OptionPundit

Tag: debit spread

  • How to Play Next “Black Swan” Bear Leg

    Which side are you at? Bull or Bear? Based on the current market sentiments, general bullish bias, feeling of missing last up leg and given that every indicator is screaming buy buy buy, chances are that you are on the Bull’s side. If so, there is not much point reading this post any further.

    There are still a few perma-bears (and they have solid record to attach) are predicting about March lows being penetrated or touched again. This kept me thinking if I should listen to what they are saying given their past history.  So I worked out a low risk strategy that is explained later in the post. What if they (and hence my bet) is wrong, I’ll lose 100% of 1% trading capital that I have invested in this idea. But what if, even though it is only 4% probability, these guys are correct? First trade has potential to return over +2,800% with 4% delta based probability (by Dec’09 expiration) and another trade has potential to generate +700% with 24% probability (by Nov’09 expiration).

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  • AAPL +35.6%; MCO +3.5%

    Basic members were alerted for 2 free trade ideas. One is closed for nice gains while other trade has been successfully rolled to next month.

    Starting with Moody’s (MCO) trade idea. The basic premise for that trade was shorting of Moody’s by hedge fund manager David Einhorn, who correctly questioned the health of Lehman Brothers four months before its collapse. I wanted a trade that will still yield profit even if I am wrong. The trade idea (An Option Trader’s Way to Short Moody’s) was first shared with the Basic OP Members (Membership is free until Dec 2009, click here to sign-up). In spite of MCO rising almost 10% against my desired direction, we successfully rolled the trade to July gaining +3.5% in June.

    The other trade was on Apple (AAPL) where I shared my bearish stance based on last several year’s historical data (and pleasantly, history did repeat) –

    At OptionPundit, we played this event around this time last year and made good gains. While the same approach (Bearish bias) has pretty good chance of making money, context however matters.

    I shared the trade via comments section on what exactly I was planning.  Since then AAPL has been falling almost non-stop. I closed it at various profit points, the largest being +35.6% gains. Another OP reader Ron  shared his ideas for a ratio spread.

    The basic membership to the OptionPundit site is free until Dec 2009. If you would like to be a member and receive alerts to free trade ideas or important market commentary, pls click here to sign-up

    We are about to start July’09 OPNewsletter portfolio and this is a record month in the making. If you would like to sign-up, this is an appropriate time to join OPNewsletter.

    Profitable Trading, OP

  • OPNewsletter Jun’09 is up 7.34% (Open)

    OptionTrading|Recent Market MovementA week in which Dow moved between +2.5% to -1.75%, S&P500 from +3.25% to -1.5% and RUT from +4.75% to -1.50%, and all closing in negative territory, OPNewsletter gained +2% that too after increasing capital investment by 36% over last week. Overall OPN is up +7.35% (x- brokerage commissions) and +5.3% (including commissions). This excludes bonus trade gains from GDX straight calls, GMCR and POT. We have invested almost 57.3% of 10K assumed capital across various sectors and diversified strategies.

    Sectors include – Steel, Gold, Transport, Overall General Market and Strategies include Iron Condor, Calendars and Covered Calls.

    • GDX is up from -2.27% last week to +5.3% (and BTW GDX moved almost $5 in last week, and those straight speculative calls might have doubled)
    • X is up from -1.15% last week to +9.6%
    • UPS is down from +3.88% last week to -5.11%
    • RUT Iron Condor is up from +9.6% to +18.27%
    • IWM is up from +12% to +17.78%
    • DIA is up +3.4%

    This doesn’t include returns on POT (>+30%), GDX (almost double) and GMCR(>+5%). If you would like to join OPNewsletter, pls click here.

    This 2nd leg of rally since early May has been characterized by thin volumes. The volume is increasing on the down days and reducing on the up days, showing signs of increasing market fatigue and probably some degree of further market weakness could be ahead. Will a limited correction be followed by another attempt at new rally highs? Or, is it possible that a decline back to the March lows, or below, could occur in the weeks or months ahead? As Market Veteran Richard Russell of Dow Theory says- “Dollar down, bonds down, gold up, it all fits together — trouble.”

    We’ll address more issues when market returns to full trading volume post long weekend holidays.

    Profitable Trading, OP

  • 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).

    dow-may-1-2009We 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

  • CSX Corporation (CSX) Earnings Play

    Railroad operator CSX Corp. (CSX) is scheduled to issue first-quarter earnings after market close today, with analysts forecasting earnings of $0.51 per share on revenues of $2.26 billion for the quarter. I am not so positive about the results.

    I think CSX might miss earnings’ estimates, but, as I always say earnings are 50:50, pls note surprise element is always there (BNI reported rise); assuming inventories went down, retail sales dipped and broader economy in shatters, they will have less goods to move.

    Those who don’t know about CSX, here is the description from Google finance-

    CSX Corporation (CSX) is a transportation company. The Company operates in two segments: rail and intermodal. The Company’s rail and intermodal businesses provide rail-based transportation services, including traditional rail service and the transport of intermodal containers and trailers. CSX’s principal operating company, CSX Transportation, Inc. (CSXT), provides a link to the transportation supply chain through its approximately 21,000 route mile rail network, which serves centers in 23 states east of the Mississippi River, the District of Columbia, and the Canadian provinces of Ontario and Quebec. In addition to CSXT, the rail segment includes Total Distribution Services, Inc. (TDSI), Transflo Terminal Services, Inc. (Transflo), CSX Technology, Inc. (CSX Technology) and other subsidiaries. CSX Intermodal, Inc. (Intermodal) is a coast-to-coast intermodal transportation provider.

    Net I am bearish, but again, I want to play with very little money..0.5 to 1% only…via either April 29/26 Put vertical debit spread ($1.00-$1.03) or April Put 28/26 Vertical debit spread for about $0.53 to $0.55. Pls note, April option expiration is on Friday, so there is not much time left. If stock moves against, pls be prepared to lose all or have a risk management plan in place.

    Disclaimer– As of this writing, I own the April 29/26 Bear Put Vertical, but I may close it without any prior notice. If you do want to follow this trade, pls do your own due diligence and consult your financial adviser.

    Profitable Trading, OP

  • OPNewsletter (Jun’08) : Closed +11.1%

    An excellent month for OPNewsletter with double digit gains. OPNewsletter’s June 2008 was closed for +11.1%. This is nearly double of my own target of 5-7% per month. These returns excludes the bonus speculative trades on JOYG (+40%), RIG (Multiple Profit Points), GLD and CME (Multiple Profit Points-Shared for free with OP Readers), With this June’s closing OPNewsletter is up nearly 60% in the past 5months, i.e. nearly 9.9% compounded monthly that is nicely above even my own internal target of 5-7%. We usually assume US$10,000 as minimum investment and these can easily be scaled to $50, 000 or above. Considering market actions in the past 5months, this is a good and satisfactory returns.

    This month’s strategies included Iron Condor, Debit Spreads, Calendar spreads, Straight calls, Diagonal Spreads and credit spreads.

    I have opened two OPN Mini-portfolios for July expiration cycle and shall be opening 2-3more next week. If you want to sign-up for the newsletter, Pls read more about OPNewsletter here. If you would like to read customer testimonials pls read those here (Part-1, Part-2, Part-3, Part-4)

    A few more things about the Newsletter-

    1. OPN uses its Member’s fills for tracking (Not the newsletter suggested one)
    2. OPN uses maximum investment for calculating returns for the month, even though it was for 1day (For example- 10K portfolio, we used 6K for the month, but we used 1K more for one day, the whole portfolio returns are calculated using 7k as base)
    3. Starting May’08, OPN now factors commission in it performance tracking.

    Next week is going to be interesting week with Goldman Sachs (GS) and Morgan Stanley (MS) reporting earnings and setting tone for the financial sector. I may play these two and share my thoughts with OPNewsletter subscribers.

    Profitable trading, OP