OptionPundit

Category: OP Newsletter

  • OPNewsletter Oct’10 Up 7.7%, Gear-up for Earnings

    Undoubtedly GOOG earning play was a star trade generating over +800% gains in a day. It wasn’t sheer luck, we prepared ourselves for it. I shall share our exact trade after earning season is over as we plan to use similar strategies for AAPL and later for some more counters during this earning season.

    For the month of Oct expiration, OPN portfolio gained +7.7% on a maximum investment on 63.8% of the portfolio capital. This was our 32nd positive month out of past 34 months despite the worst financial crisis since the great depression. These results exclude P&L from speculative trades or trades mentioned on the OptionPundit blog or on InvesCafe. Here is the tally-

    – POT Income Portfolio: +45.9%
    – NDX iron Condor: +1%
    – Google OPN Portfolio: -16.7%
    – DIA: -2.08%
    – EWZ: +2.9%
    – IWM Portfolio: +10.9%
    – NKE Income Portfolio: +91.5%

    However, as I shared fills for my speculative part of the NDX iron condor trade, the trade generated +37% on the original base of $2K/ spread. That’s a magnificent returns considering that NDX moved over 200 points in one direction only and we didn’t do any adjustment since Sept 21.

    POT This was another star portfolio that generated excellent returns >+45% for less than 1 weeks holding. This wasn’t a speculative trade, but we let it run as the gains were accumulated due to rising IV while underlying didn’t move much. Google Income portfolio didn’t work out as I was expecting. I didn’t use any other combinations of backspreads/verticals/straight calls or puts (like I did in July) to keep it simple. I have shared my perspective about this portfolio. We played NKE earning as part of Income portfolio and within a day of holding this portfolio generated 91.5% returns.

    OP Speculative trades-
    These are bonus trades and are not part of the OPNewsletter and hence the P&L IS NOT part of OPNewsletter performance. We spend only a fraction of the overall capital for these trades and think of it is as accelerators (if we are right) but not as a dampner (if we are wrong). For instance, the Google trade delivered almost $1,500 for each $175 investment (for those who had $10K capital) that alone accelerates the capital gains by roughly 15% on the overall portfolio capital.

    We were stopped out of TLT, TIN was almost break-even. MOS generated +12 to +17% gains for one day holding, JPM generated from -55% loss to +100% profits; then we had great wins/partial loss on USDJPY pair via YUK calls

    OPBlog Trades– Gold, suggested on Sept 2 when it was around 1,250 and since then gold is up almost $100/ounce.

    Invescafe/Twitter Positions– I don’t send alerts for these trades as these are neither part of OPN nor bonus trade alerts and the key reason is because the trade time span can be from 5-10mins to hours and OPN members may not be able to reap benefits as by the time they receive these alerts, it will be too late for them.

    SIGA for +80% for 1 day holding, EQIX for > +50% profits, intraday,  TBT 30/28 BPS > +50% profits, TBT up over 10% since then, AXP +9%, AAPL, NFLX generated +150% and there are many more, check out my InvesCafe updates.

    While reviewing these results, pls keep the overall macro economic environmental context in mind. Sept (usually a bad month for markets) was a record month for S&P500 almost in 50years, a challenging month of non-directional income traders!!! The uncertainty is unusual, short interests are sky high. Yields on both Bonds and Stocks are almost at bottom. The expectations on returns are dismal at best.

    On the other hand, here at OptionPundit, OPN members/readers out of “stocks” since early April 2010, reminded them there is no such thing as “America Won’t recognize itself by the end of 2010” as projected by several top analysts and time and again talked about Feb Low, 10.3k and 10.7K for Dow. We are not taking unnecessary risk yet our returns are still respectable by almost any rationale standard.

    Trading is not about beating the market, always. No one can do that. Just like any other business, trading is a business and needs to be treated that way. We’ll have our shares of wins/losses. As long as we are humble and keep the “ego” at bay, learn from our mistakes and continuously sharpen our craft we’ll develop our own trading style. And if it is indeed a business then it’s not a destination but a journey through thick and thin of varying seasons.

    If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the waitlist as OPNewsletter subscription is open via invitation only.

    It was and still is, preserving capital is more important than a potential opportunity. Capital is for real, opportunity is “potential”.

    Congratulations on another successful month.

    Profitable Trading, OP

  • How to Play Google (GOOG) Earnings

    How to play Google (GOOG) earnings and how to benefit from Implied volatility crush post google earnings is on the minds on almost every option traders I have met or spoken to. But before I proceed further let me share that earnings are usually 50/50 at best i.e. in-spite of complete detailed research you may still end-up being wrong. The chances of win are 50%. If you go with that assumption and are willing to take increased risks for potential windfalls, Google (GOOG) Certainly offers great opportunities for option traders.

    I have been covering Google earnings for almost 4 years. I also provided 4 different option trading strategies on how to play google earnings. For additional reference, LiveVol has done has done an excellent job on explaining past earings and Google’s move post earnings. You may want to check that out as well.

    So let’s begin the current journey. Let’s first look at the IV skew; There is almost 40+% IV skew between Oct and Nov options most of which will narrow by tomorrow (Chart is from LiveVol.com). So a simple inclination will be to sell the expensive IV and buy the cheaper IVs. That’s a good conclusion except that is not without its own risk. Here are a couple of options that you might look into playing (Ref- GOOG last traded price was $543.3)

    1. Buy straight call or straight put. Based on recent past history you may conclude that Google (GOOG) tends to move say $20. So you may want to buy Straight Out of the Money (OOM) Oct 560 calls or 520 Puts. Last mid quote for 560 call was $5.00, and for 520 put, it was $3.00 either google needs to be above $565 or below $517 before you can make money if you purchased straight calls or puts. But here you are assuming a directional as well as movement risk.
    2. You may choose to buy a strangle i.e. Google (GOOG) Oct 560 call AND Oct 520 Put, thus costing $8.00 combined. In this case google needs to be above $568 or below $512 before you can make money. But at least you are not taking any directional risk.

    I personally wouldn’t want to take #1 and #2 options. If I were to choose, I might then choose even further OOM and that too as lottery ticket assuming 100% capital loss upfront.

    So How can one increase chances of success while still hoping for good yield from Google earnings move. Here are few more examples.

    • Sell Google (GOOG) ATM Oct 540 straddle i.e. Sell Oct 540 Call and Puts, as of the market close yesterday it was $22.65/spread i.e. you will receive $2,265 credit but need to keep about $11,000 for margins. This trade will make money if Google is in between $517.4 and $562.6. The maximum gains are equivalent to the credit you received and if GOOG is pinned at 540 on Friday. Expected yield is 2265/10,900= 21%; the risk is that you might lose all the margins if GOOG moves wildly beyond the break-even points.

    • Well you may think that you don’t like above risk reward, but you still think that Oct ATM is pricing the Google move appropriately and hence would like to keep the same break evens but with a better yield. So how about selling an Iron Condor say Google (GOOG) 560/570 Bear Call spread and 520/510 Bull Put Spread. This will generate $367 credit on a $633 margin thus yielding 58% gains assuming Google remains between 520 and 560. The Breakevens are $516.3 and $563.6. The max loss will be if google is below 510 or above 570. Certainly a better option than #1.

    • Still don’t like the yield but willing to trade-off risk for even better yield. Other ways to play is that you can choose 10 points Butterflies with the mid strike at 540, 530 or 550 depending upon your outlook. Butterflies offer fantastic yield but then Google has to settle within that zone. Here is an example of GOOG $570 Call Butterfly (You may check out past examples here).
      • Buy +1 GOOG Oct 560 call and
      • Sell -2 GOOG Oct 570 Call and
      • Buy +1 GOOG Oct 580 Call

    Google Oct 570 Butterfly

    This can be done for only $83. If GOOG is pinned at 570, this trade will yield $917 that’s almost 1,100% returns. This trade will still make money if google is in between ~561 and 579. The risk is, you will lose 100% of the capital if google is beyond these breakeven points.

    • A little more advance option will be to combine a butterfly with either straddle or Iron Condor. That will result in better gains assuming you are right-on for the ATM strike. But even if you are not then remaining Straddle or condor can still make money.
    • These are just some of the examples how Google earnings can be played. Others include Calendars, Double Diagonals, Backspreads and ratio spreads and many more.
    • If however, you are willing to spend time and make even more educated guess, then don’t forget to check out these articles

    If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the waitlist as OPNewsletter subscription is open via invitation only.

    Happy Googling and wish you all the best

    Disclaimer– This post is for information purpose only. Please do your due diligence before investing even a single dollar based on any of the contents on this site including this article.

  • OPNewsletter Aug +8.4% (closed), Sept +4.3% (Open)

    OPNewsletter delivered +8.46% for the Aug 2010 Income portfolio on a 51% portfolio capital investment. As you may know, since mid of April 2010 we reduced our capital allocation to trading as we were anticipating this market meltdown which started around 3-4th week of April. For Sept 2010 opened portfolios, we are up +4.3% and these results do not include results from speculative/bonus trades.

    This is our 31st positive month, out of a total 33 months of Paid Subscription based OptionPundit newsletter throughout the phase-1 and phase-2 and these times include one of the worst market conditions since the 1930s.

    At present, OPNewsletter clients include ordinary part-time traders to professional Wall Street traders (trading their personal accounts) from over 20 countries and their trading experience varies from a few years to almost 2 decades of options trading. The live forum lives to help where community of traders share ideas and comment on other’s trades as well. Not only we do Iron Condor, we also invest Calendars, diagonals, double diagonals, backspread and many more. We have also started reviewing (with real-money) option trades for newly introduced weeklies (currently AAPL is up +24%, AMZN is up +30% and GOOG is almost breakeven). This is how whole trading experience comes to live real time.

    Trade what you know, learn what you don’t know !

    If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the waitlist as OPNewsletter subscription is open via invitation only.

    Delivering consistency isn’t about trading 1 Iron Condor/month for a small size capital account. When you are trading a US$100,000 account that requires patience, discipline, a well defined control over greed & fear and strategies that are beyond just 1 Iron Condor. And there are many traders in OPNewsletter who trade with over US$100,000 capital. Preserving capital then takes higher priority order as opposed to investing every opportunity you see. At times, you will let go opportunities (hindsight bias) in anticipation of major market moves that might derail the portfolios. We place hedges, which sometimes are one of the dampeners for higher results but that’s ok, that’s part-n-parcel of trading life.

    No matter how much marketing blitz would like you to believe, there is no “secret” to trading success; it is the EXTRA DEGREE of perseverance, EXTRA DEGREE of risk management, EXTRA DEGREE of disciplined trading, EXTRA DEGREE of what if scenario planning and EXTRA DEGREE of “Rational Expectations”.

    Welcome to OptionPundit! The EXTRA DEGREE in your option trading.

    If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the waitlist as OPNewsletter subscription is open via invitation only.

  • OPNewsletter Sept’10 Up +6.1% (Open)

    OPNewsletter continues to outperform broader markets. As of last Friday close, we have invested a maximum of 37.7% capital and the OPNewsletter portfolio is up +6.1%.

    For the past two weeks we have been covering weekly options and various types of strategies that can be played on these options. The potential from weeklies is enormous. The results so far are encouraging with one thing being common i.e. one can’t set and forget. These needs to be monitored daily (though we don’t need to take action everyday) and “greed” needs to be kept aside by booking profits quickly. We shall probably start to incorporate specific option trading strategies focused on weekly options starting this week.

    Separately, we have successfully done several intraday speculative trades and many users are already seeing the benefits of InvesCafe. The real power of invescafe will be seen only after more and more sharing is taking place. Build your network and invite others who are not on InvesCafe. That will create an unparalleled “The InvesCafe Effect” on individual trading. Start sharing your updates, your thoughts, your trading ideas as well. My profile is listed here. If you haven’t yet registered, may I suggest you to sign-up and start using it.

    Some members did a brilliant trade on CRM that generated several hundred % returns for 1 day holding. Check that out.

    Profitable Trading, OP
    OP@InvesCafe

  • OPNewsletter Jul 2010 Up +8.3%

    We are on track for our 28th positive month of OPNewsletter phase-2, as of last Friday close OPNewsletter Jul 2010 portfolio is up +8.3% on the maximum investment of almost 60% of portfolio capital. We have started opening Aug 2010 portfolios and our first portfolio is already positive.

    Let’s talk consistency first, especially on trades like Iron condor which is probably the most widely used option trading strategy. OPNewsletter has lost only 1 month of RUT iron condor since May 2008, and the drawdown was only 7.15% while gains have been around 12% on average per month. RUT Iron Condor for July 2010 resulted into +23% gains. If someone has invested US$10K, only in OPN RUT Iron Condor, this 10K would have grown over 5 times to $56K since May 2008. This period includes probably one of the most volatile stock market moves of our lifetime. Of course, I don’t recommend traders to invest all the money in iron condors only and which is why we have portfolio approach at OPNewsletter, to diversify risk/rewards.

    If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the waitlist as OPNewsletter subscription is open via invitation only.

    During the month of July, we also opend, for first time, an Income portfolio on Google. Just for perspective, since our opening of this portfolio on June 14th, google moved from $480 to $506 and then from $506 to $434 almost without a pause. This portfolio has provided a great deal of learnings e.g. during this period, one of our backspread we opened for only $0.65 debit moved past to show $10 gains!!! Though it was tough and very volatile move, we still managed to gain 4% gains as of Friday close (still open) and we are in for the earning week and out theta gains are a few % points per day.

    Even though VIX and other implied volatility fell through the cliff in general, our Double calendar resulted into above +20% gains and Double Diagonal in positive (still open).

    These results do not include gains/losses on the speculative trades. It also feels good when I find adding value to subscribers as OPNewsletter members were already warned of the coming meltdown since mid April via constance market updates/projections. Though no one can be perfect or correct all the time, so far OPN has been able to serve well.

    If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the waitlist as OPNewsletter subscription is open via invitation only.

    Profitable Trading, OP

  • What a Week and What’s Next?

    Another horrible week on the Wall Street.  A 90% down day, followed by 90% up day, and ending the week with another 90% down day. The 20 days average true range (ATR) for Dow has moved from nearly 100 points a month ago to nearly 250 points now. For OPNewsletter, we were trading light in terms of invested capital and still came out with solid results. Just to give you a perspective about market action last month, May 2010 was the worst May in last 70 years!!

    OPNewsletter‘s June Income portfolio went up +14% on a capital investment of 31.62%, excluding speculative trades. Which essentially means, we closed up 4.4% on the overall $10K portfolio, significantly outperforming broader markets while avoiding panics/stress/loss of capital.

    Past few weeks have provided plenty of reasons for bears to resurface e.g  Bejing property market slumped 70% vs previous month, BP’s Oil Spill, Europe’s crisis, AIA’s rejection of  PRU’s deal, Unemployment number and many more. There are bearish forecast that Dow is doomed based on “various” wave counts and targets being shared as low as sub 1,000 for Dow. Over the past week, the newspapers, internet media, blogs, many financial “celebrities” are just so bearish that it can scare the hell out of anyone.

    But here is the bottomline, the way I think, before any “hard rain” drops, Dow and S&P needs to violate Feb low on a strong volume. So read whatever you like, but take it with a pinch (in fact lot of pinch) of salt. There is no doubt that macroeconomic environment looks uncertain, but guess what, we don’t need to rely on mainstream media to tell us that, various volatility indices like VIX, RVX are already telling us.

    I would like to re-state what I have been mentioning on the OPDiscussion forum.  Though we have escaped past crashes (the 2008/09 meltdown, Jan/Feb’10 and The latest one) so far, it doesn’t mean we can always avoid the next one. No one can do that all the time. So always, pls always be on guard for your capital with or without OP. I have learned this time and again that in this business, preservation is more important than “potential” opportunity. Complacency has no place.

    For OPNewsletter July’10, we have invested only 5.5% of capital as just held on to investing any additional capital before Friday’s meltdown. Let’s see what Monday brings and we’ll invest accordingly. Here is a latest testimonial from the OPN Member.

    As you know, I was a member for about 5 months last year and then rejoined recently. I first subscribed to OPN in April 2009 and this was the first time I was exposed to all those income strategies (condors, calendars etc.) I was naïve to think that I could start making money from those strategies after 3-4 months even with OP guidance. As OP says, trading is a business and as with any business there is a learning curve, then next is to gain edge while continuously improving.

    After canceling in September 2009 I tried few other newsletters and some trading on my own. I came into conclusion that in terms of consistency, risk management, educational value and comprehensive solution there is no service that comes even close to OPN.

    So far, the experience is excellent. OPN provides comprehensive trading solution and not just one or two condors like most other newsletters. Risk management and capital preservation are the most important things. The results are based on actual fills, although in many cases more experienced members get better fills, but overall I think the results should be achievable. I would highly recommend OPN to my friends, actually I already referred at least 4-5 people to OPN.

    Kim Klaiman
    Toronto, Canada
    7 years investment experience, 2-3 years with options.

    Thank you for your kind words Kim. I appreciate your feedback and I hope OPNewsletter continue to meet your expectations.

    Pls click here to read more customer testimonials. If you are not an OPNewsletter member and would like to sign-up, pls click here to sign-up for the waitlist as OPNewsletter subscription is open via invitation only.

    Trade carefully, Trade Profitably, OP