Sunday, December 16, 2012
no more AAPL for awhile
Hi all. I've been pretty busy but with the holidays coming fast I am certainly slowing down.
I have given up on trying to make APPLE go up. As you traders know one day up 10 then down 20 etc etc. I have closed all the AAPL options from 4 different acc'ts. Of course that means it will go through the roof.
I have opened new positions in the following stocks and some of you might like to take a look for possible trades.
A stock I really like is Phillips PSX Everything about it is good except that it only has monthly options at this time. But still you can get around 17% per month so worth a look.
Another stock I am using is CAT, to buy the Jan 2014 87.5 and sell the 90's this week for 4.5%
Also one I have started using again is GS buying the Jan 2014 115 and selling the current week 120. A negative is that there is no 122.5 strike. So if it gets moving you have to go out and up to stay ahead of it. Weekly for this week is 7% so some god money there.
Another one I’m using is MCD pretty dependable. Buying the Jan 2014 87.5 selling this weeks 90 for around 3%
My only other stock I’m using is VZ. I’m buying the Jan 2014 42 strike and selling this weeks 45 for 3%. VZ has lots of strikes to pick from which is nice
So for anyone looking for ideas take a look at these.
Good luck
Jerry
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161 comments:
SK, you're right, I don't care about ROI...of any kind. Your hypothetical example would be true (for me) if I was trading 100% of my available capital. As is the case, I rarely trade 30% of my capital. If I was to trade 100% of my capital, then your hypothetical example would bear some merit. But it's a moot point, for me, as I do not trade with (or even come close to trading with) 100% of my capital. For how I decide my strikes, I look how far OTM I can go and still make .52 on the longer term trades (1-2 months) and .07 on shorter term trades (1-2 days). If the cushion is there for those trades, I will probably take the trade. The technicals I look at are very simple: price supply/demand levels, SMA's - the main ones 50, 100, 200, and Fibs. Most of my trades (excluding AAPL) are WOF trades, so I don't worry about my strikes going ITM because I want to own the stock anyways. BTW, I have gone all of 2012 with none of my trades (excluding recent AAPL action) going ITM, so no stock was put to me on any of my WOF trades this year. I very much want to own VZ and T, but at my price, not the currently traded price for each. As to what criteria to use for your strikes, for me, nothing is more important than cushion (the distance between the strike you choose to trade and the ATM strike). Give yourself enough cushion and you can survive nearly any price action. Case-in-point AAPL, the stock has dropped 200 some points from its high of 705 to below 500 (in pre-market trading this morning) and I have not lost any money on any of my trades during this pullback (due to trading with plenty of cushion and that awesome greek: theta). So, for me, nothing trumps cushion. Some prefer ROI, I prefer cushion. Nice price action in AAPL today. I need AAPL to hold 450 by end of Friday (DEC options expiration). I came into this week with 59 points of cushion and 5 trading days and after today I have 68 points of cushion and 4 trading days. Not out of the woods yet, but looking better. I sold some FEB 285 and 290 puts today in AAPL...really don't see AAPL dropping below 300.
Interesting article with one person's thoughts about AAPL and a Put Spread.
http://seekingalpha.com/article/1068971-a-simple-options-bet-on-apple-that-could-make-62-in-one-month
Hi all, As I am going through AAPL withdrawal I will pass on some interesting trades and Plays that I am doing. I like .. These are all CALL spreads…
FB yep Facebook. The beauty of them is the plethora of strikes available. Have bought the Jan 2014 and selling this week’s [a few days ago] 28. With all the strikes available it lets you roll up or down just a number or two. You don’t have to jump out 5 points etc. Also I like JPM they also offer a lot of available strikes. I am buying the Jan 2014 42 and selling this weeks 44. Also MCD Mickey D offers some good strikes and decent prem’s. I’m also using CAT and like them.
As Dave G says, don’t commit all your funds and be aware that we are approaching earning season. With the ‘cliff’ and other politics be careful and cautious. Leave lots of cushion on puts and use weekly’s as I don’t like going out a month in these times.
Good luck all
Jerry
There used to be a commercial out there whose theme goes something like this: "How do you spell relief?" I spell relief with two words: "C-L-O-S-I-N-G B-E-L-L". After last night’s mini flash crash of the S&P 500 futures (nearly 50 points) resulting in trading being temporarily halted, I logged back into my trading account to review my positions. At that time, I thought the S&P was going to be down some 30, 40, 50 or more points today. The trading today was nothing compared to what happened last night in the futures and to that point, I'm out in the streets yelling a big "BOO-YA" up at the stock market gods and a big "THANK YOU". All my weeklys AAPL and SPY trades expired "worthless" (my #1 most favorite word). I currently have on 34 positions between my trading account and my qualified account. 14 of them expired today (well technically tomorrow) worthless. My expiring AAPL short put positions are: 370, 375, 405, 410, 415, 435, 445, 450, 470, and 485. My SPY short put weeklys 138.5 and 139.5 also expired worthless. My 34 positions are spread out across five underlying’s: AAPL, VZ, T, SPY, and SLV. 14 of those 34 positions expired for trading today as they are the normal DEC monthlies. My short put AAPL positions going forward are: 370, 380, 385, 390, 395, 400, and 405 for JAN; 285 and 290 for FEB; and 400 and 440 weeklys expiring next Friday (12/28). I also have a short put position at SPY 129 that expires next Friday. I had to put on those weeklys AAPL and SPY positions for next week as the markets are only open for trading 3.5 of the 5 trading days next week...even in-the-face of a very treacherous "wild card" called the "fiscal cliff". BTW, I could also spell relief with a different pair of words: "O-P-T-I-O-N-S E-X-P-I-R-A-T-I-O-N".
Dave G. I like lots of the AAPL puts but still a little concerned over how the mkt will react to the 'cliff'. To me it is not all bad, doom and gloom. It reduces spending and raises taxes across the board? But the mkt can be a fickle place. So other than my long term spreads as mentioned above I am sitting on the sidelines regarding puts as I just don't want to be telling myself "you knew better than that" .. lol
Hi Dave G,
Merry Christmas! Thanks for your response.
I completed last week my first full month applying Jerry's put selling strategy. Made a few hundred dollars to pay off some bills and buy Christmas gifts. About 2% ROI at account level though the trade level ROI was in 4% range. It's an amazing feeling. All my puts expired except strike 65 MLNX. The stock fell from 85 to 70 when my puts got STOPPED. I do not know if I could have foreseen this but I can live with 1 trade going sour while some 13 expired worthless.
One thing I did differently from what Jerry outlined in his book is - on some of the stocks I sold both PUTs and CALLs (where premiums were good). I used 20% cushion for PUTs and 15% for CALLs. (Stocks fall faster than they rise. Hence, different cushion for CALLs.) This allowed me to double my ROI on options for those stocks because when you sell both PUTs and CALLs on a stock, you need to provide maintenance for only one side of options, not both.
I am staying away from calendar spreads at this time but soon might get back into them. Burnt my fingers with short term plays (2 months out BUY and 1 month SELL) which I believe was a bad strategy. I picked this strategy from some book and tested with slightly bigger money than what I should have.
@Jerry: Thanks for writing the book. I have worked in Insurance sector in 14 years so I could intuitively relate to your style of put-selling to selling insurance policy and collecting premium. To avoid catastrophic loss, I am hedging my positions by buying some VIX calls. What are your thoughts on VIX as a hedge? Also, have you considered using both PUTs and CALLs for your calendar (vertical) spreads at the same time? Haven't really gotten a handle on the spread trading as I have incurred a bit of losses and had my feet frozen when I had to make adjustments.
Happy Holidays and Happy New Year!!
Thanks,
SK
Jerry, I hear you load and clear...I am too concerned about that wild card (fiscal cliff). But, I don't see AAPL going below 400 pre-earnings...fiscal cliff or no fiscal cliff. I'm also concerned about their earnings in JAN. Right now, they are scheduled to report on the 22cd, but it's "not confirmed" yet. I very much do not want that earnings date moved up (they can move it out...that's fine) because I want my JAN monthlies to expire before AAPL reports earnings. I check every day for that status to go "confirmed", but as of now, it still hasn't happened (and probably won't until after the holidays). If AAPL disappoints on their JAN earnings, then this stock is really going to be hard pressed to muster any momentum to the upside. There was an analyst on CNBC who said he thinks an AAPL miss in JAN is already priced into the stock, I disagree, I don't think it is, which is why I'm giving plenty of cushion in my post-earnings expiration trades. If AAPL is trading around 450 (say, for example) around earnings time and AAPL misses badly, then I think it is possible AAPL could trade below 400. But, as a seller of puts, I don't have to predict where the stock is going to go; I'm just saying where it's not going to go (a big difference between the two) within this amount of time...a much easier trade to do.
My weekly NDX & SPX put spreads were successful. Sold some aapl losers to offset 2012 gains. Still hoping for a rally into eps - that may never come.
Even placed a Jan1 SPX 1300/1285 for .28 WOW. Can we drop 110 SPX points by next Fri?? SURE
Placed a Jan1 NDX 2400/2375 for .40 with 222 points of cush. Getting to brave here - or stupid.
Happy New Year everyone and if I can stay with my put spreads I'll have a fabulous 2013. Everyone else too I hope.
Hi all, and a happy new years to all of the bloggers.
SK; yes I often sell both puts and calls. As you say only one side can go south and only one needs maintenance. Don’t let that lure you into leaving less cushion than safe. I also had all my calls on the spreads expire worthless. I have not used the VIX for options? Just don’t know it or its movement.
Stocks I am now using for spreads are as follows. They don’t move much and I find it refreshing to look at the futures each morn and when down not go yikes while seeing
AAPL down 15 in pre-market etc..
CAT, FB, JPM, MCD, XOM, & VZ
These make between 1-4% per week and that is good enough in this market.
Good luck all.
Jerry
I have to say, I'm truly tired of all this fiscal cliff crap. The futures dropped after hours and it looks like if there is no good news on the fiscal cliff front over the weekend, the markets are going to take that big whoosh down that some had predicted would happen if we go over the cliff. All my weeklys puts (AAPL 400, 440, 470 and SPY 129) expired "worthless". In addition to my previously mentioned JAN and FEB monthlies positions, I'm short the AAPL 400 and SPY 126 weeklys that expire next Friday (JAN 04). I'm also short quarterlys SPY 132 puts that expire Monday 12/31. I sold some SPX FEB 1050 puts today (I now wish I had waited one more day to do this as Monday looks like it has the potential to be a really big down day...based on today's after hours futures action). The selling of SPX puts is something I've not done in well over a year. I'm giving Wall Street 350 points of cushion to have its little temper tantrum over the cliff issue...hope it’s enough. The AAPL earnings date is still not confirmed...also watching that. The markets will have a full day of trading on Monday and be closed on Tuesday. All eyes will be on "the cliff" for the next three days...at least.
Well the 'cliff' came and went! So far I haven’t flown off the earth with the Aztec Calendar scare, and I went over the cliff this morning and ..damn, I’m still here? Tomorrow the opening will be interesting. It seems some type of compromise is in the works. If so I would imagine a decent rally. If the market likes the outcome then there should be some decent puts and calls, calling my name.
Happy & prosperous New Year all.
Jerry
Happy New Year!
I haven't posted in a while but have been keeping up. I have a bunch of AAPL spreads set up next year in Feb, April and Jan '14. These are drawn down pretty far so I am counting on AAPL to rebound. I believe in the company but am getting nervous about the price rebounding before my Feb options expire. They are mostly in the 600-650 range. Below 600 is bad. Above 620 I"ll be okay.
Tax - I have a tax question for you...I originally set some of these spreads up for Jan. They dropped in value significantly before I rolled them to February.
If AAPL rebounds and I break even or make a profit on these, can I calculate my basis on the original trade? Or do I have to count the loss on January spread in 2012, and then have a huge gain in 2013? That would suck as I could actually break even and pay short term gains tax? This is my first year trading options so I have no tax experience yet.
Been placing NDX 2650/2625 puts for .25 & .30. Also 2775/2800 calls
for .30/.35
AAPL - the little engine that could??? Huh just maybe.
Ok, AAPL earnings showing "confirmed" status for 01/23/13...they moved it back 1 day. GOOG earnings showing "confirmed" status for 01/22/13. This is a bit of a change for GOOG as they have been reporting, in the past, on the Thursday before expiration Friday for the normal monthlies options.
Another expiration Friday and another set of expired options. My AAPL 400, 475, and 510 short put options expired "worthless" as did my SPY 126 and 144 short put options. I had an instructor once who made a point that if the markets are going up and your stock is going down, then it's time to leave that stock and move onto another. That's exactly what happened to AAPL today. Although I don't own the stock, I do trade it quite a bit. I thought the drop in the stock price in December was mainly due to tax reasons (and some of it may have been), but clearly that does not explain the drop today. I'm taking some heat (again) for options that expire next Friday (01/11). Specifically, my AAPL 490 puts are a position of concern at this time. AAPL doesn't make it easy anymore, at one time it was, but not anymore (not the new AAPL).
I am barely 2 months into put selling business and have been able to get a reasonable return (2% per month on my entire portfolio). I am not used to this kind of return and it feels scary. Hope, I am not alone feeling this way.
I am a numbers person and understand risk of putting eggs of same hen in one basket. I have developed a money management system for my trades. I put eggs of different hens in my basket so that I am not stuck with chickens of a bad hen when they hatch.
Well, all that sounds good from diversification point of view. But, what if the basket itself breaks? Yes, I am referring to a black swan event like the flash crash of market on May 6, 2010.
@Jerry: How did you handle May 6, 2010 flash crash? Did you get burned or come out unscratched from this event? This blog goes as far back as Oct 2010 so could not find collective wisdom of the fellow bloggers of this site.
Can anyone else who was selling puts back then please share their experience with this event? Thanks in advance! I will really appreciate this.
SK
Sk...jerry came out of that crash unscathed...he had his trades placed at 20% cushion and during those times VIX was high so even with the strike that far out u were collecting a good premium.Unfortunately for last one year or so its hard to get that 3-4% per month
This blog sure is quiet...wasn't always this way. I guess the "players" from the past have made their money and their out enjoying "the good life" now. Wish I could join them, but I still gotta trade. As it is, this is another expiration Friday and that means another set of expiring contracts. My AAPL 440, 445, 460, 465, 480, 490 and SPY 135 01/11 puts expired worthless. Next week Friday (the normal JAN monthlies expiration) is a biggie for me. I got a bunch of positions that expire next Friday...can't wait for next Friday to get them off my books. Strictly from a VIX perspective, this is not the best time to sell premium with the VIX trading at multi-year lows.
Dave G, what kind of margin requirements do you need to have for all those AAPL positions? I find that this is my major problem. I can only play with a pool of ~ 12.5k (with wife and mortgage, cant risk more at this stage). I was able to get ~ 30% annualized last year, so not bad, but I just cant get into too many AAPL due to the margin requirements (have optionsxpress). I did get into a jan 15 410/400 put spread but I made a mistake and got it too far out and now I'm having problems getting out of it. any suggestions as to how to roll out of this? do I need to wait till aapl hits 410 and then BTC 410 and STO say a 205 position (or at least a much lower strike at nearly 1/2 the price as long as the premium is at least as high as the 410)? any ideas here?
also, how are you guys handling tax implications, now that tax time is here? selling monthlies or weeklies will be taxed as regular income which will take away ~1/3rd of gains. I know index options are taxed a little differently, but Jerry's book talks mostly about non-index options (ie regular companies).
Hello everybody. Yes it has been quiet for a long time...
@SK OK About 2010 Aug crash.
My pain was keeping the put credit spread through the weekend. On Monday morning I covered my short put when the market opened(spx future opened -26 before hitting -66?), and I took a huge hit because of volatility spike. But my long put gained considerably. I wasn't greedy so I covered too early and took about 15% loss of my capital. Could have waited and recovered all if I had known spx would drop more than 60 points.I had AAPL&SPX spread. Guess what? My strikes esp aapl were safe if I had the iron clad will to stay in. I couldn't I need to cut loss and trade another day.
This time around, I'm keeping 100% cash. Take intra-day trades if you can. With VIX down to 13.50, premium has dried up.I prefer to just relax and be a leisure lady than bleeding my eyes looking so hard for the spread trades. Best of trades!
Sai
Boy you ARE really out there on that aapl spread. First, is it a debit or credit spread. From what you are saying, BTC the 410, I assume it is a credit spread. You took in premium when you placed it.
Unless you think aapl will drop to 410 by 1/15, you could just hang on. Otherwise just close it out. I also assume you placed the spread when aapl was much higher and now you have a big loss in closing it.
If you think aapl will drop even more, you could purchase additional 400 puts which will increase in value as/if aapl drops further.
As for taxes, options of less than 12 months are short term gains/losses. Index options, which I primarily trade, are considered 1256 contracts and are taxed 60% long term/40% short term. Why???
I don't know, makes no sense to me.
Same thing with carried interest from hedge funds. Why is that income long term??? The tax code never does make much sense in certain areas.
Taxman, nice deducing about my position - spot on!. Yes I got into a 410/400 spread and took in the premium when it was in the 640s hoping to make a volatility crash play and then quickly exit out. This worked well with grpn and i figured I'd try it here as well. I totally realize that I have a ton of time, but the way AAPL's been going, it may well hit those strikes sooner and then I'll really be in trouble. I dont want to buy more puts, since they're just very expensive now due to the IV.
As you say, I might just have to bite the bullet and take the loss. Just looking for ideas if there are other options (ha!). Actually if I did want to roll out and under, anyone know when the next calender dates will come out? Only goes upto 2015 now. When will the 2016 options come out?
Sai
Lots can happen in 2 years. I might just hang on and see. Even if aapl eps level off over the next 2 years it is still a very profitable company. Its PE is only around 10 now. Good luck with your decision
Sai, the margin requirements roughly equate to 10% of the value of the strike price. For example, if I was to sell an AAPL put @ the 500 strike (something I would never do at its current price), the margin requirement would be 5,000 (10% of 50,000 = 5,000). Time till expiration and how far OTM the strike is have an effect on the margin amount. With regards to your situation: to consider rolling out and down from one LEAP position (JAN 2015) to another LEAP (2016) is, well in a word, "NUTS". Never, never, never would I consider that as a viable (damage control) adjustment. Rolling from a weeklys to a monthlies...yes, or from a monthlies to another monthlies...yes, but to roll from a LEAP two years out to another LEAP a year further out...never, not with my money, but that's me and we're all different. If I was you, I would not roll from 2015 to 2016 as a damage control adjustment to that trade. NOW is when you want to be doing AAPL put spreads looking for a vol crush as AAPL's vol is very high at this time and is going to come down once AAPL reports earnings on the 23rd AMC.
If anybody was watching Fast Money last night, Tom Demark came on the show and said that AAPL's stock would bottom either Wednesday or Thursday and based on his bullish call, the stock immediately popped $5 in after hours trading and that momentum has carried through into today's trading. I'm short AAPL 460 puts in my IRA account and 450/445 puts in my regular trading account and feeling some heat. Thank you very much Tom for those comments. Today's pop in AAPL is due to those remarks by Tom (that's how much weight this guy carries on Wall Street). Two more days and them puts expire...come on AAPL, hang in there baby!!!
Dave G
I saw that aapl report on fast money last night and breathed a huge sigh of relief (Hopium Maybe???). His charts called every one of aapls three turns over the past year. Simply amazing.
Almost made me want to buy some Jan 14 leap calls. I am taking major gas on aapl positions right now. Was banking on 2012 tax selling and a great holiday qtr to turn things around in 2013. If aapl can rally back to 600 by end of Feb, it will go a loooong way in correcting my problem.
I wanted to google his 13 week chart theory to read up on it.
Another expiration Friday, but this is a biggie for me...the normal monthlies (for JAN). 23 positions come off the books for me--all expiring "worthless". I carry over only 11 positions and I'm now over 90% in cash. Expiring AAPL contracts are the 370, 380, 390, 395, 400, 405, 445, 450, 460, and 465 strikes in my regular trading account and 390/460 strikes in my IRA. "Goodbye and good riddance" to all expiring contracts and in the words of Doctor J "on to fresh meat". Also expiring are my SPY 138 puts. For the first time, in a long time, I have no weeklys positions in AAPL or SPY (for week ending 01/25). That's because AAPL has earnings on Wednesday and with the VIX this low, it's just not prudent to sell puts on the SPY anymore (you take on too much risk for too little reward). I do have positions in AAPL right now, the 285, 290, 365, 370, 385, and 400 strikes in my regular trading account and the 375 strike in my IRA...all those are the normal FEB monthlies positions. Taxman, I to thought that things in AAPL would calm down after the 1st of the year because (I thought) that much of the selling in AAPL in DEC was due to tax related reasons...WRONG! Clearly, there are other factors "in play" causing this stock to be so volatile.
I know this gets said a lot, but AAPL's earnings announcement next Wednesday is really a BIGGIE, BIGGIE, BIGGIE. If they screw it up and miss badly, this stock could visit 400 and if they "knock the ball out of the park", the stock gets back over 600 (especially in this Pollyannaish, never ending bullish market). For me, nothing else matters next week except AAPL's earnings. I'm somewhat concerned about those 400 strike puts, but as long as AAPL can stay around 500 going into earnings (and that's asking a lot for this "wild and crazy" stock to stay put for 3 days) then, I think those 400 strike puts will be safe (for a while) on an AAPL miss. So, it's all about AAPL's earnings next Wednesday AMC, "bring it on" Mr. Market..."let's see what you got"...with respect to AAPL (that is).
Agree this earnings is a total biggie. I'm wondering then if one way to hedge myself against my 2015 410/400 spread that I mentioned above is to buy a feb 410 put. Wouldnt that hedge me against the 2015 410 that I sold, in case aapl earnings go bust and it heads south? Thoughts? Or is the weekly 410 put enough?
some more thoughts on the put to buy in order to hedge - I'm looking buying puts that have the same delta and IV as the 2015 410 put. Does this make sense?
Sai
I don't know about buying any kind of aapl options right now before eps because the high volatility has inflated premiums. They will crash right after the eps announcement. Your put spread has 2 years to run, I can't imagine aapl at that price 2 years from now. I think I would just stay put.
I would normally be placing NDX bull put credit spreads today with the prmiums so juicy, BUT, nflx, goog and aapl all report today and tomorrow and if they all miss, NDX could take one big ride down. So I sit on my hands and stay away from the mouse.
Sold puts in GOOG just before the close today for options that expire on Friday. That trade looks like a "winner, winner chicken dinner". Three days to go before the $$$ is mine with over 100 points of cushion...I like my chances. The MM's priced this one spot on with their anticipated move. They also nailed IBM (I didn't have any trades on it though). These guys are not bad at predicting the anticipated move on earnings. They're not perfect and do not get everyone right, but all-in-all, I find their expectations to be very useful...as do many others.
Dave G, I'm a little ignorant on who the MM's are.Would you mind elaborating on them? Thanks
What do you think, a liitle overdone in aapl??????????
I sold several AAPL puts going into the close today. The strikes were 395, 400, and 410. The 410's had almost 105 points of cushion for a two day trade and of course one earnings announcement. Even on an AAPL miss, I didn't envision AAPL dropping 105 points in two days. But, it could happen. As I write this, AAPL is trading around 460 in after hours. Not even close to being able to call these trades "winner, winner chicken dinners". Now 50 points of cushion for two days...it could happen. I don't put anything past this "Freak" of a stock. I have seen so many people be wrong on this stock. I'm now hoping AAPL can hold 410 by close of trading on Friday. My FEB monthlies are definitely in trouble (the highest being 400). AAPL has dropped from the 7's to the 6's, the 6's to the 5's, the 5's to the 4's...is the 4's to the 3's in the cards? It could happen. I really am starting to get kind of burned out on AAPL. I haven't lost any money on it yet, but I'm sure coming close seemingly week after week.
Enough AAPL. Two things I want to mention: 1. Did anyone see the John Carter video? Not the movie, but the John Carter from simpleroptions. That 495-500-505 AAPL butterfly he did last week that netted him $87,000 for a 2-3 day trade was one of the most incredible, jaw-dropping trades I have ever seen. 2. In March of 2013, the OCC is going to start the trading of mini-options which deliver 10 shares per contract instead of the normal 100 shares per contract. That will be interesting and I will definitely be looking at trading those in say a stock like AAPL.
Garo, "MM's" stands for Market Makers.
Yea talk about an over-reaction!!! I guess I'm going to have to consider rolling out my 410 2015 put which I mentioned before if the stock blows past it. Anyone know when the later 2015 options will be out (ie March or June 2015)? This is a valuable lesson though - never go beyond weeklies to monthlies!
Sai
Its your call but you have 2 years
for aapl to stay above 410. A broker friend from UBS thinks this is a buying op. Wait until
10-10:30 after amateur hour and see what aapl is doing.
totally agree about the time, but I'm worried about what will happen once the put is ITM and about it getting exercised.
Sai, if the lesson you feel you learned from that AAPL LEAPS short put vertical trade that you are in is "never go beyond weeklies to monthlies", then you're not learning your lessons very well. Your lesson learned should be more along the lines of not entering a LEAPS short put vertical on an underlying that is in a severe downtrend. AAPL has the classic chart of a stock in a downtrend...lower highs and lower lows. Nobody and I mean nobody (I've seen so many people be wrong about calling the bottom in this stock) knows when AAPL is going to "bottom out". Also, because you hold a LEAPS position, it's extremely unlikely that the puts will be exercised (even if they go ITM) because there is so much time value on them. You can talk to your broker about that.
Taxman, I've been hearing "buying opportunity" on AAPL all the way from 650 on down to where it is today. It's not a "buying opportunity" until the charts confirm it. Until then it's still a "falling knife" with lower highs and lower lows.
Hi,
I've been reading this blog from the beginning and its amazing. I've learned more from 2 months of blog entries here, along with the comments then the multitude of trading books I seem to be piling up.
I do have one question which I'll pose to all: It seems like we're looking for very specific stocks and options with specific characteristics in terms of strkie price, % oom, etc..
What do people use to find these? Are there option screeners that anyone would recommend?
Hammer
It comes from experience, comfort level, acquired knowledge. I started trading monthly call/put credit spreads AKA iron condors for years. Felt more comfortable when the weeklies came out. I trade primarily SPX, NDX & RUT put side weekly credit spreads. I will go monthly in certain cases. I try to stay away from call spreads because 90% of my loss positions are on the call side, go figure.
I will also do covered calls on TZA, TNA. ERX & ERY only in certain situations. I will also do covered calls on LEAPs in certain cases only. But, MY bread & butter is weekly index credit spreads and my target is 1% per week with deltas on the options of 5 or below.
Everyone in this blog does what they feel comfortable with and we all seem to give each other advice and alternative trading ideas which is great.
@DaveG - I know there's a ton of time left in the options. Ideally I dont want to close out. I will talk to my broker. I definitely dont want to get into another LEAP and get stuck in it. So will hang on. Im curious though - what's the time frame I have to worry about if the put is ITM?
@Hammer - my broker is optionsxpress and they have a nice screener tool where I input some of the criteria outlined in Jerry's book. Once it spits out the list, I go through each one of them to see how far OTM I can go and still get a decent return. I do break rules sometimes - for example, I got into an IBM put spread right before earnings (which Jerry warns against) and it worked out nicely. But I also went into it knowing that my strikes I chose were those that hadnt been hit in >1 yr. So while those strikes could have been hit, that likelihood was extremely low. I also have some other routine stocks that I've come to know now after experience over several months - HLF, NTES, JOY, SHLD, NOV, LULU. I also've done pretty well on GRPN. Some times I'll get out of a position if there's enough of a volatility crunch and most of the gains have been realized in a short time period (say, right after an earnings event), and then get into another position. So in case you're wondering about returns, I did ~30% annualized last year, and this was after making some really stupid mistakes (like my above mentioned AAPL LEAP put spread, or going long on a put instead of selling it b/c I didnt review the order carefully). So I'm expecting better returns this year if I avoid making stupid mistakes. I would love to get into the index options, but given that I'm playing with a small portfolio (12.5k), I need to sell put spreads to limit the margin requirements and risk level. This of course will limit my ROIs as well with index options and so I havent ventured into them as much. Also, I almost feel that individual equity options, in my opinion and for me, are better for me to "predict" and handle, with less factors that may affect them. Indices like SPY, RUT, etc are subject to too many geopolitical and macroeconomic factors that can affect how they move and so I'm not as comfortable with them as I'm with the individual equity options. Of course there are many many other folks like Taxman who would argue exactly the opposite. But I know what works for me, although I would like to try the index options at some point due to the tax and expiration advantage (they're taxes at 60% short term and have european style expiration) and the better liquidity. Would definitely like to know what other folks think.
The gift that keeps on giving...AAPL going down...only this is a gift I don't want. What we have is a market that only goes up (there are no more REAL down days anymore) and an AAPL stock, that for the most part, only goes down. I wish it was reversed for both. I remember the "good old days" when markets use to go down as well as up and the VIX was way up there (even above 13)...you'll have to find an "old-timer" to tell you about them "good old days". My 400, 410, and 420 01/25 AAPL weeklys expired "worthless". I'm in trouble, for the first time in over three years of selling AAPL puts, with my monthlies (I sell weeklys and monthlies in AAPL). Normally the weeklys are the ones to give me stress, but this time (for the first time), it's the monthlies. The highest strike I'm sitting at is 400, which I think AAPL is going to drop below at some point. We are definitely due for some kind of "dead-cat" bounce in AAPL. About a month ago there was a technical guru on Fast Money that said the technicals showed AAPL dropping down to the 330's (AAPL was around 525-530 at the time). Her initial downside target was 450. Well, that 450 target price came true and then some. She did not say how she came to that further downside target of the 330's, but if you look at a weekly chart of AAPL, there is a head-and-shoulders pattern (right shoulder is a little weak) and if you project from the neckline to the peak of the head and take that same distance from the neckline down, it does show a downside target of the 330's.
Another interesting point on AAPL: an analyst has been comparing AAPL's decline to MSFT's peak in 1999 and subsequent decline in 2000 and the comparison between the two is strikingly similar. Base on that similarity, he said that AAPL is going to continue to go down until FEB 19 upon which at that time all the momentum traders will be out of AAPL (done selling) and the value traders will then step in and propel the stock upward. Will it happen...time will tell. In the words of Jim Cramer, I'm in the AAPL "house of pain".
Sai, that's a question best posed to your broker. My broker has different levels of support. I like to bypass all the lower levels and go straight to the "top-line" support. Those guys are sometimes pretty "cocky and arrogant" but that's OK, because I know, for the most part, these guys know what they’re talking about. Anyways, because your position is a LEAPS, those short puts have plenty of TV on them. Even if those puts go ITM, they will still have plenty of TV on them (the further ITM they go the less the TV becomes and the more the intrinsic value becomes). You definitely don't want to be short any option where the delta is close 1.0 (that means its deep ITM and is trading on par with the stock). Remember, any ITM option with plenty of TV will normally not get exercised because if it is, then the buyer of those puts loses that TV (something they paid for) and traders don't trade to lose money. ITM call options whose underlying pays a dividend are a different story...they are likely to be exercised if the dividend is > the TV. Again, please voice your concerns with your broker and get their advice.
@DaveG: In my probably worthless and pretty useless opinion, AAPL has not seen a bottom, and nobody has a clue how far down it will go... What is your plan for those 400 puts? I assume they are Feb expiration?
sharpCocoa, I think your opinion is "Spot-On". I 100% agree with you. I do not want to buy AAPL @ its current price (~ 440) and I do not want to buy AAPL @ 400 because I think this stock is headed somewhere south of 350. That's strictly a technical call based on the charts. The first AAPL parabolic move is close to be retraced. Some will say it started @ 420. I prefer to liken it more to 380 when it initially went parabolic in DEC of 2011. The technicals are really more art than science. Why is the retracing of the parabolic move important: because then most (or all) of the momentum traders have exited the stock and the rampant selling can be close to an end or at least start to slow down. I will 100% (for sure) be rolling those puts down and out. Yes, they are the FEB monthly expiration options. We have 15 trading days between now and FEB expiration and I'm just hoping now that AAPL can stay over 400 all of this coming week. The longer I can go till expiration before the roll, then the more beneficial the roll will be. But the way this stock has been dropping, I got serious doubts that it can hold 400 this week. It's definitely due for some kind of oversold bounce...I hope it happens this week!
In My opinion which means nothing of course. The only downside of the the indexes are the bid/ask spreads, and if your not in a portfolio margin account it uses a lot of capital. But i have been having great success trading RUT and using IWM (which is commission free at my broker) as my hedge if i get into trouble. Stay small Stay in the game is my motto...
New to this board... love the comments made by all, and hope to be able to contribute. I too hope to focus on selling AAPL puts (probably some ES futures puts too). I stumbled upon this strategy after playing around in my simulated trading account, and think it's the best way forward as my primary strategy. Looking forward to learning from you all.
FYI - I follow Elliot Wave (Avi Gilbert's site), and he believes the key levels to watch for AAPL are 430.. and if that breaks 420.. and if that breaks 380.
So rather than sit and blatantly violate my own rules, I got out of my AAPL 2015 410/400 LEAP put spread with a tiny loss. I've already made up for it by getting into other feb winning positions. I already feel a million times better not being in the path of a falling knife anymore!
I'm in agreement with some of the opinions here that AAPL is headed for the low 400s and lower, at least till the 1q13 earnings. these recent bounces are not on strong volumes, so it'll likely go lower.
Lesson definitely learned though - stay away from LEAPS!
Just curious... do you guys also short naked calls also? As I mentioned, I am new at this... for AAPL wouldn't it be a good strategy since it is likely going lower to short a naked call? Maybe shorting a 515 Feb 8th calls? Does it work the same when shorting naked calls and naked puts? Or are there any differences? Thx
I sold some weeklys (02/01 expiration) FB 25.50 puts today in front of FB's earnings announcement after market close. I'm declaring "winner-winner chicken dinner" on that trade even though there are two trading days to go till expiration. I don't think FB is going to drop below that strike by market close on Friday. Even if it did, it's a WOF trade, so no stress on this one. I like these kinds of "no stress" trades. When I saw that option chain, I just could not resist those rich premiums. Several people were selling the 29 and 28 puts. Congrats to them for banking them even richer premiums. I needed more cushion, thus the lower 25.50 strike for me. Wish I had bigger "kahunas" to trade the 28's and 29's, but "gotta make the best of what'cha got".
Nice trade Dave G
Steady as she goes...that's what I got to say about this past week. I'm still holding onto my same AAPL positions I had last week at this time: FEB monthlies @ 370, 375, 385, and 400. For the first time since I started trading AAPL (several years ago), I did not do any trades in AAPL this past week. I could close out all positions for nice profits at this time, but I'm holding on now in hopes all will expire worthless. Could end up being a big mistake...we'll see. When you play with AAPL, you're playing with fire...this is one dangerous stock. You could buy it and it could drop 30 points; you could short it and it could go up 30 points. But, it's also a stock that could make you rich if you get it right (i.e. John Carter and his butterfly trade that netted him $87,000 in one three day trade).
Strictly from a premium seller’s viewpoint, this market sucks!!! All this market does is go up and up and up...same'ole crap every day. Will this market ever go down??? How I long for a "REAL" down day in these markets.
hi dave can u tell us what kind of butterfly trade he did as i have to become paid subscriber to watch it.Thanks
doctorali, he did an AAPL 495/500/505 butterfly trade. AAPL closed @ exactly 500.00 on expiration. Amazing to say the least...probably never to be ever duplicated again. A once a lifetime trade for sure. I'm just blown away by the results of that trade. BTW, I watched his video a second time this past weekend and was able to access it again today. I do plan on watching it again a third time.
WOW I JUST MADE A LONGWINDED POST THAT I DONT THINK WILL SHOW UP BECAUSE I WASNT SIGNED IN... ILL WRITE IT UP AGAIN IF THIS ONE SHOWS UP BEFORE THAT ONE...
DAVE id love to hear from you on this one... i do share your sentiments about the current market conditions... i too have become a premium seller thanks to jerry and his book... had a great run last year doing it by the book, took some time off during the fiscal cliff bizz so ive been on the sidelines for a few months, trying to get back in the game... the premiums i am looking at are really discouraging and id like some help learning how to add the spreads you guys are talking about to my kit of option trading tools.
i am confused... if you look at the leading post to this section by jerry, entitled NO MORE APPL FOR AWHILE, jerry talks about a spread using CAT... he says he"s buying the jan 2014 87.5 (put??) and selling the weekly 90(put??)
my questions are first, are these in fact both PUT transacions? and if so, is the leap that he bought.. was that in the money?, and the weekly he sold out of the money?? i cant tell because the stock has moved considerably since the post...
ive been looking through Mcmillans book and have discovered that if in fact im reading this right and we are buying a put at a lower strike price than the one we are selling, that this is a bull put spread... but as with all things marketwise i need to be sure...
i would like to thank Jerry and everyone here for this wonderful forum and all of your help and support... i really appreciate it!
homebx....Think these are calls. buy the long dated call DITM and sell short dated against it. Just keep selling the short dated each week or monthly if better return, then rinse and repeat. Each credit on the shorts decreases your basis on the LEAPs and you might even end up with the calls for free if it goes on long enough. Others should chime in here to clarify, amplify. Glad you had a great year. I did too til I got caught up in aaplemania.
As usual, my weekly SPX, NDX & RUT put credit spreads all expired worthless. Nice to see a pop in aapl. My weekly covered call program on a 430 leap is working again. Still underwater on one of my "aapl beat the bank" plays. An April 490/480 put credit spread. Yeah aapl beat the bank. Teaches me that nothing is safe. Also teaches me to stick with what I know best, index credit spreads.
Tax, Would you mind refreshing us about expirations on those index plays? I know you've done it before but can't seem to find it. Also, when do you enter? How much cushion?
NDX & RUT weeklies settle at Fri open.
SPX weeklies settle Fri close.
SPX, NDX & RUT monthlies settle at Fri open.
I usually place trades Tues/Wed looking for a 1% weekly roi. I place put credit spreads 98% of the time and the short option has a delta of 5 or below. i have even placed trades Thurs AM to settle at Fri open
NDX spreads are 25 points
RUT usually 15 or 20
SPX 15 or 20
Taxman, I'm curious to this as well. Do you just use the 1st option pair with 0.05 deltas for the index options? What's your win rate? While I like my monthlies, I would like to get into weeklies. Especially the indices b/c of the tax advantage. Would appreciate your input.
On that topic, how would folks feel about bouncing ideas for monthly (or weekly) put spreads and what positions they're planning to take for that period? as they say "never trade alone"!
Thanks Tax
Sai
My win rate on put spreads is probably 95%+. Calls is where I get burned. Win rate there might be 60%. i rarely place calls anymore - burned too many times.
I don't just place the first spread with a 5 delta. i also take into account what the markets have been doing recently. If they have been volatile I will wait till Wed/Thurs to place a trade to get a feel for what has been happening on Mon/Tues. I also look at cushion. How much do I have vis a vis the recently weekly movement of the underlying index.
I actually placed the following trades today for next week. I also have 1000 shares of TZA & 20 July VIX calls to hedge these bets.
NDX 2660/2640 puts for .20 @ 2777 so I have 117 points cushion or 4%
NDX monthlies trade smaller than 25point spreads.
RUT 875/860 puts for .25 @ 912 with 37 points cushion or 4%.
I iwll also close a position if the short delta gets above 25.
Thanks Tax. I see that your gap b/w your RUT is 15 pts. I might go for smaller gaps. Here is what I did this month which are all wins so far; all are either short puts or put spreads:
-IBM 175/170 (entered right before earnings; closed position after), ~3% ROI
- GRPN 4.5/4, ~17%
- CSTR 37.5 put; ~ 4.7% (took positions before earnings; earnings was yesterday, stock dropped ~10% and is at ~48 but the put is far OTM and so due to the volatility drop, its at 0.01 and will most likely expire worthless next week; regardless this is a >20% cushion)
- WTW 42.5 put; ~ 4.3% - gonna play this right into earnings; stock's at ~54 now, dont expect it to drop to 42.5 after earnings on the 13th which is a >20% cushion)
I could be taking positions a bit higher, but I'm ok with making ~4% returns for the added security and comfort. So far this strategy has worked out fine, but like I said I would like to get into the weeklies. I use the optionsxpress screener with the parameters that Jerry laid out in his book to screen for stocks. I was able to get optionsxpress to drop their commission and price per option to 6.95 base and 65 cents/option from 9.95 and $1/option. They said that they would review commission policies again if I expanded my portfolio. So important learning there - you can get them to drop rates by asking and by asking them to match other brokerages. They'll ask you which ones, so be prepared to spit out some competing rates. I asked them for 50 cents/contract, but will settle for 65 cents for now.
Anyone else willing to share their positions?
Tax, for the weeklies, do you calculate the avg weekly trading range for the indices? Looks like it about the 5% range (?)
Btw, you'll notice that I clearly violate some of Jerry's rules by picking stocks that are going to report earnings. I get into these by doing some research and picking strikes very deep OTM (ie ~25% cushions). In most cases, the strikes are below 52 wk lows, so while there's always a possibility, the likelihood is extremely low. I'm willing to live with a 0.02% probability! in times of low VIX, its the only way of getting some decent premiums...
Sai
I sub to Q-charts and since I'm in for only 2-3 trading days mostly, I take a quick look at the weekly charts to see what recent movement has been in the index to determine the cushion I feel comfortable with.
I too am with optionsxpress. Was with Brokersxpress and a great broker, Mike Cavanaugh in Chicago. But Scwab rolled Brokers into Options and Mike went with IB. The commissions are killing me on 10 contract or less trades with their 14.95 minimum per side. I know I need to call someone to get the fees reduced but never seem to find the time. I'm trading in about 8 accounts and one of them I place 100 contract position. My bosses - not mine. I only wish it were.
Thanks for that. Will look into Q-charts. Btw for the weeklies, I guess you enter a trade on Tuesdays or wednesdays?
as for commissions, I've never talked to any human at optionsxpress - just do it via their live chat. The 1st time I chatted to them, I talked them down to $10 base (from the 14.95) with $1/contract (from 1.50/contract). Threatened to leave them and quoted rates from tradeking, eoptions etc. Today, I did the same thing but didnt threaten them. Just told them I needed a lower rate for my put spreads. You're totally right about the 10 contract commissions, since that's the size that I usually dabble in. Would like to obviously do more. I do intend to put in more money and expand my portfolio and then will ask them to drop the rate even more, which they were ready to do. I did ask them to be able to closs worthless positions for free, but they didnt agree to that. Oh well, all in good time.
Another week goes by...S&P goes higher...what else is new? The S&P is higher for the sixth straight week to start the year. The last time this happened was 42 years ago. No, I didn't go into the charts to find that out, I heard it on CNBC today. I'm sure everyone has heard the old saying, the one that goes something like this: "there are two certainties in life...death and taxes". Well, I'm now adding a third one: the three certainties in life...death, taxes, and markets go higher. For the second week in a row, I did not make any trades in AAPL. I'm still holding the FEB monthlies 365, 370, 375, 385, and 400 puts that expire next Friday. Two weeks ago, at this time, I was looking at 15 trading days till expiration and 45 points of cushion. I thought, at that time, I was going to have to roll at least the 400's down and out at some point before they expired. Things got dicey for a while, but now, thanks most recently to speculation that Apple will do something (shareholder friendly) with that large hoard of cash that they have, the stock seems to have found a bottom. Thank you AAPL!!! I want to get these puts off the books and then I will start trading it again.
It's hard to find anything to trade these days (from a premium seller's standpoint) with the VIX so pathetically low resulting in option premiums being just as pathetically low. On Monday (a one day down day), I sold some SPY 139, 140, and 141 puts that expire next Friday. I also sold some MAR monthly MSFT 24 puts. On any kind of decent down day, I will be selling more SPY puts and puts in any of the stocks that I follow on a regular basis if I can get somewhat of a decent premium for them. Look, it's hard to find anything to trade in this market that just refuses to provide any kind of "real" pullback.
I will be following AAPL closely to see if they do increase their dividend. If they, say double it (something they could easily afford), then I will definitely buy some AAPL stock and become an AAPL shareholder and take-in them dividend payouts and sell calls against my position to further enhance the yield. In the "who cares" FYI category, a lady who has an accurate history of making stock predictions came on CNBC last week and made the prediction that AAPL will drop to $200/share. Will it happen...I doubt it. But hey, when AAPL was at 705, if someone had said "AAPL's going to drop to 435, I think everyone on this blog (myself included) would have said "dude, you're on drugs". Is it possible, yes, but it's also possible AAPL could go to 800 too. Almost anything is possible with this stock. All I want from AAPL for the next 5 trading days is to hold 400. I can taste victory here AAPL...don't fall apart on me now!!!
Dave
Even tho Mon was a down day, what kind of premium did you get selling SPY puts expiring in two weeks and 10 points lower????
The assumption here is if SPX dropped to 1500, SPY hit 150. So what were you getting for your
140's??
Taxman, Monday was a true down day...what I mean by that is as the trading day went on, the markets kept going lower and lower and closed the trading day pretty much at the lows for the day (I'd love to see more of those). With that said, I traded my 7 cent rule. Normally I reserve .07 for 1-3 day trades, but certainly no more than that. Recently though, I've started trading @ .07 for longer-term trades. 7 cents for a premium has been good to me. I've never had any issue selling anything @ a .07 cent premium. Selling anything as far out as I go and still get .07 seems to provide enough cushion that those trades have always expired worthless. I got filled early in the morning @ the 141 strike @ .07 and as the markets continued going lower those premiums increased in value. I trade a little different than most...by that I mean, rather than adding to a partial position at the same strike, I will add to it by selling more puts at the same premium (.07) at a lower strike. So, that is what I did. Seeing those 141 premiums go higher, I put in orders to sell the 140, 139, and 138 strikes @ 7 cents. The 140's and 139's got filled @ .07, but not the 138's (they only got up to .05). Those 141's could have been sold for .12/share, I believe, that day. To me, there's a less than 1% chance of the S&P 500 dropping 100 points in two weeks. Could it happen...sure, I mean, flash crashes do happen; bad, crazy people do fly airplanes into tall buildings, but short of anything like that, I like the chances of these trades being "winner, winner chicken dinner" trades. These markets are just so damn bullish and there is just so much money on the sidelines (they say) wanting in, that any drop in the markets is going to attract new money in to prop it right back up again. But, at some point there has to be a meaningful pullback. Markets can't just only go up...eventually they have to go down too. One of my instructors, with reference to the markets always going higher, said "I don't like it either, but I'll be damned if I'm not going to make $$$ off it". He's a premium seller too (loves to sell puts). I make most of my money when markets are agitated and premiums are higher in value. So, I'm going to steal his words and modify them just a bit for my situation with respect to these overtly bullish markets "I don't like it either, but I'll be damned if I'm not going to make some $$$ off it".
Taxman,
I have a question regarding your NDX plays. What are your margin requirements. For every contract it would seem that it would take a large amount of margin to cover the trade. On a naked short side for every contract it would be 10-20% of $266,000 assuming you sold a 2660 put. That would equate to $26,600-$53,200 depending on your brokers requirement. Right now the quote for that option is .90. So if you sold one contract you would get $90 and would tie up in between $26,600-53,200 correct? That is basically 1/3 of a percent return assuming the $26,600.
I realize it is different because you are trading spreads so if you could explain what the margin requirements are for that I would really appreciate it.
I typically trade naked puts and covered calls but am interested on the spreads.
Thanks, BC
BC, the long part of the put spread ie, the 2640 part of the spread is bought for a lower amount than the 2660 put that is sold. so you will end up with a net credit. However, b/c you're buying the lower put strike, that now limits your loss to just the difference b/w the 2 strike prices, which in this case would be 20 points. those 20 points (x100 per contract) are then the margin requirements. this is always the better way to go since you know exactly how much you're risking per position. also, the brokers cant just raise margin requirements on you in case of high volatility b/c you've limited the risk by buying the lower put strike.
Sai, in your reply to BCG's post, I agree with everything you said except I do disagree with one statement you made. Before I get into that, understand that I only trade the naked put strategy. I have never, ever traded a spread (of any kind) with real money...paper traded, yes, but real money, no. I have absolutely nothing against spread trading, but for me, I much prefer the benefits that naked put trading gives me over spread trading. I'm going to be as objective as I can be and stick to just the facts without letting my bias (for the naked put strategy) come into play here. Also, understand that I'm not saying you're wrong, I'm just saying I disagree...there's a big difference between the two.
Ok, now that we've "chewed on a little bit of bun, let's get to the meat". Your statement "this is ALWAYS the better way to go since you know exactly how much you're risking per position" is what I disagree with. Notice the word "always" is in caps. I have found that you've got to be careful when using words like "always", or "never" or "100 % guaranteed"...words that have an all or nothing type meaning especially when talking about trading. For you and the way you trade the use of the word "always" may be 100% correct, but for me and the way I trade, it's 100% incorrect. It all comes down to what's in your trading plan and the criteria that you attach to the trades that you make. If in your trading plan you've stipulated that you want to have a limit to the amount of money (i.e. a finite number) that you could possibly lose per trade and you want to reduce the amount of margin money per trade and you don't want to have to worry about that margin money varying with changing volatility, then yes, I would agree that spread trading is "always" the better way to go. But, if your trading plan differs from that, then spread trading may not be the better choice. For example, take me, my number 1 criteria for any trade is to not get too greedy (we're all greedy to some extent...some more, some less). My number 2 criteria is "CUSHION" baby, the more the better. My number 3 criteria is time till expiration. The more time till expiration, the more cushion I want. That's it! I'm willing to execute trades without limitation to their loss or concerns about margin.
So, in my trading plan where "cushion" is my most important consideration (second to controlling greed), the naked put strategy is "ALWAYS" the better way to go (yes, this is one time where the word "always" is applicable) because for the same amount of premium paid, the naked put seller will always be able to get more cushion than the spread seller because he/she is not buying anything whereas the spread trader has to give back some of the premium received from the short put to pay for the lower strike, long put. My point here is, "what is always the better way to go" as you stated depends on each individuals trading plan and the criteria by which they use to choose their trades.
DaveG, totally agree with you. I actually rather prefer just selling puts, but I've bitten bitten in the proverbial "arse" a few times where I've gotten into a naked put position with 25-30% cushion (btw, Ive got the same attitude as you when it comes to my strike prices, ie as max a cushion as I can possibly get and still be decently profitable) and then have some stupid event take place that spikes up the volatility and then next thing you know, my broker's raised up the margin requirement on me 2-3x, forcing me to either pump in more capital, or close out positions to fulfill the margin. So if possible and no obvious forthcoming events (like earnings, for example), then I go for the naked sell. But in situations that has caused volatility to spike (abovesaid earnings, for example), then actually even with having to buy the lower strike for the spread, I still come out with a decent return (>2.5% for example) due to that very same volatility spike that makes the sold put premium nice and juicy. So at least that way I dont have the freaking broker throw a wrench into my strategy. But yes, for the most part, I prefer naked selling when not in periods of high volatility or uncertainty.
Dave - So your rule is to get .07 per contract. I also know you don't care about roi (return on your margin requiement) but taking commish into account, how many contracts do you normally sell to make the trade worthwhile.
BCG - on my ndx 2660/2640 spread for .20, my maintenance requirement is 2,000 per contract. The diff between the spreads. So my roi is 1% before comish. With the markets having an upward bias and the last 117 point down move in the NDX being last May, I felt comfortable with 4% cushion for one week. Remember, that I will close the spread if the short strike delta gets around 25.
I feel that naked puts require too much maintenace and it changes with the price of the underlying. Spreads give me comfort as to my actual risk. My downside on monthlies is having the discipline to close it. Weeklies force my hand in that area.
Hey, we trade our comfort level as long as we are meeting our goals. As I tell everyone, that is why they make vanilla AND chocolate ice cream. Takes your pick.
Sai, I really totally agree with and can associate a similar experience with everything you're saying. We really do (it seems) think a lot alike. You're more comfortable than I in credit spreads as I'm so hesitant (after so many years of only selling naked puts) of doing them because I would have to do them with less cushion than a naked put. Too bad we are geographically incompatible as I wouldn't mind sharing a cold one (or two) with you talking strategy.
Taxman, what's worthwhile?...well my worthwhile is definitely different than yours, I'm sure of that...and that's OK. I paid ~$14,000 to Online trading Academy (total for all the classes I took) years ago to learn how to trade. TradeStation has an agreement with OTA to reimburse the tuition cost back to the students (in full) if they successfully graduate from the courses and choose TradeStation as their broker. TS will total up all the commission costs from the previous month and return 20% of that to my account the first week of every month. So, if I accumulated $100 in commissions over one month, $20 will be deposited in my account from TS the next month. This will continue month after month, year after year until all the tuition money is reimbursed. So, in essence, I have received a trading education for free and I can retake any of the courses over and over again for the rest of my life for free (i.e. free retakes). What this means is, I'm paying (with the rebate) .80/contract and NO TICKET. TS does not charge a ticket price for trades (a biggie for me). So, if I sold just one contract @ .07, I'd make $6.20 for that trade. To me, any trade that I take, that does not lose me any money, is "worthwhile". To someone like John Carter (who wants, it seems, to hit a homerun on every trade), putting on a trade for .07 probably is not worthwhile. I'm just trying to grab (in as safe a manner as is possible trading the markets) chunks of cash where ever I can. If I sold one contract @ .07 that netted me $6.20...to me that's worthwhile. That $6.20 would buy me one meal at McDonalds (off the dollar menu) or several pounds of bananas, or several bags of baby carrots and the list could go on and on. BTW, after it's all said and done (it looks like, and I really don't like to make predictions, but it looks like the S&P will have no problem closing above 141 by Friday's close), I will have netted just over $100 for them puts. All I really have to do for that money is just "breathe in and breathe out" till they expire. Like I said, I'm just trying to extract little chunks of cash here and there to help pay my bills. I'm no John Carter...not even close...in real money...but, in paper money, maybe. I pulled off a $2,500 winner in paper money last week; I just wish I had the "kahunas" to trade like that with real money.
Dave
I see where/how you are grabbing your little "chunk" of cheese. It seems that we traders are little mice running around the legs of the "big guys" grabbing our chunk of cheese. As long as it fits into our trade plan that is great and we are satisfied. Don't get greedy and leave yourself a comfortable cushion. And by all means know when to fold em.
@Sai.
Hey Sai this is Dick. I too am a naked put seller trying to learn about spreads...
On your NDX spread I have 2 questions.
First, if the spread expires with NDX above the 2660 strike then you net the premium difference correct?
Second what action would you take if the trade started going against you... obviously it would be a roll down but which strike? Also I'd be interested to know at what point you would pull the trigger... thanks again...
Hombx
Actually they are my trades. I don't know if Sai has been placing credit spreads yet. Remember that they are weeklies, placed Mon, Tues or Wed, expiring at the open on Fri. If NDX closes above 2660, I keep all the net prmium. If NDX starts to approach the short 2660 strike, you need to use your judgement as to when you will close(the hardest part). As for me, it depends on what day it is. First of all, I will close on Tues/Wed if deltas get in the high 20's. I will also close if the markets are getting volatile. If Thurs, I will see what kind of cush I have and whether I want to risk an overnight selloff. I'm struggling here to give you advice. Unfortunately it is gut feel and accumulated experience and how much profit I have made this week on other index trades. Not all your trades will be in trouble.
If you have placed the spreads on Mon/Tue, they should NOT be in trouble by Wed unless the market has tanked big time. If they are in trouble, you didn't get enough cush from the outset. I will ALWAYS close the position, NEVER roll down. I will take the loss that week, sit back and see what the market is doing, and place next weeks trades until the following Tues/Wed. I strongly recommedn that you DO NOT places credit spreads immediately on the Thurs the become available. The earlies is Fri, but mostly Mon/Tues. You never know what might blow up over the weekend.
Stay in cash.
Getting a bit long here, hope this helps.
Might nice if I could type and spell at the same time.
Thanks taxman.... very helpful comments and I apologize if you feel like you just revisited grade school, but that's where I'm at...
Does anybody know if its possible to make any money on deep in the money call spreads? I Dont know if its the nature of the beast or a product of the current VIX... but I've looked at a few and seems like the best I can do is lose a little on them...
McMillan's book goes over bull call spreads and there's a short section entitled LEAST AGGRESIVE BULL SPREAD where his example was a call spread with two in the money strikes... kind of reminded me of picking up crumbs, but I haven't figured out how to make it work...
Any thoughts on this one?
Hombx
That is how you learn. We were all there once. As for DITM call spreads, the theory would be at expirtion you should benefit by the amount of the spread. For example ABC selling for 50. A May 30/25 bull credit spread that you buy for 4.00 should be worth 5.00 at expirey as long as ABC stays above 30. You are long 25, short 30
You close them both right before the close and except for comish in/out you should make the 1.00.
I actually tried it back in Oct with AAPL Jan 560/600 calls. The spread is 40, it might have cost me 28/30 to buy and would have made 40 at Jan expirey if aapl satyed above 600 and didn't tank. It ended up worthless. Lesson learned.
Wondering if anyone here is using the LEAP/short call strategy that Jerry leads this section of the blog with?
Think I might like to be deeper ITM with the leap than he indicates here, given my recent experience with AAPL where the pps dropped below my long calls leaving nothing to sell each week. Thinking of using MCD as a sleepy underpinning. Not sure there is enough premium for this. Any input welcomed.
The following is comparing and contrasting naked puts vs. the short put vertical. I put this together rather quickly. I'm sure I have missed some. If anyone has anything to add or wants to point out something they don't agree with, please do.
Selling naked puts, selling puts, short puts:
PROS:
1. Easier entry, easier exit, easier to adjust
2. Lower commissions
3. For the same amount of premium (credit), you can always get more cushion
4. More sensitive (in a positive way) to a decline in volatility
5. Has a higher theta exposure, thus all other things being equal, it benefits more from premium erosion due to the effects of theta
CONS:
1. Requires more margin
2. Margin is not as easily determined
3. Margin varies with changes in the underlying (i.e. changes in price and volatility)
4. Max loss is unlimited (actually it is limited by a drop of the underlying to zero...but a drop to zero in many cases would be catastrophic)
5. More sensitive (in a negative way) to a rise in volatility
6. Lower ROI/ROR
Bull-Put Spread (BPS), short put vertical:
PROS:
1. Requires less margin
2. Margin is more easily determined
3. Margin does not vary
4. Max loss is not unlimited; trader knows max loss
5. Less sensitive (in a positive way) to a rise in volatility
6. Higher ROI/ROR
CONS:
1. Entry, exits, and adjustments are more difficult
2. Higher commissions
3. For the same amount of premium (credit), you get less cushion
4. Less sensitive (in a negative way) to a decline in volatility
5. Has a lower theta exposure, thus all other things being equal, it benefits less from premium erosion due to the effects of theta
6. Traders have a tendency to do more contracts with spreads which can be a detriment to the "bottom line" if market conditions go against you
Dave G point 6 cons on Bups well taken.
To all. I have been watching/participating in this blog for about one year. When I started, Jerry was transitioning from selling of naked puts to the BuPS strategy. Somewhere along the line, he changed again to the LEAP/ covered call method. He seems now to have kinda lost interest in us. MIA for over 2 mos. now. Would love to hear his take on the above discussion and also his evolution to where he is today.
As always, I appreciate the positive and constructive nature of this blog, as opposed to some of the alternatives. Thank you all for your participation.
Taxman and Dave G and y'all else,
I definitely do credit spreads. Here are my positions for this month (posted them earlier above) which will all hopefully expire worthless:
-IBM 175/170 (entered right before earnings; closed position after), ~3% ROI
- GRPN 4.5/4, ~17%
- CSTR 37.5 put; ~ 4.7% (took positions before earnings; stock dropped ~10% and now recovered up to ~51 but my put is far OTM and so due to the volatility drop, its at 0.01 and will most likely expire worthless by Friday; regardless this is a >20% cushion)
- WTW 42.5 put; ~ 4.3% - earnings are tomorrow and stock is currently ~54. dont expect it to drop to 42.5 after earnings; maybe a 10% drop but more is unlikely).
So hope that helps some of the "newbies" here (I think I'm still very much one!).
Dave G, I'm all for having a cold one and shooting the breeze for ideas. I did propose this earlier, but we can totally shoot the proverbial "spit" on ideas for positions on the blog or at another forum. I know Taxman posted some of his positions; anyone else?
I do agree Jerry has been MIA lately - would be great to get some wisdom from him.
Hey gang, Dick here... got a trivia question... I sold some uncovered calls today and the strike price is $57.92.?? Fifty seven dollars and ninety two cents...
Just wondering how the makers could have arrived at this price... does anybody know?
I was quite impressed by the book - btw, anybody want to share serious ideas on this post or anyother - plz leave your email. Best. M
homebx, more than likely when you see those kinds of non-whole-dollar strikes, it's because of some kind of stock split or reverse stock split that took place previously. Also, a merger of two companies or buyout between two companies can cause those kinds of strikes. You should check and make sure that they are standard options as opposed to non-standard options. TDA designates non-standard options with an "NS" in the option chain. "NS" means that one contract does not represent the normal 100 shares/contract, but instead represents some other number (usually lower). I was involved in an "NS" trade by accident when JPM did a buyout of Bear Stearns. Each Bear Stearns contract at that time represented something like 33 shares/contract. I immediately exited the trade when I found out what an idiot I had been...I'll never make that mistake again. If those are indeed "NS" type contracts, I would recommend you exit that trade unless you know exactly what you are dealing with and are OK with it. If you are a beginning option trader, why are you selling uncovered calls? That's a trade that only those with a true understanding of what they are getting into should be doing. The number one consideration when selling uncovered calls is only do it on companies that you're 100% certain have no chance of being bought out. It would really suck to wake up one morning and find out that the company whose stock you sold those 57.92 strike calls on got bought out that morning for 75/share or some number above 57.92 and now you got to fork out the difference. Selling uncovered calls is something I've never done in all my years of option trading. Many of the best option traders I know will not do that type of trade because of the extreme financial ruin it could inflict on your trading account.
Wow thanks Dave for all the info your points are well taken... I'll close that position first thing tomorrow...it does sound like a non standard contract. the company is Sears Holdings and I do appreciate the buyout warning. I had not seriously considered the chances of it happening but you're right... it could be devastating!...looks like ive made a bad deal on two fronts...but I learned a couple of things and thats why I like this forum so much... thanks again for the chime
homebx, please do not open/close trades on my account. Do it only if you feel it's in your best interests to do so. BTW, you’re right about those strike prices. In this case, the reason you see strike prices that have a .42 or .92 dollar amount is because back in October Sears Holdings did a spinoff of Sears Canada common shares. Sears Holdings' stockholders received 0.4283 Sears Canada common share for every share of Sears Holdings common stock. Bottom line--all Sears Holdings strike prices for the expiration months/LEAPS listed at that time were reduced by $4.58. So, to find out what the real strike price was before the spinoff, just add 4.58 to the strike price. Using your 57.92 strike, for example, 57.92 + 4.58 = 62.50. So, 62.50 was the actual strike price before the spinoff and subsequent adjustment to all the strike prices for all existing expirations at that time. Notice the FEB options don't have those .42/.92 strikes listed. That's because when the adjustment was made, the FEB expiration month options were not yet listed.
homebx, BTW, I forgot to include this in the previous post, but those option strike prices (57.92 in your case) ARE standard type options. In other words, 1 contract does = 100 shares of stock.
Dave yes I checked it out too, and I've decided to stay with the trade through earnings on the 28th... they are 100 unit standard contracts, I haven't sold enough contracts to get mangled in a worst case scenario... and I dont think anybody is beating down the doors to aquire Sears.. they've been losing money for a couple of years now... and if some entity did come out of the woodwork to buy the company, I dont think they'd have to pay an enormous premium under the circumstances... Sears is no Heinz. So I'm comfortable with the trade and if I'm wrong it sure won't be the first time or the last!
All this being said, I do want to heartily thank you for the healthy discussion.. It has certainly given me a new perspective and I am privelidged to have gained it from you...
Dave also wondering what is your opinion of a stradegy of selling uncovered calls on ETFs or some index where the buyout is not in play...
To be honest my interest in this is coming from the fact that what I'm seeing is call premiums that are much higher than put premiums and its everywhere I look. Is anybody else seeing this? Is this also a product of the VIX? I wouldn't think so but I've never been here before...
homebx, yes, now you’re thinking. If one was inclined to sell naked calls (remember, that's the most dangerous option trade one can do), I would only do them on stocks that have realistically no chance of a buyout happening (like AAPL or GOOG, but, they have other risks like...they can move a lot) or ETF's and Indexes. You're right about the call and put premiums...I've noticed the same thing. No, that's not because of the VIX why it's that way. The VIX is not biased to calls or puts. Be very careful about entering naked call trades. I know people who have more money than you or I will ever have and are smarter than you or I will ever be and they will never trade that strategy (naked calls) because of the extreme risk associated with that strategy. But, if you were inclined to do it, then yes, do it on ETF's or Indexes. Also remember that the market trend is lower-left to upper-right on a chart (i.e. uptrend). So, you're doing a counter-trend trade by selling naked calls...not really the right strategy for current market conditions. BTW, I believe you brought up the topic of DITM call debit spreads. That's an interesting trade. I've got some notes on that strategy that I want to review (I've just got to find them) and then I'll post some info on that strategy. Remember, homebx, one of the many mistakes retail traders like all of us make, is all we think about is making money w/o much consideration to the risk of the trade we are entering into. The naked call trading strategy has unlimited risk...that should be raising a big red flag...don't take that strategy lightly...trader beware!
Dave,
You are absolutely correct about the risks of naked call trading in comparison to naked put trading.
...except, is there really any more chance of Sears doubling in price than there is of Sears dropping to zero?
Steve
@Dave G Interested in the info on DITM debit spreads if you can find it. Thanks in advance.
I wanted to clarify something. Unless I'm misreading, the prevailing view is that call premiums (bids since we are sellers) are generally higher than put premiums. But actually put premiums are significantly higher. The market assumes the risk of a large downside move is much higher than upside. That makes sense since stocks lose 20% in a day all the time but they seldom see an increase like that.
Looking at SPX today at 1520, a 1490 put (-30 or 2%) has a bid of $1.25 while a 1550 call (+30 or 2%) has a bid of 15 cents. It's the reason call spreads need to be so much closer to the market to receive a decent credit. I generally steer clear since the lack of cushion often gets me into trouble.
Same observation Glenn. That is why I rarely place call spreads. If I do, it will be on a Wed PM or even Thurs AM and then I get as far away as possible. My 1% roi target rests on put spreads. If I can steal a piece of cheese on the call side I will but will be very careful.
Anybody put a missing person report out on Jerry????
So another expiration week went by and all my positions expired worthless - my take in for this month is ~4% ROI. not bad. My WTW (wieghtwatchers) 42.5 put was being threatened on wednesday after earnings came out and the stock sank from the low 50s to the 43s and change. While it was close to my strike, the inevitable volatility crunch that follows every earnings report worked in my favor and the put was now only worth 0.05 which I closed out of. I could have stayed in the position another day, since WTW closed at ~44 and I wouldnt have been in any danger, but why take the chance, especially when I was able to get most of the profit out of that position? So not a bad haul this month. I'm starting to like stocks with earnings coming up - not a bad deal if you can stand the risk, especially for the juicy premiums. These are the ones where spreads are not a bad idea, although I totally violated that rule with both WTW and CSTR, so go figure.
How did everyone else make out?
Another week and a market that still goes higher...7 weeks now to start the year. The last time this happened was 1967 and the SPX was below 100 at that time. I know a lot of people are scratching their heads wondering when the pullback is going to happen. A technical newsletter that I read said that the longer it takes for a pullback to happen, the larger will be the eventual pullback. The markets can't go up every week...so far the markets say different...we'll see what happens in a shortened week 8. All my positions (over 20 of them) expired "worthless". That includes positions in VZ, T, SPY, SLV, and AAPL strikes @ 365, 370, 375, 385, 400, 425, and 455. The 425's were a 3-day trade and the 455's were a > 1 day trade. I sold the 455 puts on a dip in AAPL on Friday for options that expired that day. It got a little tight there for a while, but about ~1 hour before market close, it became apparent that AAPL was going to pin @ 460 and that enabled me to have the confidence to stay with the trade and not close it out early. It's pretty cool when you can spot apparent pinning action @ a certain strike and the underlying does indeed pin at that strike all the way into the close. With the expiration of the FEB monthly options, I'm now 98% in cash. I didn't plan it that way, it's not because I think the markets are going to go down (although, now would be a good time Mr. Market). It's just because, with premiums so damn low, I really can't find anything worth the risk with these low premiums. My only AAPL position is the MAR monthly 390 puts. I also have positions in VZ, T, SLV, MSFT, and FB. All of them except for AAPL are WOF trades.
SAI, good job on the ROI! 4% a month is pretty damn good baby...wish I could do that. Totally, totally agree with you on the "earnings thing". The inevitable "vol crush" has saved me many times on earnings plays when the underlying sold-off after an earnings announcement. This earnings season I've only played AAPL, GOOG, and FB earnings. I have a "WOS" (Wall-Of-Stocks) that I follow and they are the only stocks that I trade. I recently added FB to that WOS after I swore I would never trade that stock after it IPO'd. But, making $$$ supersedes just about anything else. I only trade stocks that are in my WOS. I don't trade stocks that I'm not familiar with. In these low VIX times, with resulting premiums being so low, I too seek out earnings announcements as an opportunity to trade higher premiums. But, it's risky as earnings are such a wildcard that's nearly impossible to predict what will happen. My question for you is: how do you select your candidates for putting on an earnings announcement trade? I almost always do AAPL and GOOG and almost did CSCO which reported this past week...I didn't and wish I had because it would have been a winning trade.
I'm going to be submitting a post about a subject that I don't think has ever been brought up on this blog before (if it has, then I missed it). It concerns the use of the word "worthless" with respect to selling options and how others (a lot smarter than me) have pointed out the "errors of my ways". It's not the first time I've been down this road, but I'm going to re-visit it and hopefully this time get a definite resolution to a question that has been bothering me for some time.
Hi all I have been doing ok this year. Not that many plays that I like. I have been checking out the comments about jerry not adding a new post in a while. I have found a pretty good site that is free and helps beginners and advanced a like
http://inthemoneytrades.blogspot.com/
They have some good vids and posts. I have found it helpful.
Requesting Jerry to have an update asap.
OK, as I stated in a previous posting, I'm going to bring up a topic that maybe was addressed on this blog before (if so, I missed it). I'm told (again) by one my instructors that letting my options expire "worthless" is showing ignorance of how options expiration works, bringing unnecessary risk into my positions, and down-right foolish. Reason being, things could happen in after-hours that could cause the stock to move up or down (sometimes a lot). This is one possible scenario given to me: say I sold an AAPL 400 put and AAPL closes @ 401 on expiration Friday (thus the option is OTM). Immediately after the market closes on expiration Friday, Apple Corp. reports some bad news that causes the stock, in after hours trading, to trade down to say 350. I'm told that after-hours trading could represent a risk to my short AAPL 400 put. So, the question is this: what price does the OCC use to determine if an option is in-the-money or not? Do they use the closing price after normal trading hours or do they use an after-hours closing price? The risk is this: an option position that expires (after normal trading hours) on expiration Friday OTM, could, in after-hours trading that same day, become ITM and the risk then being a possible exercise assignment. I've just gotten off the phone with the OCC and my brokers as I looked into this issue to determine how the expiration process works and an answer to the previous question. I will post what I have found out tomorrow (I have no more time right now). If anyone wants to inject what they know about this issue before then, please do so.
Dave
I had that situation happen to me with TNA. TNA is a 3X leveraged RUT ETF. I had a covered call position and long TNA. At fri close TNA was OTM, but futures rallied after the close, TNA popped and I was assigned. It was no big deal to me, because I made my $ & roi on the covered call and was just waiting till Mon AM to sell again. It would make sense to me that you are exposed until post closing trade ends. 6PM EST I think???
@dave G, I use the optionsxpress screener. I input some of the parameters that Jerry laid out in the book (P/E ratio, OI etc) and it spits out a bunch of stocks. Most of them are ones that I know since they're the ones that consistently fit the bill. So far, its worked out well.
volatility and premiums really low this month. Even the screener's not giving me anything juicy. Will have to work a little harder this month.
Frustration beyond belief. With the VIX at 5 yr lows, I can't place a credit spread with any kind of cushion and get a decent premium. I lucked out this AM and placed a NDX 2700/2675 put spread for .20 @ 2775. Should I be hoping for a selloff this PM when the FOMC minutes come out?? Anybody placing anything out there??
Sai and Taxman, I too am having trouble finding anything to trade these days. With this "accommodative" FED and their dovish policies in place seemingly forever, will the markets ever experience any volatility? I HATE these markets. This up, up, up crap sucks!!! FEB will go down as my worst month ever...not because of losing any money, but from a making money standpoint. Look, I don't want markets to only go down either, but some downward action, once-in-a-while would be nice...just to keep the VIX honest (not dropping too low). Ok, I would like to finish off the topic of option expiration for equities. First of all, two things: 1. the following applies only to equities. Index options (1256 contracts) have their own settlement process that is clear, well defined, and easy to understand (not so much for equities). 2. I'm not saying the following is absolutely correct (it's correct to the best of my knowledge at this time). It seems that depending on who you talk to, you could get different answers to the same questions (that's what makes this so damn frustrating). Anyways, to the best of my knowledge (based on the people I talked to), the following is how I think the equities expiration process works: See next posting--have to do this in two parts (4,096 max characters/posting)
I'm going to be taking quotes from an OCC document #30048 whose subject is: UNDERLYING PRICES FOR EXPIRATION - REMINDER ***REPOST OF MEMO #26849***. You can download this document (5 page PDF document) by going to "www.theocc.com" and typing "30048" in the upper right-hand corner. The OCC will auto-exercise any option .01 or more ITM (they call this "EXERCISE BY EXCEPTION" or "X by X" as the OCC rep on the phone kept saying). The price they are going to use to determine if an option is or is not ITM is as follows (quoted from #30048): "OCC will use the “composite closing price” (i.e., the last reported sale price during regular trading hours) for the underlying security on the trading day immediately preceding the expiration date. OCC understands that usually the consolidated or composite closing price is set at approximately 90 seconds after the close. OCC does not use “pre-market” or "aftermarket" prices". Everything, at this point, seems pretty straight forward (1. .01 or more ITM options get exercised, 2. OCC will use the last reported sale price of an underlying upon close of regular trading hours (this price is set usually within 90 seconds of market close), 3. OCC does not use any after-market price action in determining if an option is ITM or OTM. Now, here's where the ambiguity comes into play. Even though from an OCC perspective after-hours trading does not matter in determining an underlying's “composite closing price”, it (after-hours trading) could matter whether an OTM option will be exercised or not. This is because the exchanges will allow an additional 90 minutes after market close for an option exercise notice to be submitted. I called both of my brokers and one of them will guarantee an option holder's "right-to-exercise" up to 30 min after market close and a "best effort" 30-60 min after market close. The other broker will be on duty for an additional hour after market close to take any option exercise requests. What this means is that even though the OCC only uses the normal market trading hours “composite closing price” any holder of an option has a right to exercise that option at any time (including after-hours trading). So, if during after-hours trading, an option goes from OTM to ITM because of the underlying’s price action, the holder of that option can notify his broker of his/her intent to exercise that option. So, after-hours trading DOES matter on whether an OTM option could be exercised or not (by the option holder), but it DOES NOT matter as far as the OCC is concerned as to whether the "X by X" exercise threshold is met (options .01 or more ITM). Bottom-line is this: by not closing out any OTM option into market close on an expiration Friday, you are exposing yourself to risk of after-hours trading action working against your position and resulting possible exercise assignment...MY INSTRUCTORS ARE CORRECT! (damn-it)
Anyone that has anything to contribute, please do so. Again, I'm not saying this is the "absolute" way it works. It's correct to the best of my knowledge at this time though based on the people I talked to and reading of document #30048.
Be nice if you could add a user forum to this blog. Is that possible with blogspot?
Ok guys here's what I got into this month:
- sold GRPN 4.50 put; stock's at 5.70 and earnings are coming up on Wednesday so a bit of risk, although 4.50 is >20% cushion. But this stock's been beaten up already and has been inching up recently for the last few months and I've done pretty well on this recently, so I feel comfy with this position.
- sold CACI 42.50 put - stock's in the 50s so close to 20% cushion; was beaten up recently due to change in CEO. But 52 wk is 41.29, so my strike's not too far from the 52 wk low which is unlikely to be hit.
Both are giving pretty good premiums. I'm also looking at UA and the 42.50. Stock's at 47.25 now, so not a 20% cushion, but the 52 wk low is 42.13 and so not that far from the 42.50 strike, which I think it again unlikly to be hit. Premiums's pretty decent.
I'm expecitng GRPN to deflate after earnings due to the volatility crunch post-announcement, and then plan to get into another position.
What are other folks planning?
Should mention that its been hard to get other more "safer" bets due to the crappy low volatility that we mentioned a few posts before.
I used to be a long time follower of this blog but it seems to have lost its omph over time.
I would like to invite you over to my blog at strangleprofits.blogspot.com
I am focused on selling short puts and calls and have been doing it for some time. I give credit to Jerry on his exit rules, they were the missing piece on my own system and are really quite brilliant.
I welcome all ideas, comments and questions. I try to post a weekly update covering my positions and where the portfolio stands. I also actively post on twitter.
See you there
Ok I bit the bullet and got into a AAPL 420/415 spread expiring on March 1st. AAPL is at 440 now which gives me about 5% cushion till Friday. Got about 5% ROI. Let's see if this holds. The 52 wk low was 435 and AAPL's gotten pretty beat up and has been hovering around this level for the last few weeks. There's no major events scheduled that could impact the price (ie no competing tech stocks making any major earnings this week). Keeping fingers crossed till Friday!
How about shareholder meeting on the 28th? Tho I still think you are safe. Just really tired of being jacked around by AAPL and think perhaps Jerry in abstentia is correct, at least for me. No more AAPL fo awhile.
Sai, good luck to you on that AAPL trade. For me, that's not enough cushion. I'm short the 395 puts that expire on Friday and the 380/390 monthly puts that expire on the 16th. I fully expect that at some time AAPL will test 400, that's why I'm not selling any puts above 400 unless they are very short in duration (1-2 days). A major risk to AAPL (and it has been a while since this has been the case) is the overall market going down and taking AAPL with it.
would tend to agree with both you. The main topics for the shareholder meeting will be the buyback and dividend. Dont expect them to be significant movers, except hoping that any movement will stay above 420 obviously. Any slightly positive news would bump upward. dont expect too much on the downside, since I think a lot of bad news has been baked in, although those have been famous last words! Trading has been sideways over the last few days which is why I picked those strikes. keeping fingers AND toes crossed!
As this is the 1st weekly trade I've gotten into, I realized that i should've perhaps waited another day to enter. Next time, I only execute on Wednesdays!
I dont know if there's any truth to the AAPl split rumors, but it was plenty enough to drive up the stock and drop volatiltiy, even if just for few moments. Enough time for me to book my profit and exit out baby!
Good work Sai, congratulations!
This blog is tremendous. Thanks guys.
Just FYI, I've moved into selling puts against the GDX With the move in gold being so oversold, and even worse with the miners, I've been able to do decent ROI. Thanks for all the tips guys.
Sell gold,
Any favorite miners to play?
Yes BCG. The miners are getting crushed and I've had success with PAAS as well as GG.
Today I sold the PAAS March 15s and some April 14s for .25. The vol is decent and these miners are so oversold that I'm able to do okay despite the slow grind lower daily.
At times it's been dicey, but I always unwind and roll down if the strike gets too close.
what happened to Jerry?
Lost on the golf course?
I shot an email to Jerry per the
Putman3232@yahoo.com to see if he was still supporting the blog.
We shall see.
I assume lots of followers have vanished!! :(
@Taxman Any news from the Putman? Sorry to see this blog disintegrate. One of the few I follow anymore.
Got an email late yesterday. Said he was still with us but had been working on some other investments taking his time away from the blog along with some vacationing.
Jerry said he should be updating the blog in the not to distant future.
Welcome back Jerry
I also hope the blog doesn't disintegrate. Wonder if our friends from down under, The Netherlands and our Hawaii buddy are still out there.
Hi Taxman:
I am still lurking on this blog. Still playing options very selectively. Mostly I am on the sideline at the moment, as the market seems pretty oversold. Doing weekly call spreads almost exclusively lately.
Some recent winners were MA, NFLX and GOOG. I am following advice from a service that specializes in weekly plays. Only thing I don't like is that they always do spreads, which have limited rolling ability. At least with naked calls/puts there is the opportunity to roll if things go south. Not so much with spreads...
Like many have said, hard to find safe plays in this market with VIX so low.
Tried doing vertical call cal spreads with MCD and CAT back in Jan., but had the stock run past my sold calls and ended up with some small losses. Since then I am much more cautious, since this strategy doesn't work for every stock.
Hopefully Jerry will post and get things going again on this blog.
Aloha,
Mike
KauaiTrader, you mean "overbought", not "oversold". Excluding AAPL, precious metals, JCP and a few others, these markets haven't been oversold for a long time. They are likely to stay this way (as buyers are coming in on any dip) for a long time. Based on recent activity, a VIX in the high-teens is high and 20 or more is very high. During that last pop (VIX over 19), I sold many options (most of which will expire next Friday). But, as always, I wish I had sold more, as this market always bounces back. Selling puts with the VIX this low (sub 15) just doesn't "get it done...for me, anyways". I'm hoping (again) for something to happen and shake these markets up a little (don't want a repeat of 2008 though) just enough to get the VIX into the upper teens so I can sell some more puts.
I have been a long time reader but have never posted (until now) I am also hoping Jerry will come back and get this blog going again.
KauaiTrader, I am always looking for a good subscription service. Could you tell me which one your using and if you like it or not?
Ronmcdnl, If you have a Think or Swim Or TD account check out Tasty Trade, You can also get two weeks free if you don't have these.
Look around and see if you can find this weeks interview with Robyn.
https://www.tastytrade.com/tt/live
If you MUST pay some one Risk Reversal is a good one.
http://www.riskreversal.com/
I found Robyn It's on there face book page. Check this out
tastytrade.com
http://youtu.be/uOtiUO6AZA0
Did You Catch Yesterday's "Rising Stars Interview?" Watch to see how Robyn made 41% on her portfolio in 2012!
Dave G, you are right. I meant overbought.
As for the state of the market, I hope it keeps going up, but I am cautious with highs on the Dow and a constant grind upward...
Tax, I'm still lurking also.
Trading more then ever and loving it, not loving the low vol and slow grind though.
I'll second Raging Bull and recommend Tastytrade.
Cheers,
Damo.
I have made a fortune trading IOC recently. Still like this play for the brave. Look at the call premiums.
I will get back into AAPL when the chart says so. It's getting close to my crossover buy point.
I am doing my taxes now for the spreads that I sold last year. Unfort one bad one gave me a loss for the year.
Anyone have any recommendations on taxes including spreads? I am using turbotax and imported the sales from my broker. (Stinks that it thinks that all the sales were stocks instead of options, so I need to go and update all the entries)
@Bill, How are you playing IOC. Some rumor of pending deal could spike pps? And what crossover point are you using on AAPL. If you don't mind sharing with the less bold.
ihaveoptions - I hold the IOC 2014/2015 $50 LEAP calls. I sell the monthlies just slightly out of the money. Been doing this forever. However, news is pending that should take the stock over $100 so I am only about 20% hedged with sold calls right now.
For all stocks including AAPL I use the EMA 8 day/EMA21 day crossover. It is still on a sell signal but other indicators have very recently turned positive. I will wait for the 8 day to crossover the 21 day and then do a LEAP covered call trade probably using the weeklies.
http://stockcharts.com/h-sc/ui?s=AAPL&p=D&b=5&g=0&id=p28970492224
Hey Bill, Thanks so much. Looks interesting. Did your short calls get ITM when the stock exploded upwards at the end of summer and again in Feb? How do you handle that?
Like the 8/21 EMA study.Looks like it would have saved me a lot of grief in the last year. Don't see it closing yet tho. More pain for AAPL? Who knows?
Thanks again. Even without Jerry we should keep this thing going. He'll be bach tho, maybe this weekend.
Hi Damo,
My wife and I are doing a tour @ New Zealand for 2 weeks from late April into May. It includes Auckland, Rotorua, Wellington and Queenstown. It's our first ever 2 week vacation as well as going outside of the US. We're from South Florida. If you're interested we'd be happy to say hello, have a drink, or grab a bite while we're there.
Ed
sunburstpc@hotmail.com
Hi Everyone;
This is my first post here and am enjoying the discussion. I've finished Jerry's book and really enjoyed it. I've read several other books and sites regarding put selling and one of the things I really respect about Jerry is that he's not selling anything. These other books and sites all offer some subscription service. As Jerry says at the beginning of the book, he's not selling anything.
I've done a few put sells successfully and look forward to further discussion here.
Bill
Nobody gonna say anything til Jerry shows up again?
@Tax Sold the 1505/1515 BuPS today for .15 Day and a half of exposure so seems ok. You?
Ok, just to make a comment or two to keep this blog on something of a half-ass heartbeat.
1. I hate this market...when is it ever going to go down???
2. The MINIS start trading on 5 underlying’s next Monday (18th). They are:
AMZN AMZN7
AAPL AAPL7
GOOG GOOG7
GLD GLD7
SPY SPY7
The "7" in the ticker must indicate they are MINIS.
3. SAI, I'm definitely going to make some trades on the next earnings cycle coming up in April (AA reports on the 8th AMC--unconfirmed at this time). Are you? It's the only time one can find any premium with the VIX hanging around 12.
4. I am so very tired of this up, up, up every single day crap.
Been doin' my thing all week all over the place.
Mon: NDX 2700/2675 puts
RUT 910/890 puts
Tue: SPX 1510/1490 puts
NDX 2705/2680 puts
Wed: NDX 2850/2875 calls
Even did NFLX 160/165 puts
GLD 144/149 puts
If this market doesn't want to go down, then I'm early & often.
Got my cush and roi.
I als hope we keep this thing going. Like the comradery and ideas.
@Tax:
1. Been looking at your strategy. Looks promising, but seems like the bid/ask spreads on the NDX are typically ginourmous! How bad does it hurt you to get out if the trade goes against you?
2. I looked at the NDX on Tues and it looked like I might be able to squeak out 1% on the 2730/1705. Did you get 1% on the 2705/2680, just put in a limit order and wait...?
...1% on the 2730/2705.
Ok
My NDX trades this week:
Mon: 2700/2675 for .30 @ 2797
2705/2680 for .26 @ 2797
Tues: 2705/2680 for .26 @ 2793
2725/2705 for .30 @ 2799
NDX spreads are usually very wide. I usually ask for 40-45% of the spread. If it doesn't fill within 5-10 minutes I adjust downward.
NDX pricing is very agressive. The index is also very volitile hence the premiums. When it moves against you the premiums explode. That is why I leave lots of cushion. I usually place NDX positions on Tues PM or Wed AM, but with the market refusing to go down, I've been placing them on Mon/Tues. Also notice my 90-95 points of cushion. I cant remember the last time the NDX DROPPED 3% in a week especially with the upward bias in the market. Also note that the markets have not been very volitile this year, but a steady grind higher as Dave has noted
When the vix was higher, I actually placed some NDX spreads on Fri, got my .30-.40 with upwards of 150 points of cushion.
@daveG - yea most likely. I havent seen AA yet or done my screening for next month, but that sounds like something to consider. all my positions expired well OTM so I'm happy w/ this month's haul which was ~ 3%.
I really think this market's due for a correction though. mkt's going up too high too fast. doesnt make sense...
@Tax:
“I cant remember the last time the NDX DROPPED 3% in a week…”
Week of (from High to Low):
3May10: -14.1%
1Aug11: -11.1%
28Jan10: -8.2%
15Aug11: -8.1%
14May12: -5.5%
5Nov12: -4.6%
12Nov12: -4.1%
15Oct12: -3.9%
To name a few…
Some had pretty strong volatility in the days preceding these drops, so you may have been able to increase the cushion and still get 1%. However, others, 3May10 and 1Aug11 for example, were fairly calm prior to the route. Just curious what your strategy would be during the proverbial Six Sigma/Black Swan/Call It What You Will event that blows through both strikes?
Mgmc
You forgot the rest of my statement
"especially with the upward bias in the market". Per your schedule, the last time we saw a 3% move was 5 months ago until today - given the potential of the Cyprus crises.
As for a black swan event, I have the same problem everyone else here has - What do you do????
At least with a credit spread I know my max loss - the spread times the # of contracts. I will close the spread take my loss and live to trade anothr day. Cost of doing business. With a naked put your max loss is defined as the short strike minus 0 which in most cases can be a lot more.
I can only go with what works for me. I trade many acocunts for myself and family members. Last year my annual roi was 35-40% in accountes where I stuck soley to my put spreads. I'll take that any day. We all have to traade what we feel comfortable with and what works for us.
Tax, Did you have any good results from the LEAPs/sold Call strategy we were all messing around with earlier.(and referred to by Jerry above). I couldn't ever get my mind fully around it. MyAAPL spreads were a disaster as the pps dropped below the LEAP strikes so I could no longer sell against them. Think it might work in an ever ascending market, but in that case a lot of methods will work (lol). Dis a couple FB and PSX for several weeks but basically got out even, all said and done.
I guess it would be nice if I proof read my comments. Spelling needs help sorry
Have ops
Still taking heat on some left over aapl put spreads. Working my way thru them the best I can to min my losses. Do have an aapl 450 leap that I'm selling calls against
and if aapl stays where its been, I'm finding success with that program. I only have 1 contract but by selling the weeklies against the leap, the roi is fantastic.
Holding my breath right now to see if the EU crises rears its ugly head. Sold some NDX Mar4 2700/2675 spreads last Fri. Had 105 points cush - we shall see how that works out this week.
@Tax
If I cam across bluntly, I apologize. I'm in no way trying to take you to task. On a risk adjusted basis, your approach seems to be one of the better ones out there. I was just curious how you handle the occasional outlier event when it comes to that. I'm always looking for the angle to mitigate risk. I suppose if you can achieve above 30%, I'd be happy to take ~3% of that amount to use as a hedge for any systemic events.
Thanks.
FWIW, AAPL chart is very close to a buy signal. I have been out of the stock since the last sell signal in early December.
http://stockcharts.com/h-sc/ui?s=AAPL&p=D&b=5&g=0&id=p90580075708
Once I get the crossover buy signal I will be buying the Jan 15, ~$360 calls. Then selling the monthly or weeklies just OTM. If the negative crossover returns, I will sell the LEAP and move on.
Good luck trading!
-Bill
@Bill,
I think this will turn out to be a good call. I've been waiting for AAPL to bottom and it was surprisingly strog today from the open. I'll also note that for the ADX, +DI crossed above -DI, signalling an uptrend. The last time they crossed, signaling a downtrend, was 25Sep12, when the stock closed at 666. It will be good to see if it can break 485 to the upside.
@Bill, Why the 360? Just wondering.
No offense taken. I like that this is an open forum where everyone has input. Trade what works for you. Wish I could develope some magic formula to protect the portfolio from that black swan event. I don't think just buying long term puts does it however.
I fear an aapl miss this qtr and have it drop to 400. If it does, I may pick up some leaps and take advantage of an oversold bounce. I'm reading that this appl move is based upon some dividend increase.
Futures are up this AM. This market just won't go down. I am holding some TZA and VIX calls to hedge the downside but it's not coming. RUT usually rallies Oct-Apr and tanks May-Sept. My only hope on the TZA.
Come on back Jerry - need a new thread here.
ihaveoptions - Why the $360? It was a guess at what price will be at a .80 or higher delta when entering the trade. I ALWAYS buy a call LEAP at .80 delta or higher to protect me on the upside. It has never failed me yet.
Forgot to add that if you are not into option greeks or your platform does not show these by default. Just take the market price x .80 and buy a LEAP around that price. That way it will pretty much behave like a covered call play but you have the LEAP for increased leverage.
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