Hi all. I thought that I would review some of my filters that I have developed for my trading. As blog has 400-600 views a day, when the filters get mentioned, I am sure many are wondering, 'what's that about.' If you have the book they start on page 50 and go for several pages.
I feel that these eight simple things to check will make your trading safer and more profitable. IN the book I expand on each one but here is a simple list for those without the book.
The Eight Filters I Use to Select a Stock and an option position for this month’s use.........
1. I usually use stocks in a price range of $50 to $500
2. The strike price filter is 20%
3. Will earnings be reported in the coming option period?
4. I look at a chart showing the previous two years of the same month to see if there is a history of the stock falling during that period.
5. I look at analyst’s recommendation
6. Price to Earnings, or PE.
7. Is the return worth tying up the maintenance funds that are required?
8. Is there 100 or more open interest for this option?
----------
These simple guidelines will help you be more successful and give you a starting point to evaluate a potential position.
Good trading all
Jerry
43 comments:
Hi Jerry - if I may, I'll add a couple that I incorporate along with **ALL** 8 of your.
I look for a 50 daily moving average stock volume over 1 million shares. The daily option volume greater than 10. Through TradeKing, I have access to MarketGrader.com research reports and choose a stock with a grade of 70 or higher with a buy rating.
I know I have a lot to learn especially choosing the correct percentage of cushion the closer we get to expiration but as you have stated in the past "if unsure, go with more cushion and less ROI".
Your book & blog have been instrumental in getting me on the right road to financial security for retirement (hopefully in 10 years from now.)
Thanks again.
newp. would you email me at putman3232@yhoo.com. thanks
WOW - WLT is taking off like a rocket - guess the flooding in Australia is giving it a push higher - had this on my list to look at tonight/tomorrow after earnings tonight.
Hi Jerry
How about NFLX flash back to 1999?? WOW!
Hi Everyone,
I was thinking about this and I would like your input. Would you ever consider taking this trading strategy and applying it to foreign markets. For instance Etrade allows foreign exchange trades, so now you can add canada and european stocks compared to only US. Granted I know it gets a bit tricky with converting money into currency. Any thoughts?
Hi all, Yeah NFLX in Nov. of 2004 was trading around $9-10,
Newp..Interesting about WLT? Tomorrow will be the proof one way of the other. It always makes me thing someone knows something?
Jonathon, Years ago i looked into trading out of US. Just to much unknown. Even China scares me although i use some (BIDU) There is no guarantee that they use the same accounting procedures that we do... Heck it is not always a sure thing that we use the same accounting procedures as we are supposed to...Bernie Madoff (sometimes affectionately called BM for short) etc.
I somewhat took some interest to look at the stock markets in Indonesia, Singapore and Malaysia - they aren't sophisticated with derivative markets (like options/futures) like the U.S. Aust and NZ (lived in NZ for 2 years)- less volatility and volume as compared to US... except Hong Kong market.
A year and half years ago, I was looking for a discount broker who would let me trade Singapore Stock Exchange but couldn't find one - to buy Genting Singapore(almost a guarantee that it would soar). It has increased 275% since. Opportunity lost while my peers made 6-7 figures. Unless you have some opportunity like that - I am not sure the foreign markets can bring you more $$.
Still think that US financial market offers the very best opportunity for traders (not equal to long term investor). My 2 cents.
well im out of maintenance and bored to tears. my trades are going so well that i guess i will talk to yall in a week. what a great feeling. oh i changed my profile pic becuase i figure yall would rather look at her than me. I have 130 profile views. lol
Hi Jerry and the rest. Well although there are still a few days left it is looking pretty good with respect to my first set of crumb trades. Now i am still a bit reluctant to all the way with NP so i use spreads (for now). From a while back
DECK: Sold 60/Bought 55 for 0.22
WLT: Sold 95/Bought 85 for 0.23
ESI: Sold 57.7/Bought 50 for 0.22
NFLX: Sold 170/Bought160 for 0.30
So far my first set appear to be winners. Thanks Jerry and everyone for the interesting posts etc.
The last NFLX one i set up by combining an alert from a Newsletter and rather than doing their trade i applied the crumb method. It seems to have worked so if it happens again ill share it with people. Cheers
I opened two March positions:
CTXS (price@73) March 60 @ .30 (4.7% ROI)
13 pts cushion (18%)
Uptrending Chart
Analysts Buy Recommendation
Earnings in April
Calc Probability of Expiration is 92%
WRLD (price@63) March 50 @ .25 (4.8% ROI)
13 pts cushion (21%)
Uptrending Chart
Analysts Buy Recommendation
Earnings in April
Calc Probability of Expiration is 93%
Sorry to admit I am also out of maint and bored stiff. I finished it off with some OPEN puts.
I am probably going to let them expire. Usually I would close when they get to a nickle but I'm in no hurry to get into March puts yet. Maybe by Thru or Fri and then look at any weeklys. If nothing there is will either expire or roll into something in March.
John I don't know if I would do the CTXS & WRLD with 5 weeks and only 13 pts of cush. With the world/Egypt etc I would opt for 2.5% ROI to start and then roll up as the month progressed. Just my way
RHM, I like all of those for spreads.
Fish, you go fishing and let her stay and talk to us!..lol
hey rhm - i know how you feel - last month i used only 20% of my maintenance allowed; this month i committed 30% of my maintenance toward put selling; March will be interesting since nothing is catching my eye other than FCX and WLT - as i was told this week; start with a solid foundation and build on to it solid blocks, one by one until you understand what you are doing
RMH, nice spreads you did. NFLX bit me this month, wrong side with my spread. I did make out nicely on APPL.
hi john - i had WRLD on my list and then removed it due to low daily stock volume (my own additional filter) - but i think it fits nicely with all of Jerry's parameters
good luck
saw this article and started having dotcom flashbacks with comments like "dont value high growth names on earnings because they are different"
http://www.cnbc.com/id/41581873?__source=yahoo|headline|quote|text|&par=yahoo
Hi Jerry, New to your blog and Put selling. Really enjoyed your book, just wanted to THANK YOU for sharing your wisdom and Giving Us new folks a guide to success.
I would like to have a copy of your book in word format or a PDF. I will gladly pay again.
Thanks Again
Darrin
Good morning, STO FCX Mar 45 P @ .26
Some questions for the group and our Leader. I recently sold some puts for $0.15 and immediately set an "alert" with Schwab, my broker, to buy-to-close if the put traded at $0.40. A few hours later the alert fired and I was sold out at $0.16. It turns out that there were 10 of these puts traded on the Philly Exchange at $1.35!! Schwab agreed this was most unusual but not unheard of and speculated that the trade at $1.35 was part of a staddle, strangle etc.(all greek to me) where the disparity in price wasn't important. Schwab
suggested that to prevent this in the future I set my alerts based on the ask price not the trade price. So my questions are 1. has anyone had a similar experience and 2. will basing the alert i.e. stop on the ask price prevent this
from happening and 3. is this such a rare experience that I shouldn't sweat it?
Glenn,
I use "mark" price when I set my stops. I use ThinkOrSwim.
Hi glenn
I use mark price on my premium and i also use ToS.
John, keep those posted coming of your upcoming pick etc. i love em it helps me decide on some of mine.
example
CTXS (price@73) March 60 @ .30 (4.7% ROI)
13 pts cushion (18%)
Uptrending Chart
Analysts Buy Recommendation
Earnings in April
Calc Probability of Expiration is 92%
I just opened another March position:
SOHU (price@87) March 65 @ .25 (3.7% ROI)
22 pts cushion (25%)
Uptrending Chart (but possibly overvalued a bit)
Analysts Buy Recommendation
Earnings in April
Calc Probability of Expiration is 95%
*** WARNING: A CHINA STOCK ***
Internet company, provides news, information, video content, entertainment, and communication services in the People’s Republic of China.
Jerry, great book and blog. I really like the simplicity and caution (20%)with solid returns of the crumb method.
John, How do you figure your return on maintenance on the CTXS example from above? Do you use Think or Swim? I put together a little spreadsheet using 10% of the strike price plus premium received and Im getting 3.9%. Just wondering if Think or Swim has option that does it for you or if my spreadsheet is wrong. Thanks
Brad
ROI on Margin Requirements
Premium Rcvd DIVIDED BY Margin Requirement
Margin Requirement is 10% of Strike Price + Premium
Premium Rcvd for SOHU = .25
Margin Requirement = 10% of 65 + .25 = 6.50 + .25 = 6.75
Since options are in lots of 100, multiply the above by 100
Premium Rcvd per option = $25
Margin Required per option = $675
25/675 = .037 = 3.7%
Thanks.
I was using stock price instead of strike price on the spreadsheet.
hey big D. look forward to our next options meeting. the money just keeps piling up.
Big D contact me at putman3232@yahoo.com
Wow, guys and dolls, it is fun to see so many traders using such caution. Taking the crumbs from around the table and putting the crumbs into the bank..Yes!!
There are a lot of good plays out there.
check out OPEN trading at 92.2
the 65's give .21 for a return of 3%
the 70 (22pt of cush) are around .40/.45= ROI =5.4%
There is often questions on figuring ROI (return on investment) John said it well but another thing that might make it easier or quicker is to always take (at least) 20% off of a stock and use the next lowest strike and then it is always the 10% rule. Then it is 10% of the strike plus the prem received is the maintenance needed. Divide the prem of by maint needed.
In the above OPEN example,
prem rec. = .40 (maybe .45)
10% of the strike of 70 = 7
maint + prem = 7.5 (use the ask)
.40 div by 7.5 = 5.3% ROI
Regarding Stops I always use ask price. That usually means at the ASK or higher. As in the above example with OPEN I might put in a stop at [when the ask is .95 or higher, buy to close]
Hope that helps.
Jerry
OPEN is 25x revenue and 85x this years #'s so I guess valuation isnt a focus here ?.....but i guess if you sell far enough OTM you play the odds. I would jsut be more concerned the premium doubling on me/hitting stop far before it pulled back that much
Hi Brian and all, yes with a PE of 160 it is somewhat out of whack. But it meets all other of my filters. No analysts recommending sell and up trending chart and best of all, as most of you know I recommend taking less profit and then rolling later. So i would open the position at the 65 strike which gives about 27 points of cush and a Roi of around 3%. I like it but there are other stocks waiting out there.
On the weekend,thanks to a suggestion. I will post all the plays I am thinking about and each can judge their level of comfort.
Thanks Jerry for the book and for putting this all together. Thanks Gary and Brian for suggesting it over at Preston's site.
Jerry I too would happily pay for a word version that I can highlight and mark up.
George
hey kiteman welcome(i used to kiteboard 2003-06 in the gorge....back before the sport exploded,my 1st quiver was '02 SS fuels which are like rockets compared to gear now. thankfully kite gear is much safer now). unfortunately moved to area in OR where i cant kite anymore :(
Brian, i posted a reply over on WOW questions and answers for you.
Bill
Kiteman, I never suggest Jerry over Preston I only said read Jerry's book and find a balance between the two. I love Preston and can not think of any one better for finding and exploiting money making set ups. I find by reading Jerry's book and blog it keeps me from
some of the pit falls over there, after all they are absolute polar opposites and one can find a middle ground. all IMHO of course and it all comes down to how much risk one can take on and manage.
Who is Preston?
PhAnTOM
If your happy doing what your doing you don't want to know.
Preston is very comfortable selling in the money puts and calenders. Like I said the polar opposite of Jerry. Or what I have started calling "BigBalling" the man has a set.
Not sure how well it works in smaller accounts larger ones with portfolio margin his stuff works great. 250K+
I just opened another March position:
VECO (price@51) March 40 @ .30 (7% ROI)
11 pts cushion (22%)
Uptrending Chart
P/E = 6
Open Interest > 1,000
Analysts Buy Recommendation
Earnings in April
Calc Probability of Expiration is 91%
john, do you find those with a software scan ? 1 weird thing about VECO is a 30% short interest ratio ?
Brian,
I use PowerOptions (www.poweropt.com) for my option searches. They offer a free 14-day trial. I pay $600/yr for this service, but it's already paid for itself many times over.
Gary,
I agree that it is about managing risk. I like that Jerry has built up his stash steadily so that he does not have to take on so much risk. Preston finds some amazing stuff and he has quite a range of ways to exploit them. I am still learning, but progressing. I think that you are right that the portfolio margin helps his cause a lot. Still it is his experience and Jerry's that is the most valuable.
I was looking at ADSK(price@43.9) March 35 @ .14 (3.8% ROI) .14/ 3.64
8+ pts cushion (20%)
Uptrending Chart, very good for last year+
P/E = a little high 26 to 49 depending where you look
Open Interest 45, maybe too light?
Analysts hold to strong buby
Market Edge- Long-strong buy.
The bad news, Earnings on Feb 24.
If you started the trade now and sold before earnings would that be too risky or just not enough time decay?
otherwise it might be worth a look for the next 2 months after earnings
hi kiteman who is preston and his website.Also i opened a position on nflx ,sold march 200 put at 1.50.Anyone doing nflx.
Kite, the problem with lite volume is when you want to roll up or get out of a position, the spread is usually wide between the bid / ask. Such as .30 by .50 etc. The position can be profitable but you lose as you have to take the ask to make a move.
I use 100 as the base before i open a position. Stocks like aapl or nflx has such open volume that making a move is easy.
HI Doc, I would be careful with the NFLX trade as you only left about 16% cush with over 4 weeks to go. I am also looking at NFLX but will use the 190 strike. It pays .90 for a nice 4.5% return. I always try to get the best return combined with the safest strike i can find.
Your return is just about 7% Anything over 6% is a red flag. Always remember that the guy on the other side of the trade is no fool (usually) It will probably work but keep an eye on it.
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