Wednesday, August 15, 2012
Hi all, Well I have lately been called Johnny Apple seed, do to my liking AAPL and using it nearly exclusively. For me it is a stock that comes along only once every 10 years or so.
The premiums are great, the upside with new products is fantastic and the management is forward thinking and innovative. They lead in market share and customer loyalty. So I am breaking the rules of diversification. At this time I only have AAPL options.
That said there are other great stocks that offer great option situations. I like GOOG, which continues to innovate and if they cannot beat you they buy you. GOOG hires the best and brightest from other companies and will for years be a force to consider. At this time Priceline (PCLN) is the leader in their field and has some great options. But lookout PCLN as GOOG is thinking of getting into the booking of hotels etc. If so with name recognition and their marketing, they usually eat the completion.
I get questions regarding longer term options. As most of you know that follow my thoughts, to me, time is the biggest enemy. Too much can happen. i.e. war in Iran, election coming, some goof ball doing something stupid, major earthquake, Europe meltdown.. Pick your disaster, it can happen. I have many Jan options that were opened at the buy side of a longer term play. But I am uncomfortable with them. Not because of the stock but strictly the TIME factor. So for those of you that look at selling puts into Oct etc. be very careful and leave lots of cushion. There is so much money to be made with careful choices there is no reason to go out to far. We (I) talk of 1+% a week. We forget that, that is considered outrageous to sophisticated money managers. There isn’t a mutual fund that makes that kind of money.
Do weeklies and just make deposits. No reason to guess on the potential of a stock that maybe has reached bottom or the next GOOG etc. Pick winners, leave cushion, avoid earnings. With those three sure ways to making money there is no reason to guess.
Good luck all
Jerry
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Hello,
I like the strategy you explained on June 24th. But I have one question. When you roll up and out, do you sell call of higher strike or the same strike price.
In your example you bought AAPL 535 call and assume current price was 600. So assume you sold 595 weekly call. Now on Friday expiration day, you are rolling up. Stock has moved to 615. Now do you sell 595 call again (same strike as previous) or do you sell 610 weekly call, that is moving up strike as the stock moves up.
Appreciate your help and reply.
Thanks in advance
Nobi
Hi Nobi, when rolling up I let the various possibilities, answer what I will do. In an ideal world i want to get 3+ points a week. If the stock is static I will just rollout to next week, same strike. If the stock is moving up I will again try to pick up 3+ points. I might do this while buying to close the current strike that is in the money and selling the next higher strike for the next week and hopefully make some money. Or sometimes I roll up to the next strike, gain the 5 points on the long but lose 1 or 2 on the short side for a net gain of 3+. If as in your example, the stock is getting too far ahead I might roll out to the next option that is available after the one I’m looking at for this week. EX; today if you were rolling out from the 625's you would have to decide to go with next week or go out to Sept, 22
Roll to next week means B2C the 625 11.40
S2O 630 for 10.20 a loss of 1.20 in cash, but if your stock stays over 630 you will net 3.80 on the long side because you have a higher long strike by 5 points.
Or you can look at rolling out to Sept 22, 630 strike that sells for 20.50. And make immediate 20.50 minus 11.40, (the cost to close the current 625,) for net cash of 9.10 and 5 points of strike increase for a possible overall gain of 14.10 As there is 5 weeks time in the Sept’s, 14.10 div by 5 = 2.82 average per week.
Or you can roll into Sept at the 635 strike = +17.75 – 11.30 = 6.45 net cash in plus you get 10 points with the strike increase for a possible net of 16.45 which per week would be around 3.29
I hope all these numbers are not confusing but they must be considered when rolling.
Jerry, I notice in your recent blog that you reerence increase and decrease in cash.Cash balance is the bottom line in a account. What is your thought of profit vs cash when doing a transaction?
Ray
PS thanks for sending the chapter on spreads
maeant "reference"
Hello Author,
Thank you very much for answering my questions. This is very helpful.
I will try this strategy on some less expensive stock.
Good luck in your trading.
Thanks
Best Regards
Nobi
Jerry:
Now that AAPL is pushing its all time highs, how would you recommend playing it? I've been doing some weeklies and I have some long call APR13 LEAPS with shorts against them.
I can't decide if I should wait for a pull back to buy more longs, or if this march upward will continue unabated. Your thoughts on how to play with a long and short written against it at these prices?
Aloha,
Mike
BTO the aapl 590 long last week. Did well But I also BTO the 635 weekly for this week. I sold the short today. I am curious if maybe now I should just hold the long for a bit, rather than also buying the weekly shorts
van beek - in response to your question on the other thread, i am not an expert by any means yet - but i will commit up to 20% to any 1 position. i just don't have enough capital to spread it around in something as low as 3%. When i have more to use, I will certainly divide it into smaller increments, but for me 3% is too small because i'd have to find and keep up with too many positions.
question for jerry and/or the group...i am with tradeking and they require higher maintenance on some stocks, including AAPL. so i can't get a reasonable return selling naked puts. it looks to me like selling a spread around the same strike would be similar ROI, or even a little higher, but i am not sure what the drawback might be on a monthly basis. the only thing i can come up with is that it will double faster if the trade is going bad. any big drawback to selling monthly spreads rather than naked using maintenance?
gbarbs--
My own personal experience with selling vertical spreads has been mixed. If you can get monthlies that fit the criteria Jerry lays out for naked puts, specifically 20% below current prices, and you are willing to bail on them when the premium doubles, you should be fine.
I had a situation a couple of months ago where I did not have 20% cushion and I did not close out when the premium doubled (it was an AAPL VPS weekly). I woke up to find the price had passed through my upper strike and was headed for my lower.
I rolled out and down for a big loss, and ended up losing about 60% of that position, about $6k. I am still doing VPS and VCS, but it is scary for me.
My lesson is to stick to the exit strategy I decide on before I enter the position. Trying to ride out a close call can easily turn into a big loss and wipe out your profits for several months.
I'm looking for the pull back in the market. I jumped in too soon last month--I got antsy without anything in the market. Mistake--I need to remember that cash IS a position.
Long story short, ABX fell apart, and when it picked up a bit I BTC all of my options when I made some money. If I would have stayed in the options they would have expired worthless, but hindsight is 20/20.
I still made $1500, but I would have made $8,000. It's never wrong to take profits, I know. I'm still thrilled to make money, that's for sure--a black month beats a red month any day!
I'm guessing AAPL will continue rising through the iPhone 5 launch. Thoughts on vert put spreads? I need to get in the game again!
Hi all,
I have been doing very well selling weekly put spreads on just appl for the last few months. I did a few iron condors when I first started and they worked out well. I really got burned on a condor 2 weeks ago when appl shot up. I am going to stick to just the put spreads for the near term as aapl continues it's march upward. I usually sell about 20-30 points below the strike to pick up 2-3%. Have not had to roll yet but I am prepared to just in case the market sells off. I don't hold over the weekend and usually enter the market on Monday mid day or Tuesday. So far it's working nicely.
Thanks Jerry for having this blog!
Hi Jerry and fellow traders, good ride on aapl!! Still sticking to crumbs from naked puts and spread. Safe and boring. I have Sept 545/535 put for 22cents...could have got 32 cents (didn't I always feel that way). Good to feel free not to spend too much time checking the trade...and some SBUX.
Good week ahead.
Hello Hannah,
I am new to this, so this may be a dumb question. When you said,
"I have Sept 545/535 put for 22cents",
I understand that you sold the vertical put spread for 22 cents and now close to expiration you are hoping to buy it back for much less to make money. Is that correct?
Thanks in advance for your help.
Best Regards
Nobi
Hi Nobi,
Welcome to the blog!
I usually let the spread expire--do nothing. Reason #1, to save the transaction cost. #2,from past experience rolling up or down has proven to be causing unnecessary pain to me.
Occasionally I just cover the short side of the spread for 5cents or less if I find another trade that I need the capital. Remember if you buy back the short side of the put for 5 cents or less, there is no transaction cost for some brokers.
When so far out credit spread more than doubled, watch out - you get out.
Hello Hannah,
Thanks for answering my question quickly, that is so awesome. I really like this Blog and all the writers (members). I find that everyone is very knowledgeable and only writes to the point giving valuable trading information. Unfortunately AAPL is too expensive for me to buy any options. So I like a strategy where I need less capital/margin. Your strategy seems good too, as I don't have to worry about buying power or too big off a margin. Your rule about spread getting double is good as I also have the same rule. If I sell option and if it double, I cover and get out. I might sell it again later, all depends on new factors at that time.
I am thinking of trying your strategy, I will let you know how it goes.
Thanks
Best Regards
Nobi
Rolled from the 590 to the 630 Jan 13 Call. STO the weekly 695.
I believe I have enough cushion on the weekly but who knows.
That sounds like enough cushion but it might be worth waiting to sell weekly calls until wednesday at least, until the Iphone 5 comes out in 3 weeks.??
Anyone doing any trades this week? Awfully quiet around here...
You are right Kauai, has been very quite. I'm doin' the same ole' index weeklies. Got a little too careless a few weeks ago. Had 2 weeks of losses and on the call side just like always. Got back to the plan and A-OK. SPX, NDX & RUT. Placing positions on Wed/Thurs now. Still getting my 1%
Made a great VIX call trade this past week when VIX was 14. Made 11% in four days on 10 Oct 14 calls when it popped back to 16.
I think the big ? mark is the Jackson Hole meeting. Will the Fed anounce another QE??. I don't think the past ones have worked and I think the Fed is out of bullets. Rates are so low a snake couldn't crawl under them. If the Fed does nothing I think the market tanks. Markets have been very quite the past several weeks as they ground their way upwards.
I persoanlly don't care which way the market goes, my nondirectional credit spreads are giving me my 1%.
Hope someone out there has uncovered AAPL calls. Bully for them. Getting long in the tooth here, sorry
I still have my AAPL Jan 555. Haven't rolled that up because I'll take in say 7.9 pts to move up to the 565. I look at that like a 26.5% ROI in 5 months so why give that up.
The problem is that its gone up so fast the short call is getting expensive - I'm shooting for that 3 pts/week but the overall ROI is being dragged down because I'm paying to move up.
Today, I rolled up from 625 to next Fridays 650. Cost me 21.6 pts to gain 25 on the spread. I am a little worried about a quick drop through the 650, but even if it went to 630 I should be able to get the 3 pts of TV and keep the same strike.
Gbarb
I gave up on aapl weeklies and trying to roll up & out AND keep up with aapl. I ended up doing what Jerry wrote about in his July 19 thread. I'm holding the Jan 13 570 call long, so I sold a Jan 13 605 call short. My net cost became
23.84 and IF aapl stays above 605, I sell both calls and net 35.00 for an roi of 46.8% over 24 weeks. Now I don't have that weekly worry and I am happy. Many ways to make money in options.
Hi all, sorry for not being around much but other business has been calling. I'm supposed to be retired but new things keep coming up.
How about that AAPL? My goodness I am their biggest supporter but damn... how much can it go? Some questions from Kauai and other regarding is it time to open any new positions. I have opened quite a few in the last week.
Something that I have done lately when the stock runs away from me, is to not try to catch up with the sold one. I buy it to close and sell the same strike for Jan. (a roll out) This results in a credit of a pretty good amount. I then will let that one just sit and vegetate until Jan and I use the money taken in to open a new vert spread. I open that spread at various points but generally with the bought for Jan ’13 around 610, and the sold at the current stock price with this week’s option.
So even though the previous one is just sitting until Jan the new one is making 3-5 per week for the next 20 weeks. If the stock gets away from you, I would advise to not jump up to much in strike price take your 5 points if you can do that with any credit. Sooner or later AAPL will correct some and give you a chance to catch up some that way. But give thought to rolling the existing ones into Jan and use the cash.
Even if it gets far ahead of you, you still make money each week just rolling the same strike into the next week all the way until January.
Good to be back
Jerry
During the last week I made my first trades. Last week I opened a Bull Put Spread on the Dutch AEX stock market index for September with a 9.0% cushion (return of 30 on maintenance of 500 for a period of 5 weeks). Yesterday I opened a Bear Call Spread on the same index with a cushion of 4.9%, earning 40 on the same 500 maintenance as the Bull Put Spread. Thus, total return of 70 on 500 maintenance in 5 weeks. I feel comfortable with the 9% cushion for sold puts. If the market rallies 5%, gains in my other long positions will compensate for the loss on the Bear Call Spread. Your comments on this trade are welcome. I can only learn from it.
Managed to rescue one AAPL 570 call naked from the earnings fiasco. Woke up in the middle of the night realizing that if I had done nothing for the time since ie stood pat my 8 calls would yield about 80k gain since. Makes me sweat thinking about lost opportunity. Still have 4 570/605 spreads ala Jerrys post above for Oct expiry that should be worth 35 points if AAPL is above 606 at that time. So that's not too bad. What to do now tho, ie how to profit from next weeks expected rise after court ruling. I tell myself 'don't get crazy' so will stay with the 1 to 2 % spreads and slowly build toward real $.
Hi All,
My first post here I have been lurking and trying to learn all of this. I did take Jerry's "an easy 80% in 6 months trade" , my question is are we still holding this with AAPL up so much or should I have closed the trade by now?
Thanks in advance for your help.
Hi Jerry and all,
Been trying to get a copy of the new chapters on spreads. My emails do get trough to you Jerry ... help!
sorry ... many emails have not gotten through to Jerry ....
artelly; try leeway4@comcast.net
we will get the chapter to you one way or another..
Booker, a problem with me and other traders is that we set a goal we would be really happy with and when that is met we wonder how we can up the returns. It comes with the options business..lol.
But if you were happy with the opening, then maybe just ride it out? But you can close it and up the ROI by opening a trade that allows you to do weeklys? I am doing that and enjoy it...but.. I am up to the risk. so eval if you want more roi but more risk. If so then follow along. You can close the first one and open one that trades the weeklys. Usually more $$ in the end but certainly more risk and work.
Jerry
Need some feedback.
My trading accounts are with BrokersXpress a sub of Options Express which was purchased by Schwab last year. Apparently Schwab
is closing down BrokersXpress and transitioning all the accounts to Options Express and dissing Brokerxpress brokers. Consequently my broker is moving his client accounts to Interactive Broker.
I know some of you guys currently use IB. What are the pluses/minuses of IB? What do you think of them? Any repsonse would be helpful and appreciated. Thanks
Taxman, I have an IB account and am very happy with it. Commissions on options are very low, averaging about $0.75/contract. They have even charged me a negative few cents commission on some option transactions. I don't know why they do that but I take any money coming my way and don't ask why. Margin rates are very low, about 1.6% or even lower depending on how much money in the account. This makes it easy to use margin to make more money if you have a system with a high probability of winning. No restrictions on selling naked options etc such as some brokers have. Very fast executions of trades. Can trade directly on foreign exchanges such as Canadian and Australian which is much better pricing than buying pink sheet versions of those stocks. When doing that get very good currency conversion rates. Only negative is they have a limited number of mutual funds available so I don't own any mutual funds in that account. Oh also their real time charts are not as good as Scottrade so I use ScottradeElite for charting.
Jerry, I am entertaining the idea of buying Appl and selling weekly options about 10 higher eg 675 sell weekly for 685. if it gets taken I have made 10 on option and long trade. Just repeat the process next week. Anyones thoughts or experience on this strategy would be appreciated.
Hello all,
My 1st time posting and I've been following the put selling strategy for a couple of months now. I'm being very conservative and have stuck to mainly stocks in the $50-60 range and averaging 1.5 to 2.5% per month. My initial portfolio is 10k and I use optionsxpress. I'm curious as to what some of you folks use, since OX is expensive ($1.5/contract). This month, I'm doing a bull put spread on LULU (yup breaking the <25 P/E rule, but the signs all point to a bullish trend); sell the 47.5 and buy the 45 for net credit of 0.20 which is 2% ROI of my portfolio. Also, I decided to do some betting on GRPN just for fun - sold the jan 2014 4 put ($1.65 credit) and bought the 3.50 sept 12 put (0.2) for a massive net of $1.45 - the profit/loss on this is a win/win (although I realized later that I should have bought the $4 sept put for an even safer play). This is a volatility crash play as the premiums are so high due to the incredible high volatility. I'mlooking for some kind of upward movement or crash in volatilty and then I will close out of these positions.
I've been mainly limiting myself to just equities (no ETFs or indices) - have you tried any of these?
cheers!
Tax - I am looking to change brokers as well - tradeking holds too much on the naked options for some selected stocks. I was looking at BIDU yesterday (I think Jerry mentioned this on the blog?) The naked put was about 4% for the month, but the BPS was just over 2%. Since they hold more on that stock so I couldn't get the 4%.
I use thinkorswim charting so was considering using TD for convenience, but the IB trading costs look too good. Especially with the account size I'm working with those trading costs are critical. So I am looking at opening with IB
I think I will be moving to IB. spoke to my broker last night and was told they will charge only .75 per option contract with no minimum. BrokerXpress charges 1.50 per contract with a $15 minimum altho I am getting a 10% discount - big deal.
I'll give them a try, can always go back.
gbarbs, another good thing about IB is that if an option is assigned they don't charge your account any fee for the assignment. I know some other brokers charge a fee for that. And then the commission to buy or sell stocks is very low. Often I only pay the minimum commission, which is $1. Probably 95% of my trades have commission less than $5. The low commissions, plus the low margin rates, makes it easy to let an option be assigned and then sell the stock a day or two later at a better price when you have an indication the the price might improve over what you can get by selling or covering on expiration day.
There is a $10K minimum initial account size at IB.
Dave
Does IB only hold one maintenace on an iron condor even tho you have a put leg and a call leg????
Tax, only one margin for iron condors with IB.
Damo.
Great blog
STO aapl Aug 31 2012 675.00 call for 5.74
BTO aapl Jan 18 2014 600.00 call for140.96
Wish me luck.
All,
A couple newbie questions if i may, tried to consolidate them all. I'm in month 3 of naked puts, closed so far with 11 wins and 1 draw. I have 8 open now, with 7 of them 20%+ cushion.
1) My 8th position PPO took a hit today on some news and dropped big. My .25 STO is now at .50 and I have 12% cushion with 17 trading days left. Is this an automatic close or do i give it a little room since i still have 12% cushion?
2) On some orders, if I split the bid/ask prices my offer does not show ? meaning the Ask does not update.
3) On IB I've had 3 STO's "Cancelled by System", is this a cancel from the MM ?
4) What % of margin safety do you leave in your acct ? Right now I'm leaving 25-30% is that okay?
Thanks for all your help! fyi...I trade on IB and use TdA for charting, watchlists, and as a backup.
thanks...
I heard the customer service for IB is horrible and problems getting your money. Broker review has alot of comments about IB. But commissions are super low
http://www.forexpeacearmy.com/public/review/www.interactivebrokers.com
Here you go Taxman
Baddata2,
IB has rules about when options trade at different price increments. For many, but not all options, those with price under $3 trade with increments $0.05 and those above $3 trade with increments $0.10. Thus if you have an option with those rules and you put in an order for a limit order trade at 3.15, IB will give you a warning that price is invalid. If you still put the order in anyway I think it will be "cancelled by the system". However a couple of days ago I violated the rule and my order was modified to be at the next 0.10 increment and executed there. So it seems their system changed sometime very recently. You can right-click on the symbol in TWS and get "contract description" and it will tell you what the increment rules are for that contract.
I often split the bid/ask and my order always shows as the new bid or ask. I don't know why it didn't work for you. Maybe because of violating the increment rule above??
B1llmoo, I have heard people say IB customer service is not very good but that has not been my experience. Whenever I have contacted them by phone or chat they have answered my questions well. However, if someone wants major hand holding on how to invest, IB is probably not going to give them that, which might have caused some of the bad press.
On getting your money out, I have my IB account linked to my Scottrade account and to one bank checking account for ACH transfers. At least once a month I transfer some money out for living expenses and it alway gets transferred by ACH in about 2 days. IB is sticky though about sending checks so it may take awhile to snail mail checks. I never request checkms and always do the ACH transfer.
Dave H.
WOW guys. First off thanks for the heads up on IB.
B1 - I read the reviews on the site you posted. To say the least they were not positive about IB.
I have been using BrokersXpress for some 8 years and have been very happy with their platform, order pages and fills. Yes they charge 1.50 per option contract but I have had NO problems with them in ANY respect. I think I need to have a serious heart to heart with my broker who is moving to IB.
I trade mostly credit spreads, long puts/calls, stocks and covered calls. If I do nothing I get moved to Options Express as BE gets shut down. CAN ANYONE GIVE ME A GOOD BROKER RECOMMENDATION??
I don't need charts because I sub to Q-charts. I just need a simple order taker broker, I don't even need much customer support.
Thanks
Tax, never had a problem with IB, I have bank accounts in OZ and NZ and always have my money the next day when I do a withdrawal.
I've not had much to do with customer service but the times I have there's been no issues.
One down side is they don't do margin calls, they will just close out positions so depending on your trading style this could hurt.
Damo.
Since Fidelity sucks with option tools, have been looking to use another brokerage for tools, But using OX but the stream is not that good with fake acc. Any thoughts on using brokerages just for tools
b1llmoo, from what I've seen the TOS platform seems to be the best for option traders, unfortunately I can't get access to it in NZ.
Damo.
Tax, i've been w TradeKing for the past few years. they have raised their comms to $0.65 per contract but I have a legacy deal at $0.15 plus $4.95 per ticket. with my volume in the 1k contract / mth range it's big savings vs $1.00 or more per contract. however, about 2/3 of these contracts are auto-traded and i notice other a/t brokers filling the spread limit orders while TK often does not. still, they have continually upgraded their platform, the tools are solid but not on OX or ToS level, and service for high volume ("MVP") traders has been great. ACH xfers are seamless and fast.
Look into OptionsHouse .... I just opened an account there and will start trading soon ... margin maintenance is low ....10%/20% formula ... commissions are very low. Options are $8.80 plus .15 and spreads are $12.50 plus .15 ... we'll see how the service is.Plus there was a promotion offering 100 free trades if you deposit $5,000
sorry ... $8.50 plus .15. Plus they have a virtual trading account available if you are a newbie and want to practice!!
on the other hand ... I have traded with rtrade for some time and after a while have gotten a reduction in commissions .... still not competitive with optionshouse, but I find they provide great service. i.e. ... maney transfer from a bank account into brokerage account are avaiable for trading immediately! Optionshouse has almost a one week hold before funds are available.
etrade ... my typing stinks!!
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