Stock Investment » Stock Picks

Stocks Investments :Closed VXX Naked Call

admin — Sun, 11 Dec 2011 13:06:27 +0000

I was planning to ride my VXX naked call all of the way to expiration and then sell covered puts on it for as long as I could ride it. Once I saw $SPX hit resistance around its 200 day moving average I started wondering if my downside risk was greater than my upside potential [...]

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I was planning to ride my VXX naked call all of the way to expiration and then sell covered puts on it for as long as I could ride it. Once I saw $SPX hit resistance around its 200 day moving average I started wondering if my downside risk was greater than my upside potential and decided to exit and try it another day. While VXX was trading at .13 I bought to close one December naked call for .30 and paid $0.72 with commissions. This gave me a realized loss of .46 on this option. I almost made a few cents on it, but my original order didn’t hit and I had to chase it up the ladder some. I could’ve bought this call back with a market order for .95 just a few minutes before I changed the order.

$SPX was around 1,258 at the time I made the trade and now it’s down to 1,252 while I write this with VXX up to .80. I ran a few alternate trades through my head before running with this one. All of them pushed me into January with VXX exposure and I didn’t really want that any more. I thought selling a January covered put for a little more than .00, but figured VXX could pop another .00 higher and waste more money for me in a single day. That made me consider a January covered put for about .00. It would’ve put my cost per share around .00 and might not have been a bad trade since I would’ve set myself up for another 0 profit over the next seven weeks. I really debated that, but finally decided it was better to just get out, move on and concentrate on my core positions of index ETFs. I’ll probably come back to VXX again next year and might start my trade with a calendar spread to try to work off the faster time value erosion in the front couple of months versus four to six months out.

I also considered new covered calls on JPM. I have December covered calls on my 200 shares right now. I’ve left them in place even though they are only worth $content.10 so that I’m forced to sell if JPM rips higher again. It’s already so far off its recent lows that I wondered if I should lower this strike and try to get out with the guarantee of more premiums in my pocket. I got as far as entering the limit order, but never hit “transmit” before I deleted it. I’ll probably regret not taking in more premiums since JPM looks like it might have gained as much as it’s going to for now. I opted to risk it though and see if how it does tomorrow. If it starts to falter, I’ll go ahead and sell new covered calls at lower strikes or might just close the position if it looks too risky.

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Stock Market Investment :Sold DIA Naked Put

admin — Sun, 11 Dec 2011 13:06:27 +0000

Yesterday I mentioned my plans to come in on either direction the jobs data pointed us. Although the details within the jobs data were mixed, the headline number helped push the scrum to the bulls’ side to start the day. Seeing the ECB showing more teeth in their snarl helped

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Yesterday I mentioned my plans to come in on either direction the jobs data pointed us. Although the details within the jobs data were mixed, the headline number helped push the scrum to the bulls’ side to start the day. Seeing the ECB showing more teeth in their snarl helped too. (The ECB is reported to be setting up a 100-200 euro loan to the IMF.) What I see more and more of is a reduced probability of another hard recession in the near term. While the troubles and concerns are very far from being resolved the majority of macro-economic fundamentals are looking more and more bullish (outside of China which is a whole other concern). This creates a little firmer floor for any dips, much like the one we’re still springing off of this week.

With all of this in mind I thought I should add in some large cap exposure. I’m deep enough into small caps already and have a decent amount of mid-cap exposure, so the Dow was the next logical place to look for me to diversify a little, not that diversity has done much for anyone lately in a market that seems to have a beta of one for every sector. While DIA was trading at 0.94 I sold one DIA December 30th 1 naked put for .05 and received 4.65 after commissions.

I sold at the money because I’m more bullish than bearish, but not so much that I considered going in the money for more than about 10 seconds. This trade sets me up for a potential gain of 2.6% or 31.9% annualized. I picked the short duration because I’m really banking on the Santa Claus rally to pull us through the end of the year with strength. By the time January rolls around we could be ready for another leg down briefly. I’d like to have this option window brief enough that the time value melts quicker and close enough to the money that the bid/ask spreads stay tight in case I want to exit. My plan is to take the assignment if it ends in the money and then try to work some tactical market timing trades on it with covered calls. I’m half hoping I get assigned the shares. With the 2.6% cushion I’ll gain back some of my lagging to the Dow’s return.

I’m really trying to make an effort to move away from the ultra ETFs somewhat compared to how I’ve used them the past few years. If the markets go back to a more “normal” flow of regular trending I might switch back, but the speed the markets plummet and then rocket higher make the ultra ETFs much less comfortable for a good night’s sleep. If we can see 3-4% changes in SPY and DIA in a single day I have no need to try to double that. The trick is just to be on the right side of the trade most of the time. I don’t even need to get it right every time. For example, if this DIA trade works for me five times in 2012 and I break even on the other seven attempts I’ll still have a 13% return for the year in addition to any dividends I catch along the way. I’d like to think I can do better than batting .417. If not, I’m in trouble.

Also worth mentioning – have y’all seen VXX lately? My December naked put is only $content.46 in the red. I might enter a limit order to buy it back soon, but I’m still considering taking the assignment and then writing a covered put on the short shares. One bad story out of Europe could send it back to the moon though.

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Stocks Investments :Closed TWM Naked Puts

admin — Sun, 11 Dec 2011 13:06:27 +0000

Yesterday I mentioned that I might have to close these puts early if small caps continued to rise. This morning in my month end summary I referenced the move again when I said I need to be better about closing positions early when I have a good profit. Soon after I wrote that I decided [...]

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Yesterday I mentioned that I might have to close these puts early if small caps continued to rise. This morning in my month end summary I referenced the move again when I said I need to be better about closing positions early when I have a good profit. Soon after I wrote that I decided to go ahead and bite the bullet and closed my TWM position for a tiny loss just to avoid having a bigger loss. While TWM was trading at .42 I bought to close three TWM December naked puts for .95 each and paid 7.17 with commissions. I took a realized loss of .45 on the trade.

The thing that irritates me most about this trade is that I should’ve made it last week when I could’ve paid closer to $content.40 or $content.45. I ended up spending an extra 0+- because I waited. At the time, it seemed reasonable to wait another three weeks to pocket another 0-135, but that’s not how it played out. The funny part is that I’m not sure I should’ve closed it yet today. Obviously if I had waited a few hours I would’ve done better because small caps retreated and TWM gained some again, but that’s not anything I could count on.

What I did know (but didn’t consider enough) was there were not quite 12 full days left in the contracts and the puts were still out of the money. TWM was also close to its recent lows and the fast money is probably over. If TWM was to continue falling I still had .37 that it could fall before I’d be .95 in the money. To do that IWM and the markets would have to hit new highs. The risk is in what happens with the jobs data tomorrow. It could easily kick off another rally or another sell off. If we get another sell off I might use another inverse ETF and repeat the trade for a December expiration with plans to close the position when I get a profit of half the premium or maybe 2/3.

The best news out of this is that UWM has risen sharply from its recent lows and my account is much better off for it. Seeing the market flat today after such a monster day yesterday has to make the bears nervous. A lot hinges on tomorrow’s numbers and I’m going to try to be ready to capitalize on the move in either direction.

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Stocks Investments :Sold DDM Naked Put

admin — Sun, 11 Dec 2011 13:06:27 +0000

Like most bullish investors, I woke up to see some exciting futures this morning only to see them improve even more with each piece of data and news story that hit the wires. I was considering opening more exposure on Monday (and obviously should’ve), but the opening pop was

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Like most bullish investors, I woke up to see some exciting futures this morning only to see them improve even more with each piece of data and news story that hit the wires. I was considering opening more exposure on Monday (and obviously should’ve), but the opening pop was so strong that I thought I had missed it the majority of what might last. On Tuesday it looked like resistance was going to hold the markets back as it rolled over in the afternoon. I decided to wait for a clearer sign that this wasn’t just a dead cat bounce. This morning’s rally was hitting on all cylinders and I decided I couldn’t afford to wait any longer.

Rather than get too aggressive I decided to use last week’s low as my target and worked from there. I decided to use DDM, a double the daily return of the DJIA ETF, as my tool of the day. While DDM was trading at .77 I sold one DDM January naked put for .80 and received 9.57 after commissions. DDM hit .86 last week as an intraday and closing low. With the positive data coming out today (and throughout the month excluding Europe) I don’t think we’ll revisit the October lows, but could retest last week’s lows. I don’t see it as too likely, but possible and that’s why I didn’t want to get overly aggressive with this trade. I’m only looking at a 3.6% return if this works out for me, but that’s 27.8% annualized and the risk isn’t massive. DDM can drop 15.14% before I take a loss which is equivalent to more than 7% in the DJIA.

It’s easy to want to jump in with both feet on a day like today when they Dow was up over 400 points for most of the day and the SPX was up over 40 points too, but Europe’s troubles are far from over and we still have Friday’s employment report due. A lot can change very quickly and I’d rather settle for a 3.5% return in seven and a half weeks than risk another substantial beating.

The best part of this week’s rally for my account is the advance small caps have taken and in particular my UWM exposure. I’m long 100 shares and have six January naked puts on UWM plus one January put, three January puts and one January put. The January puts look more and more likely each day to finish out of the money and the others are eating away at the intrinsic value and the little time value still included. I haven’t closed my TWM (inverse UWM) puts for December yet, but might have to soon if this rally continues through the end of the week. I’m expecting some give back at some point though as we’re starting to draw in closer to the November highs (or the lows in TWM’s case) again.

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Stock Investments :Sold UCO January Naked Puts

admin — Tue, 29 Nov 2011 01:42:43 +0000

It’s not that oil looks like it is going to shoot all that much higher from here, but maybe more that I don’t think it’s going to tank to ridiculously low levels. My current oil exposure is all in UCO and includes 300 shares long, plus a December 32 naked put and three January 40 [...]

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It’s not that oil looks like it is going to shoot all that much higher from here, but maybe more that I don’t think it’s going to tank to ridiculously low levels. My current oil exposure is all in UCO and includes 300 shares long, plus a December 32 naked put and three January 40 covered calls. After UCO climbed up to almost I started to wonder if I’d lose money on my calls. It’s rally was short and we saw a solid sell off, but today’s bounce made me pull the trigger on some additional naked puts to see if I can gain a full profit on one leg of the wide option strangle.

While UCO was trading at .03 I sold three UCO January 35 naked puts for .70 each and received 8.72 after commissions. This was a higher strike than I originally planned to sell new puts on, but UCO is higher than I thought it would climb also, so I decided to change plans. Even if oil sells off (and we all know it will again eventually), I don’t think it’ll fall too far below my cost per share on this new lot of .31. My average cost per share if assigned another 300 shares at .00 would be .29. That’s a price I can easily play with and be patient with.

The way oil is trading lately it seems my 300 shares stand a good change to be called away in January and I’ll just have to settle with taking my profit and starting over. I have a lot of time value left in the options to melt away in the next couple of months and would love to see UCO slide back into its sideways trading range between and . If it does that, I’ll be able to continue repeating this same trade until it doesn’t work. Thanks to the volatility in oil and doubly in UCO I stand to make a return of 8.3% or 49.3% annualized on this trade. Just as easily I could take a loss, but I like my odds over time. The time value in both legs of my UCO options equals nearly ,500. Hopefully I don’t lose much value on my actual shares before the time value erodes.

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Stock Investment :Shifting Risk with MVV, SSO and TBT + A Trading Model Change

admin — Tue, 29 Nov 2011 01:42:43 +0000

As I mentioned last week with my TWM trade and in my $SPX chart on Sunday, I’ve grown more bearish lately and I made some more changes today. I started with a basic sell to lighten my overall exposure to the markets. I sold 200 shares of SSO for .88 and received ,375.01

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As I mentioned last week with my TWM trade and in my $SPX chart on Sunday, I’ve grown more bearish lately and I made some more changes today. I started with a basic sell to lighten my overall exposure to the markets. I sold 200 shares of SSO for .88 and received ,375.01 after commissions. I thought about selling covered calls to bring in some cash and help reduce my cost per share, but decided that left too much downside risk with too little upside potential. Selling the shares outright seemed to fit my new plan I’m working on. More on that at the bottom of this post.

Once the day moved along and pessimism stayed the prevailing mood of the day I started to wonder if it was getting overdone. Bonds had rallied, but were not getting out of control yet. I checked TBT (ultra inverse 20 year bond ETF) to see if there was a trade to be had with options on it. The low for TBT on October 4th was 18.00. I don’t think the yields are going to get any smaller than they were back then and if they do it won’t be by much, so naked puts on the inverse ETF started to look like a reasonable trade for a nice potential return. While TBT was trading at .79 I sold five TBT December naked puts for $content.52 each and received 6.38 after commissions. I almost went out to the January expiration and also considered the strike, but I wanted a short duration and a cost if assigned of only .49 seems not to be too risky for something I wouldn’t mind holding longer and selling out of the money covered calls on. Eventually bond prices will go down again and I’ll be able to profit from the rise in TBT. I think my chances are good I’ll profit in four weeks, but with a potential return of almost 3% in four weeks (more than 38% annualized) apparently many others think it’s a risky trade. It’s not a full position for me, so the risk is somewhat limited in that respect too.

Soon after that order hit, my MVV trade hit too. Unlike my SSO order that I just cut bait and ran from, I opted to sell covered calls on the ultra mid-cap ETF. While MVV was trading at .88 I sold two MVV December covered calls for .60 each and received 8.54 after commissions. The potential return is great, but the upside risk of selling too low is high as is the downside risk of a bigger sell off. Essentially it was a compromise after dumping SSO. I wanted to keep some exposure and I don’t have a lot right now so this and TBT won out. As with TBT, I wanted a short duration on the options. It all builds towards my goal of starting the year with a clean slate.

I’m working on a new trading plan for next year that does not include selling LEAPS again. I liked the idea in theory and it would’ve been great if the market didn’t sell off 20%, but it did and it messed me up. I made better returns when I kept the durations shorter for my options. In general, my plan is to focus mainly on SPY, MDY, IWM, UCO and maybe TLT. I’ll keep working UCO similar to how I am already. Aside from my lack of hedging my entry earlier this year, my UCO trade series tend to turn a nice profit. For the indexes I’ll sell ITM naked puts to enter the position when I think the markets are bottoming and then I’ll stay long and uncovered while I think the markets are in rally mode. When I see a turn lower coming I’ll sell either at the money or in the money covered calls. The essence of the theory is that I’m not beating the indexes by trading individual stocks most of the time. If my goal for my own account and some of my clients’ accounts is to beat indexes I need to invest in them more directly. I’ll try to nibble an edge higher with options when my own market timing and the system I subscribe to predict changes coming.

Don’t get me wrong, I’ll still make trades on individual stocks like shorting NFLX when I see an opportunity, but for the most part I seem to better timing indexes than individual stocks. Keeping my option durations short allows me to be more nimble with my trades and not get caught out with big bid/ask spreads like I have with my current ultra ETF longer dated options. Earlier this year I was concerned about not having time to juggle trades each month or two. By limiting my focus to only a few ETFs I should be able to group trades better and get more done with few trades. I ran this type of model for one of my clients this year who wanted less volatility in her account. So far her account is beating mine nicely, so I thought I should do the same for me that I did for her. Hopefully it wasn’t a fluke and I’ll go back to my winning ways.

What has worked for some of you this year? What do you see changing next year for your trading model (if anything) and what do you think of my potential changes?

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Stock Investments :Options Expiration – November 2011

admin — Tue, 29 Nov 2011 01:42:43 +0000

Options expiration finished pretty good for me on a few positions, but really bad on a couple of others that wiped out my gains on the good ones and then some. This is how it shook out this month: UCO – 3 November 26 naked puts – Finished out of the money by a long [...]

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Options expiration finished pretty good for me on a few positions, but really bad on a couple of others that wiped out my gains on the good ones and then some. This is how it shook out this month:

I’m starting to ease up some going into the end of the year based on the charts that seem to show a weakening right now rather than a good Santa Claus rally. I’m ready to flip back in the other direction when the charts change. I’m just trying to be more disciplined about listening when the charts speak and right now I see a lot of signals that say wait before entering again.

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Stock Investment :Sold TWM Naked Puts

admin — Tue, 29 Nov 2011 01:42:43 +0000

This is a trade I’ve been working for the past couple of options expiration cycles in my IRA successfully and in my taxable account once (ending in a profit in October). I have seven naked puts in and out of the money on TWM’s inverse brother, UWM. I see a draw

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This is a trade I’ve been working for the past couple of options expiration cycles in my IRA successfully and in my taxable account once (ending in a profit in October). I have seven naked puts in and out of the money on TWM’s inverse brother, UWM. I see a draw down in small caps coming, but the time value and volatility in my UWM options makes the premiums too great to make buying them back worth it right now. I also don’t see the dip as lasting too long, so I turned back to TWM for a little more “juice” into my account while I wait it out.

While TWM was trading at .99 I sold three TWM December naked puts for .90 and received 8.72 after commissions. I was able to get .95 in my IRA and for one of my clients, but TWM rose too much before I got around to my taxable account to trade. It looks like I could’ve been more patient and pulled out a .00 trade if I waited another 35-40 minutes. Waiting for another nickel or dime wasn’t worth the risk of missing the trade to me. At least I didn’t sell the puts at the bid price. I’ve made this trade in my IRA at the strike previously because that was very close to the TWM low, but with such rich premiums I don’t think the risk of a loss is very great here. Then again if TWM tanks that means UWM is shooting higher and my UWM puts are losing value and increasing my profit.

The sell off from the past two days has been interesting for my account to say the least. I mentioned a couple of days ago that I didn’t know if my VNQ and DSX covered calls would be assigned because they were still in the money. Now they aren’t and I have a good chance of seeing them expire worthless which means I’ll probably sell new covered calls tomorrow afternoon once I feel safe that these won’t be assigned.

As I clean up November’s expiring options tomorrow I’ll probably go ahead and buy back my far out of the money December covered calls on JPM. I’m not sure I’ll sell new ones while JPM is down here, but will probably at least enter a limit order to set myself up for another bounce. Another trade I’m considering is on TLT, the long term bond ETF. Actually I’m more focused on the inverse side of this and maybe even the ultra inverse ETF, TBT. TBT bottomed at .00 at the bottom of the $SPX lows in early October. I don’t think we’re headed that bad again, but can see a great opportunity in the December naked puts or maybe even the puts if I feel like taking a bigger chance for a longer play. Over time TBT will rise as interest rates push higher. For now I’m just thinking about it, but could make this trade as soon as tomorrow or Monday.

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Stock Investment :Market Goes Up – Time to Buy and Sell Options

admin — Thu, 13 Oct 2011 11:56:55 +0000

1,220 still seems to be the magic number for the S&P 500′s ($SPX) resistance. This morning’s start was good enough for me to add some more exposure though. I started with adding more UCO before lunch. I am long 300 shares already with a three covered calls at

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1,220 still seems to be the magic number for the S&P 500′s ($SPX) resistance. This morning’s start was good enough for me to add some more exposure though. I started with adding more UCO before lunch. I am long 300 shares already with a three covered calls at the January strike. I’ve been debating selling new puts for months and after I missed the low I waited some more to see if it would retest those lows. Finally I decided to take a small chance. Small based on how far it is out of the money, but not by size as much since it will double my position if assigned. While UCO was trading at .65 I sold three UCO November naked puts for .25 and received 3.73 after commissions.

UCO bottomed out early last week (10/4) at .58 and shot back up from there and didn’t close below (above my cost if assigned new shares). I’m banking on WTI oil not falling below the low s and expect this trade to expire out of the money leaving me with a full profit. I’ll make a 5.0% return if the trade works out for me. That’s 46.6% annualized. I’m bullish enough on oil to have gone with a higher strike, but with a potential return this high there’s no need to take extra risk. My other 300 shares will give me a bigger upside return if oil continues to climb. I don’t think WTI will get back above 0 until the European mess is cleared up better than a handful of rumors and plans to make a plan. If I’m wrong I’ll enjoy pocketing these premiums and the next 70 in growth from the shares I own before my covered calls come into play at .00. If the shares are assigned, my average cost per share will drop substantially and I’ll be selling six covered calls and maybe more naked puts again.

JPM reports earnings tomorrow. They’ve rocketed off their lows and I didn’t want to risk losing those gains if earnings disappoint. So I bought some insurance in the form of very short dated puts. While JPM was trading at .42 I bought two October 14 puts for .05 each and paid 0.68 with commissions. Since I bought the puts in the money by $content.58 my protection to the downside will kick in sooner than if I bought the cheaper strike puts. If JPM surprises to the upside the puts will quickly become worthless since they expire in two days. JPM gained .25 today and I think they have much more upside potential so I’ll make the .05 back quickly. I might even be able to sell these puts to get back a few cents if it doesn’t overshoot too much. I thought about selling covered calls farther out of the money at a later expiration to capitalize on the high implied volatility, but want to see if this rally has legs still after failing at 1,220 today. JPM also faltered into the close and I already have a profit on my new long puts. That’ll be moot by tomorrow when the unknown is known.

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Stocks Investment :Sold New AFL Naked Puts

admin — Thu, 13 Oct 2011 11:56:55 +0000

AFLAC, Inc ($AFL) has been on a nice run since it bottomed out recently. Sadly, not far from the bottom I sold covered calls at the strike for November only to see AFL run up past and send these covered calls in the money. I thought about buying them back, but decided to [...]

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AFLAC, Inc ($AFL) has been on a nice run since it bottomed out recently. Sadly, not far from the bottom I sold covered calls at the strike for November only to see AFL run up past and send these covered calls in the money. I thought about buying them back, but decided to go another route today. While AFL was trading at .05 I sold two AFL November naked puts for .60 each and received 9.31 after commissions.

With so much volatility in the markets lately there’s no telling where AFL is going. I think it’s a good company though and wouldn’t mind owning more at a cost around .41. If my current 200 shares get called away, then that will mean my new naked puts were not assigned and I’ll move on to something new.

The best part about volatility being so high lately is that selling new options can be very profitable when they work out. The risk might be perceived as higher, but it might not really be since stocks are already off their highs and the upside potential might be greater than the downside risk from here. Since AFL has bounced so much recently, the volatility is very high. On this particular put option the implied volatility is listed at 57+%. The risk isn’t small in the short term, but the company is still strong and pays a good dividend (3.08%). Due to the high implied volatility, I stand to make 4.6% if the put finishes out of the money. That comes out to better than 42% annualized. Those are the kinds or risks I don’t mind taking, even in a choppy market. If assigned, my average cost per share will drop substantially since I bought my first 200 shares at .00.

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