In Play

I will no longer be maintaining this page (duplicating effort). I have to keep this page active since there are links to it.

Please look for open and closed spreads on their respective pages by year. Click on the tabs above. Thank you.

Mark

Hello Jeff, while my Iron Condors are almost perfectly on the Middle, it’s been
frustrating to watch how I’m losing money anyway while Market is down. Like today
DJI is down 180 points and I’m watching and counting losses, as I understand this is
due to high Volatility, since Option prices rise in price? Maybe a good Idea when Volatility is low to buy some VIX CALL options to offset losses in days when markets are sharply down?
Of course the Verticals are working fine, but the Iron Condors are losing money.
Do you have any solution to that?
Thank you for you help, Mark.

http://theoptionguru.com/blog Jeff W

Mark,

You have to be patient. If, as you say, your IC’s delta is close to zero, then don’t do anything. I don’t have enough information from you to give you a specific reason, but there are a lot of dynamics in the market, and with the huge swings we are getting, it may appear you are not making money.

I believe you would be wasting your money buying Calls on the VIX, because that’s really not the answer. The VIX has not moved that much. Remember, when the market moves down, that tends to affect Puts more than an up move affects Calls. This has a tendency to tighten deltas on OTM strikes – making the delta of your long and short Put strikes almost the same. The same happens on Bullish moves on Calls, but to a lesser extent. So these days with the wide swings in prices, your theta is small.

Not to worry though, you paid (for example) 0.80 for your long strike and collected 1.00 for you short strike for a net of 0.20 credit. As we get close to expiration, they will both moved towards zero (if all goes well) and you keep the 0.20 – no matter what the VIX does.

If you want more detail, I will need to know the trade opening detail on at least one IC.

◄Jeff ►

http://theoptionguru.com/blog Jeff W

Mark,

You might be right and you have to trade according to what you see and your rules. For me, at almost a 2:1 risk/reward ratio and the current channel I have on my chart, it seemed appropriate and a risk I was willing to take.

◄Jeff ►
Dave Friday

Hiya Jeff…. Again, thanks for all the help thru your blog… I did in fact close out my 4 Iron Condors in my LIVE account and when the dust settled I made a profit of $21 after commissions on risk capitol of about $8300. WooHoo! Not a stellar month but a gain none the less. I was late getting started due to the red tape of getting the account open and funded. I had 3 winning trades and one loser. I feel your pain on the commissions at 75 cents a contract I paid out $226.50 in commissions, so I had a fair amount of steam coming from my ears too. The one trade that didn’t workout was the QQQ etf (surprise, surprise) and I know what I did wrong there, used too much of the total value of the account and didn’t leave enough capitol to do adjustments. I’ll be more causcious this month. But all in all, a gain of $21 is a success with this current market. I use a spreadsheet I created that tracks any symbol or index and gives a pretty good idea of how high above or below a moving average, in this case a 10 day ma, that a security trades. It’s pretty remarkable how consistent this charts out. So I am going in tomorrow with an IC on the DIA with my breakeven points at about $114.50 and $124.50 and I’ll leave plenty of cash to do adjustments just in case. I do have a general question that someone raised to me… If I create an Iron Condor at say a 70 cent credit and I follow that with what amounts to a stop loss at say $1.00 and a GTC order to cover that trade at say 35 cents. What I’m looking for is 50% of the maximum profit potential but my REAL risk is no longer the differnce between the two largest strike prices in either spread less the credit received, (lets assume the difference between strikes in both Credit spreads is $2 and the credit is 70 cents, my risk is $1.30 a contract). Because I have the stop loss in at $1.00 to cover, or buy back the IC, my Gain on Risk is limited to a $30 per contract loss or, if I am lucky enough to capture all the credit, I am risking $30 for every $70 gained in credit for a potential 230% return rather than figuring it on the entire risk of $130 per contract. In the case of my $21 gain… Technically, I know I had $8300 at risk according to TD Ameritrade and the stop losses are not a guarantee, but because I would probably never have lost more than $4000 due to stop losses my return on Risk was .005% for 2 weeks rather than .0025% on the $8300. I know I’m splitting hairs on a small gain, but ideally in future months the gain will be in the hundreds rather than tens and it will be more meaningful. What are your thoughts?
Dave

http://theoptionguru.com/blog Jeff W

Dave,

Wow, that was a long one. Congratulations on your win.

Regarding you question: You can calculate you risk based on any formula you wish, but you do want to be realistic. Your idea is OK, but what do you do with gaps? Many times, because of overseas trading and news, ETF’s gap and when they open here, they move very fast. But, like the commercial says: “It’s your money, use it when you need it!”

Ultimately it’s how your total account performs. Like me, where I never put more than 20% of my total account at risk, my 20-30% return on risk ends up 1-3% return on my total account (which is nothing to sneeze at). So in your case, it might be 40-60% but the effect on your total account is the same.

Your QQQ looks like a good start.

◄Jeff ►

Dave Friday

Hey Jeff… I have my first trades in my live account closing out tomorrow. I tried to close out an Iron Condor today but it wouldn’t go…. so i called and found out that one half of the Iron Condor was at Zero and so obviously I can’t buy something at zero…. so I did the trade as a close on the Vertical with the options that had some value and still have the options at zero. My question is, do I need to buy those back at say 1 cent so I won’t get assigned if the price suddenly moves, being as we are in a Triple witching week and anything could happen… but if it suddenly showed a half cent ask is there any real danger of assignment or am I worrying about nothing?

dave

http://theoptionguru.com/blog Jeff W

Congratulations, Dave!

I’ll get right to the point: if you want to close your IC, just buy back the short option strikes. If you are a Think Or Swim client and the strike is 5¢ or less, you won’t be charged commissions. This saves a lot. Many times when expiration weeks roll around, I simply put limit orders in on my short options to buy them back at 4¢. I suspect your long option was at zero – thus your combo didn’t go. So if you have an IC, you enter two limit orders at $.04 on both the short Put and the short Call. Let the longs strikes ride it out to expiration.

If you short strikes hit 5¢ or less it’s several days or even weeks to expiration, close them out.

In a way, you are worried about a possibility that has little probability of happening – but it always prudent to reduce or eliminate you risk whenever you can.

◄Jeff ►

PS

I got a little uncomfortable with AMZN and did a calendar adjustment on -195/+195 Jun/Jul, resulting in a diagonal spread -190/+195 Jun/Jul. This gives more broader breakevens and more room to be correct. Lets watch how it plays.

http://theoptionguru.com/blog Jeff W

PS,

That probably was not a bad idea. Let me know how it plays.

◄Jeff ►

PS

Options Trading teaches you some good decision making sometimes. Got tired of squeezing every drop of juice I could from the AMZN diagonal, especially given the time I was spending watching it this week. I closed it for 69% profit of original $Risk. Could have squeezed another 10%. Coulda…Woulda…Shoulda

PS

http://theoptionguru.com/blog Jeff W

PS,

Yeah, I hear you! I still do a lot of coulda-woulda-shoulda. I think the key question is “why didn’t I”?

Your 69% is better than -69%. Be happy and look for the next trade. We are in a target rich environment right now.

◄Jeff ►

http://theoptionguru.com/blog Jeff W

Geetha,nnA trade log of your paper trades (not live or real) will help immensely. Keep track of all the greeks, take screen shots each day as you track you trades.nnMy favorite author is Jeff Augen for technicals and greeks. Try “The Volatility Edge in Options Trading: New Technical Strategies for Investing in Unstable Markets” first.nnThere is a lot of reliable information at http://www.ivolatility.com/home.jnnThat should give you a good start.nnu25c4Jeffu25ba

Parasuram Geetha

Thank you.u00a0

Parasuam Geetha

u00a0Dear Jeff,u00a0 This month, I look at the weeklys and don’t feel as confident as I was a month or two ago.u00a0 They seem to be trading in a very tight range.u00a0 What is your feedback? Geetha

http://theoptionguru.com/blog Jeff W

Geetha,nnThe market is in a rather strong reversal right now. I think the way to play the weeklys is with a directional trade targeting the center of the price trend. I did that with GS and SPX for this week. I’m not sure I like the Calendar I have on SPX, though. It’s profitable right now but IV is collapsing my tent.nnu25c4Jeffu25bann

Anonymous

I have a similar Double Calendar on WFMI. It is Wednesday, 4th of May. The IV is very high. When do I close the trade – today / tomorrow?

http://theoptionguru.com/blog Jeff W

Here’s what I think I’m going to do…nnI’m not a person that shoots for a home run on every pitch. I like to get a lot of base hits, but this pitch is right into my sweet spot. The MMM right now is u00b15.2, my short MAY option IV is 52 and the long JUN is 46. If MAY IV drops to 46 tomorrow and price moves to 55 or 65, I will be better off than I am if I closed right now. I’m waiting to see what happens tonight and tomorrow. I will exit the Put if the price is up and the Call if the price is down and ride the open one out for a few more days.nnu25c4Jeff u25ba

Anonymous

Thank you Jeff.n

http://theoptionguru.com/blog Jeff W

No prob

http://theoptionguru.com/blog Jeff W

Dave,nnWow! You’re doing pretty darn well. Good job! By the way, Dave does a mix of IC’s and Calendars and IC’s can also be delta neutral with the price smack dab in the middle. But, IC’s unlike Calendars can be off on the delta by quite a bit and still give max profit.nnu25c4Jeff u25ba
Steve T.

Jeff, many nice calls, great job! Did you exit all positions of the SLV trade simultaneously or separately? I tried all day yesterday to exit all positions simultaneously and the best execution I could get was $415 for a gain, but not near as good as your $520? Also, any plans to adjust your SPY since the short 136 is now slightly in the money with 3 weeks remaining? THANKS! Steve T.

http://theoptionguru.com/blog Jeff W

Steve,nnI too had a hard time closing that SLV Butterfly. I didn’t get the price I wanted, but it’s probably because the market figured it would stand firm and only accept full price to its advantage, and not ours. I was thinking of splitting it up, but kept it simple this time. I’ll probably do another Weekly on it today and maybe add to my GLD holdings.nnYeah, the PTPu2122 delta is way off center. But, here’s what I am thinking: 1) There is some serious resistance at these levels for SPY, IWM and QQQ 2) I don’t want to adjust and put more money in if there is a retreat, as I suspect 3) The main players for earnings will wrap it up mostly this week. Excellent results are pushing prices higher, but note that QQQ/COMP, the leader up until late this week, is beginning to re-trace.nnI’m going to wait until Monday. I think reality might set in over the weekend. QE2 will end soon, inflation is taking hold (gas went up u226525u00a2 city-wide here in Columbus yesterday), gold/silver continue to rise unabated (gold completely ignored the mental $1,500 resistance level), people are beginning to realize that Washington will NEVER pay off any of our debt and may only continue to add to it.nnu25c4Jeff u25ba
http://theoptionguru.com/blog Jeff W

Steve,nnI made my adjustment today. I will explain in a post in a few days, but this is what it looks like now.

Steve T.

Thanks, I’ll look forward to reading and learning from that Post!

Steve T.

Ouch…hopefully I can learn from your experience on that one. Also, since we were already in a play with SINA, to get more concentrated with SOHU probably increased the risk as well. BTW, what have you done with the GLD Bull Call Debit and Broken Wing Butterfly, I don’t see them any longer “In Play” or “Closed”? As always, THANKS!

http://theoptionguru.com/blog Jeff W

Steve,nnThat’s what I’m here for – so we all can learn from my mistakes and success.nnSorry about the Closed 2011 – I hadn’t uploaded the latest. It’s there now and GLD worked out very well.nnu25c4Jeff u25ba

Parasuram Geetha

Hi Jeff. I have not traded butterflys, since I did not fully understand them. Did you base your broken butterfly on SINA on the high IV and close earnings date? This is not a weekly, so when will you close the trade? Feel a little nervouse since the P/L graph does not seem to protect the downside much. Geetha

http://theoptionguru.com/blog Jeff W

Geetha,nnI based it basically on the bullish trend and that the price yesterday was at the bottom of a upward trending channel and at the 20 day moving average. My bet, and I am risking $260 on the trade, is that the trend will continue and be in the max profit zone around the end of next week (5/5).nnI’m willing to risk the entire $260, but if it moves against me I will get out long before that point is reached.nnI’m not looking for max profit or to make a killing, I just want to make some money and I would be very happy with $100 or more profit. My exit will be based on the price movement and I will not hold it into earnings.nnHope this helps.nnu25c4Jeff u25ba

Gary Tarantino

Hi Jeffni have recently entered into a trade on POTnmy entry was :n100 may 11 55 putn100may11 57.5 calln100 may 11 60 calln100 june11 55 putn100 june 57.5 call n100 june 60 callnnthe 60 call and put were my adjustments to the the trade …..i see there is an earnings report coming out 2 morrow ……please would you advise ,it would be greatly appreciated as i am still very new to options nnGary Tarantino

http://theoptionguru.com/blog Jeff W

Gary,nI don’t have enough information to help here. Are these Calendars? Are the May options short and the JUN options long? Also, if you could let me know what the price of each strike was when you entered.n
http://theoptionguru.com/blog Jeff W

Gary,nI don’t have enough information to help here. Are these Calendars? Are the May options short and the JUN options long? Also, if you could let me know what the price of each strike was when you entered.n

Gary Tarantino

Hi Jeffni have recently entered into a trade on POTnmy entry was :n100 may 11 55 putn100may11 57.5 calln100 may 11 60 calln100 june11 55 putn100 june 57.5 call n100 june 60 callnnthe 60 call and put were my adjustments to the the trade …..i see there is an earnings report coming out 2 morrow ……please would you advise ,it would be greatly appreciated as i am still very new to options nnGary Tarantino
Dave Friday

Hey Jeff… Dave again… I was messing around with some Double Calendars I saw on one of you videos and I thought I would check it out in TOS. I must be doing something wrong cus this trade is way too sweet to be true… it comes out in the Anaylzer as a nearly $1500 to over $5000 gain (based on the price slices set at +/- 10%) with a risk of less than $100 loss! Heres what I put together… I did a DBL DIAG on MWIV. I had to change around the dates and strikes on the analyzer tab but heres how it ended up…nnLONG 20 MWIV Jun 85 CallsnLONG 20 MWIV Jun 75 PutsnSHORT 20 MWIV May 90 CallsnSHORT 20 MWIV May 75 Puts at .05 DebitnnThe tent looks too good to be true. What am I missing?

http://theoptionguru.com/blog Jeff W

Dave,nnI have no idea how you came up with this trade being profitable at all. According to my data there is little to no Open Interest on any of these options, and the bid price for the OTM strikes is zero.nnHere is what I show for each option:nnLONG 20 MWIV Jun 85 Calls = Ask -4.90nLONG 20 MWIV Jun 75 Puts = Ask -4.90nSHORT 20 MWIV May 90 Calls = Bid +0.0nSHORT 20 MWIV May 75 Puts = Bid +0.0nTotal Debit $19,600nnIf that’s not what you are getting on the Analyze tab, then click on the Reset button on the upper right. If that doesn’t fix it, then contact TOS Support.nnA word about MWIV: this is a very thinly traded, non liquid stock (less than 100k shares/day) and hardly any open interest on the options. Look at the bid/ask spread on those options. If you buy the JUN 85 Call for 4.90 and you want to sell it, you won’t get anything for it.nnI guess it is too good to be true.nnu25c4Jeff u25ba

Stevejg

Hi Jeff, Would you consider adding a column for the stock price at the time you put the trade on into these charts to help us understand how and why you chose your strikes? Thanks, Steve

http://theoptionguru.com/blog Jeff W

Steve,nnI think that’s a good idea. Rather than go back on any trades (except for the two that are open), I’ll start from here going forward – only of the Spread account, since the PTPu2122 is a neutral strategy by definition. I’ll also offer my directional bias for the underlying, just for kicks.nnu25c4Jeff u25ban

http://theoptionguru.com/blog Jeff W

Tommy,nnGood observation, I thought no one would ask.nnThe are many reasons:nu25d8 I was looking for a nicely trending stock for a Weekly Trade and found GS in a new Bear Trend.nu25d8 An extended trend line indicated GS may be below 158 by this Friday.nu25d8 I looked for a spread that would give me high return with low risk.nu25d8 This Butterfly was cheap at the time.nu25d8 So if GS hits between 152-157 this Thursday or Friday, I could make between $100-300 on a trade that I risked only $150.nnAgain, good eyes and thanks for the comment.nnu25c4Jeff u25ban

Tommy

Jeff,nnThs for your comments.nnI think I can’t agree with you any more with the Bear Trend found in GS, and from another video (can’t remember which) in your blog, I found that you’re using PPS as an indicator for analysis, and given the earthquake in Japan, the market is very uncertain or volatile, thus…………nnmy hidden question is when you look back, will you consider a Bear Call Spread(directional) rather than a Butterfly(non-directional) bet which is indicated by PPS, or will you consider a Broken Wing Butterfly as an alternative for a more conservative choice?nnTommyn

http://theoptionguru.com/blog Jeff W

Tommy,nnNot fare! Up until today GS was in a PPS Bear condition. Today (and the day is not over yet) it has a Bull PPS indication. So, based solely on PPS, I agree with your disagreement. But, my trade was placed on 3/14 when GS had a Bear PPS since 2/22, and I made money on the trade.nnNow to your hidden question. It’s true that the market is making some very wide swings. It’s also true that there are trends in prices that are suffering from some whipsaw activity – mostly Bull trends that are getting slapped back every few days.nnIn my post from this morning I demonstrated a combination of Butterfly and Credit Spread for just these situations. In the post I showed my BIDU trade and just this morning I put on another similar trade on NFLX – both using the MAR4 (3/25) expiration. I think this is a good strategy for this type of market.nnA Butterfly can be used as a directional trade, you just don’t do it ATM – preferably OTM by a strike or maybe two. So. for example, if you were Bullish on GS, you might buy a Call Butterfly at 160/165/170 and risk only $110 for a potential gain of $380 if the price is at or around 165 at expiration (3/25). Don’t get me wrong, Credit Spreads have their place, but there are not many that can beat that Butterfly.nnu25c4Jeff u25ban

Tommy

Jeff,nnThank you for your quick reply and good argument on using Butterfly as a directional trade. I just don’t know that!nnI am a newbie and therefore I have so many naive questions. And I want to learn from you.nnnTommynnP.S. And I have some other questions regarding your video on screening stocks : nn1) why would you prefer Beta larger than 1?nn2) why would you prefer individual stocks rather than ETFs which diversify unsystematic risk?nnSorry for so many questions, but I really want to learn from you. nnPPS. Endorsed by your blog, I joined the Trading Pro System last Sat, and this guy is amazing and all videos are eye-opening! Thanks for your endorsement again! I am considering to join their nnPPPS. I will come up daily from now on. Wonderful blog maintained by a wonderful man!

http://theoptionguru.com/blog Jeff W

Tommy,nnThanks for the encouragement. I am learning too, and I like sharing my lessons with my readers.nn1) The SPY is a pretty mellow index. Meaning it is not very volatile and so option premiums are not as good as other choices. SPY has a beta of 1, always. It is the definition of beta for stocks. Anything with a beta greater than 1 moves more than 1 when SPY moves 1. Conversely, a beta less than 1 moves less than 1 when SPY moves 1. For example AAPL has a beta of 1.371. So, theoretically, if SPY moves down 1, APPL will moved down 1.371. Therefore, stock with a beta greater than 1 will have bigger moves and to me are more desirable candidates as the underlying for my option spreads.nn2) When I am looking for trades in my Profit Tent Portfoliou2122, I tend to stick to index ETFs (I might use a stock for an adjustment). When I am looking for candidates in my Spread Account, I have a short list of stocks that have higher volatility and higher prices. These provide higher premium and I can trade less options which saves me some money in commissions.nnI don’t screen any more since the weekly expirations have been introduced. In my Spread Account I almost exclusively trade only the weeklys and that is a very small list of stocks that I pick from. For my PTPu2122, I have another small list that is comprised almost exclusively of the highest volume ETFs.nnu25c4Jeff u25ban

Joe

Hi Jeff,nn I’m glad I discovered your blog. Lots of interesting posts to read and learn about, and I think the pictures of nature at the top right side of your blog are great ! I am sort of new to the world of options, and have been paper trading the Weeklys for a few months now. nnI noticed in a previous post that you made a profit on PCLN using a Straddle right before their earnings report came out. LVS is scheduled to release earnings on Feb 3, this coming Thusday.nnHave you thought about using a Straddle on LVS this coming week ?nn – Joe

http://theoptionguru.com/blog Jeff W

Joe,nnI don’t recall making money on PCLN recently, and as a matter of fact I lost my butt on them last year. I have tried one or two straddles but they weren’t big money makers for me.nnMaybe what you are referring to is using straddles to determine the volume of the price move on earnings.nnRegarding LVS and using an ATM straddle, it looks like the market expects a move between 43.68 and 50.32. The market is no fool and doesn’t want anyone to make money except itself, so it’s not going to pay anything unless the price moves below or above those prices. My guess is the chances are slim it will make a bigger move than that and the better chance is to the down side.nnIn conclusion, I don’t think LVS is a good straddle play for earnings. Better to pick a direction and play that.nnu25c4Jeff u25ban

http://theoptionguru.com/blog Jeff W

Mick,nnI personally have experience with 4 brokers: Schwab, optionsXpress, Interactive Brokers and Think or Swim. These are my personal observations and are not an endorsement.nn- Schwab is a full-service broker and not really a pure trader’s broker.nn- optionsXpress has an OK platform, but they are too expensive for what they provide.nn- Interactive Brokers is by far the least expensive with the best execution/price improvement. Their platform is very robust and has a high learning curve but it’s not very intuitive or sexy. It was fine for me when I was doing Covered Calls and CSPs.nn- Think or Swim is my current broker. Their commissions are fair and their platform is simply awesome for trading simple and complex spreads. Anytime I have a question and I send an email, I get a response within minutes. They always answer their phone. They have several chat rooms and create 2-3 information/commentary/educational videos per week. It’s the Apple of on-line brokers, in my mind.nnu25c4Jeffu25ba
Wim

Hello,nIt seems that my coco suggestion wasn’t such a great deal afterall…nThey Fell out of the sky as a thunderstrike yesterday.nLuckly I have the Put’s and I did sold already the november contracts last week.nSo my average price for my stock is at 5.4. Hopefully they’ll recover a bit in the next month So I can still have something for my december contracts .nOffcourse this is only one of my trades and luckly the onlyone that turns out bad for this month.nBut who knows what come’s up for next month

http://theoptionguru.com/blog Jeff W

Wim,nnNot all trades will be winners – the idea being you have more winners than losers, and you make more on your winners than you lose on your losers. Gee, maybe I would get a patent for that statement! That’s what makes this business so much fun!nnu25c4Jeffu25ba

http://theoptionguru.com/blog Jeff W

You’re right about that. Diversification meaning different strategies on various underlyings. Since I was able to adjust, the recent pull back has been extremely profitable.nnu25c4 Jeff u25ba
http://theoptionguru.com/blog Jeff W

You're right about that. Diversification meaning different strategies on various underlyings. Since I was able to adjust, the recent pull back has been extremely profitable.

◄ Jeff ►
http://www.level3securities.com investor relations

Diversification, Diversification, Diversification thats the only way to stay ahead of the curve.
http://theoptionguru.com/blog Jeff W

ACDK,

Let's think about this. Margin is really borrowing money from your broker in order to leverage your account. If you have 50,000, you may be able to leverage that to 100,000 using margin. If you actually use that margin your broker charges you interest on the amount of margin that you are using.

A Covered Call does not require margin – that's why is called a Covered Call. You have Covered your short Call with the appropriate shares of stock – 1 Call + 100 shares of stock.

It's a slightly different story if you dipped into your margin to buy more shares of the stock, but the margin really applies to the stock and has nothing to do with the short Call.

Say you have 50,000 in your account and and another 50,000 in margin. If you buy 300 shares of AAPL @ 248, it will cost you 74,400. You generally will have 24,400 in margin (some brokers don't make it this simple) and will have used up all of your cash. You can then sell MAY 250 Calls for 8.00 (or $2,400 credit). If your shares get called at MAY expiration, you will have made $10/share minus the interest on your margin and commissions.

Of course, if AAPL drops significantly, your broker might ask you to put up more cash – called a Margin Call.

I hope this helps and I didn't confuse you even more.

◄ Jeff ►
acdk

Hi Jeff,
I have a question regarding margin account.
If in a margin account i own shares of stocks and write covered call would broker hold margin amount against it? Your answer would be appreciated.
Thank you.
Pingback: February Expiration Wrap Up
http://theoptionguru.com/blog Jeff W

A little concerned. I bought a 195 Put Calendar today.

◄ Jeff ►
Bruce

Jeff:

I too have the AAPL 210 Calendar? Are you concerned about the low end?

To safeguard, I also bought a 200 Calendar and will let things play out for a while to see if I will keep as a double or close one.
Bruce

Jeff:

Ouch, what is happening with PCLN? I have a position there too.

If you get a chance could you do a video on using TOS’s Risk profile analysis. I have problems understanding how to adjust the dates. I want to be able to make assumptions like: suppose I place a trade on 1/6 and the stock goes up 1.00 and 20 days go by. What is my net profit?

Also, I am interested if you do calendar trades as opposedd to same month verticles. I have been watching a few of Dan Sheridan’s video and really like this approach.

Happy New Year!

Bruce

Jeff

Bruce,

I sure wish I had an answer for every price move on my positions – I sure don’t have one for PCLN. I’ll sit tight, however, as all the news that I have been seeing indicates the price should move up.

I have tested Calendars and Double Calendars as a substitute for Iron Condors on the long side and Straddles on the short side. There is a possibility that I might do some in the future, but for right now why mess with a winning strategy?

Thanks for the video suggestion. The TOS platform can be overwhelming – fortunately I have enough time to play around with it. I know exactly what you are looking for and I will make the video soon.

- Jeff

Bruce

Are you still planning to sit tight on PCLN? I am considering rolling my trade to February.

My trade:
Bought the Jan PUT 210 for .79 and sold the Jan PUT 220 for 2.51

Jeff

Bruce – I am encouraged by the price action on Friday and I will wait 1 or 2 more days to decide. - Jeff

Bruce

PCLN
Crazy Day with a half hour to go.
High 218.82

Low
212.25

I’m sticking it out too.

Bruce

RJPGCI

Jeff,
I am new to options spreads and would like a simple explanation of your AFL spread.

ie:12/28/09 AFL Price 46.78 Type JAN -49/+50/-44/+43 Iron Condor Credit 30 Risk 70 Max Gain 42.9%

is the plus/minus a buy or sell to open position ? Is this a buy or sell spread?

Thanks for the letter and all the insight.

Rob

Jeff

Rob,

With an Iron Condor I am betting that the stock will closed between 44 and 49 at expiration on 1/15/09. I sold to open a JAN 49 Call and a 44 Put, then at the same time I bought a JAN 50 Call and 43 Put. This is called an Iron Condor and I ‘sold’ it, meaning I received a credit when I opened the trade of $30 for each combination of 4 options. Since the spread is a dollar and each option contract is for 100 shares of stock, the risk is $100 minus the credit that I received ($30) which equals $70. Based on the credit of $30 and a risk of $70, the return is (30/70)X100=42.9% (includes commissions).

- Jeff

robl

Jeff,

Why do you do bull call spreads instead of bull put spreads? It is unclear given that you tend to do bear call spreads for credit but the bulls are debit spreads.

Rob

Jeff

Rob,

Your right, my main focus has been on credit spreads, but there are time when a debit spread is VERY advantageous! I am not adverse to using any option strategy to make money in any market condition or on any underlying’s direction. Here’s why…

The return on risk is much higher doing the debit spreads. Most of the time I can make $500-900 (40-60%) on a $1,500-2,000 risk with a debit spread (and sometimes over 100%) versus $300-400 max return on a $2,000-2,400 risk for the credit spread (around 12-20%). I tend to do the debit spreads on fast moving stocks, or stocks that are in a strong trend. I will buy an ITM option and sell a OTM option. This way, even if the stock’s price says the same, I can still make the max profit by collecting time decay. But many times I can collect 80% of the max profit in just a few days if the stock moves quickly in the direction of the option. For example RIMM – I bet that it would rise on its earning last week, and I collected nearly $900 in two days. In this market, you have to use many tools to take advantage of any situation.

- Jeff

Jay

Jeff,

I think you are not comparing the same things here. The same 40-60% realizable in a bull call spread can be achieved using a bull put if you use comparable strikes. Since you are buying an ITM strike and selling OTM for the bull call, you should be buying an OTM put and selling ITM put for a fair comparison. The risks and ROI are the same. In terms of fast moving stocks, the bull put is even better since it has a more negative vega than the bull call. The option values will erode faster with puts when the stock moves higher. One advantage of the bull call spread is that if the market moves against you, you tend to lose less than in a bull put since vega increases more in puts than calls. Overall, both spreads are very similar. I tend to favor bull puts as I do not have to put money upfront.

Jay

Jeff

Jay,

You are absolutely correct – with one minor adjustment. Yesterday I was considering a 111/113 Bear Put on GLD. I compared it to a 113/111 Bear Call and risk/reward were exactly the same and a slight advantage to the Credit spreads in Theta (more negative vega). Here’s the minor adjustment – the strikes have to be the same. I would never buy and OTM and sell an ITM on a credit spread (I think it was a typo). This is an exercise that I never did before and I thank you for that. This works for both a Bearish and a Bullish stock (I compared AAPL too at 200/210 strikes). One other thought – since brokers hold available cash for Credit Spreads, to me it’s the same as paying up front on a Debit Spread.

Thanks – Jeff

Barry B

Jeff,

Where did you get your training in Credit Spreads? Would you recommend them? Any books, CDs/DVDs, or websites you recommend to learn the details of the subject.

Thank you,

Barry

Jeff

Barry,

Most of my training is from the school of hard knocks, acquired over several years of attempting various option strategies. This gave me a pretty good understanding of options. But, http://jeffreyziegler.com has a pretty good course for $50/month. Check out his site. Initially you get all his training material in the first month, and if you think it’s worth it, you get several videos each month with timely market observations and trade tips. (I am not affiliated with him at all).

- Jeff

Fred Harrison

What size of contracts do you normally do on your bear calls? Thanks.

Jeff

Fred,

I follow my money management rules as stated in my Trading Plan (see download box) which is no more than 5% of my account in any one trade and no more than 50% of the account total at risk in any time.

So if you had $100,000, a Bear Call with a strike spread of $5 (at risk would be $500/lot) can have a max of 10 lots.

- Jeff

Fred Harrison

What rules do you use to decide which trade to go as high as 5%. Also what would be the smallest number of contracts you would go. Would you trade with as small as 5 contracts or 3 contracts? Also when you say no more than 50% of the account total at risk in any time, do you mean you always keep 50% of your total capital out of the market?

Jeff

Almost all my trades are close to the 5%. Using that rule and the $100,000 account, the smallest number would be 5 at a $10 strike spread. Sometimes, although rarely, I will trade less than the allowed 50 on $1 strike spreads, just because I don’t like giving that huge commission to TOS. You are correct, I leave 50% of my account in cash when trading spreads – this allows me enough to buy back short options if the underlying moves rapidly against me (for example on POT yesterday) and doesn’t put my entire account at risk if we have another Black Friday.

- Jeff

ben sim

Hi, Jeff, can you please explain how you compute the probabilities?

Jeff

Ben,

The probability is computed for me by my broker’s platform (TOS). I know that optionsXpress also has a expiration probability calculation on their trading platform too. I have no idea what the formula is for it.

- Jeff

ben sim

Hi, Jeff, thanks. Sorry I should have posted the reply here instead of emailing it to you, so here it goes.
=====
I am using IB, so I am not sure if they have such a calculator.

Anyway, to clarify, is it the probability the price of the underlying stock will finish above (below) the strike price associated with the sold leg of a bull put (bear call) spread?
===
Also, are you calculating the probability using something like the calculator at the following link http://www.optionvueresearch.com/webtools2/ProbabilityCalculator.asp?

Thanks and cheers.

Jeff

Ben – yes. Or to put it another way “to expire profitably” or in the case of selling spreads, to expire out-of-the-money (OTM). The calculators actually give the probability of expiring ITM and you must subtract that from 100 to get the OTM probability.

- Jeff

robl

Ben,

Signup for a free TOS paper account and you can use all their tools. They have the best analysis tools around for the price and even if you were paying. You can do ” what if” analysis to see if holding is better than selling, etc.

Rob

Phil

Jeff,

I’ve noticed that the Delta number for an option is very close to the probability. Can a trader rely upon Delta for probabilities?

Phil

Jeff

Phil – You’re right, it does. I guess you could in a pinch.

- Jeff

Bruce

I am trying to understand your AFL Iron Condor. It looks like a lot of work (and commission) for a .20 credit.

So if you stay above 40 and below 46 you collect .20? And you have an 80% probability of staying in middle for another week? And you have a maximum loss of .80 if it goes to 39 or 47.

Do you usually let these expire on own or do you usually close them out early?

Jeff

Bruce,

The work part is easy with thinkorswim’s trading platform. The .20 credit is a pretty good return on .80, wouldn’t you say? That comes out to 25% return on margin (risk). OK, so the commission is 5.00 for each 20.00 credit, so with commission the real gain is 18.75%. I’m still quite happy with that!

Yes, if the price expires between 40 and 46 I keep the .20 credit (or $20 for each lot). Right now the probability is 86% and getting better each day that the price behaves.

I will only exit early if the price of the shorts are less than .05 – then I don’t have to pay a commission and it reduces my risk somewhat.

- Jeff

Sergio

In reply to Jeff reply “15th of October” – THE DAY OF THE FINAL HIGH ?

THE GAP IS NOW CLOSED ON SP-500. We have add an incrediable run since the March lows. To me as an observer and student of technical charts, this run is over!! That is a statement, which will be either be proven wrong or right with time going forward. I don’t mind if I’m wrong, that is OK. I also believe the up-trend line has already been broken. Most people will not draw it like I do to support my RSI divergence.

Now ,lets sit back and watch the true master tell us ALL!!! The Market itself. UP / DOWN or SIDEWAYS

This is my own interpretation of the market as of Friday’s close.

http://www.freestockcharts.com?emailChartID=c4aee43c-8c19-4f01-b8cd-f1d06ca0c79b

Have a good week eveyone.

Serg
Sergio

NEUTRAL -BEAR FOCUS USING TECHNICALS

When I look at many charts now from the Watch-list like the 3 below, I am more bearish then bullish right now. “I love RSI divergence against price.” Check it out guys on it.

SPY / AAPL / BIDU all looking VERY tired right now using RSI against it.

So does this give me an an edge when I say things like “looking very tired”?- I WOULD SAY NO. It keeps me guessing too much. I’ll stay away until price confirms breaking of their trend-lines up. RSI is a good warning indicator used in this way. They all have had an amazing run since March and PRICE GREED can all blind us.

So lets look at FUQI compared to the above 3 watch-list. Trend line was bullish (upwards) looking back from April break-out…price increasd a massive 700% (TOO MUCH GREED), but it has now peaked to me looking back to mid Sept. The uptrend line which was in place is now broken and as of Fridays close the $26 dollar mark is gone.

I AM NOW BEARISH ON THIS STOCK WITH THIS CONFIRMATION OF PRICE ACTION FROM FRIDAY.

Summary of reasons: RSI divergence gave a heads up that the trend was coming to an end (I believe it has), It’s up trend-line has been broken, Price has consolidated and breaking down very slowly day by day. Awaiting now a retracement forming a bear flag and then go in for a bear call for November.

Sharing for Success!

Cheers
Sergio
Sergio

SPY – Could it be that the market is trying to close the 109.61 GAP (between 03/10/08 – 06/10/08) before continuing its down-ward trend or will this aggressive Bull (or mad cow) totally ignore it and continue further up and up?

Its an interesting cross road if you love technicals!

Serg

Jeff

Sergio,

The nay-sayers seem to have given up. Now the ‘talk’ is about all the $$ on the sidelines that will come in now that the bull is in its sixth month, or third month – whatever spot on the chart you want to use. One theory says that when everyone is talking bull, it’s time to get out. Like you said, the charts don’t lie.

Gaps will always be filled – eventually – on indexes. It would be interesting to see if a gap that old still has meaning.

- Jeff

robl

What was your adjustment for uso?

Rob

Jeff

Ron – Same thing, same day (strangely enough) closed USO on the 12th for a 23 net loss.

- Jeff

robl

The aapl credit looks off. 1.03-0.05 is 0.53 not 0.75. The rest look right. What are you doign with the GRMN trade since the run up?

Jeff

Rob – I closed GRMN on the 12th for a 23 net loss. It set off my alert and looked like it was going to keep going up, so I bailed.

- Jeff

robl

Jeff,

What alert levels do you typically use for this?

Rob

Jeff

Rob – I put a study called Average True Range on my chart, then take the current ATR and subtract/add that to my short strike and set my alert at that level or somewhere close. It’s not an exact science but this is a guideline.

- Jeff

Jeff

Rob – good eye on AAPL (proves someone actually reads them). I think it was a typ0

- Jeff

Phil

Jeff, With GRMN approaching the short call strike, do you have a plan B ready if GRMN closes above $39?

Thanks!
Phil

Jeff

Phil,

I actually closed that trade today for a $23 loss – I just have not had time to update the blog.

- Jeff

Serg

Thanks Jeff. Hopefully the resistance will hold up for you, but even better you nailed it tonight over its head!

The only thing that scares me on this one is the tighnighting of the bollinger bands….indicating a break-out.

Cheers
Serg

Jeff

A breakout up or down or a period of consolidation.

- Jeff

Phil

Re: GRMN bear call spread –

TOS shows the midpoint of the respective options for the credit spread to be $17 currently, probably because GRMN has moved a bit higher today. Do you usually get filled at the midpoint, if, in fact, that is what you use for order entry?

Phil

Jeff

Phil,

My midpoint when I entered the order was 15, and I had to wait over 30 minutes for that to fill and it was filled in pieces. For some strange reason, there was not an volume on these Calls until my order went through. Let’s hope it’s not too good to be true.

I always use the midpoint unless the stock price is fluctuating a lot, then I usually watch if for a while to see what the highest credit is, and then lock my order in at that price. If I don’t get filled, I frequently just pass on the trade – not wanting to chase it. I find that when I do chase it, I could have been filled at a higher credit later in the day.

- Jeff

Phil

Jeff,

Your Garmin trade is amazing. A $1.00 spread, returning 17%+ that will expire in 2 Fridays with an 82% probability of profit. That’s my kind of trade.

Thanks for the dates on the trades.

Phil
Sergio

GRMN: Exit Plan?

hi Jeff,

What would be your get out price point on it. I guess your bearish on this one due to strong resistance at the 38 price level and your anticipating that it will hold?

Cheers
Serg

Jeff

Serg,

I have an alert set at 38.50. If it hits that, I will look at it and decide what to do. You’re right about the resistance.

- Jeff

Phil

Jeff, could you post the date of your trade on your in-play page? Also, do you use a service to find credit spread trades? Thanks for all you do. Phil

Jeff

Phil,

The date for the trades is now there. I don’t use any service. I have a list of about 50 favorites that I just watch and look at each day. When any of them look like they are setting up, I put them on a short list for serious consideration the next day.

I have been thinking of setting up my own service but I’m not ready for that as of yet.

- Jeff

Sergio

Managing the Risk in these trades above?

Jeff, looking to learn and pick your brains (hope you dont mind!!) especially, managing loosing trades and money management with discipline.

Could you tell us what is your exit strategy for each of these trades above. Placing them is the easy bit, but knowing what to do when the feathers hit the fan is more important.

Also, what methods do you use to get out?

1. Eg option doubles you exit? Yes or No?

2. A break of a pre-defined resistance level?

3. Monitoring the Delta of the Short?

In your trading plan you mention a 80-85% probability of success.

How do you define these values?

Regards
Sergio

Jeff

Sergio,

First, I set alerts – usually about 2% off of my short option strike or a pre-defined resistance/support level. When I am alerted, it’s decision time and I do 1 of 3 things:
1) If I have held the combo long enough, it may already be profitable so I will just close the trade. Theta is our friend.
2) If the stock is making a very strong move against me, I like to buy back the short option and let the long option run for a while. This is a favorite of mine and can result if a larger profit than originally planned.
3) If I think the stock is just making a head fake and 1 & 2 won’t give me a profit, I wait.
Never, ever let a spread expire ITM!

Probability of an option spread is available at optionsXpress and thinkorswim’s trading platforms.

- Jeff

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Chris

Jeff,

What made you decide to get into VMW 1 week ahead of their earnings announcement?
Joe Ruvolo

Jeff,
You had mentioned in the yahoo group recently about your buy and sell spreadsheet{free cash flow} could not find it on your site.I very much would like to look at that and thanks a bunch for you conyinued comments and support of the group.
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http://buywrite.wordpress.com Jeff

Joe,

There is a lot of confusion in the group between Jeff Partlow and myself, Jeff W. I think you are referring to Partlow since I have no such sheet. You might find it at his blog http://coveredcallsadvisor.blogspot.com/

Jeff W
http://buywrite.wordpress.com Jeff

Chris – The devil made me do it! Actually you’re not the first to ask. I bought back the Puts today for a 22% gain.

- Jeff

In Play

I will no longer be maintaining this page (duplicating effort). I have to keep this page active since there are links to it.

Please look for open and closed spreads on their respective pages by year. Click on the tabs above. Thank you.

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