$AMZN $AAPL $CAT $CMI Lesson in listening to your own advice

I keep saying that this post is real trades with real gains and real losses. Here is proof.


BACKDROP: Going into yesterday (4/26) I had a 200/195 credit put spread. Yes, it was in the money but I had originally sold it in the money. I sold it and collected $2.94. Max dollars at risk were 5-2.94= 2.06.
My thesis was based on the fact that amzn doesn't get the respect it derseves. It is the biggest gorilla and it's infringing on so many industry leaders like aapl nflx goog fb and even ups and fdx for crying out loud. Yet, every market maven poopoos it as a big spender giving away margin. My view was that it's eating everyone else's lunch and driving them out of business AND still making money. Any smart business owner would what amzn is doing IF only they knew how or were able!


DOING THE RIGHT THING: After listening to the investing community all day (and week for that matter) how amzn is going to disappoint once more and how they are spending fools with no end in sight, etc. I made the mistake to give in and join the herd; I adjusted my position so I 'sprawled' into an iron condor positioned to expect a downward move. the logic was as follows: everyone is expecting a move down so instead of having  my short put leg become a 1.0 delta and difficult to manage. So if I leave it alone and amzn loses $10 or $15 my position would be in serious trouble. so:
* I moved my credit put spread to 180/75
* but I also added an upper leg 200/05
It was the right thing to do even though it had the wrong outcome. I repositioned and gave myself breathing room in the direction that the market was surely going to move the stock. The wrong thing to do was for me to break my conviction over NO NEW intelligence. I simply gave in to pressure!
The smarter thing for me to do would have been to just close the position as it was .30 positive. What's done is done!


This would be a good time for me to re-read my post about conviction (check it out if you haven't already)
http://sellcreditspreads.blogspot.com/2012/04/trade-conviction-dont-give-up-so-easily.html


GETTING THE WRONG OUTCOME: We all know what happened after hours yesterday. Amzn blew out the street's expectations and my trade along with it. Had I stuck to my guns, like I often preach trader should do, I would have been set. Instead, I doubted myself and joined the herd. Now, unless we get a disastrous retracement Monday or Tuesday, looks like I will be taking the 2.06 loss, lick my wounds and trade another day.

FOLLOW ME ON TWITTER OR STOCKTWITS @racernic

As with any trade there are risks but in this case the I am very comfortable with the dollars at risk. I always try to know and manage my risk; I ask 'what will I lose if the crap hit the fan in the worst possible way.' If I know the answer to this and am ok with it then I should be ok.

THIS IS NOT A RECOMMENDATION OF ANY KIND. I ONLY INVEST MONEY I CAN AFFORD TO LOSE.

$AAPL $AMZN $bidu $SPX $NDX $RUT $C $GS $wynn $SPY $GOOG

$AAPL mkt is bullish on the stock despite all the negative news coverage

$AAPL mkt is bullish on the stock despite all the negative news coverage. Here is proof.
Below is a chart showing aapl options action.
*** the top 2 squares show you the open interest in aapl call (left) and puts (right).
1) We buy calls when we are bullish on a stock believing its price will go up therefore our option price will also go up.
2)We buy puts when we are bearish on the stock betting it will go down over time so our put option price will go up in price.
CONCLUSION: putting 1) and 2) together and we get that more investors are $AAPL BULLISH (own calls) than bearish (own puts)!

*** Furthermore, the lower 2 boxes show us today's call option volumes: as of 10:25am est
total call volume (bullish bet or protecting short positions) = 137,743
total put volume (bearish bet or buying protection) = 79,214
that ratio is 1.74 so we have almost twice as much volume betting AAPL will go up in price from here.

If you want details look at the box colors on the lower 2 squares; they show you the timeline of the positions (red=May, orange=Jun, Yel=Jul, etc). If you notice that the longer you go in time the stronger bullish conviction.
Any way you slice it, the investors are bullish aapl!!!

I am not an appl fanatic (ask anyone I know) but selling aapl to buy ATT (this am) or anytying else for that matter makes no sense to me. If I can't take a chance on a stock like aapl that sells every nut and bolt it makes I should pack it in and stick my money in FDIC insured account paying me 0.25%!

MY TWEETS AND POSTS ARE REAL TRADES WITH REAL PROFITS AND REAL LOSSES. NO PAPER TRADING HERE! I HAVE A FEW INTERESTING TRADES POSTED.

FOLLOW ME ON TWITTER OR STOCKTWITS @racernic

As with any trade there are risks but in this case the I am very comfortable with the dollars at risk. I always try to know and manage my risk; I ask 'what will I lose if the crap hit the fan in the worst possible way.' If I know the answer to this and am ok with it then I should be ok.

THIS IS NOT A RECOMMENDATION OF ANY KIND. I ONLY INVEST MONEY I CAN AFFORD TO LOSE.

$AAPL $AMZN $bidu $SPX $NDX $RUT $C $GS $wynn $SPY $GOOG

Risk Profiles $AAPL $NFLX arguments + $CMG 3,276.42

I saw a tweet yesterday that read "You can't risk $4.00 to make $4.00, you will go broke doing that."
At first glance it sounds smart but if you take another look, it makes little sense.

Anyone buying a stock as an investment is risking '$4 to make $4!'
In all practicality, they are risking $4 to make less than $4.  Consider this:
If I buy a stock say aapl at 600, my max dollars at risk are 600!
So, IF the stock doubles, then I can say that I risked $1 to make $1. How soon is aapl going to reach 1200?
I know what you are thinking: what are the chances of aapl going to 0? Not high but the chances are NOT zero! One thing we've learned in past 4years that ANYTHING can happen.
Just ask all owners of lehman, bear, kodak, fslr, bac, citi, gm, (yahoo  rimm HPQ once champs now chumps), etc.
So, realistically if you want to buy stocks as investments you have to accept that you are risking $4 to make less than $4. You may hit home runs on spec or you can luck out of grabbing a MSFT or FB from launch but those are scarce and won't be the norm!
You can have an opinion of how likely the stock is to double or go to zero BUT the math is absolute and the risk profile when buying a stock is:
*** risking the whole price paid for the stock today in the hopes that it appreciates over time. ***

I got hurt in the .com bust because I had nothing but stocks (no crazy tech stocks). It took me years to get back to even. Now I use options because I know exactly my dollars at risk AND the risks are smaller than owning the stock outright. Furthermore, mistakes can be correct immediately instead of having to wait years for recovery. Here is a real example w/NFLX:

When NFLX was THE momo stock of the year (2011), I sold a credit put spread (bullish) NFLX 10x at strikes 205/200. The width of the spread being $5 made my max dollars at risk $3.8 (took in 1.2 to put the trade on).
On sep 12th 2011 all was well. But, on Sep 15 stock opened about $35 down then tumbled more to land around 120.
I closed my spread for a $3792.49 loss (5221.47 premium paid to close - 1428.98 premium I collected) the trade was for 10x so 1000shares.
--> Had I owned the stock outright I would have lost 35k the first day AND if I didn't have the guts to sell the 1st day then my losses would have more than doubled since NFLX continued to fall to around 120.

More current examples $CMG $PCLN etc. They've been on a tear; I want to get involved but can't buy them up here so instead I sell put spreads and participate that way. Just today I sold May Iron condor (11x so 1100shares) in $CMG for 3276.42 (420/15 - 455/60). Here if the stock goes to 0 or 1,000,000 the max I can lose is 2,223.58. Meanwhile, I get to hang on to my premium that I collected today. So here I risk 2223.58 to make 3276.42 that is a risk/reward of <1 (0.68to be exact)!!! I can also say that I risk $1 to make $1.47. By-the-way I had no out of pocket expense for this trade and I didn't borrow anything to put it on. It is a cash-backed trade.

I have another post Called 'Why credit spreads w/ $aapl $nflx $pcln' check it out. It has this NFLX example and more.
Btw, I don't have a subscription service nor do I manage anyone's money other than my own..
If you like these posts spread the word+ folo @racernic (twitter and stocktwits). Also peruse rest of my posts including the sides to help finance the java (if you know what I mean ;-) there is some good stuff. I do these post for free and have no subscription pitches.

I am not recommending anyone follow any of these strategies as they are NOT trade recommendations. I only invest money I can afford to lose.

3108.02 $RL winning trade w/position management details

TRADE UPDATE: This credit call spread last trade is 4/20 and it looks almost certain to expire worthless for max profit.

LESSON: I followed a stock closely; made a trade then repeated a winning trade using similar metrics (distance from price to strike; time periods, etc.) twice. Also important to note that Price encroached at my 185 short call strike but my conviction had not changed so I stuck with it. If I had bigger gonads I could have added to my position but I didn't want to press my luck.

*** For my efforts, I collected a total of 3,108.02

NOTE: I will not be playing the earnings on this one. If I can confirm earnings date being 5/23ish then I will place a similar May trade next week.

*** 3/7: I closed a sure winner (the 2/9 trade below) and reopened the same position for April.

I again sold a credit call spread April 185/190.

Price was 171.65

I did this 12x and collected $886.6

*** 2/9: I shorted the stock after HUGE earnings pop (I waited few days though before putting it on)

Credit call spread 185/190 for .78

I did this 11times and collected $842.42

*** 12/5: I sold  RL Jan iron condor for $1.4 credit.

I did this 10times and collected $1,379.00.

Stock Price was $149.92; strikes were 130/25 - 165/170

Btw, if you like these posts spread the word+ folo @racernic (twitter and stocktwits). Also peruse rest of my posts including the sides to help finance the java (if you know what I mean ;-). I do these post for free and have no subscription pitches etc.

Conviction is very important BUT more important that we don't blur the line between conviction and hardheadedness. How can I tell the difference? If I've never admitted I was wrong then It's likely to be hardheadedness ;-) 

MY TWEETS AND POSTS ARE REAL TRADES WITH REAL PROFITS AND REAL LOSSES. NO PAPER TRADING HERE! I HAVE A FEW INTERESTING TRADES POSTED.

FOLLOW ME ON TWITTER OR STOCKTWITS @racernic

As with any trade there are risks but in this case the I am very comfortable with the dollars at risk. I always try to know and manage my risk; I ask 'what will I lose if the crap hit the fan in the worst possible way.' If I know the answer to this and am ok with it then I should be ok.

THIS IS NOT A RECOMMENDATION OF ANY KIND. I ONLY INVEST MONEY I CAN AFFORD TO LOSE.

$AAPL $AMZN $bidu $SPX $NDX $RUT $C $GS $wynn $SPY $GOOG

$MA winning trade and less in trade mgt

TRADE UPDATE: This iron condor last trade is today and I chose to let it expire worthless for max profit.
Sure it would have been ideal if I didn't need to reset/punt the original trade but better this than get burried in a losing trade. (read below for trade details)
LESSON: I made the right direction call I just missed the level/mark by an inch.
I made the right call to stick with my conviction and punt the position and give it another week to correct itseld and it did.


*** 3/30 took a stab at a weekly (opex 4/6) iron condor 410/05 - 440/45 for $.66.
I did this 10times so collected $638.95
On expiration day MA was not acting well so instead of taking the chance on it souring with 2hours left, I decided to punt it into the following week. so,
*** 4/05 punted w/2hrs to go from 440/45 short call spread to weekly (4/13) 425/20 - 455/60 iron condor
I did the same number of lots 10x and collected and additional 63.43
note: The high on 4/5 was 442.2 and closed 439.85 so i would have been safe BUT that would have been sheer gambling had I waited it out.

Btw, if you like these posts spread the word+ folo @racernic (twitter and stocktwits). Also peruse rest of my posts including the sides to help finance the java (if you know what I mean ;-). I do these post for free and have no subscription pitches etc.

Conviction is very important BUT more important that we don't blur the line between conviction and hardheadedness. How can I tell the difference? If I've never admitted I was wrong then It's likely to be hardheadedness ;-) 

MY TWEETS AND POSTS ARE REAL TRADES WITH REAL PROFITS AND REAL LOSSES. NO PAPER TRADING HERE! I HAVE A FEW INTERESTING TRADES POSTED.

FOLLOW ME ON TWITTER OR STOCKTWITS @racernic

As with any trade there are risks but in this case the I am very comfortable with the dollars at risk. I always try to know and manage my risk; I ask 'what will I lose if the crap hit the fan in the worst possible way.' If I know the answer to this and am ok with it then I should be ok.

THIS IS NOT A RECOMMENDATION OF ANY KIND. I ONLY INVEST MONEY I CAN AFFORD TO LOSE.

$AAPL $AMZN $bidu $SPX $NDX $RUT $C $GS $wynn $SPY $GOOG

Trade Conviction - don't give up so easily $AAP $CMI $CAT

THIS IS AN OLD POST THAT IS TIMELESS IN MY OPINION. I REFERRED TO IT TODAY IN MY $CF SHORT POSITION AND SAVED ME FROM THROWING AWAY A PERFECT GOOD SHORT (SO FAR ;-)
POSTED THIS FIRST IN APRIL 2012... examples are old but still convey the message.
Here it is:
previously I posted a write up about credit spreads that was very well received so I figured I owe you one today as well.

This is a lesson on CONVICTION and why I don't panic into closing positions that appear to have soured beyond repair. In the words of Jim Cramer: 'no one made a dime panicking.'

I currently have three positions that can serve as examples:

*** $CAT CREDIT PUT SPREAD POSITION: I sold-to-open a caterpillar April credit put spread. This is a bullish position on CAT.

* Sold April 105 put

* Bought April 100 put to limit my dollars at risk (my potential loss is $5 per contract)

On Mar 29, the stock broke my upper leg (short put) but I didn't panic and left it alone. I was even tempted to add to my lots.

On April 10, the stock dipped further and went below 100 (99.8). Here too I didn't budge nor did I add to my lots (hindsight I probably should have). At this point my whole position was in-the-money (not good when it's a credit spread)

IMP: No, I was not smoking 'hopium'; I wasn't HOPING for it to rebound. The reason I didn't budge is that my thesis was still intact. Nothing had changed since I put the position ON except market sentiment. My view was that the US is still doing well, China is still growing leaps and bounds, and Euro-Zone still is in trouble so the sell-off was not warranted. This is an exceptionally well-managed company and it will execute on its plans.

*** $CMI CREDIT PUT POSITION: This is an almost identical position to the CAT my position above. Here are the levels for this trade:

* Sold April 110 put

* Bought April 105 put to limit my dollars at risk

This too is a bullish play on CMI and for the same reasons as the CAT position.

April 10th and 11th, the stock kissed the 110 level threatening to break into my short put/leg. For the same reasons as described above, I stuck to my guns and didn't sweat it. For more conviction, CMI had received a positive nod from some analyst but still got dragged down by the broad market sell-offs. If we get good China numbers tomorrow and we get another run up like today, I may revisit closing these positions for a good profit and not risk another early week sell-off next week.

*** $AAPL CREDIT PUT POSITION: This one is a little different as it's part of an iron condor but the upper legs are far enough from current price that I will only discuss the lower leg of the trade:

* Sold $AAPL 625 April put 

* Bought $AAPL 620 April put to limit my dollars at risk

Today aapl closed 622.77 so it broke my short put leg (it's in-the-money). Here too I didn't fold yet. I still believe that the pullback in aapl is undeserved. This is a company that is selling every nut and bolt it can make and at a premium. Why in the world would I want to sell it? to go long RIMM? NFLX? there is no better and safer bet out there!

Next week I can update this post to see how wrong I was in doing (or not doing) with these positions.

If I forget to do so.... someone nudge me please and thank you.

Btw, if you like these posts spread the word+ folo @racernic (twitter and stocktwits). Also peruse rest of my posts including the sides to help finance the java (if you know what I mean ;-). I do these post for free and have no subscription pitches etc.

Conviction is very important BUT more important that we don't blur the line between conviction and hardheadedness. How can I tell the difference? If I've never admitted I was wrong then It's likely to be hardheadedness ;-) 

MY TWEETS AND POSTS ARE REAL TRADES WITH REAL PROFITS AND REAL LOSSES. NO PAPER TRADING HERE! I HAVE A FEW INTERESTING TRADES POSTED.

FOLLOW ME ON TWITTER OR STOCKTWITS @racernic

As with any trade there are risks but in this case the I am very comfortable with the dollars at risk. I always try to know and manage my risk; I ask 'what will I lose if the crap hit the fan in the worst possible way.' If I know the answer to this and am ok with it then I should be ok.

THIS IS NOT A RECOMMENDATION OF ANY KIND. I ONLY INVEST MONEY I CAN AFFORD TO LOSE.

$AAPL $AMZN $bidu $SPX $NDX $RUT $C $GS $wynn $SPY $GOOG

Why Credit Spreads w/$AAPL $NFLX $PCLN $CF

Originally wrote this april2012 so prices may have changed but the logic still applies:
I had a few requests about credit spreads v. investing in the stocks (underlying). Here are a few thoughts that come to mind.
There are many advantages to selling spreads instead of buying the underlying. I will try to keep it simple and in plain English. I would rather sell a spread in $NFLX for example than buy the stock itself. Here are a few reasons why:
*** TRADE MORE AND BIGGER POSITIONS: with the same pile of cash I can do a lot more with credit spreads than just buying the underlying. Consider $AAPL for ex: if I have $20k with TDameritrade I can buy 31 AAPL shares and hope it goes up. Meanwhile, I am done since I have no more money to trade anything else without borrowing money. This brings me to my second point.

*** MARGIN REQUIREMENT: this is NOT the same as Margin that you use to borrow money in order to buy stocks. Margin requirement in option spreads is money the broker locks up when I sell a spread. For example: I sell 10x april aapl call spread 645/650 (sell the 645 call and buy the 650 call for protection). As a result, my available cash at TDameritrade will become $20k (starting investment) - $5k (max$ at risk) = $15k. So I now have a position on aapl yet I still have 15k to use for other trades AND this trade expires in 2weeks at which point the $5k gets out of jail. Sure someone might say that if you bought aapl and held from when it was $14 blablabla. Valid point but the flip side is that I also could have sold spreads the whole time and pocketed just as much and more. In credit spreads' case I am building actual cash all along the way which allows me to trade even more and more positions as opposed to having my cash locked up in one stock for 15 years. Also should the market crash tomorrow, I know exactly what I have at risk! this brings me to my 3rd point.

*** DEFINED RISK: when I sell a credit spread I know exactly my dollars at risk in a worst case scenario. This is true for selling Credit PUT spreads or CALL spreads. Here is an example:
$AAPL price is 626
I Sell weekly 615 put for $2
At the same time I buy weekly 610 put for $1.3
for this I collect the difference in premiums: 2 - 1.3 = .7
If I do this 10 times I collect $700. This is the MOST I can make!
Say apple goes to zero tomorrow, I can only lose $5 per share and since I did this 10 times, $5000 is my total dollars at risk! This allows me to have several positions and still sleep at night. Sure as with all good things there is a price to pay with this defined risk: Limited gain (700 in this example) but if I pick the right strikes, the reward to risk ratios can be very attractive. I usually want .2 or better (risking $5 to make $1).

***  DEFINED ENTRY AND EXIT: when I sell a credit spread I know exactly when the trade ends. I usually stay close to present maybe go a month out. More importantly, I can AVOID catalysts. Yes, you head right, avoid things like earnings. I feel that in most cases, the earning move is a coin flip. I could be a genius and guess the company's beat or miss and still get the move direction wrong. How the market reacts is a coin toss. So I prefer to wait out the earnings periods and put the position the next day or two when I can actually count on research not to be blown out by market interpretations. Having control over entry and exit times allows me to set a game plan for the whole year with regards to returns expectations.

***  HEDGED RISK (I just added this section 12/26/12): I can hedge every credit spread that I sell. Most often I sell the credit spreads in opposite pairs which are known as iron condors: sell credit put spread (bullish) AND sell credit call spread (bearish) with the same expiration date. I usually set both spreads far enough apart so that my ideal situation is for both to expire worthless (maximum profit). Another way I can hedge my credit spreads is by buying protection puts that are shorter term than the credit spread. Here are 2 examples that I did last month for $CF:
1) 11/30/2012: Sold Iron condor in CF
bullish leg of IC: sold the Dec 195 put and bought the 190 put behind it for protection
bearish leg of IC: sold the Dec 230 call and bought the 235 call behind it for protection
for this, I collected .63 per contract. I did this 10times so collected 630ish.
2) The trade went according to plan until about 2weeks before it expires; CF started to drop. So, to protect myself and not have to close a good trade or ruin it, I bought naked weekly puts above my strikes. So, if CF had continued to drop then the puts would protect my lower leg of the IC. Indeed that was what happened. The weekly CF puts are cheap if you buy them early enough;I didn't wait until my spread was in trouble. Instead I bought the protect when it was just pennies. To make things even better, CF dropped enough to make my weeklies pay off and then stabilized so I was able to sell them off for a nice additional profit. I did this 2weeks in a row until the Dec spreads became worth pennies and I closed them for almost full profit. BUT if you count the money I made on my protective puts then I made more than full profit. No, I am not a genius (thank you for thinking that ;-), I merely stuck to my rules and it played out well.

*** MOMO STOCKS: perfect example of this when NFLX was THE momo stock of the year. After a huge run I would never buy it after a monster run for fear of a monster crash. I would however sell a credit put spread (bullish) but with only $5k on the line. Indeed, real example. I had a credit put spread in NFLX 10x at 205/200 on sep 12th all was well. On Sep 15 stock opened like $35 down then tumbled to land around 120. I closed my spread for a $3792.49 loss (5221.47 premium paid to close - 1428.98 premium collected) the trade was for 10x so 1000shares. Had i owned the stock outright I would have lost 35k IF i had the guts to sell the 1st day it tumbled. if not then double that because it continued to fall. 

More current example is $CMG $PCLN etc. They've been on a tear; I want to get involved but can't buy them up here so instead I sell put spreads and participate that way.

Btw, if you like these posts spread the word+ folo @racernic (twitter and stocktwits). Also peruse rest of my posts including the sides to help finance the java (if you know what I mean ;-). I do these post for free and have no subscription pitches etc.

MY TWEETS AND POSTS ARE REAL TRADES WITH REAL PROFITS AND REAL LOSSES. NO PAPER TRADING HERE! I HAVE A FEW INTERESTING TRADES POSTED.

FOLLOW ME ON TWITTER OR STOCKTWITS @racernic


THE ABOVE IS NOT TRUE IF I SOLD NAKED PUTS OR CALLS WHICH NO ONE SHOULD EVER DO!

As with any trade there are risks but in this case the I am very comfortable with the dollars at risk. I always try to know and manage my risk; I ask 'what will I lose if the crap hit the fan in the worst possible way.' If I know the answer to this and am ok with it then I should be ok.

THIS IS NOT A RECOMMENDATION OF ANY KIND. I ONLY INVEST MONEY I CAN AFFORD TO LOSE.

$AAPL $AMZN $bidu $SPX $NDX $RUT $C $GS $wynn $SPY $GOOG

$NDX trade for $6700

THESIS: this pull back will be short-lived and $NDX will recover from this pullback by April opex.
I can put an aggressive iron condor on for a credit of 13$ or so.
sell 2750/2725 April put spread
Sell 2825/2850 credit call spread
I do this 5 times so I collect 500x13.5ish = $6700
Best case scenario: NDX stays between 2750 & 2825 on 4/20.
Max profit is $6700 (this is the amount I collect today)
Reward to risk scenario is 1.16; as far as bets are concerned this high reward to risk ratio gives me enough comfort to even consider selling a credit put psread that is already in the money.
Max loss is $5800 = 500x$25 (which is the width of the spread) - $6700 (premium I collect).
Btw, if you like these posts spread the word+ folo @racernic. Also peruse rest of my posts including the sides to help finance the java (if you know what I mean ;-). I do these post for free and have no subscription pitches etc.

If I wanted less risk I can sell April NDX 2740/2735 Credit put spread instead:
credit I collect for 5x is 1000
max loss is 1500
best case scenario is that NDX is above 2740 by April opex.
same logic applies as above condor.

THIS IS A RISKY POSITION COMPLETELY DEPENDING ON REBOUND AFTER THIS SELLOFF.


As with any trade there are risks but in this case the I am very comfortable with the dollars at risk. I always try to know and manage my risk; I ask 'what will I lose if the crap hit the fan in the worst possible way.' If I know the answer to this and am ok with it then I should be ok.

THIS IS NOT A RECOMMENDATION OF ANY KIND. I ONLY INVEST MONEY I CAN AFFORD TO LOSE.

$AAPL $AMZN $bidu $SPX $NDX $RUT $C $GS $wynn $SPY $GOOG