Saturday, June 9, 2012
A different idea on trading
Hi all, here is an idea for a slightly different way to trade on a vertical spread.
I am using AAPL as it has seemed to have bottomed out and it also has great premiums.
This is on the same idea of trading in the money covered calls.
With AAPL trading around 581, I am looking at buying Jan 2014 570 strike for $111, and selling the June 16th 570, for 14.25 This is of course 3.25 of time value. The idea is if AAPL keeps going up I will continue to sell the 570 for the next two weeks and with two weeks left in the July cycle I will roll up 5 points and go out to the July 21 and take another credit. If aapl has not gone up much I might continue to sell the 570 strike for the next week without going out to the next two weeks.
So the idea is to stick with the strike you have even if the stock is going up some and when you reach the point where there is two weeks left in the next period, jump to that option and roll up 5 points. By using Jan of 2014 you have approximately 77 weeks of taking in 2 or 3 points of credit when rolling.
In a perfect world AAPL will be around 700 in a year and a half. If so your 2014- 570 would be worth 130 for a net gain of 19. And if you were lucky enough to make 2.5 points a week for 77 weeks it would be a gain of 192 points of pure profit on the calls sold. You would also make around 33 points of profit on the original bought call of the 570. This would be a net gain of 192+33 = 225. This could mean a ROI over 200% in a year and a half. A lot of if’s but something to consider. I am going to do it with maybe 20 positions. I will keep you posted on the ROI.
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Hi Jerry! I'm in the midst of a similar trade with AAPL right now - have held the Jan 13 530 for about 6 weeks. Are you planning to buy back and keep rolling out but not up as AAPL rolls on?
I'm sticking with vert put spreads with AAPL and have been really pleased with the results. Recently I have sold the 515/520 and 520/525 weeklies and monthlies. AAPL has done great, and I'm taking the cash. Lowering my returns has had a significant impact on my stress level. Now I'm not wondering if things will get upside down on me, plus making a decent return. Cushion is a great thing.
I can't hardly wait to see what happens Monday at WWDC.
What is your plan should AAPL decide to make a downward trend to 400?
What is your plan should your short calls get exercised?
@ Jerry
I think it's a interesting theory. a guy that works for me was a market maker for 15 years and this was basically one of his main strategies.
I'l start 1 position whit you
HI Michael, I also have several on-going vertical spreads now and rolling them out if necessary each week. With this new idea (to me) The idea is to buy back each week but never try to get close to the current stock price. For 2 or three weeks just keep the same strike price and then when the on-coming monthly is 2 weeks out roll up some for a credit and also pick up 5 or 10 points of new rise in the sold one. That way if the stock drops some you are still picking up big prem’s each time. I will give it a few months as a trial run. It seems AAPL has bottomed and heading towards earnings.
Dave, yes cushion is king. Crowding the current stock prices is super until ca-ca hits the fan then you can go broke in one week. You can still lose but with weekly’s you usually can ride it out or roll out.
M& I don’t see aapl dropping much as the PE is still low and the upside just too much for a stock of AAPL’s strength. CaCa can and does happen but this is one of the strongest stocks in American history. One product after another for years coming. As long as there is Time Value in the premium it shouldn’t happen. Now anything can happen in the options world but let’s assume the stock is selling for 580 and you have sold the 570 strike. Someone could say. Alright I want the stock for 570 so I will exercise my options. So he how has the stock for 570 and can sell it for 580 so he has a 10 point gain. But if the option is selling for 15 he could have just sold the option for a 15 point gain. Pocket the 15 points and then buy the stock if he wants it so bad, and make 5 bucks. Now if Time Value has leaked out you might be in danger of being assigned?.. Especially with a stock of AAPL’s price. If I have 50 of them which I do.. and I’m using the 570 strike, for someone to exercise their option they need 2,850,00. People with that kind of money don’t make 25,000 dollar mistakes.
But if it does it isn’t always bad. You have 24 hours to settle and you can buy the stock and sell it to the one who assigned you. Most people in the options business are in for options, not owning stock.
Good Pascal; lets see how it works.
I will give a weekly update on profits or losses or loss of confidence. The biggest problem I see is AAPL taking off and leaving me in the dust. If that happens I might resort to rolling a full month ahead to be able to pick up some room for my sold one.
Jerry
It is interesting that aapl is at such a key resistance level right at the wwdc. Will this be the catapult to move us up again. i dont see much resistance if we pop up here.
I would like you to prove YOU are not a robot
3rd try, maybe i am a robot
Robot Henn, Would love to see a pop here for AAPL but think historically WWDC is a 'sell the news' event so don't expect much til earnings run up. Would love it if I'm wrong.
IHO,
Well this is a very good spot for aapl to take a break anyhow.
Theoretically, I like the idea of maximizing time value by selling atm options. i am looking at the pros and cons of selling atm calls and buying a lower strike in the same option series. if there are more up/even weeks than down, then you will come out ahead. you can also reduce you downside risk if there is a big selloff. if stocks go up slowly and down quickly, there should be more up weeks than down.
i am also looking at this same concept on a monthly basis. it seems that monthly prices tend to end higher more than weeklies. weeklies seem to get caught up more in market noise. you also have lower gamma with monthlies and prices are therefore less volatile and more controllable.
just the fact i signed into google should prove i am not a robot
for instance, look at long july 545, and short 585. if appl finishes above 585, you make 1300. if it finishes below 545, you lose 2600. breakeven is 571, so aapl could go down a little, and you still make money. You could use a stop loss, so your max loss is 1300.
What do you guys think of AAPL 620c Weekly for 50c, stop will be at 1.00 ...Thoughts. My only fear is AAPL is strong on this down day. If we get an overall up day AAPL could go. Thats why the stop is at perium double point.
This weeks trades all Fri AM settle
NDX 2400/2375 put .30 @ 2558 +158
SPX 1250/1225 put .20 @ 1324 +74
RUT 715/705 put .15 @ 764 +49
Ok here we go,
AAPL
bto jan2014 570 $116.50
sto jun15 570 1 $19.50
Lets see what Apple has in store for us today ;-)
Tax, You didn't wait til Wed. but you got better cushion. Guess we have this week before Greek election which should not precipitate a crash.
b1 You talking naked? 620 is a little close for me. I like 625 or 630 better.
Pascal; with aapl up this morn i did it a little different. I b2o the jan 2013-570 and s2o this week 580.
lets keep a running total and see which is better. Will be interesting for the future way to possible trade a stock like aapl
IHO
Couldn't keep my finger off the mouse. Seeing how today is going, I fugured the markets wouldn't tank 6% by Fri AM. Also the lows of last weeks downdraft were 2450,1265 & 730. 200DMA are 2446,1288 & 758. So I feel OK if anyone can EVER feel OK.
@Raging Bull
In the previous post you had mentioned that you back tested some strategies. Wanted to know which software you used and where you got the data feed from. I am looking at testing some weekly strategies
AAPL must not be impressing anyone at the WWDC. The conference started 1PM EDT and aapl has been dropping ever since.
Jerry; indeed, i was in doubt to sell the 580 but thought it would be better to stick to the plan and sell the 570. WWDC is still on and apple isn't moving much.
Wel, apple is down 1.5% but the trade is up 1.28%
Sunil,
I did the back test on Option Net Explorer, I had done a Dan Sheridan class and got a break on the program cost.
Works well and over comes the problem with think back on Think or Swim, that being they don't archive 5 deltas.
http://www.optionnetexplorer.com/
Sunil
found a you tube if you want to see what Option net looks like.
http://www.youtube.com/watch?v=Ig_DLAu_FYI
@raging bull..thanks.. i will check it out..
Pascal; well it seems odd with this market, but my acc't is up pretty good today? the 580 I sold for around 8.50 this morning are now selling for around 3.10 So i made 5.40 each. The 570 i bought are down some but all in all i have 25 weeks to make that back. I can now B2C the 580 and lock in that profit and sell the next week 575? Hmm we will see, lets let it run for a few months and see how it shakes out. interesting...
Jerry, Looks like you could roll your 580s from 3.10 to the 575s at 4.95 that would expire Friday, wait for the time value to erode, then do it again for next week. I'm kinda playing along with you guys. Have the Oct 570's that I've been milking for premium. Last week I got in early with 5-595s thinking AAPL would pop this week. Looks like I can roll down to 580 or so for an nice premium in the morning and then do it again Fri. Not sure how this all plays out but it is really no different than our usual 'calendar'. The only problem I see on the horizon is if the pps goes significantly below the 570 longs and there is little or no premium to be had in the sold positions. So I guess we will find out....
Oops my bad... think or swim has end of day 5 delta in Think Back they do not have it in (on demand).
IMHO however think back is a bit awkward to use compared to Option net, it is free and the later is 900 a year but I'm thinking if I finish out the year using this strategy I will renew It's very cool for tracking trades and making adjustments
No affiliation with either.
Ihaveo's; I just rolled all the 580's and some 570's into 565's. The idea being to continually sell in-the-money call options. I have around 70 of them and since most were the 580 to 565 for a credit of 6.85 it adds a nice sum to the acc't.
That is the good part of buying the long call as far down as possible.
1. when you sell it in future, it will be a nice return.
2. it allows you to roll down and take in more credit when/if your underlying stock drops. Pascal, have you also rolled down?
To throw some discussion out there, another way to play a stock like AAPL is with a Delta Neutral strategy.
Buy a leap call and put with equal deltas, DITM and then sell weekly calls or puts OTM against it depending on the trend.
Say JAN13 exp 735P/480C and then sell (as of today) maybe the 580C against it.
Benefits, AAPL goes up or down you are a) Neutral (as long as there is no major break up/down) b) making money either direction.
Jerry; did you roll down your long two?
Pas; nope just the shorts. I have two sets going--
1.565 long and shorts and
2.570 long and shorts
SPO this weeks or next?
M&M, Hmm.. I will have to give some thought to that style.
Does anyone use optionsfirst from scottrade. Need a quick review.
Jerry; This morning i closed the 570 short call for $5.86 that made me a profit of $13.61. then i sold the jun15 565 call. This is a nice start and i wonder where its going to end up in a couple of monds.
Whats interesting thougt is that the long call didn't go down that much, if i would have closed both positions i would have made around $301 on the trade. So i figure lets start a second trade 560 long call and 560 short call, if it goes up i'll roll the short up or out like planned and when it goes down i'll close it whit a profit and start a new one and keep doing that until it goes up.
What do you think?
Jerry and/or Pascal, When you sell the 565, don't you incur a maintenance requirement? $500 per every $5 increment below the long call per contract? I remember last summer when AAPL tanked and I had long calls to sell against. I actually at one point got a margin call (the only one ever) because the value of the short to buy back was so high. Anyway I think thats what happened. Was able to roll out a week to generate enough cash to satisfy the broker but it freaked me out enough that I closed both positions almost immediately which of course cost me.
ihaveo's; I don't sell calls below the long side just because of that.
That is the reason to buy the long side as low as possible. It is a balance act to buy a lower long side but they cost more so your quanity becomes limited.. I try for around 15 pts below the current stock price for the long side and 10 below for the short side.
An example of a stock running away from your sold side as follows;
AAPL jumps to 600 by the end of the week and i have sold the 565. i would then buy to close and sell
AUG 585 or 595 and still get a credit and 20-25 points of bonus on the long side that is money in the bank. The worst thing is if your stock tanks overnight but that is a hazard for most options or stock ownership. The ideal is for your stock to average 10 points a month upward.
Jerry, I had been giving my comment above some more thought. I used to play this method with QQQ and SPY. 2008 took its toll on that system. Never looked at it with something like AAPL.
I figure there are some smart option people here, what if you played it this way?
For AAPL
Buy 1x 370C @ 231.30
Buy 1x 950P @ 399.25
If my math is right, between the two there is ~$50 of intrinsic value.
You are in it for more than the price of the stock but both positions should move nearly in-tandum with the stock (price of insurance).
Now sell weekly against your positions, calls if AAPL moving down and puts if it is going up or both, why not?
If AAPL takes off one way or the other, you can always sell the long position loosing value and let the other continue to rise.
Thoughts?
M&M; the main problem i see is that the cost is so high. I can do 10 to each one i can do with the method you mentioned. Therefore I would have to get 10 times the ROI to entice me choose your idea.
@ b1llmoo, regarding OptionsFirst, when I started out, I opened 3 accounts to see which would work best for me, OptionsFirst, OptionsHouse, and TradeKing, turns out OH and OF are exactly the same platform, when you log in to OF, you see that it says powered by OptionsHouse, personally I prefer TK, if you're thinking about OF, don't pick them, go with OH instead, since it's exactly the same with cheaper commissions.
Hi Jerry,
I am new to this and sorry for being ignorant....I don't quite understand how you make money from your 565 short call if aapl goes up to 600 by this fri (let's say). You will have to pay more to buy to close the 565 call..am I correct? You will make some money from the long leap call @570 but I think the cost for closing the 565 will be higher? Thanks!
Thnx nicky,
I am at fidelity and they down let me trade indexes since I have less than 50k. Scottrade offered me 6 dollar stock/options trade. Just a little nervous since its separate from scottrade.
Hi Jerry,
I just recently found your old TK thread, really enjoyed it!
Also, I'd like to give a big thanks to Raging Bull Winkle for the give membership to tastytrade. It's great!
Thanks again,
Corey
@raging bull
I checked out the site that you had provided (optionnetexplorer.com), but i don't see any way to buy the product. Is it only available if you take the Dan Sheridan's class?. You had mentioned that you took his class...what's your opinion on that? is the class worth the money?
Hey guys I have a rookie question:
I just got off the phone with fidelity about trading indexes with less than 50k (which is prohibited) The Rep told me "You dont want to swim with the big boys" He said SPX is still traded the pits at the CBOE and my losses with mount up fast I tried to tell I was look at 100 point cushion and double preuium stops. He basiclly laughed and told me I would lose money for fidelity.. Can someone please explain this to me..
Thnks
B1moo
I have been trading index credit spreads for some 10 yrs. Using the crumbs method for the past eight or so months and placing some 12-15spreads per week, I can say there have only been a handful of times that I had to close a spread at a loss. Most of them were call spreads. I always get burned on call spreads. Use cushion, good judgement, and don't greedy and you should be fine. My weekly roi hasa been 1-1.5%
Don’tmakeme..;
Don’t feel ignorant. We all learn and are exposed to new ideas all the time. Never hesitate to ask. We aren’t talking about the best way to mow a lawn. We are talking and discussing investing strategies for the future that might change a life.
First I might have mixed some of my different acc’t positions. In one group I have the 570 long. I don’t sell calls below that price. In another acc’t I have 565’s long and also don’t sell below that price with that acc’t.
Now for your question. Yes, If the stock should go to 600, to close my 570’s would cost me around 31.. a loss as I sold them for 8.42. but I will then sell the next week 570 (roll out the 570’s) and they will sell for around 36 so I make 5 points. +36-31=5. But ideally I will roll out to the 575 and still get a credit. By doing that I make 5 on the long side and a small credit on the short side. If doing this strategy you have two goals to make a credit each week (or month) and to increase the distance between the two calls you have. One day you will close everything and you get the difference between the calls. EX; in Jan the stock is at 650. You can then sell the 570 for 80 points and ideally you have now rolled up to say the 640. You will have to close that side for 10 so you net the 70 points and also have the amount that you made each roll out. So if you average say 2 each week and there is 30 weeks left, you add the 60 to the 70 for 130 points of total credit.
If you set up this trade right now it would cost you around 57 points.
If you opened the spread now with the 570 long and the 570 short. And the stock doesn’t move you sell the next week 570 for 5+ and repeat that each week. Even if the stock drops some you continue to sell the 570 each week making a profit each week until hopefully the stock turns around. But even then it isn’t necessary for the stock to go up to make a profit by Jan.
These numbers are just rounded off to demonstrate a rough idea of different results.
Pascal; I rolled up my 565 to the 570 for this week. It was a debit of about 3.8 so I ended up getting 5 points difference between strikes on the long side and it only cost 3.80. Also the TV was leaking out of the 565’s so to avoid a possible assignment I rolled and now when going into next week the buy-back of the short side will be around 5 cheaper.
@tax
Other than SPX, NDX and RUT, what indexes do you trade? I have been doing some etf' using jerry's crumbs method, all of them monthly.
Thats it. I also am into the aapl leaps trade and I do some covered calls on TMV, TZA & TNA
TMV is an etf on 10yr T-bills
TZA is RUT bear
TNA is RUT bull
Placed some NDX & SPX call positions on today for fri AM setlement. This is looking like a GREAT week is all holds tru.
If everything works this will be a 2% week.
RUT short 725p, 780c index @ 760
NDX short 2425p 2625c index @ 2543
NDX short 2475p placed today
SPX short 1250p 1260c index @ 1322
Jerry; unfortunately i did the same (565 to the 570), i should have waited. O wel ;-)
I closed the other experimental trade and made $260 profit on it, thats 2.3% ROI in 1 day.
I started a new one BTO jan2014 555call, STO
jan15 555call.
Jerry, Your longs are Jan2013 or Jan 2014?
Pascal, Do you mean above BTO jan2014 555call
STO jun 16 555call ?
Tax, Are those straddles? Weren't you doing credit Bull put spreads before? Change of strategy?
I'm full of questions this afternoon. Scared of the Europe situation I only have some AAPL 600/605 BeCS and have been unable to fill the put end of the IC with anything worthwhile.
I'm also playing along with Jerry and Pascal with AAPL OCT 570calls long and 575 calls short for Jun16 which I will roll on Friday. Glad Jerry reminded us about the possibility of assignment if you get too deep ITM on your short side.
@ihaveoptions Yep!
Ihaveo's; all 2013. But the 2014's should be a better deal in the end? I am going to run this spread for a few months and if all seems ok i might roll into the 2014. You can get another 52 weeks of tweaking and rolling and it cost around 43 difference between the 2013 and 2014
HaveOps
Your on a roll with questions. I don't do straddles, they are all credit spreads. I just can't type well even tho I try to proof read this stuff.
RUT put 725/715 call 780/790
NDX put 2425/2400 call 2625/2650
SPX put 1250/1225 call 1360/1385
I'm short the first number, long the second.
Hey Taxman I was wondering why you spread instead of naked. Is it just for safety. If you use stops would you just close out the one side that got to near your price.
Thanks Jerry, Pascal, Tax Just full of doubt this week tho so far, I'm impressed with the calendars (I guess that's what you'd call 'em). AAPL down...account up!
hi tax..what was your annual average return before u started using jerrys method..the only problem with spread is in even of unexpected move closing takes minmum 5 to 6 time of premium..also with so far OTM spreads i have a hard time filling 200 contracts(or its just my broker).Pascal are you still doing straddle...
@doctorali yes and getting some nice returns.
Tax - can you talk more about your covered calls on TNA/TZA? don't those lose a lot of value when there's volatility over time?
THANKS
IHO,
Usually I am the one sitting around fretting, what is going on? Maybe I'm not reading the news enough, but I think we are due for some good news soon. I like how aapl is hanging out near such an important resistance level. The upper bollinger band and the key 50 day sma are both juch above aapl right now. If it can break through, I suspect it may stay above that level for some time, following the 50 day up. If we stay near the 50 day, earnings should push it up as well next month.
Question & Answer Time
B1moo - I feel more comfortable with spreads, I sub to an index spread newsletter, maintenance is defined. I think Damo once blogged that you can place fewer nakeds than spreads and get the same roi with less contract exposure. Been doing them for 10+ yrs. I will only close out the threatened side.
DrAli - I never calced my roi as closely as I do now and I was trading more monthlies then. At best I may have been +15%. I was also more of a newbie then and had "deer in the headlights" syndrome. I smoked a lot of hopium at times thinking that with a monthly a threatened position over time would correct (which it didn't). Weeklies force me to react quicker because at most I only have 6 trading days. Then recently, I realized that I could place weeklies even on a Wed and get my safety requiremens & roi with even less exposure. I trade an acct for my boss and place 100 contract spreads with no problems.
I use brokersxpress out of Chicago.
Since finding this blog, I have been getting a consistant 1-1.25% per week on my spreads. I think everyone on the blog has an issue with a "black swan" event. What DO you do to protect yourself from a flash crash or a 1500 point drop. Most of my positions are based upon the "probability" of the market moving up/down 6-8% in a week. Someone else on the blog backtested SPX moves over a period of years and found only 4 times did the SPX move 8-10% in one week. I would like to see that post again.
Mike S - Covered TNA/TZA is an issue. I'm underwater right now on those positions and am using covered calls to get back even. Those 3X etfs are for short term trading only. They never seem to recover as the RUT recovers. I think it is due to the decay of their option positions in time. 3X etfs use options/futures to get their bang for the buck.
Sorry for the length. But thats how we help each other.
Henngiss - You an East Coaster or just an early riser??? Delaware here. (the state that started the nation)
Reading another newsletter I sub to and the writer is cautioning about next week action. Watch out for the Greek vote on Sunday, FOMC, Spain/Italy bond yields and
Supreme Court decision on Obamacare. Could be an interesting week. Remember that cash IS a position.
Tax,
I am in colorado, not exactly an early riser usually, but sometimes i can't sleep. I'll be watching those potential market moving events with much interest.
Henn,You early riser you. Here's a link for some 'good news' I like the idea of going out to Oct for more time for things to happen. Maybe Oct calls and Jerry's method of selling ITM against them while I wait. Just have to go with the history of this stock til it proves otherwise. c
Whoops, forgot the link. Here it is for all AAPL followers
http://seekingalpha.com/article/656671-b....mc_focus&if p=0
I have rolled the short jun15 570 call to the jun22 570 and made $4.10 on it. The trade is now $662 in the plus, thats a 5.7% ROI in 5 days. I know its premature but i am liking this ;-) Help me to stay on ground Jerry ;-)
Did you roll today?
HaveOps
Thanks for that aapl article. As suggested, I only picked up 2 Oct 570's but then just sold 2 June22
585 and already picked up a 10% roi on those Octobers. Love this stuff. Wish I were 25 again with this kind of knowledge. trying to teach my kids these methods. Real challenge starting from scratch with them tho.
I know what you mean about wishing we were younger. I worked really hard as a remodeling contractor for about 25 years when I should have been learning this stuff. All we can do is to use what we know now to its best advantage and share with others. Can't force kids to learn tho. They have to be self motivated. So in that vain:
BTO 3 cont 570 Oct calls
STO -3 cnt 575 June22 calls
19%ROI could this be right? legal?38
Hi Jerry,
Thanks for clarifying my rookie question(from dontmakeme...), but I think I am still confused when you "roll the 570". Yes, I understand that if aapl hits 600, you have to buy to close your 570 with a loss of $23($31-$8) and sell jun22 570 @ $36, which covers the loss and make $5 ONLY IF aapl goes down or flat next week. If aapl goes up again next week, then you have to roll again for jun 29 570 @ $tbd price and if aapl is on fire next couple weeks then you simply don't make any money from rolling. You only make money from the long call jan 2013 $570.
Anyways I have been doing your old spread strategy and make decent return 1-2% each week consistently. Keep up the good work!
How was that for a move!!
and here we go back down again.
@city-What I think happens if AAPL continues to rise is that you roll up as well as out for the next week. This diminishes your premium but you are banking the $5 increase in spread between the short and the long so you are really ahead. Please correct this anyone if I am confusing the issue.
@ihaveoptions-Sorry for being so rookie again..let's say aapl rises a lot next Monday after the Greek election, then say the jun 22 570 goes up to $46, then you lose another $10($46-$36) and you have to roll up again to Jun 29 570@tbd price. You don't make any money during the week until aapl goes down a bit or stays flat. Is that correct? Of course, the long jan2013 570 will be up quite a lot by then which will be good.
@city What I think you are missing is the time decay of the current option (I believe the call it delta) which at expiration is just a few cents. The following week still has time value in it as well as intrinsic value if it is ITM so you should be able to extract premium. Again all, correct me if I'm wrong as I can barely do this stuff, let alone explain it. And probably shouldn't even be trying.
city - here is the way DITM options work. If you are short aapl at 570 and aapl goes to 600 you hold the current 570 until late fri to let all the time value leak out. By fri close the 570 should cost 30 to close (600-570). You then roll the 570 out to NEXT week even tho aapl is 600, because it is so volitile, there will always be time value for the following week. At some point, if aapl stays at 600 or moves up to 610, then you roll up and out to the next MONTHLY option. You will eventually catch up. Plus your long call is gaining value.
Hope that helps
City, several others have explained it quite well.
But you might think of it this way.
You could buy the Jan 2013 565 strike for say $60? And sell the June 16 565 for 4 Lets assume the stock stays at 570 on Friday the 16 afternoon. You will be able to buy back the 565 for maybe $6 and you can then sell the next week 565 for $10. You just made $4… You can do this week after week. The thing to remember is that the expiring option will have little time value [TV] but the next period will always have a decent amount. TV is what we in the option world make our living from. The farther away from the current stock price you get the less TV you have. So to get more TV you might have to jump up your sold strike price. You do that by maybe going out more time, say to the July expiration date. There are many other nuance’s to learn and use but the basic's are the same.
Pascal; and others that are following or trying this method…….
So far it has been very profitable. I rolled half of my position into the July 580’s and used the cash to open more positions with Jan 565 and weekly options starting with next week 570The point is that each time you make money you can open new positions and continue to multiply your ROI.
With the other half, I rolled into next week and used that money to open new position exactly the same.
Ie; 560 Jan calls and next week 575 calls.
The idea is to compare monthly rolling with weekly rolling. So far the ROI is extremely impressive with both methods.
Jerry
Ps; probably time to start a new thread soon. I will do that on Friday after the market closes.
Sunday I am leaving for a week and going to remote Canada for a fishing trip. Next week you traders are flying solo..lol
Next week I have someone watching my accounts. They better be paying attention.. lol
i may not understand the selling atm options 1:1 against a longer term purchased option, but my concern is if the stock keeps going up, or gets volatile. it seems you may run out of rolling possibilities in this case. the strategy seems to work best under low volatility conditions. i may just not get it though. I am working a similar strategy, but selling only 1 option for every 2 purchased. I get less premium, but the stock can go up without hurting me. I don't need to roll as often. I do like the idea of maximizing premiums received though.
Could be a big move after this weekends greek vote, might be worth putting on a straddle or strangle.
Anyone else looking at something along these lines?
Damo
I have question about the AAPL trade Jerry..
How do you deal with early exercise So what if the weekly call you sold were in the money on like thursday and you got exercised?
Henn: Don't know what you mean 'run out of rolling possibilities' Seems to me the possibilities are endless Roll out, roll up, roll down. Worse case, sell both legs and go to cash. I think the worst case scenario is that the stock would tank, far enough down that there would be no premium available to sell at or above your long position (as Jerry says, don't go below that strike). In that case you would be left with an underwater long waiting for recovery, or sell. Hopefully the premium collected up to that point would offset all or most of the loss on the long. You could also just wait. I found myself in this position last year in the summer when the stock receded. The position eventually recovered full value tho not much more. I could and did continue to sell against it tho and had a pretty good return. This was before our new DITM strategy so it might work out even better this year.
Opsense: I think you are right that we are poised for an upstroke. I'm using this lull to accumulate long Jan calls at a cheap price, to apply the DITM techniques we have been discussing. I think there are a lot of strategies that will work when the market goes up. lol. Don't know much about strangles/straddles.
Hi iho,
i guess i'll need more experience with the ditm strategy. I am thinking that rolling up is not a great option, as the gamma on the short position is much higher than the long position, making it hard to make money. rolling out will work, unless the stock moves too high, as you can only move out so far. i am just writing from the top of my head though.
Henn, I think you are missing the erosion of the TV. The value of the positions at any given time is not too important. I agree that it is difficult to watch the short 'eat up' the value of the long but it is only temporary. At least that has been my experience so far. Perhaps we are all writing off the top of our heads, except maybe Jerry
I have a newbie question?
Why is there no bid or ask on any indexes on fridays. Do they expire on thursdays?
Jerry,
Yesterday I sold AAPL weekly for 565 13.05 and went long Jul at 555 29.60. Appl was at 571.50, Net debit 16.55. Less exposure than Jan 2013 is my reasoning. What is your opinion of this strategy vs doing long Jan 2013?
Ray
B1moo
Today is the third Fri of the month and the expiration of MONTHLY options. ALL monthly index options stop trading at Thurs close and settle at Fri open. So there will be no bids for June index options.
Weekly options are different. The NDX & RUT stop trade at Thurs close, settle Fri open. The SPX stops trade and settles at Fri close.
Jerry,
Yes, you will make $4 ONLY IF the 565 Jun 22 call stays below $10 ...and YES the time value will decrease the premium value (that's what we want) but if AAPL goes up next Fri (6/22) by 30 to $600, the 565 call will go up to $35 approximately and you will have to buy back the call with $25($35-$10) loss will have to roll to next week (jun29) again for like $45 and hope the stock stays flat or goes down a little so you earn the time value back. If aapl stays flat or go down during the jun29 week, then we will make money because the $45 565 call will not be $45 anymore by jun29 and might go down to $30. Then you buy it back at $30 and make $15 profit from it. Then you sell again for next week (july 6) and hope the stock have low volatile and try to do the same thing every week. I think I got it correct?
What I am trying to say is that you don't IMMEDIATELY make profit from selling weekly unless the stock stays flat or goes down during the week. Even if your row out to next week with higher premium you still need wait until Fri to see if the premium price is lower than the premium you sold.
Maybe I am so wrong on this but anyways I really want to thank everyone that tries to teach me this new strategy and I think I won't know the "real" stuffs until I actually open a real position. I think this new strategy should work...I will probably wait after the greek election and the fed next week to open a new position for the earning season. Next Mon and Weds will be very volatile I guess...
By the way very funny video about Euro Crisis: http://www.youtube.com/watch?v=I5QwKEwo4Bc&feature=youtu.be
Hey taxman. So the indexes are less exposure since it's only 4 days for a week how you Ever been assigned an index? What newsletter do u use? Do you have a good option index trading book u recommend?
Thnx for all your help
Hey Jerry quick question for you. Let's say I wanted to sell 1 SPX call and 1SPX put how much cash would I need in a margin account thnx for the reply
B1moo
In trading weeklies, I usually will place a spread on a Fri but mostly Mon/Tue. Two weeks ago I was away and placed trades on Wed, with a Fri AM settle and actually got my safety requiremens and roi with only two days market exposure.
I think I will look into that even more. Indexes are not stock, so you don't get assigned, they are cash settling options which means if your short strike goes in the money you owe cash equal to the amount ITM upon settlement. Most index options are also European options which means you can only be "assigned" at the settlement. No early assignments.
My sub is Mike Parnos Option Trades or better known as "couch potatoe trading". I can give you his email if you are interested.
Index spreads are no different than stock spreads in doing your due diligence. My experience/knowledge came from Mike's newsletter and attending 2 of his seminars. Add to that trial, error and a lot of pain.
I guess these markets have no fear of the weekend. Full steam ahead.
The central banks will bail us out.
Will we ever learn!!!!!!!
Hey what's wrong with printed money? It works in Monopoly don't it?
Hey Jerry, Before you head up to Canada land to catch the big one, here's a question I'd love to have cleared up. I have some 570AAPL calls short for next Fri 6/22. Market closed tonight at 574.13. Quote on calls is 10.54 so TV is implied at $6.41. As the time value leaks out over the week, what is a 'rule of thumb' as to how low to dare let the time value go and risk assignment. Is plus $1 in TV usually enough?
Have a great trip and thanks again for all you do.
Hi Jerry,
When you rolled your 565 to 570 how much TV was left in the 565?
Since May I have been consistent in making 1 to 2% on spreads(ICs) on AAPL and SPX. Trades are placed on Teusday or Wednesday.
Thanks for all the guidance on cushion and the timing of our trades.
HI all. It is Saturday evening and one last post and answer part.
--LOV; I use long and the longer the better. You are saying shorter term than I like.
City; You are correct, the real value comes when you are able to let all expire. Of the accounts i trade, many look somewhat natural until finally they expire and bingo big money.
ihaveo's; there are different situations but when the TV gets to 1.5 or 2 i start thinking of rolling. If the option is out of the money I will let it run, if in the money i start thinking of rolling.
There is probably questions I have not answered but other have or tried to help. But to sum it up i want to have a call option that is ITM and around 10 pts ITM (in the money) Keep doing that until the stock takes a breather and all expire worthless and you finally collect the money.
Tomorrow I will be off the grid and catching nice rainbows with my flyrod. You guys are in charge and keep the market under control. It will be a week before i even see the Greek results.
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