Hi all. I hope the past option period treated you ok. If not it is important to examine what went wrong and how you could have changed things. Usually when I examine my mistakes I see...
1. More cushion would have equaled more safety.
2. I was trying to get to high of a return.
3. Playing with a stock during earnings report.
4. Sometimes it is a combo of all of the above, Not quite enough cush, a little to much time left when opening the positions and a slightly to large return expected.
I know a lot of time I seem to be preaching but running your options as a business requires good judgment and certainly caution. You don't need an MBA from Harvard, just common sense and restraint. When I see a position that is giving me 3% in a weekly position, I am looking at the wrong option... You must keep in mind that the trader on the other side of your position probably knows exactly what he is doing. None of us are bullet proof and one serious misstep can ruin you and your finances.
This coming week requires utmost caution. Most of the biggies are reporting in the coming week, or the one after. Even if your stock reports in the second week, a bad report from a similar stock can drag down your stock and force you to close to soon.
Also keep in mind that there are mutual fund companies that have computer rooms bigger than your house and they cannot get 10% annual returns. Most of them have a zillion ivy-league MBA's on staff. So every now and then I have to slap myself to remind myself, good returns are a plus but restraint will carry you into an early comfortable retirement. So plod along and set goals that are reasonable and you and I will be writing on this blog for the next 10 years.
68 comments:
Jerry
I appreciate what you’re doing with your blog. Not only are you providing a honest service for free in this shark infested industry but your teaching patience and a time and money management style I didn’t receive in grad school, God Bless and keep on keeping on.
Jer,
One certainly can't find your kind of wisdom in MBA curriculum lol. Thanks so much.
Just want to let you know how much we appreciate your guidance.....Happy living.
Hannah
They don't teach you common sense in school, thanks for the wise words Jerry!
Jerry,
I too really appreciate your straight forward no bull*(^(&* approach. In particular your focus on patience, the need to fight the greed monster, and the appreciation of small numbers compounding into big ones is really refreshing.
I made 3.3% last month on Open,WLT and GMCR puts.
I rolled up the Open and WLT. I had 2 positions in GMCR and had to close one early for a margin call. The net after commissions was 3.36% what I migt earn in a year in TIPS.
Thanks to you and good luck to everyone.
It was also nice to watch the value slowy increase not suffer big swings like my regular stock positions do.
So is it a good idea to put on a new trade right after earnings are announced while the volatility is still lingering in the price?
Hi all, wow, do I own any of you money? It is refreshing to hear all of the different traders and styles and you all want to share your success and all of you guys seem to want the others traders to also be successful. We are all in this together though we might go different paths to our goals we are civil and 'nice' to each other. In these times finding nice people is such a treat. It is why I enjoy sharing my experience and what knowledge I have. Together we can all learn and prosper. Now lets sing com-by-aye and make a bunch of 'some-mores'.
thanks all for the nice words and thoughts.
Kite, I try to resist the temptation to jump right back in. Wait until Monday late or Tuesday to get a feel for the market. There is no hurry even though we all have the urge to get back in and do battle, there are profits to be made while lowering the risk some by waiting.
Jerry
Hi so what are people seeing for the next two weeks. When i looked at the list of companies usually discussed here. Looking at monthly:
1) The ones that have earnings out of the way are: Lulu, Goog, Mon, JoyG, RIMM, MOS.
2) Ones that have earnings out some time next week (April 18-22)
AAPL, GS, AMZN, CMG, TCK, DECK, ESI, FCX, FFIV, NFLX
Then a bunch the week after that. At least to me it seems LULU is the best bet for next week (monthly) but any other ideas? Have i missed any good ones? Keeping in mind the volatility of earnings coupled with a market that may be a bit stretched.
Regards
RHM
I have SINA on my watch list, they won't report earnings until sometime in June. It's a solid company and the stock just keeps going up every day. Although the P/E is around 170, pretty high. =/
Also, I remember hearing somewhere that LULU will do a split soon? I'm not sure whether this is good or bad, but usually traders view this as negative.
1.67 %. for the month on total balance. 2 plus months in a row since reading Jerry's book. Traded aapl, nflx, rvbd, rax, x, ffiv. Closed X early and all other positions expired. Rvbd had me sweating a little but pulled up at the end. I am a convert to CRUMBs method... and agree with Jerry's words of caution.. more cushion is a good thing!
@Henry
Thanks for the reply. Yes LULU will likely spilt after the June 8th Shareholders meeting so June options will be a no fly zone.
cheers
FYI,
Market will be closed this Friday in observance of Good Friday.
Looking at PCLN,
They don't report earnings this week.
The 495 is 2 standard deviations away, im looking at either that or the 490 (30 point cushion for 4 days).
Good luck this week!!!
jerry
what do u think about etf AGQ its option prices look very attractive.
Trades for this week:
TTWO - my go to stock every month, this is a great stock everybody wants to hold nobody wants to sell.
BGU - looking at the $68 put, If the market is up, BGU is up, market is down, BGU is down, so if one does get put on, it's no problem, because the market will not stay down forever, and one can right calls in the mean time.
MSFT - have not played this before, it's not a volatile stock, so the premium is low, looking to sell ATM options, risky since MSFT reports on April 28th, But the Nasdaq 100 will rebalance in May and MSFT is going from a 3.41% weighting to 8.32%, that has to have a positive impact, funds that track the Nasdaq 100 will buy more MSFT.
Hi all, This is not the kind of market that I will get into with puts today! I will start looking at selling some naked calls maybe call spreads. My advice is to let the dust settle some before opening ANY positions until we can see where this market is going.
Dr, never used that ETF. so no opinion.
Jerry
Wow... The market is tanking...
Dow is down over 170pts now
There's so much negativity out there, what's a trader to do?
As Jerry suggested, I'm thinking selling some calls, but I want to wait more...
Jerry, have you opened some positions for the weekly?
Just waiting to see how this shakes out.
Jerry
I sold a good number of SPY puts today at $0.233 average. $127 strike on share price of $130 = 2.3% cushion. 3.5 days until expiration. The ROI isn't great but I went fairly heavy (so the $ premium is nice) as this is most likely going to be my only play this week and I'll be watching it like a hawk.
Not sure if anybody already mentioned it (I didn't read through all the posts) but the markets are closed on Friday for Good Friday.
Thanks,
Mark
Opened some calls and puts for the weeklys.
SPX 1225/1235 puts 0.15
RUT 845/855 calls 0.13
3 more days to expiration, fingers crossed.
I opened 2 put spreads for this month both with 20+% cushion
LULU 75/65
SINA 95/85
They're up in a down market, fingers crossed...
Opened:
PCLN 480/485 puts .18
31 points of cushion for 3 days and a -1.5 sigma.
Good luck to all!!
I also opened some PCLN spreads. I did both sides. I did some call spreads 545/550 roi about 1% and some put spreads 470/475 for about 1.35 ROi.
I would have done more but couldn't get filled. These two spreads give me 40 pts of cush on the put side and 30 pts on the call side. 3 days to go.
Question to anyone...
Just for safety I want to set up a stop order if my sold put of 485 gets to 490....sell.
Now since its a spread do I have to do anything special or just put in a basic stop order to "buy to close" at 490?
And do I have to do anything to the purchased put (480, to save on commissions)??
Thank you for the assistance!!!
Hi Dr, your broker might have special rules but generally all you have to do is put in an order to buy to close the sold put at either a price (maybe .25 etc) or you can put in the order to buy the option to close if the STOCK reaches a point you pick such as 490 etc.
When i put in an order like that with the stock as the trigger, i adjust it as time runs out. such as if i have the 485 put and there is only one day left i might lower it to 486 being the trigger etc.
Jerry
Dr, I forgot to address the 'bought put'. No you can do one of two things.
1. leave it alone and watch it hoping that it increase in price to sell at a later time or to exercise at expiration.
Or close it at the same time you close the sold put part. Closing it will generally net you some return to minimize the loss from the sold put.
ToS is giving me the 0 bid and 0 ask thing again today. Anyone getting that?
SPY $127 strike weekly's down to $0.06 this morning from sale of $0.233 average yesterday at around noon. Will probably just let it ride and (most likely) let them expire at the end of the day Thursday.
Ok ToS is back and working again, not sure why it does that.
Just did a Vertical for
PCLN Weekly
Trading 516
Put - 475 / 470
Return - 3%
Cushion - 41
Days Remaining - 2
This is super high!! but it is the lowest i could go. With 2 days left and 41 pts of cushion i feel good about it but i am worried a bit about the return. JERRY what do you think. It was the lowest vertical i could do, is there any way around something like this?
Fulgore,
Did you get filled on the PCLN 45/470? Open interest is very low.
hi bernard,
It filled right away. The open int is over 100 as per Jerry's book and so it passed that rule.
the great thing is it doesn't have to get filled when i get rid of it cause i will let it expire (well that is the goal)
Just my two cents about LULU. Jerrys book points out to look at how the stock performed during the same period within a two year stretch. LULU took a 19 percent dive from 4/16/10 to 5/7/10
I'm not sure if this is a good sign, but SINA is up 12+% since I opened it yesterday. I have 35+% cushion with still a month to go. The same thing with LULU, it's up 6+%, giving me 25+% cushion.
Hi all, Fulgore, the 470/75 is the lowest i show also show for PCLN. I also have some of those.
With PCLN I also have some 545/550 call spreads
I also did a monthly spread on FSLR 165/170 call spread. I am negative on solar for several reasons. Just my thoughts on that industry.
I have some AAPL weekly, both call and put spreads.
puts-295/300 -- calls-365/370... NOW.. with AAPL they report earns on Wednesday night. I do not expect much movement before that announcement and with AAPL trading around 333 I will have 30 points of cush on both sides with one day left in the period. But the AAPL play is not for all as I will be keeping an eye on it to see how it reacts Thur morn.
Jerry
Covered my SPY $127 strike puts at 0.03 (from 0.233). Sold to open SPY $129 strike puts at 0.10. 2+ days to expiration. Again, not a huge ROI but I've taken a large position so the dollar premium is sufficient, and am again watching it like a hawk (as always as this is my 9-5, well, 9:30-4) :-)
@ Henry
I opened the same spreads on LULU and SINA. SO far so good. LULU i think its a run up to their eventual split June 8th, SINA (i tried that one for the first time) is supported by heavy buying on the china exchanges. Both i set up almost 30% back when i entered the trade but need to watch closely.
RHM
I don't like how oil is nearing $110 again, but so far earnings have been solid.
Earnings will most likely BE solid, since they reflect what happened in Jan-Mar. There was some oil/gas price gouging -- excuse me, "supply induced shortages" -- during that period, but most of it has happened in late Mar-present.
Need some input on my RUT 845 call expiring tomorrow.
RUT is currently trading at 836, today it is up more than 10 points.
Should I close position today or just ride out?
Thanks for any advice!
Kenny, 8 pts is not that much on this stock , but then again right now you only have 30 min to go. I don't think it will hit your strike price, but im not expert. Also tomorrow it is closed so i am not sure how that will affect you. I assume you can't be put to the call if the market is closed :)
Kenny I took a look, last trade was
855 10 cents
845 30 cents
So credit/debit of 20 cents - loss acceptable?
Any plan for exit?
I tried (new to me) a couple of stupid trades with short duration and too near strikes (10%) for smaller stocks - for a few cents. Guess must be the bad karma to and from TradeKing LOL
I did MCP 67.5 for 2 days(yesterday-read too much from stocktwit/and harmful for me), a spike from 15 cents to 25 cents was enough for me to flee. Of course, it reversed after I left.
2 weeks ago, FFIV with 4 hours left and 8 points cushion, - I didn't bail and OUCH! I did get out a dollar before it hit the strike. Wept out a big crumb. Think that I have learned about last minute trade. Now twice bitten... should be shy the third time LOL.
It's always like this: I was always SURE wrong if I bailed(wish that I didn't bail), and if I didn't bail, it was even more painful.
To night we have a few earning reports - could be rocking or tanking. You will have to make a decision.
@Fulgore,
Thought market is closed on Friday only. Option expires tomorrow 4pm?
Thanks Hannah, and Fulgore
All right, I closed the position.I just took the loss.
RUT is a tricky monster, it ceases trading today, however the settlement value is not determined until tomorrow morning.
FFIV ;+)
Hmmmmmmm....
The PCLN 500/510 is going for .07
21 points of cushion for a day???
Temping.....I probably wont though (too scared after google last week), lol!
Once again, what drew me to Jerry's book and website was the emphasis on cushion and crumbs via naked puts and I am surprised to read so much about spreads and having to BTC at a loss. Sounds more like gambling than investing. Been there too often and it brings back the painful memories.
The beauty of Jerry's method, at least in his book, was the enormous cushion and being satisfied with crumbs. An ROI of 1% per week(over 50%/year compounded) is not crumbs and it comes with risk, esp. with the VIX so low. Credit spreads are not forgiving and after weeks/months of success they will jump up and bite you for a huge loss.
IMHO, the best and most consistent method is the one spelled out by Jerry with three modifications. I suggest selling puts only on ETF's to avoid the big drop/rise surprise and I suggest only selling puts on ETF's that you are happy to own for a few weeks/months. That way you don't ever have to BTC at a loss and if put an ETF you are buying very cheaply so you will recover quickly. Third, avoid margin. It is a killer unless you have serious resources to call upon when needed. Margin calls have wiped out many investors and prudent investors avoid it(unless they are very, very experienced and have a bundle as backup.
dbernard52,
You are correct, spread can bite you. I have been bit a couple times this year, even when I think I have enough cushion. Jerry makes a valid point on mistakes in this thread. Even though we know the rules he points out, it is a good thing to have your own rules or tweaks to his as well. Since I read Jerry's book last year, I have changed my trading style and still making tweaks along the way.
Hannah,
With regard to style there are American options and European options. European options like those on SPX, NDX, RUT can only be called on the last day. American style indices like OEX and ETf's can be called at any time. Options on indices like NDX and SPX trade until 4:15. Kenny is correct in that RUT's settlement price is determined in the morning AFTER closing. Many people close their positions on the last day to avoid surprises in the morning.
Gssound,
What are your tweaks?
Hannah,
Can I suggest that rather than playing with a few cents here and there on cheap(volatile) stocks, try paper trading decent sums of money on stocks/etf's/indexes that you eventually want to trade for real. That will give you more valuable experience trading realistic issues. Also, pick two or three issues and get to know them well(including peculiarities like trading and settlement times on RUT).
Gssound,
Where I differ with Jerry is that I don't mind owning the underlying for a while and that lowers the angst dramatically.
Are you guys allocating your investment into different time frames like weekly,near month,etc to avoid any possible wipe-out?
Hi all, interesting comments. I must say that yes i am selling more put and call spreads. I still use pretty much the same rules and I use mostly weekly puts/ calls. I find a stock that has weeklies and look way down ( or up) the chain for any position that offers at least .04 and up to .06 if I can find it. With weeklys you do not have to be close to the stock price. Think about opening the position on a Tuesday or late Monday with out earns and leave 20 points or more of cush etc. More if you can get it. When selling regular puts the biggest enemy is TIME, LACK OF CUSHION AND REPORTS (EARNS). Using weeklys gives us the advantage on time and we can still pick our cush and avoid major news.
Here are my options for the current week and month. I hope I don't bore you but these are how I am trading...
pcln 470/475 puts expire tomorrow
goog 550/555 calls expire tomorrow
goog 540/545 " " "
aapl 365/370 " " "
ffiv 80/85 puts " "
Sina monthly 100 puts
FSLR monthly 165/170 call spread
Tomorrow should be interesting. good luck all
Jerry
I don't know if anyone posted this previously.
This is a list of available weeklys.
http://www.cboe.com/micro/weeklys/availableweeklys.aspx
@dbenard,
Thanks....I was trying new things last few weeks. Didn't work for me - so back to old Jerry way and old list of stocks that worked.
Good Easter - off I go for the weekend.
Anyone new that has a question of why some people do spreads:
-Jerry has mentioned his comments above for his financial position.
-New traders / or people with low maintanence (not alot of money in their account to play with) have to use spreads to be able to trade. Otherwise the maintanence requirement is too high and you won't be able to trade.
Analysis downgraded SINA today and the stock is down 5+%. Lesson learned, avoid stocks with P/E ratios! But I still have 30% cushion so that's good...
PCLN Expired This week
3% Return for 2 day - easy money
Vertical Put - 470 / 475
Anyone here is trading VIX spreads? I'm looking for options with high IV, and I found VIX has very high IV. Would it be gambling to try VIX?
I don't put on a spread for the trade. I decide what NP to sell, and then look down the available option for a .02 entry price, and then buy THAT one.
WHY do that? It just to cut down on the margin/maint that the broker wants. Also, by the way, it is some kind of insurance against a monster-crash, I suppose.
EG: You sell the LVS Jun 38 for .60. Instead of having the full NP margin, why not buy a LVS Jun 25 for .02? It cuts the maint. & it is cheap insurance.
You just have to treat is as a NP not a spread. Just write off the .02 as a cost of doing business.
Kenny,
It's ALL a gamble in the big Stock Market Casino, unless you're selling CCs or selling NPs to eventually buy the stock.
We're all just trying to make the odds of a successful wager greater for our success.
You adjust the cushion -- chance of winning/losing. You try to adjust the premium -- the bet/potential payoff. You watch prices -- the little ball is on the roulette wheel and it's spinning.
At the end of the day life is a big gamble.
BillP, by buying the further down call, it appears you're basically turning your NP into a spread. A 25/38 bull put spread, with a $13 difference in strikes. How does your brokerage handle the margin? Typically I think it would be viewed as a spread, and it would be $1300 margin tied up for each contract. Going with the true NP though, you'd need just around $440 per contract initial margin (I'm using Think or Swim's 10% of strike price + premium brought in, your brokerage may be a little different). Granted with the NP, you're "naked", and at risk of a margin call if LVS moves south. But with your spread, you're covered (albeit with a large gap). Again, just wondering how it is viewed in your account when you do this?
JimN,
You're right on. I *AM* creating a spread, with a large gap. I don't think of it as a spread tho, I try to treat it as a NP.
I haven't looked at the raw margin numbers (I should, but I'm too lazy). I do know that, when I tried to put on 10 contracts of AAPL at 300 strike, my trading platform spit up at me, cause I didn't have $300,000 of "available initiation margin" but when I put on a 40 point big-spread 300/260, I had no problem.
I have never really looked at the "margin" on the spread or NP ($440 in the LVS case). And if somebody tells you that margin on ANY spread is 3x higher than the margin on a naked position, then they are either blowing smoke at you, or smoking those funny cigarettes.
I figure my returns on a "Cash Secured Put" as if I have to actually 100% Cash Secure the Put. That means I'll never have any margin calls under any conditions, and of course, it cuts into my potential maximum % return.
But I can't spend % anyway. Just $. :-)
I guess everybody has left this comment thread now, but if you're reading this BillP, I'm interested in how you calculate your returns and what you mean with cash secured puts? My trading philosophy seems very similar to yours in that a spread put isn't really a protection, as getting put let's say 64 contracts would be a disaster even if I have a 5 point spread.
What I've been alluring to in some of my previous posts is how one makes sure all funds are working, i.e. like you said when you had 10 contracts naked you were stopped but when doing a large gap spread it was ok with 40. To me that sounds like using margin though? But the bigger question is how one makes sure I'm at maximum capacity, without trial and error, as I prefer to calculate my return compared to my funds instead of maintenance. (Same thing I guess if all resources are working).
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