I have positions it two dry bulk shippers: DRYS & EGLE. Both of which are breaking out of all the moving averages on my charts (15, 50, and 200 day MA). Would love to see a close above the 200 day on these guys for a confirmation that this is a real move. Will be watching these guys closely over the next few days. If we can get past some significant resistance levels in DRYS of $7.5-$8, I may look to buy strait calls. But we will see.
To see my positions use the links below:
DRYS: http://shareandcritique.blogspot.com/2009/12/drys.html
EGLE: http://shareandcritique.blogspot.com/2009/12/notes-on-egle.html
The shippers/transport trades look strong. I have gone in and out of DRYS options in the last jdweeks collecting about $100 a couple days ago. I re-added a position this morning selling 4 $10 Jan 11 puts average about $4.42 and as of right now I'm up abour $47.
ReplyDeleteRight now I like the action on the laggard stocks of 2009 like C, DRYS, BAC, FNM, SOHU, etc... they seem to be attracting new money.
DRYS is trying to get through that heavy resistance at $6.50-$6.54 that has held DRYS many times this year. If it can get through her on decent volume, I think that we could see $7.30 in short order.
ReplyDeleteDRYS failed in front of $7 again so I took this opportunity to offload 10 of the 20 short puts that I have in this name. Made about $300 bucks and still have exposure for further upside movement.
ReplyDeleteDid you get rid of the Jan 11' or Jan 12's? Just something I've noticed on some of your trades, you're going pretty far out on the option expiration month, but tend to close them out pretty quickly. I think you told me about a tool that shows that options were trading for historically. Just out of curiosity I would see how much more those positions would have been worth for closer dated contracts.
ReplyDeleteI noticed this myself when I was buying ITM puts on the DIA last year during the crash. I was buying for six weeks out but never held one for more than 7 days. I could have got more delta out of the near month contracts, but I had no concept of that back then.
Yes I do have a tool that lets me back test. So I will have to check it out. But I think I remember doing an analysis and determined that the short dated options in percentage terms had a larger move, but in dollars because the premiums were higer a lower percentage move still yielding larger profits in total dollars. But I will do the analysis and let you know what I find.
ReplyDeleteJason, So here is the analysis.
ReplyDeleteFirst I sold the Jan '11 options. I went into my tool to see what the Jan '10 $5 puts were trading for on 11/18/09 when I initiated this posiiton. They were trading for $0.125 vs the $1.07 that I sold them for.
So today they are trading for $0.01 which would had been a gain of $115. Where I sold the $1.07 longer dated and bought back for $0.85, gain of $0.22 or $220. So by the numbers I made 90% more by going out to a farther expiration.
I just realized how far off I was on my commentary. You were selling puts with a bullish mentality. I was thinking you were buying puts with a bearish mentality. In the case of the latter it makes sense to use closer month contracts because the delta is larger. This is what I learned in retrospect about buying ITM puts. Sorry about that.
ReplyDeleteNow that I am understanding it correctly, what was the stock price when you initially sold the puts? However far OTM the puts were at the time, let's look at the equivalent OTM calls and see how those performed. If I'm understanding it correctly, the delta on the OTM calls will increase faster as the stock rises than the OTM puts will decrease. So if you make a correct directional prediction, you get more bang for the buck in using the instrument in which the direction is moving.
However, even if that is accurate, I understand the risk/reward scenario is completely different with buying OTM calls vs selling OTM puts. Just trying to look at things from all angles in order to learn. It took me years to look at things other than a covered call and now I regret not looking at more opportunities back then.
I don't think this one is a good example to look at for the OTM calls as the stock has basically gone nowhere since the initial trade.
ReplyDeleteBut I agree with your statement. That the OTM calls Delta will increase or will become larger as they become closer to ITM. As the stock continues up the OTM put loses value at a slower rate.
Closed out my last 10 Jan '10 puts on DRYS after a failed attempt to take out its $7 resistance level. Think it may go back to $6 before it takes this level out.
ReplyDelete