Thursday, August 2, 2012
Hi all; Just a reminder to check what AAPL has done in the last 5 days. 31 points and still heading towards Oct release of the new I-Phone. Quality will come to the surface.
For those that are looking for a naked put trade check out aapl for Aug 18 at the 550 strike. With 57 points of cushion you get +1% for two weeks. Pretty safe and a good ROI.
I sould like a cheerleader for AAPL but with a lot of options in several accounts i love the stock and its future. I like GOOG also but worry for AMZN with its high PE. Plenty of positions with good ROI out there. Use caution and play safe.
Don't fall for market HYPE ala FB. Go with proven fundementals and you will be safe.
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51 comments:
There's a rumor that the iPhone 5 will be released or shown Sept 12. Screen manufacturers are reporting shipments to AAPL in August, but no date for exact shipment. Seems October to be a more realistic launch for the iPhone, but wanted to throw the rumor out there.
Regarding AAPL going ex-dividend August 9th, do I need to stay out until the 10th? I sell only put spreads.
ABX has been a bad ride for me. Still holding some Aug 35s that I can't get out of yet...
Hi there. Being new to this blog, here's just as first post a short introduction. I'm an experienced trend following investor with index funds but new to trading and options. As a start I read in 2 days all posts on this blog (starting with those in 2010) and also many recent comments. And I bought and read Jerry's book of course. I'll make my first option trades probably in a few weeks. I first want to learn. I'm looking forward to all your comments here and hopefully over time you can help me with my questions.
Van Beek
welcome aboard Van, We all have questions and ideas at times so ask away when questions come up. Those that have the aapl spreads should be happy. I get nervous when it goes up this fast. 40 pts or so in a week spells some profit taking one day..maybe?
Good luck Van. I'm probably 1 month ahead of you. Made over 5% in my first month following basic trades as outlined in the book. The comments are mostly dedicated to AAPL, but hopefully we can get a broader discussion going.
Two questions already. Jerry recommends the 20% cushion for naked puts on individual stocks. When selling puts on indices like the S&P 500, it seems to be difficult to find trades with this 20% cushion. If you sell puts or trade Bull Put Spreads on major indices, what cushion do you feel comfortable with to pick up the crumbs (say when you open 5 weeks before expiration date?
I have also tried to identify some IC trades. However, I can't get the math working for the Bear Call Spread part of the IC (any, for me, reasonable stop-loss would kick in way too often). Do you have the same issue now markets are trending up?
Van Beek, the VIX (volatility index) is under 16, which means premiums are very low. Wait until the VIX hits 18-20+ and you will get premium AND cushion.
In the words of one of the guys here on the blog, "Remember, cash IS a position." In times like these, I need to not force trades, remind myself that cash is a position and wait for volatility to climb.
I agree a lower VIX means lower premiums but if you're trading indexes (my preference since they don't have crazy swings + nice US tax benefits) you can move your short strike a bit closer to the market since volatility is down. Or stay far away (delta of 2 or 3 = 97% chance of OTM settlement) and widen your spread a bit. Instead of 5 points on SPX, you can try 20 or 25. More risk but you can be ~5% OTM for a 3 day trade and still get 20 cents or ~1%.
I used to trade only small spreads, max of 5 points between strikes to limit risk. But I had to set the short stike close to the market for decent ROI so was taking a lot of small losses. I'm still at risk of the black swan event but one every few years doesn't worry me too much as long as I don't risk more than 25% of my account in any one month.
well AAPL took off and my short weekly sold against jan call ended up deep ITM. had trouble with tradeking on friday. i tried rolling it out towards the end of the day and couldn't get it through. i'll need to do something first thing - either move the short back out to january or next week. at the moment it looks like i should have left the trade as prescribed but am going to stick with the weekly plan and roll up to maybe 600 tomorrow.
glenn do you trade 25% total across your options trades, or just on any one trade? i am struggling a little with how to distribute my capital and how close to let the SPX get before i bail on the trade.
if i reinvest the 1% each week i'll double my money faster, but also risk losing it all. if i stick to the same amount it'll take 100 consecutive winning weeks. if i set aside the same amount to plan for disaster, well then my ROI is cut in half.
anyone have any helpful thoughts would be appreciated. just getting started and want to make sure i'm planning properly
Hi Everyone -
Reading the comments made by Van Beek made me think about a question that has been on my mind for the last week or so.
I just got done reading Jerry's book "Latest Chapter Spread Options".
I have been thinking about doing a weekly Put Spread on Apple. (of course using all of Jerry's rules).
Two Questions on my mind:
1. Anyone have any advice on weekly spreads?
2. If I do a a credit put spread, anyone have luck creating a credit call spread in parallel. (The thought was the price of the stock would come close to either the PUT or CALL and the chance of unwinding just one), at the same time receiving 2 premiums.
I'm still a rookie, trying to catch on.
Thanks
Ed
@gbarbs: i oversimplified and i do struggle with the same risk/return issues as you. since i'm trying to generate significant income through options i risk more like 60% of my trading capital at any point in time. still it's only a small % of total investable cash. if for example i have 50k to invest then i won't exceed 30k in total maintenance. all credit spread and IC traders deal with the high risk/reward ratio of a trade i.e. risk 30K (15 SPX spreads with 20 point spread), receive $0.30 or $450 net CR per week = 1.5% ROI. That's ~60:1 risk for small upside. But I try to stay far enough OTM so that even a 10% drop tomorrow won't result in the max 20K loss. I also don't compound my gains. Trying to bank my profits and keep the $ risk about the same.
I don't have a set rule on when to bail out but others here probably do.
My take on credit spreads.
I trade mostly index spreads, SPX, NDX & RUT. I will but do not like to trade spreads on equities because they get whipsawed to often with EPS, headlines, upgrades/downgrades. 90% of my spreads are bull puts. Most of my loss trades are call spreads. You can get further away from the index on the put side than on the call side. I also trade primarily weeklies. My parameters are as follows.
1. I place trades on Mon PM or Tues to minimize exposure. If there are substantial economic report activity have waited till Wed. Like last week with FOMC & ECB
2. My deltas are below 5.
3. My target roi is 1-1.5%
4. I will consider closing the spread when delta gets near 20-25.
5. I try to stay below support/above resisitance levels.
6. I adjust my distance from index based upon recent volatility and weekly numerical moves of the index.
7. My spreads are 20-25 points with 10-15 contracts.
I do sometimes place an IC to take in aditional premium with same maintenace requirement.
Taxman wrote:
I do sometimes place an IC to take in aditional premium with same maintenace requirement.
>>IC?
IC = Iron Condor. Put spread below & call spread above, same expiration. Only 1 lot of margin required as you can't lose on both sides.
Damo.
thanks for the feedback glenn, tax...
i trade monthlies on the RUT but need a little more time and money and experience to get comfortable with the weekly trades. i don't think i have enough capital to trade them because any one trade ties up too high a % of my account.
Guys, just starting out and doing some IC's on the SPX. Can someone tell me the best way to track what my IC is worth? Say I sell an IC for $3. If I'm targeting a certain % or $ gain, I can set a limit order to trigger when the entire trade reaches that mark. However, I really don't know have good understanding when that will happen due to the bid/ask spreads. It is my understanding that on SPX you can usually get somewhere near mid-point? I stupidly used a market order on the first SPX IC I did. Pretty sure I got screwed on the price. Any help on how to get the best price on a trade would also be appreciated. I use Optionshouse and all it tracks are the individual legs of the trade. It makes it hard to know when I've hit my target. Thanks!
SumGuy, I trade options at Interactive Brokers. They have an ability to use an API link to their real time data to pull all the data about an option into an Excel file. This includes bid, ask, last, volume, and the Greeks. I then created a separate Excel file with entries linked to the Excel file which contains the market data I am interested in. With that data in the second Excel file I calculate all the info I am interested in. I have the bid and ask so I can create columns that are 40% of the bid/ask spread above the bid and below the ask so I can easily see at what price I should place limit orders. I also calculate the max profit, max loss, net $/contract, Profit% and breakeven price. All that data is constantly updated in real time. It takes a bit of work to set this up, but once it is set up you can easily try different strike prices and expiration dates.
I don't know if your broker has a similar ability to link to an Excel file. You could get delayed data from Yahoo or MSN linked to an Excel file but they only have Last price, delayed by 15 or 20 minutes, and not bid or ask. If your option contract does not trade a lot of volume, the Last price may be very stale, in which case the Yahoo or MSN data would not be useful.
Dave H.
HI Ed; If I understand your question you are asking about an IC (iron condor)
I now have one that I opened this morning with AAPL duhh.. lol
Put side, I bought the 590 for .25 and sold the 595 for .31 Net of ..05
Call side I bought the 645 and sold the 640 for a net of .21
So when the dust settled I made .26 and it cost 5 to do this so I netted around 5+%
Usually I would look at this as sort of risky and the ROI says...Pay Attention. But I get around 18 points of cush on the call side and 26 on the put side. I will watch this one but I like it and feel safe and can roll the offending side down-up if necessary. You can open this trade or one like it tomorrow and probably not make quite the same ROI but you do lessen the time exposure.
Some great ideas presented here by the traders and i like that safety is always a point expesssed.
Thanks for the feedback. I did my first spread this morning. I did a Put Spread on AAPL (585/590) and got $.05. Given the safety -- .05/ $500 = 1%. Hopefully I did pretty good.
Bid/Ask still confuse me a little bit. I use Fidelity (I know not the ideal broker for this but need to start somewhere). Every time I enter the spread, many items it enter the symbols and it gives me a debit amount, I need to change that to a credit – hoping my order will get fulfilled. Anyone shed any light on this? How I can streamline this? Jerry talks about in his book about unwinding when the premium is double. I assume this is a Stop Lose – correct?
Jerry – Thanks for the info about the IC setup. In the example you mention – 590: $0.25 ; 595:$0.31 and 645/650 for a net of $0.21. How did you come up with ROI of 5%?
Both legs represent $5 X 2 = $10 ---receive credit of $0.26 / 10 = 2.6%
Thanks, trying to get my arms around all this
Good discussion on this forum.
Ed K
On an iron condor, you are using the same maintenance. An IC is a call spread AND a put spread. You can only be wrong on one side. You still have 500 maintenance on each contract so the roi is calced on both the call and the put premiums.
A newbie question if i may.. i've had 3 successful trades on SHLD selling far out of the money puts. i look this morning, and with 25% safety, i can make good return selling at .11 bidxask is .13x.19 = perfect for me.
i put in sell at .18 and bid drops to .12 another trader sell at .17 and it drops to .11 i go at .16 and bid drops to .10 the bid almost always drops instantly.
why do i feel like i'm playing poker against a computer ?? should i have just taken the .13 and not been greedy ?
badata
If the spread is 13x19 and you are STO, then 13 is what you should expect. You can try to negotiate with the market maker at 15 but no way will you get 18 with the ask at 19.
The market maker is playing with you.
I hope I'm understanding your question.
thanks taxman, i guess i need to realize that i'm selling more to market makers than individuals. it worked a couple times on closer spreads, but i see know that is more of an exception.
DaveH . . .I would love to see more about your API and Excel sheets.
I too use IB for certain trades so I have access to their system.
What is your email?
Thanks
badata; what I do with pretty good success is split the difference between the bid and ask on each side and go a little lower;
ex; if you have bid 13-18 i would I would first try it at .15 If no takers then drop to 14 but no lower. the same on the put and call side. If 20-.25 then .22 etc. When i first started doing options i would call them in to the broker and I was always asked.. is that at the 'natural'. I said yes in the beginning. The natural is the worst on both sides. ouch. It is an auction and that is another advantage of high O-I, more liquid and more people willing to trade.
Thursday AAPL goes ex-dividend. So be aware. I think the last div was $10? so be prepared when they pay for the stock to drop around the same amount.
M&M My e-mail is dhowarter@san.rr.com . Send me e-mail with "IB API" in the subject so it doesn't get lost in all the spam I get.
badata2d - I agree with what taxman and Jerry said in their responses to you. In addition to that I have seen computers respond to my limit orders that I place in between the bid/ask by moving the bid/ask. Sometimes if I realize that my order is not going to get executed at the price I placed, and they moved the bid or ask so I can't even get that, I cancel the order and wait for a new bid/ask to be shown so I can hit the one I want. There is definitely some strategy to this and you and I may be going up against the professional traders who have experience and smart auto-trading programs.
I don't know if it has been mentioned somewhere in one of the prior posts. Thinkorswim also has a DDE interface with Excel.
You just type something like =TOS|BID!'.JOY120818C65' into a cell to get a real-time value. In my example a Bid price.
This site lists all fields you can get from thinkorswim.
http://finance.dir.groups.yahoo.com/group/TOS_thinkscript/message/3516
Little overreaction to PCLN EPS report????? $100 post EPS drop!!
Might be a good time to place a far
OTM bull put spread about 6 months out. Similar to the "AAPL beat the bank" spread. Look 6-9 months out and another 100-150 lower. Might be able to pick up a 6-9% roi. Beats a CD rate.
I don't know TAX? You expose yourself to 6 months of time to just get 1% a month? It does beat a CD but still scary with a stock that is falling. I use the old rule, don't try to catch a falling knife. PCLN is a great example of why to avoid earnings reports. Especially with stocks that have higher PE's. One bad downgrade or report and ouch.
watch for ---
1-earnings
2-O-I
3-PE
also the other indicators but especially earnings...
Jerry - I needed a little more agita in my life so I did the following.
10 PCLN Oct 450/440 for .90 8.7%
10 PCLN Jan 430/420 for 1.22 11.9%
110-130 more $ to the downside.
I also light candles in church on Sunday. LOL
Thank, DaveH. It looks like Optionshouse does have an API. Not sure of its capabilities with Excel. I just applied for access. Let me know if anyone else is interested in the results.
taxman i have a tax question for ya...assuming maybe you can answer it.
i owned 20 shares of apple for the last couple of years. last week i was called away on a short call and my broker used those 20 to help fill the contract. if i buy them back can i continue to hold the shares without paying capital gains this year?
on getting orders filled topic above i've been told 20 contracts or more and you're dealing with a person. less than that its a computer. so if you break up your orders into chunks of less than 20 contracts it should help your premiums
How can I get a copy of the latest chapter about spreads? My emails to you, Jerry seem not to get through.
hey badata2d ... you are breaking what I think is a cardinal rule. Selling SHLD puts with earnings coming up the day before expiration!! 25% safety is better that 20%, but look at what happened to PCLN and CMG recently the day after earnings. Of all jerry's rules, I think avoiding earnings is at the top of the list. Unless you can go way, way OOM!!
gbarbs - your broker used the FIFO(first in first out) method to cover your assignment. If you have other aapl shares, you can tell your broker you want to use the "specific identification" method. That will allow you to specify higher cost basis shares to cover your assignement. You cannot transfer basis to newly acquired stock. Once sold it is a taxable transaction. Your only out is to specifically ID your higher basis shares to fill the assignment.
Artelly, sorry if i was not clear. On SHLD i've been doing weeklies, 27JUl 03AUG 10AUG. So i am out of them before earnings. On a couple others i did buy into earnings though, on one i know the industry very well and had no discomfort. the other was a mistake, i forgot to check the date and closed it neutral out of panic.
you're right though, i'm going to be more strict on paying attention to that rule going forward. I got anxious to start trying out the book strategy! now i'm finding there are plenty of candidates out there w/o taking on the risk.
Thank you for the advice.
Artelly; try email again..
putman3232@yahoo.com
Starting to take a review at the Apple puts for next week. (Seeking extra cushion since they are in court w/ samsung)
What is the best way to determine the credit spread
(Bought Put - look at "ASK" ; Sold put - Look at "Bid")? It seems every time I try this I'm either off or shows it's a debit.
ED K
Trade it as a spread, don't leg into it. I usually take the net bid if positive and add to the bid .05/.10 less than half the spread between the bid/ask. If the bid is negative, I net the bid/ask take half minus .05/.10 as a start.
Hi,
Does anyone have a great source to get free downloadable historical data on stocks/indices (open/high/low/close)?
Patrick, you can get free OHLC data from Yahoo. However, be cautious about it. For about 18 months I ran a dip buying system that tested out very well with historical data. But I found that the simulation was finding Low data that I could not see in real time trading. Often there is the same problem with the High data. I think the phantom data points come from pre-mkt or post-mkt trades, which may be of very small volume. In some cases I could not even see the very unusual trades in 1 minute charts, including pre-mkt and post-mkt data, even though they showed up in daily charts. The Open price is also problematic as often there are small volume singular trades where someone places market order and the market makers take advantage of them. If there is a market imbalance the market makers will be happy to open trading at a very high or very low price, take the other side of the trade themselves, and then cover their trade a few minutes later when the market returns to more normal levels. This can produce wild swings at the open.
I have seen all these same wild prices in paid data from Scottrade and Trade Station, so it is not just a problem of free data.
Thank you Dave,
In the meantime I've discovered googlefinance functions in googledocs, it allows you to download the samething, pretty neat
HI all, back from a trip with the G'kids to a water park etc.
I still have many spreads with aapl for leaps etc. But tuesday i will open some Iron condors being careful with the put side as i expect aapl to drop when they pay the dividend on i think the 18th?
So leave lots of cushion on this and any trade.
Earning season is winding down so less and less chance of big surpises. Don't rush into a trade, there is usually plenty of time to makie 1+% a week with the safety factor high.
Hi Jerry, It seems that alot of the premium has evaporated on appl. What do you feel is lots of cushion on aapl? Is 20 pts enough? What is the feeling on writing a Jan 13 aapl spread, sto 620 Bto 600. Pays $8.75 maintenance required is 11.25 I calculate ROI @ 77% over 6 months. If stock is over 620 in Jan it's a win
Let us know what strikes you do for your IC on Tuesday please Jerry.
Aloha,
Mike
Still new to selling put spreads but any feedback would be greatly appreciated
Today:
PUT (AAPL) APPLE INC AUG 18 12 $565 @.09
PUT (AAPL) APPLE INC AUG 18 12 $570 @.13
Earned $0.04 ~ .008%
60 pts of cushion
Pending:
APPLE INC AUG 18 12 $565
APPLE INC AUG 18 12 $570
(Trying to get $0.05) [I figured I will have to lower this]
AMAZON.COM INC AUG 18 12 $195
AMAZON.COM INC AUG 18 12 $200
(Trying to get $0.05)
PRICELINE COM INC AUG 18 12 $515
PRICELINE COM INC AUG 18 12 $520
(Trying to get $0.07)
Still learning and any constructive feedback would be appreciated. Better to move from weeklies to monthly? Am I on the right path?
Thanks
Feel free to email me as well
@Dave thanks for pointing out the importance of the VIX. I have studied the VIX now a little more and have a better understanding of what is considered to be high or low.
@Glen, @gbarbs and @taxman, thanks for sharing your experience with selling options on indices. I'd like to hear more on your approach to money management, I'm cautious and aim at this moment not to risk more than 3% of my trading capital per trade (or bunch of correlated trades). Wealth will grow slower but it won't be all for nothing with the occasional black swan.
Jerry said "But tuesday i will open some Iron condors being careful with the put side as i expect aapl to drop when they pay the dividend on i think the 18th?"
Jerry, please explain the logic behind the stock dropping when they pay the dividend. Also, my broker shows the dividend being paid on the 16th.
Hi all, Dave G. Whenever the dividend is paid the stock (always?) drops the same amount. It may immediately recoup the drop but the stock has lost some of it capital by paying a div. Now will AAPL drop?? But usually it will as will most stocks.
ED K. those are all great trades I lie AAPL AMZN and the PCLN.
I opened today some AAPL 590/595 puts for .05 and some 665/670 calls for my Iron condor. The stock was up and down today so I filled some that I was not sure would go through. I made .09 / 5 = 1.8% for the three days remaining. But I will watch these as the div payout will affect the stock some. It is a two side sword, if it pays a div it means it’s a good stock to own.. but many will watch the drop and then jump in? With 937 million shares out and they pay 2.75 or ? That is a lot of $$$ leaving the AAPL coffers. That is roughly a 2.5 billion payout?
Positions I now have with AAPL..
15 of the 590 Jan calls and the weekly’s at 625
30 of the Jan 600 and the weekly’s at the strike of 625
72 of the Jan 565 calls and the Jan 630 … these will just sit and collect the full prem. If AAPL ends anywhere over 630. It can go to 700 and I still make 65 points each when parity is reached at closing.
With my weekly's, I will shoot for 3 per week either by selling the new call or maybe by just rolling up the strike 5 points.
Jerry
Jerry, that is what I thought you were referring to, but I wanted to be sure. What you're making reference to (the stock price dropping by the amount of the dividend payout) has already taken place. That happens on the Ex-Dividend date...which for AAPL was 9 Aug. AAPL will pay a $2.65 dividend on the 16th and that amount has already been priced into the stock as Ex-Dividend was on the 9th. So, the bottom line is that the day the dividend is paid, nothing happens to the stock price (as it was already priced in on the day the stock went Ex-Dividend). BTW, AAPL stock was decremented $2.65 on 9 Aug (due to the dividend payout), but made up that decrement the same day. It's interesting that my broker did not correctly show the price of AAPL stock based on the dividend payout (on 9 AUG), but if you were watching CNBC on 9 AUG, their tickers did. In fact, on that day, they (CNBC) made reference to the $2.65 drop in stock price (due to the dividend payout) several times throughout the day.
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