Saturday, June 2, 2012
Well this was the week from hell for the market. My trades went fine as I look for little profit and lots of cushion. I hope all of you have had the same good luck. The difference between us (cushion addicts) and the rest of investors, especially option investors is that we go for consistent lower returns. We expose ourselves to little time and we leave lots of cushion. It is that easy to make 1-2% a week.
After 5 months the DOW is about even and the S&P also. Friends, it is that easy to beat the market. But it takes discipline and a plan. Step by step and profit by small profit you can beat the market.
I enjoy all the contributions by you guys. It is fun for me to see new ways to trade these options. There are so many ways but most successful ways limit time and add cushion. Good luck all
Jerry
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82 comments:
1. Stick to a plan
2. Limit time
3. Add cushion
These are the best tips someone ever gave me in trading and afther i started practicing what you preach i saw constant returns
Thank you Jerry
Thanks Pascal for the nice words. Now if we can get the market to behave a little better we can all retire in the Bahama's
Jerry,
You used to post your entrys and exits. Can you start doing that again?
Hi all, First post here. Just read this article on Seeking Alpha about trading options with "little" knowledge. The main point of the article is that there are no simple or systematic strategies that work for trading options. Although I haven't started actual trading based on Jerry's strategies (I'm still in the practice phase), I'm assuming that most here would disagree with this premise??
http://seekingalpha.com/article/629681-options-trading-a-little-knowledge-is-a-very-dangerous-thing?source=feed
Taxman, where do you find the friday am cash settlement prices for the ndx & rut?
Thanks.
Hi Pacal,it seems like with this daily options one cannot have a loosing week if they are trading using straddle.i hope dutch do not cancel the daily options like here where they are thinking of changing weekly to monthly.Do u know how long has the daily options been on the market.
@Jerry
I'm interested in what you are doing with your calendar spreads. Are you still running those right now, or are you selling naked puts far OTM?
@ Doctorali
I do not use daily's for the straddle because a lot of times the AEX dos not move enough during the day, whit the weeklies and monthly however you get a bigger chance. I only use them when the volatility is high like now whit Greece.
I only use the daily's to sell them on the straddle.
The dutch are not thinking about stopping whit the daily's because they are a big success. The daily's started on march 2008. Why is the US thinking about stopping whit weekly's?
@cliff
Try the below link for settlement values
http://www.cboe.com/Data/WeeklysSettlements.aspx
I am looking at Selling the 195 AMZN and the 380 CMG . Anyone else have any plays?
hi pascal,correct me if I am wrong I think u buy monthly or weekly call and put and then sell daily against them.how long jave u been doing it thanks
May has been my best month yet, as I had transitioned to mostly call spreads. Made up for an awful 27APR week where stupidity and non-action on my part caused a less than 1% weekly loss turn into a 10% loss.
@b1llmoo keep an eye out on AMZN, starting July 1 they start collecting taxes in Texas. That is obviously going to affect sales. Nobody knows how it will affect the stock's price but it is something to keep in the back of your mind.
B1llmoo; For me, I would not use those strikes. You are giving only12 points of cushion with AMZN ?? It can move that much in a day. If I were determined to use amzn I would do a put spread using the 170/165 strikes. You can still get 1% & an 37 points of cushion. I also would not use the CMG strikes you are thinking about. Those only leave 17 pts of cush. I try to caution traders to be very careful at all times but especially with the world in a mess. We have Europe, Syria, Iran and our own debt problems all coming to a head. This is the time to be VERY cautious.
Kauai; I do have an AAPL spread with the Jan 565 and weekly that trade around 10-15 over the current price. I am doing lots of Iron condors with spx, aapl, and goog. With spreads (condors) I try for 1.5 / 2% a week. So far so good. I will start posting my entry and exit points from now on.
Sunil, thanks for the site.
Cliff
AAPL is always interesting for put sellers after it falls 20 points or so and the forecast is relatively bullish
Pascal, thanks for the explenation on your trades, when I get some time I'll have to have a closer look at them, trade 2 looks interesting.
SumGuy, I had a read of the article you linked to, sounds like the author failed at trading options so assumes no one else could make it work either. You only have to look at this blog & fullyinformed to find a couple of examples of retail investors making consistent returns with options.
Damo.
I'm looking for aapl to get to the 50 day sma of 542. I may get in at that point, not sure yet. Please stop discriminating against robots.
Henn, You got some relatives that are robots?
But seriously, why do you pick the 50day sma? This level lines up with some pretty serious T I've been following but much easier to compute.
T=TA now I gotta do the robot thing again
Hi IHO,
Not sure I followed you. What do you like better than the 50 day sma? I'm looking at the 50 day sma because AAPL bounced off of it before at 530 or so. I do have concerns that we may drop under the 50 day though. The slow and fast stochastic show an overall market drop could push aapl down sharply again. Buy yeah, I think a lot of traders are watching the 50 day as a potential entry point.
Robots are people too.
I have been toying around with data I got from ivolatility. You can download complete end of day option chains for cheap. I got daily chains for TNA for the past eight or ten months for $3.66. I'm looking at back testing my current strategy to see what happens. I am also interested in charting IV vs. HV on the weeklies to see how much higher IV tends to be.
The current trendline for aapl would have it testing the 500 level in the next couple of weeks. If this happens, I will almost certainly go long in some manner.
Hi all; thought I would mention a guideline line i use for spx trading. I use as a 'rough' idea, the spx moves on a bad day around 20% of the dow. This is the cushion i start with. More is better. As time leaks out i adjust some.
ex; today with the dow around 12090 and i want 100 pts of cushion with the spx, the dow would have to drop 500 pts to equal my 100 pt of cush with the spx. I am looking now at the 1170/1175 put spread, but will wait until Tuesday or maybe even Wednesday morning. I have never been one to watch the 20or 50 or 200 day moving average. To me it is like 'the resistance line.' Those all work until they don't and then the big boys just pick another level etc. But it is a tool many like and use?
first time poster, thinking about doing naked puts with margin on goog about 100 points below current price. looking at the monthlies. the july 470 is going for 4.10. would close if the price doubles and probably roll out and down. just wondering your thoughts. thank guys.
Hi Nev,
What I like about the monthlies is they don't double as quickly as the weeklies do (due to a smaller gamma). You have, therefore, a larger margin of error in picking your entry point.
I promise I'm not a robot, but I do need deciphering glasses, wow, I'll try again.
Jerry: Do you ever use call spreads,even though you would be closer to the underlying price but you are going the same way as the market and collecting the same premium, just curious?
Cliff
Jerry, Don't quite get the 20% guideline. Elaborate please or ignore if I seem too lame. Guess 100 points of cushion on the S&P is usually sufficient?
Not crumbs and not for every one but still interesting.
http://www.youtube.com/watch?feature=player_embedded&v=cXy9HoWX0es
I_have _options
the abovr story is selling 5 delta on the SPX on the flash crash of 2010 the 5 delta was 45 at the end of the day. 100 is suffcient till it's not..LOL
RBW Great video, glad she made it. Ya but how?
Ihveo's; another way to say it would be for every 1 poiint the S&P
drops the dow has to drop 5 points. Therefore a 100 cush in the S%P means the dow needs to drop 500 points.
Cliff; Yes i nearly always use call in combination with put spreads to turn it into an iron condor. As said before, the beauty of an iron condor is only one side needs maintenance. So that means one side is free money.
Nice to see AAPL and GOOG move a little north. They must have reached resistance.. or stayed in the 20 dmv...lol
Jerry
@Hengiss
What are your thoughts on TNA? Seems to me there's something there but cant put my hand on it - seems awfully volatile but the premiums dont reflect?
THANKS
Mike
Hi Mike,
Yeah tna has about 3times the volatility of the russell 2000 using derivatives i think. If you compare the hv with the iv i think you'll see that the option prices do accurately reflect the high volatility. The problem with 3 times index etfs is that if the tracked index falls fast enough, the 3 times etf will go to zero, or close to it anyhow.
Ok really what is that picture below?
take two...
Hi Mike,
Yeah tna has about 3times the volatility of the russell 2000 using derivatives i think. If you compare the hv with the iv i think you'll see that the option prices do accurately reflect the high volatility. The problem with 3 times index etfs is that if the tracked index falls fast enough, the 3 times etf will go to zero, or close to it anyhow.
Ok really what is that picture below?
take two...
I must be determined, take three...
Jerry,
I don't believe that moving averages control stock prices in any way. They just help me better visualize the current trend of the market. You can't put too much stock in anything.
Ok, that symbol is not even on my computer, what is that chinese?
Take aways from RBW video cited above. Use indexes (SPX RUT NDX sounds like Taxman) and fight for premium i.e. never give it back. Look at the situation and see how you can manage the trade to salvage. Roll up, roll out whatever. Wish I knew more about that part. I tend to just give in and buy back incurring small loss (hopefully small) and figure I'll get it back next time. Any references on rolling, managing that have been helpful to y'all?
I got an easy one, I think
I don't have any references, but I have been experimenting with different approaches on paper. I'll let you know if I find anything out useful.
I like the high premiums on aapl. I got in with a jul/jun spread, to limit my downside 580 long (2 contracts), 570 short (1 contract). I will just leave it open until expiration on Friday.
I-have-option
They are going to have Karen back at some point in the mean time Tom is doing a segment tomorrow on managing strangles.
The response to the Karen segment was huge.
They are behind a pay wall now but if any one wants one I still have a few gift memberships if you need one send me a e-mail.
ragingbullwinkle.217@gmail.com
In general terms, when hv goes up, a stock is ready to go up. When hv goes down, the stock is ready to go down. I think this is another way of saying that stocks drop faster than they rise. So if a stock is slowly rising, hv will be dropping. When a stock is dropping fast, the hv will be going up fast. If you look at a hv vs. stock price chart, you may get a little better idea of when to enter a long or short position. This is how I would work it: sell bullish option positions when the hv is high and premiums are high. buy bearish option positions when the hv is low and premiums are low.
To finish my thought,
aapl hv is currently high, and it is a good time to sell puts. This follows the general rule that high premiums=good time to sell puts.
Hi all, a trade that just went through is an Iron Condor for this week (3+ days)with aapl. AAPL trading at 562, on the put side i bought the 515 and sold the 520. On the call side i sold the 595 and bought the 600. these went through for .10. When the dust settles it is .09 for a 1.8%
Jerry, Thanks for continuing to remind us that .09 is a good deal. I just am always stretching when 1.8% for 3 days is a very good yield with limited exposure. Think after a year I'd be getting it!
Hi Jerry, A long time ago(1998-2000) I did a lot of option trading. Followed a lot of your posts back then! I, like you, did very well, and then very poorly!. Well, I read your book, and I am starting again! I did almost the exact same trade as you (AAPL)about 30 minutes prior to you! Very strange! I took a little more risk and have a $10.00 risk between the spreads. Thanks for all your advice and help!
For those trading AAPL, I'm sure you all are already aware, WWDC is on next week, keynote is on Monday.
Damo.
Doesn't seem to be moving the stock i.e. AAPL. Do you think later in the week or next week?
If there's going to be any effect on AAPL price from WWDC it will be on Monday from the Keynote. They are rumoured to be announcing major upgrades to most of the Mac lineup.
Might not have any effect on price but thought it is worth keeping an eye on, I won't be entering any AAPL trades till after the keynote.
Damo.
I'm back. Went on a long weekend vaca to a B&B in Cape May NJ. Nice quite seaside place. Looking to get back in the grove on Wed. Already scouting out an NDX & SPX trade. Will see what the AM futures bring, Will post trades.
Been placing NDX 2425/2400 put spreads @ .30 with 100 points cush.
Rounding out
RUT 725/715 put .15 @ 758 +33
SPX 1250/1225 put .20 @ 1305 +65
HI all, as mentioned i have opened a condor with aapl. 50 of the 515/520 puts and the 595/600 calls for a net of .09. Today i rolled the 515/520 into the 540/545 puts for a credit of .05
This leaves over 22 points of cush for 2+ days. The part that make me a little nervous is the jump in aapl today. It did make it possible to roll up the lower side but of course the part that gets my attention is now I also only have 22.5 point of cushion on the high side. Worrying about this type of thing is why i get paid the big bucks..lol
If aapl continues to move up tomorrow or later today, i will roll out the top side also.
Hope all are making some $$ today with the up mkt.
Jerry
Could not get any spx filled from tradeking today. last try was the 1265/1260 good volume and OI but expired.
Got AAPL 590/595 call spread late in the day for .13 expiring Friday. Hope it's safe. Also sold 585 calls against my Oct 570s in the AM for .70 for this week. Not sure I want to play next week with the Developers Conference, monthly expiry, and Greek elections. Lotsa unknowns for sure.
Correction Sold 590/595 spread for .15 AAPL weekly.
I wanted to make an iron condor of my SPX put spread today and the broker filled BOTH orders somehow. One of the call spreads does not need maintenance as Jerry always says...but this 2nd call spread doubled the margin requirements! I ended up contacting the broker and said it would be a Fed call and forced me to close out one of the call spreads. Of course, the SPX surged the most all year and by that time, the premiums surged too to triple the 0.05 I originally received. What a disaster.
Still holding the SPX 1340/1350 & 1210/1200...hoping the market goes a little lower or neutral the next 2 days!
Seems like everytime I add a call spread, the market makes huge moves up and losses mount.
Dukes, How did this happen? Did you have both orders in simultaneously? Sorry about your loss. I know the feeling that the market seems to turm against you as soon as you commit to a position. Don't think its you tho!
Yes, I put in for both orders, but usually it rejects placing the order if margin requirements are exceeded.
"I agree with you the site should try to block this from happening, and how this got through is something we're going to look through going forward. For the moment, you do need to know that the onus and reprocussions of this ultimately fall on you the investor submitting the trades."
It wouldn't have been bad if the market didn't surge and the call spread didn't increase in value when closing. Had the market dropped and the spread decreased in value, I could have closed and it would be essentially neutral trade.
Feels like its adding insult to injury...
I entered a Buy order instead of a Sell order today, I was wondering why it got filled instantly. It took a couple of minutes to realise my mistake but managed to get out at the same price so just cost $10 in commissions.
Damo.
i'm not sure aapl will breakout of the current trading range of about 540-585 yet. I am going to get out tomorrow and look for a possible pullback before getting in again.
Sold the 550/545 put sprad for this weeks AAPL to flush out my IC's for the week. A little close for me on both ends (590/595 calls on upper end) but then agains, it is only til tomorrow. Will let all expire and wait to see what next weeks conference and the Greek tragedy brings.
Got .09 for the 550/545 put spread AAPL weekly.
Interesting results.
I read one of Jerry's recent posts about being in the market for only 2-3 days and how that minimized your exposure but were still able to generate your target roi. Well I did it this week because I was away from the markets over the weekend, Mon & Tues. I placed my normal SPX, NDX & Rut put spreads with an appropriate cushion given the 2 days exposure with Fri AM settlement and everything looks great right now and I will get my 1.5% weekly roi. I may just do that every week and be out of the market 60% of the time. Thanks Jer.
Tax, What do you use as an appropriate cushion? SPY, RUT and NDX? I couldn't find good premium, tho I was probably too late in the day on Wed. Retreated to AAPL spreads, 590/595 calls with 515/520 puts yielding approx 2% ROI. Love the idea of being out of the market on the weekends with the current mess on seemingly all fronts.
IHO
Take a look at my 6/6 7:30 & 8:08 posts as to the spreads I placed along with the premiums received, the value of the index at the time and the cushion. I didn't want to rehash the same posts. All positions had deltas below 5 at the time. I felt OK with the cushion, because I didn't feel that the market would move that much in 2 trading days. I also placed a RUT 780/790 call spread. Got a bit jumpy with that today with the RUT getting up to 775. Was ready to close it but it started to selloff. Seems I always get into trouble on the call side.
Sorry Tax, guess I missed your trades post. Looking good for this week. Here's how you did it:
RUT = -4.4%
SPX = -5%
NDX = -5%
So I'm gonna assume at least 5% is relatively safe, baring unforeseen calamity or unexpected news. Thanks for posting your trades!
Anyone into VIX puts, as it seems there's gonna be lots of volatility in the days ahead?
Yesterdays big rise (to 1330) on the open forced me to close my 1340/1350...couldn't help myself to hold with 10 points of cushion and 1.5 trading days. Wiped out all my 2012 gains and a little more.
Same with Taxman, "Seems I always get into trouble on the call side." This is where my huge losses have been.
Thats a bummer Dukes. Been there many times. Doesn't take much of a move to cause some major hurt. Call premiums always a lot less than puts, so you end up getting closer to the index. I have found lately that I place very few call spreads. Guess that's why jerry's book and blog is "selling PUT options my way".
Dukes, I feel you on SPX. I ended up rolling up mine, but I think I am done with SPX as like one article I ran across compared their options to the Roach Motel, you can get in but you can't get out. I found this to be true in my case. I haven't had that problem yet with any of the others on my short list.
Eventually, I actually made good credit on the roll up but as we know in this biz all money ain't necessarily good money. I will probably spend the rest of June finagling my way out of my SPX position.
Of course, SPX has settled back down. It always seems to work out that way...until it doesn't, lol. I learned that lesson the hard way.
Want to know what's going on in the Eurozone? Here's a rather long but worthwhile summary from George Soros, which suggests that the problem may or may not be intractable.
http://www.georgesoros.com/interviews-speeches/entry/remarks_at_the_festival_of_economics_trento_italy/
Wort a read.
I rolled my short aapl option up out to next week, 575. I am going to see if aapl can break through the trading range, and jump above 600. I have two long options, so I am safe on the high side. Let's see if aapl can keep running. A lot of resistance to get through though.
Hello all I love this site, a lot of good ideas. I wanted to post my weekly plays.
AMZN 220c -100
AMZN 200P +127
AAPL 530P +94
Some thoughts on Karen and strangles. Fist off when Karen said she never gives the money back I believe she is talking about the 1-2 times a year she is tested.
Remember she talks about rolling when there are 50-56 days on the next month out. I back tested 3 years selling <5 Delta on SPX and on ballpark average when it was time to roll calls were .05 and puts .35-.55 so if you brought in 4.50-5.00 giving back 10% to roll is the cost of doing business.
Not giving back is knowing how much stress you account can take. Your selling a 5 delta how much margin do you need if your short goes to 45 delta?
On the flash crash day in 2010 my end of day was over 45-D I was doing 20 contracts and I went into that month with a 50K profit. Day of the crash I had a still out of the money short but the 45+ delta also gave me a 45K paper loss. that's a 90K swing on 20 contracts. Covering and taking the loss would put me out of biz. but because the account had the margin I just held till expiration week and realised my full 4.10+ on the trade. Now had they been in the money I could roll out and down.
The only bad thing that happened was no roll that month and I missed a cycle.
Now I know most of you don't do strangles but even with verticals I see a lot of covering for a loss when thing go against you. Not holding tells me your position is to large for the account? Or you want to limit losses but what your doing is giving back.
Some thing to keep in mind Tasty pounds this into your head all most every day. If you sell a 20 Delta their is a 40% chance your going to be tested IE stock is going to touch your short. if you sell a 30 delta that's 60% of the time your tested and if covering for a loss is the game plan.....I think you can see were I'm going.
hi raging bull what's the annual return on selling strangles with delta less than 5.....also what u meant by your account had the margin so u held till ezpiration week.thanks
Hey Doc,
I did 50-60% each year over 3 years. 2009-20011 or an easy double every 2 years.
On margin. today I can sell in a Portfolio margin acct. a 10 lot of the Aug. 1125 - 1550 SPX strangle for about 7.40 the buying power reduction to do this at a 5 delta is 28,000.00
now if I look at a 44 Delta put in June with 7 days to go the same 10 lot will need 118,000.00 margin to hold it. if I have less than 118K it's margin call time and I'm forced to add funds close the position Etc.
So I will need 120K for every 10 lot I do. If the short hits 60 Delta the world just ended so not sure if I need to roll or not? LOL
raging bull thanks for your reply.wondering which broker u use that gives you such a high leverage at 10 to 1 on your portfolio margin account.one problem.with straddles or naked put is that in event of hi voktality brokers increases their margin requirements forcing u to trade your position or risk being closed automatically.
Hey Doc
I use Think or Swim the 8X leverage comes from the Portfolio Margin acct. Requires a min balance of 120K but sure makes making money a hell of a lot easier. And yes my point was A trade today started with 28K can need 128K Tuesday.
I ran my last post past Tom at tasty and he did add one comment at the end.
Not holding tells me your position is to large for the account? Or you want to limit losses but what your doing is giving back
.[] ***That’s what staying small is all about. The mistake almost all traders make is never really a management issue, it’s a size issue.
Hi all some good comments. Time for a new post on the coming week
jerry
raging bull..if we keep the size small then we will take a hit on the return as well...can u elaborate this sentence "Not holding tells me your position is to large for the account? Or you want to limit losses but what your doing is giving back".Again thanks a lot.
Hey Doc,
you sound like being a Tasty member would help. If you want a free membership send me a e-mail at
ragingbullwinkle.217@gmail.com
And I will get you behind the pay wall. Dose not mater what and how you trade the show is a huge eye opener.
-G-
Doc check this out.
http://www.youtube.com/watch?v=ABDJD0w2JOs&feature=plcp
Great video RB!
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