My OPTION TRADES..... part 2

<<< Bought (7) CIEN Jan13 12.50 calls for 1.43 ea.
Cien (currently 12.77) recently bounced off a bottom support level at 11.96, and will likely test the 13-15 dollar price range before its earnings report on DEC 3.v >>>


From a purely technical point of view, I see CIEN have a difficult time getting above the $13.5 - $14 area. And you don't begin making money until about $13.95.
However, a good earnings report should do it.



<<< Bought (4) X Jan13 24.00 puts for 3.20 ea.
United States Steel (currently 20.84) has recently failed to break through resistance at 23.33 and has been on a near 2 year down trend. Recent earnings and outlook was not promising. I look for X to drop down to it's support at around 19.00 . if it bounces at around 19.10 it may test the 23-24 price range again, but if it falls through below 17.67, then who knows how far this iron ship will sink. >>>

I can see where it doesn't have much downside support until the $18.5 - $19 area.
Personally I prefer to wait for a stock to hit tech support, before betting on it, rather than bet that it will actually get to it's support.
We each have our preferences.
I also prefer to have time decay working for me, rather than against me.
So I'll wish you luck and hope we both have profitable trades initiated yesterday.

P.S. Stop watching MSNBC... (aka "MS-BS" aka "MS-LSD".)
Those people will warp your mind.
Having a warped mind could bleed over into the investment world, where having a warped mind could be detrimental to your financial health.
 
Quote from Put_Master:

Personally I prefer to wait for a stock to hit tech support, before betting on it, rather than bet that it will actually get to it's support.
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hi p_m, obviously the premiums will be greater as strike is closer, but do you notice a steeper spike in premium due to increased demand in long strangles/puts from breakout traders?
 
Quote from seeyounxttues:

hi p_m, obviously the premiums will be greater as strike is closer, but do you notice a steeper spike in premium due to increased demand in long strangles/puts from breakout traders?
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That is not something I pay attention to, so perhaps others will have an answer for you.
BTW, when i stated..... "Personally I prefer to wait for a stock to hit tech support, before betting on it, rather than bet that it will actually get to it's support"..... my implication was that I am a bullish type trader.
That being, I either prefer to wait for a stock to hit it's tech support, before betting that it will rise, or that I prefer to bet that it will not drop below it's tech support.
Hence my preference for selling puts as a prefered strategy.
 
Quote from Hoofhearted:

my trades from yesterday, NOV 2.
Bought (7) CIEN Jan13 12.50 calls for 1.43 ea.
Cien (currently 12.77) recently bounced off a bottom support level at 11.96, and will likely test the 13-15 dollar price range before its earnings report on DEC 3.


Bought (4) X Jan13 24.00 puts for 3.20 ea.
United States Steel (currently 20.84) has recently failed to break through resistance at 23.33 and has been on a near 2 year down trend. Recent earnings and outlook was not promising. I look for X to drop down to it's support at around 19.00 . if it bounces at around 19.10 it may test the 23-24 price range again, but if it falls through below 17.67, then who knows how far this iron ship will sink.
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Quote from Put_Master:

Personally I prefer to wait for a stock to hit tech support, before betting on it, rather than bet that it will actually get to it's support.
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The trades I made on NOV 2 obviously stand on their own, but to give a better understanding of the play I was making I will share with you that these trades were more of an extention of a bigger play.

I bought 10 (CIEN) jan 12.50 calls on OCT 23 for 1.21 each, when the stock price initially hit the 11.96 tech support. I then sold 7 of those calls on NOV 1, for 1.78 each. The 7 calls I purchased yesterday, NOV 2, was an anticipated move, that the stock would take a dip before making another surge toward the $14 mark.

Likewise, I bought 6 (X) Jan 24.00 puts on on OCT 18, when it was very near the 23.00 resistance level for 2.92 each. I then sold 4 of those calls on OCT 31 for 4.30 each. The 4 calls I purchased yesterday, NOV 2, was an anticipated move that the stock price would try to rally back up towards the resistance level, before heading back down again.



From a purely technical point of view, I see CIEN have a difficult time getting above the $13.5 - $14 area. And you don't begin making money until about $13.95.
However, a good earnings report should do it. [/QUOTE]

This one always makes me scratch my head a little, as I've heard many others say, when discussing options plays, that "such and such won't make money until ______", OR another way I hear it worded is, "a profit can't be realized until the stock price reaches beyond the cost of the premium, plus commissions".

A profit can be made immediately after the price of the contract(s) appreciate past the point where the costs of commissions are covered.
for instance CIEN can start making me money if it rises by only pennies beyond the stock price at which I purchased the contacts.

If the price reaches 13.05 by NOV 6 the Jan 12.50 calls will be worth $150 each. Remember that I only paid $143 each when the stock price was at 12.89.
After total costs of commissions(buy to open and sell to close), the profit would be almost $18.
I understand this is a very tidy profit, but money made, none the less.

If the stock price reaches 13.55 by NOV 15, then the contacts would be worth $176 each. This would bring about $200 profit on the trade after commissions, or around 20% in gains.

I can't figure out why I never hear this fact mentioned, that you can actually flip the contracts for a profit almost immediately after appreciation. Instead it's always stated that money can't be made until both the cost of premium and commissions have been covered. This , to me, insinuates that one isn't allowed to sell the contracts before expiration, and instead has to wait until the contract is assigned after expiration to realize a profit.

As a final thought on the CIEN trade, the reasoning I used to buy the calls is:
If the stock price drops, there is a good chance that it won't fall beyond a dollar below the point at which I initiated the trade, but there is potential for it to raise a few dollars (or more).
Thus the rewards outweigh the risks. If it drops another dollar, I will be there to buy more calls, and hopefully make a nice profit.

I also prefer to have time decay working for me, rather than against me.[/QUOTE]

Would you mind elaborating a bit more on how time decay is working against me? I mean, I totally understand that it is, but maybe can you give me an example of how you would make a play that has it working for you? I'm guessing you are talking about selling the contracts and hoping the expiry due date comes quickly, and so the contracts will expire worthless, but just wanting to make sure.
 
Quote from Put_Master:


From a purely technical point of view, I see CIEN have a difficult time getting above the $13.5 - $14 area.
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I admit to being on a (reasonably low) limb here. The reason I remained bullish, was because the surge on NOV 1 broke the price out of a down trend it had been following for a month. However I didn't put much emphasis on the surge failing to breach the 13.52 mark that I would have liked to seen.

My hope was that it would break that barrier on NOV 2 in an afternoon rally, and didn't want to miss a bigger climb. But this weekend has me nervous that the surge will have to wait. I still anticipate the stock to bounce at about the 12.54 mark sometime early this coming week (if it's not already gapped down on monday ;(, then may or may not fail to break 13.52 again. I will sell some off at about 13.30 for a small profit, and hold some to see if it goes through.

Either way, I will probably buy more if it gets down to below 12.00 again. This stock is destined for 15 bucks by early 2013, pending a good report card.
 
<<<.... A profit can be made immediately after the price of the contract(s) appreciate past the point where the costs of commissions are covered.
for instance CIEN can start making me money if it rises by only pennies beyond the stock price at which I purchased the contacts.
If the price reaches 13.05 by NOV 6 the Jan 12.50 calls will be worth $150 each. Remember that I only paid $143 each when the stock price was at 12.89.....>>>


Yes, theoretically you can make money at any time. Even that same day.
But realistically, if you really thought that was likely to happen, why initiate a trade that goes out 80 days, using an example of what might occur in just 5 days?
If you really thought there was a good chance of that occuring within 5 days, you probably would have bought the stock long.
So realistically, it's not likely to happen. Hence the reason you went out 80 days.
You didn't select Nov or Dec.
You selected Jan. Thus giving your stock plenty of time to move.

I assume part of the reason you selected Jan instead of Nov or Dec, was to have theta working against you at a slower rate.
Again, the implication is, you feel the stock is "unlikely" to have a substancial enough move in the S-T.
Thus, using just 5 days as an example of how you might profit via an upward stock move, while certainly possible, is perhaps not very realistic.

In addition, if the stock does move up, it's IV is likely to move down.
Your trade benefits from a trend or spike up in IV. Not down.

So yes, it is certainly possible for you to make money in your 80 day trade, over just a few days.... or a few weeks.
Many traders do.
But most don't, as you need the stock to move up, and you want the IV to move up with the stock (which is unlikely), while at the same time theta is working against you.
Meanwhile, if the stock remains flat or drops, or if IV remains flat or drops, then you have both those issues PLUS theta working against you.

Personally, if I really thought there was a reasonable expectation of the stock moving up over the S-T, I would just buy the stock long.
Why add the uncertainty and potential risks associated with IV and theta working against you, into the mix?

Bottom line.... if you are going to profit from the trade, then I agree it will be over the S-T. It needs be over the relatively short term of Nov or Dec.
Because BOTH "time" and "time decay", are not working to your benefit.
Thus the longer it takes, the more your stock needs to rise, for you to profit..... (before you run out of actual time).
Tick..... tick...... tick..... tick...
 
Quote from Put_Master:



I assume part of the reason you selected Jan instead of Nov or Dec, was to have theta working against you at a slower rate.
Again, the implication is, you feel the stock is "unlikely" to have a substancial enough move in the S-T.
Thus, using just 5 days as an example of how you might profit via an upward stock move, while certainly possible, is perhaps not very realistic.

In addition, if the stock does move up, it's IV means likely to move down.
Your trade benefits from a trend or spike up in IV. Not down.
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Yes I selected Jan so that I would have time decay working against me at a slower rate.

If it goes up quickly, my profits are potentially great. Later than sooner, would still be ok. Down,...well that would suck.

I will have to look into this S-T you are speaking of, as I have no clue at the moment, what it means.

Also, would you elaborate more on how my trade benefits from a spike in IV, and possibly just tell me what IV is, in your terms?
 
Quote from Put_Master:



P.S. Stop watching MSNBC... (aka "MS-BS" aka "MS-LSD".)
Those people will warp your mind.
Having a warped mind could bleed over into the investment world, where having a warped mind could be detrimental to your financial health.
More...


p.s.s.

Stop watching porn. You know that only works about 20,000 times before you actually go blind? Google it ;)
 
Quote from Hoofhearted:

p.s.s.

Stop watching porn. You know that only works about 20,000 times before you actually go blind? Google it ;)
More...
Oddly enough, I actually am going blind.
Dr says it's glaucoma.
Turns out it's actually porn-coma!
 
Quote from Hoofhearted:

Yes I selected Jan so that I would have time decay working against me at a slower rate.

If it goes up quickly, my profits are potentially great. Later than sooner, would still be ok. Down,...well that would suck.

I will have to look into this S-T you are speaking of, as I have no clue at the moment, what it means.

Also, would you elaborate more on how my trade benefits from a spike in IV, and possibly just tell me what IV is, in your terms?
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S-T is my abreviation for the words "Short Term" (S-T).
L- T = Long Term

I'll let others get into a more detailed explanation of what IV (implied volatility) is.
I'll simply say it's the difference between what an options premium should be theoretically vs what the market anticipates over the short term.
For example, the more volatile a stock is expected to be, the higher the option premium will be.
Thus, as a stock heads into an earnings report, that uncertainty and potential stock volatility will cause the option premium to rise higher than it's theoretical value would normally be.
And once the earnings report is out and the mystery is no longer lingering, the stocks IV will drop back to it's normal trading pattern, and the option premiums will drop.
The more stable a stock trades and the more predictable it's earnings and other variables are, the lower it's IV (Implied Volatility) is.

Generally speaking the more bearish a stock trades the higher it's IV, and the more bullish it trades, the lower it's IV.

If you are buying a put, you benefit when there is a spike in IV after you bought it, because it raises your premium. Thus you can close your trade for an early profit.
If you are selling a put, as i do, I benefit when there is a drop in IV after I've sold it, as it has the affect of lowering the option premium, so i can buy the put back at a lower cost. Thus i can close my trade early for a profit.

I'm a bit tired, so this is not the best explanation. I'll let others get into the BS model for a better explanation of a stocks normal volatility vs IV (Implied Volatility)
BS = Black Scholes
 
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