1/19/11 – 1/26/11
So, MK has been keeping on me to keep writing articles because I invest mainly in options while most do not. I also suspect that my writing skills will improve as well and the people that read these will be better able to understand why I do the plays that I do. So from now on, I’m going to be keeping a weekly or biweekly options update that will briefly detail the trades and various hedges I’m using to play the markets. As for right now, many of the options I buy are bought quickly. I spend a great deal more time watching stocks that interest me, than buying and selling options. Often times, some catalyst will emerge on a stock that I am watching allowing for an entry point that I know would generate favorable odds. By writing the plays I make I’m hoping to show you some organization to my strategies as well as show you a good psychological mindset when daytrading/investing and how to react when things don’t go your way.
The week so far
These are plays I’ve made in the past week, I will detail if they are still open or closed.
SWKS –CLOSED, Bought in Feb $30 calls @1.65. Doubled up on drop to .85(50% loss at this point). Sold entire lot today at 1.65(34.7% gain overall). Highlighting this trade in particular, because I doubled up on a steep drop. I can stomach 50% drops in speculative plays because I enter with small positions always, to get a feel for a stock. However, I also know that a 50% drop in an option price on a stock like that is not common, so I got excited and doubled up knowing that as soon as the volatility snapped back on an up day I’d make a profit. SWKS surged back 5% and I sold at my initial entry price. Had I waited later in the day I would have gotten a much higher price(I think those options hit 2 at one point). But I was more than happy to sell at my entry price for a nice profit.
COCO- OPEN I’ve been watching this stock since last year. I’ve played I a number of ways and I will continue to do so. I’ve been specifically accumulating the $4 August calls, My net entry on them is around 1.58. They hit as high as 2 today, but this is a long-term rotating position and I took profits rather than sold the entire position. I also own outright shares of COCO in which every month I cover with a call and a put at the same price to generate income.
JASO-OPEN Rejoice, for today was an amazing entry point on JASO June $6 calls. Yet another downgrade from an analyst citing margin problems. Well if we hadn’t seen the exact same thing last week, we may have batted an eye. Net entry 1.55 per call. If you are following my detailed option play on JASO I wrote last week, remember to put trailing stops when these get around 2, as JASO is having a hard time breaking resistance at 8, and as always SELL before earnings. If you are in the position to let some of your profits ride go for it through earnings, as I suspect JASO will have no trouble topping estimates.
BPT OPEN – 12% drop on a trust? I was scrambling to grab the $120 calls while BPT was floating around $105 yesterday. I got a partial fill for 5 contracts at .6. Seems the market maker decided 1 was a better price halfway through filling my order. Either way, my entry on this was a typical small position I start with, I was expecting an upswing but not a 10 dollar gain between close and open the next day. I’m guessing that the large drop in BPT had to do with the machines which then triggered stop losses on human accounts, which triggered even more stop losses on even more human accounts snowballing into a 25 point loss in 30 minutes before a gradual 5 point rebound the rest of the day. In any event that 300 dollar initial investment was at 1200 the next day. I sold 2 of the calls at 2.25 for an immediate return of my entry money(plus a 50% gain) and I decided to let the other 3 calls run as I want to own BPT but I don’t have enough cash to devote to 300 shares and these calls are pure profit.
C – OPEN– Anyone who buys leaps has some of these. I’m talking about the Jan 2012 Citi $5 calls. With 2.5 MILLION open interest on these contracts, I would expect a profit to be nothing short of guaranteed-as long as the Bernank keeps his beard. I buy these every time I make a profit on something. I’m looking to accumulate somewhere around 300 of these contracts over the year ESPECIALLY on any significant pullback. Teemoney Portfolio staple.
CCME-OPEN – Bought in more of the march $20 calls when it dropped below 19 earlier this week. I got in some of these for as low as 1.35. Looking to reduce now as they are nearing on my target of 2 again. I’m actually hoping for a bigger pullback on this stock to get in a long-term entry as the March calls do not give enough time for what I think this stock is capable of.(update-afterhours- it appears this stock is breaking 20 and I expect the calls to open around 2.25 giving me almost 100 dollars gain-per-call bought earlier this week)
FCX CLOSED – I’ve been shorting this. I bought in the $100 Feb Puts at 1.75 and sold at 2. Not a very good play as the puts were worth 1 at 1 point but I didn’t have the cash free to double up as I normally do. Looking to short this again in the 115-120 range.
AAPL CLOSED – When AAPL opened at 326 last Tuesday I bought one(1) 330 call for 6.60. Literally ten minutes later it was at 1500 where I sold. A week later I’m still wishing I had bought more than one call(at least 5)for these reasons. 1. I knew the market wouldn’t tolerate a dip in AAPL BEFORE earnings. 2. I also knew that the drop effect is temporary in option pricing on a stock like AAPL before earnings and that implied volatility alone would have driven the price up in a matter of minutes regardless if AAPL had shot up or stayed flat. Either way I hesitated and decided to buy only 1 call and while I can’t complain about almost a 300% return in a half hour of work, this trade was one I spent a great deal of time reflecting on because I’ve seen that situation so many times at this point it should have been second nature to me. I let emotion get the best of me, in this case as I was trading a weekly option(something I don’t normally do) and all I could see were loss signs, though I knew it was a good trade.
I try to limit my losses through hedging and trailing stops on certain options. I usually do not use stop losses on options contracts unless they are profitable and then only with a trailing. I have reasons for this, but most of the stocks/calls I own I build somewhat synthetic stock positions with(notice the deeper in-the-money farther out calls I buy) and I actually like the stocks I own so I don’t mess around with stops too much as I keep plenty of cash available to buy on dips.(most days)
SPY puts – Various numbers. I’m still uneasy about these markets so every time I make a sweet gain, or a nice play, I buy a couple more of these with some of the money I made. I think right now I own the Feb 111 puts(down 70%) the Feb 117 puts(down 30%) and just today I bought a few of the Feb 127 puts(down 10%….yes 10% already). I’m not going to lie and say these losses are limited as I own over 150 of these puts at this point, however these puts were all bought with profits so I’m just paying for protection. They don’t look pretty in the portfolio but I rest easy at night knowing if I wake up to a crash Ill have at least a ton of money from these. However on the next market drop I will be rolling these forward to March expiry, because we are getting close to Feb expiry and these will plummet exponentially very soon.
QID calls – This was a stupid play on my part. I originally just had 10 of these that I bought to hedge my AAPL call and I simply forgot about them. They actually were profitable(+40%) at one point but it was a smaller position so I let them ride. Right now I’m showing a 12% loss on them.
CVVT calls- Not real sure what I was thinking on this one. As a backstory, I run certain specific screener’s hat find stocks that meet very specific criteria of mine. As far as CVVT goes, I believe it may have shown up in a screener and I liked the way something looked about the chart(never a good reason to throw money away), without doing any due diligence. 10 calls at .5 are now .2 for a smooth 60% loss. These are the plays you want to seek to avoid. I bought this with very little conviction and almost certainly out of boredom.
I’m not going to list every stock I’m currently watching as that number is in the 100’s, I would like to place some stock options that are flying on my radar that I wouldn’t mind owning but they would need move one way or the other.
C – as mentioned above the $5 calls. Looking at heavy accumulation below 4.5
GOOG- at this point I’d take sub-600, 550 or lower is auto-buy, my biggest issue with google in general is how much cash this company ties up to play. So I’ll wait for now.
CCME – below 17.5 auto-buy, below 19 is accumulate
DRYS – Ah, my favorite dry-bulk shipper dipped below 5 again recently, I would like to see sub 4.5 before I take a nibble again.
REE – sub-11 I would enter with a small entry position to start, I think we may get a good entry point shortly on this one.
V –I’d like to get some action on the 67.5 calls. V needs to go below 70 again though, stock is still down a ton from the huge machine drop in December.(whispers of profit damage can still be heard)
VXX – I’ve been waiting for a week for a 5% bounce to buy puts against. It never came. Always on the radar.
GST & LNG – mk’s picks next time I’m going to be purchasing GST calls soon. It’s already at my target price however I’d need to close another position as I like to only go long 4-5 companies at a time. I may also buy/write LNG for monthly income(large premiums currently).
Feel free to send me other stocks to add to my radar or develop an options play with.
Teemoney’s Bonehead Play of the Week
Losses are to be expected but sometimes as traders, we do something we’ve been conditioned NOT to do from repeating the same mistake over and over again. We know better, but we do it anyway. I will reserve this section for those specific bonehead plays.
NFLX – I have a history with NFLX, and while I won’t go into details of the past, this stock alone cost me a very emotional $4000 last year. I hate it. I hate it from every fundamental viewpoint you can look at. That being said I now stay away from it, that is to say, “stayed” away, until this week when I was swept back into the torrid relationship that I will now refer to as Teeflix. Sometimes as a trader things go too good. This week is a prime example. And when these weeks happen I like to step outside my risk level a bit, so for example instead of hedging with normal SPY puts (which costs next to nothing), I decided to bump up the action a bit. I was feeling pretty invincible from all the good plays I had made, and I decided once again to take a stab at my arch-nemesis NETFLIX. To make a long story short, I loaded up on NFLX 170 Feb puts selling for a smooth $620 a piece. I could buy 65 spy puts for the amount ONE of those Netflix puts cost. Now let’s review what was going through my head when I entered the trade.
1. NFLX was releasing earnings afterhours today – usually a clear indicator not to hold an option.
2. The option was 4x higher than it would normally be priced had earnings not been in the spotlight – another indicator not to hold an option.(I’m actually laughing writing this, because this reason is the number 1 reason beginners lose life savings on options, and something I NEVER do)
3. The puts expire in Feb, meaning if NFLX shoots up I’m time limited in what I can do to make back losses.
4. NFLX has a history of taking Teemoney for a night on the town and never calling him back
5. I am purchasing these options out of spite
The sad thing is, normally just ONE of those reasons will stop me cold from buying. I had FIVE reasons and I still did it. EVEN WORSE the specific puts I bought were up to 695 intraday, though to my credit I actually did sell all but one around 6.5 because logic started kicking in. HOWEVER. I held that one put. So help me god, I had the window open to dump it before close, I went to class, forgot, came home afterhours, trade window still open, and saw that dirty NFLX put staring at me.
If you haven’t heard, NFLX went to 200 on earnings afterhours. While I was only holding one put, it still hurts. And believe me, it’s a deep hurt. I fully am expecting to log in tomorrow morning and see that option be worth roughly 100 or less, down 90%. It’s not that I mind taking losses, but that loss was 100% avoidable and because I was treating NFLX like an ex-girlfriend, it kicked me to the curb. I’m not even going to bother trying to fix it, as it would take too much effort and cash resources, and I shouldn’t have bought it in the first place. I do promise I’ve learned my lesson on NFLX, and hopefully you’ve learned something from my pain.
At the time of publication, Tee was Long JASO, C, CCME, COCO, CCVT, BPT, Short SPY and QID but positions may change at any time.
Comments? Questions? Ideas? You can reach me at mckim.6 (at) gmail.com , MK STOCKTALK in the title please.
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