Tag: Credit spread

A Credit Spread on Edwards LifeSciences (EW)

Edwards Lifesciences Corp (EW) announced stock split which is Payable n May 27, 2010 (x date May 28, 2010). I earlier shared (for free) a credit spread on Silgan Holdings (SLGN) that we closed for +39.% gains.

EW is another stock that fits my criteria for playing stock split. For those who don’t know about Edward LifeSciences, here is 2 line intro from Yahoo finance-

Edwards Lifesciences Corporation provides products and technologies designed to treat advanced cardiovascular diseases. It offers products and technologies for heart valve therapy, critical care, cardiac surgery systems, and vascular diseases.

The Basic concept is that good “quality” stocks usually trends up leading into the split day and it is so because many investors/traders think that stock split is a sign of confidence; and since majority follows it, it also serves as a self-fulfilling prophecy. Of course not all the stocks that announce split goes up, so one has to be selective in choosing to play this “potential uptrend” that might last for a few weeks. I personally think EW rightly fits with the strategy.

Even though it is a directional trade, I prefer to limit my risk exposure. There are multiple ways to open a bullish directional spread such as Bullish Diagonal, Out of the Money Butterfly, Out of the money calendar spread, etc. For EW, in the present scenario, I prefer a Bull put vertical credit spread to play this potential uptrend. I am personally of the opinion to sell to open a May 100/95 Bull Put Vertical spread. As of yesterday close, this spread will bring $1.25 credit and thus $3.75 on Margin. By May’10 expiration, if EW stays above $100, it may generate 33.3% returns. The Breakeven for this trade will be $98.75 (=$100-$1.25) below which the trade will start to lose money and will lose 100% by May expiration if either a) it is not adjusted or b) not taken off for a loss. I usually prefer to book profit/loss at 15-18%.

One key watchout, EW will be announcing earnings on April 20 after market close. If you are not comfortable going into earning with a directional trade, pls don’t follow this trade.

Disclaimer– As of this writing, I don’t have any positions in EW, but I may open anytime. I may open either any of the strategies discussed above or a different one. I may also change my opinion anytime. Pls do proper due diligence before investing even a single $.

April 14, 2010
How to Play $100 Buyout of BNI?

Warren Buffett’s Berkshire Hathaway (BRK.A) said Tuesday that it will acquire the remaining shares of railroad operator Burlington Northern Santa Fe (BNI) that it doesn’t already own for $100 per share in cash and stock in a deal valued at approximately $44 billion.

“Our country’s future prosperity depends on its having an efficient and well-maintained rail system,” said Berkshire CEO Warren E. Buffett. “Conversely, America must grow and prosper for railroads to do well. Berkshire’s $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry.”

“Most important of all, however, it’s an all-in wager on the economic future of the United States,” said Buffett. “I love these bets.”

Closing of the transaction is expected to occur during the first quarter of 2010. And that’s where I want to use it for a trade idea.

(more…)

November 3, 2009
Google (GOOG)- A Bearish Play

It was an intense sell-off day with down volume accounting for over 90%. All of the major indices have now broken and closed below their September 25th lows and their uptrends dating from the July 8th. Chicago PMI had already provided hints that things aren’t that rosy yet. But hey, who knows. This might be a short term pull back, to quench the bears’ thirst, before new advance resume. Whatever your outlook is, play it cautiously.

Usually not many traders want to play bearish trades on Google (GOOG) but sometime one has to take a chance. Based on current market behavior of Google , based on a very simple technical analysis, there was/is high probability that it was/is ready to be cooked for a bearish recipe. Albeit, that was two days ago when I shared “Speculative trade idea” to the OPNewsletter subscribers.

I am bearish on GOOG (yes i know everyone else is drumming on a different beat)…I am in with a 500/510 BCS and 450/470/430 put butterfly (roughly about $2). If you do decide to play…play only if your risk capital is less than 1-2%..and something you can afford to lose…else just stay away and let’s see how the trade unfolds.

The above trade will make money as long as Google stays below $501 by Oct expiration and a greater deal of money if Google were to retarce just by 5-7% or even midway to rising trend line support. Attached is the Risk/reward curve of the combination trade. So here we are, as yesterday close, the trade is up +19.6%.

We also have another bearish play (FXP) on China. Yes, now you may wonder why bearish play on China, here is why-

Here is another speculative trade idea-
This is linked to China’s 60th anniversary on Oct 1; this is a bearish trade (FXP). The Chinese markets have been on a roll for the whole of this year driven by stimulus spending, etc. I am not sure if this will continue or not post celebrations. If it doesn’t, the payouts could be big. If not, then we might just lose some of the option value.

Choose whichever strike/expiration cycle suits your taste.

I personally chose FXP Nov 9 calls which are up almost +100% since then. Even the underlying FXP is up +15%. Hong Kong is down almost 2.5% today, but we shall see how Shanghai behaves once markets re-open post holidays.

These are two of 5 total trades (other ones are POT, MON and GLD) that were shared as part of the speculative trades/bonus alerts to the OPNewsletter subscribers. For Oct’09 OPNewsletter, we are up +5% so far with 88% capital invested across 5 different income portfolios.

If you would like to sign-up for the OPNewsletter, pls join the waitlist here.

Profitable Trading, OP

October 2, 2009
A Record Month OPN (Jun’09) up +14.7%
June 2009 was a record month (2009) for OPNewsletter! Overall June’09 OPN is closed up +14.7% (x- brokerage commissions) and +12.1% (including commissions). We invested almost 60% of 10K assumed capital across various sectors and diversified strategies. All the portfolios were closed positively. Overall an excellent performance that was almost double the OPNewsletter objective of 5-7% per month.

Here is an update by individual portfolio-
- GDX was closed for +5.15%
- UPS was closed for +8.9%
- X was closed for +13.85%
- RUT was closed for +23.08%
- DIA was closed for +22.89%
- IWM was closed for +26.07%
This doesn’t include returns on speculative trades on POT, GDX and GMCR, MCO and AAPL (Pls read here on OP calculates it’s results)

To Reinforce what I said last week, and I still believe in it-

Believe it or not, market internals are deteriorating day by day and the surprising thing so far is that it is still holding very well. I have trimmed my personal stock holdings by almost half (as lot of those increased by almost 60-70% in a few weeks time). The only holdings where i still continue to hold (or rather increase on every pull back) is gold. But pls don’t follow it without full due diligence as gold trading is not for everyone.

This time around, our strategy was slightly different vs. usual way of adjusting. We were short delta all throughout the month, expecting for a sharp correction which didn’t arrive but markets didn’t rally either and didn’t go beyond the expected upsides break-even. This was a well thought out technical as well as psychological analysis that helped determine what to expect and when to move. We were short delta and as soon as markets fell, our results improved.

This was another record setting month for RUT Iron condor. Since re-opening OPNewsletter in Jan’09, OPN’s RUT Iron Condor never lost money and just one condor alone was more than enough to pay for the subscription.

We have started to open Jul’09 income portfolios. If you would like to sign-up, pls click here to join waitlist.

Profitable Trading, OP
June 16, 2009
OPNewsletter – May’09 (+9.48%), Jun’09 (Open)
OPNewsletter closed May’09 for +9.48% x-commissions and +6.76% inclusive of commissions. As I stated earlier, after many months of waiting, we crossed our 60% portfolio investment target. It’s always an advantage if the capital was preserved. Yes we did have a few months of low returns, but that preserved capital is an out performance (vs general markets) already and now we can start using this preserved capital for further gains vs. wasting energy in recouping the losses. Just 1 single covered call (X) was more than enough to cover OPN fee (and triggered no adjustment needs).

Sign-up for the OPNWaitlist here.

Maximum investment incurred was +64.4% (reached on April 23) and since then we continued to use that as basis for returns calculation even though we were generating credit since then for the next two weeks. Here is the tally-
- IWM, USO and UPS were almost breakeven
- USO was closed for +0.8% (after Mar @ >+22% and Apr@>+13%)
- GDX closed for +18.38% in May
- X closed for 23.29% gains
- HAL was closed for +22.69%
- AMZN was closed for +15.83% and
- IBM was closed for +23.01%
This doesn’t include bonus speculative trade on Visa earnings (V) that was closed for +35%, CSX , GS, GOOG and others some of which didn’t make much money or closed for breakeven. We have already opened our June’09 income portfolios and invested almost 35-38% of capital. After a few months gap, we opened a 160 points wide RUT Iron condor for $2.20 credit which is already making money in two days.

If you would like to join OPNewsletter, pls sign-up for the waitlist here.

Profitable Trading, OP
May 14, 2009
OPNewsletter : May’09 (+11.2%), Jun’09 (Opening Shortly)
It feels great when a single covered call option spread (done only @ 7.3% of 10K portfolio) can deliver OPNewsletter monthly subscription fee, cover commissions and still deliver profits, without making adjustments throughout the holding period. And what if the newsletter doesn’t get a single cent if doesn’t deliver profits? Welcome to OPNewsletter (A “No Profit, No Fee” Newsletter)! It is up +11.2% (x-brokerage) and +8.5% including commissions for May’09 alone (a 16th positive month out of 17 months.).

As I stated earlier, after many months of waiting, we crossed our 60% portfolio investment guideline. It’s always an advantage if the trading capital was preserved. Yes, we did have a few months of low positive returns, but that preserved capital is an out performance in itself (vs. general markets) and now we can start using this preserved capital for further gains vs. wasting energy in recouping the losses.

Maximum investment incurred this month was +64.4% and we are continuing to use that as basis for returns calculation even though we are now in credit generation phase. We have +51.19% in cash (assuming 10 k portfolio) that we can start using for opening June’09 portfolio shortly.

We are nicely positioned to reap further gains and we still have 2 weeks to go for May expiration. I don’t have to worry so much about the market fall as that will further benefit our portfolios particularly IWM.
1. USO is up +5.36%
2. UPS is up +4.8%
3. IWM is up +7.19%
4. GDX is up +4.04%
5. X covered call was rolled after +23.29% gains
6. HAL was closed for +22.69%
7. AMZN was closed for +15.83% and
8. IBM was closed for +23.01%
OPNewsletter has been using Fundamental, Technical, Greeks’ as well as Market Psychology for trade analysis to create our portfolios and diversified into different sectors (Markets, Gold, Oil, Tech, Retailer, Transports, etc).

We didn’t do an Iron Condor for the 2nd month as I still don’t feel it is the right environment. Though, in retrospect it may seem that it is/it was but I am not convinced. See attached chart, Dow up almost 45 points in 3minutes before close, manipulations any one?

I am thankful all the OPN members (old as well as current subscribers). Thanks for advocating OPN to your friends, colleagues and trading buddies. This has been helpful in adding constant stream of new members and still maintain the quality. I am also thankful to all the members for participating in the forum and expanding knowledge horizon of other members.

If you would like to sign-up or benefit from Jun’09 portfolios of OPNewsletter, pls click here to sign-up for the waitlist.

Looking forward to opening June’09 income portfolios,

Profitable Trading, OP
May 1, 2009