Conservative Options Strategy

Just wanted to say thanks for this journal thread -- it's been a while since I dabbled in options having made the move to futures last year, but recently started doing some more options activities to support my longterm portfolio, and it's been handy reading your items as part of my efforts to 'relearn' and get reaccustomed to options trading again.

Your methods seem sound, and your analysis is not full of FUD or the arrogant tripe so commonly found on the net. As such, may I simply say: "well done!"

Keep up the great work!
 
Monday June 18 No activity.

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Tuesday No Activity.
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Wednesday Activity:

BUY 5 FWLT JAN 50/52.5 @ 2.05
Stock at 74.01, comm.=7, expected gross profit 225
(small position on low confidence)

BUY 5 MTW JAN 25/30 @3.95
Stock at 38.78, comm.=7, expected gross profit = 525

BUY 4 TEX JAN 45/50 @ 3.7
Stock at 61.95, comm.=5.6, expected gross profit = 520
(preferred 40/45 at 4.1, could not get filled so I took this at some extra risk)

I’ve been looking very hard for something different. I’ve looked at stocks I used in the past and I’ve looked for new prospects for either the bull or bear sides, that would allow me to put of low-risk spreads (far away from the money). I’m finding slim pickings.
Nothing I liked for deep spreads.

On theFoster-Wheeler spreads, my spreads are just below their march lows, but I am not highly confident we won’t go there again before Jan.. Still I took the small position, only 1K invested, so obviously I think I’m OK.

Pessimism aside, I’m very happy with the way my portfolio is looking. I don’t see any positions that really concern me at this point. My OCT PAAS is barely ITM, but it doesn’t bother me much right now.

I did put some money to work today in other accounts, buying spreads in DO, COP, PAAS, PCU, MTW, XLE on a little pullback earlier today.


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My post from May 28, 29 showed an evaluation I do on my spreads. Here is an update.

My figures for today:
Maximum value of spreads if 100% succeed = 198250 (was 203,500)

Present value of spreads = 160219 (was 164, 376)
Note: This does not mean I lost 4k in spreads, just that after some trading, I now have 4k less invested in spreads.

Amount remaining to be earned = 38031 (was 39,124)

Average max yield (38031/160219) = 23.7 % (was 23.8%)

Liquidation value today is 206500, + 38000 to be earned = 244500 max account value.

(I did not include liquidation value in the may28 post, but this is the maximum value of my account after Jan spreads close if 100% success)
I want to earn 70K for my account by May 2009. Target is 270K.
 
i want to join others here YM, to thank you for an execellant journal.
i've been mostly a premium seller of on indicies with fair sucess over the the past 2 years when trading options. ie ........IC, verticals etc. but not without some stressful moments.
So your DITM call buying seems what i have been looking for to add to the tool box, but with some puts
.
that being said...i,ve been trying to short toll brothers stock but none have been available for the last 2 days.(my broker IB).

.
this am Tol was trading at 20.11 and i bought a DITM dec 27.50/25 put spread for.$2.00.break even is +/- 25.40 and
the return is 24%
Toll han't closed above that since 7/20/07.
I know you have stated your relluntce to deal with puts but i thought i would throw this out there.
As i type this TOL is up .28 to 20.57
thought you might be interested:D
cheers john:D
 
YM,

What is your preferred method of exiting these DITM call trades? Let them get exercised or do you buy them out near expiration?

Thanks
 
pismo10 - I've covered this subject that pretty well. See comments from my posts on 5/15 and 5/20 about spread distribution. Few spreads survive to expiration, only because it doesn't pay to close them early because of wide bid-ask differential. Remember also, no costs for option assignments with IB, but I have to pay commission to sell the spreads.

Thanks for the comment.
 
clarify previous post.- Few spreads survive to expiration. (They survive) only because it doesn't pay to close them early because of wide bid-ask differential, etc.


Thursday’ activity:

BUY 5 GLD JAN 75/80 @ 3.85
Stock at 89.4, comm.=7, expected gross profit = 575
(adding to existing position)

BUY 5 ESV JAN 60/65 @ 3.8
Stock at 80.5, comm.= 7, expected gross profit = 600


Friday’s activity:

EXPIRING: 3 PCU JUN 85/95 ASSIGNED
Cost was 8.75, return 10, gross profit = 375.
(this is a remnant of an old beat-up position, much maneuvered.)

BUY: 5 EEM DEC 105/110 @ 4.0
Stock at 137.8, comm.=8.8, expected gross profit = 500.
(add to EEM position on weakness today, have 10 jan 110/115 spreads, selected dec so I could go deeper without changing the jan spreads.)

BUY: 6 EWZ 65/70 @ 4.05
Stock at 89.2, comm.= 10.65, expected gross profit = 570.
(add to position on today’s weakness)

SOLD: 3 WYNN SEP 70/75 @ 3.7
Stock at 88.2, NET LOSS 53.4
(I had already reduced this position, can no longer ignore the trendline. Small loss to exit.)

SOLD: 4 VLO DEC 35/40 @ 2.9
Stock at 42.3, NET LOSS 371.2
(refiner, like SUN, this position had been reduced already. Should have exited earlier, I knew that.)

So, today was mostly about re-allocating the same money from one bucket to another.


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In my post on 05/22, I jabbered about the pitfall of having a spread on expiration day where the stock price is between the strikes. Here is a message from IB today: (see, I told you so.)

"Any customer holding long US stock options which expire $0.01 or more in-the-money and who do not wish to have such contracts automatically exercised by the OCC will need to provide contrary instructions through the TWS Option Exercise window. Also note that any account which does not have sufficient maintenance margin following the delivery of stock positions from an option exercise will be subject to automatic liquidation upon the market open on the following business day. Additional details are available in the following document: http://www.optionsclearing.com/market/infomemos/2008/jun/24525.pdf “.

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Thoughts about what might have been….
Looking at the market today and the economic climate, I think about how my personal situation would be different had I not pursued a tip from a friend (several years ago) to start looking at stock options as part of investing. I’m sure my IRA accounts would be 30% less then they were in January 06, instead of 43% higher. I’m sure my 100k investment account would be 70k to 80K instead of 200K. Rental property would have been down 35%, exactly as it is today. Instead of deciding between a vacation in Spain & Portugal or New Zealand for next year, I might be wondering if I can afford the gas to take a drive out of town this weekend. And a couple of elderly family members might be worried about the same things, but they are not.

Even a little knowledge is a little power. Even if the sectors I’m in crashed around my ears, and wiped out all the profits I’ve accumulated (an unlikely event), I have absolute confidence that the strategy I’m using is sound and I could rebuild and recover if need be.

Good weekend to all.
 
When you say BUY do you mean enter the trade for a credit?

I started trading BPS in April and have 11 positive trades that average 10.8% each.

We have a trading group in Orlando that sends out daily candidates for an entry on the next day. Looking for 10% profit, will enter sell order in for Short put at 10 cents as soon a trade is entered. Long put can't hurt you if it is zero, can only go up if stock tanks.

Always have several trades ready for the next day if a short put sells.
 
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NOTE: ALL SPREADS ARE DITM BULL CALL DEBIT VERTICAL SPREADS, unless otherwise noted.

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Monday’s activity (June 23):

SOLD: 3 MDR AUG 35/45 @ 4.87
Stock at 63.45, net profit = 330.6

SOLD: 5 XOM JULY 70/75 @ 4.88
Stock at 86.75, net profit = 411.0
(this was my last july spread)


SPREAD DISTRIBUTION:

On June 9, Today
June, 3, 0
July, 5, 0
Aug, 9, 6
Sep, 40, 28
Oct, 108, 112
Nov, 35, 35
Dec, 54, 56
Jan09, 155, 179
-----------------------------------------------------------
Total, 409, 416

Well the news was all doom and gloom over the weekend. Some Elliott-wave guys are looking for 10k DJIA and 1000 S&P, later this year. Fundamental guys are bearish on the general market too, but many are still bullish on precious metals, oil and natgas, and some commodities. Nothing really new, except recovery always seems to be a little further away. My job is to steer the portfolios I’ve worked hard to establish. Most of the current advice is go short or go to cash. Those commentators that are bullish on energy and some commodities make a good case in my opinion, to not abandon my portfolio.

I think the proper course for my portfolio is to stop putting on new spreads (exercising caution), and to take all opportunities to close out spreads as early as I can. This assumes no large movements in my sectors. If I spot trend reversals, then I will take more active defensive moves. The status of my account now allows me to meet my goals for the end of year without putting on new positions, again, assuming status quo. The problem I have is that my desire to buy “bargains” is often stronger then my caution, especially as cash builds up in my account and starts burning a hole in my pocket.

So my new mantra is: “Do I REALLY need a new DITM spread?” I should have been asking that question last month.

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Tuesday Activity: None.

Considered selling the 3 spread GRMN position for a loss of 300. With 5 star S&P, P/E at 10, and good foreign sales, I will hold a little longer. Earnings on July 30. (Stock recovered from early session loss to small gain at EOD.)

I’m proud of myself today. I did not buy spreads in NE, even though the stock was down $2.70 and I really wanted the spreads. Discipline! Did I need them? No. And I avoided the temptation of the late day sell off in other positions.

Every day I can hold on to the spreads I already have, I’m still earning time-value. (Over $300/day, from a previous post.) Since May, the DJIA has gone from 13000 to 11870, the S&P has gone from 1425 to 1320, and my liquidation value is still 206K today. So far, so good.

These are the stocks that I have recently exited at a loss: MW, SUN, RTI, WY, PTR, WYNN, VLO. So far, no regrets about those decisions. I think all but one are down from my exit point.

I have to say I’m still liking my one and only bull put spread position in CNX. (post on 6/4 & 6/5). It is doing what it is supposed to do.
 
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