My OPTION TRADES..... part 2

Quote from Put_Master:

Thanks. But the only reason I posted that I closed it, was because I posted that I opened it.
If someone had copied the trade, I felt it was appropriate to share that I closed it.
I'm hoping to find another trade to replace ATVI with, otherwise it was a mistake to close it.
My goal now, it to find another trade that will generate considerably more credit (dollars) than I left behind,... for the same unit of time that remained on the contract,... using a similar amount of cash.
More...

PM,

I really respect what you do as you close out trade after trade profitably.
I have never sold puts but I have watched what you for a while now and I hope I am learning something.
Could you tell me if INTC (19.93) is a good candidate for a
Put Sell:
INTC 19.93
Feb 2013, 18 strike Put at .33 bid / .35 ask
Great company and wonderful 2 year chart (attached) as INTC has 2 year support in the mid 19's.

Jeff
 

Attachments

Quote from jeffalvinson:

PM,

I really respect what you do as you close out trade after trade profitably.
I have never sold puts but I have watched what you for a while now and I hope I am learning something.
Could you tell me if INTC (19.93) is a good candidate for a
Put Sell:
INTC 19.93
Feb 2013, 18 strike Put at .33 bid / .35 ask
Great company and wonderful 2 year chart (attached) as INTC has 2 year support in the mid 19's.

Jeff
More...
INTC is also on my watch list. I've been waiting for it to test $19, so I can get the credit I desire, to consider an $18 strike for myself as well.
I'm not sure I like the idea of a 3 month contract, with such a small otm cushion, but that is a personal preference.
At the moment, the trade you listed above, will only yield you about an 8% annualized return.

Hence the reason I'm waiting for the stock to trade lower, before I sell an $18 put for Jan.
That being, I want a higher credit and annualized % return.
I may even want a lower strike. I'll decide when INTC trades closer to $19, and I see what the $18 and lower strikes are paying.

INTC came real close to $19 not long ago.
I had my order in, but the stock recovered a little too soon, so I missed the trade.
Here is the 5 year chart showing support at $19 and again at $18.
http://finance.yahoo.com/q/bc?s=INTC&t=5y&l=on&z=l&q=b&c=
 
Quote from Put_Master:

Sold puts on $24 NTAP for Dec.
Credit $0.48
Annualized % return......... 12 - 13%
otm safety cushion 17%

Financially healthy company.
Reasonable L-T tech support in the $24 area per the 5 year chart below.
http://finance.yahoo.com/q/bc?s=NTAP&t=5y&l=on&z=l&q=b&c=
More near term, there is tech support in the $28 - 29 area, where it is currently trading.
http://finance.yahoo.com/q/bc?s=NTAP&t=6m&l=on&z=l&q=b&c=
More...

I sold this $24 NTAP put 4 1/2 weeks ago,... and now with 3 1/2 weeks remaining on the contract, I've closed the trade for $0.04.
Thus keeping just over 90% of the profit.
Thus turning a 12 - 13% annualized return into a 19 - 20% return.

The goal now is to find another trade that earns more money than I just returned,... during the same unit of time remaining on the Dec contract,... while using the same unit of cash.
After all, the goal is to earn dollars. Not just % return.
 
Quote from Put_Master:

I sold this $24 NTAP put 4 1/2 weeks ago,... and now with 3 1/2 weeks remaining on the contract, I've closed the trade for $0.04.
Thus keeping just over 90% of the profit.
Thus turning a 12 - 13% annualized return into a 19 - 20% return.

The goal now is to find another trade that earns more money than I just returned,... during the same unit of time remaining on the Dec contract,... while using the same unit of cash.
After all, the goal is to earn dollars. Not just % return.
More...

PM,

Have you ever tried buying a small quanity of calls at the same time you sell the puts?
It seems like so many of your stocks rise a substancial amount after you sell the puts, that it appears possible to earn extra
cash on the call buy as well as the put sell?

Jeff
 
Quote from jeffalvinson:

PM,

Have you ever tried buying a small quanity of calls at the same time you sell the puts?
It seems like so many of your stocks rise a substancial amount after you sell the puts, that it appears possible to earn extra
cash on the call buy as well as the put sell?

Jeff
More...
No, I never have.
Mostly because I have no idea if a stock will rise,... or when it will rise,... and if it does, by how much,... or when it will stop rising,... or when it will reverse it's rise and drop again, and so on.
Too much "hope" and "guessing" and dart throwing involved.
Not to mention having time decay working against me.

HOWEVER, I really should try it.
Thanks for putting the bug in my head. Something to think about.
What do you think is an intelligent contract time frame to consider?
That being, i don't want to pay too much, but I don't want theta to kill the deal too soon either.
My current time from is 1 - 2 months. But that is with theta working for me.
 
Quote from Put_Master:

No, I never have.
Mostly because I have no idea if a stock will rise,... or when it will rise,... and if it does, by how much,... or when it will stop rising,... or when it will reverse it's rise and drop again, and so on.
Too much "hope" and "guessing" and dart throwing involved.
Not to mention having time decay working against me.

HOWEVER, I really should try it.
Thanks for putting the bug in my head. Something to think about.
What do you think is an intelligent contract time frame to consider?
That being, i don't want to pay too much, but I don't want theta to kill the deal too soon either.
My current time from is 1 - 2 months. But that is with theta working for me.
More...

I would only buy calls on stocks where the options have decent option volume and fairly tight bid to ask option spreads, and the chart is crying out,
"I'm going up, anybody coming aboard?" (like INTC)
I also wouldn't invest much into each trade.
I think 2 months time is good with the intention of getting out
within a few weeks or less.
I am going to forward test some of your upcoming put sells, so I can get more of a feel for these type of stocks and establish some sound trade parameters that might possible have reasonable reliability. I will report back to you when I have some history.

Jeff
 
I generally select my put strikes to sell otm.
The % otm depends on where the L-T tech support is.
Should I assume you would select call strikes to buy closer to ATM?
 
Quote from Put_Master:

I generally select my put strikes to sell otm.
The % otm depends on where the L-T tech support is.
Should I assume you would select call strikes to buy closer to ATM?
More...

I just ran a test scenario on your last winning trade you closed
11-28-12:

10-23-12
Quote from Put_Master:
Sold puts on $24 NTAP for Dec.
Credit $0.48
Annualized % return......... 12 - 13%
otm safety cushion 17%
--------------------------------------------------------------------------------
11-28-12
I sold this $24 NTAP put 4 1/2 weeks ago,... and now with 3 1/2 weeks remaining on the contract, I've closed the trade for $0.04.
Thus keeping just over 90% of the profit.
Thus turning a 12 - 13% annualized return into a 19 - 20% return.
-----------------------------------------------------------------------------------

So on 10-23-12 you buy ATM 2nd month calls.
NTAP was at 29.27
Dec 29 calls at 2.15
NTAP continually tanks down to 26.26 on 11-13-12 and
the Dec 29 calls are at .81 ( -62%).
It then rose to a high of 2.71 (26%) on 11-27-12 and closed at 2.63 (22%) on the day you closed your put sell (11-28-12).

There is several serious problems here:
1: On 10-23-12 (your put sell date) the implied volatility of the calls was in the low 50's because of the selloff in NTAP.
This created an artificially high price for the ATM options.
2: On 10-23-12 NTAP wasn't done tanking as it continued to tank down to 26.26, -3.01 points lower on 11-13-12.
This dropped the call option value down to .81 (-62%) or -1.34 drawdown, which is 279% greater than the .48 credit you received!
3: Even when NTAP recently recovered a few points above
where you sold the puts, the implied volatility collasped to the low
30's. So between the call time decay, the I.V. collaspe and only a
couple point rise above your starting point, the 22% call value
increase over 5 weeks is greatly overshadowed by the -62% drawdown!

PM, upon re-evaluating this call idea with your put sells,
I would have to say its a bad idea.
You are so amazingly accurate in your put selling, that the incredible sloppyness of straight call buying would be an insult to your accuracy and methodology.
This makes no sense to experience this kind of worry and drawdown when your original put sell was doing just fine.
I believe now, after running this test example of your last trade, it isn't worth the risk of buying calls.

Jeff
 
Quote from Put_Master:

Sold puts on $60 OIS for Dec.
Credit $1.05
Annualized % return 18%
BE price $58.95

Financially healthy company with reasonable debt levels, and reasonably valued at my BE price of $58.95.
Company has a few issues of potential concern. But I believe my strike price selection, and the stocks tech support addresses those concerns for this 5 week trade.

Very reasonable L-T tech support in the $60 area per the 2 year chart below
http://finance.yahoo.com/q/bc?s=OIS&t=2y&l=on&z=l&q=b&c=
More...
I closed this $1.05 credit, 5 week trade today, after just 2 weeks for $0.20
Thus keeping 81% of the profits.
And turning this 18% annualized return trade, into one eaning 37%.

The goal now is to find another trade that earns more money than I just returned,... during the same unit of time remaining on the Dec contract,... while using the same unit of cash.
After all, the goal is to earn dollars. Not just % return.
 
You must log in or register to reply here.
Back
Top