OptionPundit

Tag: SKF

  • OPN Apr’09 +12.5%, 15th Positive Month (Out of last 16)

    Get ready for an action filled week that has lot of economic data flowing in, traders returning from holidays and banks announcing earnings. Of course, Banks have to have positive impact due to “relaxation” in Mark-to-market accounting rules. This week is also flooded with other earnings and option expiration schedule, an excellent environment for exceptional opportunities.

    April was another winning month for OPNewsletter. 15th out of last 16 months. In spite of the whipsaws we observed, this month didn’t require much adjustment, almost sitting idle generating cash for OPN trades. OPN has successfully rolled over the portfolios for May holdings (If you would like to sign-up for OPNewsletter, pls click here).

    OPN closed +12.54% x-commissions +9.10% including commissions. We used up almost 38% of our capital. That’s a pretty good returns considering that we could sleep well without worrying about adjustments. If not the last few days volatility of X, the results would have been far better, but that also didn’t result into any significant adjustments and we closed +11.78% based on the way OPN calculates for intra month and >+6% even assuming the max capital.

    IWM and USO portfolio closed for +13.97% and +14.55% based on OPN way of calculation. Essentially the returns are much higher when compared with less capital involved (OPN uses the maximum capital invested at any point as the base for the whole month vs only for the duration it was used). For more information on OPNewseltter, pls click here. This was the 2nd running month of profits for USO. Last month we closed USO portfolio for +22.8%.

    The above result doesn’t include results from speculative trades i.e. SKF +100%, AAPL +100%, NKE and FDX Put and so on. Some of these free trades and also the SKF smiling, BAC Trade, and AA Earning play were shared for free with the registered members. 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.

    Net, a great month and looking forward another one. We have already started May income portfolios and are positioned to take advantage of market moves. If you would like sign-up for OPNewsletter, pls click her e for OPN Waitlist.

    Profitable Trading, OP

  • SKF Smiling Flies, +100%

    The free trade idea on SKF resulted in +100% gains.

    screenhunter_01-mar-21-0433 First starting with FDX and NKE, I had these puts from the starts but even those who followed the notice and decided to follow the trade must have benefitted as well. Then I shared smiling butterflies on SKF, High Risk High Reward Trade, and it closed for +100% gains for one day holding. NKE was pinned at $45 (GS, AAPL, and POT weren’t really pinned this time). Though I identified GOOG pin at 330 in the beginning but I was biased for it move closer to 325 or 335 and mentioned accordingly on the forum.

    Net net, a fantastic, thrilling and rewarding option expiration day. Congratulations to those who benefitted from the SKF/NKE and PUTs as well.

    Profitabel Trading, OP

  • 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

  • Citi, Uptick and Mark-To-Market

    So we had it finally. The pressurized spring bounced back and shorts were pressed against the wall to cover. Fantastic rally by all means, it was easily qualified as a 90% Upside Day on both the NYSE and the NASDAQ that too on expanding volume. Market breadth was also much more impressive during yesterday’s rally. I had never thought (Probably Vikram Pandit as well) that his letter to Citi (C) employee can spark such a massive global stock market rally. In fact there were 3 things of note yesterday.

    1. Citi CEO’s letter.
    2. Reimpose the uptick rule (An untick rule is a securities trading rule used to regulate short selling in financial markets. The rule mandates, subject to certain exceptions, that, when sold, a listed security must either be sold short at a price above the price at which the immediately preceding sale was effected or at the last sale price if it is higher than the last different price) and
    3. Possible “Improvement” to “Mark-to-market” rule

    All good till it is not. We’ll find out later if y’day was a bottom and this bull has legs to run or Bears just released ground for a technical rebound from deeply oversold levels to set stage for next down leg.

    (more…)

  • A Covered Call with Ultrashorts

    It is generally assumed, and rightfully so, that Ultrashorts SRF, SKF are not for everyone, those are highly volatile and average investors should stay away from those. However, I think, if managed properly, these can also be valuable tool to generate passive income.

    Firstly, let’s look at the 2 popular ultrashorts SKF, SRS. Attached charts are pictorial view of how volatile these stocks are. SKF (Ultrashort Financials) has a trading range of $100 to $300 and SRS (Ultrashort Real-Estate) from $50 to $250 and intraday movements are good enough to stir stomach muscles. As such general markets are speculative these days and on top of it ultrashort nature makes these even doubly volatile; and if you are doing options on it, that simply magnifies volatility exponentially.

    That’s where as an option trader, this volatility comes to my advantage. Here are a few things I need to assess EVERYTIME I am placing a trade-

    • Is this capital something I don’t need in foreseeable future (6-12months)?
    • What is the general market environment, Technical Analysis?
    • How much ATM option premium current environment is generating?
    • How long will it take for my stocks to become free?

    Let me take you through with a real covered call example that I placed on Jan 16th. The trade was opened purchasing SRS on average @ $61.15 and then I sold $60 Feb Calls for $10.85 average. This essentially resulted my effective price of $50.30. Since I am using portfolio margin facility, my cash outflow is almost half of $61.15 but let’s forget that for a moment.

    Attached Risk/Reward chart (approximate) show that this trade will be yielding nearly 17% for almost 4wks holding period assuming SRS remains over $60 (and based on last Friday’s prices). This trade will break-even at $50.30 below which I shall be making losses. Albeit, when It’s Feb’09 expiration, I can sell March’09 call ATM options as well (or earlier). However, the yield and subsequent losses will be determined at that point. What needs to be noticed is that in few month’s time, these stocks will be free to own. It is essentially like rental yield on a property that is bought for free.

    While this seems all good, there are watch-outs that one needs to be careful about.

    1. Risk premium is dependent on the prevailing Implied Volatility and the underlying price. It may take longer to recover investment in underlying.
    2. The risk/profile is only on expiration. Before expiration however, the sold call will still have time value and hence the losses might be more than what it might be on expiration day.
    3. Due to inherent characteristics of ultrashorts, the extreme movements can easily stir emotion. Hence it is beneficial to keep a risk management plan in place, in advance, all time.
    4. We are in the bearish markets and hence underlying are commanding high absolute price, but as the markets starts to calm, the absolute value will fall and it may happen that it never recovers to those high value.

    The same covered call can be done via naked put selling as well. I however like to combine the technical analysis to the option selling i.e. when SRS is about to turn up, I buy the stocks and sell the covered calls when stock might be turning downwards (the above case may or may not represent that). I can sell stocks and let the call value decrease and buy back stocks later. There are multiple ways this can be played.

    However, net-net, there are risks with ultrashorts and hence it is important to do proper due diligence and stress testing of your trade before you place one, in case you decide to follow. Above mentioned trade is for real and I may get out of the trade anytime depending upon risk/reward profile vis-a-vis other opportunity.

    You may want to explore it further to review if this is something you would like to add to your Option Trading Strategy toolbox. What do you think of this strategy? did you try this before? what kind of issues did you face?

    Profitable Trading, OP