Trying to Stay in Front of this Rising Market

Just a quick update on my trades so far this month.

My NDX Iron Butterfly hit its profit target only 3 days into the trade!  On 2011-03-18 I bought it back for 85.40, leaving me with a profit of 8.50 on a margin of 56.10, or 15.2%.

My other two positions have not fared as well. The SPX shot up from around 1281 when I opened the trade to around 1314 ten days later.  Once my expiration break-even point was hit, the first adjustment was to open another calendar near the money, to give me more credit and protect me from more upside risk:

• On 2011-03-25, bought the SPX April/May 1325 Call Calendar for 13.00.  This increased my debit from 12.60 to 25.60.

Likewise, my RUT Iron Condor was suffering because the index went up from around 788 to 824 ten days later.  I knew it was time to adjust because my short call delta went up from about .16 to about .26, and then again to .36 on the same day!  This required something drastic, so I repositioned the entire condor:

• On 2011-03-25, bought back the RUT April 700/710/845/855 Iron Condor, and replaced it by selling a RUT April 765/775/865/875 Iron Condor.  The new credit was 1.375.

Since then, both the SPX and the RUT have continued to rally, and I needed to adjust both trades again.  First I took off the lower strike SPX calendar:

• On 2011-04-01, sold back the SPX April/May 1285 Call Calendar at 9.95 for a loss.  

This raised my remaining SPX position's (the 1325 Call Calendar) break-even to around 1345.  I can still make my profit target of 20%, even counting the loss on the 1285 calendar, if SPX remains relatively stable or goes down a bit.

• On 2011-04-01, bought back the RUT April 765/775/865/875 Iron Condor, and replaced it by selling a RUT April 800/810/880/890 Iron Condor.  I also increased the size of the position by 50% to get a bigger overall dollar credit.  The new credit is now 0.90333 per share.

I can still make 10% on the trade if the RUT stays between 810 and 880 at expiration.

Happy trading!

Plan Update

Hello followers!

A lot has happened since my last post.  I've won a few and lost a few (trades, that is).  I've started using twitter regularly (you can follow me @potentcocktail), and quit my traditional jobs (at ThoughtWorks and Amazon.com) to trade full time.  I've also realized that in order to make money consistently and with less stress, I need a plan to follow.  Sheridan Options Mentoring is helping me create and follow that plan.

I've signed up as a student, but my mentorship doesn't officially start until April.  In the meantime, I've been watching lots of webinars, and have been trading a little based on them.  I've learned the basics of several strategies, including the Iron Condor, Calendar Spread, Double Diagonal, and Iron Butterfly.  Last month I was very successful with the following trades:

• On 2011-02-14, sold the RUT March 760/770/865/875 Iron Condor for 2.35 credit.  I was looking to make a 15% profit on my margin of 7.47 (about 1.12 per share), and lose no more than 15%.
• On 2011-02-15, bought the SPX March/April 1325 Call Calendar for 9.30 debit.  For this trade my profit target was 20% of my debit of 9.30 (about 1.86 per share), and lose no more than 25%.
• I ended up making a adjustment to roll down the put spread on the Iron Condor to the 750/760 strikes on 2011-02-24.  This decreased my credit to 2.08, and upped my margin to 7.92 per share.  I adjusted my profit target to 15% of this, or about 1.19 per share.
• On 2011-02-22 my Calendar hit its profit target, and I sold it back for 11.20, leaving me with a profit of 1.90.
• On 2011-03-09 my profit target on the Iron Condor was reached, and I bought it back for 0.89, leaving me with my 1.19 profit.

This month, I added an Iron Butterfly into the mix:

• On 2011-03-15, bought the SPX April/May 1285 Call Calendar for 12.60 debit.  Profit target of 20%, max loss of 25%.
• On 2011-03-15, also sold the RUT April 700/710/845/855 Iron Condor for 2.59 credit. Profit target of 15%, max loss of 15%.
• On 2011-03-15, also sold the NDX April 2100/2250/2400 Iron Butterfly for 93.90 credit.  Profit target of 15%, max loss of 20%.

I'll be posting updates as I manage these three trades this month.  Happy trading!

Update on my positions...

Date	Time	Type	Description	Fee	Commission	Amount
20-Jan-2010	11:03:29	Trade	Sold 5 WDC Feb10 42 PUT (FJINP) @ $1.40	0.08	12.50	687.42
19-Jan-2010	13:34:24	Trade	Sold 8 HITK Feb10 25 PUT (DBQNE) @ $1.40	0.13	12.50	1,107.37
19-Jan-2010	09:32:33	Trade	Sold 5 NTES Feb10 40 CALL (NGHBH) @ $0.65	0.08	12.50	312.42
19-Jan-2010	09:30:20	Trade	Sold 1 PCLN Feb10 200 PUT (PNENA) @ $8.20	0.03	12.50	807.47
19-Jan-2010	09:30:09	Trade	Sold 1 ISRG Feb10 290 PUT (AXVNZ) @ $8.70	0.03	12.50	857.47
19-Jan-2010	09:30:00	Trade	Sold 7 AIXG Feb10 30 PUT (QWANF) @ $1.95	0.12	12.50	1,352.38
14-Jan-2010	14:43:50	Trade	Sold 9 FUQI Feb10 25 CALL (QXFBE) @ $0.30	0.14	12.50	257.36

   
Hi everyone!  January expiration came and went, with lots of good stuff happening.  All my short put and call positions I opened in December expired worthless, allowing me to keep all the premium I collected.  The above trades represent a credit of $5,381.89, which I'll get to keep if the stocks stay above their respective strikes.  But, as we all know, the market has been in a correction mode as of late.  All the above puts are now in the money (except for ISRG), but I'm not worried because all these companies have solid fundamentals and should get back to their strikes at some point in the future, as long as we don't have some kind of global disaster.  Anything can happen, though, but without taking some kind of risk, no great reward can be had.

My trades for the new year

Hello!  My December puts all expired worthless, and my CMG calls caused my 200 shares to get sold at $85.  My positions after expiration consisted of my 900 FUQI shares, my 500 NTES shares, and my 1800 STEC shares, along with the STEC backspread I described last time.  For January expiration I decided to continue my put-selling strategy, as well as my covered-call strategy.  I made the following trades:

Date	Time	Type	Description	Fee	Commission	Amount
21-Dec-2009	10:40:46	Trade	Sold 1 AAPL Jan10 195 PUT (APVMS) @ $4.50	0.0300	12.50	437.4700
21-Dec-2009	10:26:08	Trade	Sold 3 GOLD Jan10 75 PUT (GUDMO) @ $1.70	0.0300	12.50	497.4700
21-Dec-2009	10:22:31	Trade	Sold 7 AIXG Jan10 30 PUT (QWAMF) @ $0.65	0.0500	12.50	442.4500
21-Dec-2009	10:18:24	Trade	Sold 2 ABV Jan10 95 PUT (ABVMS) @ $2.55	0.0300	12.50	497.4700
21-Dec-2009	10:04:25	Trade	Sold 4 JOYG Jan10 50 PUT (JQYMJ) @ $1.35	0.0400	12.50	527.4600
21-Dec-2009	09:50:17	Trade	Sold 9 FUQI Jan10 24 CALL (QXFAY) @ $0.05	0.0500	12.50	32.4500
21-Dec-2009	09:47:31	Trade	Sold 5 NTES Jan10 40 CALL (NGHAH) @ $0.55	0.0300	12.50	262.4700
21-Dec-2009	09:46:58	Trade	Sold 33 HL Jan10 6 PUT (HLMR) @ $0.30	0.1600	16.50	973.3400
21-Dec-2009	09:46:19	Trade	Sold 2 AMZN Jan10 125 PUT (QZNMX) @ $2.54	0.0300	12.50	495.4700

The total premium for these short trades is $4,166.05.  Can't wait to see what happens next month!  Happy holidays!

A cool book, and an interesting "stock repair" idea

I came across a very interesting book, Options for the Beginner and Beyond by Edward Olmstead, at Borders last weekend.  Consider my position in STEC, which is currently underwater.  My overall cost basis is $22.78 per share.  I'm still feeling bullish about this stock.  Last Monday, STEC was trading around $12.49 per share.  What if I could get back to even, without having to require that STEC trade back to over $22?  And what if I could get paid to do it?  That's what Chapter 16 in Olmstead's book describes.  The idea is to sell a call ratio backspread... what's that???  It's like a vertical call spread, but we're selling the higher strike in the ratio of 2 to 1 to the lower strike.  Here's the trade I put on last Monday:

Date	Time	Type	Open or Close	Description	Fee	Commission	Amount
7-Dec-09	9:41:26	Trade	OPEN	Sold 18 STEC Jan11 17.5 CALL (ZKWAW) @ $2.25	0.18	-	4,049.82
7-Dec-09	9:41:23	Trade	OPEN	Sold 18 STEC Jan11 17.5 CALL (ZKWAW) @ $2.26	0.18	-	4,067.82
7-Dec-09	9:41:20	Trade	OPEN	Bought 18 STEC Jan11 12.5 CALL (ZKWAV) @ $3.86	0.07	27.00	(6,975.07)

Assuming no commissions, the net credit is $1,170.00, which I get to keep no matter what happens.  The maximum gain occurs at the higher strike of $17.50, where the short calls would expire worthless and the long calls would be worth $5 each.  Including the credit, my total position in STEC stock and options would be worth $41,670 in this case (1800 STEC * $17.50 + 1800 ZKWAV * $5 + $1,170), which would be just above my cost basis of $41,000.  Another way to look at this trade is as a covered call plus a bull call spread.

In order to "get back to even" I'd need STEC to rise to around $17.32 per share by the third week of January, 2011.  Much better than having to have it rise back to $22.78!

So, out of all the short put positions I had on last month, I got assigned on three: I now own 200 CMG @ $85, 900 FUQI @ $23, and 1000 (more) STEC @ $21. I also got my 1600 NDN called away from me @ $12.50, which, after commissions, lost me a total of $22.97. So, my cash flow last month (before being assigned CMG, FUQI, and STEC) was $10,806.24. Of course, I have paper losses of approximately $22,556.40 on my stock holdings!

Stock	Quantity	Price	Cost	Market	Value	Gain
CMG	200	85	17,007.50	83.33	16,666.00	(341.50)
FUQI	900	23	20,707.50	20.92	18,828.00	(1,879.50)
NTES	500	40	20,014.95	37.34	18,670.00	(1,344.95)
STEC	800	25	20,014.95	12.24	9,792.00	(10,222.95)
STEC	1000	21	21,007.50	12.24	12,240.00	(8,767.50)

STEC especially has misbehaved. I might have to wait a while for this one to come back. Anyway, this month I've done the following:

Date	Time	Type	Open or Close	Description	Fee	Commission	Amount
25-Nov-09	12:03:34	Trade	OPEN	Sold 11 VIP Dec09 17.5 PUT (VIPXW) @ $0.40	0.06	12.50	427.44
24-Nov-09	9:56:19	Trade	OPEN	Sold 4 JOYG Dec09 49 PUT (JQYXY) @ $1.60	0.04	12.50	627.46
23-Nov-09	9:42:54	Trade	OPEN	Sold 9 FUQI Dec09 24 CALL (QXFLY) @ $0.40	0.05	12.50	347.45
23-Nov-09	9:32:31	Trade	OPEN	Sold 2 CMG Dec09 85 CALL (CMGLQ) @ $2.45	0.03	12.50	477.47
23-Nov-09	9:30:16	Trade	OPEN	Sold 5 NTES Dec09 40 CALL (NGHLH) @ $1.15	0.04	12.50	562.46
23-Nov-09	9:30:16	Trade	OPEN	Sold 18 STEC Dec09 19 CALL (SQRLT) @ $0.05	0.08	12.50	77.42

Total income on these sales is $2,519.70.

Lots of activity this month. Not all of it great, but none of it very bad (yet). Three of my short put positions were assigned to me, and the rest expired worthless. The expired options netted me $3,019.73 of income last month, and I was forced to buy STEC, NTES, and NDN at prices slightly higher than market. I immediately wrote November calls against my long stock positions for a total of $3,710.88, and opened 10 short put positions for November expiration for $7,118.33. I'm hoping my stocks climb a bit to somewhere above the call strikes so I can keep the call premiums, and of course I hope the underlyings of my short put positions don't close below their corresponding strikes at November expiration. Best case scenario would net me around $10,739.51.

Execution Date	Action Description	Quantity	Symbol	Description	Price	Commission	Reg Fees	Total Cost
10/19/2009 9:33	Sell To Open	16	.NDNKV	NDN NOV 12.5 Call	$0.70	$24.00	$0.09	$1,095.91
10/19/2009 9:33	Sell To Open	8	.SQRKE	STEC NOV 25 Call	$2.15	$14.95	$0.08	$1,704.97
10/19/2009 9:30	Sell To Open	5	.NGHKH	NTES NOV 40 Call	$1.85	$14.95	$0.05	$910.00
10/18/2009 9:58	Buy To Close	16	.OFGVV	EXPIRED OFG OCT 12.5 PUT	$0.00	$0.00	$0.00	$0.00
10/18/2009 9:58	Buy To Close	13	.HGGVC	EXPIRED HGG OCT 15 PUT	$0.00	$0.00	$0.00	$0.00
10/18/2009 9:58	Buy To Close	4	.QKUVI	EXPIRED SNDA OCT 45 PUT	$0.00	$0.00	$0.00	$0.00
10/18/2009 9:58	Buy To Close	4	.DTJVR	EXPIRED DLTR OCT 45 PUT	$0.00	$0.00	$0.00	$0.00
10/18/2009 9:58	Buy To Close	9	.BCSVX	EXPIRED BCS OCT 22.5 PUT	$0.00	$0.00	$0.00	$0.00
10/18/2009 9:58	Buy To Close	33	.FVI	EXPIRED F OCT 6 PUT	$0.00	$0.00	$0.00	$0.00
10/16/2009 22:07	Buy	800	STEC	Option Assignment	$25.00	$14.95	$0.00	($20,014.95)
10/16/2009 22:07	Buy To Close	8	.SQRVE	STEC OCT 25 Put	$0.00	$0.00	$0.00	$0.00
10/16/2009 21:40	Buy To Close	5	.NGHVH	NTES OCT 40 Put	$0.00	$0.00	$0.00	$0.00
10/16/2009 21:40	Buy	500	NTES	Option Assignment	$40.00	$14.95	$0.00	($20,014.95)
10/16/2009 21:39	Buy	1600	NDN	Option Assignment	$12.50	$14.95	$0.00	($20,014.95)
10/16/2009 21:39	Buy To Close	16	.NDNVV	NDN OCT 12.5 Put	$0.00	$0.00	$0.00	$0.00
10/16/2009 9:33	Sell To Open	2	.CMGWQ	CMG NOV 85 Put	$2.35	$14.95	$0.03	$455.02
10/16/2009 9:33	Sell To Open	3	.SQMWG	SQM NOV 35 Put	$0.90	$0.00	$0.02	$269.98
10/16/2009 9:32	Sell To Open	1	.BPJWL	BIDU NOV 360 Put	$10.00	$14.95	$0.04	$985.01
10/16/2009 9:32	Sell To Open	3	.SQMWG	SQM NOV 35 Put	$0.90	$14.95	$0.02	$255.03
10/16/2009 9:31	Sell To Open	9	.QXFWN	FUQI NOV 23 Put	$1.30	$14.95	$0.07	$1,154.98
10/16/2009 9:30	Sell To Open	11	.MEDWW	MED NOV 17.5 Put	$0.45	$16.50	$0.06	$478.44
10/16/2009 9:30	Sell To Open	6	.QMBWG	MELI NOV 35 Put	$0.70	$14.95	$0.03	$405.02
10/16/2009 9:30	Sell To Open	6	.NGHWG	NTES NOV 35 Put	$1.10	$14.95	$0.04	$645.01
10/16/2009 9:30	Sell To Open	20	.CARWB	CAR NOV 10 Put	$0.45	$30.00	$0.11	$869.89
10/16/2009 9:30	Sell To Open	10	.SQRWN	STEC NOV 21 Put	$1.00	$15.00	$0.07	$984.93
10/16/2009 9:30	Sell To Open	3	.QGMWM	GMCR NOV 65 Put	$2.10	$14.95	$0.03	$615.02