OptionPundit

Category: Option Trading

  • OPN Waitlist is now Open

    The OP Newsletter (OPN) Pricing – US$148 (Monthly), US$399 (Quarterly) and US$1,499 (Annual)

    I shall strongly encourage you to read what is OPN and what are the Terms & Conditions. As by signing-up I assume you have read, understood and agreed to all of those. Here are few things about the OPN waitlist:

    • To re-state, OPN is a “NO PROFIT, NO FEE” subscription that shares income trades I do personally.
    • OPN will continue to have limited number of subscribers. Currently OPN is being offered first to x-subscribers. If you were an x-subscriber, pls check your e-mail box and you should have a personal invitation from me to sign-up.
    • If you were not an x-subscriber, you may reserve a place for US$50 (one time only, for as long as you want to be on the waitlist). It’s not-refundable if you are offered a place within 45 days (changed from Sept 30, 2008)
    • If you don’t get place, you will be informed and US$50 will be refunded.
    • Should you prefer to be on the wait list, just drop a one liner to “OptionPundit(a)gmail.com” that you would like to continue to be on the wait-list.
    • If however, a place is available within 45days of your payment, the $50 is non-refundable should you decide not to subscribe OPN.

    The “Buy Now” button is located at the top of the right sidebar.

    Profitable trading, OP

  • March’07, An exceptional month with 32.6% returns

    Even though I couldn’t trade that actively in March, it was an exceptional month. Overall portfolio return in the month of March was 32.6%. I am an income trader and target 5-8% per month (on overall portfolio) therefore I don’t expect months like March to repeat quite often.

    Key trades of the month include:

    • Directional Trade on LEND
    • Directional Trade on bankruptcy play NEW
    • Directional Trades on BKUNA, NDE and PDE
    • Income trade on DIA (where all the March quarterly expired worthless)
    • Income trade on RUT Iron condor (though my Bull put credit spread was a loser that nullified the IC gains).
    • Income trades on MER, NKE and XOM portfolios.

    Due to my Holiday travel, I didn’t open any other income trades except to roll DIA March 123 put quarterly into April 123 puts. I am looking forward to open another DIA April call to complete the resulting Iron condor and benefit from margins involved. Double diagonal on VMC was also successfull and thefore I shall be analysing the characteristics to choose stocks vs only indices for double diagonals. I couldn’t play AGIX, but congrats to all those who made money from that ticker (especially the IC players).

    Profitable trading, OptionPundit

  • Jan 19, 2007; So what?

    Today is Jan’07 options expiration day. Those who would like to trade the whole day, options may offer great opportunity. All the theta gains as most will have zero time value by the end of the day. High theta ATM options may offer dramatic percentage gains. The option will move in tandem with the stock, so for those technical charts lovers who are looking for rebound or sell-off, maybe a great day to leverage. Other thing to note is the “pinning action”. So look for stocks that you might think will be pinned down to nearest strike. Not a list to recommend, some great names to start are Google (GOOG), IBM (reported earning last night so you may advantage of the movement it is about to offer), Apple, Goldman Sach(GS), etc.  Watch out : Before placing any trades, I would suggest please run a complete risk/reward analysis. The whole investment may also be lost without understanding well on how to take advantage of options expiration. Till then, profitable Friday folks,

  • How to play earnings via spreads?

    Though I have become an “income trader”, a very small part of my portfolio I use for speculative moves as well. Earning season is gearing-up and I would like to take advantage of large moves that happen around earning announcement. I, however, don’t want to play using straight calls or puts. Instead, I would like to use spreads to benefit from expected large moves in either direction. I shall be posting on this soon. Stay Tuned!

  • IMPLIED VOLATILITY EXPLANATION

    How to use implied volatility to estimate how much a stock or index will move.

    When the implied volatility of an option is 35%, what does that mean? Volatility is a measure of how much a stock can move over a specific amount of time, and is defined as the standard deviation of daily percentage changes of the stock price. Implied volatility is simply the volatility that makes the theoretical value of an option equal to the market price of an option.

    Volatility is usually expressed in annual terms, and represents a one standard deviation move in the stock. Dip into any statistics book, and it’ll explain that one standard deviation, up and down, encompasses about two-thirds of all occurrences. So, two-thirds of the time, the stock with an implied volatility will theoretically be between up 35% and down 35% in one year. But how do you convert that to a more useful timeframe, when most of the options you trade expire in the next couple of months?

    If you assume that a stock has an annualized volatility of 35%, how much might it move in 1 day, 1 week, or 1 month? Well, open that statistics book again and see that the standard deviation increases proportionately to the square root of time. So, if there are 252 days in a year, you want to multiply 35% by the square root of 1/252 to get the 1 standard deviation for 1 day. That comes out to about 2.2%. So, in one day, two-thirds of the time the stock will be between up and down 2.2%.

    To get that number for any number of trading days from today, multiply 35% by the square root of the number of days/252. That is, for the range 5 days from now, multiply 35% by the square root of 5/252. For 20 days from now, multiply 35% by the square root of 20/252. So, in 5 days, theoretically two-thirds of the time the stock will between up and down 4.93%, and in 20 days, between up and down 9.86%.

    You can use this data to gauge the risk of certain positions. Let’s look at short call verticals. The stock is $80, and April options have an average implied volatility of 40% and 15 days to expiration. Two-thirds of the time, the stock will theoretically be between up and down 9.76% in 15 days, or between 72.89 and 87.81. So, if you’re thinking about selling the 85/90 call vertical, there’s a pretty good chance that the short 85 calls will be in the money at expiration. If you don’t like that scenario, but still want to be short a call vertical, you may want to consider selling a 90/95 or a 95/100 call vertical instead. You won’t receive as much premium as if you sold the 85/90, but there’s less risk of the short options being in the money at expiration.

    This calculation is no guarantee of what a stock will do, and is susceptible to changes in volatility. But it is one more tool you can use to become a more informed trader. The above extract is from RedOption (RO), one of my favorite sites for option’s education. This was an interesting article that I thought OptionPundit readers may find useful. Thanks to RO.

  • Dec’06- 5.37%

    Even though this month mostly was a travel month, the returns are beautiful. December, my portfolio grew by 5.37%, bringing overall return in the past 4months, since I started tracking, to >13%. The winners for this month were my double diagonal on IWM and calendar spread on XOM. I shall be posting details of IWM diagonal separately.