The Pessimistic Speculator

PowerShares Emerging Markets Infrastructure Portfolio

2011-04-10T16:09:00.000-07:00

PXR: $55.40
Of the infrastructure ETFs I looked at, the chart for PXR looked the best.
Order:

BUY +100 PXR MKT

Fill:

BOT +100 PXR @55.23

Infrastructure ETFs

2011-04-09T19:50:00.000-07:00

This may be an old story. Still, infrastructure is a slow process, so maybe it's still a good place to invest.

ETF	Market Sector	Last	Mkt Cap	Avg Vol	Expense	Yield	Spread	Options
IGF	Global Infra	37.21	537 M	67,790	0.48%	3.53%	5.49%	NA
GII	Global Infra	43.17	52 M	4,817	0.59%	3.68%	2.65%	NA
PXR	Emerging Mkts Infra	55.40	2310 M	42,031	0.75%	0.83%	2.13%	NA
EMIF	Emerging Mkts Infra	36.91	145 M	25,360	0.75%	2.52%	0.38%	NA
PHO	Water Resources	20.02	1300 M	272,417	0.64%	0.50%	2.24%	< 500
INXX	India Infra	19.77	89 M	54,693	0.85%	--	20.04%	NA
BRXX	Brazil Infra	27.16	87 M	46,968	0.85%	1.24%	0.11%	NA
CHXX	China Infra	22.98	23 M	17,509	0.85%	0.58%	0.74%	NA

Trades March 30 2011

2011-03-29T22:21:00.000-07:00

Long some broad market ETFs:

BUY +100 VEA MKT
BUY +12 VERTICAL VEA 100 SEP 11 35/40 CALL @2.95 LMT GTC
Cost of #1 Order including commissions $3,708.00 + $5.00 = $3,713.00
Cost of #2 Order including commissions $3,540.00 + $45.95 = $3,585.95

BUY +100 SCHB MKT
BUY +20 VERTICAL SCHB 100 NOV 11 30/33 CALL @1.70 LMT GTC
Cost of #1 Order including commissions $3,195.00 + $5.00 = $3,200.00
Cost of #2 Order including commissions $3,400.00 + $69.95 = $3,469.95

Hedge YUM and EWZ:

SELL -1 YUM 100 MAY 11 50 CALL @2.25 LMT GTC
BUY +1 VERTICAL EWZ 100 MAY 11 76/74 PUT @.84 LMT

Index ETF Options 2009

2011-03-18T16:54:00.000-07:00

According to cboe.com, these are the index based options with the highest trading volume:

Cash Settled Index Options

Symbol/Index	Average Daily Volume	Average Premium Per Contract
SPX (S&P 500)	614,562	$2,605
XSP (Mini S&P 500 Index)	3,250	$311
OEX (S&P 100)	35,913	$616
XEO (S&P 100 European Style)	8,853	$754
DJX (Dow Jones Industrial Average)	17,171	$283
NDX (Nasdaq-100 Index)	17,210	$9,355	but median is maybe 5000
MNX (Mini Nasdaq-100 Index)	6,841	$775
RUT (Russell 2000 Index)	47,798	$1,237
VIX (CBOE Volatility Index)	132,255	$157

Index ETF Options

ETF (symbol)	Average Daily Volume	Average Premium Per Contract
SPDR® S&P® 500 ETF (SPY)	343,151	$223
iShares Russell 2000 Index Fund (IWM)	114,216	$220
DIAMONDS (DIA)	18,675	$252
PowerShares QQQ™ (QQQQ)	182,533	$109

Total CBOE Volume for FLEX, LEAPS and Quarterly Options

Symbol	FLEX	LEAPS	Quarterly
DIA		111,988	4,706,166
IWM		1,112,042	28,782,379
QQQQ		767,125	45,998,373
SPY	141,428	4,910,050	86,473,960
XLE		133,320	3,271,278

Other Symbols with Significant Volume

Name	Symbol	2009 Volume
Market Vectors Gold Miners	(NYSE:GDX)	1,653,476
iShares NASDAQ Biotechnology Index	(NASDAQ:IBB)	258,245
iShares Dow Jones US Real Estate	(NYSE:IYR)	1,862,999
Oil Service HOLDRs	(NYSE:OIH)	1,893,159
Retail HOLDRs	(NYSE:RTH)	463,957
Semiconductor HOLDRs	(NYSE:SMH)	1,184,018
SPDR S&P Homebuilders	(NYSE:XHB)	1,124,363
Materials SPDR	(NYSE:XLB)	605,610
Energy Select Sector SPDR	(NYSE:XLE)	3,271,278
Financial Select Sector SPDR	(NYSE:XLF)	17,557,491
Industrial SPDR	(NYSE:XLI)	998,619
Technology SPDR	(NYSE:XLK)	406,255
Consumer Staples Select Sect. SPDR	(NYSE:XLP)	220,549
Utilities SPDR	(NYSE:XLU)	531,793
Health Care SPDR	(NYSE:XLV)	218,367
Consumer Discretionary SPDR	(NYSE:XLY)	886,230
SPDR S&P Metals and Mining	(NYSE:XME)	216,391
SPDR S&P Retail	(NYSE:XRT)	1,567,456
SPDR S&P MidCap 400	(NYSE:MDY)	234,480
Rydex S&P Equal Weight	(NYSE:RSP)	207,224
iShares MSCI Emerging Markets Indx	(NYSE:EEM)	11,698,137
iShares MSCI EAFE Index Fund	(NYSE:EFA)	1,587,223
iShares MSCI Japan Index	(NYSE:EWJ)	711,050
iShares MSCI Taiwan Index	(NYSE:EWT)	256,573
iShares MSCI Mexico Inv. Mt. Idx.	(NYSE:EWW)	433,434
iShares MSCI South Korea Index Fund	(NYSE:EWY)	226,516
iShares MSCI Brazil Index	(NYSE:EWZ)	6,082,407
iShares FTSE/Xinhua China 25 Index	(NYSE:FXI)	2,837,161
Market Vector Russia ETF Trust	(NYSE:RSX)	222,428

Commodity Pools

Name	Symbol	2009 Volume
PowerShares DB Agriculture Fund	(NYSE:DBA)	408,160
Powershares DB Base Metals Fund	(NYSE:DBB)	17,641
PowerShares DB Commodity Index Tracking Fund	(NYSE:DBC)	133,184
PowerShares DB Energy Fund	(NYSE:DBE)	5,388
PowerShares DB Oil Fund	(NYSE:DBO)	13,020
PowerShares DB Precious Metals Fd	(NYSE:DBP)	3,382
PowerShares DB Silver Fund	(NYSE:DBS)	3,065
PowerShares DB Gold Fund	(NYSE:DGL)	3,902
SPDR Gold Trust	(NYSE:GLD)	12,702,941
iShares S&P GSCI Commodity-Indexed	(NYSE:GSG)	15,971
iShares Gold Trust	(NYSE:IAU)	17,806
ProShares UltraShort DJ-UBS Crude Oi ETF	(NYSE:SCO)	55,056
iShares Silver Trust	(NYSE:SLV)	1,817,649
United States Gasoline Fund, LP	(NYSE:UGA)	4,708
United States Natural Gas Fund, LP	(NYSE:UNG)	6,085,674
United States 12 Month Oil Fund, LP	(NYSE:USL)	11,190
United States Oil Fund LP	(NYSE:USO)	3,717,748

Short strangles EWJ

2011-03-15T12:56:00.000-07:00

iShares MSCI Japan Index ETF (EWJ, around $10)
52 week range is 9.15 - 11.63 , but IV is high now(?) so selling strangles looks like:

SELL -10 STRANGLE EWJ 100 JUN 11 9/11 CALL/PUT @2.62 LMT GTC
Break Even Stock Prices 8.38 / 11.62
Max Profit $620.00
Max Loss Infinite
Cost of Trade including commissions credit $2,620.00 - $39.95 = credit $2,580.05
Buying Power Effect ($2,056.00)

And here's the April spread:

SELL -10 STRANGLE EWJ 100 APR 11 9/11 CALL/PUT @2.34 LMT GTC
Break Even Stock Prices 8.66 / 11.34
Max Profit $340.00
Max Loss Infinite
Cost of Trade including commissions credit $2,340.00 - $39.95 = credit $2,300.05
Buying Power Effect ($2,027.00)

And here with OTM options:

SELL -10 STRANGLE EWJ 100 APR 11 11/9 CALL/PUT @.35 LMT GTC
Break Even Stock Prices 8.65 / 11.35
Max Profit $350.00
Max Loss Infinite
Cost of Trade including commissions credit $350.00 - $39.95 = credit $310.05
Buying Power Effect ($1,041.00)

OK, so actually selling OTM has comparable max profit and break-evens, and requires less margin. (Though actually half the margin is provided by premium received.) Plus, the ITM options have huge gamma. For 20 strangles:
Delta is 21.9441 - fairly neutral
Gamma is -813.54109 - this looks like a VERY big number. I think this means that this gains delta rapidly as EWJ falls (and the short Puts go farther ITM), and loses delta rapidly as EWJ rises (as the short Calls go more ITM and the whole position goes negative delta. So before expiration, this works OK with EWJ right between the strikes, but it's on a knife-edge: as EWJ moves, delta really moves against me.
Theta is 18.97265 I like this: gains from time value are big relative to delta.
Vega is -51.76599 - I expect IV to fall, so a negative number is good.

Worst over for Japan?

2011-03-15T11:49:00.000-07:00

Catch a bounce on Japan after the big quake:
iShares MSCI Japan Index Fund (EWJ) around 9.90
(would have been better this morning; it opened around 9.25, then rose)

#1 Order Description  BUY +10 EWJ 100 APR 11 9 CALL @1.20 LMT GTC
#2 Order Description  BUY +10 EWJ 100 APR 11 10 CALL @.51 LMT GTC
#3 Order Description  BUY +10 EWJ 100 JUN 11 9 CALL @1.32 LMT GTC
#4 Order Description  BUY +10 EWJ 100 JUN 11 10 CALL @.75 LMT GTC

BOT +10 EWJ 100 APR 11 9 CALL @1.19
BOT +10 EWJ 100 APR 11 10 CALL @.50
BOT +10 EWJ 100 JUN 11 9 CALL @1.32
BOT +10 EWJ 100 JUN 11 10 CALL @.73

Cost of #1 Order including commissions $1,190.00 + $24.95 = $1,214.95
Cost of #2 Order including commissions $500.00 + $24.95 = $524.95
Cost of #3 Order including commissions $1,320.00 + $24.95 = $1,344.95
Cost of #4 Order including commissions $730.00 + $24.95 = $754.95
Cost of Trade including commissions $3,640.00 + $99.80 = $3,739.80

Update 3/16

Hey, why not go longer with short puts?
With EWJ around 9.60:
SOLD -5 EWJ 100 JUN 11 9 PUT @.50
SOLD -5 EWJ 100 JUN 11 10 PUT @.91

Buy AMZN for 67.50?

2011-03-09T17:54:00.000-08:00

Amazon (AMZN) closed today at 169.

I am looking at buying LEAPS, and in particular, LEAPS verticals:

BUY +1 VERTICAL AMZN 100 JAN 13 180/220 CALL @13.50 LMT GTC
Break Even Stock Prices 193.50
Max Profit $2,650.00
Max Loss $1,350.00 (not including possible dividend risk)
Cost of Trade including commissions $1,350.00 + $5.90 = $1,355.90

The net delta of the position today is .20 (like owning 20 shares of AMZN), so in a way my per-share cost is $1,350.00 divided by 20 = 67.50. And ideally in late 2012 AMZN is above 193 and the spread is profitable.

Update March 10, 2011

In the morning this filled @ 12.65, and the net delta today is 18. So it's like getting AMZN for 1265 + 6 commission = 1271 / 18 = 70.61

Futures paper trading: Light Sweet Crude Oil Futures

2011-03-09T17:02:00.000-08:00

In this marketwatch commentary, An investor’s guide to the Middle East, James Anderson points out that the United States Oil ETF USO has to roll over about 19,000 oil future contracts that expire in late March. The implication is that they might fall in price.

I could short the March contract, but that exposes me to unlimited risk if oil spikes in the next 8 days. So let's buy a Put:

BUY +1 /CLJ1 1/1000 MAR 11 104 PUT @2.84 LMT GTC
Break Even 101.16
Cost of Trade including commissions $2,840.00 + $3.00 = $2,843.00

Notes:

Options on Futures seem to have different multipliers: instead of 100 x 2.84, it's 1,000 x 2.84
The contract traded Wednesday around 104.70, which means my break-even is 101.16. That seems like a biggish move; maybe I should buy an in-the-money put (despite the expense).

BUY +1 /CLJ1 1/1000 MAR 11 107 PUT @4.00 LMT GTC
Break Even 103.00
Cost of Trade including commissions $4,000.00 + $3.00 = $4,003.00

placed after hours; we'll check back tomorrow...

Update March 10, 2011

Another unfamiliar thing about futures options: it actually filled at 8:30 p.m. Central. Stock options only trade from 9 - 4 Eastern.
It filled at $1.99 ($1,993 outlay) and after hours today is trading around 4.50. So that's a 125% profit in 24 hours.
Paper trading sometimes gets unrealistic prices, but as far as I can tell, the trading range today really was between 2.01 and 4.50, so it seems believable that it could have traded at 1.99 last night.

Update March 11, 2011

Rather than just sell out, I sold a 103 put @ 3.26, collecting $3,257.
Now I am up 1,264 in cash, and I have a vertical that's worth $1,000 if the March contract is below 103 at expiration.

Update March 15, 2011

Well, I would have been MUCH better off just long the 104 put. Today the March futures are at 97.71 and the 104 put is 6.60 (4.60 profit). Instead, I closed the 104/103 vertical for .98 so my profit is 1,264 + 980 - 6 commission = $2,238 (112% in one week, but could have made $4,604 or 230% by leaving the riskier long put alone.)

CNBC Options Action Trades for 2011.02.04

2011-02-07T08:29:00.000-08:00

Dan's (AKAM) Trade
47.88
Buy the Feb'10 46/50 strangle
Tech stocks have moved 12% on announcements, the market implies a 9% move (how is this calculated?)
Dan said he is really bearish on AKAM, but placed the strangle. My imagination is fired with the idea that AKAM might move both much higher and much lower making both legs potentially profitable.
Monday a.m., with AKAM at 47.71, placed these orders:

#1 BUY +1 STRANGLE AKAM 100 FEB 11 50/46 CALL/PUT @2.85 LMT GTC
#2 BUY +1 STRANGLE AKAM 100 FEB 11 50/46 CALL/PUT @2.75 LMT GTC
#3 BUY +1 STRANGLE AKAM 100 FEB 11 50/46 CALL/PUT @2.65 LMT GTC
#4 BUY +1 STRANGLE AKAM 100 FEB 11 50/46 CALL/PUT @2.55 LMT GTC

The market is 2.90 for the strangle, so these might not happen.

Update March 09 2011:

with AKAM trading between 47 and 49,
The 2.85 filled on 2/7/2011
The 2.75 filled on 2/8/2011
The 2.65 filled on 2/9/2011
On 2/10/2011 gapped lower, trading between 40 and 42. If I had been keeping track, I would presumably have closed the strangles for around $5.00 ($200 - $250 profit each, maybe $650 or $700 total profit on an outlay of less than $850) and canceled the remaining GTC order. But I wasn't paying attention, so:
The 2.55 filled on 2/16/2011
And on expiration Friday, with AKAM trading around 41.50, all my Puts were exercised for me, leaving me short 400 shares of AKAM at $46/share ($18,400 cash). Since then, AKAM has drifted down to 36.50, so here's an example of doing nothing being the best policy. Today (after hours) I am placing a Market order to buy back the shares.

Update March 10 2011:

Bought back 400 AKAM @36.11, or $14,444.00 + 6.00 commissions = 14,450. So the whole series works out like:
$1,103.60 price of 4 AKAM strangles (1080 + 23.60 commissions)
$18,385.00 net proceeds of Put excercise (18,400 - 15 commission)
$14,450.00 to cover short shares
-----------
$2,831.40 net

Options Action Web Extra 04 Feb 2011
Scott sees Corning Incorporated (GLW, 23.37 Fri close) as a "value play" and buys an out-of-the-money LEAPS call, specifically

BUY +1 GLW 100 JAN '13 35 CALL @.80 LMT GTC
Break Even Stock Prices 35.80

My thoughts:

GLW would have to move 50% to hit break-even 35.80
on the other hand, it's a cheap way to get leverage (~.20 delta = 20 shares @ $4/share)
If IV rises, this could profit
Why not sell the 20/15 put spread for 1.40 or 1.50 and buy the 30 call for 1.70 (~.67 delta = 67 shares @ .25/share plus $500 margin ~= 7.80/share)
Or, put this on a watch list and enter the position on a market pull-back

Update March 15 2011

GLW is now trading around 21, so I placed these orders:

#1 Order Description  SELL -5 VERTICAL GLW 100 JAN 13 20/17.5 PUT @1.09 LMT GTC
#2 Order Description  BUY +5 GLW 100 JAN 13 30 CALL @1.41 LMT GTC
#3 Order Description  SELL -5 VERTICAL GLW 100 JAN 13 20/17.5 PUT @1.19 LMT GTC
#4 Order Description  BUY +5 GLW 100 JAN 13 30 CALL @1.31 LMT GTC
3/16/2011 SOLD -5 VERTICAL GLW 100 JAN 13 20/17.5 PUT @1.12
3/15/2011 BOT +5 GLW 100 JAN 13 30 CALL @1.34
3/16/2011 BOT +5 GLW 100 JAN 13 30 CALL @1.31
Cost of #1 Order including commissions credit $560.00 - $24.95 = credit $535.05
Cost of #2 Order including commissions $670.00 + $14.75 = $684.75
Cost of #3 Order including commissions credit $595.00 - $24.95 = credit $570.05
Cost of #4 Order including commissions $655.00 + $14.75 = $669.75
Cost of Trade including commissions $1,345.00 + $29.50 = $1,374.50

Ratio spread profits despite adverse move by underlying.

2011-01-14T23:27:00.000-08:00

On November 16, 2010 Andrew Wilkinson pointed out a bearish ratio put spread on iShares MSCI Brazil Index Fund (EWZ).

With EWZ down 3.25% at $74.41, traders bought +5,000/-10,000 EWZ March 2011 +$74/-$65 Put ratio spread @ $6.30 - 2 * 2.95 = $0.40 debit.

Nominally, this is a bearish position, with profits at expiration beginning with EWZ down at 73.60, and a max profit of $9.60 if EWZ is right at $65 on expiration Friday. If EWZ is above 74 at expiration, the traders lose the $0.40 net debit they paid for the spread. If EWZ is below 65 losses accumulate rapidly.

Today (Jan 14, 2011, halfway to expiration) that EWZ +74/-65 1x2 Put ratio spread (cost: 0.40) could be sold for over $1.00 (1.09 mid) after EWZ moved from 74.41 on 11/16/2010 to close at 77.40 today.

Why should a bear spread make money when the underlying moves up? Maybe the "smile"?
Today the IV is 26% ATM, 31% 9 points OTM.

According to the options calculator at cboe.com,
on 11/16/2010 IV should have been 38% for the 74 put, 41% for the 65 puts.
At those rates, here are the greeks:
Delta: -.44 + 2 * .24 = +.04 net (gains .04 as underlying gains 1.00)
Gamma: +.024 - 2 * .017 = -.01 net (rate of gain falls .01 as underlying gains 1.00)
Theta: -.18 + 2 * .154 = +.13 net (gains .13 each day that passes)
Vega: +.17 - 2 * .14 = -.11 net (gains .11 if IV falls 1%)
So, with EWZ rising, there's a small (and diminishing) net positive Delta. Also, with IV falling there's a small gain from Vega.
But the Theta is the real win, whether EWZ rises or falls.

I think the CBOE calculator number for Theta looks too big. According to thinkorswim.com web trading, it looks like the spread might have +.01 theta. This correlates with reality: it's been 60 days and .60 profit.

2011-01-12T15:36:00.001-08:00

I'm getting interested in position trading again.

Some options strategies:

Frederic Ruffy watches "movers:

AMD (Last : 8.36)

selling Feb'11 8 AMD calls when the market was 78 to 80 cents
after the close : 67 to 69 cents ; Implied Vol: ~45%

Cabot Oil and Gas (COG) Last: 38.34

"one strategist sells the Feb 37 straddle at $3.52, 1980X. Looks opening and possibly a bet that shares will drift towards $37 by the February expiration. Implied volatility is easing 5.5 percent to 35, compared to a 52-week high and low of 63 and 31."
So, it could be a volatility play or a directional play. How to play in an IRA? (Can't sell naked options.)

Long butterflies: Calls
BUY +1 BUTTERFLY COG 100 FEB 11 36/37/38 CALL @.00 LMT GTC
Break Even Stock Prices 36.00 / 38.00
Max Profit $100.00 - 11.80 comm. = 88.20
Max Loss $0.00 + $11.80 = $11.80 (not including possible dividend risk)
Cost of Trade including commissions $0.00 + $11.80 = $11.80
Long butterflies: Puts
BUY +1 BUTTERFLY COG 100 FEB 11 38/37/36 PUT @.20 LMT GTC
Break Even Stock Prices 36.20 / 37.80
Max Profit $80.00 - 11.80 comm. = 68.20
Max Loss $20.00 + 11.80 = 31.80 (not including possible dividend risk)
Cost of Trade including commissions $20.00 + $11.80 = $31.80
- The market is saying that COG above 37 is more likely (or maybe it's just because COG is at 38.34) Maybe it would be good to sell in-the-money calls now and sell puts if COG falls towards 73. The problem there is that my risk is all to the upside.
Strangle/Straddle swap (Double Diagonal):
BUY +1 STRANGLE COG 100 FEB 11 38/36 CALL/PUT @2.80 LMT GTC
SELL -1 STRADDLE COG 100 FEB 11 37 CALL/PUT @3.50 LMT GTC
Max Profit $70.00 - 11.80 comm. = 58.20
Max Loss $30.00 + 11.80 = 24.80

And Andrew Wilkinson observes:

Alaska Air Group, Inc. (ALK) Last: 62.21

"It looks like one trader enacted a credit call spread, selling roughly 1,500 calls at the February $65 strike for an average premium of $1.77 each, and buying about the same number of calls at the higher February $70 strike at an average premium of $0.67 apiece. The trader receives a net credit of $1.10 per contract on the spread and keeps the full amount of premium as long as Alaska Air’s shares fail to rally above $65.00 ahead of February expiration. Initiating the sale of the call spread indicates that the bearish investor expects the February $65 strike calls to expire worthless at expiration next month. The parameters of the transaction imply that the trader could start to lose money if the stock rallies 6.8% to trade above the average breakeven price of $66.10. The long stance in the higher strike call options caps maximum potential losses faced by the bearish player to $3.90 per contract. Shares in ALK would need to increase 13.1% over the current price of $61.87 to trade above $70.00 in order for the trader to absorb maximum possible losses on the position."
SELL -1 VERTICAL ALK 100 FEB 11 65/70 CALL @1.15 LMT GTC
Break Even Stock Prices 66.15
Max Profit $115.00 - 5.90 = 109.10
Max Loss $385.00 + 5.90 + 5.90 to close = $396.80 (not including possible dividend risk)
Cost of Trade including commissions credit $115.00 - $5.90 = credit $109.10
Implied Volatility is around 35% in the calls.

Live Nation Entertainment, Inc. (LYV)

"A three-legged options transaction on the producer of live music concerts indicates one bullish investor expects shares in Live Nation Entertainment to rally significantly ahead of July expiration. Live Nation’s shares are up 0.20% this afternoon to stand at $11.28 as of 1:45pm in New York. The firm is slated to report earnings for the fourth quarter after the market closes on February 24, 2011. The optimistic options trader picked up 2,000 calls at the July $12.5 strike for a premium of $1.00 each, sold the same number of calls at the higher July $15 strike at a premium of $0.25 per contract, and sold 2,000 puts at the July $10 strike at a premium of $0.80 apiece. The investor responsible for the option combination play pockets a net credit of $0.05 per contract on the transaction, and keeps the credit as long as LYV shares exceed $10.00 through expiration day. Additional profits start to accumulate if the concert producer’s shares rally 10.8% over the current price of $11.28 to surpass the effective breakeven price of $12.50 by expiration day in July. Maximum potential profits of $2.55 per contract, which includes the $0.05 credit on the trade, pad the investor’s wallet in the event that Live Nation Entertainment’s shares surge 33.0% to exceed $15.00 before the July contracts expire. Shares in LYV last traded above $15.00 back in the early days of May 2010."
How it looks after hours: I can sell a put vertical (instead of a naked put) for the same as the cost of the call vertical. Total cost for the position is just commissions (though thinkorswim's flat 2.95 per contract really adds up in these 1-strike spreads. Scottrade's $7 per ticket plus $1.25 per contract would be better in this case : if I do the two spreads five times (20 contracts) thinkorswim commissions are $59.00 and Scottrade's are 7 + (20 * 1.25) = $32. Even better is TradeKing's $4.95 + .65 per contract, or 17.95 for 20 contracts. And better still is interactivebrokers.com, which charges a flat 70 cents per contract, or $14 in this example.
BUY +1 VERTICAL LYV 100 JUL 11 12.5/15 CALL @.58 LMT GTC
SELL -1 VERTICAL LYV 100 JUL 11 10/7.5 PUT @.58 LMT GTC (selling a vertical instead of a naked put saves $1,000 margin in an IRA)
Max Profit $250.00 - 11.80 comm. = 238.20
Max Loss $250.00 + 11.80 comm. = 261.80 (not including possible dividend risk)

Asset Allocation Notes:

2011-01-12T15:36:00.000-08:00

According to one Sector Rotation idea,

it might be time to move into Technology and Services:

Select Software and Computer Services Portfolio (FSCSX)

2010-08-04T09:54:00.000-07:00

Belatedly, I covered my synthetic shorts with:

EEM : 42.20
IWM : 66.09
SPY : 112.63

Lesson learned:
Never,
never,
never
open a position without knowing when to get out.

(I was certain I knew which ways the markets would go, and didn't plan for being wrong!)

Trailing Stop on Amazon vertical

2010-07-23T10:13:00.000-07:00

AMZN opened down 12% or so on disappointing earnings (revenues were on target but costs were up). My put vertical was probably profitable at the open, but by the time I checked markets, it was 1.15 in the red.

Not sure what the market in AMZN will do next, I am trying a trailing stop order of .25. At around 1 p.m. New York time, that's 4.54 (I paid 5.85). Maybe there will be late selling today and tomorrow and my trigger price will rise.

Update

No, AMZN pretty much stayed high and went higher, and the stop triggered five minutes after I placed it.

Hedge the dollar with ETFs

2010-07-11T18:23:00.001-07:00

Not now, not soon, but someday I imagine the US dollar may lose value.

How to hedge?

1. Currency ETFs
FXF : CurrencyShares Swiss Franc Trust
FXC : CurrencyShares Canadian Dollar Trust
FXS : CurrencyShares Swedish Krona Trust

2. Dollar Futures ETFs
UDN : PowerShares DB US Dollar Index Bearish

3. Broad Commodity Index ETFs
DBC : PowerShares DB Commodity Index
DJP : iPath DJ-UBS Commodity Index
GSG : iShares S&P GSCI Commodity Index

Rail and Economic Data

2010-06-29T17:18:00.000-07:00

Weekly Rail Traffic Summary (North America): Weekly Rail Traffic Summary from the Association of American Railroads
Rail Time Indicator Report: a monthly report from the Association of American Railroads, combines rail traffic data with more than 15 key economic indicators in a non-technical snapshot of the U.S. economy.
Monthly Rail Traffic Video: AAR Economist Shannon Stare highlights trends from the Rail Time Indicators Report in AAR's Monthly Traffic Video.

rolling down LEAPS

2010-06-24T16:54:00.000-07:00

I bought IWM LEAPS Calls, and IWM is down. Is it a good idea to roll my calls down?

IWM:
paid $15 per delta for a Jan'12 70 Call
roll to 69 : + .01 delta : cost 0.41 + .06 = 0.47 : cost / delta = 47
roll to 68 : + .03 delta : cost 0.87 + .06 = 0.93 : cost / delta = 31
roll to 67 : + .05 delta : cost 1.30 + .06 = 1.36 : cost / delta = 27
roll to 66 : + .06 delta : cost 1.78 + .06 = 1.84 : cost / delta = 31
roll to 65 : + .08 delta : cost 2.24 + .06 = 2.30 : cost / delta = 29

or, looked at another way,

70 Call @ 7.93 = IWM @ 77.93
69 roll @ 0.47 = IWM @ 77.40
68 roll @ 0.93 = IWM @ 77.40
67 roll @ 1.36 = IWM @ 76.29
66 roll @ 1.84 = IWM @ 75.77
65 roll @ 2.30 = IWM @ 75.23

Put-selling in XLE

2010-06-20T18:02:00.000-07:00

It's probably late for this, but the speculation in BP, RIG (TransOcean Inc), may have driven up options prices on XLE, the Energy Select Sector SPDR. (In fact, late May or early June, when it was at a low of $50 or $51, would probably have been better.) Anyhoo,

With XLE at 55.61 (Friday close), selling a near-the money 55 put and buying a protective 54 brings the following premium:

Jul'10 (4 wks) $34 - 6 comm. = $28
Sep'10 (12 wk) $46 - 6 comm. = $40
Dec'10 (26 wk) $37 - 6 comm. = $31
there's no 54 strike in Jan'11 or Jan'12, so a -55/+50 spread brings:
Jan'11 (31 wk) $179 - 6 comm. = $173 = 34%
Jan'12 (83 wk) $212 - 6 comm. = $206 = 41%

Why not just sell puts directly on BP where you can get a 50% premium?

Simple: single-stock risk. BP could go to $0; XLE is extremely unlikely to. This also implies that rolling for profit is less insane in an index ETF like XLE than it is in a single stock like BP.

Rolling for profit means if XLE goes to 50, you put in an unbalanced butterfly order like:

Buy (back) 1 XLE Jan'12 55 Put
Sell -3 XLE Jan'12 50 Put
Buy 2 XLE Jan'12 45 Put

for maybe $150 net premium.

Before:
1 x -55/+50 put spread; collect $200 premium, net $300 at risk.

After:
2 x -50/+45 put spread; collect $350 premium, net $650 at risk.

If XLE goes to 45, you put in an unbalanced butterfly order like:

Buy (back) 2 XLE Jan'12 50 Put
Sell -5 XLE Jan'12 45 Put
Buy 3 XLE Jan'12 40 Put

for maybe $80 net premium.

Before:
2 x -50/+45 put spread; collect $350 premium, net $650 at risk.

After:
3 x -45/+40 put spread; collect $430 premium, net $1,070 at risk.

And so on. Eventually either XLE recovers and you can close the spreads and keep most of the premium, or you run out of margin and have to start taking losses. But at this rate, XLE is down 30% and you only have a margin requirement of $1,070 in a cash account or maybe half that in a margin account. Note, though, that every time, you are taking on another $500 spread, and collecting less and less premium against it. If XLE went all the way to 10, you might have 12 spreads and $6,000 risk minus maybe $1,000 or so premium.

how to get long leveraged

2010-06-20T17:08:00.000-07:00

iShares Trust MSCI Emerging Markets Index (EEM) : 39.92
(one of the stock index ETFs with highest-volume options)
Two long strategies:

Buy +1 EEM Jan'12 45 Call @3.95
Buy +1 Vertical EEM Jan'12 45/55 Call @2.59

If I buy the Call vertical and EEM goes over 55, I might be tempted to kick myself. But how high would EEM have to go to give me the same percentage profit on the naked call?

Let's say I can close the spread for $950, - the $260 purchase and $12 in commissions, that's a net of 678, or 250% profit.

250% of my $395 + $6 cost on the naked call is $1,000, which means the 45 call would have to be 9 or 10 in the money which means EEM at 55: exactly the same! And with unlimited upside above 55.

So if I'm all-out bullish I should just buy the OTM call.

And then the experts all advise buying deep in the money options like

Buy +1 EEM Jan'12 25 Call @16.10

Now if EEM goes to 55, my return is maybe

$2,975 - $1,610 - $6 = $1,395, or 84%, still good.

And better than buying say 40 EEM for $1,600 and selling for $2,200 for a $600 profit, or 37.5% return.

Maybe I can invest $2,000 in the 25 call and the 45 call and hope for the best...

Look at SPY (one of the highest-volume options)

UPDATE: I think buying the longest-dated LEAPS is a better strategy. When the next long LEAPS opens, you can roll out for about 25% more.

Here are after-the-close prices etc:

Call	Mkt	Delta	$/delta	Extr	Op Int	IV	Prob Touching
Dec'11 70	42.93	0.88	48.78	1.20	4,584	36.02%	37.61%
Dec'11 75	38.56	0.86	44.84	1.83	1,362	34.11%	42.73%
Dec'11 80	34.31	0.84	40.84	2.58	5,134	32.42%	48.66%
Dec'11 85	30.23	0.81	37.31	3.50	1,834	30.98%	55.46%
Dec'11 90	26.31	0.77	34.17	4.58	1,995	29.60%	62.84%
Dec'11 95	22.60	0.72	31.38	5.87	4,531	28.30%	70.78%
Dec'11 100	19.12	0.67	28.53	7.39	5,694	27.06%	79.19%
Dec'11 105	15.82	0.61	25.93	9.09	5,304	25.74%	87.88%
Dec'11 110	12.83	0.55	23.32	11.10	15,637	24.51%	96.87%
Dec'11 115	10.13	0.48	21.10	10.13	7,747	23.30%	89.74%
Dec'11 120	7.78	0.41	18.98	7.78	8,439	22.18%	74.49%
Dec'11 125	5.76	0.34	16.94	5.76	6,916	21.07%	59.98%
Dec'11 130	4.10	0.27	15.17	4.10	2,986	20.01%	46.56%
Dec'11 135	2.78	0.21	13.24	2.78	14,228	19.01%	34.62%
Dec'11 140	1.81	0.15	12.03	1.81	7,016	18.12%	24.59%
Dec'11 145	1.11	0.11	10.05	1.11	3,383	17.26%	16.49%
Dec'11 150	0.64	0.07	9.07	0.64	8,908	16.47%	10.38%
Dec'11 155	0.34	0.04	8.50	0.34	5,772	15.75%	6.13%

Asset allocation funds

2010-06-16T21:25:00.000-07:00

ETF Asset Allocation for Smart 401Ks

Memorial Day Weekend Homework

2010-05-28T08:15:00.000-07:00

My Plan IQ
5 Ways to Slash Your ETF Expenses

Flowserve credit put vertical

2010-05-07T08:47:00.000-07:00

Options implied volatility is very high today, so selling seems like a good idea. Yesterday there was large bullish put-selling on Flowserve, FLS, and today the deal looks even better.

FLS: 106.20
SOLD -3 VERTICAL FLS 100 MAY 10 105/100 PUT @1.65

With two weeks to go, this trade breaks even if FLS is 106.65 on 5/21, loses up to 335 x 3 = 1,005 if FLS is at or below 100, and makes 165 x 3 = 495 if FLS is 105 or higher. It ties up 1,000 for two weeks.

Story stock: BP (British Petroleum)

2010-04-30T12:52:00.000-07:00

After a big spill in the Gulf of Mexico, BP is off over 15% to 52.

VERTICAL
Sell -1 BP 100 JAN 11 55 Put $5.07
Buy +1 BP 100 JAN 11 45 Put

Buy +1 BP 100 JAN 11 55 Call $2.90

Some trade confirmations

2010-04-13T18:24:00.000-07:00

Trade Date	Settlement Date	Symbol	Description	Net Amount
1/8/2010	1/13/2010 12:00:00 AM	DCGNQ	SOLD 1000 DCGNQ @ $0.08	$72.59
11/6/2008	11/12/2008 12:00:00 AM	DCGN	BOUGHT 900 DCGN @ $0.30	$278.35
11/6/2008	11/12/2008 12:00:00 AM	DCGN	BOUGHT 100 DCGN @ $0.30	$30.15
12/31/2007	1/4/2008 12:00:00 AM	DPHIQ	SOLD 500 DPHIQ @ $0.10	$42.74
5/17/2007	5/22/2007 12:00:00 AM	DPHIQ	SOLD 500 DPHIQ @ $1.95	$967.98
10/24/2005	10/27/2005 12:00:00 AM	DPHIQ	BOUGHT 1000 DPHIQ @ $0.392	$400.96

High priced does not equal expensive!

2010-04-09T09:45:00.000-07:00

Here's an illustration of the folly of looking at a stock's price to judge its value:

Baidu (BIDU) was 414, so I only bought one share. Today that share is up over 50%, to 621.

Story Stock: Massey Energy Co. (MEE)

2010-04-06T08:10:00.000-07:00

BUY +2 COMBO MEE 100 OCT 10 55/50 CALL/PUT @-2.55 LMT GTC
BUY +1 COMBO MEE 100 JUL 10 55/50 CALL/PUT @-2.55 LMT GTC
BUY +1 COMBO MEE 100 MAY 10 55/50 CALL/PUT @-2.32 LMT GTC
Break Even Stock Prices : 47.51
Max Profit Infinite
Max Loss $4,751.00

Best strikes for a put credit spread:
Put Vertical MEE OCT'10

sell 50 buy :	credit	risk	net credit (6 comm)	# to risk ~ 1000	total net	total risk	ratio
49	50	50	44	20	880	1000	88%
48	115	85	109	12	1308	1020	128%
47	155	145	149	7	1043	1015	103%
46	205	195	199	5	995	975	102%
45	240	260	234	4	936	1040	90%

Let's try 5 size (prices have moved a bit):
SELL -5 VERTICAL MEE 100 OCT 10 50/48 PUT @1.10 LMT GTC
Break Even Stock Prices 48.90
Max Profit $550.00
Max Loss $450.00 (not including possible dividend risk)
Cost of Trade including commissions credit $550.00 - $24.95 = credit $525.05
Buying Power Effect ($450.00)

Synthetic long in YUM

2010-03-29T22:01:00.000-07:00

On Jan 26, with YUM around 34.30, I took a LEAPS synthetic long, selling a Jan'12 35 Put for $560 and buying a Jan'12 30 Call for $650.

Absurdly, I did this in an IRA, which means the short put ties up the full $3,500 in collateral, so I might just as well have bought the stock - in fact, buying the stock would have consumed $3,450 (say) while the synthetic consumes $3,590 when you add the premium paid to the collateral.

So, can I generate income by selling front-month calls (calendar spread against LEAP)?

Let's try:
YUM today: 38.18
Sell -1 YUM 100 May'10 40 Call @.50 LMT GTC
(not real good; collecting 1.5% vs. suggested 3% guideline,
allows only 5% move up vs. suggested 10%.)
BUT, it's maybe a directional bet, since I expect a correction Any Day Now.

It might also make sense to buy back the put (at a profit of about $190) and free up the collateral:

Buy +1 YUM 100 Jan 12 35 Put @3.70 LMT GTC

CNBC "Options Action" Friday March 26, 2010

2010-03-29T21:38:00.000-07:00

Market daily moves < 0.5%
options prices imply more stock market volatility going forward

Q1 earnings season beginning
Leaders making multi-year highs

Have-mores:
HP : + 15%
AMZN: +19%
GS : + 18%

mere Haves:
IBM : +7%
GOOG: +8%
MS : +12%

VIX < 18 : options are "cheap"
Stock owners who want to manage risk using long options should use spreads because implied volatility (time value) is "crushed" when earnings are announced. (Use spreads to sell premium as well as buy it.)

BA reports 4/16
IBM reports 4/19
HP reports 5/18

1. Dan's Trade
IBM : $129
risk reversal to speculate on big moves around earnings announcement:

sell May'10 120 Put @ $1.00
buy May'10 135 Call @ 1.15 net cost: $15 + commissions

Must be willing to buy IBM at 120 (-7%)
Makes gains if IBM 135.15 or higher (+4%)

2. Mike's Monsanto trade
MON : $68 (-15% YTD, earnings down more than price)
[but that means only that the market accurately discounted the fall in earnings before it was announced?]
Technical analysis suggests MON may break through support near 70.
Reports in early April

Bear put spread

buy May'10 70 put @ 2.45
sell May10 60 put @ $.90 net cost: $155 + commissions

Pure bearish speculation, not managing risk in a stock position.
Limited risk $155, limited gain 1,000 - 155 = 845. (1:5 ratio!)

3. Research in Motion tends to move sharply around earnings
Avg. move last 4 quarters: +/-13.5%
Implied move this quarter: +/- 7.5%
For holders of RIMM: protect recent gains with a put spread collar

Thesis / strategy:
Buy put: buy short-term protection
Sell put : willing to buy at this price
(choose a strike that represents a long-term view of value)
Sell call: willing to take profits at this price

RIMM : 75
buy May'10 75 put @ 4.70
sell May10 65 put @ 1.20
sell May10 85 call @1.50 net cost $200 + commissions

protection below $73 (-2.5%), profits up to $85 (+13%, note how close this is to the last 4 quarters' average move), loses $2 (3%) if RIMM is just above 75.

Web Extra:

Higher interest rates a headwind for Caterpillar.
Use "over-write" / buy-write for downside protection
CAT : 62.75
Buy CAT, sell May 65 call @ 1.90
bias to upside:
Protected down to 60.85 (-3%)
"regret point" 66.90 (+ 7%)

Orders 29 March 2010

2010-03-29T16:15:00.000-07:00

3/29/2010 11:33:24 AM BUY ~ MAPIX @400.00 AMT $13.11 WORKING
3/30/2010 7:24:46 AM BOT +30.511 MAPIX @13.11003

3/29/2010 11:32:53 AM WBT BUY ~ OWSMX @400.00 AMT REJECTED - cannot hold fund

Fidelity Funds that might be good?

2010-03-22T10:47:00.000-07:00

In the article Rally-Leading Sectors: Predicting Strength in Rally Year Two, Price Headley posts a chart that suggests that the capital goods (industrials) and basic materials sectors might do well.

Acording to Dr. Sam Subramanian's page Fidelity Select Funds For Sector Investing

Fidelity funds that might fit:

Fidelity Select Industrial Equipment Portfolio, FSCGX
Industrial Conglomerates, Industrial Machinery, Construction & Farm Machinery, Electrical Equipment

Fidelity Select Industrials Portfolio, FCYIX
Industrial Conglomerates, Transportation, Defense & Aerospace, Industrial Machinery, Chemicals

Fidelity Select Environmental Portfolio, FSLEX
Waste Management, Pollution Control, Energy Conservation, Clean Energy

Fidelity Select Defense & Aerospace Portfolio, FSDAX
Defense Equipment, Aircraft & Parts, Communication Systems, Defense Electronics

Fidelity Select Air Transportation Portfolio, FSAIX
Air Freight, Aeronautical Equipment, Aviation Services, Airlines

Fidelity Select Transportation Portfolio, FSRFX
Railroads, Trucking, Air Freight & Logistics, Airlines

Basic Materials:

Fidelity Select Chemicals Portfolio, FSCHX
Basic Chemicals, Specialty Chemicals, Industrial Gases, Fertilizers

Fidelity Select Gold Portfolio, FSAGX
Gold Mining, Gold Bullion, Other Precious Metals & Minerals

Fidelity Select Materials Portfolio, FSDPX
Metals & Mining, Chemicals, Transportation, Fuels

Fidelity Select Paper & Forest Products Portfolio, FSPFX
Containers & Packaging, Paper Products, Forest Products, Specialized REITs

Cost per delta: a good way to price options?

2010-02-03T09:23:00.000-08:00

To take advantage of an anticipated sudden, sharp, quick market move, out-of-the-money options seem better on a cost basis and a profitability basis.

Here are cost per delta of some SPY Mar'10 puts:
SPY : 109.69

STRIKE	ASK	DELTA	$/d
105	1.68	-.29	5.897
106	1.94	-.33	5.970
107	2.24	-.37	6.135
108	2.58	-.41	6.366
109	2.97	-.46	6.522
110	3.41	-.51	6.745
111	3.92	-.57	6.930
112	4.48	-.62	7.274
113	5.11	-.67	7.672
114	5.80	-.72	8.097

And, profit after a 2.5-point drop.
SPY : 107.29

Put Strike	Delta	Mark	Cost	Profit
Feb'10 105	-.33	1.22	0.56	118%
Feb'10 106	-.40	1.52	0.71	114%
Feb'10 107	-.46	1.895	0.91	108%
Feb'10 108	-.55	2.345	1.16	102%

Buy dividend stocks on pullbacks?

2010-02-02T22:19:00.000-08:00

Colgate-Palmolive Co. (CL, 81.05)
Idea from: Colgate-Palmolive Surges Ahead at Investopedia
Sell a CL May'10 70 (-13.6%) put @ .85
Not so good; I want to catch a 10% pullback.
Sell a CL May'10 75 (-7.5%) put @ 1.75
effective price if assigned: 73.25 (-9.6%)
Maybe that's pretty good.
OK, say CL falls to 76 (-6.2%). I could sell a 75 call for around 3.35. Or, not so aggressive, let's put in a GTC order to sell the CL May'10 75 call for 2.75 Limit.
effective price if assigned: 73.25 (-11%)
That looks good.

Many bearish analysts

2010-02-02T13:10:00.000-08:00

One, Investment Postcards from Cape Town (Dr Prieur du Plessis) answers the question, "Where Will The S&P 500 Find Support?" with either 1036 (down 5.8%) or 1000 (down 9.1%).

In another post, TraderMark of fund my mutual fund views the current 2-day rally as a oversold bounce, and expects a reversal at 1100-1110.

New positions 2/1/2010

2010-02-01T18:10:00.000-08:00

QUALCOMM Incorporated COMBO
BUY +1 QCOM 100 JAN 12 40 CALL ($0.25)
SELL -1 QCOM 100 JAN 12 40 PUT
A "story stock" idea; QUALCOMM reported good results and gave decent guidance, but the market punished it anyway.
Thesis:
I think QCOM is a 21st century company because it makes chipsets for hand-helds. There are already some 2 Billion cell phone accounts worldwide, and that could double easily. Meanwhile that's a lot of users who will replace their handsets regularly.
Strategy:
Synthetic long position. For a credit of $25 (19.10 after commissions) I get the equivalent of 99 shares of QCOM. But this happens to be in a cash account, so it is tying up $4,000 collateral. QCOM traded 38.68 - 39.97 today, so I could have just bought 100 shares for less than $4k. At some point, though, I can buy back the 40 put, or buy a 35 put and free up $3,500 collateral.
Break-even: 39.80
Max loss: 3,980
max gain: infinite
Follow-up:
1. Could roll call up for credit (could roll put up for credit, too)
2. Buy back the short put or sell a lower-strike put to free up collateral
3. Sell front-month calls against the long call
Amazon.com, Inc. VERTICAL
SELL -1 AMZN 100 MAR 10 115 PUT $2.00
BUY +1 AMZN 100 MAR 10 110 PUT
A "story stock" idea; Amazon agreed to let publisher Macmillan set higher prices for Kindle versions of its titles.
Thesis:
I think over the next 7 weeks Amazon's price will recover.
Strategy:
Sell a put vertical for $200 credit. When I sold it, the 115 put was only 50 -60 cents out of the money; AMZN traded between 113.82 - 124.86 today, closing at 118.92.
Break-even: AMZN 113
Max gain: $200 AMZN above 115
Max loss: $300 AMZN below 110
Follow-up:
I think I need to keep this a position play and not try to dance in and out of it; I worry that the market will be rough for a week or more, but I think 7 weeks is enough time for AMZN to get above 115.

CNBC Options Action

2010-01-31T17:12:00.000-08:00

Cisco Systems (NASDAQ:CSCO)
Enterprise Spending, Global exposure
stock replacement trade
buy Mar +23/-25 call spread @.60
breakeven 23.60
max loss .60
max gain: 1.40

General Electric (GE)
technical picture:
underperformed market for two years, now outperforms on 1-week, 1-month, and 3-month
wedging around 15 - 16
technically, 70% of the time, such wedges break to the upside
target price: 20 - 21
options play:
sell -1 Jun 15 put, buy +1 Jun 17 call

Apple Computer (AAPL)
selloff after Apple announces iPad
someday Apple will announce new iPhone, poss. with other carriers, poss. late June, early July
buy AAPL Jul'10 +200/-230 call spread @ 9.60
sell AAPL Jul'10 -170 put @ 10.60
net 1.00 credit

Web Extra:

Massey Energy (MEE)
-Feb 43 covered call

SP500 earnings benchmark

2010-01-29T13:32:00.000-08:00

According to a WSJ article (maybe using Thompson Reuters data?)

In a typical quarter, 61% beat (earnings (profits) above analysts' expectations), 18% meet and 21% miss.

"Story" Stocks

2010-01-29T12:30:00.000-08:00

Apple (AAPL)

Chevron Corp. (CVX) disappoints

Microsoft (MSFT)

Qualcomm (QCOM)

SanDisk (SNDK)

Toyota (TM) recalls
TM : 77
sell put spread:

Feb -80/+70 350, 3 wks
Mar -80/+70 395, 7 wks == sold for 380
Apr -80/+70 420, 11 wks

Foreign Mutual Funds

2010-01-28T18:15:00.001-08:00

I'm getting frustrated with stock-picking. Thinkorswim gives me three free mutual fund trades per month, so I'm thinking about averaging into positions in mutual funds with exposure to growth countries.
Candidates:
Lowest Cost Five-Star Funds


Ticker	Name	Star Rating	Expense Ratio
GMGEX	GMO Global Equity Allocation		0.00
RSFTX	Royce Global Select Invmt		0.50
DFJSX	DFA Japanese Small Company I		0.59
JAIGX	Janus Aspen Overseas Instl		0.69
MIEIX	MFS Instl International Equity		0.75
MQIFX	Mutual Quest Z		0.81
HAINX	Harbor International Instl		0.83
EITEX	Eaton Vance Tax-Managed Emerg Mkts I		0.95
FKSCX	Franklin Intl Small Cap Growth Adv		0.95
MSIQX	Morgan Stanley Inst International Eq I		0.95
ACINX	Columbia Acorn International Z		0.96
IFTIX	ING Templeton Foreign Equity I		0.97

World Stock:

Mutual Quest Z MQIFX
!! Long/Short fund
More concentrated, lower turnover
5 stars, low risk, +avg return vs. category
3-, 5-, 10-year rating is 5 stars.
Same manager since 2003.
30% exposure to US, 11% exposure to UK, 10% exposure to France (all fiscally weak)
Style: Large/Blend, 33% Giant
Old Westbury Global Small & Mid Cap OWSMX
!! Gets all its foreign exposure through ETFs!
!! Top holding is eMini futures contracts!
5 stars, low risk, high return vs. category
3-year rating is 5 stars.
Same manager since 2005.
34% exposure to US, 9% exposure to Japan(!), 7% exposure to UK
Style: Medium/Blend, 52% Medium
American Funds New Perspective F-1 NPFFX
5 stars, -avg risk, +avg return vs. category
3-year rating is 4 stars.
Same manager since 1992.
33% exposure to US, 7% exposure to France, 7% exposure to UK
Style: Large/Growth, 62% Giant

Pacific Diversified:

Allianz NACM Pacific Rim Instl NAPRX
4 stars, -avg risk, avg return vs. category
50% exposure to Japan, which most investors have written off
< 7% exposure to China, which could be a good thing
Style: Large/Growth, with Valuations and Growth Rates pretty poor relative to MAPCX:
BlackRock Pacific I MAPCX
4 stars, -avg risk, +avg return vs. category
40% exposure to Japan, 9% to China
Style: Large/Value, with decent Valuations and Growth Rates
Matthews Asia Dividend MAPIX
5 stars, low risk, high return vs. category
Top holding mostly ex-China
Matthews Asia Pacific MPACX
4 stars, avg risk, +avg return

Latin America:

T. Rowe Price Latin America PRLAX
4 stars, avg risk, +avg return vs. category
50% exposure to Japan, which most investors have written off
67% exposure to Brazil, 19% Mexico, 5% Chile, 2% Peru
Style: Large/Blend, 51% "Giant"
BlackRock Latin America I MALTX
4 stars, +avg risk, high return vs. category
3-year rating is 5 stars.
Same manager since 2002.
73% exposure to Brazil, 17% Mexico, 2% Peru, 1.6% Chile
Style: Large/Blend, 39% Giant
stars, risk, return vs. category
3-year rating is stars.
Same manager since .
73% exposure to
Style: Large/Blend, 39% Giant

Top economies for 2010

2010-01-27T10:45:00.000-08:00

According to this graph (from Bespoke Investment Group on SeekingAlpha, courtesy of commoditypress.com, the top economies for 2010 might be:

China
Indonesia
Singapore
Brazil
Malaysia
Hong Kong
Philippines
Peru
Chile
South Korea
Australia
Russia
Mexico
USA

Emerging Market Mutual Funds

2010-01-26T22:38:00.000-08:00

Latin America:

Mutual Funds:

T. Rowe Price Latin America

Fidelity Latin America FLATX

ETFs
iShares MSCI Brazil Index

iShares S&P Latin America 40 Index

Market Vectors Brazil Small-Cap ETF

Review: AMZN

2010-01-26T19:54:00.000-08:00

Here's an unpleasant one:

On 24 Feb 2009 I sold 50 shares of AMZN at $64.55 (bought around $35).

I sold them to raise funds for options trading. AMZN ended the year at 134.52.

Lessons:

I need rules for selling. By selling at random I missed another 100% profit.
Sell losers, not winners.
Only sell when there's something better to buy.

Interesting Web Pages:

2010-01-26T12:52:00.000-08:00

Started from Google Finace discussions on MELI, and found:

TraderMark

Fund My Mutual Fund

Pyramiding Is Best Way To Enter Position

PIMCO's Bill Gross: Invest in 'Less Levered' Countries

Chart of the Day: 2010 Consensus GDP Growth Estimates for Various Countries

Is This The Big Correction?

Long Ideas

2010-01-26T12:49:00.000-08:00

Large Caps:

Resources:

Freeport-McMoRan Copper & Gold Inc. (FCX)
Jan 22: 74.23 Down 2.05 (2.69%)

Commodities:

Olam International (OLMIF.PK)

Internet Security:

Mcafee Inc (MFE)
Jan 22: 38.31 Down 0.78 (2.00%)
Provides security software to enterprises, governments, small and medium-sized businesses and individual consumers.

VASCO Data Security International Inc. (VDSI)
Jan 22: 8.01 Down 0.08 (0.99%)

Wave Systems Corp. (WAVX)
Jan 22: 2.46 Down 0.0920 (3.61%)
Develops digital security hardware and software for internet and e-commerce applications.

Energy:

LDK Solar (LDK)
6.55 -0.45 (-6.43%)

Linn Energy, LLC (LINE)
26.25 -1.61 (-5.78%)

MLP & STRATEGIC EQ (MTP)
16.10 -0.31 (-1.89%)

(Dry) Shipping:

Diana Shipping (NYSE: DSX)

Eagle Bulk Shipping (Nasdaq: EGLE)

Theme: China stocks unfairly punished by market after government curbs credit

Education:

Chinacast Education Corp (CAST)
Jan 22: 6.71 0.38 (5.36%)
Chinese provider of e-learning education services to 15 post-secondary institutions and 6,500 K-12 schools.
$6.71-0.38
Volume: 661,400117%

ESI APOL TNDM EZPW UEPS APEI CSKI LPHI NVEC

Jan 24, 2010 Maintenance

2010-01-24T19:14:00.000-08:00

Cninsure Inc. (CISG)
Jan 22: 18.59 Down 0.12 (0.64%)
+1 Feb'10 22.5 Call (20% out-of-the-money, 4 weeks to expiration)
Open orders:
roll down to Feb'10 20 Call for .30 debit (mark .35)

E-House (China) Holdings Limited (EJ)
Jan 22: 16.01 Down 0.08 (0.50%)
Below 40 and 200 day support
in the China real estate market - Asset bubble?
+1 May'10 20 Call (25% out-of-the-money, 17 weeks to expiration)
+1 Aug'10 20 Call (25% out-of-the-money, 30 weeks to expiration)
roll down to 17.5 Calls for .50, .55 debit (mark .675)
*** ? split the difference - raise limit to .60 debit?
*** ? get short in the front month? sell a credit Call spread?

Fuqi International, Inc. (FUQI)
Jan 22: 18.16 Down 0.02 (0.11%)
Below 40 and 200 day support
In the China luxury goods market
+1 FUQI Feb'10 25 Call (40% out-of-the-money, 4 weeks to expiration)
Open orders:
roll down to Feb'10 20 Call for .30 debit (mark .35)

Google Inc. (GOOG)
Jan 22: 550.01 Down 14.49 (2.57%)
-1 GOOG Feb'10 540 Put
+1 GOOG Feb'10 530 Put
+1 GOOG Feb'10 640 Call
17% above 200-day, 13% above 40-day
fallen from 600+ on bad news (China, insider selling)
Open orders:
(re)sell a 630 Call for 450 (sold for 5.63, bought back for 1.30)

MELI
Jan 22: 40.86 Down .44 (1.08%)
Below 200-day (49.10), above 40-day (34.65)
Credit bull spread, 7 weeks to expiration
-1 MELI Mar'10 40 Put
+1 MELI Mar'10 30 Put
Credit bull spread, 20 weeks to expiration
-1 MELI Jun'10 40 Put
+1 MELI Jun'10 30 Put

Open orders:
none

Nokia Corp. (NOK)
Jan 22: 12.72 Down 0.22 (1.70%)
Below 40-day (12.94), which is below 200-day (13.90)
Debit bull spread, 4 weeks to expiration
+4 NOK Feb'10 14 Call
-4 NOK Feb'10 15 Call
Open orders:
none.
*** ? Sell a credit bull spread?

SolarWinds, Inc. (SWI)
Jan 22: 19.96 Down 0.58 (2.82%)
I own 2 x Jun'10 22.5 Call (10% out-of-the-money, 20 weeks to expiration)
Open orders:
roll down to Jun'10 20 Call for .55 debit (mark .975)
sell Jun'10 20/15 Put spread for 3.40 credit (mark 1.825)
really, 2.50 would be great; I set the limit high just to keep the trade in mind.

YUM

2010-01-24T15:38:00.000-08:00

What: Yum! Brands, Inc. (YUM)
Jan 22: 34.29 Down 0.68 (1.94%)

Why not:

Market in correction
Technically, it is below 10-week support, and testing 200-day support
Old story

Why:

May be a "rule maker"
expanding in the promising China market
excellent Sales, Margin, Return on Equity
relatively safe and stable

Why now:

Prices are low

The trade: Several possible ways to get long:

BUY +100 YUM @34.60
SELL -1 YUM FEB'10 35 PUT @1.25
effective price 33.75
Probability assigned: 65%
SELL -1 YUM FEB'10 34 PUT @.75
effective price 33.25
Probability assigned: 50%
Synthetic long:
BUY +1 COMBO YUM 100 JAN 12 35 CALL/PUT @-1.40
effective price 33.60
BUY +1 COMBO YUM JAN'12 30 CALL/PUT @3.55
effective price 33.55
This seems to be the best bullish play:
BUY +1 COMBO YUM JAN'12 30/35 CALL/PUT @1.14
Here I'm selling the at-the-money 35 Put and buying the in-the-money 30 Call
effective price 33.07 (break-even)

My thesis: YUM is a buy-and-hold stock.

How it works:

Sell points: I could set stop-loss orders for -8%, or around 30.80

Follow-up: With LEAPS, I would try to buy back the short put for 1.00 or so. I could also put in open orders to roll up the call for 95% credit.

NOK

2010-01-23T16:38:00.000-08:00

I recently opened a bull Feb 14/15 call spread in NOK, and now NOK is under 13.

Break-even: ~ 14.30
Max loss: .30
Max gain: .70

I'm inclined to sell a bull Feb 12/11 put spread. The .20 credit would just about cover my cost of the call spread. Worst case, NOK goes below 11 and I lose $100 x 4 contracts.

Best case, NOK goes above 15 and I make $100 x 4 contracts.

Break-evens: 12 - 14

Now's the time to be planning buys!

2010-01-22T13:02:00.000-08:00

I wish I already had a better wish list. Next week sometime I expect the markets will turn up again. Here are some ideas:

AA Alcoa Inc close $13.48
should benefit from recovery
options volume is healthy: even LEAPs trade in 1,000s at-the-money
here are two long plays:
1. buy a 2-year OTM 15 Call and sell the OTM 12.5 Put for net $10 credit
BUY +1 COMBO AA 100 JAN'11 15/12.5 CALL/PUT @-.17 LMT GTC
$1,250 collateral;
2. synthetic long at effectively 13.40, just about the current price
BUY +1 COMBO AA 100 JAN'11 15 CALL/PUT @-1.60 LMT GTC
$1,500 collateral;

But it pays dividends (1%), so maybe owning it is better:
3. buy outright for about $1,350:
BUY +100 AA @13.40
4. sell in-the-money puts in hopes of being assigned stock:
SELL -1 AA 100 FEB 10 15 PUT @1.83
net price 13.17, 82% chance of assignment
SELL -1 AA 100 FEB 10 14 PUT @1.09
net price 12.91, 65% chance
SELL -1 AA 100 FEB 10 13 PUT @.53
net price 12.47, 45% chance

actually, 1% dividend yield is small and would get smaller if AA gains value, so the LEAPs strategy might be more profitable.

GOOG Iron Condor

2010-01-20T09:34:00.000-08:00

Google Inc. (NASDAQ:GOOG)
577.68 -9.94 (-1.69%) 12:46PM EST

Source: the ONN Idea Generating Platform

SELL -1 IRON CONDOR GOOG 100 FEB 10 630/640/540/530 CALL/PUT @3.90 LMT GTC
Break Even Stock Prices 536.10 / 633.90
Max Profit $390.00
Max Loss $610.00 (not including possible dividend risk)
Cost of Trade including commissions credit $390.00 - $11.80 = credit $378.20
Buying Power Effect ($610.00)

Break-evens are -7%, +10%

Return if unchanged: 366.40 / 2000 = 18.3%

Follow-up: if GOOG moves sharply one way, close the profitable leg. Possibly roll out losing leg.

Update Saturday, January 23, 2010

Along with the markets, GOOG fell, so I bought back the short call for $130 (sold for $563). In retrospect, I bought it when Volatility was very high. It's possible that GOOG will track sideways and Vol will come in. I might have paid a bit too much. But, if GOOG and the markets recover, I can sell the call again.

Bullish ideas for Monday, Jan 18, 2010

2010-01-17T22:18:00.000-08:00

1. Google Inc. (GOOG)
On Jan 15: 580.00 Down 9.85 (1.67%)

Sell GOOG Mar'10 550/560 Put Vertical @ 12 - 9 = 3.00

Source: CNBC Options Action

2. Mercadolibre, Inc. (MELI)
On Jan 15: 42.15 Down 1.07 (2.48%)

Sell MELI Mar'10 40 Put @ 3.00

I would like to own MELI for the next 3 years, so this could be an attractive way to get long, or just earn 7.5% return on $4,000 in 2 months.

3. Goldman Sachs Group Inc. (GS)
On Jan 15: 165.21 Down 3.32 (1.97%)

Sell GS Apr'10 155/180 collar $ 1.25

Source: CNBC Options Action

But: $15,500 collateral? Eeek. Could:
sell the 155/145 put vertical for 2.60 and
buy the 180/190 call vertical for 2.10

("vertical" collar for .50)
Or just do the put spread.

Well, in my margin account it only ties up $2,733:
BUY +1 COMBO GS 100 APR 10 180/155 CALL/PUT @-1.25 LMT GTC
Break Even Stock Prices 153.75
Max Profit Infinite
Max Loss $15,375.00 (not including possible dividend risk)
Cost of Trade including commissions credit $125.00 - $5.90 = credit $119.10
Buying Power Effect ($2,733.20)

4. Merck & Co. Inc. (MRK)
On Jan 15: 39.47 Down 0.52 (1.30%)

Source: seekingalpha.com

(Author mentions an interesting "Advanced Technical Opinion" tool at barchart.com

It's also on the Dogs of the Dow - Current Doggishness list.

BUY +1 MRK 100 JAN 12 30 CALL @10.50 LMT GTC
Break Even Stock Prices 40.50
Max Profit Infinite
Max Loss $1,050.00 (not including possible dividend risk)
Cost of Trade including commissions $1,050.00 + $2.95 = $1,052.95

Another look at leveraged ETFs

2010-01-16T11:30:00.000-08:00

So, now that VIX is near its historic average of 20, is there money to be made in options on leveraged ETFs? In the past I tried doing verticals with negative extrinsic value, specifically selling ATM calls and buying OTM calls. This is a bear spread, and by purchasing bear spreads on both the leveraged and inverse leveraged versions of an index ETF, I was

selling volatility
betting on the long-term tendency of leveraged ETFs to lose money (compounding errors)

Problems:

Price difference: a 2 point vertical is
4.4% of the TNA bull fund's 45.47 price;
22% of the TZA bear fund's 9.13 price. So I can either try to do a 20% / 10 point spread on TNA; this gives max gain/loss of $408/592. Then it's hard to balance the size. Also, for a spread with a credit of $50, the $11.80 round-trip commissions eat up 23.6% of potential profits! Jeesh! I need a lower-cost broker for spreads like these!
Max loss outweighs max gain (on the other hand, both funds could rise a little (nearly impossible) and I'd still break even

Direxion Daily Small Cp Bull 3X Shs(ETF)
(Public, NYSE:TNA)
45.47
Jul'10 ATM bid/ask spread: .30 - .50
Open interest: < 150, < 50

SELL -1 VERTICAL TNA 100 JUL 10 45/47 CALL @1.05 LMT GTC
Break Even Stock Prices 45.93
Max Profit 93
Max Loss 107
extrinsic: I'm selling a net $63
slippage: paying 40 or so?

Direxion Daily Small Cp Bear 3X Shs(ETF)
(Public, NYSE:TZA)
9.13
Jul'10 ATM bid/ask spread: .15 - .25
Open interest: 1600, 90

SELL -1 VERTICAL TZA 100 JUL 10 9/11 CALL @.50 LMT GTC
Break Even Stock Prices 9.41
Max Profit 41
Max Loss 159
extrinsic: I'm selling a net $37.50
slippage: paying 25 or so?

Jan 11 2010 IBD 100 boxed issues

2010-01-10T17:21:00.000-08:00

These are all old stories, way up from their original breakouts.

Home Inns & Hotels Management Inc. (ADR) (NASDAQ:HMIN)
40.06 Fri. close, 10-wk 35.08
"Big bounce off 10-week line. Volume improves sharply."
Buy point: 38.03 (?), up .10 from Dec 4 37.93 close. If that is IBD's buy point, then HMIN is 5.3% extended, which is past buy range.
Actually, it may be worse than that: from the IBD forums TODAY:
Looking at the weekly chart of HMIN I see that it has pulled back to the 50-day line a few times since its original breakout from a cup-with-handle base back on 08/04/09. Look at the daily chart and you'll see a nice cup-with-handle, and a pivot point of 17.91 (the high in the handle, 17.81, plus 0.10). At its current price of 40.06 HMIN is extended 124% from its buy point. That's more than a double, and it's a lot. A correction/base could come at any time.

Options: not much volume; ADV on CBOE in 11/2009 was 281 (puts+calls). Bid-ask ATM is .10 - .50.

Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP)
72.78 Fri. close, 10-wk
"Testing 10-week line again as new base forms"

priceline.com Incorporated (NASDAQ:PCLN)
216.21 Fri. close, 10-wk
"Pulls back to 10-week; 3% past 210.50 short-stroke buy point."

VistaPrint NV (NASDAQ:VPRT)
55.43 Fri. close, 10-wk
"Tests 10-week support in fifth week of flat base."

Longtop Financial Technologies Limited (NYSE:LFT)
40.17 Fri. close, 10-wk
"45 above 38.79 buy point from three-weeks-tight pattern."

Long CTRP

2010-01-01T10:29:00.000-08:00

What: Ctrip.com International, Ltd. - American Depositary Shares, a China market travel site
Close: 71.86

Why not:

China risk (asset bubble, political collapse, currency exchange, accounting standards)
competition from Expedia
43% above 200-day moving average
disappointed on earnings last Q, estimate this Q is 60% gain!

Why:

Growth of middle class and market for personal travel
IBD says: "What's it got? Profit and sales growth. Fat margins and juicy return on investment, with no long-term debt. Great sponsorship."
No debt
25% ROE
EPS rising & accelerating (50% - 60%)
sales growth 50%

Why now:

It's a bull market.
IBD 100 black border.
CTRP has been consolidating for 8 weeks, 10-week moving average has caught up near 70.
RS is 92
IBD's Industry Group Rank is 5

The trade:

Jun'10 CTRP +75/-95 call vertical (575 debit), -70/+65 put vertical (225 credit)
net cost   550 (575 - 225), plus 500 collateral
max loss   850 (575 + 275)
max gain 1,650 (300% or 157% with coll.)

Jan'11 +75/-95 call vertical (650 debit), -70/+65 put vertical (250 credit)
net cost   400 (650 - 250), plus 500 collateral
max loss   900 (650 + 250)
max gain 1,600 (400% or 177% with coll.)

My thesis:
Over the expiration period, CTRP will stay above 70 so that the short put will expire worthless or be closed for little, and will rise above 74 so the call spread will be profitable.

How it works:
I think of these trades as a synthetic long stock (or really long future): long 75 call, short 70 put, with offsetting positions to reduce cost and collateral requirements.

Follow-up:
1. CTRP corrects down to 66 (or 60, 54 or 50) support:

buy back the short call (cost $525 for $100 gain), with a view to selling front-month calls against the remaining long call.
sell a front-month put vertical (5 strike, $200 credit)
roll down the far month call vertical (5 strike, $200 debit)
roll down the far month put vertical (5 strike, $50 debit)

2. CTRP quickly runs up to resistance around 79:

close the short put spread
sell a front-month call vertical (5 strike, $200 credit)

3. Closer to expiration, with CTRP near 95:

roll up the call vertical (5 strike, $400 credit)

Stop loss:

Take profit:

Risks:
Worst-case: CTRP falls and stays at or below 65 (max loss)
Also bad: CTRP stays below 75 (long call is worthless)
Awkward: CTRP rises and stays at 95 so that the short call is expensive to buy back

Background:

JUN 10 (168 days)
BUY +1 VERTICAL CTRP JUN'10 70/90 CALL @7.15 LMT GTC
debit $715.00 + $5.90 = debit $720.90 max gain 1,279.10
SELL -1 VERTICAL CTRP JUN'10 70/65 PUT @2.25 LMT GTC
credit $225.00 - $5.90 = credit $219.10 max loss 280.90
net cost 501.80 (720.90 - 219.10), plus 500 collateral
max loss 1,001.80 (720.90 - 500 + 219.10)
max gain 1,498.20 (2,000 - 501.80 net cost)

JAN 11 (385 days)
BUY +1 VERTICAL CTRP JAN'11 70/90 CALL @7.35 LMT GTC
debit $735.00 + $5.90 = debit $740.90 max gain 1,259.10
SELL -1 VERTICAL CTRP JAN'11 70/65 PUT @2.50 LMT GTC
credit $250.00 - $5.90 = credit $244.10 max loss 255.90
net cost 496.80 (740.90 - 244.10), plus 500 collateral
max loss 996.80 (740.90 - 500 + 244.10)
max gain 1,503.20 (2,000 - 496.80 net cost)

There's no real difference between the Jun'10 and Jan'11 series, so I think I'd pick the longer options. But the open interest is greater in the Jun'10 series, and the bid/ask spreads, though wide, are better than the Jan'11 spreads.

I notice there's a lot more open interest at the 75/95 calls. The difference in delta is less than 10 points in the long calls (no difference in the spread), and it saves $100 or $150. Then, the position looks like:

Jun'10 CTRP +75/-95 call vertical (575 debit), -70/+65 put vertical (225 credit)
net cost 550 (575 - 225), plus 500 collateral
max loss 850 (575 + 275)
max gain 1,650

Jan'11 +75/-95 call vertical (650 debit), -70/+65 put vertical (250 credit)
net cost 400 (650 - 250), plus 500 collateral
max loss 900 (650 + 250)
max gain 1,600

Buying Calendar Spreads ahead of events

2009-12-14T21:08:00.000-08:00

What: Buy slightly out-of-the-money Jan call, sell Dec call at the same strike.

BUY +1 CALENDAR ORCL 100 JAN 10/DEC 09 25 CALL @.14 LMT GTC
Cost of #1 Order including commissions $14.00 + $5.90 = $19.90

BUY +1 CALENDAR BBY 100 JAN 10/DEC 09 50 CALL @.33 LMT GTC
Cost of #2 Order including commissions $33.00 + $5.90 = $38.90

Why: CNBC Options Action idea (BBY as a buy/write, not a calendar)

How it works: IV is 63% in the Dec 50 BBY calls, vs. 35% in the Jan 50, and 48% vs. 27% in the ORCL calls. After the event (12/17 for Oracle, 12/15 for Best Buy) the IV will come out of the Dec calls, and they will go to intrinsic value. Best case, ORCL and BBY stay below the strike through Dec expiration and I keep the whole premium from selling the Dec calls. Then they go up in Jan so my long calls gain.

Risks:
1. These are debit spreads and slightly bullish, so if ORCL or BBY falls or stays below these strikes through the Jan expiration, I will be out the net premium.
2. If there is an upside earnings surprise and the underlying rallies sharply, the Dec calls could appreciate more than the Jan calls. I would have to buy back the Dec calls at a loss and hope for further gains in the Jan calls, or, more conservatively, close the spreads at a slight loss.

Selling Volatility on event: RIMM

2009-12-07T16:31:00.000-08:00

Research In Motion Limited (RIMM, $60) was mentioned on the CNBC's "Options Action" podcast as trading in high volume before their Dec 17, 2009 Q3 2010 Earnings Release. So, similar to a successful volatility play in GMCR, I'm buying a butterfly:

BUY +1 BUTTERFLY RIMM $4.50 LIMIT GTC
BUY  +1 RIMM Dec'09 50 CALL
SELL -2 RIMM Dec'09 60 CALL
BUY  +1 RIMM Dec'09 70 CALL
Break Even Stock Prices 54.50 / 65.50
Max Profit $550.00
Max Loss $450.00 (not including possible dividend risk)
Cost of Trade including commissions $450.00 + $11.80 = $461.80

My thesis is that Implied Volatility will collapse on the 17th, and since I'm selling more volatility (At the money) than I am buying, I should get an edge. Specifically, I'm selling about $5.80 in extrinsic value, and buying less than .75 in extrinsic value.

But, IV is "only" 72% or so. Also, I only have profits if RIMM moves less than 5.50, 9% by the 17th. But I really think a 20% move is possible.

Stay tuned...

Protecting gains: HMIN

2009-11-14T12:56:00.000-08:00

On 10/27 with HMIN around 29, I bought

Dec'09 30 call for $255
Dec'09 +30/-40 call vertical for $200

HMIN fell all that day, and on the next day, 10/28, with HMIN around 26 -27, I went longer by buying back the short 40 call for $25. That gives me a net cost of $240 per call, and a break-even of HMIN at 32.40. (Which meant HMIN had to run up 22% for me to break even. Fortunately HMIN reported good quarterly results on 11/9, and on 11/10 it ran up to 36.)

HMIN closed Friday at 35.44, and my 2 30 calls are worth $615 each, up $375 for a total paper gain of $750.

I still like HMIN, but I am worried about the market, so I am thinking about protective strategies. Using Friday's closing bid-ask (today is Saturday), I could:

Sell the Dec'09 40 call (again), for $85 or $90. This caps my upside, but lowers my downside risk.

How to measure this?
1. It lowers my max loss from $480 to around $305.
2. It lowers my break-even to around 31.50 (HMIN down 11%).
3. Dynamically, it lowers my delta from 166 to 112, so if HMIN corrected 10% my paper losses might be $300 vs. $450 without the short 40s. In reality, I would probably buy back the 40s at that point and realize a small profit, leaving my upside unlimited.
4. Max gain: $1,700 HMIN above 40.

If I sell the ATM 35 calls, I really limit my upside, but sell a lot of premium. The 35s closed Friday around 2.90. This really takes the risk out of the position: since my net cost now is 240, collecting 290 premium would mean I am up 2 x $50 = $100. Worst case, HMIN tanks and all calls expire worthless, I still keep the $100. If HMIN is above 30 near expiration, I can make money up to HMIN at 35.

Max loss: none
Min gain: $100
Max gain: $1,100 (2 x $500 + the $100 credit) HMIN above 35.

I could buy the Dec'09 30 put for $80. This doesn't look so good: it raises my break-even to 33.20 (losses if HMIN falls more than 6%). However I guess I would make a little on the put. Very little: its delta now is only -.18, vs. .83 for the 30 call. So I'm still very long HMIN even with the 30 put. If I really think HMIN is headed below 30, I shouldn't be holding the 30 calls!

I could roll the calls up for a credit. This works best if you are ITM by 2 or more strikes. Rolling up to an ATM strike means I'm paying a lot of premium. Still, I'd collect about $330 each for rolling at Friday's closing prices. This would give me a total net credit of about $180, better than selling the 35s against the 30s.

Min gain: $180
Max gain: unlimited HMIN above 35

The simplest thing to do would be to close the position. Gain: $750. No downside. No upside.

Playing volatility in GMCR

2009-11-11T10:18:00.000-08:00

Green Mountain Coffee Roasters, Inc. (GMCR : 75.20) announces earnings after the close today, and implied volatilities in the GMCR NOV series are around 100%.

In a volatility play described by Brian Overby, TradeKing's Options Guy, I'm buying a butterfly as follows:

11/11/2009 11:53:15 AM
BUTTERFLY BUY  +1 GMCR Nov 09 70 CALL $8.00
BUTTERFLY+ SELL -2 GMCR Nov 09 80 CALL $3.00
BUTTERFLY++ BUY  +1 GMCR Nov 09 85 CALL $1.65

Net cost: $3.65

Break Even Stock Prices 73.65
Max Profit $635.00
Max Loss $365.00 (not including possible dividend risk)

Oops actually Brian Overby says:

To avoid big time decay, stay out 20-40 days from exp.

He also placed his strikes about half of historical volatility apart. The optionetics article says 50% would be fair IV, so 25% of 75 is 15 or 20.

Let's try this, then:

BUY +1 BUTTERFLY GMCR DEC 09 55/75/95 CALL @8.70 LMT GTC
Break Even Stock Prices 63.70 / 86.30
Max Profit $1,130.00
Max Loss $870.00 (not including possible dividend risk)
Cost of Trade including commissions $870.00 + $11.80 = $881.80

Now we are selling the ATM calls and setting the strikes 20 apart.

Here's the same trade, but with strikes 15 apart:

BUY +1 BUTTERFLY GMCR DEC 09 60/75/90 CALL @5.70 LMT GTC
Break Even Stock Prices 65.70 / 84.30
Max Profit $930.00
Max Loss $570.00 (not including possible dividend risk)
Cost of Trade including commissions $570.00 + $11.80 = $581.80

The problem now is that IV in the DEC series is only 67%. So what will the "crush" be after the event? Stay tuned.

Update 11-12-2009

Well, Green Mountain's guidance disappointed the street and GMCR fell to 68 in after-hours trading. Today's OHLC: 68.04, 70.71, 66.55, 68.35 in double yesterday''s volume. The big price range came in the first two hours; after 11:15 a.m. GMCR was pinned around 68.

I didn't expect much from my butterflies but was pleasantly surprised:


Nov'09 60/75/90 Call Butterfly:
Paid 630 + 11.80 = 641.80,
Sold for 690 - 11.80 = 678.20
+36.40, or 5.77% profit

Nov'09 55/75/95 Call Butterfly:
Paid 1035 + 11.80 = 1046.80,
Sold for 1200 - 11.80 = 1188.20
+141.40, or 13.66% profit

Dec'09 60/75/90 Call Butterfly:
Paid 570 + 11.80 = 581.80,
Sold for 595 - 11.80 = 583.20
+1.40, or basically break-even)

Dec'09 55/75/95 Call Butterfly:
Paid 870 + 11.80 = 881.80,
Sold for 995 - 11.80 = 983.20
+101.40, or 11.65% profit)

Lessons:

Selling volatility ahead of an event can be profitable!
Setting strikes too narrow can be costly
In this case, a front-month wide-strike butterfly did better

If I were still bullish, I could have held the butterflies for a day or two, hoping that the only ITM calls (55 and 60 strike) would rise as GMCR rebounded. (It looks like 68 is the new support.) Also, the long 90 and 95 calls sold for very little; it might have been better to have closed these spreads with back/ratio orders and kept the 90 and 95s. The Nov 90 and 95 sold for $0, so I could have saved 2.95 commission if I'd kept them! The Dec 90 sold for 15 and the Dec 95 for 5.

I recall now that another way to sell volatility is to buy calendar spreads. I wish I had tried that also, especially since I think GMCR might still be a fundamentally good stock, and I could maybe keep the long back-month options in a directional bullish play.

Alexander Elder

2009-11-07T22:08:00.001-08:00

"If you let the market make you feel high or low, you will lose money." - Alexander Elder

Risk Reversals (for lack of a better term)

2009-10-25T17:31:00.000-07:00

I don't know what it's called when you are bullish so you simultaneously do a credit put vertical and a debit call vertical, but that's what I'm doing here.

One definition of risk reversal, from commodities trading, is selling an out-of-the-money call and buying an out-of-the-money put for even money. (Corn at 12.3, sell a 15 call and use the proceeds to buy a 10 put, e.g.) By that definition, I'm writing risk reversals.

Sirona Dental Systems, Inc. (SIRO) 28.99


SELL -1 VERTICAL SIRO 100 NOV 09 30/25 PUT @2.10 LMT GTC
BUY +1 VERTICAL SIRO 100 DEC 09 25/30 CALL @2.90 LMT GTC TRG BY #53754526

Here I'm being really tricky with orders: I place a "First Triggers Sequence" order to 1. sell a put vertical for $210 credit, 2. If that fills, it triggers a GTC order to buy a call vertical for a $290 debit (net cost $80). Note, too, that the put spread expires in Nov'09 (4 weeks) and the call spread has until Dec'09 (8 weeks). My thesis is that SIRO will dip to its 10-week line, probably this week and next, rebound (quickly!) and head higher. The market is implying that there's a 67% chance that SIRO will be below 30 on Nov 20, and only a 38% chance that SIRO will be above 30 on Dec 18, so I'm arguing with the market.

If both fill, my max loss (SIRO below 25) is (30 - 25) * 100 - 210 = $290 on the put spread, plus the $290 cost of the call spread, for a total of $580. My max gain (SIRO above 30) is (30 - 25) * 100 - 290 = $210 on the call spread, plus the $210 credit from the put spread, for a total of $420. Hmmm... that's not very attractive. Break-even is 27.90, so that seems OK if I'm bullish.

If I diagram out the SIRO trade it's:

__ C __ Strk __ P __
 +1 |     25     | -1
    |-1   30  +1 |

which is a box (long at 25, short at 30) which I buy for $80 with SIRO at 28, and which is worth $500 with SIRO at 30. That seems like magic, doesn't it? But it's worth -500 with SIRO at 25, so that's the downside.

Tessera Technologies, Inc. (TSRA) 28.82


SELL -1 VERTICAL TSRA 100 JAN 10 30/25 PUT @2.75 LMT GTC
BUY +1 TSRA 100 JAN 10 30 CALL @2.15 LMT GTC

Just GTC orders, no triggers. Here my max loss is 225 + 215 = 440 and my max gain is 275 plus however much TSRA rises above 32.15. If it runs up 20% (from 27.5 where I'd get long) to 33 that would be 275 + 85 plus time value depending how fast TSRA moves. Still not super attractive...
Break-even is 29.40. Market implies about a 40% chance of TSRA above that on Jan 15, 2010, so again I seem to be arguing with the market.

Long HMIN : Home Inns & Hotels Management Inc.

2009-10-25T16:52:00.000-07:00

Why: It's an IBD favorite.
When: Not now, I'm placing GTC orders around the 50-day moving average
(I used the CBOE options calculator to get options prices for HMIN at 28.50, the moving avg.)
1. BUY +1 VERTICAL HMIN DEC'09 30/40 CALL @2.00 LMT GTC $2.95 market
2. BUY +1 Simple HMIN DEC'09 30 CALL @2.55 LMT GTC $3.75 market
Follow-up:
Still haven't decided, but I weigh different choices in this post.

Coinstar

2009-10-12T19:12:00.000-07:00

IBD has had several articles about Coinstar (CSTR), 35.72 close today.

Here's a risk reversal at after-the-close prices:



#1 Order Description WBT SELL -1 VERTICAL CSTR 100 JAN 10 30/25 PUT @.65 LMT GTC
#2 Order Description WBT SELL -1 VERTICAL CSTR 100 JAN 10 30/25 PUT @.60 LMT GTC
#3 Order Description WBT BUY +1 VERTICAL CSTR 100 JAN 10 35/45 CALL @2.95 LMT GTC
#4 Order Description WBT BUY +1 VERTICAL CSTR 100 JAN 10 35/45 CALL @3.00 LMT GTC
Max Profit $1,530.00
Max Loss $1,470.00 (not including possible dividend risk)
Cost of #1 Order including commissions credit $65.00 - $5.90 = credit $59.10
Cost of #2 Order including commissions credit $60.00 - $5.90 = credit $54.10
Cost of #3 Order including commissions $295.00 + $5.90 = $300.90
Cost of #4 Order including commissions $300.00 + $5.90 = $305.90
Cost of Trade including commissions $595.00 -113.20 + $11.80 + $11.80 = $505.40
Buying Power Effect ($1,470.00)

This fits nicely with my $500 per position allocation limit, but ties up $1,000 collateral!

Here's a try with calendar spreads. If I had set up spreads 4 weeks ago, selling October options, I'd have done very well, since the markets have been pretty sideways. Not so sure about the next 5 weeks, though.


#1 Order Description WBT BUY +1 CALENDAR CSTR 100 JAN 10/NOV 09 40 CALL @.70 LMT GTC
#2 Order Description WBT BUY +1 CALENDAR CSTR 100 APR 10/NOV 09 40 CALL @1.80 LMT GTC
#3 Order Description WBT BUY +1 CALENDAR CSTR 100 JAN 10/NOV 09 35 CALL @.95 LMT GTC
#4 Order Description WBT BUY +1 CALENDAR CSTR 100 APR 10/NOV 09 35 CALL @2.15 LMT GTC
#5 Order Description WBT BUY +1 CALENDAR CSTR 100 JAN 10/NOV 09 45 CALL @.30 LMT GTC
Cost of #1 Order including commissions $70.00 + $5.90 = $75.90
Cost of #2 Order including commissions $180.00 + $5.90 = $185.90
Cost of #3 Order including commissions $95.00 + $5.90 = $100.90
Cost of #4 Order including commissions $215.00 + $5.90 = $220.90
Cost of #5 Order including commissions $30.00 + $5.90 = $35.90
Cost of Trade including commissions $590.00 + $29.50 = $619.50

Here I'm experimenting with different strikes and expirations. There is no 45 call in the Apr'10 series.

Current Allocations

2009-10-07T12:48:00.000-07:00

In one thinkorswim account, I have the following positions:


CIT : $0   -> 100 calls
EJ  : $475 -> 690 calls
FAS : $400 -> 220 margin bear spreads
FAZ : $500 -> 340 margin bear spreads
FUQI: $500 -> 440 calls
GMCR: $510 -> 480 call verticals (5-strike)
MQIFX : 6759
RINO: $510 -> $600 stock
SMN : $500 -> 325 margin bear spreads
SWI : $330 -> 325 call
SXCI: $860 -> 1050 call vertical (15-strike)
UYM : 1900        margin bear spreads
VIT : $600 -> 700 risk reversal
VMMXX : 2710

Follow-up strategies

2009-09-29T20:02:00.000-07:00

What to do when you have some profit in an options position with some time until expiration?

SYNT Syntel Inc

I think this was an IBD recommendation; it has an IBD composite rating of 98, and when I bought on Sept 3, it had just completed the beloved "cup and handle" chart pattern.

In 26 days SYNT gained about $8, or 20%.

To capture some gains and still profit should SYNT continue to rise, I placed a "Back Ratio" order, selling my 2 calls and buying 3 higher-strike calls. Here are the trades:


Date      Open  High  Low  Close Volume Adj Close*
3-Sep-09 40.37 40.67 39.67 40.46 86,000 40.41

SINGLE BUY +2 SYNT 100 Feb'10 40 CALL $4.60 (Cost: $920 + 5.90 comm. = 925.90)

Date       Open  High  Low  Close Volume  Adj Close*
29-Sep-09 49.27 49.97 48.86 48.86 258,700 48.86

BACKRATIO SELL -2 SYNT 100 Feb'10 40 CALL $10.80
BACKRATIO+ BUY +3 SYNT 100 Feb'10 50 CALL $4.60 (Net credit $780 - 14.75 comm. = 765.25)

So my net cost to date (or, my total downside risk) is $160.65, and I own 3 calls that are only 1.15 OTM.

Looking at the greeks, the delta I sold is about 1.60, and the delta I bought is about 1.50. But, I sold .04 gamma, and bought .09 gamma, so if SYNT continues to gain, the new calls should begin to appreciate faster than the old ones would have.

Back spread on AFAM

2009-09-28T18:23:00.000-07:00

[Disclaimer: I'm not saying this is a good idea, just an interesting one.]

Here's a wacky bullish spread:

Almost Family Inc (AFAM) close 30.97 +0.76


BUY +1 1/5 BACKRATIO AFAM 100 FEB 10 30/40 CALL @-.17 LMT GTC
Cost including commissions credit $17.00 - $17.70 = $0.70
Buying Power Effect ($1,000.00)

So here we are selling one ATM Feb 2010 30 strike call for $405 (with extrinsic "time" value of $300), and using the proceeds to buy 5 OTM calls for 5 * $77.50 (with 100% time value). Why do this?

If held to expiration this looks really risky: it loses $1,000 even if AFAM rises 33% to 40 at expiration, and would only break even with AFAM around $42.50, a rise of 37%! (short 30 call worth -12.50 and long 5 * 40 calls worth 5 * 2.50 = 12.50.)

But if AFAM starts to rise before expiration, something interesting should happen. In the short 30 call we are short .62 delta with .05 gamma, and in the 40 strike calls we are long 5 * .20 = 1.00 delta with 5 * .04 = .20 gamma. Net, we are long .38 delta and .15 gamma. This is like owning 38 shares at zero cost, with an additional 15 shares added for every $1 that AFAM rises. So if AFAM rises 5% = $2 rather quickly, say in five weeks, we could be up something like 2 * 38 + 2 * 15 = $106, on a collateral of $1,000.

But time does work against this position: in three months it might look like the Nov'09 calls. There, the 30 strike call trades around $300, and the 40 strike calls are worth about $20 each. (Net -$200.) The net delta is -.60 + (5 * .09) = -.15, or like being short 15 shares! All the other greeks are more narrowly distributed as time goes by, too. This means that if AFAM stays near the short call, the position has less and less upside potential should AFAM ever decide to move up.

The greater gamma in the long calls also means that if AFAM should fall, my long deltas would disappear. Vega is also greater ATM, so in a falling market, that would add to losses, since Volatility usually rises when prices fall.

In sum, since this strategy relies on a quick sharp move up, it is about like simply buying front-month calls; one could buy .40 delta in the Oct'09 series for about $40 (buying 4 of the 35 strike call, with 18 days to expiration). It's not quite the same, though, since I think that the back spread should hold its value for more than 18 days!

Story Stock: AUY

2009-09-27T21:39:00.000-07:00

Yamana Gold, Inc. (AUY) Sep 25: 10.09 Down 0.27 (2.61%)

I read a favorable story about AUY in IBD. (Basically saying that AUY was getting its act together and could be a lower-cost producer of gold that the industry average)

I think that inflation worries will increase in 2010, so that should help. But that also pushes my time frame out when it comes to picking options.

My first exploration was of a call vertical in the Jan 2012 series.

BUY +1 VERTICAL AUY 100 JAN 12 10/15 CALL @1.30 LMT GTC
Break Even Stock Prices 11.30
Max Profit $370.00
Max Loss $130.00 (not including possible dividend risk)Cost of Trade including commissions $130.00 + $5.90 = $135.90

This looks like I could turn $150 into $500 if AUY does well. But then I reflected that if AUY moves to 15, the spread probably won't do very well at all, since there will be many months left in the options, and extrinsic value will be especially high in the short 15 call!

So I look at a simple call purchase, this time in the Jan 2011 series (still probably enough time):

BUY +1 AUY 100 JAN 11 10 CALL @2.70 LMT GTC
Break Even Stock Prices 12.70
Max Profit Infinite
Max Loss $270.00 (not including possible dividend risk)
Cost of Trade including commissions $270.00 + $2.95 = $272.95

I will place about $1,000 pretend money in each strategy and see what happens...

QQQQ calendars - roll the long options

2009-09-20T15:04:00.000-07:00

QQQQ : 42.44 at Friday's close.

I now hold Jan'10 26 calls and puts. The calls are deep in the money (ITM) and the puts are OTM.

At Friday's closing prices, I can roll the calls from 26 to 33 for a credit of the $700 difference in the strikes minus just $25 in time value. I placed a series of orders to roll that should all execute as QQQQ moves up 10% to 47:


9/20/2009   VERTICAL   SELL  -1  QQQQ  JAN'10  26  CALL    $6.74 LIMIT GTC $6.76 MARK   WORKING
9/20/2009   VERTICAL+  BUY   +1  QQQQ  JAN'10  33  CALL

and likewise at limits of 7.74, 8.74, 9.74 and 10.74.

This is a way to take profits on the huge move in QQQQ without paying too much in premium. ($26 + 5.90 commissions on $700 seems pretty good to me.)

The puts are a different story: the 26 puts are almost worthless, about $6 per contract, .06/share. However, I think there is reason to buy near-the-money puts as a hedge against a sudden correction. Rather than just open new put positions, I can sell the 26 puts to just about cover the commission costs.


9/20/2009   VERTICAL   BUY   +1  QQQQ  JAN'10  42  PUT $2.15 LIMIT GTC $2.155 MARK  WORKING
9/20/2009   VERTICAL+  SELL  -1  QQQQ  JAN'10  26  PUT

and likewise at limits of 2.02, 1.82, 1.62, and 1.52

(Is this really such a smart use of the OTM puts? The puts are worth far less than the 3.30 I paid for them. But in a sudden correction, if QQQQ moved just 3 points (7%) down, the puts would double in value to $12. They could rise 4x to $30 with a 15% (6.50 point) correction.)

Followup 9/27/2009

On Monday, 9/21 (an up day) one of the call orders filled, for a gain of $669. And two of the put rolls executed, for $208 and $221.

On Wednesday, 9/23 (just about at the peak for the week) another put order filled, at a cost of $188.

At the close on Friday 9/25, with QQQQ at 41.70, those puts were worth $245, for the market fell pretty steadily from Wednesday midday on. Meanwhile, the old 26 puts gained 2 points, closing at .08, or $8 per contract. Rolling was definitely better in this instance!

Reflections on playing a consolidation

2009-09-19T17:09:00.000-07:00

Chart readers talk about "consolidations," sections of a chart where a security pauses in its overall trend and trades in a narrow range for a while.

From my limited examination of charts, it looks like two things happen after a period of range-bound trading (for simplicity, let's talk in terms of a stock trending higher):

the stock retests a recent low, then trends higher
the stock continues higher without retesting a recent low

In IBD terminology, (1) would be a cup-and-handle base, and (2) would be a cup-no-handle base. Of course, there is a third possibility:

the stock reverses direction and starts trending lower

So I wonder if it's a good idea, in a consolidation phase, to buy near-term slightly OTM puts, as well as OTM calls.

It's a way to get in early, and, if all goes well, both could be sold at a profit before expiration.

The risk is that the stock trades in a range (between your strikes) too long, and all options expire worthless!

Bear Spreads on leveraged ETFs part 4: "Mistakes were made"

2009-09-19T16:19:00.000-07:00

Wow! This week I had bad news: I was assigned on the short leg of two of my deep-in-the-money bear spreads on FAS, leaving me short 200 shares of the ETF. This wasn't so bad, since I could exercise my long calls to buy back the 200 shares and cover the short position. But, that meant that I realized the max possible loss on the spread (difference between the strikes, less the premium I received for setting up the spread). Worse yet, the commission for assignment or exercise is $15, versus $2.95 for buying or selling the options.

I had considered these paired trades "set and forget" trades, since at least one side would be certain to be profitable. What happened was, the market went pretty steadily up beginning in July. The bear spreads on both the bull and bear ETFs pegged out at their max profit/loss, causing the call spreads to move very deeply out of the money (on the bear ETFs) and very deeply into the money (on the bull ETFs).

Now I realize that I do need to monitor the losing side. If the short options are trading near parity, I need to close the spread.

So, in retrospect, here are the mistakes I made:

1. I placed a stack of OCO orders to set up these spreads, planning on only one order filling. (that is, after all, what "one cancels others" is supposed to mean.) In the event, however, several of my orders filled on the 3x bull side (FAS). So my paired trade was no longer balanced. Whereas I intended the paired trade to leave me in a market neutral, I was in fact much more heavily invested (about 2x as much at risk) in bear spreads on the bullish ETF. And this was the side that moved against me!

Lesson learned: I should have balanced the paired trade, either by closing some of the FAS spreads, even at a small loss, or by establishing more FAZ spreads. Here again my pessimism worked against me: I was comfortable being "bearish on the bull" because inwardly, I really preferred a bearish outlook to a market-neutral one.

2. As FAS moved against me, I established even more bear spreads at higher strike prices. This violated again the balance tenet/precept of the strategy, adding even more risk (about 3x as much at risk vs my spreads on FAZ), should FAS run away to the upside.

Lesson learned: if one side of the trade looks like it can never be profitable, immediately close both sides of the paired trade (e.g., FAS and FAZ), taking whatever small profit or loss it nets out to. If you have some reason for thinking that a higher strike bear spread will eventually turn profitable without threatening the profits on the paired position, then at least roll up the deep in-the money spreads, rather than adding more and more spreads on the underlying that has moved against you (e.g., FAS).

3. While compounding errors in a volatile and mostly sideways market will cause both 3x bull and 3x bear ETFs to lose value, it is also true that in a runaway trending market, compounding errors will heavily favor the "correct" 3x ETF, without corresponding losses to the other side. This gainsays my whole underlying thesis, that losses to one side would inevitably outweigh gains to the other side.

As I look over my year to date profits and losses, my three biggest losers are all leveraged bull ETFs (UYM, TNA and FAS).

Weekend reflection 2009.09.19

2009-09-19T16:03:00.000-07:00

So my pessimism is definitely costing me now: if I had just gone long the market any time between April and today, I would be up! I have been wondering why, after the markets revisited their 2008 lows in March 2009, I didn't get long long long the market. Looking back at blog entries, it looks like I was focused on (1) paired trades on triple-leveraged ETFs and (2) calendar spreads for income.

Last weekend both McMillan and IBD saw reasons for concern. IBD's big picture was "uptrend under pressure." CNBC's Options Action podcast was all about buying downside protection (for a long portfolio, it must be said). So I was also thinking in terms of bearish hedging.

But this week just ended was a very bullish week. Yesterday McMillan called it very bullish, and IBD has revised their big picture back to "confirmed uptrend."

IBD is not indicating that many stocks are at a good buy point; many are "extended" beyond a high-probability buy point.

I am feeling anxiety about not being longer the market than I am.

Is there a way to get long the market now, with near-zero downside risk?

IBD 100 Bold Borders

2009-09-12T18:12:00.000-07:00

Fuqi International, Inc.

FUQI : 30.35

BUY +1 FUQI 100 OCT 09 32 CALL @2.00 LMT GTC
Break Even Stock Prices 34.00 (+12%)
Max Profit Infinite
Max Loss $200.00 (not including possible dividend risk)
Cost of Trade including commissions $200.00 + $2.95 = $202.95

Notes: FUQI is ranked #1 in the IBD 100. I fear it is overbought. However, this is where my pessimism probably works against me. This fits my $200 price target nicely. 12% is a big move, but before expiration the position could show a profit from a smaller move.

BUY +1 VERTICAL FUQI 100 OCT 09 30/35 CALL @1.72 LMT GTC
Break Even Stock Prices 31.72 (+4.5%)
Max Profit $328.00
Max Loss $172.00 (not including possible dividend risk)
Cost of Trade including commissions $172.00 + $5.90 = $177.90

Notes: lower break-even, and nearly 2:1 reward:risk ratio.

Baidu, Inc. - ADS

BIDU : 369.95

BUY +1 BIDU 100 OCT 09 390 CALL @12.20 LMT GTC
Break Even Stock Prices 402.20 (+9%)
Max Profit Infinite
Max Loss $1,220.00 (not including possible dividend risk)
Cost of Trade including commissions $1,220.00 + $2.95 = $1,222.95

Notes: BIDU is ranked 11 in the IBD 100. Ouch! ridiculously high-priced. Break-even, however, is a much more realistic 9%.

BUY +1 VERTICAL BIDU 100 OCT 09 390/410 CALL @5.50 LMT GTC
Break Even Stock Prices 395.50 (+7%)
Max Profit $1,450.00
Max Loss $550.00 (not including possible dividend risk)
Cost of Trade including commissions $550.00 + $5.90 = $555.90

Notes: Even better - reduced my cost over 50% and lowered my break-even to +7%. Still big for my money...

Pegasystems Inc.

PEGA : 30.95

BUY +3 PEGA 100 OCT 09 35 CALL @.85 LMT GTC
Break Even Stock Prices 35.85 (+16%)
Max Profit Infinite
Max Loss $255.00 (not including possible dividend risk)
Cost of Trade including commissions $255.00 + $8.85 = $263.85

Notes: PEGA is ranked 30 in the IBD 100, which actually makes me feel it may have more room to run. The strikes are $5 apart, which makes it harder to just buy a call with a reasonable break-even. I really like, however, having 3 contracts, so that I can use multiple follow-up strategies.

BUY +1 VERTICAL PEGA 100 OCT 09 30/35 CALL @2.00 LMT GTC
Break Even Stock Prices 32.00 (+3.3%)
Max Profit $300.00
Max Loss $200.00 (not including possible dividend risk)
Cost of Trade including commissions $200.00 + $5.90 = $205.90

Notes: Here's a $200 trade with a decent break-even and OK upside potential.

Getting short II: SPY put

2009-09-12T17:33:00.000-07:00

Outlook: sometime in September or October it is likely that markets will fall.

Though some think we are in a bear market rally, I think we are in a bull market transition. I am adding long positions gradually, but right now am adding a downside hedge.

With SPY at 104.60, I bought a SPY Jan'10 100 Put. I sold a 90 put against it, bring my cost down to $242.90 with commissions.


9/10/2009   VERTICAL    BUY     +1  SPY Jan 10  100 PUT $4.10   $2.37
9/10/2009   VERTICAL+   SELL    -1  SPY Jan 10   90 PUT $1.73

Break-even:
SPY at 97.63 (down 7%)

Reflection:

7% out of the money is a lot. Since SPY options have strikes one dollar apart, I could have chosen a strike nearer the money.
The short 90 put is 14% out of the money. Percentage-wise, this is a lot. Besides, McMillan says there is technical "support at 990 and 980 -- the lows of the last two minor corrections," and at 940 below that.
So, better strikes might be 104 and 94. After the close, the cost of such a spread is $321.90, with a far better break-even point (100.78 or -4%).

Follow-up:
If SPY goes higher, I could roll up, increasing my cost and my break-even point.

So here's a better spread, maybe:

BUY +1 VERTICAL SPY 100 (Quarterlys) DEC5 09 104/98 PUT @2.25 LMT GTC
Break Even Stock Prices 101.75
Max Profit $375.00
Max Loss $225.00 (not including possible dividend risk)
Cost of Trade including commissions $225.00 + $5.90 = $230.90

By selling a put with a much higher price, I lower my cost quite a bit. Yet, if McMillan is right about technical support levels, the 98 put might still be out-of-the-money in a correction.

I am giving up some "disaster protection" here though: in a real melt-down below SPY 90, the 100/90 vertical gives me a $750 payoff; the 104/94 gives me $675, and this one gives me a max of $375.

Getting short the market

2009-09-08T09:13:00.000-07:00

In paper trading, I have accumulated a number of long stock positions that are not interesting to a learner.

Where options exist, I am selling calls at the money, or, where I have a loss, at my original purchase price.

I don't really care whether these calls expire worthless, bringing in a little income, or my stock is called away.

Where there are no options, I have simply sold stock.

Where I have profitable call positions, I have taken profits by selling half.

9/8/09   SOLD -1 ERX  OCT 09  35   Call @ 4.10
9/8/09   SELL -1 ERX  OCT 09  35   Call @ 4.10 LMT GTC   FILLED
9/8/09   SOLD -1 FTEK OCT 09  10   Call @  .90
9/8/09   SELL -1 FTEK OCT 09  10   Call @  .80 LMT GTC   FILLED
9/8/09   SOLD -1 IWM  JAN 10  35   Call @22.40
9/8/09   SELL -1 IWM  JAN 10  35   Call @22.30 LMT GTC   FILLED
9/8/09   SOLD -1 IWM  JAN 10  40   Call @17.60
9/8/09   SELL -1 IWM  JAN 10  40   Call @17.50 LMT GTC   FILLED
9/8/09   SOLD -1 QCOR OCT 09   7.5 Call @  .15
9/8/09   SELL -1 QCOR OCT 09   7.5 Call @  .15 LMT GTC   FILLED
9/8/09   SELL -100 RCRC @15.22 LMT GTC   $15.18   WORKING
9/8/09   SOLD -2 XLF  OCT 09  15   Call @  .38
9/8/09   SELL -2 XLF  OCT 09  15   Call @  .38 LMT GTC   FILLED
9/8/09   SOLD -1 WYE  OCT 09  47.5 Call @ 1.30
9/8/09   SELL -1 WYE  OCT 09  47.5 Call @ 1.25 LMT GTC   FILLED
9/8/09   SOLD -1 SYY  OCT 09  25   Call @ 1.15
9/8/09   SELL -1 SYY  OCT 09  25   Call @ 1.15 LMT GTC   FILLED
9/8/09   SELL -1 MCD  SEP 09  57.5 Call @  .40 LMT GTC   $0.225   WORKING
9/8/09   SOLD -2 ISLN DEC 09   5   Call @ 1.10
9/8/09   SELL -2 ISLN DEC 09   5   Call @ 1.05 LMT GTC   FILLED
9/8/09   SOLD -1,000 CNIC @.31
9/8/09   SELL -1,000 CNIC @.31 LMT GTC   FILLED
9/8/09   SOLD -1 ESI  OCT 09 105   Call @ 4.50
9/8/09   SELL -1 ESI  OCT 09 105   Call @ 4.30 LMT GTC   FILLED
9/8/09   SOLD -1 ESI  SEP 09 105   Call @ 1.90
9/8/09   SELL -1 ESI  SEP 09 105   Call @ 1.70 LMT GTC   FILLED
9/8/09   SOLD -2 SLE  OCT 09  10   Call @  .20
9/8/09   SELL -2 SLE  OCT 09  10   Call @  .20 LMT GTC   FILLED
9/8/09   SOLD -200 C @4.84
9/8/09   SELL -200 C @4.84 LMT GTC   FILLED

Trailing stops: SPY

2009-09-08T08:19:00.000-07:00

Summary: a 50% trailing stop on 4-month options may be too tight (versus implied volatility of 22 - 26%% and historical volatility of 15 - 17%, data courtesy of IVolatility.com).

Anticipating a breakout higher or lower from the current sideways market, I bought SPY Dec'09 102 puts and calls, and put $3 and $4 trailing stops on them. The question is, what is too tight? Since I paid $5.85 for the options, $3 is 51%, and $4 is 68%.

Today, with SPY between 102.39 - 103.05, a $3 trailing stop executed, for a $40 loss.

SOLD -1 SPY 100 Dec'09 102 Put @5.45

Since my cost was 5.85, the stop started at 2.85, and gradually ratcheted up 2.60 to 5.45 (presumably the put traded at 8.45 at some point). Today, the put came down to 5.45, triggering the stop order. So actually 50% in this case was nearly a profitable stop.

The $4 trailing stop on the remaining Dec'09 102 Put is $3.65.

On the call side, the Dec'09 102 Call $3 and $4 trailing stops are now $3.65 and $2.65, up .80 (it's curious how these put and call prices are the same.)

Maybe I should have tightened up the stop when the put was over 8. But my purpose here is to profit from larger moves over 3 or 4 months, not capture a 1- or 2-week move.


8/24/09   STRADDLE    BUY   +2   SPY  Dec'09    102  CALL    $5.85    $11.70
8/24/09   STRADDLE+   BUY   +2   SPY  Dec'09    102  PUT     $5.85

9/ 8/09   SINGLE      SELL  -1   SPY  Dec'09    102  PUT     $5.45    ($545.00)

WAG: a winning options strategy

2009-09-07T14:50:00.000-07:00

The idea here is to place a slightly bullish position with limited risk and limited upside, for very little cost. (In fact, the whole thing brought a small credit of $30.20 after commissions, but involved some margin requirement.) The hope is that the underlying will rise 10 - 20%. The risk is that the underlying will fall 10 - 25%.

Timing: I put this on when markets had dipped a little, and providing bear spreads to the market (by putting on bull spreads) was maybe rewarded. Generally, the markets are in a long-term uptrend since the crash bottom in March.

Technically, WAG had gapped 3% lower to just under 30 on Mon Jun 22 and had been riding the bottom Bollinger band (or perhaps finding resistance at 30) for six trading days.

With WAG around 30, I bought twelve Oct'09 call bull spreads with the long strike at 32.5 (8% out of the money) and the short strike at 36 (20% OTM). The cost per spread was about .60/share. Max profit: 3.50 - .60 = net 2.90/share.

I financed this with the sale of ten Oct'09 put bull spreads with the short strike at 27.5 (8% OTM) covered by a long strike at 22.5 (25% OTM). Credit per spread .85/share. Max loss: 5.00 - .85 = net 4.15/share.

Another "cost" was the margin or collateral requirement on the put credit spreads. In a cash account this would have tied up about $4,000, less in a margin account.

Had WAG fallen to 22.5 or lower and stayed there, my loss would have been my $792 cost (with commissions) paid for the call spreads, plus a net loss of $4,270 to close the puts spreads. Total $5,062. So I definitely had a neutral to bullish opinion!

If WAG stayed around 30 to expiration, all the options would expire worthless, and I'd keep the $30 credit.

In fact, WAG ended July at 31, and ended August at 34.

On Aug 26 I bought in the ten short 27.5 puts for .10/share, or $124.95 with commission. I put in a GTC order to sell the 22.5 puts for .10 or better at the same time, in case of a sudden dip. This was probably not necessary since, with WAG around 33, these short puts were now 16% OTM.

(I think I didn't just close the whole spread because the far OTM puts weren't even worth the .0295/share commission cost to sell them? Although one would think that if they were even close to .03, say .025, it might be worth placing a spread order just to save a little on slippage, since theoretically a market maker will skim a little less off a spread order.)

Now I had no downside risk from short puts. But I had a realized loss of 124.95 - 30.20 = $94.75.

On Sept 4, with WAG around 33.50 and the uptrend in the market under some pressure, I closed six of the call verticals for 1.60/share, or $932.05 after commissions. Now my realized gain was 932.05 - 94.75 = $837.30. I suppose one could think of this as a return of 40% on half my max collateral of 4,000, or 20% so far on the whole 4k.

I'm left with 6 bull spreads and 10 puts at zero net cost, and almost 6 weeks to expiration.

Thinkorswim is telling me (in the Monitor: Positions tab) that I actually have a realized profit of $1,620 in WAG, but I don't see how that is.

This does involve a lot of commissions. To open the whole thing involved 44 legs at $2.95 each, or $129.80. So far I have closed 22 legs for another $64.90. The size of the whole thing is a little beyond reasonable for me; probably a half or a third as big would be more appropriate.

Update 2009.09.29

This is just dumb (I placed orders at night unaware that Walgreens was to announce earnings this morning) luck.

I decided to close up my remaining 6 WAG Oct call verticals, with 17 days until expiration. I placed orders to sell at 1.75, 1.80, 1.85, 1.90, 1.95, and 2.00.

This morning Walgreens beat forecasts and gapped up over 10%, peaking at 38.44. All my orders filled at 3.35, which is about as good as I could ever hope for on a 32.5/36 vertical with a max value of 3.50. Total proceeds 6 * (335 - 5.90) = $1,974.60.

Thinkorswim thinks my total gains on this WAG strategy (which I think is a sort of risk reversal) at $3,055 (without accounting for commissions, and I still can't figure out how that's true). But anyway, earning anywhere near $3,000 on collateral of $4,000 in 3 months is really gratifying!

This is not the first time that I have placed limit orders at prices I would have been content with, only to have them fill MUCH better the next day due to some surprise. I placed orders to sell CIT calls for .50 or so, only to have them fill at .95 or 1.00 the next morning.

IBD Story Stocks: V, LIFE, BRLI, AZO, ED, MELI, SYNT,

2009-09-03T09:06:00.000-07:00

I'll try buying $1,000 calls in each...

Buy points:

V 71.34
LIFE 47.17

dunno how to act on that...

Closed: COF

2009-08-24T12:41:00.000-07:00

8/24/2009
SELL -1 COF 100 SEP 09 22.5 CALL @14.00 LMT GTC
SOLD -1 COF 100 SEP 09 22.5 CALL @14.10

Bought 5/8/2009 @ 12 as part of a paired trade with FSYS?

My purchase timing was really unfortunate. On 5/8 COF opened at 26, spiked to close at 31.34, a high it had not seen since 01/08/2009, and would not revisit until 8/3/2009. The day after I bought, it opened at 27.74 and closed at 27.10!

This was a Bernie Schaeffer recommendation. I held it way past his recommended close-by date. But, since this is a bull market in the long run, and since the calls were good until September, it was prudent to hold them, and I managed to make a small profit.

Closing synthetic long DDM

2009-07-13T19:41:00.000-07:00

Placed an order today to close my synthetic long combo in the leveraged ETF DDM.

I opened the position in December 2008, for a $894 credit.

I have since learned that because of compounding errors, in a volatile market leveraged ETFs return less than their target over the long run.

When I looked at this in February, I was down about $200. Now I am down about $320. It will cost about $1,220 to get out.

SELL -1 COMBO DDM 100 JUL 09 40 CALL/PUT @-12.20 LMT GTC

Setting entry points for bear spreads

2009-07-12T20:27:00.000-07:00

How to place bear spread orders:

I think that seasoned traders can scan the bid/ask at multiple strikes and instantly identify divergences or sweet spots.

Maybe I should choose a strike at which to sell short, and place GTC OCO orders for 1- and 2-strike spreads (and maybe higher), choosing the limit price to provide the same percent return:

FAS: 37.46 close
35/36 call spread for .45 credit (mark .40)
35/37 call spread for .90 credit (mark .90)
35/38 call spread for 1.35 credit (mark 1.35)
35/39 call spread for 1.80 credit (mark 1.77)
35/40 call spread for 2.25 credit (mark 2.15)

This way, if there is a favorable divergence in the bid-ask spread anywhere in the series, that order should fill.

What are these prices saying? I am getting the best net credit for buying at-the-money (ATM) calls and selling ITM calls. That doesn't seem right; I would think that I'd be paying out more extrinsic value for the ATM calls. Maybe the market is most liquid ATM, so the bid/ask spreads are narrower.

Here are the mark prices for selling a 37/xx call vertical:


37/38 :  .45  :  45%
37/39 :  .95  :  47.5%
37/40 : 1.25  :  41.7%
37/41 : 1.87  :  46.75%
37/42 : 1.95  :  39%

And for the 38/xx call vertical:


38/39 :  .50  :  47.5%
38/40 :  .80  :  41.7%
38/41 : 1.20  :  46.75%
38/42 : 1.92  :  39%
38/43 : 1.80  :  39%

Well, clearly there is something wonky between the 39, 40 and 41 strikes, and in fact there is no actual volume at 39.

Here are the data, from Friday's close:
FAS Oct'09 Calls

Strike	Bid	Ask	Mark	Vol	Open Int
30	11.5	12.3	11.90	25	1,356
31	11.0	11.8	11.40	45	NA
32	10.5	11.4	10.95	50	1,786
33	10.0	10.6	10.30	52	1,482
34	9.6	10.4	10.00	183	2,665
35	9.2	10.0	9.60	2	6,966
36	8.8	9.6	9.20	20	3,402
37	8.4	9.0	8.70	450	8,453
38	8.0	8.5	8.25	190	6,088
39	7.4	8.1	7.75	NA	NA
40	7.0	7.9	7.45	31	3,374
41	6.8	7.3	7.05	10	287
42	6.5	7.0	6.75	4	1,637
43	6.0	6.9	6.45	NA	NA
44	5.8	6.3	6.05	NA	2,340
45	5.5	6.0	5.75	117	905
46	5.2	5.7	5.45	2	565
47	5.0	5.4	5.20	1	2,545

The week ahead

2009-07-05T21:14:00.000-07:00

I have a feeling this week will be "interesting." So let's see where prices might go, and what actions we might take.

Leveraged ETF bear spreads

I canceled GTC orders to open bear spreads in ERY, TNA, TZA

I have GTC orders to close a TNA spread, and roll out an ERX spread.

Calendar LEAPS spreads

Mini-Nasdaq 100 Index (MNX)
160? Resistance 2?
150 Resistance (June highs)
144.63 close Thursday 7/3/2009
135 Support (mid-May lows)
130 Support 2 (mid-April lows)

I am long 1 MNX Dec'11 150 Call.

I have been holding off on selling the front-month call, anticipating a break above 150.

If MNX breaks below 135, do I dare sell a 135 call? Maybe if Implied Volatility goes up enough, I can sell a 150 call for reasonable money.

If MNX breaks above 150, there's no recent history to suggest a new level of resistance, though the last three months it has been advancing by 10s (130 in April, 140 in May, 150 in June). So maybe if it pauses around 160 I could sell a call there.

Pseudo-Arbitrage (legging into boxes) and a butterfly

iShares Russell 2000 Index (IWM)

54 Resistance (June highs)
49.91 close Thursday 7/3/2009
47 Support (mid-May lows)
45 Support 2 (mid-April lows)

I am:
Long 2 IWM Jul'09 55 Calls
Short 1 IWM Jul'09 50 Call
Short 1 IWM Jul'09 50 Put
Long 2 IWM Jul'09 45 Puts
and
Long 1 IWM Aug'09 55 Call

If IWM breaks above 55, I can sell a 45 combo. (open orders to sell for $11, $14.)

If IWM breaks below 47, I can sell a 55 combo. (open order to sell for $11.)

Doubling down on Leveraged ETF bear spreads

2009-07-02T14:30:00.000-07:00

Ooops. Bit of an error... ERY bear spreads had moved against me today. I thought that meant that I could do the same spread for more credit, but I actually got $10 less credit this time.

Not even sure if it's a good theory.

If, say, I sell an ERY Oct'09 25 call for $5/share and buy an ERY Oct'09 30 call for $4/share, I get a $1/share credit. Then let's say ERY gains $1 in value: the short 25 might gain .60 and the long 30 might gain .45. My position has lost $15 value, and I could now do the same spread for $1.15. Meanwhile my paired ERX spread should have narrowed, and that position should be profitable.

On the one hand, adding another ERY spread, this time for $115, would be "adding to my losers", which is definitely not recommended.

On the other hand, my whole outlook is that choppy markets will erode both the ultra and ultra short ETFs through compounding error. So if I'm confident that time is very likely to turn my loser into a winner, maybe it's good to add to the losers. Only if the market truly does move up and down, so that first one and then the other spread widens/narrows.

New strategy in IWM

2009-07-02T12:44:00.000-07:00

I bought OTM Jul 55 calls and Jul 45 puts in IWM, planning to sell synthetics/combos at those strikes as the market reached or exceeded those levels. But the market has been bound in a narrower trading range around 50, so Wednesday I changed my outlook and strategy: I sold a 50 straddle for $300, setting up one butterfly.

Today that looks like a good move. My overall delta is closer to 0 (good for a sideways market), I'm up about 50 on the short straddle, and the overall position is no longer leaking away to time decay. In fact, the positive theta of those 2 short ATM options offsets the negative theta of the 5 long OTM options, giving the whole position a small positive theta (.28). The whole position is up $20 on the day.

My original outlook was that the market could be extremely choppy, with up and down moves greater than 10 percent. If IWM goes way up or way down over the next two weeks, I may wish I hadn't changed my outlook and strategy. But I still have one long put and call to sell against should that happen.

Closing out Jul'09 positions

2009-06-24T11:56:00.000-07:00

Synthetic long Starbuck (SBUX) 14.20:
Sold just the ITM Jul'09 10 Call @ 4.25, which is pure profit, since I established the synthetic long for about $0.

Paired bear spreads in Energy leveraged ETFs

2009-06-24T09:45:00.000-07:00

Today I placed these orders:

OCO (one cancels others) in ERX (Energy Bull 3x) @ 28.20


Side.Qty.Symbol.Exp...Strk.Type.Price.Rules.....Mark
Buy  +1 ERX 100 Oct'09 30 Put  $2.70 Limit GTC $2.95
Sell -1 ERX 100 Oct'09 25 Put
cancelled
Sell -1 ERX 100 Oct'09 25 Call $2.20 Limit GTC $2.10
Buy  +1 ERX 100 Oct'09 30 Call
Filled at $220 - 5.90 = 214.10 credit

OCO (one cancels others) in ERY (Energy Bear 3x) @ 23.30


Buy  +2 ERY 100 Oct'09 25   Put  $1.40 Limit GTC $1.60
Sell -2 ERY 100 Oct'09 22.5 Put
cancelled
Sell -2 ERY 100 Oct'09 22.5 Call $1.10 Limit GTC $1.00
Buy  +2 ERY 100 Oct'09 25   Call
Filled at 2 x $110 - $11.80 comm. = 208.20 credit

Notes:

in ERX I am risking 286 to make 214
in ERY I am risking 292 to make 208
At least one of these should make money
If prices over the next three months are choppy, both may make money (because of compounding errors)
1. every time the market changes its mind about the value of the U.S. dollar
2. every time the market changes its mind about economic growth and demand for energy
3. every time the market changes its mind about overall stock prices
I placed the Put (debit) spread orders farther from the mark, because they might involve commissions to close
I placed the Call (credit) spread orders closer to the mark because if all goes well the calls will all expire worthless and I will keep the credit

Paired bear spreads in financials leveraged ETFs

2009-06-21T21:24:00.000-07:00

I now think financial stocks might be volatile for the next couple years; "backing and filling," a post on the RGE monitor puts it. There may still be time to put on paired bear spreads in FAS/FAZ or UYG/SKF.

The problem is the pricing:
FAS (3x Financial Bull) : 9.52
FAZ (3x Financial Bear) : 4.71

UYG (2x Financial Bull) : 4.00
SKF (2x Financial Bear) :41.83

So let's say I expect a 20-25% decline:
FAS near 7.50 and there is a 7.5 strike
FAZ near 3.60 but there are only 3 and 4 strikes, so that's awkward.

Besides, options just don't work so well at low strikes: note how much commissions affect profit/loss.

Anyway, here are the bear spreads at Friday's closing prices:

FAS Oct'09	Exp <= 7.5		Net of commissions
Call vertical	Max Gain	Max Loss	Max Gain	Max Loss
7.5/8	$25	$25	$19	$31
7.5/9	$80	$70	$74	$76
7.5/10	$120	$130	$114	$136
7.5/11	$160	$190	$154	$196
7.5/12	$190	$260	$184	$266
	Exp <= 7.5		Net of commissions
Put vertical	Max Gain	Max Loss	Max Gain	Max Loss
7.5/8	$22	$28	$10	$40
7.5/9	$78	$72	$66	$84
7.5/10	$120	$130	$108	$142
7.5/11	$156	$194	$144	$206
7.5/12	$185	$265	$173	$277

FAZ Oct'09	Exp <= 3		Net of commissions
Call vertical	Max Gain	Max Loss	Max Gain	Max Loss
3/4	$52	$48	$46	$54
3/5	$87	$113	$81	$119
3/6	$110	$190	$104	$196
3/7.5	$137	$313	$131	$319
3/10	$157	$543	$151	$549
	Exp <= 3		Net of commissions
Put vertical	Max Gain	Max Loss	Max Gain	Max Loss
3/4	$53	$47	$41	$59
3/5	$85	$115	$73	$127
3/6	$110	$190	$98	$202
3/7.5	$135	$315	$123	$327
3/10	$155	$545	$143	$557

Looking Ahead

2009-06-21T18:56:00.000-07:00

As usual, I have no idea what markets will do this week or this month.

If markets go up:
I should watch for an opportunity to sell a MNX Jul'09 150 call
I have GTC orders to sell IWM Jul'09 55 calls

If markets go down:
I have GTC orders to sell IWM Jul'09 55 puts

Lessons on leveraged ETFs

2009-06-18T13:28:00.000-07:00

I looked today at the ERX/ERY 3month chart, and realized what I'm missing in my leveraged ETFs strategy: I need to open bear spreads on each of the pair, at the same time. What I did was try to leg in based on my market outlook. But my market outlook was wrong, both TNA and ERX moved against me all quarter, and I am likely to lose money on both.

If I had been market-agnostic and just opened bear spreads in the ERX/ERY pair, One would be up (against me) 25% and the other down (for me) 45%. Likewise, TNA is up (against me) 10%, but TZA would have been down (for me) 17%.

Low bids cost money

2009-06-18T12:41:00.000-07:00

I've been reading Reminiscences of a Stock Operator, about Jesse Livermore. One striking thing he says is that he likes to buy at higher prices.

Looking back at 3 days' trading in long calls and puts (where I placed GTC orders just below the ask) I see that all the orders that didn't fill (i.e., prices were higher) are up today, while half of the orders that did fill (i.e., prices were lower) are down today.

My feeling was that prices were bid up by the heavy volume that triggered my interest in the first place, and that over a few days' time, I could pick them up at better prices. And, for the Oct and Dec puts, I may be right yet. But in the short run I missed out on the best winners by bidding low.

Didn't fill:
WDC   Jul'09  25   Put    .65 Limit  .90  today +25%?
PPDI  Oct'09  17.5 Put    .45 Limit  .725 today +45%
ISLN  Dec'09   5   Call   .50 Limit  .625 today +10%

Filled:
QLGC  Jun'09  12.5 Call   .65 Limit Closed .25  -60%
NKE   Jul'09  50   Put   1.05 Limit  .85  today -20%
GFIG  Jul'09   5   Call  1.70 Limit 1.725 today + 1%
OMTR  Jul'09  12.5 Put   1.25 Limit 1.175 today - 6%
OMTR  Jul'09  10   Put    .20 Limit  .20  today  0
SLE   Oct'09  10   Call   .25 Limit  .40  today +60%
CIT   Oct'09   2.5 Put    .75 Limit  .775 today + 3%

MNX pseudo-arbitrage

2009-06-18T10:24:00.000-07:00

I think the NASDAQ 100 will trade between 1450 and 1550 the next 4 weeks. So I think opening a pseudo-arbitrage box spread in the Mini-100 by selling a Put credit spread today (MNX:145) would be a good idea. Not sure enough to use real money...

SELL -1 VERTICAL MNX 100 JUL 09 160/150 PUT @7.99 LMT GTC
Break Even Stock Prices 152.01
Max Profit $799.00
Max Loss $201.00 (not including possible dividend risk)
Cost of Trade including commissions credit $799.00 - $5.90 = credit $793.10

This will lose money if MNX never gets above 155 or so. My hope is to close the spread for 500 or less if MNX gets to 155.

What's trading today

2009-06-18T10:05:00.000-07:00

Closed QLGC for a loss of $120, or 60%. It was down $90 yesterday; I should have closed then for a smaller loss.
Bought a RIMM 75/80 strangle ahead of the Blackberry-maker earnings report after the closing bell today.
Bought OMTR puts. Revisiting the question of best strike: I bought -59 delta for $1.25, and -16 delta for $20.
Bought ISLN Dec'09 5 calls.
Should I put trailing stops on winning positions? Placed a -.15 stop on half my Sara Lee calls. Bought @ .25, stop @ .30 today.

ISEE sentiment data

2009-06-17T10:32:00.000-07:00

ISEE sentiment data

More call/put purchases

2009-06-17T09:50:00.000-07:00

Stock	Calls	xNormal	onAsk
GFIG	1683	7.90	98%
SLE	4418	20.27	64%
Stock	Puts	xNormal	onAsk
NKE	11307	3.77	91%


Sara Lee SLE: 8.99
Buy +8 SLE Oct'09 10 Call @.25 LMT GTC
Bot +8 SLE Oct'09 10 Call @.25

Buy +10 GFIG Jul'09 5 Put @.15 LMT GTC
Bot +10 GFIG Jul'09 5 Put @.15
Oops!
Sell -10 GFIG Jul'09 5 Put @.20 LMT GTC
Buy +1 GFIG Jul'09 5 Call @1.70 LMT GTC

CIT Group, Inc. (New) CIT: 2.69
Buy +3 CIT Oct'09 2.5 Put @.75 LMT GTC

Nike, Inc. NKE : 54.89
Buy +2 NKE Jul'09 50 Put @1.05 LMT GTC

Closing positions in June expiration week

2009-06-17T07:23:00.000-07:00

Wyeth (WYE) : 44.55
-1 WYE Jun 09 40 Call
+1 WYE Jul 09 40 Call (Calendar Spread)
Could just close the spread for about even money (why only 5 or 10 cents' time value in Jul calls?)
But I will "leg out" - buy back the Jun call on the current dip, and hope for a rise in prices between now and Jul expiration.
BUY +1 WYE Jun 09 40 Call @4.70 LMT GTC
BOT +1 WYE Jun 09 40 Call @4.60
and place a limit order to sell the Jul call higher:
Sell -1 WYE Jul 09 40 Call @6.50 LMT GTC
S&P 500 Index (SPX) : 904.50
3/9/2009 BUTTERFLY
+1 SPX Jun'09 775 Call $22.00 $1.20
-2 SPX Jun'09 800 Call $15.80
+1 SPX Jun'09 825 Call $10.80

3/9/2009 BUTTERFLY
+1 SPX Jun'09 825 Put $160.70 $1.20
-2 SPX Jun'09 800 Put $140.40
+1 SPX Jun'09 775 Put $121.30

I bought these Butterfly spreads (at a cost of $120 each) at THE March bottom. I chose the 800 level by looking at the 1-year chart for a likely level for a recovery: if the chart were a valley, and we are at the bottom (good guess), what is the height of the other side of the valley? 800 was a bad guess, as it turned out.

All the Puts are worthless, so the best I can hope is to sell off the long 825:
Sell -1 SPX Jun'09 825 Put @.40 LMT GTC
Sold -1 SPX Jun'09 825 Put @.45

The Calls are deep in-the-money, so the whole spread is worth exactly $0. I think realistically I will have to pay a little to close the spread and avoid assignment/settlement fees. This is a paper position, and at least on paper, I got a better-than-expected fill:
Sell -1 Butterfly SPX 100 Jun'09 775/800/825 Call @.00 LMT GTC
Sold -1 Butterfly SPX 100 Jun'09 775/800/825 Call @.10
After $11.80 commissions, this did cost me $1.80 to close. Much better than paying $15 (per contract?) settlement fee.
iShares Russell 2000 Index (IWM) : 50.47
-1 IWM Jun'09 35 Call
-1 IWM Jun'09 40 Call
+1 IWM Jan'10 35 Call
+1 IWM Jan'10 40 Call (Calendar Spreads)
Like the SPX, these calls are deep in-the-money, not where you want a calendar spread! There is no money in rolling out: The bid-ask for Jun, Jun Quarterlies, and Jul calls are identical in the 35s. In the 40s, there is a nickel difference between the Jun and Jul calls. Sometimes, when options are this deep in-the-money, you can roll up for pennies on the dollar, but rolling up 5 and out to Jul will cost $4.90 in the 35 and $4.60 in the 40.

Let's try rolling out to July for a tiny credit (we can hope for a fill in all the churn around Quadruple Witching Day, but it would have been better to allow more time by placing orders earlier in the week):

Sell -1 Calendar IWM Jul'09/Jun'09 35 Call @.05 LMT GTC

Sell -1 Calendar IWM Jul'09/Jun'09 40 Call @.10 LMT GTC
Sold -1 Calendar IWM Jul'09/Jun'09 40 Call @.10
Diamonds Trust Ser 1 (DIA) : 85.49
This is a mess! I thought I'd leg into a Butterfly spread as the market rose and fell. But my timing was terrible. And my choice of strikes was also unfortunate: my shrt options are ITM, and my long ones are ATM.
```
3/18/2009 Single
Buy  +3 DIA Jun 09 65 Put $2.09 $2.09
5/4/2009 Vertical
Sell -3 DIA Jun 09 75 Call $9.70 $6.95
Buy  +3 DIA Jun 09 85 Call $2.75
Total cost: 3 * 695 + 3 * 209 + 9 * 2.95 = $2,738.55
Cost to close today:  $2,832.00 + $17.70 = $2,849.70
```
Lessons learned:
1. Legging in or out is very dangerous!

Pin risk: DJX 85.05

2009-06-16T21:47:00.000-07:00

I am long a DJX Jun'09 75/85/95 call butterfly, which means I am short 2 DJX Jun'09 85 calls, and DJX closed at 85.05.

How to close this?

I could sell the butterfly for about $810.
I could sell a ratio spread (-1 75 call, +2 85 call) also for $810 (saving 1 commission though)
I could sell the long 75 call for about $990 and hope DJX is below 85 at expiration.

DJX closed today at 85.05, so the calls are five cents (!) in the money. DJX is a cash-settled option, so I don't have to worry about ending up short the underlying. thinkorswim fees would add $15 (or $30 for 2 options?).

I guess the question is, how far would DJX have to move to cost me the $180 difference between selling just the 75 call and selling the whole butterfly or the ratio. Answer: about 75 cents. (75 x 2 = 150 + 15 or 30.)

Heck! I think it's worth the risk! Well, let's use OCO order to cover each case:

SELL -1 BUTTERFLY DJX 100 JUN 09 75/85/95 CALL @9.90 LMT GTC OCO
this should fill if DJX stays right near 85 and the extrinsic value in the 85 calls evaporates.

SELL -1 DJX 100 JUN 09 75 CALL @10.00 LMT GTC OCO
this should fill if DJX goes over 85 (in which case I might be in trouble!)

Position review, week of June expiration

2009-06-16T20:42:00.000-07:00

Bank of America Corp (BAC) : 12.73 at the close
-1 BAC JUN'09 10 CALL
+100 BAC shares (assigned @ 5.00 from short Put)
It looks pretty certain my covered call in BAC will be assigned, and I will be out.
I think financials have come back a long way, and may go higher this year, but I am content to close out now.
Citigroup Inc (C) : 3.25 at the close
-2 C JUN'09 2.5 CALL
+400 C shares (assigned @ 3.00 from short Puts)
Again, I'm content to lose half my position in Citi. In fact, I'd rather be out completely, and will look for a chance to sell calls against the remainder.
Copernic Inc (CNIC) : 0.31 at the close
+4000 shares bought @0.11 after reading about it on either fool.com or seekingalpha.
I don't know any better than to hold this one.
Capital One Financial Corp (COF) : 23.15 at the close
+1 COF SEP'09 22.5 CALL
Bought @ 12 as part of a paired trade with FSYS?
Today's close: 3.70 (ouch!)
This was a Bernie Schaeffer recommendation, but I can't blame him for all my losses. He always sets a close-by date if profit target isn't met, and sends out alerts to close positions. I apparently missed the alert on this one; it's no longer in his model portfolio.
deCODE genetics, Inc. (DCGN) : 0.39 at the close
+1000 DCGN shares bought @ 0.42
I bought this one after hearing about consumer genome analysis services on Tech Nation. Most of the companies doing this are private; DCGN is Icelandic and thus close to bankruptcy. A $420 long shot, in other words.
Proshares Ultra Dow (DDM) : 29.23 at the close
+1 JUL'09 40 CALL
-1 JUL'09 40 Put (Synthetic long at 40)
Back when I bought this, July seemed far enough away that a recovery to 40 seemed possible. Obviously, it was not. Opened for 13.60 cr - 4.60 db = $894.90 net credit.
Cost to close today: $1,095 or so.
1/100 Dow Jones Industrial Average Index (DJX) : 85.05 at the close
+1 75/85/95 Butterfly
Cost on 12/16/08: $130
Paper profits: $691.50
This was an at-the-money butterfly when I bought it in December. It's a good thing I neglected this position; in March the markets made very scary lows, and I might have been tempted to bail.

Closing a "pregnant butterfly" in DIA

2009-06-16T13:28:00.001-07:00

I'm closing the positions I opened with a slew of butterfly orders in DIA back in December:

It's interesting how different the mark is on these different orders for the same options:

Here's one way to place orders, narrow butterfly and wide condor:


SELL -1 BUTTERFLY DIA 100 JUN 09 75/85/95 CALL @8.22 LMT GTC
SELL -1 CONDOR DIA 100 JUN 09 65/80/90/105 CALL @14.92 LMT GTC

Proceeds of #1 Order including commissions credit $822.00 - $11.80 = credit $810.20
Proceeds of #2 Order including commissions credit $1,492.00 - $11.80 = credit $1,480.20
Total proceeds: 2290.40

Or you can do it this way: wide butterfly and narrow condor:


SELL -1 BUTTERFLY DIA 100 JUN 09 65/85/105 CALL @18.25 LMT GTC
SELL -1 CONDOR DIA 100 JUN 09 75/80/85/95 CALL @3.87 LMT GTC

Proceeds of #3 Order including commissions credit $1,825.00 - $11.80 = credit $1,813.20
Proceeds of #4 Order including commissions credit $387.00 - $11.80 = credit $375.20
Total proceeds: 2188.4

There's about 5% difference.

Buying Puts and Calls

2009-06-16T11:10:00.000-07:00

A new experiment: observe and imitate unusual option buying.

A number of sites, such as whatstrading.com, post news of unusual trading volume in options. Sometimes, it's because of people who know what they are doing. Let's try a strategy of buying what they are buying, when the price settles down. I will place GTC bids at the price before the high volume. I will place orders of about $200.

Today:

BUY +3 QLGC 100 JUN 09 12.5 CALL @.65 LMT GTC

BUY +3 WDC 100 JUL 09 22.5 PUT @.65 LMT GTC
BUY +4 PPDI 100 OCT 09 17.5 PUT @.45 LMT GTC

IWM Russell 2000 Index Pseudo-Arbitrage

2009-06-15T12:46:00.000-07:00

Today I closed two synthetic short IWM combos:

6/1/2009  COMBO  SELL -1 IWM Jul 09 45 CALL $7.49 $6.79
6/1/2009  COMBO+ BUY   +1 IWM Jul 09 45 PUT $0.70
6/2/2009  COMBO  SELL -1 IWM Jul 09 45 CALL $8.35 $7.75
6/2/2009  COMBO+ BUY  +1 IWM Jul 09 45 PUT  $0.60

6/15/2009 COMBO  BUY  +1 IWM Jul 09 45 CALL $6.55 $5.98
6/15/2009 COMBO+ SELL -1 IWM Jul 09 45 PUT  $0.57
6/15/2009 COMBO  BUY  +1 IWM Jul 09 45 CALL $6.54 $5.97
6/15/2009 COMBO+ SELL -1 IWM Jul 09 45 PUT  $0.57

Total proceeds:
775 + 679 - 598 - 597 - 8*2.95 = $235.40, which is OK for the $1,000 or so I had at risk. (Well, I am still long the two OTM "corners" - 55 call and 45 put - at a debit of $370, so I am a little short of breaking even.) Still, I am greatly relieved to be out of the position, because markets have been relentlessly up all month.
OK, so I chickened out: I have 32 days left in the options, so another market dip is quite possible. But my total options portfolio was very delta-negative, so most days I was seeing (unrealized) losses. Now I am "long delta". Since I expect mostly up days going forward, this is much more comfortable.

Learning: I probably could have earned another $20 or more (10%) at the very bottom today. Maybe I should have had GTC orders to buy back these combos. (But where would I have set the price? And where should I set the price next time? 50% profit? more? less?)

Dan Sheridan's ConDagonal and ConCalendar

2009-06-07T18:55:00.000-07:00

From the CBOE video, Dan Sheridan's Income Trading in a Highly Volatile Market Part III: Condoragonals are the new hybrid condor!

Every month:
Macro look: where is IV in its range?
Top? Net short Vega - butterflies and condors
Low? Net long Vega - calendars and double diagonals

SPY Iron Condor
3/16/09
SPY : 77.17

	APR(33)
Options	Price	IV	Trade
87 calls	0.40	33.8%	+4
83 calls	1.15	36.5	-4
70 puts	1.45	43.9	-4
66 puts	0.80	47.6	+4

Credit 560

Delta	-11.8
Gamma	-9.1
Theta	11.3
Vega	-18.4

Good when VIX is high and falling!

SPY Double Diagonal
3/16/09
SPY : 77.17

	APR(33)			MAY(61)
Options	Price	IV	Trade	Price	IV	Trade
87 calls	0.40	33.8%		1.10	34.3	+4
83 calls	1.15	36.5	-4	2.12	36.1
70 puts	1.45	43.9	-4	2.42	42.0
66 puts	0.80	47.6		1.60	45.4	+4

Credit -80

Delta	1.1
Gamma	-9.0
Theta	12.8
Vega	11.4

Good when VIX is rising!

SPY Condagonal
3/16/09
SPY : 77.17

	APR(33)			MAY(61)
Options	Price	IV	Trade	Price	IV	Trade
87 calls	0.40	33.8%	+2	1.10	34.3	+2
83 calls	1.15	36.5	-4	2.12	36.1
70 puts	1.45	43.9	-4	2.42	42.0
66 puts	0.80	47.6	+2	1.60	45.4	+2

Credit 280

Delta	-5.4
Gamma	-9.0
Theta	12.3
Vega	-3.5

Good when you don't know what VIX will do!
Neutralize Vega risk
30-50 days from expiration
Note that you can morph a Condor or Double diagonal into a Condagonal by either doubling your size or rolling half your long options.

SPY Double Calendar
3/16/09
SPY : 77.17

	APR(33)			MAY(61)
Options	Price	IV	Trade	Price	IV	Trade
81 calls	1.70	37.2	-2	2.85	37.3	+2
72 puts	2.00	43.0	-2	3.00	40.6	+2

Debit -430

Delta	5.1
Gamma	-3.3
Theta	4.9
Vega	14.0

Higher yield (cost less than Double Calendar or Condor) (true????).

SPY ConCalendar
3/16/09
SPY : 77.17

	APR(33)			MAY(61)
Options	Price	IV	Trade	Price	IV	Trade
87 calls	0.40	33.8%	+4	1.10	34.3
83 calls	1.15	36.5	-4	2.12	36.1
81 calls	1.70	37.2	-2	2.85	37.3	+2
72 puts	2.00	43.0	-2	3.00	40.6	+2
70 puts	1.45	43.9	-4	2.42	42.0
66 puts	0.80	47.6	+4	1.60	45.4

Credit 150

Delta	-6.6
Gamma	-12.4
Theta	16.8
Vega	-4.4

Picking a strike to take advantage of a quick move

2009-06-06T19:14:00.000-07:00

The conventional wisdom is that to take advantage of a move, options traders should buy ITM options with high delta. The higher your delta, the more closely your results will track the underlying stock or index.

I have never liked this argument. It leads one to buy really expensive options. Carried to its logical conclusion, though, one should just buy the stock itself, which has a delta of 1.00!

I wonder if the best measure is not cost per delta, like so:
mini-NASDAQ 100 index (MNX: 149.32 last) JUL 09 calls

delta	mark	delta cost	strike
0.82	14.05	17.13	137.5
0.74	12.05	16.28	140
0.72	10.15	14.10	142.5
0.66	8.425	12.77	145
0.59	6.825	11.57	147.5
0.52	5.375	10.34	150
0.44	4.125	9.38	152.5
0.37	3.125	8.45	155
0.3	2.27	7.57	157.5
0.23	1.605	6.98	160

By this metric, OTM options provide the best bang for the buck. Gamma is highest ATM, and tapers off away from the money, but note that starting with an ITM call, gamma falls as the underlying moves in the desired direction, whereas starting with an OTM call, gamma will actually rise as the underlying moves as expected.
Here are the puts:

strike	delta	mark	cost per delta	delta per dollar
137.5	-0.20	$2.04	-10.20	-0.10
140	-0.25	$2.53	-10.10	-0.10
142.5	-0.30	$3.10	-10.33	-0.10
145	-0.35	$3.85	-11.00	-0.09
147.5	-0.42	$4.78	-11.37	-0.09
150	-0.48	$5.83	-12.14	-0.08
152.5	-0.56	$7.10	-12.68	-0.08
155	-0.63	$8.55	-13.57	-0.07
157.5	-0.70	$10.23	-14.61	-0.07
160	-0.76	$12.08	-15.89	-0.06

Review: Time Spreads on MNX (Mini-NASDAQ 100 Index)

2009-05-31T13:56:00.000-07:00

Summary:
I made $2,526.90 (counting $112.10 commissions and $15 cash-settlement fees) on a $3,740 investment in time spreads. Some of this was due to lucky errors.
Time held: 165 days.
APY: (profit / capital) * (365 / days held) = 68% * 2.21 = 150%

Lessons Learned:

If you are long-term bullish, it probably pays to accumulate long calls that aren't covering short front-month calls. (Similarly, I suppose, if you were long-term bearish with puts.)
One way to do this: with cash-settled options like MNX, risk a small cash settlement assignment in hopes of short front-month calls expiring worthless. (If you are fairly bearish going into expiration week.)
Consider where the underlying is in its trading range when deciding whether to short front-month calls or cover shorts.
You don't have to short calls at the same strike as your long calls. Short calls at higher strikes will be covered by long calls at lower strikes. Short calls at even lower strikes will simply involve collateral requirements (to cover the real risk of extra loss).

Method:
On December 16, 2008 I set up an experiment to answer the question: Is it better to sell the front month and then roll out one month before expiration, or is it better to sell a 90-day option and avoid transaction costs?

I set up 5-month, 4-month, and 3-month time spreads on MNX at 2 strikes: 117.5 and 119, at costs of $380 - $905. I probably chose these strikes to bracket the previous day's close (or that day's open) of 118. Total cost for 6 spreads: $3,740.

MNX OHLC 16-Dec-08:  118.19 124.44 118.19 124.35
(data from http://bigcharts.marketwatch.com/interchart/interchart.asp?symb=mnx)

12/16/08  CALENDAR  BUY   +1  MNX Jun 09  117.5 CALL  $17.45  $8.95
12/16/08  CALENDAR+ SELL  -1  MNX Jan 09  117.5 CALL   $8.50

12/16/08  CALENDAR  BUY   +1  MNX Jun 09  117.5 CALL  $17.45  $5.85
12/16/08  CALENDAR+ SELL  -1  MNX Feb 09  117.5 CALL  $11.60

12/16/08  CALENDAR  BUY   +1  MNX Jun 09  117.5 CALL  $17.45  $3.85
12/16/08  CALENDAR+ SELL  -1  MNX Mar 09  117.5 CALL  $13.60

12/16/08  CALENDAR  BUY   +1  MNX Jun 09  119 CALL  $16.65  $9.05
12/16/08  CALENDAR+ SELL  -1  MNX Jan 09  119 CALL   $7.60

12/16/08  CALENDAR  BUY   +1  MNX Jun 09  119 CALL  $16.70  $5.90
12/16/08  CALENDAR+ SELL  -1  MNX Feb 09  119 CALL  $10.80

12/16/08  CALENDAR  BUY   +1  MNX Jun 09  119 CALL  $16.70  $3.80
12/16/08  CALENDAR+ SELL  -1  MNX Mar 09  119 CALL  $12.90

January Results:

MNX closed at 117.59 on expiration Friday, 1/23/09
The 119 calls expired worthless, so I kept the whole $760 premium, minus $2.95 sale commission, for a net of $757.05.
The 117.5 calls were .09 in the money, so I was assigned. Since MNX is a cash-settled index, that meant that $9 was deducted from my account, plus $15 settlement fee, for a net of $826.00.

Fortunately (as it happens), I had too many positions open, and lost track of this experiment. Forgetting my original intent, I failed to roll out to Feb (or in the case of the 119, simply sell a Feb 119 call the following week).

According to the CBOE web site, trading on MNX options stops on Thursday. Since there was such a good chance that both the 117.5 and the 119 could go into the money, I should have carefully considered rolling them both out to February sometime in the week ending Jan 23.

This meant that I was now long 2 Jun'09 calls with no offsetting short sale credits. Probably I could have rolled out for $100 or $200 per contract. As we shall see, this wasn't as bad as it could have been.

February Results:

Again, forgetful of my original purpose, I simply bought back the Feb options before they could be assigned:

MNX OHLC: 118.7 120.42 117.30 118.88
2/18/09 SINGLE  BUY   +1  MNX Feb 09  117.5 CALL  $2.81

2/18/09 SINGLE  BUY   +1  MNX Feb 09  119   CALL  $1.90

Since these had more time value when sold, I collected more premium.
For the 119 call: $1,080 - $190 - 5.90 = $884.10 net.
For the 117.5 call: $1,160 - $281 - 5.90 = $873.10 net.

As it happened, I could have repeated my January results: MNX closed on Feb 20, expiration Friday, at 117.27, so all options would have expired worthless.

Anyhow, I was now long 4 Jun'09 calls with no offsetting short sale credits.

March Results:

2 weeks before expiration, I started to get with the program: I rolled the Mar'09 short calls out to Apr'09:

Mar 6 MNX OHLC: 107.45 108.80 104.37 106.47

3/6/09  CALENDAR  SELL  -1  MNX Apr 09  117.5 CALL  $1.91 $1.40
3/6/09  CALENDAR+ BUY   +1  MNX Mar 09  117.5 CALL  $0.51

3/6/09  CALENDAR  SELL  -1  MNX Apr 09  119 CALL  $1.63 $1.25
3/6/09  CALENDAR+ BUY   +1  MNX Mar 09  119 CALL  $0.38

Still long 4 Jun'09 calls with no offsetting short sale credits.

The next week, I realized my error and sold two additional calls:

Mar 11 MNX OHLC: 111.24 113.52 110.67 112.60

3/11/09 SINGLE  SELL  -1  MNX Apr 09  117.5 CALL  $3.00 $3.00

3/11/09 SINGLE  SELL  -1  MNX Apr 09  119 CALL  $2.49 $2.49

Now long 2 Jun'09 calls with no offsetting short sale credits...

Query: MNX closed at 106.47 on 3/6/09 and at 112.60 on 3/11/09. Would I have been better off waiting until expiration week, when MNX traded between 114 and 122? (And when time value decay in the Mar'09 calls was at a maximum? Hindsight... Once again I could have replicated January results: Fri 3/20/09 MNX exp.: 118.72

Note: the market was really low at this point, and it was (in hindsight) a bad time to sell calls.

April Results:

Over two weeks before expiration I rolled out 2 short calls to May:

Apr 1 MNX OHLC: 123.70 125.49 121.16 125.25

4/1/09  CALENDAR  SELL  -1  MNX May 09  117.5 CALL  $9.30 $2.60
4/1/09  CALENDAR+ BUY   +1  MNX Apr 09  117.5 CALL  $6.70

4/1/09  CALENDAR  SELL  -1  MNX May 09  119 CALL  $8.35 $2.70
4/1/09  CALENDAR+ BUY   +1  MNX Apr 09  119 CALL  $5.65

11 days before expiration, I placed orders to roll out my other 2 Apr'09 calls. Note that as MNX rises, the calls are now farther in the money, and rolling out pays less :

Apr 6 MNX OHLC: 131.62 131.62 128.75 131.31

4/6/09  CALENDAR  SELL  -1  MNX May 09  117.5 CALL  $15.00  $2.10
4/6/09  CALENDAR+ BUY   +1  MNX Apr 09  117.5 CALL  $12.90

4/6/09  CALENDAR  SELL  -1  MNX May 09  119 CALL  $13.90  $2.30
4/6/09  CALENDAR+ BUY   +1  MNX Apr 09  119 CALL  $11.60

Note: in this case, it was better to strike early. As MNX rose between April 1st and 6th, rolling out lost about 20% value.

long 2 Jun'09 calls with no offsetting short sale credits...

May Results:

Rolled May calls out to Jun (which had the effect of closing 4 spreads). Note that MNX has now risen quite high, the calls are now deep in the money, and rolling out brings less than half of what it did at April's prices:

May 13 MNX OHLC: 137.74 137.74 133.98 133.98

5/13/09 CALENDAR  SELL  -2  MNX Jun 09  117.5 CALL  $17.80  $0.95
5/13/09 CALENDAR+ BUY   +2  MNX May 09  117.5 CALL  $16.85

5/13/09 CALENDAR  SELL  -2  MNX Jun 09  119 CALL  $16.50  $0.35
5/13/09 CALENDAR+ BUY   +2  MNX May 09  119 CALL  $16.15

long 2 Jun'09 calls with no offsetting short sale credits...

June Results:

Sold those 2 long Jun'09 calls for $2,340 and $2,490 (for the 119 and 117.5 calls, respectively). Fortunately, MNX continued to rise while I held the long calls:

May 29 MNX OHLC: 142.03 143.56 141.18 143.56

5/29/2009 SINGLE  Sold  -1  MNX Jun 09  119 Call  $23.40
5/29/2009 SINGLE  Sold  -1  MNX Jun 09  117.5 Call  $24.90

Query: would I have been better off shorting calls each month against these (missed 4 months x 2 calls). Answer: the question is, could I have made over $2300 per call, or over $300 per month per call, shorting calls? I think the answer is definitely not! (Well, not unless I was pretty lucky at picking highs for selling short and lows for buying back, or lucky enough to have MNX plunge at expiration every month.) So, serendipitously, I made an extra $3,000 or more by spacing out and not selling calls against long calls held.

Perhaps there is some rule of thumb for letting OTM options expire when the market is low, and selling ATM (or, more aggressively, slightly ITM) options when you feel the market is at the top of its likely trading range...