Sunday, June 24, 2012
Home again
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 help other others and either explain or de-mystify options.
Jerry
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79 comments:
Welcome back Jerry! Hope you left a trout or two for the Canadians. This DITM AAPL strategy seems almost too good to be true. Where is the down side? I'm guessing if the stock price plummeted, the sale of calls would get less profitable. Like that you are at 535 for the longs. I'm still at 565 and 570 so not much room. Might consider rolling down for fewer contracts if the stock price does not soon move up and away from my longs. Think earnings run should help if in fact it materializes this time.
I'm working the idea with one AAPL contract L and 530 bad have sold a few successful contracts over the past few weeks. But last week I rolled up and out from 580 to 585 - didn't get much additional credit for that roll. Seems that the downside is constantly rolling up and out yet not getting much for it? Granted the long is appreciating, but I'm looking for the weekly gains too- am I doing it right?
Welcome back Jerry! I thought you prefer to buy 10-15pts ITM instead of $30-$40pts? ($535) Because when you first bought it two weeks ago you bought the leap at 570 when the stock price was $581...not sure which strategy is better?
Also, I would like to ask you about what to do during the worst situation. Let's say AAPL hits 500 by Friday, then what are you going to do with all the sold ones expired worthless? Do you still sell calls around $490-$495 and milk the TV from premium (and hopefully not get assigned) or you just wait for it to go back up? Thank you!
Perhaps moving the bot strike down with proceeds from the solds is just another way of widening the margin between the bot and the sold? If the stock won't go up then lower the strike on the BTOs to allow for more room to sell premium. Seems like a plan.
Placed a few postions today
SPX 1260/1235 put .30 @ 1320 +60
NDX 2450/2425 put .45 @ 2554 +104
NDX is slipping a bit right now.
NDX Fri Am, SPX Fri PM settled.
Not touching RUT right now. Not enough puts open for my safety.
Might wait till tomorrow fro another NDX.
Hi all
First, I throw out different numbers at different times. Sorry for the confusion as I have multiple acc’ts. All are AAPL but this idea should work with any good stock that has decent premiums.
Regarding the question of where my strikes are – I have quite a few of the Jan,565 and this weeks 570’s. The 570’s have around 6 in TV for the last 4 days. I will let that TV get close (maybe 1-1.5) then roll if necessary or let expire. Assume AAPL drops to 560 this week I will roll down during the week to the 565 for the rest of the week.
For acc’ts that have the Jan-535 I opened them when AAPL had dropped to its low in the middle of May. I now have this weeks 570’s with them also. The nice part with having a low ‘long’ is that it will allow you to roll down all the way to 535 if necessary and make money each week. This type of option play needs adjusting often. So I keep a close eye on them and roll often during a week of volatility. The perfect world would have the stock go up about 3-5 per week, but who lives in a perfect world!. That slow movement would allow the long side to make more than its time-Val and also make you money on the short side each week. The idea is that with three different earning runs (jul-oct-Jan) AAPL should move forward and allow some good premiums with the shorts.
Also when I roll up to the next week and receive a credit, I usually use that to open more positions.
I missed last week’s volatility with AAPL. The person that was watching it said it was weird up and then down... Glad I was away..lol.
TAX, those look like great positions. I am out of IC’s and other spreads while I concentrate on these newer plays.
Seems like the weeklies do better when selling calls on the AAPL plan. This AM weekly TV was 6 and the July expiry was about 15 for 4 weeks.
Jerry, Do you ever leg in and out durning the week? I'm up $2 for less than one day and tempted. Could sell again on a bump later in the week.
The roll I mentioned was to avoid being called out - I was going let it expire Friday worthless but then Apple rallied late Friday past 580. I've never rolled down - I assume you're doing this as the short gets further OTM - but then you roll back up again as it gets close (like mine last week?) Or are you letting them get called out (dont think so, but you mentioned rolling down to your long price)
Sorry - these seem like dumb questions but just when I think I understand it there's another thought thrown in there (eg rolling down.) I assume this is only done when the stock is dropping and you close out your short, and reopen it lower
Jerry,
I can't seem to follow this new strategy very well, have been doing weeklys until the big Apple dump a month ago and have been nursing my bruises ever since. Is there any chance of an update to your e-book or a new chapter? Would glady pay for either.
Thanks
Dave
Michael the old saying the only dumb question is the one not asked. This is especially true while you are using your saving and financial investments.
1. No I do not let them get assigned. I rollout when it [TV] get down to 1-1.50. There is probably no danger of getting exercised unless the TV gets down to .25 to .50 but even then only if in the money
2. Rolling down puts money in your acc’t but still needs attention. You might paper trade these for a few weeks and you will find the ups and downs and how you can tweak them for some more bucks.
3. A point to remember is when the stock drops below your sold strike you have two choices.. leave it alone and let it expire. In that case lets say it is Thursday morn and the 570 strike has been sold and the stock drops to 565. Your 570 might have 2 in time value left in it but the stock can continue to drop and all you make is the 2 on expiration. Or you roll down to the 565 you might get 5. And if the stock continues to drop you make the extra 3 when those expire.
Dutch. I have not written a chapter yet on the ..In The Money Call Options.. But it is coming as I get more experience. Hang in there and it is pretty easy to get once you play with it some. Email me and I will send you some info on different spreads and how I trade them.
Jerry
Jerry, I have one position and need your feedbacks on this AAPL position:
bto 1 jan2014 570 @$105
sto 1 jun29 575@$11.1
I opened the position last week on Fri and now I make about $8 from my weekly and only lost about $4 on my leap. ($4 profit) Do you think it is a good idea to close both and take the $4 profit and open another position at a lower strike like $550 for my leap? The reason for this idea is that I want more protection for more possible downside on AAPL and if aapl bounce back the gap between my long and short will be wider, which is better. Or I should just wait until Fri and leave it alone and let the otm short expire? (assuming aapl stays at 572 by Fri) Thanks!
Placed the following this AM
NDX 2625/2650 call .40 @2558.40 +67
Fri AM settle. Figured NDX wouldn't move 2.6% in 2 days.
NDX did reach 2574 tho. Keep my eye on this one. Wanted to goose my weekly roi a bit. Isn't that how you get into trouble????
City; a couple of things. 1. my answer is what I would do and only time will tell the best way to go.
So first question, you ar enever wrong to take profits. But if I had the 1/14-570 strike i would keep it. The idea bing it has around 100 in time val and you have around 80 weeks to recover that by aapl going up or weekly income. I would let the TV evaporate today and tomorrow until it isw down to 1-1.50 and then roll into next week 580 etc. If aapl does not go up that's ok also as you sell the next week 570 again for another ?? If you did clsoe and take a lower bought strike say the 550, it willonly cost you around 12 to aquire the extra 20 pts in a lower strike. That is a good deal. It also allows you to sell a lower weekly if aapl drops some?
HOpe that helps and dowsn't confuse the issue to much.
TAX; yes as i am very familiar with that problem. lol
Tax: That is so true... one more trade, closer to the market but hey, it's only 2 days. That's how I usually get burned. But I really like your call spread with current downward bias. 1.6% ROI (.40/25) for 2 days is great. I'm going to try NDX next week.
I HAVE been very lucky on my weekly spreads. Before trying these things please give the following considerations that I use.
1. Wait till Mon/Tues to place put spreads to limit market exposure.
2. Look for deltas below 5. Keep a sharp eye if deltas go +10.
3. Place put first, calls on Wed/Thurs. When I get burned it always seems to be calls.
4. Look for a 1% roi per side.
5. Check cushion vs recent weekly moves in uderlying index. Is cushion enough for recent index volatility.
6. Make sure you have sufficient cushion at Thurs close for Fri AM settle.
If all goes well this week my roi on required maintenace will be 1.4%
I also have covered call programs on TZA, TNA, TMV and the AAPL leaps
When is Apple coming out whit there earnings reports?
Pascal
Yahoo Finance says 7/16/12
Pascal, Don't think til the 24th after option expiry. Won't be official til next week, Mon or Tues after quarter closes on the 30th.
@ihaveoptions Thanks!
Just rolled my Apple short jul2012 555 to jul06 560 and a short jun29 570 down to jul06 565
i have 2 apple long 555, one for jan2013 and the other jan2014
Jerry, You say you hold AAPL in different accounts. Why do you do this? Do you open an account for each new strategy play?
Hi Robbo, no these are different acc'ts i manage for others and myself.
Pascal; i also rolled most of the 570's for this week down to next weeks 565's for a nice credit of 6.25. Next week is a four day week with the 4th coming up.
Good luck all
Jerry, Any advantage to holding the 570's til Fri afternoon in hopes that they will expire worthless. Or maybe as I suspect it comes out about the same. Never hurts to book a profit tho so I'm wondering what's your take on expiry vs. rolling?
Looks like 8.65 - 2 = 6.65 if rolling the 570's to 565's at close today.
ihaveo's; yes usually better to wait when they (the expiring ones) are out of the money. two reason i roll a little early.
1. I have a busy day tomorrow and can only watch the first hour.
2. When aapl was down around 566/67 the future strike was starting to fall faster than the residual TV left in the expiring one.
I see AAPL made a little come back near the finish but as you said a profit is always good.
Thanks Jerry, Think I'll wait this week. Usually get so excited when the new chains come out I jump right in.
I have a newbie question? How does dividends affect selling puts and calls. And how does the thurs. expiration affect the indexes.
aapl is happy so far this morning. is it reacting to samsung or rimm? if the market goes up with the eu news, maybe aapl will have some go power today?
Does everyone see the futures this AM??? That's why you just got to love Fri AM settlements. Good thing the only calls I have are NDX with 88 points of cushion. When I get burned on spreads it is always calls.
Refer to item #6 on my 6/28 5:07AM post. I guess the EU solved ALL the wolds problems. Atleast for this weekend.
Henn and others. Go AAPL! Perhaps a good day to sell premium. It still makes me nervous to be too deep ITM so maybe the 575 is the call to sell today?
OK if the SPX index settled Friday AM, why are the 29th June 1265 calls I sold still showing a premium of 23 cents. Should I buy them back or just sit on it. Its only 15 points away and markey may get crazy in the next couple of hours.
Hospital
Here is the settlement rundown. It would make it a lot easier if everything settled at the same time. I trade SPX, RUT & NDX only.
Weeklies:RUT & NDX stop trade at Thurs close settle Fri AM. SPX stops trade & settles at Fri close.
So SPX 6/29 options are still trading.
Monthly : ALL index options stop trade at Thurs close & settle at FRi open.
Just did a lottery play on 6/29 SPX
SPX 1365/1375 call .45 @1355 +10
WILL Mr market go up another 10 points???? Time will tell
Hmmm. so the EU fixes the world and aapl goes up nearly 10. Oop's i rolled yesterday to the 565 for next week. so today i rolled these up to the same week 570's as i don't want to get to far behind the curve. It cost me 4.04 to get 5in spread difference. So around a gain .95 to roll up. Now it will be easier to adjust to next weeks price. No wonder my hair is getting grey.. lol
@ Jerry but that means that you have only $2.17 left in TV. Is that enough?
DITM AAPL strategy: So I rolled from 570 to 575 even money gaining $5 in spread difference. I'm trying to get my mind around this but seems like I gained $500 per contract tho not cash in the bank. So where does this go from here? Hanging on, watching and learning (as somebody famous once said) and hoping a little too.
I want to make sure I do it correctly..I also opened another ITM for GOOG last week:
bto 1 Jan 2013 550 @ $54.8
sto 1 Jun 29 555 @ 10.70
Yesterday I was still making money on the short but today GOOG went up a lot and I lost $12($22-$10) on the short so now I have to roll to next week. Should I roll to July 06 555 for $22.6 (only 0.6 in TV) or roll up more to 570 for $10 with more TV? ($3 in TV) GOOG is at 577 now. This is the first time for me to roll with my shorts in negative so I would like to do it correctly for the first time. Thank you!
hi pascal...which strategy is.workin out best for u.are you finding spreads better in long run than your straddles on the dutch index
Why do the options around the 570 strike move at around 50% of the stock price when the listed delta is around .75? Just wondering
Is anyone familiar with Chuck Hughes, he has a full page ad on IBD and a web site to follow trades. Has one of those too good to be true ads.
Tax, how did your lottery play shake out? 4.5% for a few hours of exposure. SPX closed with a few points to spare, if you had the nerve to hold until market close...
Will this itm strategy work with SPX as well? I made the mistake of not buying back the short end (or closing the entire thing) of my JUL 6 1360/1370 call spread on Thursday, when it was fairly reasonable. Now it is itm and I am planning my next move. Does the roll up to say 1365/1375 game work with SPX? I have found that SPX can get funky on fills sometimes, it's like the pit people can sense your desperation and just f with you for the fun of it. Or maybe that is my imagination. I only have 4 going, and I've read that smaller numbers like such are easier to fill. Thanks for any guidance.
@ luvtpa27: Chuck Hughes Ripoff Reort:
http://www.ripoffreport.com/investment-brokers/chuck-hughes-inner-c/chuck-hughes-inner-circle-chu-d2fww.htm
Report*
Glenn
Saw the rally going into the close, didn't want to take any chances. Closed the 1360 short for .05. Netted .40 less comish on 10 contracts. Got lucky. Gave me a solid week on my spreads. Lets see what Mon/Tues gives me.
Nicky - good to see you posting agin.
Kuaui - you still out ther???
I wonder what happened to Yahoo options data? Some strikes show two rows. For example AAPL 585 7/21/12 Call looks like this:
AAPL120721C0058500
AAPL120721C00585000
Notice that the first ticker is missing the last zero. Is it's just a bug introduced by some $12 and hour oversees developer? It messed up all my analytics.
Getting a little nervous about the short leg on the DITM strategy. Looks like AAPL is read to run. Is it possible to move up far enough on the short call to get a strike that will expire worthless?. Is it possible to always roll up and out for a credit? How high will the stock go? Just Sunday night fear and caution I guess.
@doctorali Don't know yet, i am still testing the DITM strategy and have to let them roll for a couple of monds. The AEX options are great but you need to watch them more than the DITM apple plays
Have Ops
I don't know how DITM you are but with aapl volatility, I would expect there will always be TV in next weeks options. You can always go out to July monthlies. Problem you get into is the DITM you go the less TV you get. I had that happen this week on TNA weeklies where I was short the 48's, TNA closed at 53.84. There was no time value in rolling out so I let it get called.
Thanks Tax, Things look a little rosier this AM. Think this Friday is about two weeks out for earnings and probably a good time to roll to the July monthlies.
PS My longs are 565/570 for Oct and Jan. My short positions are all at 575 for this week, 13 contracts total. Sure hope this strategy works!
Just rolled my Apple short jul6 2012 570 to jul20 2012 575
Gain: $5 and paid $1.15 for it
i have 2 apple long 555, one for jan2013 and the other jan2014
Earlier this AM Rolled my 575 July 6s to 580 July 21 for $2.50 credit, grossing 2.5 plus the 5 roll up=7.5 for about three weeks which keeps me on course for for 2.5 per week. We'll see, huh? Gonna be on the road this week and was nervous about not being able to watch closely. Happy holiday....don't melt!
With aapl climbing, this must be the day to roll up & out. Just did 4 7/6 580 into 7/21 590 for .50.
Hope it stays up there so I can unload my Oct 570 for a nice profit on the earnings play.
Looking for my usual weeklies. RUT doesn't have enough strikes open to suit me. I hesitate on SPX due to possible bad jobs report on Fri. Struggling with NDX but placed 2500/2475 puts .20 & .25 in the 2615-2620 range. I guess no prmium due to VIX and markets closed on the 4th.
Noticing how SPX can't get above that 1360-1362 resitance level. I think we get a selloff into weeks end. Bad data today, Jobs, what Jobs.
Here's the official word on AAPL earnings:
http://investor.apple.com/
Sometimes I make a good move. i have been holding my aapl long alone. I closed my short from last week on the dip. I was going to open a new short, but didn't like the premiums. I considered buying more longs actually, but considered it too risky. I have a mental target of 630 to close my long, I'll have to think though. Right now everything is pointing go time for aapl. It appears ready to head north. If it dips to 585, I may get even more bullish. We have broken over a fairly stong resistance line with very good volume. 585 is now the resistance line. if aapl goes down to 585, it will most likely bounce up again. we're going up into earnings now right? aapl is currently ignoring what the overall market is doing to a degree, perhaps it is just reacting with extra volatiility. i am very tempted to go strongly bullish, but am trying to be reasonable. I might buy a call to hold over earnings. but if aapl goes too high into earnings, I will close. just thinking out loud.
Henni
See if you can use what is called a trailing stop. Supposedly the stop will trail up with the value of the call. If/when the call corrects a certain %, the trailing stop will sell the call for you. That way you benefit as the call increases in value but will lock in a sell at a certain value on a % drop. You might have to call your broker to see if it can be done.
Thanks Tax,
I might see if aapl will get over 610, and then set a stop at 600. I really think aapl has the potential of popping to 650 before earnings. If it does go to 625 though, i would like to lock in profits. maybe i;ll sell half at 625, if it gets there. july has been a good month, esp last year. will it do it again?
The way I see the DITM strategy is that by not selling against the long position, you are forgoing ROI that could be realized as you wit for the earnings appreciation. The short doesn't really affect the performance of the LEAPs, they appreciate at exactly the same rate so you are getting that profit as well. Of course, this all assumes that at some point you can get the sold positions to expire worthless, but I think there is usually a pullback after earnings that might allow for that. And of course, by selling against and holding, you lose or diminish the ability to cash out of the longs at July earnings
Jerry .. love your book , love this blog, but am behind in my educatio! emailed you a couple of times. No response ... want word version of book and new chapter and info on spreads, etc ... if you can. Keep up the good work
Tax:
Still here. Been on the road... Indo and Thailand. I closed out that bad AAPL spread I had from April. Net loss about 3.40-- better than $5, but still a bummer for 20 contracts.
I'm all cash right now, have another trip on Thursday for a couple weeks. Gonna get back on the horse in August. Good luck everybody!
Jerry,
I've started paper trading your AAPL ITM strategy. Om Monday I "sold" 7/6/12 590 Call. By market close on Wednesday most of the TV licked out and it was time to roll up and out. But the next week's options are still not available. Would you wait till Thursday, or you would roll it to 7/21?
aapl stills needs to price in the 22.5% earnings surprise from the first quarter of 2012. This gives aapl a price target, ignoring everything else for simplicity, of 686. my prediction is that buyers are assuming that aapl will at least confirm earnings in the second quarter. we are likely to see a scramble to price in the first quarter earnings before second quarter earnings comes out. I put a price target of 686 on aapl by the earnings report this month. If aapl reaches or exceeds 686 by then I would sell aapl (not go short, just sell my long position) before the earnings announcement. If aapl is substantially below 686, like 636 or less, you might consider going long into the earnings report. I am long aapl now, and intend to be at least until the july monthly options expiration. any other thoughts, or alternate opinions?
Thanks,
Dave
happy fourth of july by the way, and if you are a veteran, thank you.
other random thoughts:
-seems there is a lot of relief that the eu could come to some sort of agreement, even though they have a lot of issues
-aapl just closed above the top bollinger band for the first time since march 13, at which time the stock went up over 60 points in 3 weeks.
-the macd lines just crossed in positive territory, signaling bullishly
-the stochastics and rsi and not high like they were on march 13, showing there is strength but room to run.
anything could happen, but this looks like as good a place as any to go very bullish on appl. just my opinion, lets see what happens, I wrong at least as often as i am right.
@Dave I totally agree!!!!!!!!
@Dave-- if AAPL zooms up its fabulous for the long, but hurts the DITM shorts-- thinking about rolling mine way out to save the premium. I've decided I dont like to keep rolling and rolling hoping the stock will go down so I can cash it in...
Michael,
Yeah if aapl goes up fast that will take some adjustment for sure with the ditm method. Still not sure I understand that method though, but I suppose every stock must come down to at least say the 50 day sma to take a breath. Then you get a chance to readjust your position.
I do get nervous about something happening to gum up the strategy. So I am less than 1/3rd in aapl and the rest is in cash. If things fall about I get smacked, but I can get on going with the cash. Also, I think I will let aapl get solidly over 600. If that happens, I will set a stop around 600. I may go just under 600, in the hopes buyers will be found at 600 being a nice round number. I don't think i'll use a trailing stop, as I want to give aapl enough room to be volatile.
Thoughts on this trade I'm thinking of doing Thursday.
Sell July 630 put 32.45
Buy july 620 put 24.50
net credit 7.95
maximum loss 2.05 after credit
With the stock expected to run to earnings is this a realistic trade or am I too bullish on this? Opinions?
Hi John,
I'm tempted to join you, although I feel I have enough risk already. Your breakeven point is around 622. Maximum gain at 630, risking 200 to possibly make 800. 622 and 630 are only a stones throw away. Thanks for the idea.
Dave
anybody following nflx right now (damo?). i am expecting another bad earnings report. i may take a short position if nflx get to 80 or so before earnings. i'm still very down on this stock.
John, Pretty aggressive but I like the idea. Pretty good prospet that AAPL will be there by earnings.
Dave, You are up early!
Jerry, Do you ever worry about getting out of those shorts, your positions I mean?
AAPL has been on fire and I probably have to roll again from my July monthly to Aug monthly cuz my 585 short's TV is down to 3.5 only now. Anybody plans to row again? I probably wait until TV gets down to 1...but aapl is just too fast to catch up...
City, I think the TV will hold up 'til we get closer to July expiry. Hope so anyway. Wouldn't you know it, I'm on the road and can't watch as closely as I would like. Wish there was another option chain before Aug.
IHO,
Yeah I was up pretty early this morning. I am tempted to open a short now on aapl (I would open one short for each 2 longs I have so aapl can't run away on me). Then if it drops back to 600, I'll close the short and let my longs run. The current trajectory is not sustainable in the short term. Of course, aapl may go sideways a bit, or slow down and let the bollinger band catch up. So I imagine I'll stick with my original plan, unless aapl really surges hard, like 20-30 points up or something tomorrow.
Hello,
I like this strategy. But I have one question. When you roll up and out, do you sell call of higher strike or the same strike price.
In your example you bought AAPL 535 call and current price is 600. So you sold 595 weekly call. Now on Friday expiration day, you are rolling up. Stock has moved to 615. Now do you sell 595 call again or do you sell 610 weekly call.
Appreciate your help and reply.
Thanks in advance
Nobi
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