Thursday, July 5, 2012
Hi all, I have been pretty busy with several projects so not enough time to post or keep up with all the comments and finally did today. Regarding this AAPL run, wow it sure makes it hard to continue on the path I was hoping for.
First, Artelly; please write again. Don’t know how I missed your request.
Now on to the ITM spreads. Well as probably most of you know even though you started with a ITM spread you now probably have a Deep In The Money spread. One day away from the ability to trade and now today I found myself way behind the curve. Here is what I did. I had several different long sides but most were 565 Jan 2013 and this July 20 575. Yikes already 35 points behind the stock.
First there are two main ways to make money with this method and of course you can mix and match when that is appropriate. At the end of this I will tell you of what I have done today.
One goal is to make weekly money by selling the strike that keeps you around 10 points below the current stock price. If the stock moves then you sell the next higher strike. If it moves even more you might have to roll out to the next month and pick up some credit as well as a strike or two.
The other way to win is to get a bigger and bigger spread between the long side and the short side. This has the down side of not really building the account while doing it, but the profits are deferred until closing. EX; you have the aapl 550 and you keep rolling out to the next month and getting 10 points more. You might have to do this without taking in $$ when doing this roll. So you opened this on June 1 and had the Jan 550 and had sold the June 565 and each month you had to roll out to the next month and made no money while rolling, but you did pick up 10 points or more each month. So by Jan you had rolled up 10 points per month for a total of 70 more points. So now you could have the Jan 635 sold and the Jan 550 bought and it all expires. You now get the full distance between the two strikes for a total of 85 points so now if you 10 of them it would be worth 85,000. During some of those months the stock probably didn’t go up and you caught up some and just rolled out to the same strike for a decent credit. That of course would be mixing the two objectives. So you can make profits rolling to the next month or just taking a credit weekly / monthly.
Now what I did was a little different. Today I rolled all of my current shorts July 575’s) into the Jan 630. I picked up for an 8.50 in credit and I also picked up 65 points of spread between my 565’s and the 630’s.
What I accomplished was two-fold. I now have a big spread between the two strikes and I used the new credit to open some more spreads and this time I went to the 600 Jan 2014 and sold the July 6 – 615’s. (when I did this AAPL was trading at 614..) with these I have around 76 weeks to either roll up or up and out.
I will sit on the old ones that have the two Jan expirations and just collect the difference at closing time. If AAPL should fall back on bad earns etc. I might close the short Jan 630’s and open a lower strike and collect the lost TV of the old 630.. But that is just a thought hanging out these if AAPL drops.
I hope all are adjusting to the different plays with AAPL as it is sure moving towards earnings. Moving this fast has certainly makes one do some deep thinking and scrambling.
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45 comments:
thats not what i had in mind with nflx. if its going to go up that fast to 80, i'll wait to see where it might level off before i think about doing anything.
Don't know about the deep thinking but the scrambling part for sre. I was able to buy back 3/4 of my short with 3/8 th of my longs leaving me with much less short exposure ie5 long calls to 2 July shorts. Still think AAPL will fal back after earnings but just don't want to be out there too far. I like having some naked calls for the earnings run up as well but I know it is not within the 'low risk spread strategy' and more akin to gambling. Don't quite get Jerry's strategy above and don't really want to be locked into Jan '13 or '14 positions, so I came up with this brilliant soltion. We shall see how 'brilliant'.
Did another lottery play this AM
SPX 1365/1375 call .35 @1356
10 contracts. Hope it works as good as last week.
Not much luck this week on weekly spreads. Waited for Tues, not much premium. Combination of low vix and Wed close????
AAPL giving me some fits. Short the 7/21 590's. Let TV leak out as musch as possible then roll to Aug if I have to.
Dave, I've not traded NFLX for a while, I'll wait till after earnings till I look at it again.
Damo.
Thanks Damo
With aapl, I think if it goes over 20 points above the upper bollinger band, I'll close and see if it goes back under the band again. I'm going to look at rolling to august, see if iv is too high yet or not. I might roll up and out to august, protect some premium, and try to ride the iv up to earnings. I hope aapl keeps rolling, I know not everyone feels that way, but at least premiums are increasing with the volatility.
Dave
Taxman,
What was the expiration on your SPX trade?
Wow no joke, if you think aapl is going up to earnings, get the august expiration while it is still 30%iv. Should go up to 45% at earnings, sell and bank your earnings.
Did a quick calculation, I can roll my 580 july monthlies to 605 August for a small credit. If iv goes to 45 by earnings, and it should, the stock price can stay the same, and the position will go up in value. I think a move over 640 and increase in iv to 45% equals double your money. I think I might just roll up on monday. have to think about it some more.
Tough day. I had the 1250/1245 SPX. I just could not bring myself to stay in with nothing more than hope. So I bought to close 1.25 for 10 contracts when it was around 1251 still going down. As you know it went tru the short srike to about 1248 and then settled at 1254. So I lost 1250 vs making $200. But I tried to have disipline vs. Hope and I am telling my self I saved the loss of $5000.
SunKing - The SPX 1365/1375 spread was for Fri 7/6. It was a one day trade. Did the same thing last week for .45. Placed it around 10 AM once I saw what the market was going to do. Was willing to take a small lose on the trade. Would have closed if SPX went +1360.
Andy B - I assume your trade was a 1350/1345 SPX put. When did you place that trade? If on Fri AM why would you be so close to the index in a down market. If earlier in the week, the same question. Cushion, its all about cushion.
Didn't have a great week, no prmium. No loses either so again, I count my lucky stars and also my dead presidents. See what next Mon/Tues brings. Got to get my thoughts around this aapl rally.
This spread action is too complicated for me so far. Maybe someday. I'm sticking to the basics of the book, Jerry, selling monthly put options that are 20% out of the money and making 2.5%- 3.5%. So far no losses in 8 months!! Biggest temptation is to get greedy and I am working hard to stick to the rules. Maybe you could include some ideas along the way in the blog of stocks you have found that offer great premiums on the out of the money puts? Keep up the good work and thanks!!!
I feel harder and harder now to get good premiums from my usual weekly vertical trade with good cushions. My cushion is usually about 6-8% out of the money on Mon/Tues, but these two weeks it was just even difficult to get .05
But luckily I did sold some naked monthly puts on AAPL (20% otm) when it was down to 570 last two week and it has been AWESOME! Sometimes just have to rotate the strategy a bit and not just stick to one strategy. For the ITM strategy I think I am still learning but I am digging it more and more every week. Just have to thank Jerry for his willingness to share his valuable knowledge for free whereas many others will charge ridiculous amount of money for their BS.
Wanted to share my only "play" for the week. Sold 2 AAPL 615C for a one day hold 43.99 was max profit. AAPL was trading at 606 , and high of the day was my stop. Worked out pretty good. Had to watch the screen that last hour..haha always make you sweat till the bitter end..I am still looking at another brokerage so i can trade index options... I really like your one day plays Tax. TV really kicks in..
isn't the rule on implied volatility that when the market or apple goes down the implied volatility goes up and when the market/apple goes up the implied volatility go's down?
Taxman
Yes I did mean 1350/1345. I placed it in the afternoon on thursday. I thought I had enough buffer, I should have known better especially with the jobs report comming out.
Artelly
I am also uncomfortable with the weekly spreads. They seem risky to me, especially since I am unable to monitor during the day, and they seem to require careful monitoring.
I've been doing the monthly put selling as well, and am very happy with the results so far. I have safety measures in place, and check them at night. I've had good luck with AXP, BRK-b, CMI, and CMG. I also did a half size position with CREE, and went with a bigger cushion of 30% for a bigger(8%) return to goose my average return.
Which stocks have you been having luck with?
Pascal,
That is true regarding iv, if the market drops, fear sets in and iv goes up. as the market goes up calmness takes effect and iv drops. now with the uncertainty of earnings for aapl on the 24th, iv will go up whether aapl goes up or down into earnings. i think it will generally get to around 45%.
Dave
Make sure all traders are aware that this coming two weeks or so, are a major earnings reporting time. Even if your stock isn't reporting... bad (or good)results can effect the whole market. Be sure to use extra cushion and avoid a stock that is reporting if possible. good luck all and it should be an interesting week.
Henn, Your naked calls on AAPL must be lookin' good today! Think we get a good run to earnings? Like being out of those shorts, for the most part. Have two left at 580 for July expiry that I will try to massage for a worthless expiration sometime in Aug. (maybe wishful thinking).
Placed the following put spreads this AM
NDX 2500/2475 .35 & .30 @ 2608 +108
SPX 1290/1270 .25 @ 1351 +61
SPX 1285/1265 .20 @ 1348 +63
RUT 775/765 .25 @ 805 +30
A day early but no major data coming out except Alcoa earnings and on Wed the FOMC minutes. JPM on Fri and lots of earnings next week. Figured I'd give it a go.
Tax, i like those for 1-1.5% weekly gain.
AAPL again beat the market heading towards earns. I have this weeks 620's and a bunch of the 2014 600. I will try to make some credit roll each week or lower the income with credit and roll 5 more points on the sold strike. The objective being to either make money with the next week options or to make it (5 pts deferred) come closing time in Jan 2014
IHO,
Yes aapl is cooperating with me so far. it only seems to be gaining strength for now. will it just keep going up until earnings? it has closed above the top bollinger band for five days straight now. last time it did that was right after earnings back in january, just before the big move up. will it do it again? i put in a stop at 595. i may move the stop up if we see another big jump. i will look into closing tomorrow if aapl jumps to say 635. i would then look to get back in at say 620-625, maybe. i looked at rolling to august, but i didn't want to lose my high delta, or put more money at risk. ill keep watching though.
AAPL HELP. With aapl rallying like it is into earnngs, I'm wondering what everyone is planning to do.
I'm long 4 Oct 570 and 2 Jan 570.
I'm short 4 July 590 and 2 July 615
My original plan was to STOP rolling the short calls 2 weeks before earnings and ride aapl up and sell my long calls. But aapl decided to move much earlier than I wanted it too. How nervey on aapl part. So my plans need to change. I expect that by next Fri, I will have to roll up/out to Aug in order to get closer to aapl price without coming out of pocket. However, that leaves me exposed to a severe reaction to actual earnngs which I did not want to happen. For those with short calls, is everyones plan to just keep rolling up and out to keep up with aapl's price rise?????? Thanks
Hey Tax, Kinda nerve racking isn't it. Not used to dealing with unbridled PPS appreciation. I've pared down my short exposure so basically have 2 c short at 580 for July 21. Think I will stick with the plan, keep rolling up and out as needed (assme that is always possible). AAPL tends historically to sell off sometime after earnings excitement wears thin, and perhaps then there will be the opportunity to get caught up/ ahead of the stock price. I love the idea of this strategy, but if it doesn't work, as you say, we must adjust. Worst case, we close the spread at the difference between strikes?
Have Ops
Hoping it works out that way. Been reading lots of articles about aapl earnings going both ways. Didn't want to get cought up in the meat grinder. With estimates jacked up, I-5 coming out this fall and monitor companies showing fewer part sales to appl, they just might miss EPS. With 4 590 calls short, I didn't want to see a big beat and aapl jump 50 points. Tough to catch up. With your uncovered longs you want to see a rocket ride. Good for you.
By the way just placed NDX 2675/2700 call spreads for .30 to
.35 @ 2610+-
Hi all, what I did with my AAPL shorts is to roll them out to Jan. Both will expire at that time. I have the 565 longs and I sold the 630 for Jan. This puts 65 points between the two strikes which will actually be realized in Jan when I close them. I made some cash doing this and opened some new ones at the 2014-600 and this weeks 620. Each week when rolling I will add to positions and just let the other ones sit and vegetate. If AAPL goes lower in Dec I will roll down the 630 into a better strike for a credit. I could have made more by riding the roll-out, roll down, roll-up train but instead of trying to make money doing that I will use the credit to try and up the ROI. You could do the same by rolling into Oct and try and get a feel of where AAPL is going but I just decided to move on to another play.
Another way I could increase the value of the ones expiring in this Jan is to roll up the short strike from the 630 to 635 etc if AAPL moves quite a bit higher. You can usually but the next higher strike that is 5 points and you can usually get it for 3.75? etc. So for a 3.75 investment you get 1.25 return. That is a 33% ROI. So just another way to play the ones that are sitting there vegetating.
Jerry
Well, I don't have a problem with aapl dropping for you guys, I just hope it happens after earnings, when I'm out. aapl took a break today. it is still in position to take off again though. 640 is my stop out point tomorrow on the high side. I still will get out at 595 also, if it comes to that. I am expecting buyers to be waiting at 600.
Well, will be learing a lesson this week. Got a little greedy to early on an NDX 2550/2525 put spread and some RUT 775/765spreads. Closed the NDX for a loss that wipped out this weeks profits and am still monitoring the RUT spread. Need to eat humble pie every once in a while to reinforce Jerry's montra of cushion, cushion and more cushion.
Sorry to hear it Tax, but looks like you managed it ok. One week=valuable lesson. I've had more expensive ones. This is a strange market indeed. Just doing AAPL put spreads into earnings right now but today was down big, then a nice recovery at the end of day. Can't imagine there won't be some sort of earnings rally into next week but then again....
Tax,
only lost one weeks profit = that's not much.
i held on with aapl, it came close to my stop at 595 though. considered closing at 598 anyhow, but held on. i sure would like to see a good day tomorrow.
AAPL EPS - Chuck Jones of Seeking Alpha says:
Rev - 40B
EPS - 11.75 vs est of 10.35
$ Target - 785 in 12-18 mos per a
PE of 15 x earnings of 52.50. Possible miss in Sept with a strong Dec due to I-5 intro in Oct.
Closed NDX 2550 still watching following shorts RUT 775, SPX 1290and NDX 2500. Lets tread water today. Will be very cautious next week.
Ori,
Hope you have plenty of safety on CMI this month! I am planning to sell some CMI puts in August. I have had good returns with eqix,wynn,gs,rgld. But safety, safety,safety. Nice that this month all my underlying stocks are getting beaten up somewhat and the options are well profitable!! I expect another month of all my positions expiring! Another 2.6%!!
I stopped out of aapl, which was disappointing. It turned out better than I thought, as iv was high enough to pay off. I'll wait and see. Tempted to go short on nflx, but it is too dangerous right now.
Dave, Sorry you're out of the apple bob for next week. Should be interesting. Things look a little brighter this AM
Yeah, maybe I should have held on, but oh well. I have a couple of ideas I'm working on. One is a earnings play on goog. I'll report back on the details, probably over the weekend. Then I'll see if anyone has any interest, or other ideas.
@ Jerry
I like the new idea but why are you stopping with the other strategy (the DIM plays)? Correct me if I'm wrong but, the danger with this new strategy is that when Apple moves down fast pass your long strike your short call won't keep up. You roll your short down of course but you'll never be fast enough. When Apple moves up or even moves up more than your short strike the 630, you have to roll up 5 or 10 points, you won't get the whole five or 10 points because you have to pay some for it ofcourse. If you don't, at expiration you will have to pay for your short call and hope you wil get enough money with the whole play to pay back the initial investment and make some extra ROI of course.
Question: what do you do when Apple goes down fast?
Thank you Jerry
@ All
Last week I was talking to a market maker who works at the Amsterdam stock exchange. I was asking him about option strategies and which ones he uses the most, well it was more like an interrogation ;-) And this is what he said.
When for example stock ABC is at €25 he buys the call €14 and buys the put €30 then he sells a short put €20. The long call usually has 12 or more months left till expiration and the put spread six or less months left. When ABC goes up he'll take the credit from the short put and rolls of the put spread up. When ABC goes down he will take the profits from the put spread and rolls it down.
What do you think.
Is someone still riding the Microsoft train?
What's a good way to play a quick pop in AAPL pre earnings next Tues for a spec/gamble play. Ideas?
Tues the 24th earnings for AAPL
Pascal; I ran some numbers and hard to follow that idea of your MMaker guy?
Regarding the reason I backed off the ITM spreads. In a way i just opted for a longer time frame. I now have a spread that both sides expire in Jan 2013 and the spread is 65 pts. So if aapl is over 630 in Jan i get the 65 pts and i have 77 of them. I then took the credit from rolling out the sold's to Jan to open some Out of the money 'OTM' CALL spreads again with. The new ones are for 2014
IMO'S
If you think there will be a pop for earns. Selling puts? buying calls. Call side has unlimited gains and risk only the premium... Selling puts has defined gain and a possible downside if you leave no cush? Either way if i had one of them i would close right before report time.
This week for me to do...
I have some calls to sell in my 2014 spread and if aapl is up Monday i will let it run until it seems to cool off then sell this weeks call. If down on Monday morn i will immediately sell this weeks calls @ 615/620?
good luck all and do be careful with earnings season really heating up.
Jerry
my idea for a goog earnings play is a short atm call on the weekly, and a long atm call on the september monthly. iv on the weekly is 62, iv on september is 27. open right before earnings, close right after. max loss is 1100 max gain is 1500 if the stock doesn't move. The long iv will drop some, but should be ok even after earnings. the current break even points are 535 and 622, it will take a large move to create a loss. hopefully iv will continue to rise on the weekly up until earnings. any thoughts?
Thanks,
Dave
AAPL Play
Not many posts lately. Trying to position for aapl earnings. Had 4 July 590 with not much TV left so rolled them into Aug 615 for 1.00 credit. Also holding 2 July 615 which I hope will expire worthless on Fri. If not, I'll buy them back hoping aapl will do a rocket ride next Wed. At least I'll have 2 uncovered calls. If aapl beats and rallies, then I will have time to play catch up with the 4 Aug 615.
Seems like a plan. Might look into some naked puts also.
Last week was not good in the spread arena. Took a hit on a RUT & NDX play. Got a much needed wake up call. Playing this week with lots more caution. Getting back to our basics.
I've got 6 Uncovered AAPL Oct calls at 570 and two more covered at 600 for Aug. Wouldn't you know the stock would not soar. Haven't given up tho as I think earnings will be good and like Tax, maybe Wed will be lift off.
NOt a big move for apple today, tomorrow maybe?
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