OptionPundit

Tag: option trading

  • Smiling Butterflies for SKF

    As I mentioned in my earlier post, an expiration Friday is a Thrilling Friday full of opportunities but mostly speculative. Intrinsic Value driven by Time Value and Implied volatility reduces to almost zero and creates powerful leveraging instrument. On an expiration day 100% of returns are not unusual. In fact I am yet to break my record for +1,200%.

    If one can accurately estimates pinning points, butterflies usually offers one of the most rewarding trades. I decided to take chance on SKF expiration and play speculative strategy, High Risk High Reward.

    (You may want to sign-up for the Basic Membership (Free until Dec 2009) that I use to share free trade alerts for registered members). I hope you saw my notifications on NKE and FDX timely on Invescafe.

    Here is a Trade on SKF. Before you proceed to read, pls note that I am assuming that I will lose all my investment in this trade in case it doesn’t work out the way I want it to. Hence if you decide to follow that logic pls do so with the money that you are not worried to lose 100%.

    skf-smiling-butterflies I purchased 120 and 130 butterflies, 5 strike wide. The overall cost was $0.83 for 130 call butterfly and $0.90 for 120 call butterfly. Total cost US$1.73. Assume 2 butterfly for each, that means the cash outlay is $346. If SKF expires today either at 120 or 130, my potential is to make nearly $600. The trade will make money as long as SKF closes between 116.71 and 1223.32, or $126.7 and $133.2. As of this writing, the spreads are already profitable. Pls note that I may adjust or close early and may not be in a position to share the plan timely. Though I shall update at the earliest via posting in the comments section.

    Don’t forget, though these are smiling, it can turn into crying ones (though limited tears)..

    Have fun, Profitable Trading, OP

  • Thrilling Expiration Friday

    rambo3Too much to handle for the week which slowed down the postings this week. What a “Rambo Fed” action that was (I was looking for a picture replacing Bernanke with Stallone but gave up after a few searches). But guess what, was this really surprising, I don’t think so. Uncle Ben has already made this clear long time back.To find out what other tools Uncle still has in his magic box, you may want to read his speech delivered on Nov 20, 2002. For those who would like to know more deflation etc this does make a good reading.

    This “printing press” has created trillions out of thin air, and probably more can be create to fight deflation. The battle is on  by almost every other central banker around the globe. What was remarkable is the action of few things. Gold that shot-up from a low of 890 to 950 within a matter of minutes, EUR surged almost 400 pips (yes 400 pips), resource and commodity stocks shots (so did the Dow and S&P just to gave gains back later). Citi (C) planning for a reverse split and many more.

    Markets are behaving precisely the way expected and the  Nov lows probably will resist the Bulls move. But don’t be surprised if this rally continues further. This rally does have some substance to it and is different from the rallies we have seen so far.

    Today is March options expiration day. There will be plenty of opportunity to trade. If you are looking for some plays, may I point you to AAPL, AMZN, GOOG, GS, POT and may more. OPNewsletter subscriber could look for some real example of how we played google pinning in the past that resulted in +60% profit in a single day.

    Those who are looking for trading thrills SKF, SRS and other ultrashorts will lose a lot a intrinsic value today. The moves will be very strong and leverage will be extremely high.

    Have a Thrilling Friday,

    Profitable Trading, OP

  • Option Business aka Insurance Business

    A bounce is due, no, I think overdue. We have all realized that Mr. Market can remain irrational longer than one can remain solvent. So though the probability of bounce is high, don’t count on it for long term bull market till there are sign of economic improvement. The primary trend is bearish, as clear as that could be.

    However, this market is bringing its own unique rewards. I would like to compare it with insurance business and let’s apply their business model to option trading.

    As the risk is rising, Options’ premium is rising as well and as an option seller it is to our advantage. So why not start building positions that are going to give regular income stream. An example of that strategy is called Covered call (Covered Call is an option strategy in which a call option is written against long stock on a share-for-share basis).

    I earlier shared a real trade example of covered call on SRS, where I was able to keep full 17% of profits for 4wks. I again opened it this month and have done a few changes to maximize my yield. Of course I can’t expect to have 17% month after month, but even 5-7%, month after month via credit generation from short roll over, can result into substantial gains. Alright, Ultrashorts are not for weak heart. Let’s move on to a company like Caterpillar (CAT).

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  • 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

  • Panic Before Everyone Else Does

    I have tried my best to warn OP readers of the upcoming storm, over and over again starting from November 2007. Fun fact, this is what I wrote then-

    But hey, if you do get a bearish market, then don’t forget to mention that you were told first hand here at OptionPundit.

    We are close to disastrous situation, Yesterday markets closed almost in the range that I highlighted in Nov 18 post. Net, here we are with a bear market signal. Very close to some extremely strong support areas 7,000-7,400 for a bull market that started from 1930s to 2007. I shall caution to stay away for a while till Mr. market make-up his mind.

    I warned in Mid Sept’08, and OPNewsletter stayed away for Oct’08 portfolios, preserved capital by allocating almost 1/3rd of capital only and been reinvesting since then. Though results are not that spectacular, but nevertheless it is an outperformance in the face of tough Market that we are facing. We have opened 2 portfolios for Mar’09 yesterday and will soon be opening more. If you are interested in joining, pls click to know more about OPNewletter.

    Hope you are on InvesCafe, this is the place I use for short updates for intraday trading opportunity. Just yesterday alone, I shared 3 intraday opportunities (VIX, HPQ and AAPL) all three registering good gains. It’s a great tool and I have been using it for while. Check this out for how many profitable alerts I shared over past few days. I shall encourage you to sign-up and start using it, it’s wonderful tool. All my InvesCafe updated are posted to Twitter automatically as well.

    Today is US Equity option expiration day, and also CPI data will be released at 8:30 US EST. Expect the volatility exacerbated by already <7,500 level. Stock pinning, cheap options and lot more to trade, but trade carefully.

    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