Thursday, March 21, 2013
Good to be back
Hi all. Well I have been on a roller coaster for a few months. I've become active on a BOD and also had a long vacation somewhat off the grid. But enough of me. Just wanted to say that I’m sorry for not posting for awhile and glad to be back.
For trades that I am now doing..
A somewhat long term spread with GOOG. I recently bought the 9/800 and have sold the April 840. I won't be surprised if GOOG heads past it. If so I will have to decide to roll up the sold strike each week/ or month. But they pay quite well and my 'plan' for goog is to be around 900 by Sept. If so I will capture all the weekly prem's I take in plus capture the 100 pt's on the long side. The do
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Well I will be the first to wholeheartedly welcome you back.
Been doing my weekly index put spreads with great success. Deltas <5 and roi 1% per week. Loving it.
The urban dictionary defines BOD as "Blacked out drunk' Assume that's not what you mean above but can't figure out what else it might mean. In any case, welcome back. Missed your sage advise and good ideas for trades. Been doing some SPX vertical spreads, Rev ICs to capture time decay and LEAPs with sold calls against. Lost a bundle on AAPL before I pulled the plug and will now be happy with a nice 1% each week like Taxman.
Board of Directors
Just kidding around about the BOD of course. More seriously, what is the strike and expiration of your long GOOG calls? How long have you had them? More generally, do you find that an equity with a good chance of rising is the best candidate for this strategy? Seems the underlying LEAP (or longer term long call) could erode in value faster than you are creating cash flow. Do you pay attention, even remotely to the deltas of the longs and the shorts? Still trying to make this work.
After taking a bath on aapl last fall, I dipped back in on 1/24/13with a Jan14 450 leap. It cost me 5,015. I have been selling weeklies against it for the past 8 weeks and have recovered 2,669 and still have some 38 weeks to go. However, I think aapl will miss again on eps, so I'm thinking of closing the leap before earnings, waiting for the carnage and get back in at a lower price - rinse and repeat till next quarter.
Of course with my luck aapl will beat and rocket ride to the moon.
Of course I am still doing my regular index put spreads and having great success.
A newsletter I sub to got a new writer who does butterflies on weekly SPX. I've tried that for the past 2 weeks. Open them up on Thurs and put a buy order in to close for a 150 profit. Wings are 30 points away from the strike with initial credit of $15-16 so margin is only 1500. Gives you a 10% roi on risk. First week closed on Mon but this week is still open.
Not sold on this strategy yet. Only doing 1 contract. She had 47 out of 50 weeks success last year. Max loss is 2x profit or 300. Exposure is usually 2-3 trading days.
Happy to see u back Jerry and thanx for keeping the ideas going around with some great advice.
Thanks guys and gals for the nice words.
I have looked at Butterfly’s but have never done them. I opened the Goog’s a couple of weeks ago. Instead of weekly’s for the first set I did jump out the April 20’s. Doing that I captured around $25 so that off set the cost quite a bit. If a trader can get 20+ each time rolling out a month that still makes 100 more by expiration in Sept. Of course you also get whatever the diff between the two strikes at close. So if GOOG can hold its head up and climb back up some I will be happy.
The vert condor I had with GOOG expired and I kept the cash for a good ROI.
This is a goofy market. Staying around all-time highs and many are saying we are due for a pull-back? The market still isn’t much over the highs of 5 or 6 years ago? War in the mid-east is scary as also the bank stuff going on in Europe. Plan your trades well and as always be careful.
Taxman:
I like your weekly SPX BF idea. Was this for an initial credit (sell)? Surprised if so. I'd be more interested in buying this and expecting the SPX to stay near flat while waiting for an increase to exit. Last few weeks this has been the case. If you are indeed selling it, then you need a pretty good move to profit, right? Thanks.
Josh
The fly was SPX 1520/1550/1580
for a credit of 17.00 with an immediate buy to close for 15.20 for a 150 profit after commish. Instructions are to close the side that experiences a 10 point move and reopen 20 points higher. Well the SPX closed at 1555 on Fri and popped to 1564 today. I should have closed the call side and roll up to a 1570/1600 but didn't. I was still at break even with SPX at 1564. I lucked out with a gap/crap and low and behold the fly closed at my 15.20 on the SPX drop. Lucked out on that one. Will watch those recommendations for a few weeks now before trying again.
Let me tell you, I did not feel comfortable watching the SPX pop. Been there before with IC's and bad results. That is why I now do put spreads with lots of cushion.
Placed some NDX 2725/2700 for .30
and 2700/2625 also .30 as the NDX dropped. Also RUT 915/985 for .20
Can't beleive what going on in Cyprus. Can you imagine that happening here???? WOW
hi taxman can u tell us the name of newsletter.thanks
NDX quarterly closes when?
The newsletter is Optioninvestor.com
I think you can get a free 2 week trial sub. Otherwise it is pretty expensive. I've been with them for some 10 years so somehow I got grandfathered in at the original rate of 395 per year.
NDX weeklies are Mar5's. Normally they would settle Fri AM but with the markets closed Fri, I don't know when they expire this week.
Maybe at Thurs close
Got an email from the fly writer. her instructions also include no trading for the first hour to see how the dust settles. She also said her fly closed on the SPX drop. New fly this Thurs. I am not yet comfortable with these fly's. In her email she listed the 13 weekly BF's she placed this year - all for a profit. Only 1 needed an adjustment and that one was open the entire 7 days but closed for her 150 targeted profit. She IS on a roll.
If you guys/gals want, I have no problem listing her fly recommendation each week if you want to give them a try. I can't say I'd be selling weekly especially if things get volitile
hi taxman..they have many different products..which one are you subscribing to
Taxman: thank you for sharing the details. And yes, if able, do please pass on the trade details and I'll papertrade for a while.
3/20 at 9:41, SPX @ 1558.06, Sell Mar5 1520/1550/1580 BF was $11.40 credit.
3/21 at 9:41, SPX 1551.41, BF 12.55
3/22 at 9:41, SPX 1551.89, BF 12.15
3/22 at 15:51, SPX 1545.80, BF 12.02
3/25 at 15:30, SPX 1548.74, BF 15.80
3/25 at 15:43, SPX 1550.71, BF 16.00
With the SPX trading semi-flat, it seems to me one would want to buy this BF and sell for gains as it narrows on max gain at the center:
http://gyazo.com/98f4556f6aaadae6033423c06f2dbd35
However, I guess I can see also that as the SPX moves around you could hope for an exit on a big pop to one side.
I need to study how much the SPX moves in one direction in a 2-3 day period on average.
Doc
My sub includes:
Option Investor Section:
Market & Index Wrap and Option Plays
Couch Potato Trader - fly writer
Leaps Trader & Options 101
Josh - I placed my 1520/1550/1580 fly on 3/21 approx 10:30-10:45 at 17.00 index at 1550.39 per my trade journal.
hi josh sorry is this this call or put ...thanks
First thing here...WELCOME BACK Jerry!!!
Taxman...some good input from you into this blog...thank you. I'm going to jump in here on this BF discussion and Taxman, if I'm wrong on what you're doing, please correct me. There are two types of butterfly trades: 1. the Iron Butterfly (IBF) and 2. the Butterfly (BF). The IBF is STO (sold to open) for a credit and the BF is BTO (bought to open) for a debit. So, the IBF is a credit spread trade and the BF is a debit spread trade (big difference between the two). The IBF is comprised of calls and puts and the BF is comprised of only calls (if it's a call butterfly) or only puts (if it's a put butterfly). In both cases (for both the IBF and the BF), they are done in the 1-2-1 format, where the outside strikes are bought (the "1's" in the 1-2-1) and the inside strikes are sold (the "2" in the 1-2-1). Based on Taxman's posts, he's doing an IBF (comprised of a call credit spread (a 1550-1580 short-call vertical) and a put credit spread (a 1550-1520 short-put vertical). The overall position is put on for a credit (in this case: $17.00). As is the case in all types of option strategies where you are taking in a credit when you enter the trade, you want that option premium to gradually bleed off or reduce in value so you can BTC (buy to close) for less $$$ than you received when you STO (sold to open) or entered the trade. So, Taxman is STO an IBF for a $17/share credit and hoping to BTC that same spread for 15.20/share which is another example of how one can make money in these markets.
Taxman is talking about and making reference to the IBF trade and others may be thinking about the BF trade. Remember, they are similar, but DIFFERENT types of trades...DO NOT confuse one with the other. When Taxman posts about these butterfly trades, he's talking about the IBF strategy, not the BF strategy (again, there's a significant difference between the two).
Please let me clairify. Mine is the IBF as Dave explained and is a CREDIT spread. I take in $$. It is placed as one trade with 2 wings. I STO the 1550 call/BTO the 1580 call, STO the 1550 put and BTO the 1520 put hence the 1550 call/put become the body of the fly and the 1580 call and 1520 put the wings. Since it is a CREDIT spread, I took in 17. I immedialtely placed a GTC order to close the fly for 15.20 locking in my 150 profit after commish. The idea is that premium decays over time (the weekend) and you buy back the fly at a lower price that you choose.
This might be a great weekend to place a fly since the markets are closed Fri.
By the way NDX & RUT settel Thurs AM. I got an email from my broker saying those options stop trading at Wed close. NICE.
Ahh... thank you! This is an iron BF. I did not realize that.
http://gyazo.com/427e163071dc68a2505e6edc67461afa
3/21 @ 10:30
SPX = 1550.19
IBF = 17.25 (credit)
3/21 @ 15:20
SPX = 1547.39
IBF = 17.00
3/22 @ 10:30
SPX = 1555.07
IBF = 18.02
3/22 @ 15:20
SPX = 1553.90
IBF = 18.17
3/25 Close (today/right now)
SPX = 1551.69
IBF = 14.07
So when the SPX moved up strongly (and Vix) this trade did move against you but having settled back down near the pin at 1550 it has lost a lot to theta.
Interesting setup. Taxman, I look forward to you sharing your next IBF Thursday. :)
Great explanation Taxman, Josh and Dave. Nicely done.
OK here is the Apr #1 fly
SPX closed at 1562.85
If SPX opens 1557-1562 SELL the follwing IBF:
BTO 1530/STO 1560 put
BTO 1590/STO 1560 call for 15.00
no less.
If SPX opens 1562-1567 SELL the following IBF:
BTO 1535/STO 1565 put
BTO 1595/STO 1565 call same 15.00
Wait 45-60 min after market open so the dust settles. Wait after any potential market moving data is reported.
If SPX has a major pop/drop at the open just roll the fly up/down accordingly. Once placed, if SPX moves 10+ points from your short strike close that side of the fly and reopen 20 points from original short strike. Once opened place a GTC order to close for a suggested 150 profit after commish.
Good luck and remember this is only my 3rd attempt. I may wait to see the reaction to Cyprus reopening their banks. Also with the markets closed Fri we have three days of decay till Mon working for us.
I will post when she emails that she opened her IBF. I will try to answer any questions.
OK Taxman...thanks for the info. I'm definitely going to trade this, but I'm going to do it with paper money in TOS until I've got a good handle on trading this strategy (specifically how to handle this strategy when the trade goes against me). That way I can learn from my mistakes without losing any "real money" in the process. I'm going to do exactly what you said in your posts and we'll see what happens.
Not clear about 'management' should pps move +10 against you. The short positions are the body of the fly so you would buy them back and sell up or down $20? What would that cost? Assuming it would be a debit. Am I understanding correctly?
Have Ops
If SPX is at 1562 when you place your fly and it moves to 1572, you would buy back the 1560/1590 call and sell a 1580/1610 call. I have no idea the cost of doing that.
She also says not to overreact on the 10+ point spike. Watch to see if the SPX stays there before acting.
To be honest with everyone about this strategy, I don't like it. Have to watch the market too closely. Place a well postioned put spread and let it ride. Only need to watch for a major move.
Thanks Tax, makes sense. I also like the put spread with an occasional call spread to make an IC just to keep the adrenaline up.
Nothing yet from the fly writer, so she must not have placed the IBF yet. Neither have I. I'm like a deer in the headlights don't know what to do so I will probably do nothing. SPX is like on the line between a 1565 and a 1560 short strike. If you think there will be a selloff next week I guess you want to be short the 1560. If a rally then short the 1565.
Going to lunch now 12N EDT
tax,
could you give us a quick outline on your current thinking on the index put spreads, which index you like best, which least, what day you enter, etc...
thanks
Taxman. I was looking at the NDX options they look good. The only thing it has very low volume. If you have to close a spread before expiration would that create a problem. I'm really new to these options
Finally got an email on the IBF.
It was placed at 10:30AM centerd at 1565 for 15.00 credit.
So the fly is 1535/1565/1595 with a GTC close for 13.40 to get 150 profit after commish.
I have not placed this yet.
Just pulled the trigger - what the heck got 15.40. GTC order to close at 13.10
LUX
NDX, SPX then RUT. I always put on NDX, however it is much more volitile than the others. I try to get as far away from the index as possible with delta around 5 on the short strike and a weekly roi of 1%. I usually place postions on Mon PM or Tues AM. I look to see what the point movements have been the past few weeks to get a feel for how much cushion I want.
I have never had a problem closing a spread when in trouble. NDX bid/ask spreads can get very wide when the index starts moving against you so don't hesitate to close if threatened. I have only had to close 3-4 put side spreads this year out of some 5-6 dozen placed in the 7 accounts I trade.
Call side is where I always get into trouble. Of course the market has been only going up so it has been on my side.
When the market gets more volitile, I have waited to place spreads till Wed AM. i have enve placed a decent spread on Thurs AM.
NDX & RUT options settle at the Fri open whereas SPX settles Fri close.
Taxman, Thanks very much for your help.
Taxman, I got filled @ 0930 on a 1535/1565/1595 IBF @ 15.10 and placed a GTC order to close @ 13.50 - which is very similar to what your email reported was placed. I watched this thing throughout the day and saw it go as high as 15.65 (it may have gone higher, but that's the highest I seen) before falling at the close. TOS shows a Mark of 15.125 on market close for this IBF spread. It will be interesting to see what happens next week. This is a paper trade for me, so I have the benefit of objective analysis in evaluating and learning this trading strategy without subjective emotions coming into play (as can happen when trading real money). Three miscellaneous comments here:
1. I just cannot believe this market. No matter what the news (even bad news), it just only wants to go higher. In all my days of trading, I've never seen a market like this before. It's kind of funny in that all the time AAPL was going down, there were all these people trying to predict a bottom (and getting their faces ripped off in doing so). The same thing is happening in this never ending market rally...people are predicting market tops (and getting their faces ripped off) as this market just keeps going higher and higher seeming unimpeded by any bad news home or abroad.
2. An analyst came out today calling for an AAPL price target of $274/share in six months. It seems kind of hard to believe at this time, but I don't think it's totally "out-of-the-question". Not the way AAPL has been behaving. Also, the list keeps growing of people that are predicting AAPL is going to miss their projected numbers in April's earnings announcement.
3. I was short puts in several AAPL strikes that expire today with the highest being 430. It got a little close (~10 points) there for a while. Anytime AAPL gets close to 10 points away from one of my strikes, I start to get a little nervous (AAPL can drop 10 points in a hurry...may be not the old "Rocket Ship" AAPL from last year, but certainly this new "Drop Dead" AAPL of this year).
My take on the continuing market rocket ride is the 85B in NEW money the FOMC prints every month.
Yeah it goes to buy CMO and T-bills but mostly it ends up in the coffers of the 21 or so primary broker/dealers the Fed works with in monetary policy. They are the Citi's, JPM and Goldmans of the financial world. The money is supposed to be lent out to individuals and business at low interest rates, but if there is no demand because the economy stinks nor can you qualify for the loan, the money sits there at no cost to the broker/dealers so they invest it in the market. It's also known as the Bernake put.
Newsmedia talks about the distruction of the middle class, well thank the Fed. They are trying to reduce the value of the $ so we can buy our way out of this debt crises with cheap dollars. Think about it this way. You have a 100K mortgage and make 50K a year. If magically your salary double to 100K you can now handle your 100K mortgage a lot easier but the value of your $ just got cut in half. The amount of debt stays the same its the number of $ floating around out there. The problem is that the Euro is dropping in value faster than the $ because Europe is worse off than we are. Remenber it is a relationship thing our $ value versus other currencies of the world.
Do you know that the Fed has purchased some $4Trillion of American debt? What do you think will happen to interest rates when the Fed decides it needs to start selling off that debt. Talk about a roket ride in interest rates and a tanking of our eceonmy again.
Sorry peeps for this diatribe but it frustrates the hell out of me seeing what this gov't is doing to the economy. I doubt we will ever see a normal unemployment rate again.
Hi Guys:
Question for Jerry. In your last post you mentioned you had GOOG SEPT 800 calls and had sold the APR 840 call against them. GOOG has dropped significantly in the last couple of days, so on the bright side your short has lost much of its value, but your long has probably lost more.
My question is how do you manage this trade. Price of GOOG is now below your bought call. Do you close out both sides and roll down? Or do you just sit and wait for it to (hopefully) come back?
I know you are a "gut instinct" kind of trader, but you probably have some sort of feeling about where you sit now.
When AAPL tanked last year, I was playing this strategy, and kept selling calls as it dropped, but once it got below my bought call I was in trouble, since as you know, AAPL never came back.
Thanks for your insights!
IBF Update:
I got filled @ 0900 this morning on my BTC 1535/1565/1595 IBF trade placed last Thursday. I entered the trade @ a premium of 15.10 and immediately entered an order to BTC @ 13.50. I got filled on my BTC order @ 12.35. That's a profit of 2.75/contract which represents a return of over 18% for less than a four day trade (2.75/14.90). Not bad...too bad it was a paper trade...darn, darn, darn. This is probably about as good as it can get as far as the outcome of the trade. A nice GIGO (Get In Get Out) trade. I'm going to do it all over again this week. Taxman, according to the rules, we're supposed to enter these trades on Thursdays for the weeklys that expire the following Friday...right?
IBF Update
Just got filled at 12N on my IBF. STO on Thurs net 1525, BTC today at 13.60. Net 150 per contract. Out in 3 days for an roi on risk of 10% or 5% on total required maintenance.
Dave. I get the recommendation late Wed/early Thurs. Will post it again when I receive it. Have not gotten an email from Dot (fly writer) that her position closed.
Yes open this Thurs for next Fri expirey. My third week of success.
OK Taxman, thanks. Congrats on the IBF success. I'm going to continue to paper trade this strategy until I experience a move against me and see how the adjustment works out. Trading is easy when everything goes in your favor, but when trades go against you, that's when you really find out if you know what you're doing...or not.
Way to go Tax Chickened out of doing this with real money last week but was real close. Wudda worked out. Keep us informed of your 'progress if you will, please. Don't see yet how management would work.
Today's Trades
NDX 2725/2700 for .30 @ 2807
NDX 2700/2675 for .30 @ 2798.75
RUT 900/880 for .20 @ 938.65
Dot only had to adjust the IBF once in 2013, had to hold it for 7 days but still made her 150.
If SPX goes +/- 10 points from your short strike, you buy back the violated side and roll up 20 points and place it again. I only did this 3x and luckily did not have to adjust the position. Management is why I trade only 1 contract. Will have to wait and see
Hi All
Does anyone using TradeKing have a time-saving method of entering all the option trades into the tax forms using Turbo Tax???
Thanks in advance
Taxman, I'm in on a 1530/1560/1590 IBF @ an $18.00 credit. Last week I did the 1535/1565/1595 IBF for a credit of $15.10. So, this week I've got less at risk because of the higher credit received when entering the trade. Last week's outcome was probably as good as it's going to get. We'll see what happens this week. This is a paper trade for me as I want to experience what happens when price moves against me and how the adjustment you said to make works out.
April #2 IBF - SPX closed 1559.98
Wait 45-60 min after open. If SPX moves 11 points (1 std dev) from 1559 within that timeframe don't place the trade unless SPX moves back to the mean.
Open Between 1552-1557
Place a 1525/1555/1585 for 15+
Open Between 1557-1562
Place a 1530/1560/1590 for 15+
If SPX gets real volatile wait for it to settle down and if:
1547-1552 then 1520/1550/1580
1562-1567 then 1535/1565/1595
If SPX moves +/- 10 points roll the threatened postion +20 call or -20 put. If SPX moves ANOTHER 10 in the same direction move the threatened position + another 10 or - another 10.
This apparantly is compensating for hightened volatility
I may sit this one out. Got burned this week on NFLX. Had 20 170/165 puts when nflx was 184 on Tues and bang out of nowhere three days and -20.
Things are starting to get wild out there.
I THINK I'M SITTING OUT THIS WEEKS SPX IBF
I'll be interested on Dot's adjustments. However according to her instructions we shouldn't even be entering this trade today with the SPX probably moving more than the 1 std dev.
Tax Kinda exciting on those BuPSs thisweek. I bailed on my SPX 1525/1530 just before the market ticked up. Had the IC so came out even. Can't watch tday so I'm all cash again for the weekend, See ya!
In my opinion there is a God. I just dodged a major bullet and one reason why Fri AM settlements are SO dangerous and why I hate them beyond belief. I was sitting with some 150 NDX 2750/2725 put spreads placed Wed PM. NDX closed at 2795 last might so I had 45 points of cushion goin into this AM settlement. Well as you know the madre hit the fan via the jobs report and right after the open NDX was trading -50 at 2745 or 5 points ITM. OMG. CBOE just came out with the NDX AM settlement and it settled at 2756. Saved by the hair on my chinny chin chin as the little piggy said. I really need to do some soul searching if the markets are going to get this volatile.
IBF #2 update:
This is really pretty cool. As I posted yesterday morning, I entered a 1530/1560/1590 IBF for a credit of $18.00 (so, on a 30-wide spread, my risk was $12.00/contract). The SPX was @ 1560 at the time (10:29) I entered the trade on 4/4. Today, with the markets dropping big on the open and the SPX @ 1540 (on the open), the IBF trade could have been closed out (in its entirety) for a debit of ~18.675. So, with the SPX trading below my lower break-even point of 1542, I could have closed out the entire trade for a small loss of ~$67/contract. I decided not to make any adjustment to the trade because as so many times happens in these markets, when they drop on the open, they always seem to bounce back at some point as the trading day progresses and I was counting on that happening again today. As it turned out, that is exactly what happened and I was able to get filled @ a debit of 16.35 (my limit BTC was @ 16.40) to close out the trade. So, I entered the trade yesterday @ 10:29 for a credit of 18.00 and got filled today @ 10:26 to close out the trade for a debit of 16.35. So now, I'm out of the trade (another GIGO - Get In, Get Out). My ROR for this 1-day trade was 13.75% (1.65/12). After commissions, I made over $150 for each contract traded for the second week in a row. Last week, things went remarkably well (as good as could be expected). The same cannot be said for this week, the trade went horribly against me (outside my lower BE point after just one trading day) and I was still able to close out the trade with the achieved goal of extracting $150/contract from the trade. BTW, when the BTC order was filled, SPX was trading @ 1547. I've been told that butterfly trades are very forgiving in the early stages of the trade and I'm finding that to indeed be the case. There's still much more that I want to learn about this strategy before committing real money to it, but I have to admit, I like what I'm seeing so far. The SPX moved against me "big-time" and I was still able to exit with the desired $150/contract goal the very next day...pretty cool baby! I'm now 2-for-2 on this IBF strategy and I'll do it again next week. I really want to see what happens when the market gaps up against me as opposed to today’s gap down.
Dave
If I wasn't reading it I would not beleive that the trade was successful. I was staying away from it due to the volatility. Dot has not sent an email indicating her placement.
Tax...I'm with you dude! I'm very surprised at what happened. Is this really the way this strategy trades...I don't know, but wow, for the trade to go that much against me and still be a winning trade is remarkable. We'll see, I'm going to keep trading it every week and learning as I go.
Dave G and Taxman,
I saw the exact same thing. Entered the butterfly on Thursday for $18 and change and was filled to close Friday AM at 10:34 EST. I certainly did not expect that as the move was pretty significant. What clearly worked for us was that the jump in volatility was short lived and the market started pulling back up almost right away. I am also dubious regarding the fill price. By your comments Dave, I assume you are paper trading. I am too. I have had a few instances where TOS paper trade fills me at crazy impossible prices. Prices I would certainly have not gotten in my real account.
I am looking for time to analyze the strategy closely, but since it is really a very tight Iron Condor, then it must suffer from the same drawbacks. Namely that they are great on an easy going, relatively range bound market. Issue is that on a "bad week" (ie, two days like Friday) you could get taken to the cleaners. I think the question is if the "low profit" target coupled with the high position theta can offset the risks of two large moves.
Did anyone took a look at how much would have cost to roll the put spread when we were at the lowest point?
On Tax's comments re NDX settlement, I had a similar experience w RUT. I had 910/890 put spreads and decided to punt once the market got down to 919 on Weds for a $1.60 loss. I should have rolled down to pick up some credit but I was at work and didn't have the time. Then it rebounded sharply the next day but the Fri AM settlement was at 910.09 after a big gap down (.09 OTM). Then it closed at 923, roughly flat. I think I prefer SPX. A bit less drama...
Hi all, i was out a little but am back. seems like folks are getting into butterfly spreads and all which is great. I need a little more comfort with those things. I'm sticking w/ the tried and true. I actually pulled in a decent haul this month, thanks to Humana (HUM). my trades this month:
- GRPN (the gift that keeps on giving!) - sold the 5.50 puts; once the price spiked above 6, i made it a spread by buying the 3 put for just a penny, freeing up a bunch of margin
- HUM - sold the 55 puts (very very nice volatility spike and premium due to its phase II certification and the increase in medicare payments)
- JOY - got into a 52.50/50 spread. this could be a close one, although I dont really think the price will touch 52.50 (it has been trending lower and is 56.90 or so).
My haul this month is 4.75% ROI which isnt bad.
AA reports today. I'm thinking of playing the 7 puts or maybe even 7.50s. AA hasnt really touched <8 since april 2009, so i doubt it will sink any on bad news. figure it's baked in (nad has been for the last 4.5 yrs). Thoughts?
sharpCocoa, glad to see you're trading this strategy also. The more, the better...more information is "MO-better". Yes, the markets always seem to bounce back at some point after a down open (a characteristic of bull markets). Yes, I'm paper trading this strategy. There's no way I'm going to start trading a four-legged strategy (IBF) after exclusively trading a one-legged strategy (selling naked puts) for so long without some thorough ground work. I've heard the same thing about TOS paper trading (generous fills), but it's still better than learning with real money. I'm looking for three things from paper trading this strategy: 1. experience 2. knowledge (1 & 2 kind of go hand-in-hand) 3. a trading plan (for the IBF strategy) that I'm comfortable with and have confidence in. If I cannot achieve #3, I will never trade this strategy with real money. The IBF and IC are similar, but also different. A risk-reward graph really "spells this out". An IC is a long strangle protecting a short strangle and an IBF is a long strangle protecting a short straddle. An IBF gives you more positive theta and more negative vega and thus if volatility decreases, will benefit more (because it has more negative vega exposure). If you want more positive theta (i.e. more premium) choose the IBF. If you want a trade that gives you a higher probability of success, choose the IC. I never did look at the rolling of the put spread (I was 100% confident the markets would rebound from the down open and was willing to give it to around noon to do so). But, you're right, all these contingency plans need to be looked at and written into a trading plan (by me) before I will ever trade the IBF with real money.
Sai, "My haul this month is 4.75% ROI which isnt bad." Your "isnt bad" is a bit of an understatement...4.75% is "freaking awesome"...congrats. Expectations for AA are so low that this one could be one of those situations where the results are bad, but not as bad as expected, so the stock goes up. But right now, all I'm hearing about is how there is all this spare aluminum capacity and no demand for it...not good for AA. I'm not playing it...the 7 puts don't pay enough to make it worth my while. I'm looking to play INTC, AAPL, and GOOG as an earnings play. I'm short some AAPL 315 May puts already (small position...looking to add more if premiums go higher). Looking to sell some GOOG 660 puts @ .60 but, so far, no fill. GOOG is scary...can't help but think if this is another AAPL. But, I like the fact that they report the evening before the April options expire. I'm also trying to get filled on INTC 19 puts, but no luck so far. All of these are WOF trades for me. The only one that scares me (a little) is GOOG, I've been burned by this stock in the past and really should stay away from it, but I like the options expiring the day after they report thing.
For you IBF'ers
SPX closed at 1587, if after the first 45-60 minutes SPX is at:
1582-1587 enter a 1555/1585/1615
for no less than 14.00 credit
1587-1592 then 1560/1590/1620
ditto on the credit.
Enter a GTC close order for a 150 profit.
Close the threatened side if SPX moves 10 points from your short strike and re-enter 20 points higher than the original short strike. Good luck Dave
Taxman...thanks for the update. I will enter an IBF trade today, but I will not be able to manage it too much as I start a 7-day Professional Trader class that starts this Saturday and ends next Friday. This is done in the traditional classroom environment (at the Academy Learning Center) and you are forbidden from doing any trading from your personal account during the class. So, all next week I will not be able to do any trading except, maybe, during lunch hour when I can go home and enter trades if any present themselves. A while back, I read an article about the things every successful trader MUST do and one of those things mentioned was to continue and never stop getting educated (in trading and all its different aspects). That got me motivated and up and off my "complacent-ass", so now at least one time per year (these classes are run every month), I'm going to attend the 7-day Professional Trader class and the 5-day Option class. I have not done any retakes for years (retakes are free for all graduates), so Saturday through Friday of next week I'll be in the 7-day Professional Trader class and next month the 5-day Option class. It's going to suck "big-time" not being able to trade during that time. I'm also attending a lot of webinars now...all this stuff is free, it's just a matter of doing it. So, I'll enter the trade today (along with the closing order to capture $150 of after-commission profit), but really can't do anything with it (except during lunch hours) all next week. But, it will still be interesting to see what happens. I'm definitely going to be bringing up this IBF strategy during my 5-day Option class next month. Butterflies are a topic talked about during the regular class curriculum.
Hi All:
I know that Jerry and most here are trading spreads, but does anyone have an opinion on using the methodology in Jerry's book to sell puts on leveraged(2&3X) ETFs.
If this topic has already been addressed here, please tell me the date and I will read it there.
Thanks in advance.
Bill
OK Tax, I'm in. I entered a 1560/1590/1610 IBF @ 15.80. If it goes 10 points above my short strike (today or tomorrow...not concerned with the downside as these markets only go up nowadays), I'll make the adjustment you mentioned and see what happens. I'm in this to learn baby! This is a paper trade for me. I'm not entering any new "real-money" trades this week as I'll be in class all next week and don't want to have to worry about them during that time. You said "good luck"; I should be saying that to you as you're the one trading real money...so, good luck Tax on your trade. BTW, how did that lady do on last week’s IBF?
Bill, I use to trade those leveraged ETF's until I attended a 1 hour webinar from one of the Trading Academy instructors on how those things really work. Now, I will not go anywhere near those things anymore. They are destined to go to zero, that's how the math works and there's no avoiding it, that's why they have to keep doing reverse stock-splits to prop the price back up again so people will keep trading them. That doesn't mean you can't make $$$ off them...it's all about timing baby. I just don't like playing the WOF on something that destined to go to zero w/o a reverse stock-split to save it.
Thanks for your answer, Dave.
A bunch of the Direxion ETFs recently underwent splits as their share prices were presumably too low.
I guess if you stick to Jerry's idea to use an underlying with a price greater that $50, you should probably be safe from a split event in the ETF.
By the way, what does the " WOF" acronym mean?
Thanks again for your help.
Bill
Bill, "I guess if you stick to Jerry's idea to use an underlying with a price greater than $50, you should probably be safe from a split event in the ETF." This may be true, but it doesn't mean you're safe from the leveraged ETF dropping in price (in a big way) should price go against you. They are just fine when price is going in your direction, but when they don't...watch out baby!
WOF stands for Wheel Of Fortune. It's a trading strategy where you sell puts on something you're will to own, at a strike you're willing to own it at and if the underlying drops below that strike at expiration, you take possession of the stock and sell calls against it until it's called away from you. All my naked put trades are WOF trades except for most of my AAPL trades (I am willing to take possession of some AAPL below 400) and SPX when I sell puts on it (only when VIX is near 20 and I can get 350-400 points of cushion and still get 1.00/contract or more).
Thanks again for your answers, Dave as well as the definition.
I'm fairly new at this and have been leary of being assigned and then writing calls, if the underlying is falling like a rock. But if you deal with "high quality" companies, such as the Dividend Achievers, who've raised their dividends for over 10 years, that would probably help on the downside, depending on what price you were assigned at.
Thanks again for your help.
Bill
Taxman
I remember reading a previous post by you that you list all option sales by the month when you file taxes. Do you separate them by expired and sells or how do you list them?
Anybody else does it different other than manually entering each and every option transaction?
Thanks,
Jason
Jason
Bill, now you're thinking like me baby! I don't know if that's good or bad, but that's exactly what I'm doing. I've been selling puts in VZ and T for a few years now and have yet to be put any stock. But, both have gone parabolic now and I've learned from USO, SLV, and AAPL that when something goes parabolic, you stay away if playing them from the bullish side. But yes, I'm counting on that dividend yield (which goes up as the price goes down) to provide additional support to the underlying (and in most cases...it will).
emkwn1, there is this software out there that will calculate your capital gains and wash sales for you and put it into Form 8949 automatically. They are called TradeLog Software and the url is: www.tradelogsoftware.com
I've never used it, but the guy that told me about it does and claims it is awesome. He says it has saved him many, many hours of having to do it manually. There is a fee for the software, but he claims it is worth it.
Thanks Dave G, I will look it up.
Dave; Thanks again for your help.
Bill
IBF update:
My 1560/1590/1620 IBF entered yesterday @ 0934 for a credit of 15.85 was closed out this morning @ 0855 for a debit of 14.25. That's a < 1 day ROR of 11.30% (1.60/14.15). Another "pretty darn good trade" for the third week in a row. I was ready to buy back the call spread yesterday when the market was headed up and had it reached 1600 (my short strike was 1590), my plan was to BTC that call spread and establish a new IBF 20 points higher as Taxman advised to do. But, the SPX never got to 1600 and here I stand with another winner (3 winners, no losers so far). I'm getting lucky...that's my feeling right now. I really want this trade to go against me so I can see how the adjustment results turn out. I'll try again next week. Bottom line, I'm out of the trade...another < 1 day trade @ a pretty darn good ROR...even the best ROR traders on this blog would have to admit is pretty good. This is Taxman's strategy...not mine...I'm just trying to learn it and become comfortable with it (develop a trading plan) to the point where I'm going to put real money on the line. Tax, it's been interesting and fun...thank you for bringing this strategy to our attention.
Another data point for the IBF trades:
Entered the trade on Thursday at 12:30 pm EST with SPX at 1592. I opened a 1560/1590/1620 IBF for $16.05 credit.
The trade was closed this morning for $14.50 at 9:54 am EST.
Just as DaveG, I hope this goes against us at some point. I am sure that as soon as we put real money behind it, it will promptly fall apart :) Volunteers?
I was feeling left out when Dave posted that his IBF closed this AM. Mine just did. OPened Thurs PM at 16.05 credit, just closed at 14.55 debit, net of commish. 10.75%
roi on net risk or 3% on total maintenance of 3K. Will post next trade when I get it.
I'm playing with real $$$$
sharpCocoa, I had to laugh at your comment on putting real money to work and then it will fall apart...those are my thoughts exactly. I will not put real money to work on this strategy until I experience a price move against me and make the adjustment and see the results. Tax...congrats on your trade, keep the posts coming.
Looks like Taxman is a step ahead! Interesting that we had similar credit but the "real deal" did not close about the same time mine did. That is what I was referring to when I said that fills on TOS paper accounts are iffy... By all means Taxman, keep them comin..!!!
Guys - Dot, the IBF writer has had only 2 adjustments in 2013 and both closed with the target 150 profit. She had to hold them longer. Has not had a losing trade this year. I think only 3 last year.
SharpCocoa, I agree with you about the TOS paper trading results. You and I closed about the same time (me @ 0855 CST and you @ 0954 EST). Based on the post Tax made about his results, he got filled on his exit ~3 hours after we did. The results though, were all about the same. Nothing is perfect, the paper trading system has its faults, but it's still a good learning tool...IMHO.
IBF Update - At 3:25PM Thurs, Dot entered a 1565/1595/1625 IBF for 14.90 with a BTC @ 13.30. On Fri with SPX down she closed and rolled down to 1545/1575 for a 6.95
debt. She now had a BTC order in for 6.30 to give her the targeted 150 profit. Doesn't sound to good especially with the futures down bigtime. I was a bit suprised to see her go with 1595 as the short
and not 1590 like we did.
Been following along with you guys but in reading tax's post above realized I don't know it she/you guys are using current week or the following week in setting up the IBF. Can you clarify? Thanks
Have ops - The IBF's are entered on Thurs/Fri with next weeks options. So all the IBF info above is for this weeks expirey entered last Thurs/Fri
Update on last Thurs SPX IBF - Dot closed it out for a 295 loss. Here is the chain. We all closed for our 150 profit, but I am still not sold on the strategy.
Placed a 1565/1595/1625 for 14.90
Rolled down on Fri for -6.95
Rolled down again on Mon -4.95
Closed Mon @ 3PM -5.95
I will post her SPX IBF on Thurs
Well, it would be interesting to know how many times has she rolled her positions. If she has had so many winners vs. losers it almost begs the question if it is worth rolling or just closing and waiting for next week. Unless many of her wins include rolls. I also wonder if the expectations for profit should be adjusted once you roll. Seems like still expect $150 once you have spent $600 on an adjustment might be pushing it a bit. What do you guys think?
IBF Update - No trade this week too volatile. YTD results per schedule supplied by Dot in the newsletter. In 2013 she had 15 trades(1 per week), 3 adjustments counting this week, 150 profit for 14 weeks, this is her first loss.
During 2012 Dot indicates ahe traded 47 weeks with an average weekly roi of 1.6%. She did not list her weekly trades.
Now - if her IBF spread is 30 points, credit of 15 so risk/reward is ~1:1, then a successful trade of 150 profit should have a weekly roi of 10% on risk(3000 spread - 1500 credit) or 5% on the 3k maintenance. So looking at a 1.6% average roi per week, to me, indicates she had several loss weeks. If your loss is 2x your profit and your roi on maintenance is 5% then is it possible that 1/3 of her trades lost???? Hurts my brain to calc this right after tax season. Take it away Dave.
@Taxman. Do those 47 weeks with 1.6% roi only include trades that follow this strategy or could she possibly be including other types of trades?
Opened the IBF a moment ago (3:30 pm EST): SPX 1510/1540/1570 for 21.10 credit. I will not be able to watch for the next few days, so I set the sell limit at 19.40 and a stop loss at 24.5 (three times the target profit). Hopefully that will give it enough room to run. The trade will be on total autopilot... Exciting... :)
There is a new ETF that follows a strategy similar to that in Jerry's book. HVPW. Sells 60 day puts on 20 volatile stocks with strike prices 15% below current. Have been trying to find the names on the index with no luck so far. http://www.alpsetfs.com/hvpw-index.php
Can anybody find out what stocks are used by the HVPW ETF? Thanks
So I don't post often, but read dilegently.
I took great interest int eh IBF trades recently discussed. I have been doing them with TOS paper trade account for the past 4-5 weeks.
I have yet to have a losing trade.
I enter either Thursday or Friday (depending on my availability) using an ATM for the shorts and 30 pt spread as discussed above.
Upon being filled, I then immediatley place a OCO trade. I set a close for 2.00 profit as well as a stop limit for 2.00 loss.
So far the IBF has either closed the next day or the following monday.
Granted this is paper trading, but even with all the recent big swings I have been profitable.
Thinking of trying this for real in the next week or 2.
After spending all of last week (Saturday - Friday) in the Professional Trader class, I'm now back in front of my computer for the first time since 4/12. The class has changed so much since the last time I took it. I'll be in the Professional Options Trader class next month (this one is only 5 days instead of the 7 days the Professional Trader class lasted). This class has definitely changed the way I view trading. The vice president of education has a saying that everyone at the Academy is familiar with and it goes something like this "trading is all about the transfer of money from the accounts of those that don't know what they are doing into those that do". I'm now motivated to get off my complacent "ass" and get back into the education aspect of trading. I will be attending a lot of educational classes on the Internet as well as formal education in a classroom environment. It is good to have a month off between formal classes though. I did no trading of any kind last week while I was in class. So, I didn't do the weeklys IBF trade. I will do it this week though.
Tax, if her loss (on losing trades) was 2x her profit and she lost 1/3 of the time, then she wouldn't make any money at all (you make 150 week 1, make 150 week 2, then week 3 lose 300...end result is no money made/lost). So, her performance had to be something better than 1/3 of her trades losing money. Look, speaking for me, I don't care how many of her trades made money and how many lost money (as they say "past performance is not indicative of future results"). All I really care about (with this IBF strategy) is how does she manage the trade when it goes against her and what is the outcome of the trades that went against her. Anybody can manage a winning trade, but not just anybody can effectively manage a trade that is going against them (especially a multi-legged option trade like the IBF). My concern with the IBF is how to manage it when it goes against me and for that I need this trade to go against me, so I can make the adjustments previously stated and see what the outcome is. If I don't have a plan for what to do when the trade goes against me, I will never trade this strategy with real money. That doesn't mean I'm expecting not to have any losing trades, it just means I have a plan to minimize my loses when I do have a losing trade. Again, trading is about the transfer of money from the accounts of those that don't know what they are doing into those that do...I don't want to be one of those "don't knows".
Dave
Her last IBF was a 295 loss. Look at my 4/16 @ 5:09AM post to see her chain. She brought in a 14.90 credit rolled down 2x and finally closed it on Mon for a 295 loss.
No trade this week - she said it was too volatile.
Hola all from sunny Playa del Carmen! This is truly the way to live. While I'm only here on vacay with the missus, I'm hoping to be kicking it Jerry-style if these strategies work out. Ok, so on to bizness - under my sun soaked gazebo i'm going to play AAPL earnings and got into a far OTM weekly of 345/335 spread for ~2% ROI. this is >10% cushion with the current price, which is ~405 or so. Typical movements is within the 4-5% range either way and folks expect extreme movements in the 8% range either way. So if this works out and holds, then I'm 13% away and need it to be that way till i"m on vacay ie till friday and pocket some vacay dough. wish me luck. Other options for this month that I screened are NOV (reporting earnings in a few days - did well with this the last time), HUM. GRPN not so much this month - ever since the price is been rising, its volatilty been dropping and premiums not so rich any way.
ANyway, vaya con Dios amigos and buena seurte!
Apple beat and price already up 20 to the 420s. I think I'm in the clear till Friday with my 345/335. Arriba!
Not so fast there Sai, I like you am in an AAPL earnings play. I'm short the 290, 310, 325, and 340 puts that expire this Friday (04/26). But, unlike you, I'm not ready to shout out "winner, winner, chicken dinner" just yet. Since that initial surge up (~430) after trading was resumed, the stock has been dropping and seems (at least for the time being) to have found some support ~405. There's still another hour left in after-hours trading and the stock could still drop some more. I want to see what happens tomorrow before I'm willing to claim a definitive victory on this one. One thing for sure, though, premiums will be collapsing tomorrow on the day-after earnings vol-crush...and that's a good thing for people like me and you that sold premium into the earnings announcement. I was logged into keeneonthemarkets.com watching Andrew Keene trade AAPL an hour before market close and everybody there was bearish AAPL and then after the markets closed and before AAPL reported Gene Munster (AAPL analyst...and a damn good one) came on CNBC and said he was preparing for the very worst from this announcement, so I was a little worried about my positions. I'm expecting AAPL to fall in tomorrow's trading...I just hope it can hold 390 by market close tomorrow.
jonnyv24, it's your money and you can do what you want with your money, but for me, I'm not liking your risk management plan for the IBF. Not liking the 1:1 reward-to-risk ratio. As an investor, 1:1 is OK, but as a trader...not so much. All of us trading this IBF strategy have had success paper trading it. My question for you is this (and I'm asking in a respectful way), do you really feel you have a "handle" on this strategy after just 4 weeks and none of those 4 weeks was a losing trade? I would think you would want to experience a losing trade at least 1 time before trading it with real money if nothing else just to get a feel for experiencing it from the losing side and see how you still feel about the strategy. This scenario could happen: neither your stop nor your target is reached by market close on Friday and come Monday, the market gaps big (on the open) against you and your stop takes you out of the trade, not with a 2.00 loss, but a 3.00 or 4.00 loss. Now, because of your 1:1 reward-to-risk trading ratio, you're going to need 2 winners just to make up for that 1 loser. That's why at the Trading Academy they stress a 3:1 reward-to-risk...with nothing less than 2:1 considered as a trade. Just my thoughts. Again, it's your money; you can do what you want with your money. Please though, keep us posted as to your results.
OK, I'm in an IBF for this week (paper trade)...the 1560/1590/1620 for a credit of $16.90 with SPX trading @ 1589.66 at time of entry. Had to wait for the CBOE to come online for the order to fill...they had an outage this morning.
IBF update:
Entered yesterday for a credit of 16.90 and closed today for a debit of 15.30...that's an ROR of 12.2% for a 1 day trade. Some notes and thoughts on this trading strategy:
1. I was down 12+ points at one time this morning and I was still up $80 on the trade.
2. As long as SPX stays within your break even points, you will be able to close out the trade for a profit (as long as enough time gets burned off to do so).
3. I want to get filled at or very near a credit of $17.00 (anything over $17 makes it that much easier to close out the trade for the targeted $150 of profit).
4. I'm considering closing out the trade on Friday...period. It appears, the only way you can lose money on this trade (between entering on Thursday and closing out on Friday) is if there is a big move Thursday into Friday in the SPX (outside the break even points). This leads to #5.
5. I will not enter this trade (with real money) on Thursdays of the week when the jobs report is reported (usually the first Friday of the month). Too much risk of a big movement in the SPX from the jobs report.
6. Need to see what happens when holding over the weekend.
7. Next week I'm going to do 2 of these...one that I will set a GTC for the $150 profit and the second one to hold over the weekend and see what happens.
8. These butterflies are very forgiving early on in the lifetime of the trade...it appears.
9. I'm liking this strategy...but of course, I haven't had a losing trade with it yet.
Dave, thanks for the insights. I have learned a lot from your postings. Especially the discipline and conservatism. Something I'm not quite clear on as far as risk of the IBF. If you receive a 16.90 credit then as long as SPX is below 1606.90, or above 1573.10 (+/- 16.90) at expiration, you should have a profit. The credit exceeds the debit from the option expiring ITM. That's about a 1.1% move which isn't much and it only has to move ~2% (30) for the max loss of 13.10. So I get the point of closing out once the $1.50 is hit but wanted to see if you agree with this P&L for the trade. Thanks very much.
Glenn, you are correct! One of the things I don't like about this strategy is a big move up or down is a negative. When I sell puts, I only have to worry about a move down. I'm still uncertain how much damage is going to happen when the trade goes against me and I want to exit the position. What you want is for the SPX (after entering the trade) to not move much up or down and theta to decay the value of the anchor position (the short strike) enough from the time of trade entry to the next day (Friday) so that you can close out the position for a 10% (or better) profit. The anchor position is the ATM strike and that is the strike with the most time value and thus the strike most affected by theta (since we sold that strike, the theta effect is of a benefit to us). I also do not like the reward to risk ratio. If you collect ~$17 on trade entry (my goal or better), you still have your butt on the line for a loss of $13. On just one contract that's $1,300. So, again, I want to see how much damage is done when the trade falls apart and goes against me. Flash crashes, mini flash crashes, markets ripping to the upside...these things are going to happen from time-to-time. Look, with this strategy, not getting too greedy and just taking 10% profit is going to be a winner most of the time. So, if you trade this strategy all 52 weeks of the year, you're likely to be successful 48 of those 52 weeks (based on what I've seen so far). It's those 4 (or so) weeks when the trade goes against you and you have to exit for a loss is what concerns me now. I've already proven (to myself) that the strategy works...now I want to experience a losing trade. This Friday is the "jobs report" Friday for May (good chance of some meaningful market movement on Friday). I will be trading this strategy (paper of course) and hoping for the trade to go against me, so I can experience (finally) a losing trade and see how much damage is done. I'm still thinking (winner or loser), you close the trade out (in its entirety) on Friday. I don't know for sure yet...we'll see.
Good point. A decent move either way is a negative. ToS (my account anyway) labels this 4 leg combination an iron condor and that's why I moved away from those in the past. One side or the other often seemed to get into trouble. Tax has passed on the advice of closing out the side which has a 10+ point move, and rolling it 20 points. For your paper trade I believe that would mean moving your 1590/1560 put side down to 1570/1540 (if downside move). I don't know what the net impact would be but a 10 point move is < 1% so happens a lot. The other approach is to just put in a GTC stop at $20 and hope it's the rare exception, cost of doing business. I'm going to try option A (on paper) the next time SPX has a big move. Thanks for awesome analysis!
I'm with Dave G - still very uncertain about this IBF strategy. I feel great comfort in knowing how there's only one variable with selling puts/put spreads and that I only have to adjust 1 position in order to get in/out of a particular position. This week I'm looking at a couple of positions - GOOG with 785/775 spread for a 2.3% ROI and GRPN 5.5 puts (yup playing earnings) for a 3.27% ROI. GRPN's been on the upward move lately and I'm somewhat familiar with its movements over the last several months, and so am comfy playing earnings which report on may 8th. even if I get put the stock, I dont mind holding on to this stock b/c I do think it has an upward trajectory (not to mention turning around and selling covered calls on it to unload it), so the risk level on this (at least for me) is not as high as other stocks.
Does anybody know of a book something like,Defending your option trade?
Thank you.
@cliff, what kind of option trades do you want to defend? simple trades can be defended by rolling out strikes and/or time, more complex trades can be defended by adding positions.
if you are talking iron condors, doc severson has some youtube videos on defensive adjustments.
bill
one hedge i've been using is monthly OTM VIX calls. It won't make up for a 5% overnight move against my put spreads but it could at least offset some of the damage. the VIX is at historical lows so calls are pretty cheap.
Glenn
I don't know if you have noticed or not, but the price of VIX calls DOES NOT exactly follow the value of VIX.
With the vix so low, I have purchased some June 13 calls. Recently with vix spikes up to the 17/18 area, you would expect the calls to have an intrinsic value of at least 4 or 5 with some time value added, but nay nay. The calls were valued much less. I think it is because the calls cannot be excercised into a "stock" like equity calls and there the MM's play with the values.
Have you noticed that???
Hi Bill, yes iron condors, are what I am interested in and I will check out you tube. Thank you.
Tax - I see exactly the same thing on VIX calls. I researched and the reasons given for the discounted price are that they are a) European options and b) VIX is a mean-reverting index. The second one definitely makes sense. It may spike but settles back into a certain range pretty quickly. Here's the link if interested in the explanation:
http://www.theoptionsguide.com/vix-option.aspx
Calls on a leveraged short ETF might be better as downside protection but the VIX has the potential to move 30%+ on a day when the SPX moves a relatively small amount. I guess in the end I'm more speculating than hedging since I usually close out if the price doubles.
Taxman, first of all, let me say, I'm not an expert on the VIX. I don't trade it, I just follow it. I was waiting for someone else to "chime in" on the issue you raised about the VIX. Your comment "I think it is because the calls cannot be exercised into a "stock" like equity calls and there the MM's play with the values" is not the reason why. Look at the SPX, it cannot be exercised into stock either, but it doesn't have that same issue you raised about the VIX. The reason why (I believe) is because (unlike any other option chain that I know of), the VIX options are not based on the "cache" VIX that so many people are familiar with. But rather, the VIX options are based on the VIX futures, not the VIX cache. They are not the same. Yes, they're connected at-the-hip by a rope (a rope that's longer at times than other times), but again, they trade differently. The VIX futures are not the same as the cache VIX (just like the SPX futures are not exactly the same as the cache SPX). TOS has the capability to trade VIX options, but not the capability to monitor the VIX futures (at this time...I'm told that capability is in the near future). That's the reason why I don't trade the VIX options because I don't have the capability to monitor the "real" underlying that they (VIX options) are based on (that being the VIX futures). There's a way to tell from the VIX options (roughly) where the VIX futures are trading if your brokerage platform (like TOS) doesn't have the capability to monitor the VIX futures. If you want I'll post it...if not, it saves me some writing. Once TOS has the capability to monitor VIX futures, I will start trading VIX options also.
BTW, I'm getting my "face ripped off" in my paper IBF spread trade (finally). I'll make a posting on it later.
I lost the max 300 last week on the IBF. I have decided its not for me. Dot has not placed a postion this week because the market is too volatile. I'll revert back to what I know.
IBF update: Yesterday I entered a 1565/1595/1625 IBF for a credit of ($17.90). The only reason I entered this paper trade was to see what would happen (how bad) when the trade went against me. Had this been a real money trade, I would have never entered this range bound trading strategy in front of a "jobs report" Friday. Earlier this morning it would have cost 21.975 to close out the spread (a loss of 4.075 = $407.50/contract) when the SPX was trading outside my upper B/E price. The SPX has pulled back a bit and I'm currently down now 2.60 or $260/contract with the SPX near my upper B/E price. I'm going to hang onto this position over the weekend to see what happens.
BTW, earlier this morning with the VIX cache trading @ 12.90, the VIX front month futures contract (which the VIX options are based on - VX K3-CF) was trading @ 14.25...so, you can see the disconnect between the cache VIX and the futures VIX.
I'm going to keep paper trading the IBF for awhile. I'm curious to see what kind of win rate I can achieve. It requires about 7 out of 10 winners, assuming an average 3.00 loss vs 1.50 gain, to break even.
The current holdings for the HVPW ("high volatility put write")ETF are shown here: http://www.alpsetfs.com/hvpw-index.php The 20 puts stay the same for 60 days. The positions that have increased in value are at the top of the list.
Hey folks, how's everyone's haul this month? I'm at 4.1% and eagerly awaiting expiration friday. I did have a thought I wanted to get all of y'all's reactions to. Many of the juicy premiums these days are offered up by highly shorted stocks (eg, TSLA). So is my understanding correct in thinking that if a stock has a high short interest (say, north of 30%), then the original sellers of that stock (who will now be uncovered) basically sold and drove that price down to where its at? If this is the right understanding, then selling puts on these kinds of stocks should pose less risk of the stock tanking even further, since the damage to the stock has already been done due to the initial heavily shorted positions. If anything, any positive news will cause the stock to shoot up massively (as seen by the afore-mentioned TSLA), causing massive deflation of the put position. Of course, a stock can always head to zero at any point, but any further decline would be caused by true owners of the stock dumping it, not through further short selling. Is this basically the right way to understand stocks w/ heavy short interests? The reason I bring this up is obviously b/c these are the kinds of stocks that show up most whenever I screen for put candidates and I wanted to know whether or not to stay away from them. Thanks for some 411!
I am up 159% for this year primarily trading IOC. Selling short term calls on the DITM LEAPS and also selling a few puts every month. Similar strategy and performance in the IRA account too. GLTA
Bill, what is IOC? Interoil?
Back into the SPX ICB. Placed a
May4 1625/1655/1685 Butterfly IC for a credit of 18.00. Also placed a GTC close for 16.20. Did it last week also for a 200 profit in 2 days.
Sai I - yes InterOil. The call and put premiums are excellent.
taxman: thnx for sharing. I need/want to start doing these. Looks like you already got some nice gains!
Bill, thanks for the IOC tip. The deep OTM premiums are excellent due to the volatility but the bid-ask spreads are so wide apart, that you really need a lot of margin requirement to get into them. The only way of doing this is obviously spreads. Is there any other way you do it or just have a large enough account to trade the naked puts?
I should say ONE way of doing IOC is spreads, certainly not the only way!
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