Wednesday, November 26, 2014

Rules for rolling deep in the money naked puts

excerpt from fullyinformed.com
  1. If you are deep in the money you should roll out two to three weeks before the options expiry takes place.
  2. If you are deep in the money and the underlying stock pays a dividend you should check the date of dividend and amount being paid. If the amount being paid exceeds the [extrinsic?] value of your naked puts, roll out at least 3 months to avoid being assigned shares.
  3. The deeper in the money you are with your puts, the further out in time you should be. For example for investors holding naked puts at the $35 strike in CLF Stock you should be at the least, sitting in July for July 20 2013 options expiry. At the time of writing this article, CLF has closed the day at $17.53 (Apr 18 2013).

Friday, November 21, 2014

Outlook for Stock Markets November 2014: Time to Get Flat

What's happening in the Stock Markets?

Markets are trending strongly up, but there may be signs of peakiness.

Here are some market breadth charts (stockcharts.com) of the Advance/Decline Ratios for the NYSE and NASDAQ exchanges:


Daily points are forming a peak, and the 10-day moving average may be topping as well.


Monday, November 03, 2014

Stocks in IRAs are not marginable

Stocks in IRAs are not marginable.

My main strategy is selling premium, and holding stock ties up capital that could be securing short puts.

Today I am wondering whether it is better to do "stock substitution": sell the stock, buy a call, sell a put.

I have paper traded long synthetic LEAPS in the past, and found that holding stock was better. But perhaps a little finagling would help:
  • Place a covered order to sell the stock and buy a call (saves $3 in fees)
  • Buy a long-dated call (ex. LEAPS) (minimize time decay)
  • Sell a front-month put (3-12 weeks) (maximize time decay)

Friday, October 31, 2014

Weeklies Expiration 31 10 2014

These are the option positions I am monitoring for the Oct 31 2014 (weeklies) expiration:
Symbol 10/29 closing price Position NotesPlan
CL65.85-1 CL Oct5 $65 CallCL in uptrend, OI small in weekliesroll
EEM41.58-1 EEM Oct5 $40 PutEEM in uptrendlet expire
EWZ41.11-1 EWZ Oct5 $41.5 PutEWZ IV down post electionlet expire
GDX19.64-1 GDX Oct5 $23 PutGDX crateringroll ratio
GDXJ19.64-1 GDXJ Oct5 $23 PutGDX crateringroll ratio
KO40.96-1 KO Oct5 $41 PutKO in uptrendlet expire, sto next series

Friday, October 24, 2014

Weeklies Expiration 24 10 2014

-1 CL (Weeklys) OCT4 $65 CALL
-1 GDXJ (Weeklys) OCT4 $33 PUT
-1 KO (Weeklys) OCT4 $41 PUT
-1 T (Weeklys) OCT4 $35 PUT
-1 WMT (Weeklys) OCT4 $75 PUT

Most of these are near the money, and I hope to roll for credit.

Thursday, October 23, 2014

Review: Selling Volatility Before Earnings (T stock)

In the last few days I have sold puts on CAT and T (sound stocks I would own) trying to exploit increased Implied Volatility in the day or days before Quarterly Earnings announcements.

Both these stocks have weekly options, and I have sold puts with less than a week to expiration.

CAT beat expectations, the stock is up, and I bought in the put for pennies.

T is down 2.5% to $33.67, my short puts are In the Money (bad), and what is most interesting, rolling out is not profitable.

With only one trading day left, the Implied Volatility in the Oct4 $35 put is 21%, while in the following weeks IV ranges from 15% for the Oct5 put down to 12.6% in Dec.

Rolling out 1 or 2 weeks (middle of market -$2, $2) would cost me money after commissions of $6. I could roll out to the Nov monthly for a net of $3, which is paltry for 4 additional weeks of risk. Rolling to December nets me $5!

Theoretically, the IV curve at expiration becomes very narrowly centered at the money (high IV at the $34 strike and low IV at $35 and $36) but for T puts expiring tomorrow IV is 20% all the way up to the $40 strike (T +15% above today's close).

The bid/ask spread is around 20¢ at all strikes and expirations.