Well a couple of days ago the market calmed down when the Saudi’s said they would make up the lost oil from Libya. Now the Saudi’s are having demonstrations.
Tomorrow AAPL shows off the new I-pad. Maybe that will help tech stocks. Especially if Steve J makes an appearance.
When the market is spooked it is best to trade with lots of safety or not all. Don’t fall into the trap of forcing a trade. Sometimes it is better to avoid the market altogether and golf or whatever. It is better to miss a little possible profit than to take two or three hits.
62 comments:
This is the first month I have tried your strategy, previously only sold options on indexes, ETF's, and futures. Current portfolio includes selling:
CRM - March 105, 100, and 95 puts and 165 calls
GMCR - March 29 put and 59 call
MOS - March 60 put
NFLX - March 125 put
Will be interested to see how these perform if the market drops over the next week or two (I expect this, but am wrong as often as I am right!)
Phan, I like 'em. In the past I have used the collar method often. You left lots of cushion so all these should work out.
Keep us posted on your feelings of our methods.
Jerry
I just sold some GMCR - 30's @(.12) ...26% cushion!
Phantom,
Do the ones with both calls and puts reduce your maintenance since you could not lose on both sides?
Also for John and Jerry and everyone, How do you set up screens for options that match this strategy?
Kiteman, No you have maintenance for both assuming they are both naked. Also you can lose on both sides. That is done by what is called legging in or legging out at the wrong time. Regarding how to set up screens. For me i just do it manually. I call up the chain and after going through the filters i pick a strike 2o+% on each side of the current stock price. But if the stock is tending down i leave more cush on the downside or vs vrs.
Nolan, good work. Chances are you'll be handsomely rewarded. I tried to get more GMCR but missed it this morning.
I looked at the P&L charts for spreads, and the 10 point spread looks more appealing. You will probably net the same after commisions, and your geeks (er greeks) will look a little better.
I have also been thinking about naked versus spread positions. I currently cannot go naked, as my account in a ROTH IRA. It appears that generally, you can go about 5 points more OTM by going naked, and still get the same credit, plus pay less in commissions. So going naked does give you more cushion.
Addressing safety issues, I don't think the spreads give you more safety, unless you aren't using all of your maintenance. Then you might argue that the unused maintenance is perfectly safe because it can't be touched. If you are using all your maintenance, I believe you are risking all of your account with either position. Naked puts will give you positive greeks as well, I think.
Dave
Yes,
The greeks are quite a bit better going naked, because of the smaller number of options sold compared to a spread.
Dave
Of course,
If you are looking to collar a stock, you may get more premium with an Iron Condor, as you will use less maintenance, I think.
Dave
(Sorry for the serial posts here, I'm having flight of ideas today)
Steve Jobs is at the iPad 2 Event!
Hi Dave,
What stocks do you use for IRA? I got the small IRA account transferred to my account last week...So I am looking.
Hi Hannah,
I like to use weeklys, so my options are limited. Right now I am in NFLX, AAPL, PCLN and GOOG. I also watch AMZN, BIDU, CAT, FCX LVS, POT, QCOM, RIMM, XOM.
For most people, a Roth IRA is the way to go. I converted in 2010 to take advantage of the deferal of taxes to 2011 and 2012. If you can achieve significant growth, then you have a lot of tax free earnings. You also get faster compounding by not being taxed currently. There are other advantages, for instance, once the account is open for five years you can take your original contribution out penalty and tax free. Once you open your first Roth account the five year clock begins. Then all contributions can be taken out penalty free after five years, even contributions made after the clock started (except for rollovers from 401k type accounts, they have a separate 5 year clock). A Roth also avoids ordinary income on STCG.
Dave
Hi Hannah, if you're looking for long-term investments for your Roth I would suggest taking a nice long look at HHC (Howard Hughes Corporation). The properties are vastly undervalued on the books and it is the largest holding in my portfolio. Anyway, if you want to know more let me know.
-Mark
Thanks very much Guys.
Dave I'm not sure what it means
"..converted in 2010 to take advantage of the deferral of taxes to 2011 and 2012.." Do you mean you roll it from traditional IRA to ROTH in 2010 and pay the taxes in 2011 and 2012? What if your tax rate increases next 2 years?
Some argue that the tax rate will be lower when you are retired at almost 70 (still quite a long way to go for us)...and stay in traditional IRA.
Mark, I am taking a look at HHC... wow it went up almost $3 today.
Can I ask questions without crowding this board? Thanks. townerc001@yahoo.com
Hannah,
Good questions. Yes, I converted an IRA into a Roth IRA in 2010. Therefore, I have to pay taxes on the total amount converted. I can split the taxes between 2011 and 2012, or I can pay all the tax in 2011. I am not worried about tax rate increases for 2011 and 2012, as the sluggish economy will put a great deal of pressure on our leaders to keep the taxes low. Also, I don't expect to go into a higher tax bracket. Given the amount of debt we have, it is much more likely that tax rates will increase rather than decrease. Also, if you look at historic rates, our current rates are very low. An argument could be made that once you retire, your income will go down and you'll go to a lower tax bracket. However, I am in a low tax bracket now (15%). I doubt I could get into a much lower bracket. Plus if you turn say $100,000 of taxed contributions into $1,000,000 at retirement, the $900,000 increase will NEVER be taxed with a Roth. With a regular IRA, you'll pay taxes later, but you'll pay them on the $1,000,000 and at ordinary tax rates, even if you had LTCG in the account. Those are my thoughts.
Dave
Hannah, I wouldn't pay much attention to what HHC does from day to day although it has increased a bunch today. It's long-term that I think it is a very nice investment. I won't be adding any more unless it pulls back to the sub-50 range which is unlikely in my opinion.
I should add that when I said "won't be adding any more unless it pulls back to sub-50 range" I didn't mean I don't think it's an excellent buy where it is now, I just meant it already makes up a large percentage of my investment portfolio and for me to add more the price would almost have to beg me to buy it. :-) Sorry if I mixed my words but my wife is the author and I stick to numbers!
Kiteman 51,
Since I am trading a Portfolio Margin account the calls require no additional margin as long as they do not exceed the potential loss on the put side. To get Portfolio Margin from a broker (mine is TOS), you are required to have $125,000 in an account and pass a test.
My SPY 123 March 4 weekly closed today for a .6% weekly ROI; 31% annualized ----- not too shabby ---- I'm 100 % cash right now ----- I can live with the safety (boring) annual 31% ----- will probably do this again tomorrow if the premium is there for the 3/11 weeklys.
Good luck all.
HHC has very thin volume (less than 200K?) and EPS of -15.90. It almost doubled in 52 weeks. Good job Mark (don't let the profit run away:)).
Oh just not to be causing suspicion to your wives about asking questions using e-mails :-
Forgive silly-me; I just didn't think of it as I'm solely focused on the financial markets (and happily married with three top-notch kids). May be you know about commodity option too?
Don't want Fishchampion to be mad at me for not asking Sellin Puts questions only lol
Hannah, the value in HHC is that most people dismiss it for the reasons you just mentioned. The company was a spin-off from GGP late last year. If you look at the properties that were spun-off from GGP into HHC, then look at the GGP SEC filings you will find some very, very interesting information. It helps to know a bit about commercial and residential real estate when reading the filings, but even if you don't you will probably come to the realization that the Ward Centers in Hawaii carried at book of $319M is a complete joke. I believe it should be closer to $1B-$2B. And South Street Seaport is carried at $2.9M... heck, a nice penthouse apartment in downtown Manhattan costs that much! All I'm saying is don't judge this book by its cover. If you are so inclined I'd recommend digging in.
I've been following GGP/HHC for over 2 years now. If you have any questions feel free to ask as I have more knowledge of those two companies in my head than I care to admit :-)
Someone asked me about what PowerOptions (www.poweropt.com) screening criteria I use.
Here is one example of the screening criteria I use to narrow my initial list of options candidates as a STARTING POINT for applying the criteria in Jerry's book.
I use the following, but then sort my results by the highest Probability of Expiration, and take a real hard look at the Strikes at least 20% of more out of the money and in the current expiration month:
- Out of Money > 19%
- ProbOfExpiration > 90%
- Open Interest > 99
- Naked Yield (before maintenance) > 0.39%
- Stock Price > 49.9
- P/E < 50
- Average Broker Recommendation < 2.6
(where 1 is the best)
- Stock Price > SMA50
(i.e. stock above 50 day Moving Avg, implies uptrending chart)
- Expiration < 51 days (caveat, this helps me in looking down the road)
- Bid/Ask Spread < .20
- Earnings Date and Ex-Dividend Date NOT between now and expiration
(caveat, if I see that last earnings date was 2-3 months ago, I double check this since the next date may not yet be in the PowerOptions DB yet)
Whose Platform works on an Ipad or Iphone? Schwab does, Trade Monster does not, though I like trademonster.
George, ThinkorSwim
ThinkOrSwim has a fabulous iPhone app and and even better iPad app. They seem to be on the forefront of taking full advantage of mobile devices technology.
Jerry,
I meant to comment a while back. You were writing about rolling up, and how that was when you often would take a loss. To me that sounds like an argument to consider stochastics. If a stock goes up quickly, it will probably become overbought. If you roll up, then the 20% cushion is more at risk, in theory. What do you think? Of course, I am biased as stochastics are an important part of my trading. Perhaps too important though. For instance, I can't spot a breakout stock. Stocks that are rising fast look ready for a pullback to me. I'd like to hear any others' opinions as well.
Thanks,
Dave
Well, SPY has pretty slim premiums this week so I'll be looking elsewhere today. Will see if something interesting comes up between 3 and 4.
Hi Dave, I have never used or even fully understood stochastic. Most of the rolling up losses come when i rolled with covered calls but some also with puts.
A slight correction to your question. lol. I don't often have losses but when I do most of them can be attributed to rolling to soon. I have pretty well learned my lessons on that, but continue to warm others to help them avoid my mistakes. One thing I have found (just me thoughts) when traders use the greeks etc in their trading, if it did what the greeks projected, then It was WOW, but if it didn't correspond as planned traders would attribute it to a fluke. In other words. It is easy to make all that info work and disregard proof that it all was just 'information.' I found I had all the info i needed right in front of me.
But again, many use all those bits for their trading and find it indispensable. I don't advocate not using it, it's just not for me.
Jerry
Thanks Jerry,
My question was not well worded, I'm not much of a writer. I agree that you can get caught up in all the numbers, and put too much faith in them. I try to use the numbers as a rough guide, and then see what the market is really doing. It is helpful to have good rules and stick to them. It is so easy to get caught up in emotion (positive or negative) and violate your rules. Thank you for your thoughts.
Dave
Jerry, I'm diggin' this blog. Just finished your book! I've many years of undisciplined and shoot from the hip foolish trading. Don't even really need to add that it has got me nowhere but in a bigger and bigger hole!
I can really appreciate the simplistic nature of your system, and look forward to scooping with the rest of Jerry's crumb gathering crew!
Although I've been reading each and every post through the archives, I've still got a ways to go. But, for the sake of expediency, I thought I'd ask if you and/or the group has come to some type of consensus on altered filters for trading the weeklys? With premiums lower, a week til expiration, etc, what type of adjustments to filters seem most beneficial? I.E. rather than a 20%+ cushion, how has/does 10% play out?
Any thoughts from you or the gang of crumblers is appreciated.
Jim N
Jerry,
Have a question about portfolio construction (have read your Ebook by the way, very good. How much of your margin do you commit on the first purchases of the month and if it is variable, what is the determinant ( I am assuming ROI available, but want to validate that). Thanks.
A comment on an earlier post ... about how much is at risk in your account.
In a vertical spread, your maximum loss is exactly your maintenance. Should the stock drop below the lower put, then the two puts "cancel" each other out, one covering the other. You owe the difference in strike price times the number of shares ... which is your maintenance.
However, that is NOT the case in a naked put. You can lose far more than the maintenance when selling a naked put ... in principle you can lose the number of shares times the strike price. For example, if you sold 5 OTM puts on XXX at the $100 strike, your maintenace would be in the neighborhood of $5,000. But if disaster happens and XXX stock goes to zero (!!!) you are obligated to buy 500 shares at $100, or $50,000. Sure it's not going to go to zero, but bad things happen and it could drop much lower than your strike. If your account doesn't have that much money in it, you still owe that money. Please don't be lulled into believing you are only on the hook for the maintenance. Leverage can be fatal on the downside!
Be careful out there ...
Guys,
To add my two cents to Jim's post regarding use of maintenance margin and returns, don't you think selling puts significantly reduces your upside from the stock especially in a market which is uptrending? I mean to say that you're better off buying a stock on margin (which uses the same maintenance margin as the stock you're selling a naked put on) and establishing a long position in that stock, and would probably have more upside if the stock moves up rather than crimping your profits by collecting the limited premium by selling puts. Of course, there is also downside risk with owning the long position. In that situation, won't you profit anyways by just reversing your position and shorting the stock? All that is easier said than done, and I don't mean to challenge Jerry's ideas. Just my observation...feel free to share your responses. Thanks!
KJ, yes the upside is limited. But with enough cushion the risk/reward is in your favor. That's the real question... what is the risk/reward you are looking for? What you're discussing is investing where selling puts is more of a trade. Two different animals. Make sense?
Todays trade
I just sold 30 of the AMZN 150 strike- stock at 174 at $.29 = 2.4% for the next two weeks
Regarding the comments above. Like Mark said, Selling puts my way is designed to pick up crumbs from around the table. You can sure make more buying a stock 'if' it goes up. If any of you can tell me for sure which stock is going up by the end of the month, I will refi the ranch and makes lots of money. Also I need to know the stocks that can average 2.5+% month after month all year? When traders tell of the worst scenario where stocks can go to '0' and you lost all your money with put options...If that is true than you can 'safely' buy the stock and it can go to 0 also? But would you watch you position go on and on that low? If you think buying stocks you have the potential to make more, then buying calls, you can make much more. True but again the stock has to go up. I make money if the stock goes up stays the same or drops some. But many ways to skin an options or make money.
Good discussion
Adding to Jerry's post,
Selling puts is not for everyone. I'll repeat something I wrote before: I think most people choose not to sell naked puts because they see limited reward and high potential losses. The key is that, when used properly, selling puts can give you a high return with a high probability of success and a very low probability of loss. I'll venture to say that if AMZN (or any other large company) goes to zero overnight, having hundreds of thousands of dollars of losses will be the least of your worries. I don't trade stocks long and short because I'm not good at precisely judging when any stock will go up or down. With puts, I don't have to be right, I just have to be close enough. Fortunately, there is an investment available for everyone including stocks, options, commodities, real estate, bonds, etc.
Dave
Jerry, good trade on AMZN.
FYI, please double check your math ... 150 strike, .29 premium, it has to be less than 2% .. or maybe there's a typo somewhere.
A couple of other trades I did today
CLF @ 99 I sold 25 at the 85 for 2.1%
WLT @ 126 I sold 20 at the 105 for 2.6%
These are for March 19 expri.
These are a little closer than 20% to the existing stock but only two weeks to go. I will keep you posted on the success.
Oops For the AMZN trade the stock at 173.5, sold 25 of the 155 strike for .45 received 1322- maint of 54402 = roi of 2.43
You are correct I said the 150 strike but it was the 155
JimN, regarding weeklys and filters etc, I find it hard to trade the weekly's on a consistent basis. As you pointed out, using a closer strike does increase the risk some. When doing weeklys I look for a cushion that is 10+% below the current stock price. A profit of around .7% or .8%. This compounded will be around 3-4% monthly. One thing I have noticed after trading weeklys, and I then look out at a monthly, it seems I will be giving WAY to much time. This is one reason I traded a bunch today. I can still get decent ROI and yet drop back 15% or more from the current stock price. But I trade all month.
With all trading I have certainly increased the cushion I start with when trading at the beginning of a month. Partly because of the world situation..Oil etc
In hind sight with the way oil going up VLO would have been a slam dunk.
I did a few Mar. 26 @.23 anyway
I am hesitant on AMZN, but only because the IV is near a 52 week low. That's just something I like to look at. I can't make the weeklys work out right (they aren't paying enough for me). I think it is difficult to trade weeklys without taking on more risk. Otherwise the payout is not enough to justify the extra commissions.
Still learning,
Dave
JimN,
I like the "crumblers" term. I affectionately call this blog "Spomy" (pronouced spoh-me) (Selling Put Options My waY). While not being a true crumbler myself yet, since I choose to take on more risk, I completely support the theory behind it. That's why I love this blog. Thank you Jerry!
Dave
I like it SPOMY..
Gary, you are a thrill seeker. lol. 2.85 cush or 10% with 2.1 weeks to go. Also the profit is around 7+%
With oil going over 101 a bar. it is prob a safe deal. Buttt
Great market today.. free money...
I'm tempted to go short on AAPL. Who wants to call me crazy first?
Uhh me...lol Apple is practically printing money. The new Ipad etc. Even with competition they still have the name and results. Don't try to catch a falling AAPL.
Jerry
OK,
Well I'm not getting back in AAPL after my options expire tomorrow, at least not right away. I predict though, that AAPL will not cross the 370 mark by the end of next week. That's my paper trade for the week, just for laughs.
Thanks,
Dave
Hi all, does anybody know of a service that will e-mail/text alerts when an option hits a certain price? I know many places do this for stock prices, but I'm unaware of any that provide this service for options. Thanks! -Mark
John,
Thanks for the screen settings.
Dave,
Here is the deal on Stochastics and breakout!
A breakout HAS TO BE overbought from a stochastic point of view. Look at the chart for the stock going through resistance. That is a breakout. Just before going through resistance it is still overbought, it just hasn't broken out yet... and might not.
Kite,
Thanks you, I often have trouble finding resistance and support levels, but that makes sense. If a stock is being bought so much that it bursts through resistance, then it will have difficulty getting back down through the resistance. Hence a breakout. Does a breakout usually happen in one day or over a course of days?
Thanks,
Dave
I've been looking at QLD which is a leveraged ETF which tracks the inverse of the Nasdaq100 *200%. It seems to correlate closely as far as leveraged ETFs go. I'm looking at the 76's = 18% cushion. So the Nasdaq100 would have to drop around 9% in the next 2 weeks for this to lose money.
I like the odds with 3% ROI
it will depend on the fill I get whether it is a good trade or not ....hmmmm. I'll have to look more closely once the markets open today. Does anybody have experience trading ETFs with the crumbs method?
I'm gonna close up my OPEN 70's today..they have dropped to (0.1) from my open price of (.55)
Love it!
Thinking of rolling down on OPEN to the 62.5's for April offering 30% cushion and 6.4% ROI!!! that's some crazy cushion and ROI. I was thinking about what Jerry saying that when it gets above 6% to drop down a few strikes...
60's offering 5.8% ROI with 32.7% cushion!! Jerry just clicked like I think ;)
Only thing that worries me is the P/E is listed as 152 on Google Finance...that's up there!
Hi Nolan, that looks nice but be mindful that expiration is 6 weeks out instead of the typical 4 when dealing with monthly's. That will impact the ROI. OPEN might also be very volatile as it is getting a bunch of press and there are advocates both on the long and short side = potential battleground. Here's a piece on CNBC video from yesterday: http://www.cnbc.com/id/15840232/?video=3000008503&play=1
All in all, OPEN is a good find, Nolan.
Thanks,
Mark
Hi Nolan, I would put in an order to close for .05 and open the April 60's at .30
Maybe .07 x .35 etc
You can do this as a credit spread and sometimes it helps even out the bids/asks. I see you were thinking about the 62.5's in April. Not much open interest. One reason i recommend the 60 vs the 62.5 besides open interest questions is that as the 6 weeks move along and if OPEN continues to move-up, you can follow it up every now and then.
Jerry
This thread is getting long... Maybe a new post to get us going today.
Hey Mark..I check out the video thanks! Its true there is 6 weeks rather than 4 so ROI is inflated. I got excited when I saw the cushion and ROI.
Hey Jerry- I like the idea of rolling up throughout the month as the premium fades.
Thanks for the input!
GMCR on steroids right now. $43.60 (+6%)
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