Options: Low Cost Investing

[New-born baby]

Huge-ites:
We would like to start a thread that would post some option plays that would offer low-cost investing with a larger margin of safety that merely purchase an equity. In addition, it is hoped that this thread will be a vehicle to expand your universe of investing knowledge. So with this little introduction, let's get started!

[New-born baby]

Here's a link that you may want to copy to your favorites list:

http://platinum.optionetics.com/yhmain.htm

This link allows you to find/test out some excellent options plays. Just type in your security, chose a bias and the volatility of the stock, and then click on the type of play that fits that type of volatility. It is easy! Look at this:
http://img500.imageshack.us/img500/4519/chart23yq.th.gif (http://img500.imageshack.us/img500/4519/chart23yq.gif)

[New-born baby]

When you click on "Perform the search", here's what you get:

http://img500.imageshack.us/img500/6499/chart30jt.th.gif (http://img500.imageshack.us/img500/6499/chart30jt.gif)

[New-born baby]

Look at this sample of how options can produce a lowcost profit.
http://img227.imageshack.us/img227/599/chart43nj.th.gif (http://img227.imageshack.us/img227/599/chart43nj.gif)

[New-born baby]

Now didn't that BMHC work out nicely?
So, in a bearish market, if we could have all the symmetrical triangles the MM Forumites could find posted here, we'd have a great watch list for put buying. And all the descending triangles would also be great options plays.
That's my problem: finding the triangles.

IIC (or others):
Do you have a formula to find the triangles?

[New-born baby]

BMHC hit the $74.90 mark, so the put was covered. Took $3 profit. See how greed burns? Had more than $10 in my pocket!

[Karel]

Hi New-born, the horrible thumbnailer hit your thread. Please keep your pics about 700 px wide max!

Regards,

Karel

[New-born baby]

Hi New-born, the horrible thumbnailer hit your thread. Please keep your pics about 700 px wide max!

Regards,

Karel
Karel,
I bet you swing BIG, BIG hammers when you hit those thumbs!

[spikefader]

Awesome thread concept New Born! I'll be an active participant :D

[New-born baby]

Awesome thread concept New Born! I'll be an active participant :D

We love Spike around here! We welcome your posts!

[Karel]

Now didn't that BMHC work out nicely?
So, in a bearish market, if we could have all the symmetrical triangles the MM Forumites could find posted here, we'd have a great watch list for put buying. And all the descending triangles would also be great options plays.
That's my problem: finding the triangles.

IIC (or others):
Do you have a formula to find the triangles?What about this as a place to start: http://stockcharts.com/def/servlet/SC.scan?s=TSA[t.t_eq_s]![as0,20,tv_gt_40000]![yq_eq_1]

Not all PNF triple bottoms will be descending triangles, but it narrows the search down a bit.

Regards,

Karel

[New-born baby]

What about this as a place to start: http://stockcharts.com/def/servlet/SC.scan?s=TSA[t.t_eq_s]![as0,20,tv_gt_40000]![yq_eq_1]

Not all PNF triple bottoms will be descending triangles, but it narrows the search down a bit.

Regards,

Karel
Karel,
You'd be wonderful! IF***IF you didn't carry such big sledge hammers to mash my thumbs all the time!

THANKS!

[New-born baby]

Here's a play for WFMI:

WFMI is (MIMO's?) Pick of the Year
WFMI goes exdate for the $4.34 divy on Tues, 11 Jan 2006.

Play #1: Buy WFMI here at $77.10. Collect $4.34 divy for the 1st quarter, plus whatever divys WFMI throws on the board hereafter for 2006.
SELL the JAN 2007 $80 calls at today's price of $9.30.

Total to you:$16.54+
$4.34 + other divys (I figured zero just to be ultra conservative)
$9.30 for the calls
$2.90 i.e. $80-77.10= $2.90 IF WFMI reaches $80 by next Jan.

$16.54 profit for an investment of $77.10 is 21.45% IF WFMI reaches $80

[mimo_100]

Here's a play for WFMI:

WFMI is (MIMO's?) Pick of the Year
WFMI goes exdate for the $4.34 divy on Tues, 11 Jan 2006.

Play #1: Buy WFMI here at $77.10. Collect $4.34 divy for the 1st quarter, plus whatever divys WFMI throws on the board hereafter for 2006.
SELL the JAN 2007 $80 calls at today's price of $9.30.

Total to you:$16.54+
$4.34 + other divys (I figured zero just to be ultra conservative)
$9.30 for the calls
$2.90 i.e. $80-77.10= $2.90 IF WFMI reaches $80 by next Jan.

$16.54 profit for an investment of $77.10 is 21.45% IF WFMI reaches $80


NBB,

OK, I'm game. You wrote:"WFMI is (MIMO's?) Pick of the Year"

Where did this come from?. LOL

Tim

[SledDawg]

Now didn't that BMHC work out nicely?
So, in a bearish market, if we could have all the symmetrical triangles the MM Forumites could find posted here, we'd have a great watch list for put buying. And all the descending triangles would also be great options plays.
That's my problem: finding the triangles.

IIC (or others):
Do you have a formula to find the triangles?

NB, I'm looking at it for the first time, but Trade-Ideas (recently added to my ScottradeELITE as a freebie) has alerts for triangles and reverse triangles (broadening tops or bottoms) that can be filtered by adjusting the number of hours of trading the program reviews. Is that something like what you're looking for? Anyone have any experience with Trade-Ideas?

[New-born baby]

NB, I'm looking at it for the first time, but Trade-Ideas (recently added to my ScottradeELITE as a freebie) has alerts for triangles and reverse triangles (broadening tops or bottoms) that can be filtered by adjusting the number of hours of trading the program reviews. Is that something like what you're looking for? Anyone have any experience with Trade-Ideas?

Sounds right. I tried Karel's idea, but I was looking for possible shorts, and that requires a stock above $60 (IMHO). These big dollar stocks offer big dollar options, and when they sink like the Titanic, then the moves are nice. I'll see about Scottrade ELITE.

[New-born baby]

NBB,

OK, I'm game. You wrote:"WFMI is (MIMO's?) Pick of the Year"

Where did this come from?. LOL

Tim

I goofed again! Here's a cut and paste of the original post.
*******************************************
WFMI (Whole Foods) I will stay with a local company long ... they will be going international and opening a clothing line - Great Idea Doug!

__________________
The Photon

*******************************************

[spikefader]

..hoped that this thread will be a vehicle to expand your universe of investing knowledge...And no doubt it WILL be if you're posting NB!

To add to the 'knowledge base' here's a review of GOOG, and an example of low cost play that produces an impressive 2 day return. With 2 weeks until expiry you're not paying much of a premium for time, yet the volume and interest and volatility is there to leverage being on the right side of the trade. You have very limited downside, i.e. the cost of the call, and nice % reward if you're correct with your timing.

http://img499.imageshack.us/img499/9941/googoptionplayexample9kh.jpg (http://imageshack.us)

[New-born baby]

Spike,
Love your options plays with GooG! GooG is a money-maker. PERIOD. Thanks for posting your play. Please continue to do so.

[spikefader]

Spike,
Love your options plays with GooG! GooG is a money-maker. PERIOD. Thanks for posting your play. Please continue to do so.
:)

Yep, GOOG sure is. It's truly an amazing stock to trade. And it's taught many many stubborn shorters a lesson, and will continue to do so on it's march to Lord knows how high. And if there was any whisper on the daily chart for GOOG it's that runaway gap in October. Those things should not be underestimated.

Because of the impressive price action I'll post the update intraday.


http://img320.imageshack.us/img320/4593/googcallsjan6a4br.jpg (http://imageshack.us)

[spikefader]

heh, I don't know if anyone else from the forum is actually watching GOOG, but those calls just spiked to 8.70; some panic-stricken buyer using a market order (there's a lesson there people). GOOG intraday stock action something worth watching if you're not already.

[skiracer]

Spike,
A most impressive call on those options way back when you bought this current round. I was actually looking for GOOG to pullback farther at that moment in time. But boy what a stock. Great call an I should have bought them with you at that time. I need an uppercut on this one. I think this stock is going to $500. You are the Spikemiester. I love to see big gains whenever someone beats these markets. Great call. I know you will protect and keep those gains.

[dmk112]

heh, I don't know if anyone else from the forum is actually watching GOOG, but those calls just spiked to 8.70; some panic-stricken buyer using a market order (there's a lesson there people). GOOG intraday stock action something worth watching if you're not already.


Spike, I need to learn options from you. Do you have some type of system on selecting these? It would be cool if you can post something.

So that's why you're not trading the YM's - you're busy making dough with GOOG! ahha

[spikefader]

Spike, I need to learn options from you. Do you have some type of system on selecting these? It would be cool if you can post something.

So that's why you're not trading the YM's - you're busy making dough with GOOG! ahha
:D lol well I have been watching the YM too, waiting for the swing long entry and it hasn't come yet surprizingly. That 'c' long was the play, and I passed on that. But yep, been watching GOOG and doing some research in the meantime.

But sure thing dmk. I did post the options intraday chart and TA basis (?) on the day I started buying them over in my thread, I'll look later, but it's all the same system/methodology stuff that I've posted before. The trick with options, like every trade, is timing....buy into weakness when no-one wants them and sell into strength when everybody wants them. That's an edge right there. But you've gotta be right about the direction or the premium drops pretty quick.

That's the good thing about out of the money options that limit your downside risk. If you're really wrong the most you'll get hit is the cost of the options you buy. And yet if you're right you might get rewarded like GOOG is rewarding today. But get this straight, options are probably the hardest vehicle you'll trade and will bite you if you aren't very very careful. It's one thing seeing this GOOG event and seeing the potential for making money, and it's an entirely different thing to actually do it. Comes down to discipline and risk management, and picking stocks that won't bite you, i.e. high volume stocks that attract more interest and volume in the options. GOOG is one of them.

I'm actually just now reading some elitetrader chat about marketsurfer, who runs a new hedge fund and is/was short GOOG (haven't caught up with the converstation yet to see if he's closed it yet) from 2 position average of 436.50 with 15% of the entire fund. He said he has one add left before he'll then let the position stop out. I'm amazed and it's sad that anyone would do that with people's money; shorting such a strong stock like GOOG when it's breaking out. Just madness. This is why tight stops are good and adding to a loser can hurt. The quicker people get that into their heads, the faster they'll be successful at this game. Anyway, back to reading the GOOG story of the hedge fund that blew up lol

[IIC]

Now didn't that BMHC work out nicely?
So, in a bearish market, if we could have all the symmetrical triangles the MM Forumites could find posted here, we'd have a great watch list for put buying. And all the descending triangles would also be great options plays.
That's my problem: finding the triangles.

IIC (or others):
Do you have a formula to find the triangles?

I must be a Square...I don't look for Triangles...IIC

[IIC]

Does anyone know where I can get historical prices on options...I know where to get them at a price...But is there anything free out there before I go spend 100 bux a month???...TIA...IIC

[Adam]

Spike you in on any of the QSII calls?

[dmk112]

<IIC (or others):
Do you have a formula to find the triangles?>

I don't think there is a formula (atleast for good ones). Basically, the formula is your eyes. lol

Here's one that's coming back to the triangle : LCRD

[New-born baby]

<IIC (or others):
Do you have a formula to find the triangles?>

I don't think there is a formula (atleast for good ones). Basically, the formula is your eyes. lol

Here's one that's coming back to the triangle : LCRD

Nice post. Why don't you do this every time you find a triangle?
Here's LCRD, and there's room here to make $2 per.

http://img474.imageshack.us/img474/6878/chart18te.gif

[dmk112]

Nice post. Why don't you do this every time you find a triangle?
Here's LCRD, and there's room here to make $2 per.

http://img474.imageshack.us/img474/6878/chart18te.gif


I will try :D

[billyjoe]

dmk,
Do you always have to have a substantial drop (left side) to eventually have an ascending triangle? How long or short of a time span to form? Thanks

billyjoe

[dmk112]

dmk,
Do you always have to have a substantial drop (left side) to eventually have an ascending triangle? How long or short of a time span to form? Thanks

billyjoe


No, triangles can form anywhere, they can be tops, bottoms, virtually anywhere. The longer the time frame of the triangle, usually, the more substantial it is. I wouldn't be concerned with the time frame though, just as long as it has at least 2 points (the more the better) on the top trend line and at least 2 points on the lower trend line. This one broke out on Thursday but came back in on Friday which can be a buy point. I'm looking for a limit to 15.25.

[spikefader]

Spike,
A most impressive call on those options way back when you bought this current round. I was actually looking for GOOG to pullback farther at that moment in time. But boy what a stock. Great call an I should have bought them with you at that time. I need an uppercut on this one. I think this stock is going to $500. You are the Spikemiester. I love to see big gains whenever someone beats these markets. Great call. I know you will protect and keep those gains.Thanks ski. Yup, boy what a stock indeed. It'll be a good short one day too :D and hopefully we'll all be on it! Meant to reply to this sooner but got distracted, sorry.

[spikefader]

Spike you in on any of the QSII calls?No, I think there are better stocks to trade options with, i.e. more volume and open interest.....plus, and more importantly, I'm not bullish on QSII yet. It's still very vulnerable, with some gaps down below, and the SHS neckline break in now that targets 55.00ish, which is close enough to the 54.50 gap that you may as well call that the bear's target for it. And if that gets hit then all that consolidation from Aug to Nov is taken out, and the sub 50.00 gap could fill. Boy, I hope I'm wrong on those bearish thoughts, but still urge anyone long to hedge it while it's looking so weak. If it starts making higher highs again, and gets over that gap above, great, different story. But until it does, careful on the long side with stock and calls.

[spikefader]

Here's one that's coming back to the triangle : LCRD
Good spotting!

[dmk112]

Spike, how and where can you find charts for options?

[Adam]

No, I think there are better stocks to trade options with, i.e. more volume and open interest.....plus, and more importantly, I'm not bullish on QSII yet. It's still very vulnerable, with some gaps down below, and the SHS neckline break in now that targets 55.00ish, which is close enough to the 54.50 gap that you may as well call that the bear's target for it. And if that gets hit then all that consolidation from Aug to Nov is taken out, and the sub 50.00 gap could fill. Boy, I hope I'm wrong on those bearish thoughts, but still urge anyone long to hedge it while it's looking so weak. If it starts making higher highs again, and gets over that gap above, great, different story. But until it does, careful on the long side with stock and calls.


Thanx for the DL spike. The put options for feb are dropping a little. You suggest insurance even at the current rates?

[spikefader]

Spike, how and where can you find charts for options?
I get my intraday charts by real-time feed into QT.

[spikefader]

Adam, until that gap up top is filled/broken I'll keep my bearish bias. 80.00 channel/price should resist and if you're looking for strength to hedge into, that's where I see the logical place. Others might have better ideas, but that's how I'd play it.

[Adam]

Adam, until that gap up top is filled/broken I'll keep my bearish bias. 80.00 channel/price should resist and if you're looking for strength to hedge into, that's where I see the logical place. Others might have better ideas, but that's how I'd play it.


Thank You.

Take a look at VGCAX 22.5 Jan 07 call. I bought in at 2.75 Thurs before newyears. Dropped to at maybe lower than 2.40 on FRI BN. Thats where I wanted that adveradge down. Now you lookin at 3.60 Whats your long term outlook on Corning? The chart took a jump today, i'm thinkin it will correct a little tomarro? I gotta head out for a meeting hope to hear from you when I get back.

Thanks for everthing SPIKE rules and $$MM$$ is HUGE!!!

[spikefader]

...Whats your long term outlook on Corning? Thanks for everthing SPIKE rules and $$MM$$ is HUGE!!!
Yes, MM is huge :D That model of his finds some gems! I gotta report on Creme of the Crop in a minute; nice gains for both #1 and #2 today.

But you're welcome and glad any input I throw up can help. Note that generally anything I throw into the equation is short-term and based purely on technicals. And these change so often that it's hard to say XYZ long-term target, since that bias may change tomorrow for all I know.

As for Corning (GLW) I'm bullish on it and the channel turn up today green lights going long the intraday pivot tomorrow, which is 22.17 with a stop under today's price is a little over 4% risk. Long-term for GLW I don't think 73.00 is out of the question, but note that I'd lose that bias below 19.35.

Good luck with it!

[Adam]

Yes, MM is huge :D That model of his finds some gems! I gotta report on Creme of the Crop in a minute; nice gains for both #1 and #2 today.

for Corning (GLW) I'm bullish on it and the channel turn up today green lights going long the intraday pivot tomorrow, which is 22.17 with a stop under today's price is a little over 4% risk. Long-term for GLW I don't think 73.00 is out of the question, but note that I'd lose that bias below 19.35.

Good luck with it!

Thanx and noted!

[dmk112]

Spike, do you have to do anything special with QT and IB to get those options charts? I read that you have to prefix the symbol with a . (period)

I see on your goog option cart that it is a +GOPAI, are you using IB??

I'm getting the quotes in QT but charts are not coming up or coming up weird.

[spikefader]

dmk,

I actually run multiple instances of QT at one time with data feed from different sources; i.e. one QT instance running with TWS data feed for futures, the second instance of QT for options and multiple portfolio tracking with datafeed from Ameritrade (note the + sign for options you see on the chart). Sometimes I run a third instance of QT for data feed testing purposes if I'm trialing another provider.

There's a 'trick' to running multiple instances of QT, and if you or anyone else ever wants to know, just let me know. It's kinda tricky, but not too hard. You just need multiple QT folders and a simple instruction in your shortcut 'target' properties.

It's been a while, but from memory, to have options data from IB's TWS feed into QT you need to put a - in front of the symbol. So it's -GOPAI. And may I recommend QT's user forum if you ever have a curly question you need answered. You'll find it here http://boards.quotetracker.com/board/ubbthreads.php

Hope that helps.

[dmk112]

dmk,

I actually run multiple instances of QT at one time with data feed from different sources; i.e. one QT instance running with TWS data feed for futures, the second instance of QT for options and multiple portfolio tracking with datafeed from Ameritrade (note the + sign for options you see on the chart). Sometimes I run a third instance of QT for data feed testing purposes if I'm trialing another provider.

There's a 'trick' to running multiple instances of QT, and if you or anyone else ever wants to know, just let me know. It's kinda tricky, but not too hard. You just need multiple QT folders and a simple instruction in your shortcut 'target' properties.

It's been a while, but from memory, to have options data from IB's TWS feed into QT you need to put a - in front of the symbol. So it's -GOPAI. And may I recommend QT's user forum if you ever have a curly question you need answered. You'll find it here http://boards.quotetracker.com/board/ubbthreads.php

Hope that helps.

I have AMTD also, any reason why you use them over IB for options?

[spikefader]

I just use the datafeed (some ?? TWS datafeed problem I had); IB hard to beat for commissions!

[dmk112]

Oh yea, Spike, what's the "Trick" - I made two copies of the folder but what's the other thing??

[dmk112]

Oh yea, Spike, what's the "Trick" - I made two copies of the folder but what's the other thing??


NM dude, I figured it out. That's awesome!

[dmk112]

NM dude, I figured it out. That's awesome!


Ok maybe not, lol. When I go into the shortcut>Advanced I select to run the program with different credentials (?). This seems to work as it launces a 2nd QT when I click on the shortcut but I get an error "Index out of bounds (-1)" and it seems that QT doesn't remember me everytime I go back in.

Doing anything wrong??

[spikefader]

Here's the trick:
http://boards.quotetracker.com/board/showthreaded.php?Cat=&Number=14358

Make a copy of the entire QuoteTracker folder, not just the stocks.exe file. (Ex. If your current folder for QT is "c:\program files\quotetracker" make a folder "c:\program files\quotetracker2" (or whatever)). Then copy the entire contents of the "c:\program files\quotetracker" folder (including sub-folders) into the "c:\program files\quotetracker2" folder.

After that, make a shortcut to the stocks.exe file in the new c:\program files\quotetracker2 folder. Your original shortcut should point to "c:\program files\quotetracker\stocks.exe" and the new shortcut should point to "c:\program files\quotetracker2\stocks.exe"

Both of these shortcuts now need the "allowdup" command line argument added to them in the Target box, so that they will look like this:
"c:\program files\quotetracker\stocks.exe" allowdup
"c:\program files\quotetracker2\stocks.exe" allowdup
(Note: allowdup is outside of the quotes and there is a space before it.)

After that final step, you can double click the 2 shortcuts and each will start a separate instance of QT.

[dmk112]

Nice, thanks!

[dmk112]

Any options plays out there? AAPL Jan 85 Calls rose today 58% Still room to rise?

[skiracer]

Any options plays out there? AAPL Jan 85 Calls rose today 58% Still room to rise?

DMK,
I've been looking at a post by Jim Smith, "Jims Cycle Trades JNJ".
I like the Feb. and April 65 calls.
The Feb. 65 calls , JNJBM, are .60 bid/ .65 asked. Closed yesterday at .61 and there are 37 days left to expiry.

The April 65 calls, JNJDM, are 1.30 bid/ 1.40 asked. Closed yesterday at 1.40 and there are 100 days left to expiry.
Yesterday the stock opened down and stayed down pretty much most of the day but gained some strength late in the day to close up .11 at 63.10.
I'm looking to buy some of both this morning. I'll wait to see how it goes after the open. Take a look at the weekly chart. Just starting the right side of a new cup coming off it's recent lows. I love to catch them at this point.

[dmk112]

Thanks, Ski - will give it a look.

[dmk112]

@ LCRD:

Dropping today on a downgrade. Time to pick up some shares is now. I'm in @ 15.10 (current low ??)

http://img50.imageshack.us/img50/3381/lcrdcandle5m15d1d2006011110393.png

[dmk112]

@ LCRD:

...15.10 (current low ??)



Darn, I knew that wasn't possible...heh

Stock looks a bit hurt now and will keep a short leash on it, I do have a small position too.

[spikefader]

Hey dmk, just a thought, but for this type of play, buying a downgrade during weakness (where there are gaps below) might be worth buying a RXQMV put for $0.25, especially given the gap down at 10.72 might wanna fill. That way if you stop out cuz you're wrong and she drops fast to the gap fill over the next week before expiry, you should make a couple hundred bucks on that small $25 investement/insurance play. And if you're position bounces and moves for you, all you've lost is 25 bucks.

[Adam]

Dumped my corning jan 07 22.5 options for an 80% profit. I still jumped out to early. I cant believe it still traded $.50/ share above where I sold.

[IIC]

Does anyone know where I can get historical prices on options...I know where to get them at a price...But is there anything free out there before I go spend 100 bux a month???...TIA...IIC

Anyone???

[Adam]

Anyone???


I hear the question. Would love to hear the ANSWER!!!

[dmk112]

Hey dmk, just a thought, but for this type of play, buying a downgrade during weakness (where there are gaps below) might be worth buying a RXQMV put for $0.25, especially given the gap down at 10.72 might wanna fill. That way if you stop out cuz you're wrong and she drops fast to the gap fill over the next week before expiry, you should make a couple hundred bucks on that small $25 investement/insurance play. And if you're position bounces and moves for you, all you've lost is 25 bucks.


Spike, Yahoo is quoting them .40 - where did you get your quote from?

[spikefader]

Anyone???How about options charts from here (http://tinyurl.com/7oyzy).
Or alternatively, you can go to an Historical chart within Quotetracker and put the ticker (eg .gopai) to get the chart. Also, you can get free backfill into your QT intraday charts by selecting prophet.net as your backfiller and right click the chart and 'fill as' option.

[spikefader]

Spike, Yahoo is quoting them .40 - where did you get your quote from?
It's not where that's important, it's when lol The stock was 4% higher than where it is now, so naturally those puts are asking more now...
but I notice that no volume traded today, and it's a light issue, so this isn't a profit-making play so much as a hedging one for your long. That's the only time you'd buy a low vol option I think; when you need to hedge against disaster, or looking for a large % move that will bring it 'into the money' and boost the interest in it. Those out of the money options for light issues don't trade much, and it can be tricky exiting cuz there are fewer bidders. A big drop to the gap; no problem. But if it doesn't move you may as well kiss your premium goodbye :D

So if you're still long the stock and didn't buy when those puts were asking only 0.25 then now you gotta bid to get that price or pay double (I see the ask as .50 now). Shoulda bought one when I said to :D lol just kidding.

[IIC]

How about options charts from here (http://tinyurl.com/7oyzy).
Or alternatively, you can go to an Historical chart within Quotetracker and put the ticker (eg .gopai) to get the chart. Also, you can get free backfill into your QT intraday charts by selecting prophet.net as your backfiller and right click the chart and 'fill as' option.

Hey...thanks Spike...Doug

[dmk112]

Spike, didn't see your post. Shux!

[dmk112]

DMK,
I've been looking at a post by Jim Smith, "Jims Cycle Trades JNJ".
I like the Feb. and April 65 calls.
The Feb. 65 calls , JNJBM, are .60 bid/ .65 asked. Closed yesterday at .61 and there are 37 days left to expiry.

The April 65 calls, JNJDM, are 1.30 bid/ 1.40 asked. Closed yesterday at 1.40 and there are 100 days left to expiry.
Yesterday the stock opened down and stayed down pretty much most of the day but gained some strength late in the day to close up .11 at 63.10.
I'm looking to buy some of both this morning. I'll wait to see how it goes after the open. Take a look at the weekly chart. Just starting the right side of a new cup coming off it's recent lows. I love to catch them at this point.

Ski, looks like J&J wrapped up the deal with Guidant and may be ready to rock now. Those calls are lookin' good right about now. Did you pick any up?

[Adam]

How about options charts from here (http://tinyurl.com/7oyzy).
Or alternatively, you can go to an Historical chart within Quotetracker and put the ticker (eg .gopai) to get the chart. Also, you can get free backfill into your QT intraday charts by selecting prophet.net as your backfiller and right click the chart and 'fill as' option.

Thanx again spike to the rescue!

[stocks54]

Hello,

Can anyone suggest what might be good option play for ELAN. I had $10 call options for Jan 2006. I sold them at $4.50 (I did sell them early).

Regards,
Stocks54

[Adam]

Hey Stocks,

Seems not to be many options traders round here. If I'd listen to anyone I'd be spike. I sold Some walmart jan 07 put options for a 36% profit today. I got a little nervous when it showed strength in the morning with the market down so hard. My others that rebounded today were LUV (curtusey of cashmaker) up 30% call options. Most of my options are at least a year off and have larger Intrest. My only short options are in WIND and JLG which is already in the money. JLG is strong, take a look, Just missed a good buy in. (I'm not making any reccomendations especialy on WIND, highly speculative)

I'm fairly new with the options trading but have done well with it. My only down position lies with a company in which I own options for semi-emtional reasoning. I do believe earnings are going to smash expectations. Terrible, I know, no emotion in trading. I'll let you know if it pays off.

These are not recomendations trade at your own risk!!!!

I don't track ELAN so I can't comment on that...but I'd love to talk about options.


Keep an eye on WBMD. I's four months into the IPO and the stock has more than doubled. I'd be weary of an option play due to very little liquidity. Gives you less chance to bail out if necessary.

[New-born baby]

Hello,

Can anyone suggest what might be good option play for ELAN. I had $10 call options for Jan 2006. I sold them at $4.50 (I did sell them early).

Regards,
Stocks54

Stocks,
I did not respond to this post because ELN is a wild thing. I have lost some change on this one, so I stay away. Spike could speak about it, but ELN has also burned him a time or two. My policy is to stand away from rattlesnakes and ELN.

Putting that aside, a "safe" options play for any stock that you think is rising is to buy the long term IN THE MONEY or AT THE MONEY calls. Look into the Jan 07 calls for ELN and see if there is anything that might fit your budget.

[stocks54]

Adam/New-born baby,

Thanks for your response.

Adam: I did post the same question on Spike's thread and he did respond to it. To be honest I am pretty new to options myself. Did okay so far. I lost quite a bit on Elan earllier but am HOPPING that Tysabri returns to the market and we will some run.

NBB: I own few leaps (07/08). Currently Elan options is 50 % of my portfolio. I am getting tempted to put more. I think I should definately hedge my position by buying some PUTS.

Best Regards,
Stocks..

[Adam]

Stocks,

I'd always worry any time you have a single holding that is 50% of your porfolio unless, you are absolutly sure beyond a doubt. I've lost much chasing bad money and to much in one place....Best of luck I hope it pays off.

[Adam]

NBB,

Got in the money JLGEJ may $50.00 options. Up 37% at this point. The chart looks strong as well as the #'s. Your opinion would be greatfully appreciated.

Thanx

Adam

[mimo_100]

NBB,



You probably know about these, but, just in case.

I ran into two Exchange Traded Funds, IGA and IGD.

Here is part of the IGD Investment Objective:

The Fund's primary investment objective is to provide a high level of income. Capital appreciation is the Fund's secondary investment objective. The Fund seeks to achieve its investment objectives by investing in a portfolio of global common stocks that have a history of attractive dividend yields and utilizing an integrated options writing strategy.

The current yield is 10.93%.

http://www.etfconnect.com/select/fundPages/global.asp?MFID=142101 (http://www.etfconnect.com/select/fundPages/global.asp?MFID=142101)

Tim

[spikefader]

Couple of good GOOG support option plays:
Feb 06 $600 strikes for $1.00
Feb 06 $630 strikes for $0.75.

Cheap and limited downside. If it bounces here at gap support and trends nice it will pay real nice.

[Adam]

Couple of good GOOG support option plays:
Feb 06 $600 strikes for $1.00
Feb 06 $630 strikes for $0.75.

Cheap and limited downside. If it bounces here at gap support and trends nice it will pay real nice.


Yesterday I picked up GOOG FEB 06 $600 call @ .95 then missed a buy in at $.50 while the stock ran up 30 pts. Love the mixed up way options move. It was up almost 100% at one time today. If it trends from here it would be nice!

[New-born baby]

NBB,



You probably know about these, but, just in case.

I ran into two Exchange Traded Funds, IGA and IGD.

Here is part of the IGD Investment Objective:

The Fund's primary investment objective is to provide a high level of income. Capital appreciation is the Fund's secondary investment objective. The Fund seeks to achieve its investment objectives by investing in a portfolio of global common stocks that have a history of attractive dividend yields and utilizing an integrated options writing strategy.

The current yield is 10.93%.

http://www.etfconnect.com/select/fundPages/global.asp?MFID=142101 (http://www.etfconnect.com/select/fundPages/global.asp?MFID=142101)

Tim

Tim,
Sorry I missed this post until tonight. I was very busy and missed a lot of action, and just this week have been back with my nose to the streamer. But to answer your question: no, I did not know about his fund. 11% is okay! Thanks for the post.

[New-born baby]

NBB,

Got in the money JLGEJ may $50.00 options. Up 37% at this point. The chart looks strong as well as the #'s. Your opinion would be greatfully appreciated.

Thanx

Adam

Adam,
I like JLG. Chart looks strong, and today it had a nice bounce off the 10 dma. Those May $50 calls are selling for $5.40 by $5.70 right now. Here's the only issue I have with it: I don't know how high she may run. She's definitely a winner for you; the daily channel looks to run to $53+ and rising; the weekly perhaps $60+and rising on the major channel; $53 on the minor. It appears to me that JLG is at an all-time high, so it has entered the Twilight Zone, and no reliable target can be forecasted.

So what I am trying to say is that this baby is running nicely for you (LOOK at those STOs run!), but I am unable to give you a price target. I wish I could say that the formation points to $75 or some such figure, because that would give you a good idea about how long to hold.

What is your plan?

[spikefader]

Couple of good GOOG support option plays:
Feb 06 $600 strikes for $1.00
Cheap and limited downside. If it bounces here at gap support and trends nice it will pay real nice.
Was a little early on the call but still potential for a pop to $3.00 over the next week should GOOG rally to test the high of 475.00...
http://img86.imageshack.us/img86/2980/goobtgoogcalls6ta.jpg (http://imageshack.us)

[spikefader]

Yesterday I picked up GOOG FEB 06 $600 call @ .95 then missed a buy in at $.50 while the stock ran up 30 pts. Love the mixed up way options move. It was up almost 100% at one time today. If it trends from here it would be nice!
heh, ya options sometimes act very wierd. Good luck with it! :D

[Adam]

Adam,
So what I am trying to say is that this baby is running nicely for you (LOOK at those STOs run!), but I am unable to give you a price target. I wish I could say that the formation points to $75 or some such figure, because that would give you a good idea about how long to hold.

What is your plan?

Hello NBB,
WOW that would be beautiful to see a number even close to $60 no less a number like $75. Thanks for the intrest in this position.

My plan at this point is to keep a close eye. It ran up to $6.30 a day or two ago then back down to $4.40 I bought in again bringing my averadge to $4.70 because it bounced off the $4.40 realy quick. I have some time left to watch, maybe a month comfortably. Not a ton of liquidity in this one. I'll watch for another run up. If it goes unprecidently good and runs 100% I'll take all invested capitol off the table and let the profits ride till closer to expiration, see how it goes. If I feel weakness I'll put a stop order in to secure profits which I'm up 20% plus at the moment, or I'll look to start taking profits at 40%. Last time I started Taking profits on some GLW call options @ 40% ended up selling the last blocks at 90%. I expected the weakening after the early year runup. That propmted that profit taking. JLG has held pretty strong through everything so far. I hope this trend continues.

Do you have a set of sell rules for how you trade in options?

Also I was looking at GM for maybe a small short term put option play. Any thoughts? I think I saw that somewhere on spikes thread? Spike?

[Adam]

Adam,
So what I am trying to say is that this baby is running nicely for you (LOOK at those STOs run!), but I am unable to give you a price target. I wish I could say that the formation points to $75 or some such figure, because that would give you a good idea about how long to hold.

What is your plan?

Hello NBB,
WOW that would be beautiful to see a number even close to $60 no less a number like $75. Thanks for the intrest in this position.

My plan at this point is to keep a close eye. It ran up to $6.30 a day or two ago then back down to $4.40 I bought in again bringing my averadge to $4.70 because it bounced off the $4.40 realy quick. I have some time left to watch, maybe a month comfortably. Not a ton of liquidity in this one. I'll watch for another run up. If it goes unprecidently good and runs 100% I'll take all invested capitol off the table and let the profits ride till closer to expiration, see how it goes. If I feel weakness I'll put a stop order in to secure profits which I'm up 20% plus at the moment, or I'll look to start taking profits at 40%. Last time I started Taking profits on some GLW call options @ 40% ended up selling the last blocks at 90%. I expected the weakening after the early year runup. That prompted that profit taking. JLG has held pretty strong through everything so far. I hope this trend continues.

Do you have a set of sell rules for how you trade in options? The tradining is very different than stocks. If I tried an 8% stop I'd be stopped out constantly. Recommendations anyone?

Also I was looking at GM for maybe a small short term put option play. Any thoughts? I think I saw that somewhere on spikes thread? Spike?

[New-born baby]

Adam,
Below is a 10 year chart of JLG. It may surprise you that JLG has busted out of a ten year cup with rising handle formation that targets close to $75. BUT remember, that is a TEN YEAR formation that takes perhaps two or three years to get there. Your options are not that long term :D But at least you'll know this stock has potential.

When to take profits. I don't know. Market conditions will no doubt rise and fall in the next two months. There just has to come a time when you take the profits and say to yourself, "I am happy with what I got." Greed will make you unhappy no matter what happens now. It is never satisfied. Others may give better advice.

If it were me, I would consider these things:
1. When does JLG report earnings. Doesn't matter how good they are, JLG may fall. If they are not "blow out" earnings, she may pull back some. Find out what date that is.
2. The channel points to $53 and rising. I'd be taking some off of the table at that point, esp. if the market continues to rise in fear.
3. Remember: Pigs get slaughtered.

Here's your big cup:
http://img93.imageshack.us/img93/3001/chart14ns.gif

[New-born baby]

Adam:
GM reports on Thursday, Jan 26. What are you thinking? Bullish, bearish?
The formation is bullish on the chart. The Inverted S~H~S targets $28+. What about selling the $20 put? Or the $22.50 put? Buying the $22.50 calls?

[New-born baby]

And easy 5.4% could be had this morning by buying VLO and selling the $60 FEB Calls.

[DSteckler]

<< What about selling the $20 put? Or the $22.50 put? Buying the $22.50 calls? >>

Easier to buy calls than sell puts. Net worth and income requirements are higher for the latter.

[Adam]

Hey NBB I must be reading something backwards on the GM. Took the trade out of the question early this morn. I was thinking bearish as they are cutting jobs and slow sales? My tecnical linguistics and vocabulary are very simple. I understand 50% of the abbreviated technical info. Sorry if I disapoint. I do the best I can with the education I got myself. I'm weary of selling the put options only because I haven't studdied it enough. Inform me if you can but don't you have limited control when you write options versus buying puts and calls? You can be assigned to pay if someone exercises thier contract at any time?



JLG It just keeps going. I do feel it can produce a good 40% plus in the next month. Given fair market conditions if it hits 53 I'll be over 40% and happy to take the profits. If there off there triple digit earnings it can take a pull back. May options don't give me much time if earnings fall short. Any new highs should get it To the 40% profit and give a chance to sell into the strength. Thank you for the heads up on the areas to watch. If the market turns up it will be a tuff call but being a pig has cost me tremendously. I'd love to get your input on it but I'm to embarrased to say it on the open forum.

As always good stuff from great people!

Thanx

[New-born baby]

You can always send a private message.

[New-born baby]

Inform me if you can but don't you have limited control when you write options versus buying puts and calls? You can be assigned to pay if someone exercises thier contract at any time.

I'd love to get your input on it but I'm to embarrased to say it on the open forum.

Thanx

You can always send me a private message. I want to see you make the $$.

And GM is not bearish on the chart. Thursday, 1/26/06 is very important day. GM announces earnings. Watch the action. The chart calls for a move up to $28+, as I wrote earlier. Just look at the price action this week. GM up over $1 every single day. That's not bearish . . . GM headed into a .50 divy on 2/8/06. Institutions are buying the stock to take the divy.

I have been watching JLG since you mentioned it. It has been one hot stock. Eventually the momentum (called "the momo") runs out, and like all things that go up, they come down. But long term, JLG looks great.

[spikefader]

...was looking at GM for maybe a small short term put option play. Any thoughts...Spike?lol don't ask me! I was way wrong with GM this week. Doh!

TA-wise, now that the daily channel short day at 22.78 has been taken out, and now the weekly SHS neckline taken out, and the weekly channel short candle high of 20.65, it may meander its way up to 29.00 and 31.00. I'd have to take a neutral bias on it right now.

New-born probably feels like giving me an uppercut for the read I gave! I think he mentioned he was positioned bullishly and I fear I swayed him :( Sorry NB! ~sticking chin out for an uppercut~

[New-born baby]

Spike,
No regrets here. We do the best we can for everybody, and in the end, everybody has to make their own decisions. I made mine, and I am happy with it :D

I haven't seen/heard any numbers yet, but I noticed GM is down .95 in the
pre-market. (I expected this). I've got to hear what the profit was to make a judgment on whether the chart will go bearish now or not.

[Adam]

Thanx NBB,

JLG took a jump today. I'm over 40% profit but I was at a meeting for four hours this afternoon so I didn't see it make the late move and haven't sold yet. Trying not to be a pig.

[spikefader]

Doing a GOOG earnings play today folks.

Strangle with .GOOBT (Feb 600 calls) and .GGDNT (Feb 300 puts) @ $0.65 for each.

I suspect we're gonna see a gap and trend for GOOG whichever way it goes; $350.00 or $500. And I doubt it'll take longer than a couple weeks to do it.

Whether long or short the stock, I'd recommend hedging :D

[New-born baby]

Doing a GOOG earnings play today folks.

Strangle with .GOOBT (Feb 600 calls) and .GGDNT (Feb 300 puts) @ $0.65 for each.

I suspect we're gonna see a gap and trend for GOOG whichever way it goes; $350.00 or $500. And I doubt it'll take longer than a couple weeks to do it.

Whether long or short the stock, I'd recommend hedging :D

Nice, costless collar on GooG. The only fear I'd have is being away from the computer and she drops back down to $290 :D

[spikefader]

GOOG halted. That can't be good.

My puts gonna rocknroll if it's gap-bound :D

http://img493.imageshack.us/img493/3402/googhalt9xl.jpg (http://imageshack.us)

[spikefader]

...suspect we're gonna see a gap and trend for GOOG whichever way it goes; $350.00 or $500. And I doubt it'll take longer than a couple weeks to do it.

Whether long or short the stock, I'd recommend hedging :D
LOL oh mercy! GOOG smashed.
http://img486.imageshack.us/img486/7606/googyow1dc.jpg (http://imageshack.us)

[spikefader]

http://img394.imageshack.us/img394/9827/googstrangle1oh.jpg (http://imageshack.us)

[spikefader]

OK, GOOG strangle update time.

Wasn't a good put selection by me even with the gap - was just too far out of the money choosing those 300s :( which is disappointing considering the gap was what I was aiming at profiting from and I nailed that there was one Doh!

Charts and notes explain. I've made them detailed so others may learn from my error. Like I always say, options are tuff! At least for me they are! hehe

Next time I will play a simple straddle I think. Strangle with out of monies just gets too complicated with a big gap down that meets great market support. The gap down actually probably worked against me with the out of the money put position; just no demand in the face of bullish response to a strong stock like GOOG.

http://img53.imageshack.us/img53/6093/googstranglefeb27es.jpg (http://imageshack.us)

[IIC]

I think Near The Money is better...I called for Feb 45's calls and puts yesterday near the close on AMZN...Can you see how those would do at the open tomorrow?...I have some prices(I am just doing this on paper...worked pretty good w/ YHOO)...Not sure if I have legit prices from yesterday though... Calls $1.75...Puts $2.70...Thanks

[skiracer]

I think Near The Money is better...I called for Feb 45's calls and puts yesterday near the close on AMZN...Can you see how those would do at the open tomorrow?...I have some prices(I am just doing this on paper...worked pretty good w/ YHOO)...Not sure if I have legit prices from yesterday though... Calls $1.75...Puts $2.70...Thanks

Doug,
Big change in the prices today. Here's the end of day data for AMZN and most likely how they will open tomorrow morning. This is the complete Feb. chain.

http://img90.imageshack.us/img90/1858/amznoptchn3sv.png (http://imageshack.us)

[New-born baby]

Look at that option chain. Must be run by the Mob. The $45 PUTS are $5 X $3.50. Most chains spread by .10 or .20; these crooks have $1.50. Looks like you'd best exercise your put rather than trade out of it . . . .

[skiracer]

Look at that option chain. Must be run by the Mob. The $45 PUTS are $5 X $3.50. Most chains spread by .10 or .20; these crooks have $1.50. Looks like you'd best exercise your put rather than trade out of it . . . .

New Born,
I believe that $3.50 x $5.00 is just the range between what is being bid and what is being asked. You can usually bid any demonination of .05 within that range and you may or may not get filled. With that particular put option it's just a wide range. I could show you any number of different chains for different stocks that would be .75 bid x .85 asked or .80 asked. It's just the range for that particular put.

[IIC]

Thx...was .05 off on the puts.

I'll watch the chain in the morn...Doug

[IIC]

Doug,
Big change in the prices today. Here's the end of day data for AMZN and most likely how they will open tomorrow morning. This is the complete Feb. chain.

http://img90.imageshack.us/img90/1858/amznoptchn3sv.png (http://imageshack.us/)

Why would you think they will open like that???...I know the movement will not be point for point...But it certainly shoud change...Doug

[skiracer]

These are todays closing bid and asked prices. I was only assuming that this would be how they are going to open unless there is some news or some other factor that would influence the pre-market or afterhours. It was just an assumption on my part. I'm sure it will change once the market opens and the price either goes up or down or perhaps stays the same.

[spikefader]

I think Near The Money is better...I called for Feb 45's calls and puts yesterday near the close on AMZN...Can you see how those would do at the open tomorrow?...I have some prices(I am just doing this on paper...worked pretty good w/ YHOO)...Not sure if I have legit prices from yesterday though... Calls $1.75...Puts $2.70...ThanksThose prices you've got look legit there. The charts show the range. So that's $4.45 per set of contracts on the straddle.

I'm guessing from the chart action if it opens at $39.00 your puts gonna pop to at least $7.00 and the calls drop to maybe $0.10. So your straddle will be worth $7.10 per set, which is $2.65 (or +$265) profit per set, which is roughly 60% profit on the play.

Now it all depends on supply/demand, and bias at open. $38.00 should support well. If it doesn't and sells hard closing at lows, then $28.00 is possible longer-term. But for your play it'll be worth taking profits at either 38.00 or or 34.00.

Let's see how good my guestimates are hehe

http://img98.imageshack.us/img98/7828/amznstraddlefeb27lk.jpg (http://imageshack.us)

[IIC]

These are todays closing bid and asked prices. I was only assuming that this would be how they are going to open unless there is some news or some other factor that would influence the pre-market or afterhours. It was just an assumption on my part. I'm sure it will change once the market opens and the price either goes up or down or perhaps stays the same.

SKI...WAKE UP!!!...The idea was that they would blow it A/H on the EPS...But you never know...Maybe they would have surprised positive???...It is a protection strategy...Just in case...They blew it as expected...But you never know...AND...You never know how investors will react in the morn...Sometimes wacky...Maybe it wasn't as bad as first thought and they think it's a bargain at the open???

[skiracer]

SKI...WAKE UP!!!...The idea was that they would blow it A/H on the EPS...But you never know...Maybe they would have surprised positive???...It is a protection strategy...Just in case...They blew it as expected...But you never know...AND...You never know how investors will react in the morn...Sometimes wacky...Maybe it wasn't as bad as first thought and they think it's a bargain at the open???

Doug,
Sorry but I didn't know that they were reporting earnings in the AH. They actually did blow the report and their numbers are way off concensus. I missed your point originally but the earnings report will most likely drive the price down and the puts should go up proportionally. But the thing with options is that they don't always follow the stock price or do what logically looks correct.

[spikefader]

I see those ZQNNIs are 7.00x7.10 and the ZQNBIs are 0.00x0.05! :D Congrats Doug.

[spikefader]

http://img423.imageshack.us/img423/2493/zqnniamzn7ln.jpg (http://imageshack.us)

[IIC]

Doug,
Sorry but I didn't know that they were reporting earnings in the AH. They actually did blow the report and their numbers are way off concensus. I missed your point originally but the earnings report will most likely drive the price down and the puts should go up proportionally. But the thing with options is that they don't always follow the stock price or do what logically looks correct.


I was teasing you...Doug

[skiracer]

I was teasing you...Doug

Doug,
I should have known that beforehand. Ya know all the women say "that Doug is such a teaser" and all those women can't be wrong.

[IIC]

Doug,
I should have known that beforehand. Ya know all the women say "that Doug is such a teaser" and all those women can't be wrong.

I guess you are right...IIC

[nrugby]

Folks.. Does anybody know of broker's letting trade options (not covered calls & puts):

1. Buy and sell Calls -
2. Buy and sell puts
3. use of straddle /strangle's

Thanks
Rugby

[DSteckler]

Nrugby, most brokers will let you buy puts and calls as well as purchase straddles and strangle, provided you meet the income and net worth requirements. What broker are you currently using?

[nrugby]

Curently i use fidelty and they only allow covered calls on IRA's and i check etrade and interactive broker.. they also fall on the same path.

anything newer wud be good..and thanks for ur reply..

[DSteckler]

Oh, you didn't say you had an IRA account. Most brokers allow only covered calls in qualified accounts although there are some that allow long option positions. Check with TradeStation Securities and see what they'll let you do.

[New-born baby]

Looking for some good advice on the option advice? If you plan to buy long, then here is some outstanding advice to live by.

Some Option Buying Principles
by Bill Kraft - Editor MarketFN.com Option Trader

In my last article, I spoke about the limited risk (limited to the initial investment) and high leverage attained when buying options. Those can be fantastic plusses for the option trader. Astounding returns sometimes can be achieved but that possibility also can lead to some serious trading mistakes.

I trade for a living and sometimes teach various levels of stock and option trading seminars. In those capacities I have had the opportunity to watch many traders. These traders have had various levels of experience from novice to expert and ranged from successful to failures. Unfortunately, many traders lose, particularly those new to option trading. What factors cause traders to fail?

While this article isn't intended to be exhaustive, there are a number of recurring patterns I have seen in the trading of those who lose consistently. Of course, ANY trade has risk and can result in a loss. On any given day, there is a 50% chance a stock will go down and a 50% chance it will go up. However, that isn't what I'm talking about here. Unsuccessful traders often have unrealistic expectations. They see the possibility of huge returns and tend to think option trading is a way to "get rich quick." Rarely does that happen! If one is going to get rich trading options, it is going to require study, patience, and the application of sound trading principles. An option trader must not only know the adage "cut your losses and let your profits run," he must also know HOW to do that. The trader must realize that not every trade is going to be a winner. In fact, many trades may result in losses, but if the trader can make more on the winners than he loses on the losers, he profits.

So, my first 'rule' is to have reasonable expectations. If you make a trade that results in a 30% gain in a month is it reasonable to annualize it and say it is a 360% annualized return? Of course, that is mathematically correct, but is it a realistic expectation? Certainly not. While I have had trades that returned more than 100% or more in a short time, I do not have the expectation that they are going to occur all the time. I expect that there will be losing trades as well. Last year, for example, in trades I closed that were announced in our subscription service, 68% were winners. That means 32% were losers, but the critical fact is that I made a profit overall. Keep your expectations reasonable. If your expectations are unreasonably high, you may be disappointed and discouraged even if you do well. If you're disappointed and discouraged, your trading may well suffer. I once heard an excellent teacher say: "Worry about making good trades, the profits will take care of themselves." Remember, a good trade can even be one that suffers a loss. If a play turns against the trader and he exits appropriately, a loss will be suffered but a greater loss will have been avoided.

One of the glaring mistakes I have seen over and over with novice (and sometimes experienced) traders buying options is that they buy the wrong option. They buy the short term (less than 2 months) out of the money option. They think the options are cheap, I guess. They are cheap, but there are reasons they are cheap. Options expire. When a trader buys an out of the money option he is buying nothing but time. If the stock price doesn't move much and the volatility stays close to the same, the value of the option drops every day, and the closer to expiration, the faster it drops. The option will be worthless at expiration unless the stock moves in the direction the trader wants and that move must be made at least by expiration at the latest. If the trader didn't buy enough time for that to happen and holds on until expiration, he will have lost his entire investment! That could be true even if the trader was right on the direction, but the option just ran out of time before the move happened. It doesn't take long to run out of money (or patience) if the whole investment is lost in each trade. I believe that buying short term out of the money options can be a quick route to the poor house.

When I buy options, I know time is against me so I buy as much time as I can afford. That does not mean that I expect or intend to hold the option to expiration. On the contrary, I probably won't hold it that long. Buying the longer term option (at least 4 to 6 months out) means that time value is not running out as fast as it would in the shorter term option and gives the underlying stock more time to move.

I don't usually buy out of the money options and I rarely buy at the money options. The 'at the money option' is the one where we pay the most for time and since time runs out, I don't like to do that. My personal choice is often a longer term (6 months or more) 'in the money' option.

Another common problem I've seen is staying in a position too long. I don't remember ever holding an option I've bought to expiration. Before I ever enter a position, I know my initial exit. My exit is based on the stock price. If I know that initial exit before I ever enter the play, my loss will be cut almost automatically if the stock turns against me soon after I buy the option. Knowing and adhering to that preplanned exit is one important way to cut losses.

Though there are many other factors, having reasonable expectations, cutting losses by knowing the initial exit before buying an option, and refusing to buy short term out of the money options are three ways the average or below average trader may be able to improve his trading.

Good Trading!

[diogenes]

Looking for some good advice on the option advice? If you plan to buy long, then here is some outstanding advice to live by.

Some Option Buying Principles
by Bill Kraft - Editor MarketFN.com Option Trader
(SNIP)


Neat read. Thanks for posting it.

[New-born baby]

http://img95.imageshack.us/img95/970/manface9jc.gif (http://imageshack.us)
How to Make Bullish Bets
for Less Risk, by Jeff Carter
One lower-risk way to play the stock market is to buy long-term options that don't expire for several months or more. A long-term option can be an excellent surrogate for the underlying stock and allows you to participate in the action of the stock for a lot less risk.

Time is a key to success when you buy options. Long-term (LEAP) options buy you a lot of time, in some cases more than two years. And stocks can make gigantic moves over this time period.

The major problem with long-term options is that they are usually quite expensive. One way to get around this higher cost is to use a vertical debit spread. A debit spread involves selling an option to offset some of the cost of the option you are buying, but still has the same limited risk as if you had simply bought the option.

The word "spread" seems to scare some options players, but a debit spread is quite simple.

For example, recently we recommended a long-term play on Texas Instruments (TXN) when the stock was at 20.8. The recommendation was to buy a TXN Jan 2006 22.5 Call. To offset some of the cost of this long-term option we also recommended selling a TXN Jan 2006 30 Call at the same time. This created a "vertical" debits pread and reduced the cost of the TXN 22.5 Call to 2.4 points($240).

Your total risk with this position was the cost of the spread, 2.4 points. From a risk standpoint, opening a debit spread is exactly the same as buying an option.

But unlike buying an option, your potential profit with a debit spread is limited. Once the stock crosses the higher strike price, the gains from the option you bought are offset by losses from the option you sold. In our example, once TXN crosses 30, the gain in the TXN 22.5 Call will be offset by a loss in the TXN 30 Call.

The total profit potential with a debit spread is the amount of the spread minus the cost of the spread. So for the TXN spread the total profit potential was 5.1 points (30 minus 22.5 equals 7.5, minus 2.4 equals 5.1).

But keep in mind that your maximum risk with a debit spread is also limited to what you pay for the position. With the TXN debit spread that was 2.4 points. So the potential return was 112%, and there was 18 months remaining for the stock to move when we made the recommendation.

Debit spreads usually don't generate maximum profits until expiration or the options move deep in the money (in our example, if TXN moves well above 30). They are more of a "slow and steady" road to profits instead of the quick hits that buying options can provide.

But there is much less monitoring and decision-making involved with a debit spread. Your focus is almost completely on whether the stock will reach the upper strike price, not on option profit goals and profit-taking.

Because of this slow-and-steady nature, if the spread generates a 100% gain in the first few months, it is a good idea to close half your position and take some money off the table.

If the stock moves against you in a debit spread, another good tactical move is to buy back the option you initially sold if it has lost most of its value. Then you will own the long-term option without the profit limitations of a debit spread.

For example, if TXN fell instead of rallied and the 30 Call fell to a couple tenths of a point in value, you could buy that option back and then own the TXN 22.5 Call with no limit on possible gains.

Debit spreads might sound confusing to new option players. But once you become familiar with how debit spreads work they likely will become one of your favorite trading strategies.

[New-born baby]

Every trader ought to subscribe to this excellent read! And the price is cheaper than an option on GooG!



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[peanuts]

Let's start with this: would you care to list for me stocks that you currently own that are optionable right now?

Do you have a margin account?

Are you allowed to daytrade or not?

Can you post your answers on "Options: Low cost investing?"
Thanks!


NBB,

First of all, THANK YOU! Tuition for your school is pretty cheap... let's hope the education is not! ;^)

Here are my marginable securities:

FRGB
GFIG
DWCH
USLM (only 75% marginable though) and don't tell ANYONE about this stock- this one is MINE all MINE!!!!!!!
SIM
NSS
ZZ
MVCO (currently no position)
BAM (currently no position)

I do have a margin account with Ameritrade, and I can (and do) day trade.

How do companies account for options expense?

Thanks a million (I hope)

[skiracer]

Absorb what you can on options here but take a look at this site, www.CBOE.com for learning about options. I also have an extra CD on Options 101 from Bernie Schaeffer which if you give me your address, PM it to me, an I will mail it to you. If you're serious about learning to trade options then for the best education you can get go to that CBOE (Chicago Board of Options Exchange) site and spend some time there.
Regarding USLM, why would you post it out there if you didn't want anyone to see it in the first place. NB doesn't have to tell anyone about it if it's right there in front of everyone to see. Check out that site. BTW, it's all free.

[peanuts]

Regarding USLM, why would you post it out there if you didn't want anyone to see it in the first place. NB doesn't have to tell anyone about it if it's right there in front of everyone to see. Check out that site. BTW, it's all free.

Thanks Skiracer,

I will send you my work address-

Re: USLM- I don't mind sharing here (it's not like Yahoo, RB, or I Hub) Ernie has invited some good people here. I just hope that nobody goes and blabs USLM all over the place. Someone is doing this on Yahoo! I had to give a big write up on spamming other boards on the USLM board. I am debating whether to even waste my time on Yahoo! anymore. Bunch of garbage there... But, that is where I found the HUGE one and a few money making ideas there, so maybe I'll just cruise through, rather than post. In any case, I do not have what I consider a full position in USLM, yet... so that's why I would appreciate the quiet... keeps any buzz from affecting the price (+ or -)

BTW: what is your experience with options? Have you been successful? How aggressive are you?

[skiracer]

Thanks Skiracer,

I will send you my work address-

Re: USLM- I don't mind sharing here (it's not like Yahoo, RB, or I Hub) Ernie has invited some good people here. I just hope that nobody goes and blabs USLM all over the place. Someone is doing this on Yahoo! I had to give a big write up on spamming other boards on the USLM board. I am debating whether to even waste my time on Yahoo! anymore. Bunch of garbage there... But, that is where I found the HUGE one and a few money making ideas there, so maybe I'll just cruise through, rather than post. In any case, I do not have what I consider a full position in USLM, yet... so that's why I would appreciate the quiet... keeps any buzz from affecting the price (+ or -)

BTW: what is your experience with options? Have you been successful? How aggressive are you?

At times I have been very successful an have also taken my lumps on some occassions. Options are very much different than trading stocks. They are easy to get into but can be hard to exit on occassion and you really should know something about them before trying to use them. I usually try to keep it to the basics of either buying calls or puts depending on my strategy with the trade. Sometimes I'll use them as insurance to hedge against a stock position I own moving in the wrong direction. Other occassions I will buy the calls or puts just to take a position in a stock either to the long or short side. You can leverage much more stock with less money with options than with just buying the stock. It depends on how I feel about the position and trade. The most important thing you must understand is that you must spend some time learning the moves an ins and outs of options before you take the plunge. Of course it's your money and you can do what you want but I would advise moving slowly and learning about the basics first. That site I mentioned will have everything you want or need to know from the basics for the beginner to the advanced strategies of an experienced trader.
I'm sensibily aggressive with my money and my trading. I never trade without a plan for my entry, target, an exit whatever instrument it may be. You must learn to do that until it becomes habit and second nature.
There are no shortcuts. Check that site out starting with the basic tutorials or free seminars and when you feel you understand the basics then try a couple of trades. Maybe run your ideas thru here first to see what some of us think of your strategys first before you make an option trade. Good luck.

[New-born baby]

NBB,

First of all, THANK YOU! Tuition for your school is pretty cheap... let's hope the education is not! ;^)

Here are my marginable securities:

FRGB
GFIG
DWCH
USLM (only 75% marginable though) and don't tell ANYONE about this stock- this one is MINE all MINE!!!!!!!
SIM
NSS
ZZ
MVCO (currently no position)
BAM (currently no position)

I do have a margin account with Ameritrade, and I can (and do) day trade.

How do companies account for options expense?

Thanks a million (I hope)

Peanuts:
Thanks for your post! :D I see by your answer that you are eligible to trade options.

I was asking about OPTIONABLE securities, which means stocks which have an option chain.
FRGB--no chain
GFIG--has one, but not an especially rich one (only a few months covered, not very much cash offered for an option)
DWCH--no options
USLM--no options
SIM--no options
NSS--just like GFIG
ZZ--none
MVCO--none
BAM--just like GFIG

The reason I asked for what optionable securities you held is so that you might want to start out making the very safest option play available: the covered call.

The covered call is where you sell the right (but not the obligation) to someone to buy your stock at a specified "strike" i.e. at a specified price.
Let's take a stock like NSS. Would you sell it for $50.70 a week from Friday?
I don't think NSS will be $50.70 by April 21. If it was, would you be happy if someone paid you $.70 per share now, and $50 on or before April 21 IF NSS was $50 or more?

Start by selling a covered call. You can take that money and, if you want, invest it in another stock right away.

I'll post more in a while. :D

[New-born baby]

Have a stock that you just know is going to head to the garbage pile?
Here are some bearish option strategies (https://www.optionsxpress.com/educate/strategies/bearish.aspx) that really work.

Bullish on a stock? Consider these bullish option strategies (https://www.optionsxpress.com/educate/strategies/bullish.aspx?sessionid=).

Know a stock that you think is just going to sit there? Then consider these neutral option strategies (https://www.optionsxpress.com/educate/strategies/neutral.aspx?sessionid=).

[peanuts]

Have a stock that you just know is going to head to the garbage pile?
Here are some bearish option strategies (https://www.optionsxpress.com/educate/strategies/bearish.aspx) that really work.

Bullish on a stock? Consider these bullish option strategies (https://www.optionsxpress.com/educate/strategies/bullish.aspx?sessionid=).

Know a stock that you think is just going to sit there? Then consider these neutral option strategies (https://www.optionsxpress.com/educate/strategies/neutral.aspx?sessionid=).

Thanks NBB. I'm going to sift through the stuff you have given me here and I'll get back to you with any questions. Is there anything else that you think I should review?

[New-born baby]

Thanks NBB. I'm going to sift through the stuff you have given me here and I'll get back to you with any questions. Is there anything else that you think I should review?

I would just say this: if you are going to make any play other than a covered call, (i.e., selling a call on a stock you already own), then because of your inexperience I would enter a small position first. Make small moves until you gain confidence and experience.

I'll try to post some options plays from time to time. :D

[TFred]

Greetings,

NBB are you also selling calls on your oil positions?Would you consider giving an example,I would like to buy some XEC,with the possibility of selling some calls.Any thoughts?

cordially Tom

[TFred]

Greetings Again,

If you remember few weeks ago,LEA surged up to $20,I asked about buying May 22.50 puts since the stock was not shortable,its now trading at mid 16 level.Buying the stock along with the put would have been a safe hedge play since a possible Inverted SHS was present?

cordially again ,Tom

[New-born baby]

Greetings Again,

If you remember few weeks ago,LEA surged up to $20,I asked about buying May 22.50 puts since the stock was not shortable,its now trading at mid 16 level.Buying the stock along with the put would have been a safe hedge play since a possible Inverted SHS was present?

cordially again ,Tom
Tom,
If I read your post correctly, I would say---

If you buy the stock at (say) $20, and buy the $22.50 PUT, you really don't have any advantage because the put is going to cost more that $2.50.
The hedge would be to buy the $17.50 put at (say) $.50, and that just protects you from a disaster. You'll still lose money.

I myself would look for stock with very clear patterns, and play the option in the direction of the trend. For example, QQQQ is at quadruple top resistance. I bought the $45 JUN put because I think the QQQQ pulls back.

[Jim Smith]

You mean low cost way of speculating.......and I am speculating with VIX May 12.50 calls expecting the VIX to spike to 18+ near term.

[spikefader]

You mean low cost way of speculating.......and I am speculating with VIX May 12.50 calls expecting the VIX to spike to 18+ near term.I like your strategy. The potential sure is there for VIX to do that.

[spikefader]

Peanuts; if I were you, I'd set up quotetracker free charting (www.quotetracker.com) and open up intraday charts for all those stocks you're interested in trading options for.

That way, you'll get a good idea of how the options move relative to the stock. You will see where there is an edge as far as support and resistance, and where you can afford to be patient and slow, and where you have to react quickly and not mess around. Sometimes you've just got to bite the bullet and get out. Remember, if you're long options, they are a depreciating product, and sometimes you just have to sell what you think is valuable for whatever the market wants to pay for them. Options often run opposite to what you think they should....so this is why I strongly strongly urge you to paper trade them for several months before you jump in and start selling call options. Newborn is a pro, and while he optimistically recommends you start by selling a covered call, I'd disagree and tell you to get your head around the basics first. Watch price action on enough of them and witness how they act relative to expiry, and volatility, and you'll be well off dude.

Be patient with your entries. I repeat; BE PATIENT. Let price come to you for your entries. And don't get greedy when trying to sell them. One must consider volume traded, and how significant the support/resistance is for the underlying. If it's a major support/resistance break, then your move will be more rewarding; especially when you have bought your options when no-one else wanted them. Or if you're selling calls, you wanna be selling them when everyone wants them and the price has been bid up to resistance areas....and then buy them back again when stock price has just about finished dropping to/approaching support levels...and nobody wants them. Supply/demand and where you are relative to the money are very important.

Few random thoughts there to help. Good luck.

[scifos]

I would just say this: if you are going to make any play other than a covered call, (i.e., selling a call on a stock you already own), then because of your inexperience I would enter a small position first. Make small moves until you gain confidence and experience.

I'll try to post some options plays from time to time. :D

From what I understand, options are the most versitile investment vehicle. That said, beginners can get way too complicated and in over their head fast.

[skiracer]

Peanuts; if I were you, I'd set up quotetracker free charting (www.quotetracker.com) and open up intraday charts for all those stocks you're interested in trading options for.

That way, you'll get a good idea of how the options move relative to the stock. You will see where there is an edge as far as support and resistance, and where you can afford to be patient and slow, and where you have to react quickly and not mess around. Sometimes you've just got to bite the bullet and get out. Remember, if you're long options, they are a depreciating product, and sometimes you just have to sell what you think is valuable for whatever the market wants to pay for them. Options often run opposite to what you think they should....so this is why I strongly strongly urge you to paper trade them for several months before you jump in and start selling call options. Newborn is a pro, and while he optimistically recommends you start by selling a covered call, I'd disagree and tell you to get your head around the basics first. Watch price action on enough of them and witness how they act relative to expiry, and volatility, and you'll be well off dude.

Be patient with your entries. I repeat; BE PATIENT. Let price come to you for your entries. And don't get greedy when trying to sell them. One must consider volume traded, and how significant the support/resistance is for the underlying. If it's a major support/resistance break, then your move will be more rewarding; especially when you have bought your options when no-one else wanted them. Or if you're selling calls, you wanna be selling them when everyone wants them and the price has been bid up to resistance areas....and then buy them back again when stock price has just about finished dropping to/approaching support levels...and nobody wants them. Supply/demand and where you are relative to the money are very important.

Few random thoughts there to help. Good luck.

Personally I think it's way out of line to even suggest to someone who has never traded a common call or put, who knows nothing about volitaility, implied volitaility, time erosion or many of the other factors that effect how options work, to jump right in and suggest selling a covered call right off the bat. I would think the proper advice would be like Spike states to investigate them and learn alot more about them first. I hate paper trading anything but in this case it makes sense to get some mileage under your belt first.
Another thing is that unless you are able to sit and watch the screen all day anything other than buying a normal call or put could be disastourous as with the exotic strategys you MUST be there to watch and protect you positions which could be wiped out in no time at all.
But experience is the best teacher and some individuals need that rude awakening about a subject to learn, which btw, is how I had to do it.

[New-born baby]

Personally I think it's way out of line to even suggest to someone who has never traded a common call or put, who knows nothing about volitaility, implied volitaility, time erosion or many of the other factors that effect how options work, to jump right in and suggest selling a covered call right off the bat. I would think the proper advice would be like Spike states to investigate them and learn alot more about them first. I hate paper trading anything but in this case it makes sense to get some mileage under your belt first.
Another thing is that unless you are able to sit and watch the screen all day anything other than buying a normal call or put could be disastourous as with the exotic strategys you MUST be there to watch and protect you positions which could be wiped out in no time at all.
But experience is the best teacher and some individuals need that rude awakening about a subject to learn, which btw, is how I had to do it.

Ski,
A covered call is very safe. How could Peanut lose money on a covered call?
Peanut already owns the stock. The only question is whether or not $50.70 is enough money by April 21. :D

Sure, Spike's and your advice is very good. Study is always good advice. But imo I didn't think taking an extra $70 out of the system was bad :D

[dmk112]

You mean low cost way of speculating.......and I am speculating with VIX May 12.50 calls expecting the VIX to spike to 18+ near term.

18?? LOL the market would have to crash, it 1st has to get through resistance at 13.5, 13.75, and 14.50. But I wouldn't call June 'near term'

[spikefader]

18?? LOL the market would have to crash, it 1st has to get through resistance at 13.5, 13.75, and 14.50. But I wouldn't call June 'near term'Historically VIX has been at levels of 18 during corrections that wouldn't be considered 'crashes'. VIX is a quirky thing for sure, but I think it's entirely possible that a quick correction in the market would send VIX over 18.00. Right now there is potential for it...doesn't mean it will happen, but it's still possible.

http://img104.imageshack.us/img104/1429/vixhistoryrecently6et.gif (http://imageshack.us)

[spikefader]

Ski,
A covered call is very safe. How could Peanut lose money on a covered call?
It all depends on the issue of course, but I've seen many situations where a gap up and strong bullish short-term run on a stock can leave a seller of a call scrambling to avoid losses. And usually when it happens it's so fast that you don't have a chance to cover the short call position until losses are already in your face. USG was one such situation in January where selling covered calls lost big money.

[Jim Smith]

I would never advocate a covered call strategy.....You give up too much upside for very little downside protection...

[New-born baby]

It all depends on the issue of course, but I've seen many situations where a gap up and strong bullish short-term run on a stock can leave a seller of a call scrambling to avoid losses. And usually when it happens it's so fast that you don't have a chance to cover the short call position until losses are already in your face. USG was one such situation in January where selling covered calls lost big money.

$pike,
Just so I understand . . . this is what I mean by a 'covered call."
You own 100 shares of USG that you bought at $80. You sell a call for the next month for someone to buy USG from you at $85 for a fee of $1.75 per share. USG gaps up to $95. You have to sell your shares at $85+1.75 or $86.75.

That's what I mean by a covered call. And of course I would say that "I bought the stock at $80, sold at $86.75, so I didn't lose money." Sure, I didn't get $95 for the stock. But I didn't lose money.

Are you saying that if I didn't get $95 that I lost money? I think that's what your saying, so I am asking if I am reading you right. :D

[New-born baby]

I would never advocate a covered call strategy.....You give up too much upside for very little downside protection...

I would disagree with you. There's much more protection that you might think. Here's an example:

1. SIRF--paid $37.17 per share
2. Sold $40 APR call for $1.20.
3. Stock dips to $36.00--I'm in the red!
4. Sell a $35 call for $1.40. Stock continues to slide toward $35.
4. Sold $30 APR call for $5.60=$.40 more than the stock is worth at $35.20.
5. Covered $35 call at $.65, profit of $.75. Covered $40 call at $.40 for a profit of $.80. I am now sitting very safely in the black $30 call+ $5.60 +.80 + .75=37.55. In the black all the way down to $30 now. IF SIRF can stay above $30! lol
But I am not only in the black, but I took no loss on this red monster. Options offer some protection if you move quickly.

Better, I swapped out the $30 calls for $35 calls because that offered another .40 profit if SIRF is above $35 next Friday. Then swapped out of the $35 calls for .10 gain today and sold the $40 calls for $2.05 today. IF SIRF can stay at this level or higher, I have a nice profit now of about $3.

[Adam]

$pike, I guess its same question as NBB. Are you considering money left on the table as a loss? That would mean $8.25 per share left on the table.

[skiracer]

$pike,
Just so I understand . . . this is what I mean by a 'covered call."
You own 100 shares of USG that you bought at $80. You sell a call for the next month for someone to buy USG from you at $85 for a fee of $1.75 per share. USG gaps up to $95. You have to sell your shares at $85+1.75 or $86.75.

That's what I mean by a covered call. And of course I would say that "I bought the stock at $80, sold at $86.75, so I didn't lose money." Sure, I didn't get $95 for the stock. But I didn't lose money.

Are you saying that if I didn't get $95 that I lost money? I think that's what your saying, so I am asking if I am reading you right. :D

Well you wouldn't have participated in the gains but you did own the stock initially. What changed and what caused you to miss out on the gains? The covered call did. Of course this is only one example but it happens all the time with covered calls. When you took the stock position initially did you buy the stock because you liked it to go up or did you see a situation where the premium for writing the covered call was higher than what you thought it should be and that the stock was cheap proportionally. Writing the covered calls requires to many variables to fall into place to collect all the way around. Here's a decent explanation of them and the reasoning behing using them.
http://img137.imageshack.us/img137/5374/covcalls19bx.png (http://imageshack.us)
http://img60.imageshack.us/img60/5940/covcalls25op.png (http://imageshack.us)
http://img101.imageshack.us/img101/2346/covcalls38mj.png (http://imageshack.us)

Just buying the stock and writing a covered call to grab the premium as an extra isn't what it is all about. The strategy requires alot more of a plan taking into consideration the implied volatility, time erosion, and and what you are really trying to do with the play. It is very hard to win both sides with this play an I would have to agree with both Spike and Jim with their takes on it.
You explanation of your play on SIRF is a great example of what not to expect a newbie to contemplate or to understand how to do with this type of situation, especially if they have had no exposure to any type of experience with options.
If I owned a stock at $80 an it went to $95 I would want the $15 gain before anything else. Leaving the $8.50 on the table as in your example is a loss of capital in my opinion.

[dmk112]

...doesn't mean it will happen, but it's still possible.


That's my mindset when I play the lottery NOT the market.

[dmk112]

$pike,
Just so I understand . . . this is what I mean by a 'covered call."
You own 100 shares of USG that you bought at $80. You sell a call for the next month for someone to buy USG from you at $85 for a fee of $1.75 per share. USG gaps up to $95. You have to sell your shares at $85+1.75 or $86.75.

That's what I mean by a covered call. And of course I would say that "I bought the stock at $80, sold at $86.75, so I didn't lose money." Sure, I didn't get $95 for the stock. But I didn't lose money.

Are you saying that if I didn't get $95 that I lost money? I think that's what your saying, so I am asking if I am reading you right. :D

NB, why wouldn't you just buy the put?

[spikefader]

$pike,
Just so I understand . . . this is what I mean by a 'covered call."
You own 100 shares of USG that you bought at $80. You sell a call for the next month for someone to buy USG from you at $85 for a fee of $1.75 per share. USG gaps up to $95. You have to sell your shares at $85+1.75 or $86.75.

That's what I mean by a covered call. And of course I would say that "I bought the stock at $80, sold at $86.75, so I didn't lose money." Sure, I didn't get $95 for the stock. But I didn't lose money.

Are you saying that if I didn't get $95 that I lost money? I think that's what your saying, so I am asking if I am reading you right. :D Hiya New-born. Thanks for the question; you prompted me to go over some numbers and clarify a few things.

I'm probably overly cautious about options because of my experience as a "buyer" of them and not a "seller". The two are very different as the seller has a distinct edge that a buyer doesn't have....and so I should again remind everyone that I am inexperienced in option "writing" so bear that in mind with any of my opinions.

NB, I do respect your ability to spot great call writing plays, and it's inspiring stuff :D I would probably be wise to defer to your option writing experience every time. And one of these days I am gonna get my head around covered calls :D because I'm perhaps overly hesitant.

In the past I've used moments of extreme volatility to scare me away from covered calls, thinking a huge pop in a call price is going to exceed the stock profit by a good margin. Perhaps I am only correct on that during extreme moments of volatility, but on the average the covered call is going to have you sitting comfortably........'covered'. :)

I guess I think of examples like USG back in January, where you did the USG covered call play, and I was concerned that the move against your call position from $9.90 to $26.00 (the next day's open) meant a losing proposition. Your call loss at the next day's open was -$1610 on 1 call.......while the stock profit at open was only $1200, so you were down -$400 on the play for every 100 shares of stock you owned at the next day's open. BUT....later in the day the position leveled out, then you ended $200-odd in profit for every 100 shares you owned by close....and I think that's what I missed back then, so thanks again for the prompting.

After going over the numbers again it seems that any "red" would only be for a short time and then the covered call position as an entire position is going to turn positive, especially with more complex call writing at clever points during the play, at resistance areas where exhuberance makes people "give" the writer so much premium.

I think I have been perhaps too concerned about lack of security with a covered call play?? I really need to focus on them more and learn that edge, cuz it seems to be a very clever strategy to make money, assuming one is patient and stalks the entries.

Best to ya dude, and thanks again.

[spikefader]

That's my mindset when I play the lottery NOT the market.lol fair enough dmk. BUT, have a look at that chart again, and tell me it's not just a matter of time before we get a pop in volatility that sends VIX to 18.00 and over. All we need in the market is a decent bearish correction and we're there. That chart is only a few years old too....if you have a look at the 10-year chart for VIX you'll see that VIX prices were over 18.00 just about every day from mid-97 to mid-03. It was normal to have VIX up there.

And what has changed since mid-03??......VIX has "made a habit" of remaining below 18.00. Does it signal severe market complacency? Admittedly it's been a bull market for a few years, but I think the reason for low VIX goes deeper than that. And come the day that the markets feel real blood in the streets, the complacency reflected in that VIX chart is going to reveal itself with a massive spike in volatility that may well exceed levels of 42.00. 18.00 is kiddy stuff, and it's certainly not lottery ticket chances of getting there. It's just a matter of when and not if dude.

Best to ya!

http://img104.imageshack.us/img104/1429/vixhistoryrecently6et.gif

[spikefader]

$pike, I guess its same question as NBB. Are you considering money left on the table as a loss? That would mean $8.25 per share left on the table.Hey Adam. No, I wasn't thinking that so much as the times when a big move against the call position puts you in the red for a short time. I focus on limiting losses, i.e. not letting them get beyond a certain %. A poor covered call position, poorly timed, and with a bit of poor luck added, you are going to feel the pain no matter how 'covered' you are. But I am perhaps overly cautious. I read with interest NB's covered call plays and perhaps if I watch long enough I'll get as confident as he and others may be hehe.

Good tradin!

[dmk112]

Spike, I was just beating up on you for that comment. hehe

Well, Jim said 'near term' and I don't think it will go there near term. I"m still bullish on this market and this pullback is a good buying opportunity IMO. Actually the VIX is right at the trend line resistance, doesn't mean it won't break but until it does, it going dooowwwnnn! heh... It is what it is dude, yes you're right it will go to 18 one day, I'm not disputing that. BTW I was checkin' out the blog - good work dude. Are you going to be starting a newsletter service soon or what? And everyone on this board get free copies, right? :D

[spikefader]

hehe dmk ya, I had it comin' to me :D

Thnx re the Blogs. :) Yup, free newsletters for my buddies jejeje at least for a couple months harhar....especially if I see regular click fests on the sponsor ads jeje

[New-born baby]

NB, why wouldn't you just buy the put?

DMK,
From my standpoint, it's simple: I don't like to spend money. :D Get it? :D
I'M TOO CHEAP!!!!

BUYING puts means I have to lay money down on the table. Now I can read a chart (sometimes), and I tell you the market is so choppy, especially at turning points in a stock's price trend, that I don't know if the put is going to be money wasted or not. Look at MFLX. Have you been following this stock with MM? He buys at $60, it drops to $53, jumps to $68, and now has fallen to $58--all in four weeks. Now suppose you bought with MM at $60, and it started to drop like a rock, and Spike posts a "caution longs!" chart that says she's going to hit the skids, so you buy a $60 put. YOU JUST GUARANTEED YOURSELF A LOSS ON THIS STOCK. You paid $3 for a $60 put, and if the stock drops to zero or goes to $60, you lost $3. If you bought the deep in the money put, the $65 put, you probably had to pay $8 for it. ANOTHER GUARANTEED LOSS. If you buy the $55 put for $1, you lost $6 on this stock! ANOTHER LOSER! My point: every put is a loser because you had to buy it.

Why spend money when they'll pay you? :D The covered call--imo--is a better kind of put.

[New-born baby]

Ski,
You made a nice post on the other page with lots of info for Peanuts about covered calls. Thank you. It was good stuff.

Here's a comment cut from that post that I want to address for the others on this forum. Ski said, "If I owned a stock at $80 an it went to $95 I would want the $15 gain before anything else. Leaving the $8.50 on the table as in your example is a loss of capital in my opinion."

My response: that won't happen if you know how to play a covered call.

PLAN #1: Roll the option upwards. Example:
1. Buy stock at $60, and sell $65 call for $2.00.
2. Stock gets bad case of MoMo and starts to hustle higher. You realize that this one is going to $70, and being of the greedy sort, you want to collect all the cash from this one. What to do?
3. Buy back your first option with the money from a higher strike price. Sell a $70 call for $1, and use the $1 to go with the $2 they already gave you to buy back the $65 strike call. Now you are going to get $70 from the stock, instead of $67.

PLAN #2: 1. Buy the stock at $60, and sell the $65 call for $2, but BUY the $70 strike for $1. This way if the stock moves up past $65 you still participate in the fun.

What do I do? Never plan #2. Why? I don't like to spend money . . . . :D

[TFred]

Greetings,

As someone with only 1 experience buying a call,and losing on it,I think NBB is on the right.

Two points,

I forget the exact number,but the percentage of options that expire worthless is overwhelming,favoring the writer.

As a friend to someone who