My OPTION TRADES..... part 2

P

Put_Master

The 1st "My OPTION TRADE" thread was so long, with so many old, out dated, and now useless trades listed, I decided to initiate a new one.

Sold puts on $10 ARO for October.
Credit $0.25
Annualized % return..... 15%

Company currently going through some inventory related issues. Which can be serious for a retailer. However, the stock price has already had a sig drop on that issue.
And the company is financially healthy, so it should be able to ride out the problem as it adjusts it's strategy going foward.
This is the 2nd retail related trade I shared recently, with $17 TRLG with a credit of $0.55, also for October, being the other one.
 
Haven't followed your last thread so forgive me, but are these hedged or just naked? Ok with owning the stock at said levels I take it?
 
The ARO trade is naked. Not hedged.
You are correct, that I would not mind owning the stock at a BE price of $9.75, and selling covered calls on it, if it were put to me.
Same with my $17 TRLG.
Of the dozen or so stock/option trades I shared, on the original MY OPTION TRADE thread, only my $45 NFLX Sept put is hedged.

Just for the record, I am NOT recommending others initiate trades unhedged. I tend to only hedge trades I consider more volatile and unpredictable than usual.
But then again, i also don't initiate trades on over valued, over debted, wild, volatile, "story" type stocks to begin with.
Those type stocks should be hedged.
 
(Carry over post from Falconview part 1 of previous thread)

<<< Just accidentally run into this query from Put Master
I'm trying to remember when I started with cash. Think it was beginning of the year. So, I'm down 30%. For the last two months I've moved into TOS paper money until I can get something working again. My account is down from $10,000 to $7000 less a few dollars. Lowest it has ever been.
I'm not sure I've learned anything useful. Certainly widened my horizons and tried stocks, and earnings reports, debit spreads, straight bets, calendars, condors, etc. >>>


If you are down 30% for the year, while the market has had a nice run, you are either getting into the wrong sectors, or your strategy preferences and/or criteria for those strategies need to be re-evaluated. I'd like to suggest the following:

You may be experimenting with too many strategies.
Don't get sucked into the "BECAUSE I CAN" mentality.
That being, there are so many option strategies to select from, don't get sucked into strategies, simply because you see others doing them. They may be doing them because they are good at them. Such as picking trading ranges to stay inside of,... or outside of.
Or they may be good at making "adjustments" at the best time.
Or they be good at determining a stocks trading direction, or limits of that direction.
Figure out what you are good at and comfortable with, and then impliment a strategy around it.

Don't assume guessing trading ranges is your thing, just because it may be someone elses thing.
Don't assume just because a stock is hedged, that it must mean that strategy is a safer trade than one unhedged. Or that it has a higher probability of being successful.
Don't assume that just because you are not paying margin fees, that your trade isn't leveraged. Most spread trades are actually massively and dangerously leveraged.... even if you are not charged margin fees.
Figure out what your thing is, and don't copy others. Getting sucked into a "BECAUSE I CAN" mentality will only result in you losing your remaining 70%.

Just because there are dozens of option strategies to select from, doesn't mean you should be selecting them. Sometimes just keeping it simple is the best approach to take. And the best path to a high "probability" of those trades being successful.
 
"Most spread trades are actually massively and dangerously leveraged.... even if you are not charged margin fees..."

Is this a rational statement?
Lets take Put_master's ARO trade:
ARO: $10 naked short put vs 10/6 bull put spread:

ARO______$10 Short Put________10/6 Spread___________10/6 spread Two Contracts
Margin..........1000..................................400..........................................800...................
Price...............P/L.........Yield..................P/L...........Yield..........................P/L...............Prob >
0................(1000)......(100%)................(400).......(100%)...................(800).............<1%
2.50............(725).......(72%)..................(385)........(96%)....................(770).............<1%
5.00............(475).......(47%)..................(385)........(96%)....................(770).............<1%
7.50............(225).......(22%)..................(230)........(57%)....................(460).............<1%
9.75..............0............0%.....................(6)...........(15%).....................(12)................<1%
9.85.............13...........1.3%....................0...............0%.......................0...................<1%
10................25...........2.5%...................15...........3.7%......................30..................15%
12.50...........25...........2.5%...................15...........3.7%......................30..................50%
15................25...........2.5%...................15...........3.7%......................30..................85%

The spread is obviously a lower risk, higher yield trade compared to a naked short put.

I do agree that spreads are more difficult to understand and harder to manage simply because it's two positions instead of one, and definitely should be avoided if you do not have the skills required.

From my reading I believe that most esperienced option traders trade spreads in preference to naked shorts and most option brokers provide screens that make trade management of spreads easy.
 
<<< The spread is obviously a lower risk, higher yield trade compared to a naked short put. I do agree that spreads are more difficult to understand and harder to manage simply because it's two positions instead of one, and definitely should be avoided if you do not have the skills required. >>>

Dan's statement above is only true in THEORY WORLD.
THEORY WORLD is a wonderful place to visit, but a dangerous place to hang around full time, especially if you are carrying around a lot of cash. Do that, and you will eventually get mugged.
I live in REALITY WORLD. In the "real world", a trying to generate income centered around a spread strategy will get you severely injured.... or killed (wiped out).

In Dan's example, he uses my ARO $10 strike, because he knows the lower the strike, the safer the spread.
The higher the strike the more dangerous the spread.
And it doesn't make any difference what the strike gap of the spread is. The higher the strike..... the more dangerous the spread.
WHY?

I'm going to let Dan answer that question, by giving him the following example. I'm 99% sure he will NOT answer the question.
He will either disappear from this thread, or he will dance around the example and question that I'm asking him to answer. Or he will answer a question I'm not asking. Let's see which of the above he will choose:

Dan, I am giving you a $100,000 account to manage via a strategy of credit spreads. I want you to use all the money.
I want you to divide the $100,000 cash into 5 spread transactions, using $20,000 for each trade.

1.... spread 30/25.... credit $1.00
2.... spread 40/35.... credit $1.00
3.... spread 50/45.... credit $1.00
4.... spread 60/55.... credit $1.00
5.... spread 70/65.... credit $1.00

To keep things simple, assume each contract is for 2 months, and assume the credit is the same for each spread. And assume each stock has a 15% otm safety cushion.
The length of the contract, the credit, and otm safety cushion are actually all irrelevant to the question I have for Dan. I'm only lisiting those items, so Dan doesn't have an excuse not to answer the questuon.
Here is my question:

Two or three weeks later, the stocks have all dropped to $1.00 below each upper strike.
Or make believe they have all dropped a mere $0.05 below their upper strike. Your choice.
You don't want to close the trade and take a loss, so instead you decide to buy the stocks and wait for a recovery. You can sell covered calls and collect dividends while you wait.

Remember, your account value is $100,000 and you are using the entire $100,000 on the above 5 spread trades. ($20,000 each)
How much will it cost to buy each stock?
How much will it cost you if you want to buy all 5 stocks?

It's a very simple question. Lets see if Dan disappears, or if he dances around the question. Either way, I'm predicting he will NEVER answer it.
 
Last I left I had $1200 to trade, and brought that down to $750 only after some long hold in PCLN trade.

I made a move from east coast to west coast to be closer to family, so did not really have the time to update. On that news, I did learn the game of golf. It's quite a nice game to play once you get into the swing and all. My scores are still in the 100-115s so plenty of room for improvement, but I liquidated some of my IRA and now have $2250 in what I call "extra cash" to play options with. Of course I'm still going with the notion that I could lose all of the $2250, and I'm setting a goal of $10,000 by year end.

I think I'm settled here now in the LA area (Riverside to be exact), so looking forward to see how things go.

And yes, already put in a trade for today taking CHS Sep 17 calls today. I'll have to double check, but earnings are due tonight. My take, none I guess except for the fact that I've notice strong price action towards retailers, especially smaller specialty retail stores like CHS. The momentum seems to lie in the retailers right now, and I'm going to stay with that run. Also looking at WSM, but chart wise, CHS is in a much better position.

Also added a put spread on CMG. That $300 level just seem to mark a resistance point. CMG Sep 300/285 put spread was the one I took.

And then one final trade this week with CRM if I can make some sort of gain in the CHS trade. RP
 
Quote from danshirley:
<<< I have no idea what you are talking about. I frankly don't think you do either. If there is a point there I don't get it.
Try providing a reference to whatever point you are trying to make.>>>


For those who don't know Danshirley, he is not kidding.
He really has NO IDEA what I'm talking about.
And his strategy is that of doing credit spreads.
Hence the reason I asked him that very simple and basic question.
I will answer the question below for Dan.

1.... spread 30/25
2.... spread 40/35
3.... spread 50/45
4.... spread 60/55
5.... spread 70/65

Here is my question:
How much will it cost to buy each stock if it's put to you?
How much will it cost you if you want to buy all 5 stocks?
Remember, your account value is $100,000 and you are using the entire $100,000 on the above 5 spread trades. ($20,000 each)

Here is the answer:
You can sell 40 contracts on each 5 point spread. That will put the $100,000 to work, per the margin requirement for each spread.
Now suppose the stock drops anywhere between a few pennies to a few dollars under your upper strike. And suppose you don't want to close the trade for a loss. Instead you decide to buy one, some, or all of the stocks instead of closing them for a loss.
What will each stock cost you to buy it?

30/25 spread will cost you $120,000 to buy it at $30
40/35 spread will cost you $160,000 to buy it at $40
50/45 spread will cost you $200,000 to buy it at $50
60/55 spread will cost you $240,000 to buy it at $60
70/65 spread will cost you $280,000 to buy it at $70

Thus, your $100,000 acccount needs to come up with ONE MILLION DOLLARS to buy those 5 stocks.
However, on a positive note, if you decide to close all the spreads for a loss, except the cheapest $30 stock, then you only need to come up with a mere $120,000.
You can easily do that by putting yourself on margin and paying those daily margin fees.
HOWEVER, keep in mind that $100,000 account is now worth less than $100,000 because of the losses you incurred closing the 4 other spreads. So you will actually be on more than $20,000 margin, if you wish to buy only one stock. Even the cheapest one.
Still don't get it???
More...
 
Quote from Put_Master:

30/25 spread will cost you $120,000 to buy it at $30
40/35 spread will cost you $160,000 to buy it at $40
50/45 spread will cost you $200,000 to buy it at $50
60/55 spread will cost you $240,000 to buy it at $60
70/65 spread will cost you $280,000 to buy it at $70

Thus, your $100,000 acccount needs to come up with ONE MILLION DOLLARS to buy those 5 stocks.
However, on a positive note, if you decide to close all the spreads for a loss, except the cheapest $30 stock, then you only need to come up with a mere $120,000.
You can easily do that by putting yourself on margin and paying those daily margin fees.
HOWEVER, keep in mind that $100,000 account is now worth less than $100,000 because of the losses you incurred closing the 4 other spreads. So you will actually be on more than $20,000 margin, if you wish to buy only one stock. Even the cheapest one.
Still don't get it??? [/B]
More...
...............................................................................................................................................................
Here is another question for Dan. Suppose instead of the stock spreads above being closed and/or bought, because they closed a few pennies below their upper strike on expiration day,.... they instead closed a few pennies below their lower strike?
We have already established buying them is out of the question, as it would cost you ONE MILLION DOLLARS, and your account is only worth $100,000.

So my new question for Danshirley is, what is the value of your $100,000 account, if your spreads all closed just a few pennies below your lower strike on expiration day?

Once again, I can predict with 100% certainty Dan will NEVER answer this question either. Instead he will answer questions I'm not asking, or instead ask me a question, or instead talk about other issues, or instead talk about other alternatives, and other what if's.... or disappear.
But he will NEVER answer the very simply and basic question I'm asking.
 
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