Monday, January 4, 2010

New Positions

Today I sold 10 naked puts each on three different tickers.
AAPL $190 Jan 10' .22

VLO $17.50 Jan 10' .33

MO $20.00 Feb 10' .60



The AAPL is just a pure gamble. I can't afford to take possession of that position so I would be closing those out at a loss should it fall to that level or below. The VLO and MO I'm OK getting long at those prices and would hold them long-term and sell covered calls. MO has a nice dividend and VLO historically has higher than average beta and volatility so it makes for attractive monthly premiums. These are just some small trades to try and bring in some money this month as I continue to decide on a longer term portfolio strategy and weightings.

Jason,


Below I have run the probabilities for your plays in case you were interested. I know that you say that the APPL play is a pure gamble, but it does not look to bad. I mean you have like $24 of cushion, time decay is on your side, and I don't think there are any major announcements planned between now and expiration. Oh I used the strike minus the premium you recieved to get the lower target price and used the current price as the high target.


11 comments:

  1. Jason, check out your post again. I added something to the end of it. Since we can not add pictures or anything but text in the comment section I added it directly to the post. I ran the probabilities for you jan '10 plays.

    ReplyDelete
  2. Also, let me know if you still want to discuss your portfolio strategy and weightings when you get your plan together. I am very interested.

    ReplyDelete
  3. Thank you, I plan on running similar analysis on future trades. I just didn't want to sit idle indefinitely because I don't know how long it will be until I'm ready. I do want to run my portfolio ideas past you guys once I've got some. The last few days in my initial scans of names I'm familiar with I felt that they're really at not to attractive prices to put down fresh money. With volatility down it's not really that attractive to sell naked puts on things I want to get long with either. I don't know what I will do.

    ReplyDelete
  4. So these probabilities are based on today's price, time to expiration, and the implied volatilities for each stock? What software are you using to produce the probabilities?

    ReplyDelete
  5. That's an excellent question that I was wondering too...

    ReplyDelete
  6. Yes to all and I am using optionshouse.com trading platform to calculate the probabilities. It is the same tool that the guys over at onn.tv use when they send out their premium trades to registered users.

    ReplyDelete
  7. I just discovered that Tradeking has a similar tool. They were my old brokerage.

    ReplyDelete
  8. I just closed out the VLO puts for .06. I sold for .33 on Monday so I picked up 82% of the max profit in 40% of the time. I'm happy with that and I'll leave a another potential .06 on the board in exchange for zero future risk. Six trading days can be an eternity if you're scoreboard watching and it would be a shame to potentially lose after being 80% profitable.

    It's only a small dollar profit of $260 after fees but feels good to get back in the game. I wanted to book a gain to give myself some positive reinforcement. I had my ass whipped on the naked LEAP puts a few weeks ago and took me a while to shrug that off. I'm back.

    ReplyDelete
  9. I just closed out the Feb $20 MO puts. I sold to open at .55 and just bought back for .32. It was originally a 7 week play but I took it off after 1 week. So I booked .23/.55 = 41% of the max gain in 1/7= 14% of the time. Profit of roughly $220.

    Now that I am long MO calls this was kind of a dual directional position which didn't really make sense, so I took off this position that has limited gain in exchange for the long call position with unlimited gain.

    ReplyDelete
  10. On Thursday at market close I bought to cover some naked puts on VLO at .06 when the stock was at $18.90. I had no feeling of what the stock would do, just felt like booking 82% of the max gain was the prudent thing to do. So today during market hours I get a call from my friend that taught me how to write covered calls. He still only writes covered calls and instead of selling naked puts on this position, he sold an ATM covered call with the $17.50 strike.

    So at $18.90 he could have also closed out his position but he's feeling relatively safe because he has $1.40 of downside protection. The call was because VLO had dipped to $17.80 so obviously he's freaking out.

    My point is again that I had no prediction of what was going to happen, I just knew that my best case scenario was picking up the other 18% of the max possible gain. I realize that this is just basic risk management, but that's something I really haven't done until recently because I guess I considered myself an investor and not a trader. So I think that subconsciously that posts I see go up detailing stop points or knowing your max gains and losses has helped me be cognizant of risk.

    I always like to try and look at the opposite side of a trade and see how it looks there. If you like it from that side too, maybe you're actually indifferent to that trade and shouldn't be doing it. So using this trade as an example, would you consider selling naked $17.50 puts for only .06 with 6 days left until expiration? I would say probably not, if that's how I feel, then how is leaving that trade on any different than implementing it as a new position? There is no mathematical or risk related difference, the only difference is psychological. This is why I've decided to analyze each position now on a daily basis and compare it to my original trade idea to see if it still makes sense to leave on.

    ReplyDelete
  11. That "Basic Risk Managment" that you refer to is really what seperates a profitable trader from a un-profitable trader in my opinion. That position could have easily turned against you.

    I have learned if you have the feeling you should close it then you should probably close it. You can always get back in.

    ReplyDelete