Roll Up

Posted on September 15, 2011 by admin

Monthly options for Sept are due to expire tomorrow.  The following are what I did:

  1. BIDU: (options spreads) bought to cover BIDU Sept 2011 $105 strike and sold Mar 2012 $110 strike for $3/sh credit.  The net gain on this trade is ($3 + $5 of strike difference) for a total of $8/sh gain.  $110 for BIDU is well below its 200 day SMA (which is $129), therefore it’s very safe.  $8/sh gain divided by the maintenance requirement = ~21% gain in 6 months (or 42% annualized).
  2. SLW, Sept $33, rolled up to Oct $34 for a credit (gain) of $0.75/sh.  The net gain for this trade is monthly return of 17%, if SLW price stays above $34 by Oct. 22.
  3. Using the credit due to the roll ups, I wrote more covered calls of NFLX (short call Oct $175, net cost $159.42/sh).  Monthly return 19.1% at the current price of $170.81.  If NFLX goes above 175$ by Oct 21, my return is 33% in 1 month.
  4. LVS: rolled up Sept $40 to Dec $42 call for a net profit of $2.6/sh and a return of 20.6% in 3 months or 82.4% annualized.
Posted in Today's Trade | 2 Comments

Added more FFIV and MCP shares today

Posted on September 12, 2011 by admin

I believe the markets are trading near the lower end of the trading range.  To take advantage of this weakness, I wrote more covered calls for FFIV  and MCP, with a bullish bias (i.e., the calls I sold have out of the money strikes).

Bought FFIV at $73.61, sold FFIV weekly call at $75 for $2.11.  Net cost: $71.5/share.

Bought MCP at $51.72/sh and sold calls (strike 52.5, expires this Friday) for 1.57/sh.  Net cost: $50.15/sh.

You may wonder where do I have the extra money to keep adding new positions.  Well, every week, when I roll up options or when existing options expire, I receive income.  I use this income to add new positions.

Posted in Today's Trade | Leave a comment

Market Condition: range bound, slightly bullish.

Posted on September 10, 2011 by admin

Schaeffersresearch.com: “Our takeaway is that this is a market that has the proper sentiment backdrop for a major V-bottom, but the technical backdrop is not as supportive. So, in the absence of a catalyst, the pressure to unwind bearish bets or move from the sidelines is not as great.”

ChartAdvisor.com: “The bottom line is that the environment is still quite dangerous and traders should be ready for any scenario, including a second leg down.”

VIX: 

My take: the market is in a range bound trading which actually is a perfect setup for covered calls.  The high VIX environment may seem scary, but actually is also good for option sellers (high volatility usually is correlated with higher options premiums or, in other words, high time values).  As we are closer to the bottom of the trading range, I intend to go a bit bullish in my approach.  For example, my NFLX options expired as of Friday.  So now I am net long NFLX.  With NFLX shares close to a near term bottom, I will wait for NFLX price to recover a bit before I sell more options against them.

The current Trading Range:

SP500: ~1140 – 1230

DJI: ~11,000 – 11,700

NASD: ~2480 – 2600

Posted in Market Condition | Leave a comment

Rolling up my options.

Posted on September 9, 2011 by admin

Today is the last trading day for the weekly expiring options.  I did the following trades.

  • SLW.  I bought SLW 2 days ago and wrote calls with a strike of 39.  Today SLW is above 39.  I like SLW and want to continue to hold these shares.  So to prevent my SLW shares to be called away, I bought back the options (strike 39, cost $1.6/share) and sold equal amount of contracts of SLW options with a strike at 39 (profit: $2.13/sh) and expiring next week (this is called a calendar spread).  Net profit for this trade: $2.13 – $1.6 = $0.53/share (or 4.9% return on investment in 1 week).
    • I also rolled up my earlier SLW covered (strike 38) to next week.  Net profit: $0.35/share.
  • FFIV.
    • Added more FFIV shares using the profit income due to roll ups (one example of how to increase your portfolio size).
  • MCP.  I rolled up MCP options (strike 50) expiring today to Oct (43 days to expiration), to a higher strike (52.5).  Net credit is $1.15/sh.  Plus the $2.5 higher strike (higher profit, if MCP stays above $52.5/sh by Oct expiry).  Net profit of this roll up is $1.15 + $2.5 = $3.65/sh.  The total profit / margin requirement x 100% =  23.17%.  In other words, if MCP price is above $52.5 by Oct. 22,  2011 (43 days from today), my return is 23.17% in 43 days (or 197% annualized return).
  • BIDU.  I also rolled up BIDU.
Posted in Today's Trade | Leave a comment

I wrote a covered call of SLW today

Posted on September 7, 2011 by admin

Today’s trade:

Bought SLW at $39.58/sh, sold SLW calls, expiring Sept 9th, strike 39, for $1.19.  Net cost to me: $39.58 – $1.19 = $38.39/sh.  If SLW price is above $39 by close this Friday (3 days), my profit is $39 – $38.39 = $0.61/sh.  Or 0.61/38.39 x 100% = 1.59% (in 3 days).

 

 

Posted in Daily Journal | Leave a comment

Market Condition: cautiously bullish

Posted on August 28, 2011 by admin

Schaeffersresearch.com: although the market has been miserable, there are signs of a market bottom: VIX stayed below 50, hedge fund appears to be buying again, etc.  They even recommend investors to “dip your toes into highly shorted equities that are trading at long-term support”.

Chartadvisor.com: the markets appear to be bottoming, although it is still very dangerous.

My take: the current market is an rare opportunity for long term leveraged investors.  The financial markets in the long haul trend up, although with short term fluctuations.  As a result, I have been writing new covered calls.  Recently, I added more covered calls of BIDU, MCP and NFLX.

Posted in Market Condition | Leave a comment

Market condition: bearish near term, long term bullish.

Posted on August 20, 2011 by admin

Schaeffersresearch.com: the markets now look pretty bearish.  However, there is some hope: VIX is still below 50 (a critical area to watch).

Chartadvisor.com: bearish.

My take: the markets remain very choppy.  The real question is whether we have hit  the bottom or not.  More and more market players are turning bearish, even the bunch at the Schaeffer’s.  Unless you face a margin call, my advice is to stay put and continue to sell your options against the shares you have (for regular income).  I’ll continue to add more positions (in a covered call).

This is actually getting pretty interesting to me.  I have been doing well since Jan. 2009.  The question was how well my strategy can weather a bear market.  We may or may not be in a bear market yet (but even if not yet, we are pretty close).

See my account performance.

 

Posted in Market Condition | Leave a comment

Rolling up MCP option due to expire tomorrow.

Posted on August 18, 2011 by admin

Along with the global weakness again, MCP dropped  more than 5% this morning.  In one account, I have MCP ($50 strike) expiring tomorrow.  I rolled it up (bought MCP $50 Aug 20 and sold Sept. 17 $50) with a credit of $290/contract, or 19.33% return in one month (premium sold or the money in the account / margin requirement).

I did this trade for 2 reasons:

1. Taking advantage of this weakness.

2. I sold a monthly instead of a weekly.  This is a more conservative approach.

Posted in Daily Journal | Leave a comment

Adding more BIDU positions, taking advantage of this weakness.

Posted on August 16, 2011 by admin

BIDU is showing some weakness due to some negative reports.  BIDU is a good stock with very strong chart pattern.  This weakness is a good chance to add more positions which I did.

Bought BIDU and sold calls (strike $135, exp. Aug 20th), cost: $132.  The maximal return is 8.5% in 3 days (profit / margin requirement), if BIDU stays above $135.   Break even point is $132.  If BIDU stays above $135 by friday, I plan to roll it up (calendar spread) to next week (weeklys have higher % time value).  If BIDU falls below $135, I’ll let the options expire and establish new ones next week.

Posted in Daily Journal | Leave a comment

CRM: roll up before earnings report.

Posted on August 16, 2011 by admin

CRM will release its earnings report on Aug. 19th (Thursday).  I own CRM.  What should I do?

CRM has been trading the $140-150 range prior to this recent downturn.  The call option (part of covered call) that I am short has a strike at 130.  I felt pretty comfortable to hold CRM into the earnings season.  My reason was that even if there is a selloff after the earnings, CRM has to drop ~10% before it reaches my strike price.  So my covered call position was pretty safe.  But now CRM is in the $130 range, leaving very little room for downward movement.  After an earnings report, there are 3 possibilities to CRM’s prices: going up, going down or staying in the current level.  If it goes up or stays at the current level, there is no problem to my CRM position.  I can continue to roll up and reap profits in time value.  But what if it goes down?  My investment strategy is all about playing it safe while making reasonable money.  So I rolled up my calls at strike of 130 expiring in 3 days to 130 expiring in Sept (a calendar spread).  This spread gave me an additional $328/contract.  This additional profit (already in my pocket) / margins requirement = 8.4% (in one month) or ~100% annualized (8.4  x 12).

Why do I roll up today before the earnings?  The reason is simple: if CRM goes up, my profit of $3.28/sh in a month is secured.  If CRM drops, I have already pocketed an additional $3.28/sh which further reduced my cost basis.  I am bullish on this stock.  I reviewed the 2 years history of CRM’s earnings.  CRM went up after all but one such events.  So it’s more likely for CRM to rise after this earnings report.  Even if it goes down, I believe it will be a temporarily event.

 

Posted in Daily Journal | Leave a comment