What About Those Weeklys?

by Jeff on August 13, 2010

First let’s look at the ◄SPY 10AM Weekly► strategy. I didn’t enter one last week, but I did enter a Bear Call spread with the short Call at 114 – that was on Tuesday. Wednesday’s huge Bear move allowed me to enter my 4¢ limit order on the short 114 and it executed 12:30 pm that day, and take my profit. I was able to collect $196 (10.9% gain) in just 26.5 hours. Go Guru! Oh, and if you haven’t seen the video on this strategy, you’ll find it in the “New Downloads” section in the far right column.

The other Weekly that I was playing with was an AAPL Call Calendar spread (details on the right). Originally I opened with a -JUL4/+AUG 260 Calendar. I hung on to the Long AUG 260 as I rolled the JUL4 short 260 to JUL5, then to AUG1 and finally to the AUG2 260 weekly. As long as AAPL was cooperative and not going anywhere, I wanted to milk it as much as possible. Finally, over several weeks, I was able to gain a total of $496. I closed it on 8/10, figuring my luck had just about run its course. I got out just in time. AAPL is at $252 as I write this.

Overall this month is mixed and I am slightly ahead right now. The huge down move on 8/11 helped me quite a bit. My Bear Call on CREE was making me nervous, especially holding through earnings (naughty naughty), but I had a feeling that their guidance would not be very good, which is similar to what is happening to a lot of companies this earning season – good earnings/revenue and poor guidance. I bought back the short Calls yesterday for 5¢.

The Guru’s Market Sentiment: Neutral to Bearish. Maybe you didn’t ask for my opinion, but there it is anyway.

Based on my sentiment, I will be shopping for Bear Calls, Bear Puts and maybe some Calendars/Double Calendars biased towards the down side. Calendars should be looking better now that earnings season is over. Remember to look for candidates where the back month volatility is lower than the front month. This will help reduce the risk of back month volatility collapse and give you are better debit price on your Calendar.

Conservative Account

Today I continued to roll AUG Covered Calls to SEP with the exception of KFT and my new one, PAYX – all those that I rolled were ITM. There are 2 reasons for the rolls this early: 1) pending DivEx date on QCOM and 2) Extrinsic values were a penny or less. When the value of the Call reaches parity with the price of the stock, it’s more tempting for the Call holder to exercise. Conversely, in this volatile market, if I were holding a long Call I wouldn’t be looking for a penny or two under a stock price when it could move up to a dollar in a few hours. I was just being “Conservative”. Strangely, KFT still has 11¢ of extrinsic left in it – possibly because it’s less that $1 ITM – so I am holding off with that one until later next week.

About QCOM: remember I mentioned a few weeks ago that I was going to dump this holding because the returns just weren’t meeting my goals. Well, the story has temporarily changed. The roll that I did from AUG to SEP gives a credit of 50¢ on a $38 stock. That’s 1.3% for a month. That also will make me eligible for the 19¢ dividend in September, bringing the total to 69¢ and a return of 1.8%. After that I may unload it. Let’s see… I entered this Covered Call as a Buy/Write on 4/29 and if it get’s called out in SEP, it will have returned 6.54% – not bad, not bad at all.

You can get all the details of each open, roll and dividend event for each position by clicking on the Conservative Account tab at the top.

◄ Jeff ►

Tagged as: bear call spread, bull put spread, buy-write, Covered Call, covered calls, methodology

  • Parasuram Geetha

    Hi Jeff,nI just found your site via youtube and think it is great. I have been looking at weeklys and debating which strategy would work best on them. I have done credit spreads with success. I tried out weekly calendar spreads on paper trade and was not happy with the results. What is your opinion on this? Is it better to stick to regular months for calendars?n

    • http://theoptionguru.com/blog Jeff W

      Parasuram,nnWelcome to my labor of love. There is a lot of information on my blog, so take your time and look at it all.nnI’ve found that Credit Spreads work well on weeklys but they tie up a lot of capital in the form of margin or cash set aside. Lately I’ve been highly successful with directional Butterflys – where I anticipate the direction of price for the next 2-3 days and open my Butterfly at that price. The main advantage with Butterflys is they are very cheap if you get them Out of The Money (OTM). Look at my closed Spread Account (http://wp.me/PCyRr-K0) for March and in particular, April this year. You can see my progression from an assortment of spread strategies to almost exclusively Butterflys – and mainly on weeklys.nnI’ve tried testing out Calendars on weeklys and couldn’t get them to work. I think the problem is the long option expiration, which could be 2-3 weeks out. This makes that option expensive, while the weekly short option’s premium is small. That, of course, makes the Calendar expensive and adds more risk.nnHere’s an idea for a weekly (make sure you read and understand my Disclaimer page). It’s called a Broken Wing Butterfly:nSLV (Silver ETF)n+1 APR5 43 Calln-2 APR5 47 Calln+1 APR5 48 CallnIt’s called Broken Wing Butterfly because the strikes are not equidistant from each other. This creates a wonderful risk/reward ratio and protection from continued bullish price action on SLV. The deeper ITM 43 Call is what gives you the kicker on the up side. I don’t know what the price of the spread is yet since the market is not open yet and the new APR5 strikes don’t have any quotes. Check it out.nnu25c4Jeff u25ban

      • Parasuram Geetha

        Thanks Jeff. I agree with you on all accounts. I placed your recent butterfly on PCLN on my paper trade to watch how it evolved and was pleased. I will look into the rest and keep you posted. You are a rare find. Thanks againnGeetha

        • http://theoptionguru.com/blog Jeff W

          Geetha,nnGood luck and keep in touch. Note that I did Broken Wing Butterflys on GLD and SLV Thursday. I focused on them because many stock on my Weekly Watch List have earnings this week or next.nnu25c4Jeff u25ban

  • http://theoptionguru.com/blog Jeff W

    Mike,nnThat’s great! Make sure you click the logo at the right for the best price. If you are relatively new to Covered Calls, you should get the package that includes John Brasher’s Book – it’s the most comprehensive and easy to understand book on the subject that I have ever read, and I have read quite a few.nnI made a few videos on how I use CallWriter and you should download my Covered Call Trading Plan under Recent Downloads. Other than that, there are too many ways to utilize the service for me to tell you how to do it – you have to develop your own method to fit your trading plan (and make sure you have one).nnGood luck and let me know how you are doing.nnu25c4 Jeff u25ba

  • Mike

    JeffnI’m thinking about joining callwriter. What do you recommend and how do you best use it?

  • http://theoptionguru.com/blog Jeff W

    John,nnCurrently I am with TOS, but for years I was with IB. Here’s what I can tell you honestly about IB and their fees.nn * Their trading platform is a bit challenging to learn, but it has all the features you will need for casual trading. I have some videos on Youtube you might be interested in viewing: http://www.youtube.com/user/jwilly333n * If you trade less than 10,000 contracts, the commission is 0.70/contract with a 1.00 min. So if you trade one contract, the cost is 1.00 and if you trade 2=1.40, 3=2.10 etc.n * Stock commission is 0.50/100 sharesn * Streaming data feed is 10.00/month unless you have more than $30 in commissions for that month. Only Level I is free, you must pay extra for Level II.n * IB has a reputation of not being very user friendly, especially for small clients. I left them about this time last year, and I was still fighting them about a bug on their OptionTrader platform. (That was just part of the reason I left them)n * There is no commission or fees for a stock that is assigned, as in a Covered Call that is ITM. Pretty unique in the industry.n * They are their own ETN and that’s part of the reason they are so cheap and very fast.n * If you cancel an order for options, you will be charged a fee and it varies depending on the exchange, but around 0.25/contract with a max of 3.75. No charge for canceling stock only orders. You can get around this by modifying your order, if that’s what you want to do.n * You can often get price improvements on Limit orders, especially of the bid/ask spread is wide.nnI would have stayed with them if I would have been trading Covered Calls only – they are by far the most economical for that strategy. I found that TOS had so much more to offer, for my trading strategy, that the extra cost was well worth it. But, if you are not trading much and your margins are thin, then you should at least try IB. You might want to move part of your account over there and give it a shot – there usually isn’t a charge to do that. It’s too bad you can’t get a paper account without having a live account. If you do move money there, make sure you request access to their paper trading platform too.nnLet’s look at the commissions for a couple of trades:nCovered Call – 500 shares (comm=2.50), 5 short Calls (comm=3.50). If the stock finishes ITM at expiration, there is no other commission for this trade.nLong Call – 10 contracts (comm=7.00)nBear Call Spread – 5 lots (5 short Calls comm=3.50, 5 long Calls comm=3.50 for a total of 7.00)nnYou might also want to read my post from 9/8/2009 at http://theoptionguru.com/blog/2009/09/comparing-broker%E2%80%99s-commissions-for-vertical-spreads/nnHope this helps.nnu25c4 Jeff u25ba

  • John M

    Jeff, I realize this is somewhat unrelated to the post but I can’t find a better way to contact you. I’ve visited the blog a number of times and have viewed many of your videos. Good stuff. I have noticed that you use both TOS and IB. I currently use TOS through Ameritrade and am considering switching to IB because of the low cost of trade, I generally only trade 1 or 2 contracts a week on a number of different stocks and the Ameritrade commissions are killing me. I was interested in getting a real person’s opinion on IB along with what kind of cost is truly associated with it as their website is somewhat hard to understand. feel free to send me an email at mcnama98@msu.edu with anything you can add. nHope to hear from you soon, John

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