OptionPundit

Tag: ISRG

  • What Exactly is Option Trading?

    A Fascinating Friday ! That’s how I can think about Market’s action on Friday. Option trading is not only about attending a seminar, do some paper trades, get some winning trades and the stage is set. It is also about constantly evolving your own trading style and continue to sharpen your saw. With this post I hope you pick up one or two important nuggets that might add value to your trading style, so pls just relax and continue to read.

    First a simple one VIX– I mentioned on April 15, that I was not convinced of rally when markets are overbought for 6 continuous weeks; and shared my bias for bearish stand via $VIX bullish spreads.  Those OPN Members who followed it generated about +28.5% returns for 2 days holding. It could have been done with straight calls, but I wanted to minimize risk exposure without compromising delta.

    The King of Earnings- Google (GOOG)
    It was once in 6 months (if not 3) type event i.e. earning announcement just before Option Expiration. Those who have been with OPNewsletter for past 3 years, or at least have been reading OptionPundit blog, know how much I love trading Google.

    To begin with, I shared 4 different types of trades that could have been done on Google. Nothing much has changed Feb’07. However, this time, for OPNewsletter members I used one of my high yield/low risk/technical/intuition based strategy, Double Butterfly. We opened Google 540/550/560 Put Butterfly and 600/610/620 Call butterfly; for roughly $1.40 to $1.70 price combined.

    Google opened at $568 thus panicking some members, as it means 100% “potential loss” on this speculative trade. Based on “what if” scenarios I shared before markets opened, few members could still get out of the trade in “style” for break even or minor gains/loss even though Google was still out of our profit zone.

    But guess what, Google was pinned at $550, those who held till close, yielding almost +588% gains!!!

    But that’s not the end of the story, I traded Google almost live (though not recommended to members). I kept on switching between Calls and puts, resulting into +46% gains (bearish), then +21% (Bullish), then +95% (bearish), then +54.6%, (Bullish) then -12% loss (Bullish). Those who were following the thread live and could trade speculative (though not intended), could have still converted $1 into $10 by the end of the day!

    Google again, 95% gains; again out, i need to see if it can hold $560, if not, next may be $557…i am sharing almost real time to share how quickly i am changing my opinions….pls note, at one time, i have only one direction either bearish or bullish..i am not mixing two..(i have already close the 550 puts (i further broke the Bull put spread into individual options leg and purchased the short 550 puts, and still kept the 540 puts)

    added later, by the time i finished my msg, google was already below $556 and those puts were already quadrupled.

    Here is the screenshot of key trades I mentioned above-

    Google Intraday Transactions

    We didn’t even touch on Google Stock pinning as otherwise it would have just too much of trading to handle for a single trading day. Here are some excellent reads for OPNewsletter members on how to successfully play stock pinning, especially on Google. I also run a separate experiment (income trading strategy) with Google for following set of conditions – 1) Expiration week, 2) Earnings in that week but before expiration day; the gains were +18% within a few days even though google moved significantly against the “market neutral” strategy, before the earning day. I shall share this in another post.

    Here is another example of ISRG–

    Another stock I am looking at is ISRG, I had expected it to move about $20-$25, but it hasn’t…I don’t know if it will if drops below $372…I didn’t share it yesterday (i mentioned my bias on twitter though– http://twitter.com/OptionPundit/status/12171040022 ) as the options are not very liquid.

    ISRG closed at $360.39!! I am not mentioning Goldman Sachs (GS).

    Now the key points, why am I sharing all this? Recall back in early 2008 I shared on key factors that contributed to a record year (till then) for OptionPundit. Here are some additional thoughts.

    The Formula for Long Term Success
    Speculative trades should only be done with what you can feel comfortable losing, I must add, losing 100%. This is not income trading which many OPNewsletter members trade with over $100,000 and anything x 0=0

    This is a high risk/high yield scenario. The formula of long term success is

    Long Term Success = (Profit $$ x Winning Trades) > (Loss $$ x Losing Trades)

    Don’t be stubborn with your opinion–
    One shouldn’t marry to a single opinion. Markets can humble anyone, anytime and it has demonstrated time and again. No one will always be right else there won’t be a trading market. Keep agility and flexibility as your competitive advantage. Remember, the end goal is not to be right rather it is to make money. I encourage OPNMembers to re-read the whole speculative thread (May 2010) how often I changed my opinion between bullish and bearish, the same day, often in less than 30mins.

    Trade with a plan and be nimble
    I didn’t send alerts for these Google trades for OPNewsletter Members, only demonstration. I don’t put stop loss on the screen as I don’t want it to be shown to brokers. I keep a mental stop loss and write it down and close it. Why am I sharing this? Because one may say, with “hindsight bias”, that there was no need to trade so much, you would have made a 1000% gains (10times) if you just held those 560 puts till expiration; I was not in for a 1000% gains, I was trading and time value was against me, and I was just following my trading plan.

    Option Trading is both Art and Math
    The twin butterfly we opened would have been a 100% loss if Google were to close above $560. But breaking the flies into vertical spread, then finally into singles achieved great result for even those who panicked and wanted to get out to collect “whatever” was left. Options are very versatile, so just don’t 100% loss. Create “what if” scenarios for if it goes up, goes down or move sideways. No one is much more in touch with your trades as you are and hence prepare in advance yourself and don’t just panic. Panic never helps, it about keeping the big picture mind and bringing that to trading world. Trading is equally tough like any other business, if not more.

    Here are some additional thoughts on how to become a more profitable trader.

    More trades to come. There are more companies announcing earnings in next few weeks so stay Tuned,

    Profitable trading, OP

  • This Market Requires Caution

    Dow Above 11,000 (.DJI), S&P500(.INX) above 1,200, Nasdaq-100 (.NDX) above 2000, Russell 2000 above 700; no resting just plain simple advance for the past 6wks that too when markets have been continuously in a overbought state; Buying interest was intense and demand was even stronger on the NASDAQ, which probably recorded 90% Up Volume of total Up/Down Volume, qualifying as 90% Up Day. Wow, what a rally! To me it seems more like panic buying that occurs before any pullback, but who knows; it’s been happening for long time. Remember the old adage “The market can remain irrational longer than you can remain solvent.” – John Maynard Keynes

    Certainly markets staged a strong rally after a dull period of past few days. Strong rallies (or pullbacks) are not good friends of income traders. For OPNewsletter (April’10), non-directional trading, we were already out else a huge chunk of profits would have been taken away by the markets yesterday.

    Did I learn any lessons from the 2007-08 meltdown? It is that “It’s my money and “to protect or not protect” is my responsibility“. Sounds new? Well we learn it time and again, but sadly, in the “hindsight”. I am becoming risk averse again but I also don’t want to fight with the tape. Thus we opened some VIX Bullish Call vertical positions yesterday. The assumption behind the VIX trade is that we are nearing a short term pullback. However, we also know that this pullback may not materialize and hence it is being treated as a speculative play.

    Google (GOOG) and Intuitive Surgical, Inc.(ISRG) are the two big names that will be announcing earnings after market close on Thursday. If you would like to play earning, here are 4 different types of trades that I opened on Google. Read on to benefit from those.

    Time to trade carefully again,

    Profitable Trading, OP

  • Outperformance Continues at OPNewsletter

    When compared with broader markets, Feb was an excellent month for OPNewsletter coupled with a few good learnings (kinda reinforcement, been there done that, but forget that). Overall, OPNewsletter for Feb closed up +5.6% x-commissions and +2.6% including commissions. Capital preservtion and thus allocation was higher priority vs missing an opportunity.

    These results doesn’t include the speculative directional trade which were shared here (only OPN subscribers can see this thread) and here at my profile on InvesCafe (Free) which includes likes of RIMM +40%, V +7.8%, BIDU +5.2%, BAC +10% to +40%, ESI + 33%, SRS, STT, WHR, BTU, AXP, CAT, ISRG, BLK and many more. I opened multiple positions where some won some lost (due to inability to fill on time as I was away and didn’t want to autotrade). Hardly any of those missed the expectations except the VXX which I intentionally closed.

    Above all, this doesn’t include future opportunities via capital preservation due to early warnings. Hope you have been reading OptionPundit and thus were aware of the Bear Market Signal that was reconfirmed recently. And of course, at least one assett class probably would have been shining in your diversified portfolio.

    I have already started investing for March’09 portfolios. if you would to sign-up, pls click here.

    Cheers and profitable trading, OP

  • Outperformance : OPNewsletter Feb’09 +5.85%(Open)

    An excellent month for OPNewsletter so far. Overall, OPNewsletter is up +8.87% x-commissions and +5.85% including commissions. We didn’t have to make any major adjustments to our portfolios except one which rolled partially to next month. We closed one portfolio for +17.17% gains and except any major disastrous events on Tuesday market open, remainder portfolios stands to gain good theta decay over the long weekend. This is what OPN wants, portfolios to be as boring as possible. We didn’t get fills on two income portfolios else results would have been even stronger.

    These results doesn’t include the speculative directional trade which were shared here (only OPN subscribers can see this thread) and here at my profile on InvesCafe (Free) which includes likes of RIMM +40%, V +7.8%, BIDU +5.2%, BAC +10% to +40%, ESI + 33%, SRS, STT, WHR, BTU, AXP, CAT, ISRG, BLK and many more. I opened multiple positions where some won some lost (due to inability to fill ontime as I was away and didn’t want to autotrade). Hardly any of those missed the expectations except the VXX which I intentionally closed.

    Other highlights includes my warning on Friday when markets were going higher in anticipation of stimulus package which proved right. Not that I have crystal ball, but it’s an experience I have been observing in the events of past few years.

    Overall an excellent month except that we didn’t invest a lot of capital for income spreads (only a max of 26.5%), but as I mentioned earlier, capital preservation is higher importance than missing a potential opportunity, especially in markets like current ones. We may always make more money if we have trading capital preserved. Once trading capital is lost, we can’t benefit from any opportunity even if it is as sure as that sunrise.

    I shall be looking for March’09 portfolios. if you would to sign-up, pls click here.

    Cheers and profitable trading, OP

  • OPNewsletter (Feb’09) : +2.78% (X-commissions) and +0.1% (/w Comissions)

    Such is the bear market, it leaves no one. Those who thought that major price indexes had successfully tested the Nov’08 market lows and that move December onwards marked a new primary bull market, were taken by surprise and Jan closed on a negative note. Dow closing almost 9% down for the month and other indices almost in the same range. I have been saying this since Nov’07 and will repeat here again “In bear markets the winner is the one who loses the least” (it’s not my quote, I borrowed it from the net and don’t know who said this, but whoever did concluded it at best)..so stay very close. I also mentioned about the importance of 7,500 break for Dow that if that’s gone, just stay clear.

    Here we are, our OPNewsletter portfolio are at break even after commissions in its 1st week of opening in spite of a weak market. Saying it another way- +2.78% excluding commissions and +0.1% after commissions.This doesn’t include bonus trades like CAT and ISRG which I shared via real-time alert on InvesCafe, and entry/exit on OPN forum. I closed CAT directional trade for +25.5% and ISRG for +46.6%.

    We have invested 24.27% of capital. This is also a month I didn’t open a RUT iron condor as risk/reward wasn’t good.

    Trade carefully, trade profitably, OP

  • Equity Option Expiration and Pin Opportunities

    Today is a special day, a day that occurs only once a month offering good opportunities for intra day trading. Today is Aug’08 option expiration Friday.

    Before I proceed to talk about opportunities, pls note that the threshold for automatic exercise of stock-settled in-the-money options is $.01. Long equity options in the money by $.01 or more will be automatically exercised. Please monitor all your expiring positions and check with your broker for if you do not want to be assigned. Also be especially careful with the estimated $.17 DIA dividend on Friday morning.

    If you are looking for some past discussion, check out OP Forum (free section). If you are an OPNewsletter subscriber, pls check this link to see an example of GOOG pinning in action.

    Top of the list includes Google(GOOG), ISRG. OIH, MA. Other key tickers to look at are Goldman Sachs (GS), Apple (AAPL), CME Group (CME), Amazon (AMZN) and Research in Motion (RIMM). But be careful, as options will lose time value and IV very rapidly. So if there are chances to make disproportionate money, so are the chances of loss.

    Pls do your own due diligence and stress test your strategies, create “what if” scenarios and understand the risk/reward so are prepared in advance.

    Profitable trading, OP