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Vacation-Proofing Your Virtual Portfolio

Option Sage Submits: 

When driving a car and some object appears on the road ahead do you usually run right over it or do your best to avoid it?  

Don’t we all take action in real-life based on the new information we receive that changes the old paradigm?  Take the first two guys in this video:  Who would you rather be, the first or the second guy?  While the second gentleman reacts and looks ridiculous in so doing, he’s the guy that is more likely to survive when real disaster hits because he’s reacting to new information.  In fact he doesn’t even know what’s making everyone else react, he just knows that when 99% are moving one way in panic, it’s best not to fight the crowd or he will be trampled.  It’s no different in the market.  Pride, ego and old theses have no place when new information directly contradicts an existing trade.

This week, we used DIA and QQQ puts and calls to "react" to quick changes in the market while we waited for better information before making more permanent changes in our positions.  This gave us the benefit of the quick reaction of gentleman #2, the one who went unquestioningly with the crowd, while also giving us the "wisdom" of gentleman #1, who was confident (or oblivious) enough to soldier onward, despite the fact that the world seemed briefly to be against him.

When new information does arrive, one of the first things I look to do is minimize risk - hedging the existing position.  The next step for me is to become more aggressive in reacting to the new information and shifting the bias of the trade in the opposite direction.  In this article, I will outline a map that you can use to convert from one strategy to another, based on changes in outlook arising from new information. 

The conversions outlined can be applied also when you know that you will be unable to monitor your positions.  For example, starting with all the July 4th parties occurring this next week, many of you will likely be taking vacations and. with them, a break from actively monitoring your positions.  With that in mind, it’s always prudent to protect your positions from the “just in case” events that can derail your positions in a flash when you are not attending to them.  Those “just in case” events are a reason to remain nimble and flexible when trading the stock market as opposed to becoming emotionally tied to any single position.

Without further ado, let’s look at the potential positions you may have in the market and discuss some possible conversions to more neutral trades that will reduce account fluctuations.  Remember, the point is not to "win" these trades; the idea is to bet against yourself, putting your folder in "neutral" while you head off to the Bahamas for 2 weeks.  You may lose time value on both ends of your trade but often this is less than the cost of jumping in and out of positions.  You paid for your vacation - adding a hedge is just another travel cost that let’s you really enjoy it without worrying about your virtual portfolio!

Strategy

*** Note, these are examples of hedges, NOT recommended trades for this week.  ***

Long Call > Straddle/Strangle

  • A long call can easily be converted to a straddle or strangle by simply adding a long put option at either the same or a different strike price respectively.  A similar expiration date is used for the long put (otherwise it would be a calendar straddle/strangle)
    • ABX Oct $40 calls at $4.90 could be protected with October $38 puts for $1.20.

Long Call > Call Calendar /  Bull Call Calendar / Bear Call Calendar

  • A short call placed at the same strike price as a long call converts a directional long call into a spread trade called a call calendar.  If the short call strike is above the long call strike the trade is a calendar bull call while if the short call strike is below the long call strike, the trade is a calendar bear call.
    • Sept. $16 TIE calls at $1.95 can be offset by selling the Aug $18s for $1

Long Put > Straddle/Strangle

  • A long put can easily be converted to a straddle or strangle by adding a long call option at either the same or a different strike price respectively.  A similar expiration date is used for the long call (otherwise it would be a calendar straddle/strangle)
    • Aug $80 GMCR puts at $5.65 can be neutralized with Aug $85 calls for $6.

The Book on Successful Trading: Secrets to Tame Volatile Markets

Long Put > Put Calendar /  Bull Put Calendar / Bear Put Calendar

  • A short put placed at the same strike price as a long put converts a directional long put into a spread trade called a put calendar.  If the short put strike is above the long put strike the trade is a calendar bull put while if the short put strike is below the long put strike, the trade is a calendar bear put.
    • Aug $460 PCLN puts at $20 can be offset by selling the July $475 puts for $11 if our worry is that it climbs even higher.

Bear Put (Long put with a short put at a lower strike) > Put Calendar / Bull Put

  • A bear put takes advantage of bearish trends.  Should new information arise that changes your outlook, you could certainly consider rolling the short put up to the same strike price as the long put though a shorter timeframe, thereby creating a put calendar.  A bull put could also be created by simply rolling the short put up in strike to a price higher than the existing long put strike (same expiration month).
    • We have GLD Jan $140 puts at $6 for protection (now $5), we see the gold bounce off the $1,500 line and Ron Paul conducting investigations into Fort Knox just as we’re about to leave for 2 weeks.  Rather than take a loss selling them today we sell the Jan $142 puts against them for $6, taking advantage of the momentum that flows against us.

Bull Call (Long call with a short call at a higher strike) > Call Calendar / Bear Call

  • A bull call makes money in bullish trends.  In the event that the expected bullish move does not materialize, you could roll the short call down in strike price to the current month while maintaining the existing long call position, thereby creating a call calendar.  A bear call may be an appropriate conversion if the move is bearish as opposed to stagnant.
    • MCD Nov $62.50s at $4.35 can be offset with the sale of Nov $65s for $2.55 if worry it is stagnating and eating into your premium.

Bull Put (Short put with a long put at a lower strike) > Ratio Put Backspread / Collar Trade

  • Bull puts make money in flat and bullish trends.  In the event that a stock breaks aggressively bearish on some unexpected news, additional long puts can be added that results in a trade that has more long options than short options (i.e. a ratio put backspread).  Also assignment of the short put could be taken with resulting stock ownership arising.  Should you end up taking ownership of the stock, you could simply add a long put and short call to convert the trade into a collar trade.
    • DIS July $38s at .60 can be saved by selling the July $37s for $1.19 if their latest film is a flop.

Bear Call (Short Call with a long call at a higher strike) > Ratio Call Backspread / Synthetic Strangle

  • A bear call takes advantage of flat and bearish moves.  Should a stock move bullish above the short call strike, an additional long call can be added to form a ratio call backspread.  On the other hand, if you happened to be assigned early and end up with a short stock position, you could simply roll the long call from the bear call further out in time and created a synthetic long put.  If you now add another long call you effectively end up with a synthetic long put and a long call or a synthetic straddle/strangle.
    • If we become concerned that 10 GOOG Sept $500s at $13.50 ($13,500) may be in jeopardy, we can sell 7 July $480s for $12.20 ($8,540).  Google would have to finish the month at $492.20 just for us to give our caller his money back while all 10 of our calls will experience $18 worth of stock appreciation, less time decay (perhaps +$4). 

If you already have a collar trade, a straddle/strangle or an advanced strategy such as a ratio backspread in play then you are likely so well-hedged that you can ride through any volatility that ensues without too much account value fluctuation.

For those of you that tend to be more active, I would encourage you to read up on Phil’s mattress plays and consider trading index puts against existing positions.  Personally, when I consider those plays I like to buy 1 put contract for every 100 shares of stock and 1 call contract.  For technology shares, I purchase QQQs.  For Dow stocks, I purchase DIAs as hedges and so forth.  Phil tends to focus on the index that is likely to snap back the most on a correction which is another great way to insure your positions and often more profitable (assuming you are good at doing your homework – which of course we know he is!).

Happy 4th of July!

Option Sage

 


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  1. rpme

    Phil, great article, very helpful.

  2. Lincoln

     Ditto what rpme said

  3. Phil

    This is Gareth’s (Sage) work, I just update the examples.  

    He and I collaborated on many of these articles in our Education Section, just click on the link there where it says "Education Archives" and you’ll see many articles like this one.  

    That’s one of my projects for the 2nd half of the year – going through that old stuff and refreshing it.   My problem is I always have new things to say so it’s very tedious going back and repeating old stuff but then I realize no one goes back to our old 2006 & 2007 stuff because it seems old, even though the strategies are not old at all – it just has more impact when we talk about current trades and market conditions.  

    Gareth is smart – he published a book and that’s that.  I’m the dumb-ass who has to think of something new to say every day (although my real problem is stopping, not starting!).  

  4. sparky123

    Seer,
    Thanks for the reply. I guess I take FDIC insurance as part of the mirage that we all must believe in. My question is more specifically as to what degree TD  money market funds are exposed to the financial mess in Europe. The funds are posted in constant whole dollars, but the underlying instruments fluctuate in value. If those instruments are bonds or swaps on Euro pheriphery debt then there is obviously a disconnect, and the idea that Lloyds or anyone could actually  insure that is insane. A friend of mine, a bond analyst for Citi, about five years ago, said it best. "These kids think that because their statistical analysis indicates that there is a 99.0% probabality that something won’t occur, it can’t occur. They don’t understand that sometimes the 1% can happen, and once it does their models are worthless."  Well, the 99% is the world we must live in. The 1% is the fact that the Fed was apparently blindsided because Lehmans, besides being leveraged 29 to 1 on paper, was actually leveraged 6 to 8 times that on derrivitaves. And those derrivitaves are still unregulated. Does the Fed have a better handle on where the derrivative risks are this time with Europe? One would hope so. Phil?

  5. wappler

    Phil,
    I’ve been a lurker on this site for a few months now, soaking in the tremendous information that you and this community offer.  Thank you so much, this is really an incredible learning experience!
    This old article by OptionSage leads me to finally ask you a basic question on the topic of Covered Calls (basic for you, that is) , namely on when and how to best roll a Covered Call that is showing a loss.  I’d really like to understand the general strategy, but as an example, I currently have the following Covered Call:
    AAPL July C 330 sold at 4.70, now 5.80 with a 23% loss at the moment.
    Since I don’t want the stock called away, when would it be the right time to roll the call and what specific parameters do you consider?  Also, I assume that this has been covered before, however, I have not been able to locate this info on this site – apologies if this is covered in some article I may have overlooked!

  6. strether

     Phil
    What stops would be good on the USO July 35/36 bull call spread and July 34 put sale mentioned in this week’s Newsletter?
    Thanks
    Strether

  7. yodi

    wappler on AAPL CC writing Doing myself a far amount of CC writing here my 2cents of opinion.
    Stk trading Friday 226.00 give or take it was all over the map but the 5.80 is all premium at this point. Only when a short call has lost all or most of its premium you will get called. During the last 30 days before experation the caller looses premium very fast but this does not so much apply with AAPL they can hold on to a lot of premium until the last day. At this stage no one knows where AAPL will go 210 to 350 is my guess during July so do nothing until the call has lost most of its premium than roll if you do not want to be called. For a rule of thumb people roll if the caller has lost 75 to 80 % of its premium but in the final 30 days I normaly wait till the last 3 cents. Hope this helps.

  8. Phil

    FDIC/Sparky – I did warn people about that in the last crisis but we actually survived that one.  I’m not sure what will happen if we take a dip like that again as the FDIC has no money left.  Not that they ever did as they used to have about $200Bn to cover over $4Tn in cash on deposits anyway.  As you note, the FDIC is levered 20:1, maybe now 100:1 against banks that are levered 15:1 so your deposited dollars are at 1,500 times risk out there in derivative-land.  

    If this system goes down, it goes down big and globally and nothing is going to stop it.  The richest people in America will be the people who maxed out their credit cards and took a second mortgage to stock up a fallout shelter with guns, ammo and canned goods!  Look what China’s doing now – they are over in Europe trying to "fix" it because Europe owes them about $1Tn and they don’t have $1Tn to lose – especially since their other $1.4Tn is in the US!  

    Meanwhile – what can you do to protect yourself?  I think $500K-2M is safe in any single broker without taking on special insurance (get your own swaps that may end up defaulting!) but I still wouldn’t be the last one out the door if there are rumors that they are in trouble.  Any money you have electronically, whether it’s in a bank or at a broker or in stocks that you don’t even have a certificate for is nothing more than an illusion based on your (and others) willingness to accept the validity of they system.  Once the system itself is called into question – you will quickly find out what a house of cards the whole thing is – as we did in 2008.  

    You make a good point about the 99% possibility.  When you tie your 99.9% models into a system that lends money out to 500 interconnected countries then suddenly you are almost guaranteeing a credit failure every 2 years and a cascading event can quickly escalate and wipe out the whole thing.  My Father (not my Step-Father, who recently died)  began his career as an actuary and he told me many years ago that the assumptions underlying they Global economy were seriously flawed because no one fully understood the complexity of the models once they crossed boarders.  He wasn’t talking small errors but quantum ones that were based in flawed logic that was at the heart of the system that were never going to be properly accounted for.  Unfortunately, he died in October of 1999 – he would have been quite amused at what happened a year later and again in 2008.  

    EVERYTHING went down, stock, commodities – everything but Dollars and TBills as the US Government was considered safER than the rest but – if that breaks down too – then where do we hide?  I’m not saying this to freak people out – that’s the nature of the global economy – the whole thing is based on trust and if the trust is gone, there’s no back-stop in the World that’s going to save things.  

    We all lose sight of reality living at the top of the World here.  Before the 80s (now everyone has TV and internet so you don’t have the isolation you once had), you could go to a village in Africa and try to get a farmer to trade a bull for a green piece of paper.  Only if he uses money, knows American currency is good and has some idea of what a Dollar is, do you have a chance of making that trade.  If you would ask him what his bull is "worth" – he would say it’s worth x amount of sheep and chickens or worth a husband to his daughter as a dowry or worth a year of labor.  If the global financial system collapses, we will have to build back from the food chain – everyone needs food every day so what can each person trade for it? 

    Read:  The Worst-Case Scenario:  Getting Real With Global GDP!  - it’s a more positive take on the economy, or was at the time (June 2010), when I was trying to explain to Members why it was OK to be bullish as the S&P collapsed back to 1,000.  

     Look at AFL this week – they took a $610M hit pulling out of EU notes just on the off chance they default.  Better to lose that than risk Billions in losses on a default but consider that $600M was about a 15% loss they were willing to take rather than risk the outcome of the Greek mess.  

    The question with AFL is:  Were they uniquely exposed to bad EU debt or were they just extra-nervous or were they just smarter than everyone else to get out first or where they just smaller than everyone else and ABLE to get out while others are trapped and not able to gnaw their own foot off like AFL to escape?  

    Welcome Wappler!  You say you have a loss on a covered call but if you own AAPL then what is your loss?  If you bought AAPL for $295 and you sold the July $330 for $4.70 (now $5.80) then you effectively sold AAPL for $334.70.  There’s no "loss" on that trade to the upside at all other than an opportunity cost, which you now have as you regret having POSSIBLY sold too cheaply.  The fact of the matter is AAPL is at $325.96 so the only "loss" you have at all is on paper in the fantasy world that the caller is living in where he wishing AAPL will finish higher than $334.70 and, since it’s earnings, there are other people who are willing to bet an additional $1.10 that AAPL will even finish higher than $335.80 now.  

    What matters is – what do YOU think?  Do you have so much faith in AAPL that you want to take the caller’s $4.70 out of your pocket PLUS give him another $1.10 just IN CASE APPL jumps more than $9.55 between now and July expiration?  What if it drops $9.55 instead?  Is that not possible.  You didn’t have a fire yesterday – did you cancel your fire insurance?  If you have not dropped dead this morning do you cancel your life insurance?  Health?  Homeowners?  

    If I buy AAPL today at $326.35, I can sell the July $325 calls for $8.35 so I’m paying net $318 for the stock.  If I get called away in 19 days at $325, I get $325 cash back and I net a profit of $7, which is 2% in 19 days.  Should that upset me?  If I could do that every month I’d be a very, very wealthy man if it were guaranteed.  

    And there’s the point – don’t think of it as a one-time sale.  I WILL sell at least $5 worth of calls EVERY month I own AAPL and that’s $60 a year or about 20% of the stocks price and THAT IS GUARANTEED.  AAPL may go up, AAPL may go down but I will damned sure sell my $60 no matter what.  That simple thing is going to put you $60 ahead of someone who just holds it, right?  

    That means that AAPL can drop $180 over 3 years ($240) and you will be about even on the trade.  That’s why this is even better to do with dividend stocks.  You caller never "beats" you.  They are PAYING you and sometimes they win and sometimes they lose but you ALWAYS collect your premium.  

    Now, if you buy AAPL today for $326.35 and you sell the July $325 call for $8.35 but AAPL flies up to $375, THEN you have a decision to make – do you buy it back, having missed the $50 run-up or move on to another, cheaper stock?  As I’m sure you’ve noticed, I prefer to move on but that’s also why I like to pair the calls with a put sale.  If you exercise portion control and are always willing to Double down on your positions – then I would also sell the July $320 put, for example, for $5.20.  Now I’m collecting $13.55 for the month (4%+) and they can’t both pay off and they may both expire worthless if I’m really lucky.  

    Of course doing that monthly leaves you much more subject to grey swan events that blow you out on one side or another but, if you get blown out on the call side, you walk away with your 4% monthly profit (48% annual) and lick your "coulda, shoulda, woulda" wounds and find something else to trade) if you get blown out to the put side, then you own 2x AAPL at about net $320, which should make you happy as a long-term trade where you can sell $60 per year in calls alone (20%).

    So in your situation, there is nothing at all to do as you sold a guy premium, it’s still premium and that’s that.  If you are worried about earnings to the upside, you can sell the Sept $310 puts for $10.60 and roll the caller to the Sept $330 calls at $15.50, which puts another $20 in your pocket (6%) and adds $5 to your call-away price (and the whole thing can be rolled again).  It all depends on your goal for the trade, your risk tolerance and your outlook for AAPL into earnings and longer-term.  

    You say you don’t want the stock called away but does that mean at any price?  If you sell the April $340s for $31 (10%) and get called away at net $371 (up 14% from here) will you be bitter and angry and hurt?  What will it take to satisfy you?  

    I don’t like owning AAPL because Steve Jobs will die at some point and the stock will drop 30% and THEN I will love owning AAPL again.  Meanwhile though – Steve is VERY rich and they have an endless supply of Chinese organs to keep him going as long as possible and if there is a cure – Steve will get it so I do understand the desire to gamble on owing the stock as it is fun and could get to $500 over the next couple of years if all goes well.  But, there are so many stocks that can go from $35 to $50 that there’s no particular reason for me to risk 10x on one stock where I know FOR A FACT that there is a better than 50/50 chance of a major event taking down my stock over the long term.  Actually, now that I write it out – it does seem kind of insane to own AAPL stock but that’s what makes a horse-race, I guess.  

    So anyway, as I have been saying for about a year now, the only AAPL trade I like is the short Jan 2013 $270 puts at $27 for a net $243 entry.  If you want to be super-bullish on AAPL, you can use that money to buy the 2013 $325/400 bull call spread for $28 – and then you are in the $75 spread for net $1 and the worst thing that can happen to you is you end up owning AAPL at net $271.  

    If you take your current $326.35 shares and allow for the 17% discount of being reassigned at $271, then you can buy 1.2X of the spreads and you’ll make 20% more of every dollar AAPL gains between here ($326.35) and $400 than you would owning the straight stock.  If you also sell out of the money calls against that position – say the July $340s for $2.40 and you don’t get blown out and collect $2 a month for 18 months – that’s another $36 you can add to your total, which drops the break-even down to $235.  You can follow that strategy but not sell earnings months, collecting $12 less but also reducing the chances you get blown out to the upside (still a nice $24 extra in your pocket). 

    And what Yodi said! 

    USO/Streth – If oil isn’t holding $89 on Monday, I’d drop it.  We’d expect some kind of move up into Weds inventories but that’s when you really want to get out if they are not back over $92.50 at least as it’s not worth the risk.  

  9. kurtww

     I am looking to move my active trading to my TOS account, but I haven’t because their option commissions are so much higher than IB. I gather that a number of people here have gotten them to come down to a more reasonable commission structure. Does anybody have any specific suggestions on what I should ask for? Right now I have $50k with them but could easily do $250k if they were competitive. I assume that’s enough for PM with them. I know I should mention PSW, but is there anything I should ask for? Thanks… 

  10. wappler

    Phil,
    Thanks for your elaboration on my AAPL covered call trade, even though your reply was a bit on the short side (LOL!). 
    Just to clarify, I have no emotional investment in this trade – following your recommendations on how to enter a position the stock got putted to me plus I’ve sold premium a few times already, so this position is in a pretty good shape.  What I was looking for what more your general philosophy on writing covered calls and you’ve certainly given me food for thought.  Your point on Steve Jobs is well taken and I really like your Jan 13 $270 put idea – based upon your input, if AAPL is 330+ at expiration I will let it go after all and sell the $270 puts.  If not, I’ll just tempt fate by selling a few more rounds of calls!
    Again, I truly appreciate what you are doing on a daily basis here on this site – my learning curve has certainly gone exponential since I’ve joined.  Not to mention your political rants, which I thoroughly enjoy and as a European living in the US certainly can relate to…
    Yodi,
    Thanks for the rule of thumb which seems simple and straightforward, but for some reason I haven’t found any such guiding principles in the options books that I’ve read.  Can you recommend a book on options that deals with the practical side of adjustments or do you speak from experience?
    Also, how do you deal with with opposite scenario?  Say the AAPL $330 calls were $2.35, down 50% from the entry?  I typically start trailing a 10% stop once a position is up more than 20%.  What rules, if any,  do you use to protect the gains on a caller?  Appreciate the feedback!

  11. sparky123

    Phil,
    Your comments were helpful. I agree, it is and always has been a house of cards. I refuse to prepare for a world where I might contemplate killing another human being over a can of beans. I might, however, like the AFL duck, move a few eggs into a different basket. Thanks

  12. strether

     Phil
    Thanks Got it.
    Strether

  13. yodi

    wappler Well Phil gave it all in a nut shell. CC writing is in general very simple. My rule of thumb I picked out from many books and from the experience of trading. My normal aproach is get as much premium as possible out of the caller. I go down to the final cent. In this senerio where the caller goes in to all intrinsic value you should be making money in any case. You received your payment the day you sold the caller possible a bit OTM so if you get called you got the caller.s money in your pocket and you receive still some extra money from the difference of the original stk price to the called strike price. So here is your decission do you want to hang on to the stock and you need to roll or take the money and run. In a further out CC written it is wise to buy the caller back for a good profit say you sold the SEP call for 4.00 and on todays down draft it shows .75.
    Yes the stock has dropped as well but it possible will recover in the next up market and you sell the caller again.
    On your second question if the AAPL caller drops from 5.00 to 2.50 it can only mean AAPL stock is going down. So the value of the option goes down as well but you already received the 4.20 on your call. If you think AAPL will recover you can buy the caller for 2.50 and sell it tomorrow again, provided the stock goes up for say to 4.00 or so. So now you made 4.20 – 2.50 plus 4.00. So you see the rules on the caller very much depends on the individual person what profit you set out to make.

  14. kustomz

    AFL, they took a loss last year as well on European debt exposure. These guys are supposedly conservative, I think we see more De-risking down the road.

  15. rj_jarboe

    kurtww/TOS
    The best rate I could get out of them is a flat $1.50 per contract if you trade very few at a time (this is with no other fee). To trade many contracts, the best they would do for me is $9.95 for any transaction plus $0.75 per contract.

  16. dclark41

    On the 24th they conquered inflation…….
    http://jubakpicks.com/2011/06/24/china-conquers-inflation-premier-wen-says-so-and-what-does-that-mean/
    On the the 26th it was tough again to contain inflation…
    http://beta.news.yahoo.com/chinese-premier-says-tough-keep-inflation-under-4-011113201.html
    which story is true?

  17. zeroxzero

    Phil, you’re comments on what not to do during a vacation week were welcome, as I’m facing one where it will be tough to stay in touch with markets. While wistfully picking through tonight’s numbers, wondering if there was such a thing as a no-risk position,  I decided that even asking the question hinted at some sort of pathology, and I’d be better off reading some good fiction.  Something to add perspective to the spectacle of watching the Western World’s dominant standard of living dissolve like a popsicle in the summer sun.
     
    On the other hand I almost feel it’s my responsibility, as paterfamilias, to re-short the Euro, since if the West is going to be cannibalizing itself for the next few decades, I should endeavor to ensue that those in my charge remain Eaters rather than Eatees.  I find that options are especially efficient at promoting such a relationship among investors.
     
    Have fun this week, or rather, have a good holiday!

  18. Phil

    Good morning! 

    TOS/Kurt – Contact Scott at thinkorswim dot com – he’s the guy who takes care of us (one of the founders) but now that they are part of AMTD, he has a lot less flexibility than he used to.  Just keep in mind that it’s a business negotiation and they DO have the ability to alter the rates.  The variables are how much money you have (and $250K is a reasonable-sized account), how often you trade in a month (more trading deserves a volume discount), the types of trades, margin or no margin and the rate they will charge you for that as well as their per transaction fees and the per contract fees,   Each item is negotiable and, as with any negotiation – you need facts on your side like knowing what you get at your current broker, what other brokers offer you (in writing is best) and what the norms are.  Go into your negotiation well-prepared and you should do well as you are in a good position with the small account (carrot to them) and the promise of making it bigger to trade with.  

    Keep in mind AMTD is now the biggest broker in the country, with about $425Bn in client assets but they only make $2.5Bn in revenues so, if they are charging you 1% a year – you are a profit center for them and they do want your business.  

    Option book/Wappler – Have you read Sage’s book at the top of our page (in the box that says "Download the Complete Options Trading and TA Ebooks"?  That’s a pretty good one!  As to exits – again, it’s a rule of thumb because it’s situationally dependent but if we’re over 2 weeks from expiration and up 50%, we tend to take it off the table and if we’re up over 70% in the week before expiration week, we tend to take it off the table and if we’re up 85% during expiration week – we tend to take it off the table.  That is, of course, unless you are SUPER-SURE that the short call or put will expire worthless AND you feel you are adequately protected AND you feel there is not a better contract you should be selling AND then it all depends on which way you think your underlying will move over the remaining time.  Also, once you make 20% on ANYTHING, you should always have a trailing stop at 20% of the profits – just as you should stop out when you have a 20% loss on a full position.  

    Inflation/DC – I think Wen is just being a politician – he has to say some things to set expectations with his own people but, when speaking to an international press out of country, he’s going to can the BS and talk economics.  

    Have a good vacation/ZZ.

    One thing Sage did not touch on to protect stocks that I like to to do is to sell very  deep calls for a vacation.  Especially when you have a nice, high VIX like we have now, you can OVERSELL your positions to help make sure you don’t take a loss if the market crashes.  So, if I have GS at $130.91 and I’m going away for 2 weeks and I want to lock it down – I can sell the Jan $100 calls for $33.30.  That keep me covered for a $30 loss and, if they call me away – I get $2.40 more than if I had sold them today so what do I care.  When I come home, I can roll the 2013 $100 call back to (for example, of course) the Aug $130 call at $6.50 so I’m putting back $26.80 of the $33.30 I collected and I still have cash in my pocket and I still have a $130 call put with a shorter time-frame and we’re back in the premium-selling business.  

    Dollar slapped down to 76.08 already – Da Boyz are Back in Business!  

  19. kurtww

     Thanks Phil and rj – I wrote Scott, let’s see what he says. I’m used to the IB platform but I like the charting tools at ToS much better. What annoys me about IB is that their P&L calculations don’t seem very accurate. I can have a day where the P&L shows +$1500, but the next morning my balance only reflects + $500 or something, very frustrating, and they can’t seem to explain it. Very frustrating to feel like I’m doing well, but at the end of the week my balance is flat. The idea of poring over a bunch of Excel statements to find what’s happening does not excite me. Does anybody have some trade analysis software they like?

  20. wappler

    Phil,
    Yes, I have read Sage’s Option book.  While it is certainly a great introduction, what I am looking for is insight into the finer points of rolling calls that one won’t be able to find in such a text.  The dialogue with you and Yodi has been very helpful because so far I’ve been managing my covered calls on a more intuitive basis and now I am looking for a more organized and rule-driven approach.
    I also need to look into the deep ITM calls that you’ve suggested above – I’ve taken some time off of work and that might just be the ticket to protect my portfolio.

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