My OPTION TRADES..... part 2

Quote from Put_Master:
Sold puts on $40 JOY for Jan
Credit $1.95
Annualized % return..........13%
otm safety cushion.... 22%
5 year chart shows support $40 - $42
http://finance.yahoo.com/q/bc?s=JOY&t=5y&l=on&z=l&q=b&c=
More...
I can currently buy back this $40 JOY naked put for Jan and keep 2/3 of the premium.
Not bad, as I just sold it 1 - 2 weeks ago.
Thus my order is in to close the trade once I can keep 70% of the profits.

Any further rise in stock and/or drop in IV, should close the trade.
Normally i would not close a trade early. But given that there is still 4 months left in the contract, and i can keep 70% of the premium, it makes sense to close the trade. Hopefully this week.
That current 13% annualized return then really shoots up.

My $22 CNX put also for Jan that was initiated about the same time as JOY, can currently also be bought back early,... allowing me to keep more than 50% of the profits.
But I'm going to wait on that trade, until i can keep closer to 2/3 or 70% of the profits.

I'm NOT considering buying back my Oct, Nov, or Dec trades early at this time.
Only Jan 2013.
.
 
Closed my Jan $40 JOY naked put for $0.60.
Original credit $1.95.
Thus, turned this 4 month trade into a 2 week trade, while keeping about 70% of the credit.... minus commissions.
 
Hi, I've been following this thread and it sounds like you do a fair amount of fundamental research before pulling the trigger on a put sale.

I have a question about the most recent trade you posted (WMS): Why sell so close to the money and for such a small premium (20 cts)? I understand that it's a decent annualized percentage return, but even if you sold all of today's contracts (82, I believe), that's $1640 before commission. Granted, that's nothing to sneeze at if it's just one position of several that are always on, but if you're spending the time to run stocks through your 20 or 50-point checklist, and you're willing to own them, why not sell the Jan 15P or the Apr 15P at $1.00 or $1.50 respectively and get paid a little more for all of your research?

I'm not criticizing; if you've been doing this for 20 yrs, making money and not blowing up, then you're way ahead of most people. It's just a thought/question I had when reading the thread.
 
Quote from Brighton:

Why not sell the Jan 15P or the Apr 15P at $1.00 or $1.50 respectively and get paid a little more for all of your research?
More...

A seller of options has time working against them, so the shorter the time frame the better.



:)
 
Yes, I understand that. It's just that el Maestro del Puts has written in this thread and others about all the research he does, how one must be willing to own the stock if they're 'put' to him and that he doesn't over-leverage so that he can buy them if a put happens.

Selling a high vol put, short time to expiration, knowing something about the company, choosing a strike that's at or below long term support -- all of that makes sense to me. But does the Put-Master then 'rinse and repeat' and sell another short-term put in the same security (for example, Joy Global that he just covered, or WMS a month from now)? In other words, assuming the stock doesn't soar and there hasn't been a fundamental deterioration, is he able to re-use, or leverage if you will, all of that research effort?
 
Good questions.
First, let me state I made an error in what I posted.
I was rushing to leave to hear Mitt Romney give a speech here in Vegas, so I posted the wrong credit.
My friend told me his $0.20 19 contract order got filled so I assumed mine did too.
At the time I posted the trade my order was actually not filled, as it was for $0.25 and 20 contracts. Mine got filled after I left. Shortly before the close.

However, to answer your other questions.... generally speaking when i go out 3 or 4 months, it's NOT just for a higher credit and/or % return.
I do it because I can get an acceptable % return with an even lower strike than a 1 - 2 month contract.
If all I'm getting is a slightly higher % return, then it's not worth the added time risk.
If I'm taking on added time risk, I want a lower strike.
In the case of WMS, the 12.5 strike didn't offer enough credit, and i didn't see the point of doing the same strike as I could get for Oct.

HOWEVER, if i felt i was already over concentrated in Oct, then I might take that issue into consideration.
I try to "ladder" my trades over 1 - 4 months, just to avoid the possibility of having everything put to me at once.
If I were going to over concentrate in one month, that month would be Jan.
Not Aug, Sept or Oct.

Bottom line... given the low VIX environment we are in, my current range for acceptable annualized % returns is 13 - 19%.
If a near term deal is offering 19%, and I can get an even lower strike going further out, and it pays 13%,.... I'll probably then do the longer contract. It also means fewer commissions, and less work looking for a new trade, ect....
However, it still depends on how strong the tech support is, when the earnings are due, ect....
So lots of issues to consider.

In the case of WMS, one issue I considered is, the gaming industry is having it's annual convention here in Vegas in October.
Generally speaking, the slot companies often move up in anticipation of the new products they will be showing.
And I will be attending the convention myself, to evaluated which companies may be coming out with the next big hit.
I don't work in the industry, but I register for it every year as if I do, so I can get free admission.
I register as a company called Monkey Enterprise, that creates bonus games for slot machines. It sounds silly, but it gets me in for free every year. Plus free food.
 
In case anyone one is considering doing a similar WMS trade as I did next week, I just want to point out this company does NOT meet my usual fundamental standards. Their fundamentals are more mixed than I usually desire.
This trade is based more on the gaming convention taking place in less than 2 weeks here in Vegas, where WMS and other gaming companies, will be sharing their new products with the investment community.
It's a good company, with a history of putting out new and creative products each year. But their fundamentals and price value are not quite as solid as I generally prefer.
 
Thanks for discussing the ideas behind the transactions. I'm looking at some beaten down companies and sectors that I want to own, but I think they may have a slow recovery. One idea is selling long-dated OTM puts, another is consecutive OTM put sales as the near month expires. I'm also trying to keep it relatively simple; for this pool of capital I don't want complicated spread strategies that I have to watch like a hawk.

FYI and on a somewhat related note, here's a brief trader profile about a guy who used to only sell premium, had a bad month (down 19%) and decided he needed to adjust his strategy. Fortunately, he figured out how to adapt quickly and it sounds like he's been doing fine since 2008.

http://www.futuresmag.com/2012/09/01/walczak-finds-safe-harbor-in-options
 
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