Hi all..
I have received several emails asking for more clarification on a couple of areas..
When do I close a position? .. When the returns get below 1% (using the prem divided by the maint),or .05 remaining prem. I start giving serious thought to finding another position. Usually i roll up with the current stock to a higher strike.
-I only do this if I feel safe rolling up
-I only do it if the new return justifies it (sometimes the new higher maint negates the return)
-I like using the same stock as I now have a good idea of how it is moving
-I also am aware of the filters that have already been cleared
But, and a big Butt so to speak is that most of my losses come from rolling up to soon and to high. If the stock is at 100 and you opened the position at 75 strike and now there is a week left and the there is no return that looks good without using the 90 or even the 95 strike. You just might fall to the temptation of STRIEK CREEK... It is easy to convince yourself that with 5 days left what can go wrong... You just entered the area where i get most of my losses. lol.
Don't forget, the part where I recommend 20% cushion, that is the starting point! More important is using the 20% rule but resisting the temptation to get better than 6% and even then it is dicey. Those good returns tell me that something is afoot. My filters may not have found it but someone somewhere knows something... I expect to get around 2.5--3.5 as a safe area when opening. The extra returns come from rolling up and tweaking it some. Also I wrote the book before weeklys were available. So mental adjustments need to be figured in. EX; a 1% return with weeklys is over 4% monthly. Someone doing weeklys and trying to get 3% weekly etc is asking for trouble. Now and then good trades do come along, enjoy them but be aware you just dodged a bullet.
Good safe trading
31 comments:
Hi jerry, have you ever thought about writing/revising a 2nd edition to your book? I'd love to see an updated copy! Also, when you say "rolling up", what does that imply? Are you rolling the option over to the next month, or just increasing the strike price? Cheers!
Hi Henry, Rolling UP to me means staying in the same stock at a higher strike and the same week/month. Obviously, rolling down is the opposite.
Rolling out is going into the next week/months options. Rolling up is a way to tweak or make a little more premium. Rolling down is a defensive move.
Regarding a newer addition of the book, I have given some thought to it but aside from weeklys being introduced, not much has changed in the option world. Regarding the roles for trading weeklys, I suggest that opening a position much better than 1% ROI is a position that traders should keep a close eye on. If you are the kind of traders that isn't checking in often, I certainly suggest that you have your stops in place (true for any options trader that is away much)
Jerry
But Jerry...
What about Japanese Candlesticks, Fibonacci retracements, moving averages, deltas, gammas, thetas, option standard deviations, put/call ratios, bollinger bands, relative strength index, MACD, double tops, double bottoms, head-and-shoulders, Elliott Wave analysis, Value Line index, book values, price-to-book ratios, free cash flow, random walk hypothesis, PEG, and all the other mind numbing investment analysis indicators?
Why, oh why don't you over-complicate your method with all this other stuff?
Why do you have to keep this method so simple?
lol ... I know why ... to make money ... never mind.
John...lol I think you put your finger on it...
I never understand how Mutual Fund companies, with rooms full of super computers, graduates from MIT, Stanford etc and they can only average 10-12% ann. returns..at best? That is how I rationalize my avoidance of all the techie stuff. Professional traders tie their brains into knots trying to beat the S&P, which barely breaks even, if that.
Eight or nine years ago, I had an epiphany. All someone has to do is sell 1000 traders a $50 a month 'system' of insider super secret chart methods and then they never have to use their own method. Just sell the 'stuff' and let other traders take the risk. I always fall back to the idea 'If it works, why don't they use it?' I am too cynical I guess.
Don't get me wrong as this is just my way. Many use all the charts and greeks and geeks and seem to get something out of it. Maybe that is why I get to golf 4 or 5 times a week? Now if the Greeks and all the others can just help me straighten out my drives just a little bit..Now that is something I will pay good money for.. lol. Well up to $50 a month anyway..
Jerry
Thanks for the reply Jerry! I like how you keep it simple and reiterate safety, even a 21 year old like me gets it! =)
Hi,
I love Jerry's method and believe it to be sound and safe. Personally, I prefer to take on more risk. Of course my losses are large when I take them, and I do have to monitor my positions very closely. I'm not advocating taking more risk, it's just what I prefer. No matter how much risk you take, it must be managed somehow to stay alive. This week I like:
NFLX
AAPL
GOOG
PCLN
I believe the market will rebound this week, we'll see.
Dave
Power of using Crumbs w/ Weeklys Time Decay:
Last Thursday, I sold AAPL Mar(1) weeklys 305 for .43
Today the premium bid bid dropped to .05, so I closed the position rather than wait until Friday. Profit was .38 net - margin ROI 1.2% over 3 trading days (over 5 calendar days). That's only a compounded average annualized return of about 139%. Not bad for a super safe trade :-)
Granted AAPL shares did rise over 12 pts over the period - but my original safe cushion was over 30 pts - so this recent rise caused a significant decay in the options' deep OTM premium value from .43 to .05 in just 3 trading sessions.
Hi Dave, thanks for the good words but if I were you i would be careful with the NFLX & PCLN trade. I make it an almost universal rule to not sell puts on a falling stock. It becomes a guessing game wondering when the fall will either stop or reverse itself. When there is major volume on a falling stock it tells me mutual funds etc are bailing and the bottom might still below. Combine that with higher Pe's and it is one more indicator. A stock that has gone up a lot (PCLN-NFLX) the guy on the street might figure it is time to take some profit. I start looking at naked CALLS as a way to play these stocks. The maint is the same only reverse for N-calls and N-puts. These naked call work well with weeklys as you are not giving a whole month for them to turn around. Time decay is quicker.
just my thoughts..
Jerry
Hi Jerry,
Thanks for your input. I will give this more thought. My view, for what it isn't worth, is that nflx is still trending upward, and the recent big jump on earnings is a strong support level. For pcln, their recent earnings report, I believe, will keep the price propped up for this week at least. I prefer to buy on a dip, instead of buying on a breakout, however, pcln is breaking out on good earnings. I do appreciated your comments.
Dave
Also, I am nervous about going short in such a strong bull market. What is the reverse for "don't try to catch a falling knife"?
Dave
it's don't try to lasso a rocketship :-)
I'm new to this blog but have appreciated Jerry's (and everybody else's) comments and posts. Good stuff!
-Mark
Sold Mar $15 TTWO Puts, stock has been stable as of late, even after overall video game sales were down, lots of talk about buy out, lots of good games, see how it goes.
Mark,
Thanks I'll try to remember that! Another consideration for NFLX is the "dumb" money (early morning traders) are selling, while the "smart" money (late afternoon traders) are buying. The smart money usually wins, because they have a lot more of it.
Dave
lol...Mark, just be sure the buying and selling are not reverse of who you think is doing which..
By the way. Forgive me all, of critiquing positions. I'm just passing on intuition gained over 14 years of making and losing money.. Usually I'm wrong but want to ere on the side of safety.
Nicky, you are a thrill seeker...lol You are giving them three weeks to keep the .93 gain... I don't follow them so I have idea but..GL
Jerry,
I think your buying/selling comment should have been directed at me. You are correct, it can be difficult to tell who the buyers and sellers really are. I appreciate your criticism of my positions and assumptions, I intend to learn as much as I can from others.
Thank you,
Dave
What is the recommended options screener? That is, what resource do you use to research 1000's of options electronically to narrow that list down to those that you like? Perhaps something like Options House, Options Xpress, Power E-Trade Pro, etc.?
Mark,
I use PowerOptions (www.poweropt.com) and it's already paid for itself.
They offer a free 14 day trial to test drive it.
John, thanks for the info. Appreciate it!
So I sold some OPEN puts Feb 18. I put a double premium buy back on them and it went though so i lost on that one for this months puts.
I recently did a vertical on CLF monthlys
sold 75
bought 70
Also i recently did a vertical on NFLX weekly
sold 180
bought 175
CLF is running in the positive right now, but NFLX is not. but with a weekly i have 20 points of cushion still so im not worried. I would expect NFLX to expire worthless. Once this AMZN uproar passes NFLX will go back up.
Fulgore,
I started using a ten point spread on my verticals. You get a lower credit, but you pay less in commissions. I haven't looked at P&L charts, but I think the smaller leverage would be a positive as well with the premium moving more slowly compared to price (is that delta or something like that?). Of course, the purchased put would move more slowly, but I don't know how much that would affect things.
Dave
Hi all, I just did a few of the GMCR. it was suggested to me in an email and I like it. Trading around 41+ I sold some 29 strike at .09 the ROI is only 2.6 but with it trading below my 50 benchmark I will take that. It has a 29+% cush. Just a little for gas money but who can turn down some free money...
Just using up some spare Maint funds. lol. We will see.
Jerry
Could someone tell Mr. Bernanke to stop talking. It is funny that people actually trade on his speeches. I don't really care much about what he has to say. That's just me though.
Dave
AMZN is sitting on top of a 1.5 standard deviation line. (bottom band)
IMO there is no way it gets to 155 in March 150's .44 145's .26
Looks like we have lower highs and lower lows....for most high flying stocks. What do you all think?
I think if oil reaches $100 again then we might see another sell off in the market, except for the energy sector. High PE stocks will be the most volatile so I would probably avoid those. Maybe this is the correction everyone is talking about?
John, thanks again on the PowerOpt.com recommendation. I played with it last night and it looks like it will fit my needs.
Jerry, I picked up some GMCR, too. Now I'm going to go order some more K-cups to boost that stock price a bit! :-) One note of caution to those looking at GMCR is that a few former employees have filed lawsuits, but it doesn't look like much to me, but always good to be aware of the variables with any underlying stock. Link: http://www.cnbc.com/id/41782775
I started to look at GMCR and backed away - not quite my cup-of-tea. Looks like a lot of debt and over valued but I'm no Karen Finnerman in doing fundamental analysis :) but getting that much cushion is sweet; hard to pass up.
Good luck all.
newport, it definitely is overvalued with it's P/E at 78 against industry peers like SBUX in mid-20's. Positives are that SBUX is also looking to get into the single-serving home coffee market and may make a play on GMCR. There are other reasons I like GMCR over the next 3 weeks to not tank 20%+ but it's not for everybody.
Aapl should be an interesting play with their conference tomorrow. I am not playing it nor would I know how to. But I expect a big jump in the stock. Probably the upside is already figured in? It will be interesting.
LVS APKT NFLX & FFIV.... just got murdered.
Low of OPEN=$82.88.
I thought that would happen in Feb. Who knows tomorrow is another pump and dump day....
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