Hi guys (and dolls)
This week and the next is more crucial for the market and us option traders than usual. The big thing on a lot traders minds are ..Is the market run-up justified. The earnings report coming soon will tell the story. Do be especially careful on picking you positions. If you saw coinstar drop like a rock this morning you know what I mean. One hint that 'redbox' will not do well and ouch. The plan of some traders is to get out or close a position right before the actual earnings. That is not a good move as many companies will announce a 'warning' a few days before.
Don't just pick stocks you like or that you have had good success with. The stocks we use are just inventory. Do not become attached to them and overlook things such as earnings reports.
Deidre and B. thanks for the nice words on the book. As I have told many of you, i just wrote the book as a way to help pass the word on how PUTS can be played somewhat safe. I wanted other traders to avoid my heartache. From being a rock start multi-millionaire to back where I started was gut wrenching to say the least.
I know when i have a few good weeks and then I Have to drop down to hardly any profits, I always felt like I was just treading water. Treading water is better than sinking..
So settle for less during the coming week(s) and keep an eye on your positions.
22 comments:
To answer a couple of questions from the last post/comment section.
in 2008 I think I ended up with about 8% profits. I did well on many positions and many bit me on the butt... It was a tough year.
Doc asked how splits effect a stock. There are probably whole books on that subject. I avoid them. There is usually a run-up right before and often profit taking after the actual split. the old saying of buy the rumor and sell the fact. As I have said many times. NEVER GUESS. When you find yourself thinking wow, I can get in on this and make some real money if the stock just goes up etc. That is a guess. Let other traders do the guessing. You try to trade on facts. Tough to do as we all want part of the action and sure enough when we don't make a move, the stock goes through the roof. That's ok as we are the tortoise and not the hare. Give a split a few days to sort itself out and then make you play.
Wow so quiet today. So I 's better put back what I wrote this morning.
Because of WLT's downgrade today and upgrade a few days ago, the prices have been up and down quite a few dollars. But crumbs from Jan 110 are all safe for John!
Good weekend.
Yes Hannah, I agree, a safe and happy weekend for all. May all the military service people have a safe time wherever they are stationed., Without their sacrifice of time and lives America would not be free to pursue our varied and different lives.
We certainly are lucky people. Don't forget to smile at a stranger and say thank you to any military personnel you see. Just walk by them and nod and say thanks, nothing more needs to be said.
Jerry
I've been taking advantage of the 14 day poweropt trial and have a question for those using it. It seems that the delta and Prob of assignment is low compared to most other data sources.
Using the WLT Feb 105P:
Delta % prob below
poweropt -.06 6.7
optionsoracle -.083 7.9
OIC -.083
hoadley Prob 10 - using IV
Jerry says, "Don't worry about delta", but I'm wondering if delta and/or probability of assignment, doesn't allow us to look at closer-to-the-money vehicles (like ETFs) without increasing the chance-of-assignment, and loss. Not trying to "re-invent Jerry's wheel", as I love the technique, but this month most positions that look interesting have earnings before Feb expiry.
I have to admit that for Jan I used strangles a little too close to the money and have had problems with two of them (positions put on before finding this blog and Jerry's book). But it does reinforce that, "No education I've ever received has been free!" The positions have been small enough that I've only been singed, and not burned.
But the title of Jerry's Jan 12 post, "Are we all getting itchy fingers?" fits me to a T. I WANT TO SELL SOMETHING! I'm looking forward to everyone's input for Feb.
Hi Jerry,
I live in Toronto, Canada and have been trading options for about a year. I did not understand how to calculate and use “maintenance margin” until I read your book. Thanks for explaining it so clearly. To write naked puts on stocks on recognized US exchanges my brokerage firm (Questrade) allows 100% of the market value of the premium plus 10% of the exercise value of the put option. However, to write naked puts on stocks on recognized Canadian exchanges my brokerage firm allows 100% of the market value of the premium plus 5% of the exercise value of the put option. Considering that more money is leveraged writing puts on Canadian stocks should I be going further OTM than the 20% cushion?
Thanks
Avelino
Decided to diversify selling options beyond Crude and SPX as I worry that Crude could get a sudden spike due to a world event. Added GDX, SLV, and TBT to be more uncorrelated and increase the likelihood that there will always be something to trade. Still avoiding individual stocks.
Bob, et al,
Different online services do appear to use slightly different calculations for 'Probability of Expiration'...but remember it is just a mathematical probability, which can change wildly depending on the amount of time remaining until expiration. I have found that PowerOptions appears to have slightly more liberal ProbOfExp vs ThinkOrSwim, which calculates in real-time as the market conditions are changing.
All that being said, if you religiously follow the rules that Jerry outlines in his book, you will nearly always have probabilities of expiration much better than 90% -- and the deeper out of the money you go, the better. THE 20 PLUS % OTM RULE for LOTs and LOTs and LOTs of CUSHION seems to be EXTREMELY IMPORTANT in the Crumbs Method. And certainly seems to be one of the keys in maximizing the 'Probability of Expiration' of Sold Puts. For me, it's worth sacrificing ROI for extra cushion. As someone earlier in this thread stated, WLT's price drop on Friday was a great example of the value of CUSHION. My WLT Puts were hardly affected, but that's only because I followed Jerry's advice in maximizing CUSHION.
Hi all, to address some of the comments and questions from above.
bobj. I also am still trying the 14 day trial period. I'm not sure yet what I think. It certainly could save some time and find new stocks to use. However, i have a pretty complete inventory of stocks (about 30) and learning new ones and their trends is adding more things that I might have to consider before a trade. For the rest of Jan looking towards Feb it is hard to find good plays. The earnings season is certainly the wild card. But always keep in mind, If there are no plays that fit your risk tolerance and your filters...do not trade.
14 years of doing this has taught me several things that I try to follow. I am not always successful but I try..
*Don't start strike 'creeping'
*Don't trade just because you have maintenance available.
*Don't get into a trades that is telling you, this is gonna be a close one.
This is a business. We want to separate ourselves from the losers and wannabes. Whether you use my rules or your own, try to follow them.
It is these little things that do separate us.
--Avelinod.. I would certainly use more cushion if I were doing the Canadian stocks that allow less maint. wow, 5% it is temping but might allow you to get into a position that can really hurt you.
--Jeff, I have never done any of the index type items. I just don't don't know them. But I suspect that oil is only going up. If Iran shuts down the straights, or Israel takes action regarding Iran's nuke worries, and then we have our own pipeline problems coning on line?? Just many things that could spike it and few that can lower the price? But always a good idea to diversify when you can.
Jerry
Some good point John. The crumb method will not always save a good position, but it turns the odds into your favor.
I Forgot to mention the DELTA comments. I don't know any delta's of any position I now have or for that matter have ever had. However, many traders use and count on knowing these items. More power to them. Just for me it is useless. Also the 'probability factor.' I guess that I have found that leaving the big cushion, like John said, makes for a 90+ probability factory. But an example of Delta and Probability factor misleading you is with the WLT incident. Both can turn instantly to a negative situation if the stocks make a dramatic move. They are factors that react to a stock movement. They do not control or cause such a movement. For me charts are in the same category. They only tell what has happened, not what is going to happen. I do glance at a 3 month chart to see a trend but would not know squat regarding 20 day moving averages etc. There is so much information out there that if you try to use most of it you would certainly get the paralysis by analysis syndrome. Part of my method is to keep in as simple as I can and still feel ok about my trade. Now these are Jerry's idea so don't hesitate to use what give you that safer feeling, also it just confuses me..lol
good trading all and I certainly enjoy the exchange of ideas.
Ok before the Seahawks beat Chicago today I am going to find some good trades...
Hey jerry stay away from betting on football games because you have done to well in the options market. Lol well my new trades are in and I'm on fslr 105 for a 4percent return. There earnings are 1 day before expiration next month so I will watch them close a week out from expiration but may let them expire if possible since it's so close to last day. I have won my last 25 trades and I'm always using the kiss method. Hope everyone is careful over the next few weeks with all these earnings coming out. I guess we will see if this bull market is justified. Have a great day and hope everyone has a great trade year.
I think the seahawks gave the bears to much 'cushion'..lol
I also like FSLR but going to finish off Jan trades first.
AAPL holders prepare for price dip this week. Steve Jobs just announced that he's taking a medical leave of absence.
It might be a good one to watch for a week or so. Let the dust settle and then watch em run. If earns blow away estimates this week that should overcome the S. Jobs announcement.
On the europe markets AAPL dropped 7% today. We will see tomorrow. If it dropps some and levels off going into its earnings, I might sell some puts on aapl for the last week in Jan.
Hi Jerry,
Would you mind sharing your inventory of the stocks you watch for Crumbs.
Thanks :-)
HI john, glad to. sorta long and a lot of them have been out of favor for a while but i still check them monthly. Many of them have not been used in months but..
first weeklys.
AAPL
AMZN
GOOG
GS
LVS
PCLN
NFLX
RIMM
**** MONTHLYS
BIDU
BUCY
CAM
CLF
CME
CMG
CRM
CTSX
DECK
FCX
FFIV
FSLR
ISRG
LULU
OXY
POT
RCL
RIG
TCK
WLT
X
Every now and then you guys present a good one that is new to me. So the list changes now and then with both deletions and additions
Jerry
wow - Jerry, that is very generous of you.
YOU DA MAN!
Mark
Thank you Jerry very much
Thanks Jerry...you RULE.
Two stock I was watching closely both took it on the chin this earnings season (CSTR & CREE). Luckily, stayed true to the course and did not sell any puts on them. Reality check when you see double digit drops before or after hours.
Hi newp. yes cstr took a hit with the redbox deal? A lot of people like redbox and think it is the next nflx? but I try to avoid the 'one-pony shows. They have the change machines but ???
I have not used CREE in a while but has been a good performer in the past.
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