Wednesday, May 23, 2012

Why I like $AAPL

I have been consistent during all the aapl sell-offs that the sellers will end up needing to buy again shortly. My thesis? simply put this is a company that sells every trinket it makes at a premium, and ALL those who don't own its trinkets want them (all except me perhaps). I can take a risk on a long bet here.


Although I am not a technical analyst, I do look at the technicals to gauge my thesis.  


Here is the CCI w/trigger signals; it has been a pretty straight forward indicator for me. Though it's not a guaranty (as direction can turn on a dime), the CCI can be clear as to when NOT to buy. Looking at the bottom right, I circled where it's approaching zero which should be a buy signal. If the market takes a tumble off Eurozone disaster then all bets are off for the short term. Mid to long-term, I am a strong believer that aapl will be worth more in the future than now! I am long it via credit put spreads. As a hedge (to guard against short term drops), I have small out of the money June credit call spreads (may close those soon).
BOTTOM LINE: If I can't take a risk on a company that sells out of everything at a premium AND has a zillion dollars in cash AND pays a dividend THEN I should pack it in and stuff my money in a .25% CD!







Definition of 'Commodity Channel Index - CCI' from investopedia

An oscillator used in technical analysis to help determine when an investment vehicle has been overbought and oversold.  The Commodity Channel Index, first developed by Donald Lambert, quantifies the relationship between the asset's price, a moving average (MA) of the asset's price, and normal deviations (D) from that average. It is computed with the following formula:
Commodity Channel Index (CCI)

Friday, May 18, 2012

$QLD Lesson in "exercism" #2 $NDX


If you follow me then you know that this is my second post on getting exercised against. Yes, it happened again... ofgharisto Greece.
Lesson in "exercism" (my own play on words for exorcism and exercise). When I sell put options I understand that I run the risk of being assigned a stock. Conversely, when I sell call options I run the risk of getting short. If you read 'intro to option books' they will often tell you that it almost never happens. Here it is... it does happen! twice in one month for me. Today I was assigned on a short put option in QLD.

SITUATIONI started my machines this am expecting a busy day with opex and few spreads ITM. But I didn't expect to see a popup message from Trade Monster telling me of a 187k margin call!  To make matters worse, this was in a relatively small account where I don't have as much margin room as I need to absorb this. I had been assigned 3500 QLD at 56. Holy cow stockman! that's a giant loss. Not completely. This brings me to:

LESSON #1: NEVER EVER SELL NAKED OPTIONS EVEN IF STRANGLED. Luckily, I practiced what I preached and had bought 3500 QLD at 54.5 limiting my max loss at $1.5. Why so many contracts you ask? My initial position was half that but QLD split while I held the position. This brings me to lesson #2:

LESSON #2: DO COMPLETE HOMEWORK. I should have known about the coming split. Indeed, QLD was a recent addition to my watch list and I should have taken more time doing more homework before opening the position. I don't like to hold spread during splits so had I known it was coming I would not have sold the spread. To fulfill the margin call I click on "exercise" to sell my 3500 newly acquired shares of QLD. The order gets rejected for lack of margin room. This brings me to:

LESSON #3: Don't wait to the last minute during option expiration week to close or reset credit spread positions. This one is probably the hardest rule to obey especially in a persistent market tumble like we've had last two weeks. Getting put the stock issued this huge margin call AND locked out the account for liquidation only trades. This means I am only allowed to close positions. So what? This forces me to close out trades when I could have punted or let expire worthless. FURTHERMORE: If I have a iron condor and I need to close a losing leg that's in the money, I am forced to close out the 100% sure winning other leg that is way out of the money too. ex: I hated closing 11x short may put credit spread EQIX 150/45 last minute for .22, BUT I HATED EVEN MORE needing to buy the 180strike call for $.10. like I said, I have to close both sides of the trade; they are a pair trade and the margin desk won't let you do only one side. This brings me to:

LESSON #4: In my experience, Trade monster is the best platform all around for trading option spreads! Not only do they have the easiest and most user-friendly platform but they also are decent on the phone too. When I call I get the same bunch of people who never fail to have an answer. Case in point: this morning I called and they manually pushed my exercise for the 3500 in about 2minutes flat. I use TM, option house, tdemeritrade (TOS, TA).

SUMMARY RECAP: 5/18/2012
* Don't ever sell naked puts.
* Do complete homework: stock history, events and its competitors' events too. remember how PCLN moved on EXPD results?
* Don't wait to the last minute during option expiration weeks. I try to close or reset longer most of my spreads.
* If you are looking for a platform, Trade monster has served me well.
If you found this helpful then you should ready my other situation from earlier this month. Here is the link:
http://sellcreditspreads.blogspot.com/2012/05/oex-lesson-in-exercism.html

I hope that this is helpful. I am self-taught and would have appreciated a write up like this years back when I was first exercised. I 

Disclaimers:
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

Friday, May 11, 2012

$OEX lesson in 'exercism'

Lesson in "exercism" (my own play on words for exorcism and exercise). When I sell put options I understand that I run the risk of being assigned a stock. Conversely, when I sell call options I run the risk of getting short. If you read 'intro to option books' they will often tell you that it almost never happens. Here it is... it does happen! Today I was assigned on a short put option in OEX. (Side note: I learned to always assume the worst can happen. For ex: keep enough room for margin requirement changes or out of the blue assignments etc. I don't like to be forced into a trade just because of a change in the rules or unforeseen change cash levels like an assignment.)



IMPORTANT NOTE: OEX is american style and cash-settled. American style means that you can exercise your option any time you feel like it vs. euro style can only exercise your option on expiration day.
Cash-settled means that the debit is equal to the number of shares x the premium of the leg. I don't get assigned the stock. In this case, the debit in my account was 600 (6contracts x100) x stirke price premium at the time which was -16.95.


SUMMARY RECAP: 5/11/12
* I had an ITM May credit put spread in OEX 14x 635/630.
* Someone excersised their option so I was assigned 6x635 strike at $16.95. So I was debited $10177.65 (acct history showed -10170)
* So, in defense I sold 6x of my protection leg the 630 put strike that I was long. Sold it for $13.0
* So the net debit to my account became: 10177.65-7783.87=2393.78
* I also turned around and put the same trade back on for 6x635/630 for $4.15 credit & collected 2467.74
*** So net cash in my account from this OEX = +$73.96. the 4.15 was more than the net change of assignment and me selling (16.95-13.0=3.95)


THESISeconomists who are telling stories of impending doom may be factually correct about the trillions in peril. But that doesn't mean that all of it is going to happen. I am of the opinion that post the 08 financial implosion, the world has learned many lessons. I am also of the opinion that the world will forget these lessons and mess up again but not this soonSo, for the mid term I am optimistic that the worst case scenario of total doom being tooted will not happen. This has to be true otherwise we wouldn't call it investing; we would call it gambling a la Russian roulette!
My strategy for this specific trade is that next week we should see upside; hence, I should be able adjust/punt this position cheaper than being forced to do it today (5/11).

THE METHOD: Staying the course and waiting to reset next week. At which time I will post my exit strategy.

IDEAL OUTCOMEOEX moves up from here to above 635. I realize that this is a long shot BUT I also said in my thesis that I am optimistic from this level. So I anticipate that we improve next week. Today we rallied on super bad news (on a morning when cnbc was using words like panic, disaster, drag, loss of confidence etc.). If I am correct about next week, then I can punt or adjust this trade for cheaper than being forced to do it today.

WORST CASE SCENARIO: next week we back track and I lose the .85 (the difference between the 4.15 I collected today and the max $5 of the spread 635-630 = most I can lose from here).
From here, I am risking .85 (I put the trade on for 4.15 credit).

I hope that this is helpful. I am self-taught and would have appreciated a writeup like this years back when I was first exercised. I have to give kudos to trademonster as their help desk is always consistant.

BTW, I NEVER EVER SELL NAKED OPTIONS!!!! EXPENSIVE LESSON LEARNED ONCE.

Disclaimers:
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

Wednesday, May 9, 2012

$CF Jun trade that will make nice car pmnt


THESIS: I have had good success with $CF selling put spreads and to a lesser degree call spreads too. However, I learned that shorting $CF especially this low from high is not very smart unless I have conviction that it is headed lower. I don't have any information that would indicate that it is overpriced so for June I am opting for a long trade only. This is a well managed company and is well priced with respect of its earnings power = good value.
THE METHOD: Instead of buying the stock, I chose to sell a put spread so I can limit my dollars at risk especially in this violent environment given the shenanigans in the Eurozone.
THE STRIKES: I usually don't like to go this early for June BUT given that CF has been recently hammered and today's downgrade added another 4% reduction I see an opportunity to open a fairly low strike spread that still gives me another 10%+ protection on the downside.
I chose to sell the June 155/50 put spread for .82. I did this 10x so collected $804.43 after commission.
THE THEORETICAL STATS
80% chance that this trade will be for maximum profit (remember that this is theoretical not guarantee)
Reward to risk is .2 which is within my comfort zone
Max loss is $4160 (even if stock goes to zero)
IDEAL OUTCOME: CF close above 155 by June expiration (6/15) so I can keep my premium.


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

Wednesday, May 2, 2012

$RL May Trade setup

THESIS: RL is has more downside than upside potential from here. Today's move seems like it's on relative low volume. The trends of Moving Avgs seem to be changing directions to head lower. At the same time, it seems that RL has a bunch of committed fans that should provide brakes on the downside. For this I am looking to strangle it in the 165 to 185 range for the next 17days.

CHOICE: I chose the May options because they are free of earnings announcements (it announces 5/22pre) Of course there is always the risk of pre-announcement but I can't assume all that which has not happened;-)

Time period: May
Trade type: Iron condor
Strikes: 165/160 - 185-190
Premium: .95 Mark. Likely to get .84ish
Theoretical chance that RL upper leg 185 will expire worthless for max upper gain is 79%
Theoretical chance that RL lower leg 165 will expire worthless for max lower gain is 86%
reward to risk is about .2 so max loss (dollars at risk) if doing 9x is 3750




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.

$CAT trade setup

UPDATE 5/7: Since my last write up about cat, markets have since dropped. Now i am more convinced to make it a June position (read below for thoughts). I see that below the 200line, cat has support around the 90 level. IF I BELIEVE THAT THE WORLD WILL NOT HAVE ANOTHER CRISIS THAT IS NOT YET ON THE HORIZON (something new like ash in the sky for example) I am ok putting on the trade today. It will all depend on what other trades I have in my saved orders that look better. I will post when/if order is open.
ORIGINAL WRITE UP:
I am struggling with this one. I feel like I am in no-man's-land as May premiums are low and June is further out than my usual time period for selling spreads.
THESIS: CAT is a LT proven performer. It is very well managed globally! Only knocks on it will come from macro economics beyond its own control.
THOUGHTS: I have successfully shorted it before when EVERYONE was long it and tooting it (mainly Jim Cramer). Even though I won the trade, it was a difficult trade to manage so I don't think I want to do it here. So, going long is the strategy and selling credit put spread is the method.
STRIKES: I like the $100 level as it has defended it well. But I usually like a good distance between current price and strike price so I won't be selling the 100.
For May, the only choice for me to sell is the 97.5put (which is close enough to the 200 day moving average). With the 97.5 put I would also buy the 95 put to limit my dollars at risk. Or instead of the 95put I can buy the 92.5 and fewer lots to achieve same dollars at risk and premium balance.
As of today, this only gives me 3.5% distance from current price to short strike. This is closer than my usual preference. So, this makes me look at a June position instead of May.
There I can go to the 95/92.5 or 95/90 or even 90/85 and double my distance to short strike from today's price. This is a much more comfortable position for me.

CHOICE: I chose to wait out today and continue to watch it since this week we have jobs and eurozone news that are potential market movers. But I am tending to the Jun options position given today (5/2) prices.
I WILL POST UPDATE ONCE ORDER IS OPEN.

CAT CHART:

Open interest in CAT options is much heavier puts than calls. This may tell me that more are worried or expecting downside than upside which is just fine with me. When everyone is on one side of a trade I am more comfortable taking the other side.























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.