Thursday, July 19, 2012
An easy 80% in 6 months
Hi all, I had a friend that is interested in options but doesn’t have the time necessary at this point to do full time trading. He asked me if there was a simple trade that should make good profit. I looked around and decided to show him a trade that I now have and that will work for full time traders or new traders that want a profit yet not trade every week.
This is simple and only requires one thing to happen. By January 2013 AAPL needs to be over 600 and over 630 for full profit. I see no problem with that part as AAPL might be over 630 this month.
So the trade is to --
B2O (buy to open) a Jan 2013 AAPL call at the strike of 565.
This will cost you today 80.90
S2O a Jan 2013 AAPL call at the 630 strike.
You will receive 45.60.
You now have a net debit of 35.3 If AAPL is over 630 at expiration date you close both side right before expiration and the result is a profit of 65 difference between strikes minus 35.3 = net gain of 29.7. As the set up cost you 35.3, it is 29.7 / 35.3 = 84% ROI in 6 months. This is about the easiest way to make over 80% in 6 months that I know of. Your break-even point is if AAPL is over 600 at closing time.
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80 comments:
Jerry, i love it!
That's a good one Jerry, barring global meltdown. A quick question for you. Seems like I used to be able to close withering ie .01 spreads for no commish on Thurs/Fri. but now they show commission when I try. This is on my TK accounts. You use TK? Same issue?
yesterday i started some new positions (diagonal spreads)
MSFT (put)
XOM (put)
KO (call)
MCD (Call)
And made some nice returns on them.
hi pascal can u post your complete trades on diagonal spread.I have been doing SPY diagonal call trades for last 3 weeks with total return of around 8%.BTO SPY jan 2013 130call and have been selling weekly ITM call.Probably my return could have been better if i had bought JAN SPY 2014.
Ihaveo's. I do trade some accounts at TK but don't think that I have had that problem? Maybe because i have not tried closing one at below .05?
Doc; I like the trade with the spy. The 2014's at 130 strike cost around 15.85 and sell OTM weeklys at 137 strike for .70. That is +4% for a week. Not bad. the one spooky thing is last year in July SPY dropped from 135 to 110 or so?
As most of you know I am VERY careful selling puts during earnings time..WOW, look at CMG. They beat earns but a downgrade and a scare as corn and other items going up with the drought... Holding any position over earn's is dangerous but puts can kill you if not careful. I hope none of our traders were holding CMG's. Yikes
thanks for the AAPL trade Jerry! this is my first post to this blog.
relatively new to options but am jumping in pretty fast thanks to your book. i'm not sure about selling too many puts this month. just about everything went down last year this month. i'm planning on keeping it to just a few that i want to own.
IHO,
a while back, i think tk changed the rule with the less than .05 closing, and they now do charge a commish.
Still in affect:
if you're carrying short options valued at 5 cents or less, you can buy to close those positions for no charge (commission-free).
https://www.tradeking.com/rates
Hmmm,
Then I don't know why they charged a commish.
HI all, the big concern is aapl reporting after hours tomorrow. I am holding but will not be surprised to see it drop some. I have both weekly and January positions and for the Jan's will hold and assume in the next six months with new phones etc it will be long past my 630 strike.
Hold on all and do be careful in the earnings season. Danger is out there.
jerry
Anyone got any earnings plays on AAPL they are thinking of?
I have Oct 570's which I might have to hold should earnings disappoint. Wondering how far AAPL would have to appreciate to overcome TV loss and still be a profitable trade at expiry.Seems doable but don't have enough experience to know. Anyone?
Article in Seeking Alpha recommends selling an Aug 525 or 530 naked put. Gives you 70-75 points of cushion and a month to recover if aapl tanks. Looks like you can get 2.20-2.70 for the puts with about 6K in maintenance.
Read too many articles about this earnings report to get a feel for what they will report. I'm not feeling very bullish tho.
Expected move in AAPL is around $30, I'm looking at selling the weekly 555/560 put 645/650 call Iron Condor.
Looks like AAPL has disappointed, I might get tested on my puts!
Damo
Hmm aapl's ridiculous estimates. In for short strangle 675/520 crumbs. Shorted UA for a day trade.
Hi all, Tax, i sure would not go out that far in this market...
Optionsense; I'm betting aapl comes back some tomorrow? after hours usually over-reacts. But doing puts on a earnings play is always dangerous. If you have to trade, do an index that won't over-react to any one stock movement.
For my Jan plays i will hold on and enjoy the ride as it starts back up with a new phone coming, and after all, it was fantastic numbers.
Hannah, great to have you back posting. UA is a great stock, Nike is thier main competitor but UA's clothing is super.
Jer
Jerry, AAPL might come back some tomorrow or it could sell off, obviously I'd like it to stay above 560. If it stays as is I should still be able to close my position for a profit with the drop in volatility. I sold the IC for 1.15 so I'll see what happens tomorrow, might have to let it ride till closer to expiry.
It's hard to resist earnings with all that volatility, I've been playing the last couple of weeks with good success, tried to get a strangle on Netflix today but didn't get filled. I'm going to hit FB tomorrow if I looks good.
My AAPL position is less then 1% risk of my account for a total loss so I'm not losing any sleep over it ;)
Damo.
Going to look to write a put spread on APPL tomorrow.If it sells off a little more in the AM I will see what the weekly 540-530 looks like. Was completely cash since last Friday. Sure glad for that.
Wow Jerry. I made the easy 80% trade you posted on Friday. The short 625 collapsed from 44.30 to about 29. So I bought that back for a quick profit and will now sell the weekly calls until January. I should have my money back in no time and the January 555 will be all profit. Thanks!
Jerry,
I have been following UA and NKE for a while writing naked puts. We are UA family lol. As I said it was just a trade based on 5m chart as UA dropped $2.50. A quick trade in a red day.
Good Day
gbarbs...just wondering how much u lost on your long calls..because i checked yahoo options and it look like they fell by 30 or more points.
that's about right...bought it for 82.31 and it looks like it is about 55.75. so if i opened the same position today my basis on the january would be roughly the same after adding the small profit on todays 575. so overall not a profit on paper but i now have the gain from closing the jan short call to use for trading.
Hi Jerry:
So where are you at now with AAPL? Are you going to sell ITM short calls against your long LEAPs like before? Or will you sell OTM calls, or use some other strategy?
Closed my AAPL put spread at 0.14 and closed the short call at 0.01, kept the long call incase AAPL has a big rally at the end of the week. Profit on IC 1.00.
Damo.
@Optionsense, Good Job with IC.
It's a good time to buy appl calls, the august monthly is at less than 20% iv, if you think appl will come back.
Me too, lost about $30 on the leap and gained only $15 from the shorts. For the itm strategy if you believe aapl will be over 600 by Jan 13, you will be at least break even, but right now I am down $15 on paper from the leap. It is only a matter if you believe aapl will be 600 or not and with iphone 5 coming out in the Fall there's always good chance. However, I am just worried that the hype for iphone 5 is too much....
Bought 2c. of the APR 13 560 CALL today near the close when AAPL was at 575. I think I will sell the weekly tomorrow against it to start chipping away at the cost of the long.
Is anyone still doing weekly iron condors with SPY or other index funds? Anything else look good as we leave AAPL earnings behind?
Mike
cityhunter - i initially made jerry's 80% trade with the plan of leaving it alone. but when i saw the short drop so much i decided why not close it and reduce the basis of the long and start selling weeklys like jerry talked about before. like kauai said, "chipping away at it". with the basis lowered aapl can be much lower than 600 for a breakeven. we've got 25 weeks to see how much we can lower it.
i bought the long jan for 82.31 and sold the short for 44.31 yesterday i bought the short back for 29.20, then bought and closed the 575 weekly for another 3.20.
kauai
i have traded monthly index condors on the RUT but never weekly...still pretty new to options. i'm working on a spreadsheet with jerry's filters and just about everything is in an earnings month and/or negative last july/august so i have not found anything that qualifies yet. by the time i get through this list it'll be time for next month anyway.
Kauai
Yep, still trading weeklies on SPX, NDX & RUT. Took a hit the last 2 weeks, got a little sloppy.
Been trying to place the trades on Tue/Wed to limit exposure. Still targeting 1%. Good to see you back posting.
Also seling aapl weeklies on Jan long calls.
Sold the AAPL 575 calls for next week against my underwater Oct 570s on open this AM. Trying to capture as much premium as I can before I have to get out b/c of TV depreciation, Thinking maybe selling call in this 'new' AAPL environment might work pretty well when we don't have to worry about the stock running away from us too much.
For those trading the SPX... any reason not to switch over to SPXpm? All the benefits of SPX but with pm settlement, all electronic trading, and tighter spreads.
SumGuy
SPXpm are only monthly, I usually trade weeklies and SPX weeklies close and settle at Fri close. Might look into them as a weekly trade the week before expirey.
Taxman,
Most IC strategies I've read recommend a longer exp date, 1.5-3 months out, so there is time for adjustments should things go wrong. And always bail well before exp. Just curious why the weeklies over the more traditional approach. Current market conditions?
Thanks.
SumGuy
I traded monthly IC's for years. The main problem I got into was the fact there WAS so much time. If a position was threatened, I assumed I had enough time for the market to correct back the other way which didn't always happen. I smoked hopium and became the deer in the headlights. As I waited for the snap back correction that never came, I found myself deeper into hot water and then would close the postion for even a bigger loss.
With weeklies, my target is 1-1.5% per week with 2-3 days exposure and as much cushion as I can get.
i also feel, maybe incorrectly, that I can get more cushion % wise from the index on a weekly than 4x as much cushion on a monthly. Besides weeklies FORCE me to react when threatened because I only am exposed 2-3 days.
I still sub to a monthly IC newsletter and will place his recommended IC's. Hope that explains it.
My SPX & NDX weeklies will expire worthelss with Fri AM open. My roi this week per required maintenance will be 1.06%.
With GDP tomorrow and a 2 day FOMC meeting next Tue/Wed, I might wait until Wed to place any spreads. I did pick up some DIA Sept puts this morning on the ECB pop. I don't think this market can stay up with all the negative news. As for the EU, those guys couldn't come up with a plan if their lives depended on it, and it does. I;m sure Draghi comments this Am was jawboning.
Facebook earnings, got a 25/24 bull put spread at 0.30.
See how this one goes.
Damo.
Could be close on FB, earnings not so good : (
Damo
FB just went through my brake even, can't win them all.
Damo.
Thanks Tax. Just trying to figure out the safest play. Sounds like it depends on who you talk to. I did a few weeklies on SPX before going further out. I guess if you can watch it like a hawk, the weeklies might be the better play.
Question for y'all. Looking for suggestions on how to recoup some of my lost premium on my Oct 570s that flew down about 50% on the AAPL miss. Don't know what I was thinking by holding thru earnings. Just didn't see the 'miss' coming, especially of that magnitude. Anyway, I hold 5 contracts and have sold next week's 575 against 'em yesterday for 7.75 Maybe I can just whittle away at it weekly selling calls but if AAPL falls enough, there wont be any premium where will be able to sell. Nervous about Oct quarter and further erosion of premium as we get close. Roll to Jan? Sell all and go on vacation? Other strategies?
Have Ops
I'm holding 4 Oct 570 and 2 Jan 570
Down about 16K on those 6. My plan was to sell weeklies with the expectation that the long calls would expire worthless and if they didn't, that would be even better.
My plan is to continue selling weeklies. Also hope 570 is decent support. But i'm giving aapl some cushion, so I've sold next weeks 590's. With my luck, I'd sell the 570's and aapl would pop 15 points.
Tax, like those Jans, two earnings chances to be right. Guess I'll just bumble along selling calls 'til I can't. Not convinced 570 will hold tho. And anyway, I thot you were the lucky one so I'll just stick to the 'plan' with you.
I am so frustrated I can't see straight. This will be the third week in a row I lost money on trades that according to my trade plan I should never have placed.
One week was involved with a call spread(I don't do call spreads), another week was a RUT spread where I got greedy without my normal cushion and this week, I had a GOOG 625/630 call spread with goog at 614 this AM and is now up 15 points. GIVE ME A BREAK.
15 points in ONE day. Why the h--- can't aapl do that.
I need to get back to my trade plan of index puts. I tell myself never to place spreads on individual stocks because they get whipsawed to easily. Indeces don't have that problem.
Sorry gang but I needed to vent.
My AAPL Analysis
Based upon a previous post, I am long 4 Oct 570 & 2 Jan 570. If I assume those calls expire worthless and given the proceeds received from previous weekly sales (which averaged 2.32 per contract) and the # of weeks left till expiration, I would have to sell weeklies at 2.90 per contract between now and each expirey to just break even. Granted any price above my 570 strike would represent my profit. But given my cost to purchase those 6 contracts, I don't think I'll make my 1-1.5% per week profit target.
Now aapl will probably increase in price thry the Jan expirey but not the Oct one.
Just MY analysis of MY positions.
I just looked at my calcs again. Aapl closed at 585 today. If that be the price on each expiry, my profit on the long calls would be 9000 (585-570x6)that would just about give me my 1% per week.
So I hope aapl can hold that price for the Oct calls and I assume aapl should be quite a bit higher for the Jan calls due to the I-5 rollout and Christmas.
Feeling better already.
Closed my FB Put spread for 0.70, 0.40 loss.
Damo.
I missed out on:
shorting nflx at 80, don't want to get in now
shorting fb, never really knew enough to get in though
It doesn't matter though, shorting is so difficult.
I bto aapl august 18 600 c and sto appl august 4 c today.
I did a AMZN 240/245 call for 17c on Friday. Sweated it out all day. But so far my option plays have been pretty good to me. Hey tax, how many contracts do you trade normally on indexes.
Tax, Don't see you taking into account the short positions you are selling and how they will affect your cashout at expiry. Am I missing something? Can't see my way thru the liquidation of this strategy, tho I am playing along reluctantly. Many projections that AAPL will drop into the summer doldrums which might be a chance for the short legs to expire worthless.
B1 I usually trade 10-15 contracts.
NDX is 25 point spreads, SPX usually 20 or 25 points and Rut usually 10 Points.
Have OPs. The 2.90 figure to break even thru expirey takes into account the weeks I have left to short 4 contracts weekly thru Oct & 2 contracts thru Jan.
jerry
on your weekly spreads, do you close out a bad trade using the same rule as your monthly puts....if the premium doubles, close it out?
Hi all, gbarbs; I don't really have set stops for spreads. I let it depend on how much time is left. With Naked puts the main reason i set the loss limit at 'double' is because you have to have a stopping point as there is no bottom. With spreads you do have the limit of loss at the bought point.
I still have lots of AAPL Jan 565 and I have sold the 630 for Jan. I am happy with them and will try to leave them alone. lol 600 is the break even point and I make 65 points if 630 or higher.
I also have quite a few of the Jan 2014 at the 600 strike and selling weeklys against them.
Now that earnings have settled done some, I will be doing some spreads and looking around for good trades. The spx has some great strikes for short term trades with spreads. Both IC's and single plays.
Anyone have ideas for simple put selling this month?
Thanks,
Tony
Tony - I'm a newbie; but i sold august monthlys on HOG, CXO, FCX, FFIV, CHK, and APOL.
would be interested in any ideas you might have (that are not related to AAPL)
as always, thanks for your help jerry....i think i need to stick with monthlys for now, until i've got a enough capital to spread around weekly positions - another issue is i can't always watch them closely so its nice to just have a buy stop in place if im away.
market looks bullish to me at least for the next several months. i am thinking about buying an SPX call out there and selling weeklys against it.
badata2d,
Make sure you're aware that earnings for 3 of your picks fall in this oe.
HOG 8/1 before open confirmed
CXO 8/6 after close confirmed
CHK 8/6 after close confirmed.
Holding through earnings can be a wild ride.
Ed
Hi
I have 10 @35 Aug puts of HLF. They are reporting today and i was planning to buy them back for .30, when i saw that the weekly $35 puts can be had for .10.
So was thinking for buying 20 puts for $200. That way I will get the same long delta (.044 ) as the short delta (.043) for $100 less.
Wanted to know if anybody has tried something like before? Seems like i am missing something...would be gald if anybody can set me straight
Here's a question: I'm long the AAPL APR13 560 and short the weekly 595. As I'm writing this, the stock is right at my short price.
I bought the long for $67 when the stock was at about 575. At 595, the long Delta is .63.
I sold the 595 short when the stock was at about 575 for $1.
If the stock continues its run this week and ends on Friday at say 610, I should be able to close both sides for a net profit, right?
The short will have no TV left, while the long will have absorbed approx. .63 of the run up to 610.
Roughly then, the long should be worth about 87-88, the short will be worth near 15, and I will be up about $5 for the whole thing (87 long - 15 short - 67 initial buy).
Does this seem right?
Kauai
Sounds right. Your long delta should go higher than .63 as aapl increases over the current 595 on its way to 610. Your short 595 will be worth 15 at 610. Add in the 1.00 premium on selling the short.
Thanks Tax. That's what I thought, but just like to get a second opinion.
Any thoughts on my predicament are welcome.I Set up a iron condor last Friday for weekly on AAPL sto 555put bto 545 put STO 600call BTO 610 call. Puts are fine but the calls are not good. If aapl keeps going up I'm looking at a big negative. Any words of wisdom?
Thanks all!
John,
Personally I would close it before going itm. You could consider rolling out and up, but aapl has the potential to keep going. That said, I really am expecting a pullback at some point. The market is getting giddy over what? It seems to need to go back down. But the market has a mind of its own.
John
You needed to figure your exit strategy when you entered the spread. Aapl has rallied more than I would have expected. My recommendation to you is to close it before things get worse. Aapl is showing 601/602 in premarket. I also think the aapl rally is a bit overdone. I also think the markets are going to tank big time when it doesn't get what it wants from the FOMC & ECB meetings. But that doesn't help your situation now.
You have several options. The conservative one is close now and live to trade another day. Roll up and out to maybe Aug monthlies, but you will probably need to trade more contracts and you will hope aapl doesn't keep rallying.
Hang in there and hope the markets tank after the FOMC announcment or try to hedge by buying an aapl long call.
I personally would probably close the position, take the hit and move on. Make it up on your next trades. A newsletter writer I sub too says "it's the cost of doing business". I have run into three weeks of bad results. I'm taking the hit, getting back to my trade plan and will make up the losses going forward. One thing you have going for you is that you have the knowledge that few others have in how to make money with options.
Good luck in whatever decision you make.
Thanks Taxman and Henngiss. I took the hit big time this AM. 30 days worth of profit evaporated. Still positive for the year but licking my wounds. Back to picking up the "crumbs" again as Jerry says.Darn!
Well, I'm in a pretty good position with my AAPL spread. I have the 560 APR 14 call and sold the weekly 595. My long is up about $4k, but the short is down about $2600.
If I wait until Thursday, I can roll up, or I can roll up to the monthly and get to 605 on the short. I can also close the whole thing out for a profit.
My question has to do with the dividend on 8/9. It is $2.65, so I need to make sure whatever short call I am holding has more than that amount in TV, right? I know I can still get called out, but that is the rule of thumb I think.
Any help/advice?
Think you need a little extra 'cushion' If I remember correctly, Jerry recommends .20 cents but maybe he'll confirm.
Today I rolled my Aug 18 580 short calls to Oct 20 605s to lock in 35 points against my Oct 570 longs. Probably the worst thing I could do givenm y track record the last several weeks. Tired of monitoring every day for adequate TV and worried about divy like Kauai above. Now I can just trade my remaining cash til Oct expiry. Kinda like a mini version of Jerry's Jan play.
John, my thoughts regarding your IC even though you've closed the position.
Since I've been listening to Tastytrade I've changed the way I view time, now I only trade weeklies for earnings plays, my core positions are all 20 - 60 days out. If your AAPL IC was Aug expiry you would have time to be right, it's possible AAPL will be below your short strike at some time before expiry.
The other side to this is position size, to lose a months worth of profits on one losing position points to position size being to big. I've currently got 36 open positions consisting of put and call spreads, naked puts, IC's, strangles and even some covered calls. I'm only using 26% of my available margin for all of these positions. I'm mostly balanced with longs and shorts, maybe a slight bias to the long side.
I've only been trading this way for the last couple of months, I'm getting the same returns I was getting before but with way less risk. Before I would be using 80% of my margin over five or so positions, now I'm using less then 30% of my margin. So even if every trade was a total loser, which would be hard as I'm pretty balanced with longs & shorts, I'm not going to be wiped out.
I would recommend Tastytrade to everyone, when I first started listening I kind of dismissed it because of the longer time frame of the trades, I had the mindset of less time in the market less exposure to risk = better. After listening to TT a bit more and putting together the other pieces, position size, probabilities and frequency, the lightbulbs turned on.
Damo.
I recall Tax or someone trading covered calls on FAS and TNA. That sounds brilliant to me due to the huge premium and the fact that over a long period they move sideways often. Are these normally weeklies? How close to the strike do you go for the call? Do you buy the stock or maybe leaps?
Thanks Jim
I read Jerry's book a few months ago and have been selling naked puts successfully since last November. I have been following this blog and became interested in also doing some call spreads since you all have found those profitable. So today I sold my first call spread on Jan 2012 AAPL as Jerry described in the post at the top of this thread. I have a few questions about the spread process.
Jerry in the post describing the AAPL spread suggested that if AAPL is above the top strike price, 630, at the expiration time, that one would close out both legs of the spread shortly before the expiration. My experience has been that expiring options always have a small bid/ask right up to expiration so you will sacrifice that when you close the legs. I think that if the stock is going to close above the top strike price you can just let both legs be assigned. You will become short 100 shares per contract from the short call side. But simultaneously you will receive 100 shares from the long call leg, which will cancel out the shares you are short. Thus the position would close itself with no commissions and at the highest possible price. Am I incorrect in my thinking?
I trade options at Interactive Brokers. I am wondering if there is any advantage to using their "spreadtrader" rather than just placing each leg of the trade separately using TWS, which is what I did today. I would appreciate any suggestions from anyone who trades at IB and finds "spreadtrader" to be a better method.
Thirdly, I have a question regarding tactics. When selling naked puts I usually try to sell at a price about mid way between the bid/ask. If that doesn't take I try to guess as to how close to the bid price I need to place my limit order to get the best price. I almost always can trade at least $0.05 or $0.10 above the best bid showing. When trading the legs of the AAPL spread I found this a little hard to judge, especially because the bid/ask was moving around a lot. I wonder what tactics people use. Do you try to get one leg somewhere between the bid/ask and then try to get the other leg traded to give you the spread you want? Or do you give up and just place orders with the sell side at or very near the bid showing and the buy side very near the ask showing?
Thanks in advance for any suggestions on the above.
oops a typo and I should have said in my post above that I did the Jan 2013 AAPL spread.
DaveH, I use IB, for spreads I find optiontrader the easiest to use. Right click on the underlying in TWS, from the drop down menu choose trading tools then optiontrader, this will open a new window with your underlying and it's option chains.
Directly above the option chains you will see a section titled Trading, here you will find 5 tabs – Orders, Log, Trades, Portfolio, Combo.
Select Combo.
Now all you have to do is click on the Bid of the option you want to sell in the option chain and it will load it into the Combo section, then click the ask of the option you want to buy and it will load it as well. It will give you a small profit/loss diagram as well as the current bid and ask for the spread and the midpoint. Note that when doing a credit spread this price will be a negative number, it will also show a green credit symbol. If it was a debit spread it would show a red Debit symbol and be a positive number. It can be a little confusing at first but you'll get used to it.
Let me know if you need any more info.
Damo.
Hey Demo glad to here your a TT junkie also, did I give you the sub?
RBW, Can't get enough of TT, I've learnt more about trading int the last 2 months then I have over the 5+ years I've been trading, thanks again!
If your ever coming to NZ let me know, I owe you dinner.
Damo.
Damo,
Thanks for the info on IB. I will give that a try.
Dave
Well I gave up trying to second guess aapl and its roller coaster ride. I rolled out 4 weeklies to Oct 605's and 2 more weeklies to Jan 13 610's. Now they will correspond to my 6 longs which are all 570's. It is what it is, it will be what it will be. Drove me crazy figuring the rollouts/rollups. Now I can get back to what I do best. Credit spreads.
Hi all, Dave yes you can let them expire. I never have but it will probably work out about the same? I like to to have it done & looking for my next position before closing.
TAX; Never forget you can roll out one month at a time and take some credit and 5 points. Doing that each month will create quite a spread between the bought and sold strikes. Also it lets AAPL move around and then just let it sit..lol. Hard for us traders to do !!!
For those that were worried about aapl it has been 30 points plus or so in the last 4 days. Stocks move up and down but quality will rebound.
Jerry,
Thanks for the response and additional ideas. And thanks again for suggesting the AAPL spread. I am up nicely currently on the one I put on Tuesday.
Dave
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