Saturday, June 16, 2012
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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48 comments:
Jerry da man! Thinks of us even as he heads out of town. We will carry on somehow!
Man this has never happened before. About 1:30 CST Friday I did a covered wright on AAPL bought stock at 570.30 and sold Fridays 570 calls for 1.20
I had already sold 565 puts near the open so I had positive P/L to work with. near the close I rolled one call to next Weeks 575 for 7.00 and kept one 570 call.
It's now 8:05 CST and I still have the stock. A fore dollar in the money call not exercised???? Ya Baby as lone as AAPL opens up that is...LOL
I still have my concerns about the ditm method. If I understand correct, the idea is to have one short call for every long call. the short call is short term, the long call is long term, and both are at about 10 points itm. this is a bearish position as the maximum profit is at the strike price, or 10 below the current stock price. if the stock goes up, then you roll out to the next week, at the same strike price. now the position is even more bearish, as the max profit is still the strike price, and the stock price is even higher. sorry if i just don't get it, but gamma seems to be an issue, as well as the net negative delta.
OOPS rolled one of the 570 to this weeks 575 for a 3.51 credit it was trading for 7.51
Never did get called and I sold 100 pre market 572. OOPS again but still 200 more than I should have had.
AAPL went up today, so for the DITM method, do you immediately roll the jun 22 call today or wait until Fri? Thanks!
By the way, just opened a new position today and try it out:
570 Jan2014 call $110.32 (+1)
570 Jun22 call $15.4 (-1)
Please give me some feedbacks for this rookie trade =)
City, I hate to say this, but you need to understand an options position before you place it not after. I don't usually trade DITM options but in your first post, I would wait until thur/fri before rolling out to 6/29. For all you know aapl may tank just as easily as go up more. You want to let as much time value leak out of the option as possible. With DITM options your weekly "profit" is time value unless the underlying stock tanks back towards your strike during the week. If aapl really goes DITM, make sure you HAVE time value left in the option or else you run the risk of an assignment.
As for your second post, it looks OK as long as you realize that the 6/22 570 call of 15.40 is made up of intrinsic value which is the diff between aapl current price less the strike, and time value which is the value of the option less the intrinsic value. Time value is what you are profiting off of in ditm options.
@taxman, thanks for the feedback. During the first post, I thought it would make more sense to let the TV leak out as much as possible by Thurs/Fri, but I wanted to double check first. (I haven't opened the position during my first)
Now as I already opened the position, I really started to understand more about this new ITM strategy. Now the weekly has gone up to $17.5 and basically I will wish the TV to leak as much as possible until thurs/fri and hopefully it can be below the $15 that I sold. By then I have to roll out to next week as well for more premium...I think I get it.
City: At 17.30 where the AAPL 570 for June 22 closed you (and me too on one of my positions) have the following: PPS closing on AAPL 585.78- $570=15.78 in intrinsic value. 17.30-15.78= 1.52 in Time value. Jerry says in the above post 'there are different situations but when the TV gets to 1.5 or 2 i start thinking of rolling.' Since the new option chain for next week doesn't come out til Thurs, if we want to roll, our only option is for the July 21 expiration and the highest strike that allows for a positive roll is 585 for 17.75. So if AAPL looks up again tomorrow, that is where I will look. Remember that at 570/585 you have locked in the difference in strikes, or $1500 per contract and you are netting the approx .30 credit as well. These numbers will be diffident when the market opens tomorrow, of course but the idea is the same. I might go somewhere in between like the 580 for a little more credit. We will see what the day brings but it seems AAPL an easily move up or down $15/day. Hope this helps, anybody else want to chime in?
ihaveoptions, thanks for the reminder. I believe aapl will have a good run before the fed on weds. Today I saw the 570 call went up almost to $19 when the stock was 587 so the TV might be staying between 1.5-2.0 tmr. If TV gets below 1.0 I will def roll to avoid assignment.
aapl is ready to go again. it broke above the 50 sma and the upper bollinger band on good volume. we have earnings runup which has been dependable. there is nothing technical holding it back now.
City, Hate to sell those Julys but don't like sitting at $1 TV. What you gonna do? Don't know if we'll make it to the new option chains on Thurs.
ihaveoptions, actually I want to wait until the fed announcement on Weds since I think it will be a "sell on news" day and aapl may go back down after that. It surprises me today that aapl didn't go up as much as the rest of the market.
I don't worry assignment as much actually because I only have 1 contract and the worse thing is to buy the stock if ppl really want the stock @570. The loss will be the same as b2c the option. As of now, if I b2c the 570 option, I will lose $3.3 ($18.7-$15.4) vs if I got assigned I will lose $2 something (587.5-570-15.4)
But if you are on margin and don't have enough cash to buy the stock, I strongly suggest you roll today. Good luck!
My understanding of assignment is slightly different. There is a 24 hour 'grace period' after assignment in which you can buy back the shares you were forced to sell (so not necessarily even a loss).Sometimes you can actually buy them back below where you sold 'em if the market drops a little. So I'm not too worried either. Did roll in one account 3 contracts only to the July 385 call, with a net .75 credit. Having a bit of a challenge figuring out if AAPL up, rolling spread out and up will increase, decrease, stay the same. Too many variables for my feeble mind. Like where I ended up tho. Not in a hurry as I believe there will be a run up to earnings in July then the usual post earnings drop. How far is anyone's guess.
I personally believe that the 50 sma still has a hold on aapl. It is poised to break lose for good though.
Hey Taxman,
I signed up for a free 2weeks at mike parnos.com.. Seems to be a straight forward and honest guy . I have been reading the older columns. Does he send you an email alert on a trade. Or do you see it at night, and try to adjust the next day. Seems like I would be playing catch up trying to adjust my trades..
Thnx
Thnx
B1moo
Mike is probably one of the most honest straight forward tell it like it is guys you will ever meet. I have followed him for 7-8 years. Taken his trade seminar 2x. That is where I learned the most about credit spreads.
Mike sends out emails over the weekend, Wed & Fri mornings. His primary trade is ONE monthly iron condor. He has other suggestions on directional trades which he gives very unusual names, but he is primarily a non directional trader. He will only give you that one monthly IC suggestion. I have used the knowledge gained from his seminars for my weekly index spreads. His newsletter is a good referrence, but he won't be giving you lots of trades.
b1-Tax URL for Mike Pamos please?
Have Ops
www.mike-parnos.com
Please note that Mike only recommends ONE IC per month. His value is in teaching you HOW to place spreads. In particular read his educational articles. It starts from "what is a call" to more complicated option positions.
I wouldn't mind starting from the top once again. You just can't understand all the nuances of this stuff the first, second or third time thru. I tend to learn better with skin in the game, but the lessons can be pretty expensive. lol
@tax
Is mike's book worth the read? Does he have his educational articles in it or is it only on his website?
Sunil
Mike's book is very basic. I have it along with his seminar manuals that I referrence periodically. Truth be told, I rarely use his site because I usually email or call him about questions. Mike is VERY accessible(sp?) and he will tell you that when you subscribe.
I would sign up for his 2 week offer, review the 17-18 articles in the educational section, print out what you want as referrence and take it from there. I still sub to his newsletter as I do others to just get another perspective.
To all
Would like feedback on the aapl covered leap trade. I am short this week 585. It was placed last Fri when aapl was 570 with the idea of riding aapl up into earnings. Well aapl is 585 now and I want to roll to next week. My plan is to roll up to a 590 or 595 hoping aapl starts to move up and let my leaps gain value. BUT, in reading some of your post, you are selling calls ATM or slightly ITM to get a better weekly premium. Are most of you grabbing the gusto now in liew of your leaps increasing in value?? because no one really knows if aapl will get to 590/595 by next week.
Tax, Maybe jumped the gun this AM but premiums were attractive. Stayed with the 580 for next week. Net premium=3.90 Don't know of course where AAPL will be but still expecting a little pullback before earnings run. If not, I can roll up and out one week or out to July 21 (just pre earnings). Historically AAPL sells off after earnings so there is a chance of shorts expiring worthless a week or so after announcement. Still trying to see how this works. You always admonish us to fully understand a trade before we enter. Guess I'm a little shaky on this one.
Looking at Jerry's hypothetical calculations: is he missing the cost to cover the rising cost to close those weekly short sales? This would be a net cost of 130 points once AAPL gets to 700.
For example (using Jerry's example), with AAPL at 581, sell the June 16 570 call for 14.25. AAPL then moves to 590. Cost to close is 20 leaving us with a net debit of 5.75. This then accumulates all the way up to a net debit of 130 when AAPL gets to 700 (700-570). Leaving a net gain of 225-130=95 over those 77 weeks. If it gets there in less than 77 weeks then the gain will be lower, and it will be higher if more than 77 weeks - the cumulative Time Value.
Please tell me I am wrong here? Like others, I am trying to understand this.
Needed to get back into the swing of things, STO PH Jul 21 $75.00 Put for $1.60, high ROI, about 8%, stock is currently @ $77.33, let's see if this backfires on me.....
Robbo_I think how he envisions it, you keep moving your strike up as the stock goes up. At some point the stock trades off below your current strike and the accumulated negative premium expires worthless. Now how's that for positive thinking? We all know that even aapl doesn't go up indefinitely.
I rolled my 575 short to 580 next week for a small credit. aapl is hanging in there and fared better than the market today. A good push over the 50 sma could get it going again. That is my thinking right now anyhow. There are those that think the recent rally is not going to continue. I think Cramer calls it hopium. There are issues in Europe and our economy is not looking so great anymore either. The technicals are telling me "time for a break" as well. I expect some more sideways movement before a breakout. In other words, I have no idea what's going to happen. My position is very bullish though.
Wondering about the wisdom of legging in and out of the short position on the DIM trade. Today I sold the 6/29 580 call for 11.80 and it closed today (i.e. I could buy it back) for 6.63. If the market continues to drop tomorrow, I might BTC and leg back in STO on a pop Monday or Tues. The worst that could happen is that my long remains uncovered in a downdraft. Wouldn't mind if it were unencumbered in a rally toward earnings but that is not exactly the plan, is it?
ihaveoptions, I feel the same about aapl but I think this ITM strategy has lower risk than other spreads as long as you have confidence in apple that it won't go down too much. I got burned today from my SPX vertical spread...just thinking about switching the focus on this ITM new strategy for a few months and see.
Today I rolled my 570 to jun 29 575 for 11.75 when the market was soooo nasty and I earned about $6 from the jun22 premium but my leap lost about only $5 so it not too bad. I think the run for aapl ER should start by July..fingers crossed!
Another Fri AM settle. Nice to see green futures. SPX, NDX, RUT spread program still working altho a little heartburn with Thurs drop. Sold put spreads Mon PM & Tues AM. Sold call spreads on post FOMC pop. Got a little nervous Thurs when NDX closed within 30 points of my short. Still need to watch SPX. I'm short 1300, index at 1325 support. But with green across my screen, should be OK. If all goes well will have a +2% week.
Will roll out aapl today, and wait until Mon to place new spreads. Hope for the usual ramp into quarter ending window dressing. Will see what Mr Market gives/takes today. Economics not good.
IHO,
I tried legging last week a little, but decided it wasn't a good idea. It is just too hard to find the highs and lows. I can see an argument for aapl doing a lot of different things in the short term. There are so many mixed signals in the market right now. That is my thinking right now.
City
What happened with your SPX spread.
When did you place it and where was your short strike. Was it a weekly or monthly. I placed SPX put spreads on Mon/Tues. Shorts were 1300,1295,1290 & 1270 when SPX was in the 1250/1255 range.
Hey tax-
I had another good week with selling naked strangle 610/540 AAPL. I want to move into spreads(Need to sleep better.haha), but its difficult to find good bang for my buck. Cant get a decent fill. Any thoughts on how I can improve
B-moo
What is your target? Mine is apprx
1% per week. On RUT, I usually use a 10 point spread and look for .15-.20. On SPX & NDX, I usually use a 25 point spread and look for .25-.30. I also look for deltas below 5,
will place put spreads on Mon/Tues and calls on Wed. I only use those 3 indexes. I also try to get enough cushion to far exceed recent weekly moves in those indexes. Incredible success April thru June not one losing spread.
Rolled my aapl 6/22 585 calls to 6/29 for a 4.00 crdit. I find trading options during amateur hour garners higher premiums. Couse aapl was positive then.
Tax - another great idea I wish I had thought of! I usually wait out amateur hour just because that's what I had been taugh - but you're right! My premiums on my rolls today were not what they could have been if I had handled it earlier today... Oh well sometimes the good ideas are right there in front of you. Another reason I love this blog...
I have heard diffrent answers on how roi of 1%-2% etc are calculated, What is the best rule of thumb for calculating roi?
tax, I was so wrong yesterday that I opened the spread in the morning @ 1325/1320 thinking that the market would be flat (S&P was about 1351 in the morning) I always open position on Tues or Weds morning, but this week I couldn't find any good premium on tues/weds so I thought SPX would not move over 2% in one day and yesterday the market totally shocked me on news that wasn't really that bad. Totally wiped out all my gain from my last 3-4 months on vertical put spreads...I have been very very "behave" for the last few months that I always open with tons of cushion with small premium (0.05-0.1)
But it is good that I got burned yesterday so I will never break my rule again. Greed is always your enemy...
I do want to ask you guys about when is the best time to open your position if the market is flat or up on Tues/Weds..I find it hard to find something decent even with 0.05 because the puts premium are not doing well. I guess if I don't find anything during the week then I should just wait until next week...don't ever FORCE ANY TRADE
LuvPa - On spreads, I calc roi based upon the maintenance held on the spread. If I'm doing an SPX 10
contract 25 point spread, 25K is my maintenance. If I net 250 after comish, my roi is 1%. On covered calls like aapl, if I net 400 and my leap cost me 10K my roi is 4%
City - you gotta get a feel for the market. This week, I held off due to Greek vote and FOMC. I saw the drop after the open on Mon calced the probability of the market tanking whatever % thru Fri AM and went for the puts. I wasn't going to place calls because I usually get burned on calls, but when the market had the snapback rally after the FOMC, I again calced the probability of a market move and decided to place call spreads on RUT & NDX for a 1.5 day exposure. I also was surprised with the Thurs selloff and was worried for my short 2425 NDX and 1300 SPX. Ndx worked OK, but when SPX got to 1325 with Fri still to go I got nervous. I figured the prob low of another 25SPX/250DOW selloff on Fri but was ready to close at the open if futures were red. It really hurts to make a trade for peanuts and end up losing months of profits. I don't know if there is any "best" time to open anything. I work primarily on deltas and probability of a market move of a certain % over the number days exposed. Then I pray.
thanks tax
I have a question for TOS users. For every option TOS shows OTM Probability. For example, for APPL 7/21/12 640 Call it shows 94%. 640 is about 10% above current price. I wonder how they calculate this. A simple standard deviation of all 28-day price movements over the last 12 months is 10.5%, which corresponds to 67% probability.
Alex Good question. I know its is roughly the inverse of delta, but how either or both are computed is 'greek to me'.
Alex, don't know how TOS calculate it but you can calculate it yourself by seeing what you would get for selling a spread using the 640 as your short option, example:
Based on last prices, AAPL July 640 call shows 1.04, the 645 shows 0.77. If you sold that spread you would receive 0.27. So your total risk on the trade is the spread of 5.00 - 0.27 = 4.73. Divide your total risk by the spread, 4.73 / 5 = 0.946 so 94.6% probability of success.
Damo.
Hey, I'm home and had a good time and ready to get back into trading. Ihaveo's, your post of 6/21 @ 1:12 was correct.
There is no 'sure' way to trade options. But turning the odds in your favor is the best way to make money that I have found. Regarding some confusion of DITM options. (deep in the money options) The plan is to buy a low strike far enough out and sell a near term option a little below the current stock price. As you roll up, if the stock goes up, you create a difference between the bought and the sold option. In two of the acc’t I manage, the bought is now the Jan 2013, 535 strike. So assuming AAPL continues upward somewhat towards earnings I will be rolling up 5-10 points a week or even having to jump into the next month. I will continue to roll up and out and get a bigger and bigger spread between the two strikes. Come Jan I want to close all and if the stock is at 700? I can sell the 535 for 165 points. Let’s assume that I have only been able to roll into the 650 strike for the sold one. I will have to buy it back for 50 points. That means that at that time I will receive 115 points of credit. That does not take into account each credit I received when rolling. If AAPL only goes to 620 by Jan then I will get 85 points of credit and also have the credit of the roll ups. As Ihaveo’s mentioned AAPL (or any stock) does not always go up. So if one set of these expire without rolling then you get to keep the credits and start over.
I see I missed an interesting week FOMC, Greek and Egypt elections.
So let’s get back into trading and see where we go from here.
Some great post and questions. I hope all are learning and enjoying as much as I am. I thank all that try to other others and either explain or de-mystify options.
Jerry
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