to June and down to 495/500 for no loss when the stock was at 560 the last time. Over the weekend I was sweating it, since I had less than 10% cushion and 30 days to go. Today, I closed the position for double the initial premium. A very roundabout way to follow the doubling premium exit rule. Break the rules and you will pay, eventually!
I'm still holding the July 545/550 Put after rolling down and out from my disaster scenario a couple of weeks ago when AAPL steamrolled through both my strikes on a 570/575 spread. At this point, I am down about 2.80 on a 5 point spread. Hoping this lift continues or holds until July.
@Jerry, wondering what your benchmark is when you run your weekly iron condor. Do you bail on one side when the premium doubles?
Seems like it will always move one way or the other, so at least one of your premiums will be gaining while the other decreases.
Bailing when it doubles will mean a net of nothing, so I'm guessing you just keep an eye on it and pull the rip cord when things look dicey?
FYI Go to the aapl page on yahoo finance and under headlines a writer from seeking alpha is giving his projections for the current qtr. Interesting read. he forcasts another beat. He will also update his projections as it approaches earnings.
AAPL may zoom up from here, but I am still concerned that this was a temporary break on the way down. The move yesterday was quite impressive, but I expected more volume. The two prior days down each had greater volume. Right now aapl is following the lead of the greater market, only with extra volatility. Nothing is driving the market up, it is just taking a breather, it would seem to me. I am concerned about a repeat of April 17,
Kau-Think 550 is a safe upper limit on those puts for July earnings. That represents a very low PE, historically at earnings. Think you did the right thing rolling down and will be rewarded come July. AAPL is certainly all over the map these last few weeks and I would prefer a more orderly and consistent march toward $1000.
Picking up a few crumbs here.
RUT 710/700 puts .20 at 757 +47
790/800 calls .28 at 764 +26
NDX 2400/2375 puts .20 at 2555 +155
All stop trading thurs with fri AM settle. I have the RUT call spread hedged with some long TNA. I'm not going to say good week so far.
Just closed my long call weekly AEX en my daily short cal AEX for this week. 8.5% ROI
I started to paper trade iron condors on the AEX to see how that works out
Allright who pulled the plug.
It's been put back in again, for now.
I really don't like what I see. AAPL continues to go down on heavier volume than the few up days. Looks like the 100 day sma of 530 will be tested again. I'm not counting on it though, I refuse to have a net short position on aapl.
http://cdn.mymoneyblog.com/wordpress/wp-content/uploads/2011/10/riskchart1.gif
Nicky-You're alive and well. Great to see your post. You are perhaps at the point of max opportunity?
@Nicky Funny, i think from now on we have to cal that the Nicky scale ;-)
So where are you guys on the Nicky scale. i am at Thrill
TTWO up almost 6% after hours, so I'm up from despondency to depression.
Interesting, mini option contracts:
http://www.bloomberg.com/news/2012-05-09/exchanges-plan-mini-contracts-amid-record-share-prices.html
mini-options, now that would be a interesting tool.
Do you have speeders and turbo's in the USA?
Nicky; good to have you back..
Kauai; regarding a stop loss type play with spreads. The short answer is no. As i open them with just a few days in the life there is such a loss in time value and I leave such cushion, I will either close or roll out the losing side. It doesn't happen often. EX: i now have s&p at the 1240/1245 & 1375/1380
To encourage you younger traders. Start with 10K and get 1% a week and in 12 years after taxes you will be a millionaire. It is that easy. Unless you start getting to where you push the boundary and get bit a few times and then in 10 years you still have 10K (maybe)
Don't let the leverage of options eat your lunch. It will if you get greedy or sloppy. Make it work for you, and you are on the road to some good money.
Good trading all.
@jerry
when do you put on your position for weeklies and how long you hold them, esp the index options like spx, ndx, rut etc?
May 23, 2012 9:50 AM
Sunilk, I opened some yesterday and some today. When doing a Condor (which is a spread collar.. Meaning I have a put spread and a call spread on the same stock) I shoot for .05 or if lucky .10 total credit. they cost $5 each or 500 for an option. But if doing these leave lots of cushion and on Friday they just go away. By lots of cushion i mean 50+ on each side. Small profits grow, large profits often turn into large losses...
AAPL appears back on track, I'm still out for now though.
I was wondering, what would happen if you bought 100 shares of some stock, and sold the weekly atm call against those shares? I ran some numbers on a number of stocks and funds, and the results appear to be favorable. If average iv is greater than hv, you ought to come out ahead, by rolling each weekly into the next week every Friday. Some weeks would require cash, others would provide cash. But the volatilitiy of your account should be smoothed out, and in the long run you should come out ahead. Is this just crazy talk?
Thanks,
Dave
Dave
Its a form of covered call writing.
I have done ATM & deep ITM monthly covered calls(before weeklies). The major problem is if the underlying stock gets a downgrade, the market tanks or you have an earnings miss. The stock tanks and you never make up the diff with your call program. Tried that over the course of a year and ended up losing. That is why I have gravitated over the years to credit spreads on indexes. I have traded options on one sort or another for probably 15 yrs and index credit spreads with Jerry's crumbs concept has given me the best returns.
Dave
I trade with Schwab and unable to use index spreads, use SPY, am I at a disadvantage by not using index spreads?
Ray
Thanks Tax,
I have been meaning to look more into the index trades. How do you feel about ITM covered calls on indexes that have been beat up, like say FXI?
Tax, You still selling weekly call against AAPL long calls? Todays prices on next week look enticing for a roll. One day of free time decay next week. Wondering whether its better to let this weeks expire, then sell or just roll today. Have you an opinion?
Ray,
I do like the theory behind the index trades, no earnings, no dividends, instant diversification, tax advantages. Taxman has done well with them.
Dave
pascal
just checked with interactive brokers.US residents not allowed to trade options on eoe.did anyone have success with other brokers.
Dave, Tax advantages?
IHO,
Most index options should qualify under Internal Revenue Code Section 1256 as non equity options. In such case, all gains would be 60% long term and 40% short term. As of today, the long term rate is tax advantaged.
Dave
Dave - The ITM program I used to do would give me a 3-5% roi each month. The idea was for the underlying to get called away at the strike price. Your profit effectively became the time value of the option when you sold it short. I get a better roi on index spreads using the weeklies. This week should all expire worthless and my roi on maintenance is about 1.8%.
IHO - I'm short the 570 and will roll it out tomorrow after somemore tv leaks out. I will also be placing most of my weekly spreads tomorrow to take advantage of the closed markets on Mon. As for tax advantages of index options. They qualify as 1256 contracts and even tho are short term, ie less than 1 yr, the profits are split 40/60 between short term and long term cap gains. Not sure which one is long term, the 40 or the 60. So that portion of your profits on index options is tax at cap gain rates.
I guess its good to have a couple of tax practitioners on the blog. At least we think alike. LOL
Picking up some crumbs today...
I sold LOW June 24 puts after their reports 2 days ago for .40 and BTC today for .15. I'm thrilled.
Sold the AAPL MayWk4 545/550 Put spread today for .15. 2 days, should be safe (famous last words)
Also got sucked in to the AAPL June 520/525 Put spread for $.66. Seemed safe under their 530 floor. May be a mistake with Greece and the EU, but I couldn't resist.
Finally, sold the DELL June 12 Put for $.24 yesterday. Seemed that was a safe place since it's the 10-year low...ATM, but hopefully safe.
Thoughts? Trades?
Did a SPX June1 1220/1200 for .20 at 1318 delta 3. Have to wait for Fri AM settle to free up most of this weeks maimtenance. Depending on Fri vol, will try to place something tomorrow to take advantage of Mon being closed. Yesterday placed an awesome NDX 2450/2425 for 1.25 @ 2516. Figured index won't move 66 points in 2 days.
Thanks for your input Tax,
Looks like we are in agreement regarding 1256, use form 6781 to report that.
What you are writing makes me think the following:
Create a list of index funds that you believe in long term. Trade atm covered calls weekly on the fund(s) that are lowest. Switch funds as some go up and others go down. Does that make any sense? Of course, you are saying that spreads work better overall. If you trade a covered call, do you just let it be called away when itm at expiration?
Thanks again,
Dave
Correction:
DELL Jun 12 Puts sold for .28, not .24
Ray, Looks like I could do NDX and SPX on my Schwab account.
Yep, the idea going in is the underlying WILL be called away. Your profit is the option strike + option prmeium - cost of underlying. It basically works out to be the time value in the option. At the time I was using monthlies, so whether stock or index, the underlying security can drop in value, your ITM call expires worthelss, now you have to sell the next month option at the original strike for a whole lot less premium or drop down a strike for more premium, risk the underlying get called away and you end up with a net loss. Eventually I stopped doing that cause I was losing to much with every market downdraft, bad earnings or downgrade. That;s when I started with index spreads but would get greedy trying to outdo last months roi. A couple of bad mnonths wipes out several months of profits.
@doctorali
Really? Maybe you can try the London office off interactive brokers. I know for sure that they have the Dutch stock exchange. It must be possible for Americans to trade on the exchange I can't think of a reason why it shouldn't.
@All
I am paper trading Condor's on the AEX now And get even faster results than a regular put/call Spread. I start early in the morning with a weekly long put and call and sell a daily short put and call on them. As soon as the exchange starts to move 1.5 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 options are much slower than the time decay off the daily's. Al of this together gives you enough profit to make up for the losing side and end up with a plus.
Today for example one condor, total investment plus margin €1700, gave me a profit of €70. Thats 4.1% ROI. I still have to paper trade through different scenarios but up till now it's looking pretty good.
What do you think about this strategy?
So basically you purchase a straddle with the call & put at the same strike, then sell a daily put & call against the straddle. Movement by the underlying would increase the delta in the direction of the move and decrease the other side. It sounds OK. But I don't think we can trade AEX in the ole' USofA.
@ Taxman. Nope not a straddle. but a condor.
example from today's trading:
AEX is at 290
1. I buy a weekly Call 288 en sell a daily call 292
2. i buy a weekly put 292 and sell a daily put 289
You can trade AEX in the USA but you have to go to a foreign Broker like i have to do when i trade US stocks and options.
Dave, you scare me.. with the Dell trade. If you ask me, which you didn't... you are asking for trouble. 15 years of trading and having my heart broken many time while turning on the computer and finding something weird has happed and your stock has dropped $3 or more, and lets see I had 15 of them so that is 1500 x 3 = OH CRAP… And all for 600 bucks. It takes the rest of the year to make back the loss. Also you are giving over two weeks for the ca ca to hit the fan. With Europe etc in constant turmoil anything can happen. I used to trade DELL all the time but.. Free advice,,
Don’t try to guess when a stock is done falling..
Leave cushion
Leave less time.
We don’t need another NICKY story. There are a ton of stocks that give just as good premiums or better with 30+ points of cushion and only a weeks time. Dell is a stock that is losing market share, less earnings all the time, just not a stock to try and guess if it has fallen far enough.
I once mentored a fellow that couldn’t keep out of high prem’s and close strikes. I continued to warn him until one day he called crying that he had lost everything, his retirement money, including his checking account and how was he going to tell his wife etc.. I mailed him a check for 10K and told him to give up on options.
Be careful, all the fun of making some money disappears when you suddenly lose everything. Excuse the preaching, but I think of us as a community of buddies and fellow traders and I only want the best for my buddies.
Jerry
Jerry, Please send check!
Just kidding. I'm actually up about 150% in less than a year. Had I religiously adhered to your 'rules' it would be even more. Love the crumbs, tho am constantly tempted by bigger gains. My accountant of many years with many affluent clients tells me that he has not seen one person do it long term. They will call up mid year and say they are in tax trouble and need to plan for the EOY, then by the time he sees them for taxes, its gone. So I just keep trudging along with .10 premiums and an occasional scare (and scar) but love the CRUMBS with lots CUSHION.
I would like to chime in with Jerry on Dave's DELL trade. I read Dave's post and went eeek. Luckily Jerry later chimed in with some reason.
My 2 cents. . .I have seen several posts about making trades tomorrow to take advantage of the hall pass day Monday. I too will probably make a trade or two tomorrow depending on what my spread sheets tell me later tonight as I settle in with a bottle of wine. However, please consider the following and I will use Dave's trade as an example.
What if. . .Dell reports a factory burned down, or they get downgraded, or Greece falls into the Med, or the US defaults on a loan, or Obama gets assonated, or heaven forbid a bomb blows up in the middle of a Monday afternoon baseball game, or Michael Dell gets diarrhea. Stuff happens, whether directly or indirectly to Dell and . . . the price opens down, way down.
You may sit and say, they just reported earnings, all the bad news is away. But what if?? Some DELL stats to keep in mind. It's biggest 1 month drop in the last 5 years was 35% and in the last year was 25%. Its biggest 1day drop in the last 5 years was 21% and it gapped down at open one day 16%.
How protected are you on a 16% gap down day? Open at 10.45 from 12.44 plus the volatility that will get priced in all while holding a 12P. That is a ball busting break the bank jump off the roof kind of day.
The best play on DELL for June is the 8P. It returns 0. DELL doesn't want to be played this month.
As an example, a better play if you are looking for a monthly is AMZN. No news coming up and just had good earnings. You can get in the 160P for 0.30. At my broker you need $1631 in margin for a nice 1.8% for the next 3 weeks (That's 31% APR). You have 25.5% leg room. AMZN biggest 1day gap down in last 5 years is 21% with the biggest 1 day drop of 14%. Heck its biggest 1 week drop in the last 5 years is 26%. Statistically, if the Mayan's are right you at least stand a fighting chance here, it may hurt but you could live to fight another day.
GLTA
Wudda done much better rolling AAPL 575 call when they came out yesterday. Rolled to next week for $3 tho so not too bad. Wudda, cudda, shudda. We'll see if ops can get above 575 next week.
Thanks for the advice. I closed my DELL positions for a tiny gain...I'll take it!
I went ahead and closed all my positions except an AAPL put spread (520/525) so I wasn't exposed for the long weekend, just in case Greece falls apart, or anything else.
So far I've had a good June, and have more than made up my May loss, so I'm feeling good.
Thanks for your candor--I really appreciate the real world advice and clear, clear communication.
I all, for those that get an alert that a new posting is coming..here it is..lol This thread is getting pretty long..
Jerry
Closed my long call weekly AEX en my daily short cal AEX for this week. 9,2% ROI
As for Europe, Spain is becoming a bigger problem and it looks like everyone is preparing for a exit of greece.
What do we do?!?!? go short on the index ;-)
Post a Comment