I’m going to try to do this every week or 2 weeks prior to opts ex. and, since I don’t know if I’ll have time next week, I may as well get ahead this week…
I have no idea what format will work but I’ll just start writing and see what happens (so professional it hurts!):
- AIG Jan ’09 $70s – basis $8.40, now $11.50
- Sold Jan $70s on 12/11 for $2.20, owe $1.65
- No worries here, just let it ride and pay the piper (pay the guy off or roll to Feb prior to expiration)
- Sold Jan $70s on 12/11 for $2.20, owe $1.65
Oops, I’m alredy breaking format for an explination…. That’s OK though, this is about teaching people how to do these trades and, since I’ve never taught it before, I have to learn by doing too!
The stock was at $70 when we picked it up for $10.60 so we’ve gained pretty much dollar for dollar in value but our caller still has a .50 premium which will go one way or another. As a rule of thumb with these, once we are up over 50% within 2 weeks of expiration we should stop out our caller under the same rules that we would stop out ourselves on a trade.
So, if the contract drops to $1 but goes back to $1.15, we should take the guy out. Any time the contract we sold goes below 25% of it’s original value (unless we are playing them out to expiration) we should take them out – you can always sell the next one!
This trade is a good example of what this is all about. We came in at about $69.50 and paid a $10.10 premium for 24 months of ownership (.42/month) and we quickly charged a caller $2.20, a $1.70 premium for 2 months (.85/month) – do that for 24 months and you make $10.32! That’s actually a very important thing to be aware of, your goal in the trade is to make 50% per year – any time you get far ahead of that you need to tighten up your stops as it may make more sense to redeploy capital into another trade!
Well, if that was just one this could turn out to be a long post!
- BA Jan ’08 $90s – basis $2.70, now $9.80
- Sold Jan $90s on 10/24 for $3.80, bought back for $2.50
- Sold Jan $90s on ??? for $3.30, owe $1.1
- buy out or roll on a serious breakout over $90
Damn, have to explain this one already! We picked this one up on 10/24 for $7.30 when BA was trading at just $83. I expected it to go up from there and we sold the Jan $90s for $3.80. We got lucky just a few days later and the stock dropped to $78 (I know, luck is a funny context on these trades!) and we bought out the caller for $2.50 (a little early it turned out) but we take a quick 33% profit like that if we think the dip is unfounded.
Then we sold the same call again, a few days later for $3.30 and we’ve been sitting on that one as I felt $90 would be the top into expiration. Here’s the tricky part – I no longer have much of a premium, just about .30 per month and this guy is paying $1.95 for the pleasure of 2 weeks of option time remaining so it’s kind of silly for me to take him out unless I find someone better to replace him. I don’t REALLY want to sell the Feb $90 for $2.60 because I thiink the stock may pop and, since I’m so far ahead, I think I may let this one sit naked just a bit (assuming the markets hold up next week).
If I needed the money back or I was unsure of the trade, I could sell the May $95s for $3 right now and have a .30 profit and a free ride on the trade but BA has 2 full years of orders booked and will probably have 4 by the end of next year AND commodity prices are coming down so I love this stock (but keep in perspective that I also love Motorola!).
- BEAV July $25s – basis $.40, now $4.80
- Sold April $25s on 12/01 for $3.50, owe $3.80
This is kind of a win-win as both me and my caller are happy. I effectively only put in .40 and I can sell right now for a $1 spread which is a very nice percentage profit. I will put a soft stop (one I set in my head) at a .80 spread as it’s silly to blow a double when the premium on the Feb $22.50 is just .40 so, if we go deep in the money in April, my July calls may not fetch as much.
- BSX Jan ’08 $17.50s – basis $2.50, now $2.60
- waiting to see if it breaks out over $17.50 (may be being held down by expiration)
We held firm through a nasty dip on 12/15 when they announced a recall. This is why you need to know your stocks as, luckilly, I knew about it already and reasonably assumed it was already priced in and it was just the retailers panicking. It was but the value of our calls never really dropped far enough to warrant a DD.
- CAT Jan ’09 $60s – basis $6.05, now $10.50
- Sold Jan $60s for $4.50 on 11/6, bought back for $2.75
- Sold Jan $60s for $3.70, owe $1
- Tight stops!
If they break below $60 we stop out at this point as it’s a lot to let ride in a market turndown. The kind we let ride are the ones that are way in the money and we don’t care as we can keep selling lower and lower calls. As it is early in they cycle, we just aren’t there yet. Last year we dumped all of our long-term plays on the May dip and started fresh in June.
Check out these CAT related shenanigans! http://biz.yahoo.com/ap/070104/caterpillar_tender_offer.html?.v=2
- CC Jan ’08 $22.50s – basis $3.73, now $2.05
- Sold Jan $25s for $1.25 on 11/27, bought back for $1.55
- Yeah, I know, what a bonehead!
- Sold Jan $25s for $1.50, bought back for .90
- Doubled down for $2.15 on 12/22
- Still waiting for that comeback!
- Sold Jan $25s for $1.25 on 11/27, bought back for $1.55
- CC Jan ’08 $20s – basis $2, now $4.40
- Sold Apr $20s for $1.75 on 12/19, owe $1.50
- Selling tight spread and using the $22.50s as a pre-roll – just trying to recoup loss.
- Sold Apr $20s for $1.75 on 12/19, owe $1.50
If you still think something will come back, you can ladder down the trade like this on the assumption things can’t get worse – it’s risky because somethimes they do.
- COF Jan ’08 $75s – basis $4.80, now $11
- Sold Jan $75s for $5.20 on ???, owe $3.10
- may as well let it wear down a bit
- Sold Jan $75s for $5.20 on ???, owe $3.10
I really didn’t expect this one to stay up at $77 with all the scary retail reports but the close options are so overpriced this one looks like a nice winner.
- EXPE July $22.50s – basis $1.45, now $1.55
- Waiting to sell the Feb $22.50s for no less than .50 (hoping to do better)
- FD Jan ’08 $37.50s – basis $5.40, now $4.60
They don’t all work right away. As a rule I enter once every few days but this headed straight down so I’m waiting it out. With any long-term trade, you should always have a reserve that you are willing to double up with as they don’t alway go right the first month!
- GE June $37.50s – basis $1.70, now $2
- This was a roll of profits from the ’08 $35s so it’s free money!
- HET Jan ’08 $85 puts – basis .75, now $3.50
- Sold Jan $85 puts for $3, owe $2.60
- stuck with this for now – probable roll
- Sold Jan $85 puts for $3, owe $2.60
- HRL June $40s – basis $1.15, now $1.35
- Waiting for earnings 2/16
- KMI Jan ’08 $105 puts – basis .90, now $1.30
- Sold Jan $105 puts for $1, owe .30
- tight stop but waiting for expiration as nickels matter
- Sold Jan $105 puts for $1, owe .30
- MOT Jan ’08 $22.50s – basis $2.65, now $1.25
- Fell too fast to DD (my bad for not selling against!)
- Considering bracketing into $20s
- PD Jan ’08 $120 puts – basis $1.20, now $8.30
- Sold Dec $120 puts for $6.30 on 11/22, expired worthless
- Sold Jan $120 puts for $3.25, bought back for $4.40 on 1/3
- Sold Jan $115 puts for $2.50 on 1/3, owe $2
These are great trades when you can catch a buyout just right as you take advantage of inefficiancies in the options system as the front month tends to UNDERREACT in proportion likely change in volatility. I was caught off guard the other day by the sudden drop and flipped my putter to the $115s as I didn’t want to go out of pocket AND I can always flip the $115 puts to the $120 puts again if it breaks back up.
- PGR Jan ’08 $25s – basis $2, now $2.05
- I flat out missed selling the calls against this one, just dumb mistake. Still like the position if it holds $23.50
- SCI Jan ’08 $7.50s – basis $2.15, now $4
- This one went right so fast there was no point selling against
- SHLD Jan ’09 $190s – basis $30, now $28.50
- Down $12 from where we bought it, big mistake not selling calls right away
- Still thinking it will bounce off $165 but getting out if it doesn’t as it’s too far out of the money to sell good calls against.
Huge mistake here. As is often the case, greed kills you and in this trade I could have sold the Jan $190s for $5 and been thrilled right now but I waited myself into a loss! You always need to remember (even if I don’t) that we are in these trades for a slow steady income, not to gamble…
- SNDK Jan ’08 $40s – basis $8.70, now $10.80
- Sold Jan $42.50s for $1.80, now $1.80
- I still think this will sell off into expiration but will roll otherwise.
- Sold Jan $42.50s for $1.80, now $1.80
- SNDK Jan ’08 $40s – basis $8.15, now $10.80
- Sold Feb $45s for $2,75, now $2.65
- More comfortable with these
- Sold Feb $45s for $2,75, now $2.65
- STN Jan ’08 $80s – basis .20, now $4.40
- Sold Jan $80s for $4.70, owe $1.65
- no point in buying him out right now
- Sold Jan $80s for $4.70, owe $1.65
- TIE June $25s – basis $4.90, now $6.60
- Sold Dec $30s for $1.40, bought back for $1.80
- Sold Jan $30s for $2.50, owe .70
- second time’s a charm!
- TXN Jan ’09 $30s – basis $5.20, now $5.20
- Expecting a pop at some point
- WM Jan ’08 $45s – basis $2, now $3.20
- Getting out if it slips below $45 ($3 on the call) – we liked this one as a potential buyout rumor but not if the sector sells off!
- XOM Jan ’08 $72.50 puts – basis $5.20, now $5.40
- waiting to sell puts
- YHOO Jan ’08 $25s – basis $3.30, now $5.90
- Sold Jan $30s for $1.90, bought back for .40 on 12/1
- Need to think about selling or rolling at $29
That’s it for now. Let me know what you think of the format as it should be a lot easier for me to update now that I have it set up.
Thanks,
– Phil
