New Trade – Amazon (AMZN) weeklys Bull Put Spread, will it succeed?

New Trade - Amazon (AMZN) weeklys Bull Put Spread, will it succeed?

Here is another new trade I plan to open tomorrow morning. It will be a bull put spread against Amazon (AMZN). The stock shows a great push up at the beginning of a new breakout trend. I believe it will repeat the previous cycle when it broke up from a squeeze.

If it repeats the same swing, the stock should go to $380 a share or even break up thru it.

Amazon

The chart above indicates what I am looking at and what my expectations are. If you look at the squeeze indicator, you can see that the stock broke up recently. Since markets are rhythmical I expect it to repeat the same or similar pattern (of course the trend may lose steam a lot earlier than the previous one, but I hope will be out of the trade by then).

With that said, I decided to open a new trade on Monday by selling a weeklys bull put spread. It is a credit trade and I should receive $130 for this trade. It is set to expire this week this coming Friday (Friday, July 25). If that happens I will collect a full credit.

Trade Detail

STO 1 Jul4 14 322.5/332.5 put @ $1.30

This trade consists from the following legs:

SELL 1 Jul4 14 332.5 put
BUY 1 Jul4 14 322.5 put

The trade will end in 5 days and it will have a max profit, if the stock ends above $332.5 at expiration day, which is July 25. Max loss of $870 will occur if the stock drops below 322.5 at expiration (and I hope this will not happen).

Happy Trading!

 
 




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Trade exits – TASR (+3.11%), AMZN (+9.54%), AAPL (+3.54%), FCX (+3.07%) Happy Friday Expiration

Trade exits - TASR (+3.11%), AMZN (+9.54%), AAPL (+3.54%), FCX (+3.07%) Happy Friday Expiration

This week trading was definitely something. It was erratic and crazy. I had some trades which were good, turned bad, ugly, and great again. All in one week! So what happened and what trades I had or could take off the table? Let’s take a review.

FCX logoFreeport-McMoRan Inc. (FCX) – This was a great trade I opened in May 2014 and it had August 2014 expiration. I could close this trade this Friday as it already lost all its value. I sold a put against this stock and collected $100 in premiums. On Friday I could buy it back for $5 and thus close the entire trade with $95 premium banking in +3.07% profit. Not too shabby.
 

Amazon logoAmazon (AMZN) – Even better trade than FCX one. I opened this trade three days ago, on Wednesday last week. It was a bull put spread and I was expecting the stock to end above the higher (short) put option strike, which was $355. At first this trade was great and it seemed to be going for a great profit in three days. Yet at the same day, in the afternoon, the trade turned bad and the stock ended below my strike price.

On Thursday the trade turned ugly and it was apparent that this trade will not end well and that I will have to roll it away. I think there was a pattern in this trade. I noticed that whenever I take a trade which is about to expire in two to three days, it always turns bad on me. It is like my trades need time for them to end well and taking ultra-short time trades turn nasty. I was so mad that I turned off the computer and stopped watching this trade completely. I was determined to roll it, but I decided to wait for Friday and roll it at the end of the day. What if, right?

Well, on Friday the stock spiked up and ended well above $355 strike making this trade great again and I was able to collect the entire premium as it expired worthless. I banked $148 premium (+9.54%).
 

AAPL logoApple (AAPL) – Apple was a disappointment to me. If you remember, I tried a directional trade and bought calls. Apparently, I am not good at trading long options. The trade turned bad and I decided to protect it. I opened a protective short call trade to offset the loss in a long call trade. On Friday, after a big pop in price I decided to close the trade with a profit and I bought back my protective short call. This trade offset my loss in a long call, although not as much as I originally planned. I opened this trade collecting $105 premium and bought it back spending $45. With this I banked in $60 (+3.54%). This offsets my loss in long call trade a bit. The original loss was -$205, now the loss is only -$145.
 

TASR logoTaser Inc. (TASR) – This trade is a lot complex than it seems. I sold a put contract against TASR sometimes in May 2014 at 18 strike. Then I failed to recognize problems in this stock and decided to defend the collected premium at all cost. I rolled this trade down from 18 strike to 13 strike. I was hard and I was forced to be selling more contracts in order to keep the trade a CREDIT trade. I also tried to keep the trade staying in September month rather than moving it further away in time.

At 13 strike the stock seemed to consolidate and I decided not to roll. Another mistake. When the stock failed again I at least was brave enough to open a few bearish trades.

One bearish trade against TASR was selling calls at 17 strike against my short puts turning this trade into a short straddle. It worked well as the stock fell deep close to 10 dollars a share. I collected $1,460 in premiums which perfectly offset my loss in short puts (at that time my loss was $1,945). On Friday, the stock seemed to consolidate or reverse the fall. My indicators showed the first day as changed momentum. Although the stock and trend is still heavy bearish, Friday was a change in the selling pressure as the stock moved from $10.46 up to $11.36 a share. This strong move could be just a move influenced by a market creating a fake bull trap, or a true change in direction (a beginning of it). We will see in coming weeks how this trade develops. If it resumes selling I may open new short calls against TASR to further collect new premiums.

So, I bought the short calls back, in case the bull trend continues next week ending this trade with a nice premium of $704.38 ending with +3.28% profit.

I also bought two puts against this trade trying to get better return, but once again, these two trades proved that I was bad at buying options and that I should stay with shorting options strategies. Although one trade ended with 9% profit, it is relative as it actually was only $10 gain. The second trade was a loss of -$2.94%.

In average, my TASR protective trades ended positive with +3.11% profit.
 

And of course, I reaffirmed a lesson – do not buy options. Sell them.

Happy Trading in the next week.
 
 




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Trade exit – AAPL long call for a loss (-24%)

Trade exit - AAPL long call for a loss (-24%)

I once read a story about a trader who was quite successful trading futures – E mini S&P 500 and he was making a lot of money. Later he wanted to start trading different markets and he decided to trade currencies at Forex. Guess what. He almost lost everything. So he got back to trading E mini S&P 500 and continued making a lot of money.

I once traded advanced options. Some of the strategies were long options and all sorts of spreads. I was making money a bit, but at the end I lost almost everything. So I started trading short options and I became successful. I recovered my account and even doubled it twice.

So I decided to start trading long options and spreads again. Since now I was a lot better trader and making a lot of money, right? Guess what?

All trades I took turned out to be losers again.

I had a trade against GLW (3 long calls) and AAPL (1 long call).

Both trades quickly turned against me and I started losing money. I closed GLW trades for a loss quickly a few days ago. Yesterday, I sold a short call against my long AAPL call (as a calendar spread), but today I couldn’t bear enlarging losses on the long call. Not only I was losing due to shrinking intrinsic value, but also a time value was eating up my trade. It was supposed to be a swing trade. I wasn’t ready to hold it for a longer time to go over a stock price drop and hope that time decay won’t destroy the value so when AAPL recovers I won’t make anything.

AAPL will post earnings next week. Will the stock skyrocket or sink even more? Who knows? And I do not want to hold an option I am not comfortable with. Be it a short option I would feel more comfortable even though some consider it riskier than long option.

So I decided to close my long call for a loss and keep the short call offset the loss. And hopefully next week the short call expires worthless and offset the loss by roughly 50%.

I bought the call for $855 and today I sold it for $650 creating a $205 loss (-24%). If my short call expire worthless next week, my loss will only be -$100 (or -12%).

If the stock spikes up on earnings, then I will be screwed.

Next week will show.




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New Trade – BULL PUT SPREAD JUL14 (AMZN) and SHORT CALL (AAPL)


Today I opened two new trades for income.

The first trade was against Amazon (AMZN) – a bullish trade – bull put spread. In the morning the trade looked very good, later the stock collapsed (intraday) and then slightly recovered. I think it was Yellen and her testimony sending tech stocks down.

When she finally left off the TV the stock recovered a bit and it is flat since (until this writing).

The overall AMZN trend is very bullish. It broke up recently (I wish I could pick this breakout earlier), and now marching upwards. Originally I wanted to take just a simple call trade, but it exceeded cash on my account. So I decided to go with a spread which is cheaper.

If the stock is so bullish then why I am looking at intraday behavior of the stock?

The reason is, that the trade I opened this morning is just a two day trade. It will expire this Friday and I want it to expire and not roll it. As the momentum is bullish, I have 70% chance that it will expire, but you never know. Yellen may say something investors will not appreciate and all is gone.

It amazes me anyway. She (Yellen) was talking about tech stocks mentioning how overvalued they seem to be and that brought a question to my mind. How many stocks has she ever bought that she dares to analyze the stocks? And the second, if she stops pouring cheap money to the economy, the stock will fall down to their intrinsic value as the artificial buy backs by the companies using cheap cash will end.

Here is the chart of AMZN and the trade I took:

AMZN

Trade Detail

STO 1 Jul14 350/355 put @ $1.48

This trade consists from the following legs:

SELL 1 Jul14 355 put
BUY 1 Jul14 350 put

The trade expires this Friday. If that happens I will keep $148 premium. If any of the leg gets ITM I will either close that leg with a loss or roll it down and in time (that would depend on available cash reserves in my account.

The second trade was a short call against Apple (AAPL).

Three days ago I bought a call option against AAPL which was supposed to be my first purely directional trade. I was also expecting this trade to be short, one or maybe two days.

Thanks to Yellen, tech stocks struggle moving up. Although from a long term perspective, AAPL is very bullish, but it struggles moving higher in a pace I was expecting.

AAPL

As you can see above, overall outlook is positive, but intraday trading yesterday and today was a struggle. That makes my long call trade stagnating and making me no money. That means that I might end up in this trade longer than I expected. But I want to take a benefit of it. I decided to start selling short term (weeklys) calls to generate income while waiting for this trade to move on.

Trade Detail

STO 1 Jul14 4 100 put @ $1.05

This trade will expire next Friday (next week). I hope the stock will not march that high (to $100 a share) by the next Friday, otherwise I will have to roll this trade or close it with a loss.

If it expires, I will bank $105 (minus commissions).

As of now, as AAPL struggles moving higher, this trade is protecting me against losses.

Let’s see this and next week how the market evolves.

Happy Trading!
 
 




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New Trade – BUY OCT14 CALLS on AAPL – my first directional trade

New Trade - BUY OCT14 CALLS on AAPL - my first directional trade

This trade against Apple (AAPL) will be my first directional trade buying long calls. In the past I traded this kind of option strategy the wrong way and no wonder that it didn’t work for me so I stopped buying options and instead started selling options.

First, let’s take a look on the chart below, why I consider this trade a good candidate for a directional trade and then later I will try to explain the mechanics of the trade. You may want to enlarge the chart to see it better or open it in a new window.

AAPL long Call trade

First, take a look at the chart. I consider the trend unbroken and in a slight consolidation. Most likely the stock will continue to the new highs.

Second, look at the squeeze chart below. It turned from a negative (below zero) territory to a positive. That action itself is bullish to me. Now we may see another swing up. But I cannot see how big.

Third, look at the wave (the bottom indicator) which is in a very strong magnitude, pointing up with no sign of weakness (which of course may change any day, but it doesn’t show up yet).

These are three quick reasons, why I consider this trade a good candidate to pick a few points within a few days.

Let’s take a look at the details:

Trade Details

BTO 1 OCT14 89.29 call @ $8.55

Delta: 73
Expiration: 96 days
Exit: upon a sell signal
Stop loss: upon a sell signal

Let’s take a look at those metrics and explain what I was doing wrong in the past:

Delta 73

Delta has two functions in options. The first one is that it tells you the probability of an option ending ITM or OTM. In this trade with Delta 73 (or 0.73) it tells you that the option has 73% chance ending up ITM at expiration and 27% chance that it ends OTM.

The second function is that it tells you the magnitude of the move of the option price compared to a stock movement. In this example, the option price will move by 73 cents for every dollar of the stock move.

This is the mistake investors do when they buy options. When you buy options you want its price to move as much as the stock. If you buy cheap OTN option, the move will be slow and in many occasions time decay will eat up your option faster than the price moves.

So for me, no more cheap OTM buys. You buy ITM options, sell OTM options. Do not be a cheap guy or you will lose money.

Expiration: 96 days

Another mistake I made in the past was I tried to buy as little time as possible. Once again I was approaching the long side of the trade from the seller perspective and constructing the trade the wrong way.

Take a look at a typical option behavior vs. time:

Options

When the option loses its value the most? Obviously when it approaches its expiration time. As close it gets to expiration as faster the time decay works against you as a buyer or for you as a seller. The cut off is roughly at 50 days of the time value when the things start getting nasty. And faster. The biggest time value loss is around 15 days when things start speeding up rapidly. So you want to be a seller in this time frame.

As a buyer, I want time decay as slow as possible, so I decided to buy as long expiration as possible. I think, 96 days is OK.

Exit & Stop loss – upon a sell signal

This can get tricky. As I do not know Think or Swim platform that much yet (for many years I was using Strategy Desk and Trade Architect), I do not want to program (and experiment with) an automatic stop loss order in a live trade yet. So I will watch the trade like a hawk and as soon as I see a sell signal, I will liquidate this trade. When that happens, I will post about it.

I entered this trade tonight for tomorrow open. Let’s see if the trade executes at the open or not. I may update this post or you can check My Trades & Income tab on this blog to see if the new trade appears in the list. You may also check My Holdings.

I do not expect holding this trade until expiration. If the stock moves a few points I should ride it as long as it moves and makes me money. Then I sell it for a profit (or a loss if it turns against me).

Happy Trading!
 
 




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Why I trade options and even learn futures?

Why I trade options and even learn futures?

I got this idea to write about my reasons for trading options when reviewing monthly results of other investors, such as Dividend Hut, Dividend Mantra, Roadmap2retire, and many others.

I regularly review my peer’s investing progress as that motivates me for further strive reaching my goal. Humans are competitive creatures, so seeing other investors really pushes me forward. Their success kicks me forward.

I saw many investors starting their investing journey (like Captain Dividend) about a year ago, receiving just a few bucks in dividends and today their accounts outgrew mine in terms of received dividends.

So, why I started trading options instead of continued competing with my peers? (Take my words of “competing” in as good manner as possible as there is no animosity in it. I take it in a motivational way.)

Make moneyMany of the investors I mentioned are a lot younger than me and they can afford a slower pace of building their wealth-well. Time is on their side. On the other hand I started late and my accounts are relatively small. Probably at the same or similar level as those of my peers, but I lack the time on my side.

Another reason for looking for alternatives was my family. We have older kids requiring a lot of cash to support them at school, daily activities, after-school activities, sports event, then mortgage (and we live in a very expensive area, so our small condo cost us as a mansion elsewhere in the US), and other bills prevent us from saving 30, 40 or even more percent of our income. How I envy Jason from Dividend Mantra that he realized his dreams and goals early so he could adopt his 50% salary saving goal.

When you start your saving goal early and set the rules early, it is easy, or easier to have them adopted and create your life around it.

When you do it the other way, create your life first and then want to adopt some “drastic” saving rules, it is very difficult and some life events even prevent you from doing it at all.

Stock marketBecause I am a competitive, ambitious person, I wasn’t satisfied with a slow building process dividend investing requires. Above mentioned reasons basically prevented me from saving large amounts of money to my accounts. In many occasions I could only save $50 or $100 a month, not more. With that money I would be saving $100,000 account for 83 years (of course, I excluded compounding and capital appreciation).

When you are approaching your 50s, it is not acceptable way for building my money machine.

My competitiveness and ambitions were the engine of me learning other strategies besides dividend growth one. But don’t take me wrong. I am still a great fan of dividend investing, just read further, why I am trading options and even learning futures.

As I said, building a dividend growth portfolio which would provide you with ever lasting income no matter what you do (and income for your children, and their children, and their heirs all the way down the road of your family history) is a very slow process. If you want to succeed, you need to start as early as possible and let your greatest friend – time – work for you.

If you do not have that time, you need to find other ways to boost your portfolio. But having other ways of boosting your portfolio doesn’t mean gambling your retirement money! Not at all! Stay away from any gambling whatsoever!

You may have heard from advisers and other investment gurus, that options are dangerous and that you should stay away from it. I say, it is not true. Options are not dangerous any more than investing into stocks themselves.
Options
Yes, options are actually safer and provide you with great protection when investing into stocks. So where is the risk in options? It is in investor’s ignorance.

If an investor has no or little knowledge of how to trade options and doesn’t understand the risk and how to mitigate it, then options are a great danger to his money and his account. I experienced this on my own. But I learned my lesson already (or at least I hope I did).

So why I trade options?

As I mentioned above, it is a lack of time on my side. I needed a boost to my portfolio. I needed a boost to my money I can invest in dividend stocks. When contributing only $50 or $100 a month it wasn’t enough to build an account fast, so I needed a strategy which could bring in more cash which I could add to those contributions of mine to buy more dividend growth stocks.

Options perfectly fit into that desire. And they even outperformed my expectations. In average, I receive $150 monthly in dividends and on top of that I receive $800 monthly from options premiums. Now, my money to invest every month grew to circa $1000 a month. And mostly, I use other people’s money to build my account.

But I do not use that money immediately as I make them. That wouldn’t be wise. That would be that exact case of trading options with a huge risk. You cannot trade options with little cash. You need to stay small and trade only a portion of your cash and use the rest as reserves, security, or protection. If the trade goes against you, you must have enough cash for repairs of such trade. If you overextend your account, then you expose it to a great risk.

For that reason I use the cash I make from options for further trading and I made myself a rule, that at the end of the year I stop my options trading (either fully or partially), close as many trades as possible, count the profits or losses and if profits, take a percentage of those profits and buy dividend stocks.

For the current year I will take 10% of my profits and use it to buy dividend stocks. Next year, the percentage will be larger, maybe 20%. I do not have it decided yet. Then I use the rest reinvesting in options for the rest of the next year to double my account again, make more money and at the end of the year buy new dividend stocks. Rinse and repeat!

If I will be as successful in options trading as in the last three years, I will be able to stop contributing to my account completely, use my salary to enjoy it with my family, and still grow my account.

My dream of creating an ever lasting, ever growing and sustainable income will be fulfilled.

But do I want to stop here?

No! Not a chance! I mentioned above that I am a competitive and ambitious person. I want to learn more and I want more. While still trading options and investing in dividend growth stocks, I started learning other strategies – futures.

Futures up to skyI read that futures are even better than stocks or options. They can make you even more money even faster than options!

I do not know for sure. I have never traded them and now I do some reading on basics of futures trading. I will also trade them in my paper money account to see the mechanics of futures, how they work, how my indicators will respond to futures, what risks I will be facing, how to mitigate the risk, and how to make money in futures. If the futures make me even more money faster, I will be happy and my dream will come true.

And I will post about it. Life is about everlasting learning. I just put a challenge in front of me. Let’s see how it will work out.

I would like to encourage you – learn as much as you can about investing in stocks, trading options and maybe more (like futures). Even if you decide to stay away from them, learn it. Use paper money, fake account, to train and practice. You will see how easy it will be and maybe adopt that strategy in your account. And if you have a question about options or dividend stocks, you can always shoot me an email or post the question here on this blog.

Have a successful trading and investing next week!
 
 




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New Trade – SELL OCT14 CALLS on CLF

New Trade - SELL OCT14 CALLS on CLF

Another bearish trade I see coming was against Cliffs Natural Resources Inc. (CLF). The stock suffered a severe decline in recent months with a few relieves in March 2014 and end of June 2014.

Review the chart below:

CLF

Take a look at point “A” where the stock had the second last relief from a downtrend. The point “B” shows a relief we are experiencing today, but it seems like that the relief may be over, see “C”.

The squeeze trend is turning negative “D” and the wave is very negative “E” which all together makes 70% chance that this rally will fail.

It can only be a temporary decline, creating the first higher low on its way further up, but this theory is not supported by the indicators.

Therefore I decided to take a trade speculating that from now this stock will continue lower and I sold a few naked calls.

Trade Details

STO -5 OCT14 17 call @ $0.66

With this I collected $330 in premium and now I have to wait until October 17 and hope that my judgement was correct.

 

Max Profit $330 When selling calls, the hope is that they will expire worthless, so the max profit is equal to your execution price. Max profit occurs if CLF is below 17 on expiration day, which is October 17 for this option.
Max Loss Infinity In theory, CLF could keep going up, and since you are giving someone else the right to buy it at 17, your max loss is unlimited. However, remember that this trade has a time limit on it. On expiration day, October 17 for this option, if CLF is above 17 you will either need to buy back (cover) the call or you will be assigned -500 shares of CLF as a short position, with an entry of 17.

 
 

 
 

Since I opened the trade, the stock continued selling off pretty hard. Let’s see how it will act in the next couple of months.

If the trade turns against me, I will either roll the calls higher or take the loss.

Happy Trading!




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New Trade – BUY SEP14 PUTS on TASR

New Trade - BUY SEP14 PUTS on TASR

Yesterday, I was thinking that if the weakness in TASR stock continues, I might be further taking advantage of it and offset losses on my put contracts.

I decided to buy a put contract against TASR. When looking at the charts it is apparent that the selling took place and will be gaining more strength in a couple of the following days (maybe for the end of this week).
 
 

TASR sell off

TASR showing its weakness. See my added comments (arrows and lines) pointing to areas where I see the weakness.

 
 
If you look at the picture, pay attention to arrows pointing to areas where I see the weakness. The stock continued in a sell off with a renewed strength, mainly the first two hours in the morning while the rest of the day it was mostly flat. Slight selling then renewed in the last two hours of today’s session.

If you look at the squeeze indicator, you can see my reversed arc drawn underneath the indicator where I expect the continuation of negative movement – sell off.

Trade Detail

BTO 1 SEP14 12 puts $1.20

I plan to hold this trade open as long as the stock continues going down and sell the put contract on the bottom of the lower arch of the indicator (which will indicate the end of a sell off.

Of course, if the stock stops falling and investors jump back in on a bandwagon, I will use a mental stop to close the trade as quickly as possible.

Have a great trading/investing day. Happy trading!
 




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Nervousness in the market? Go over it.


Today I received a newsletter note from Teddi Knight from fullyinformed.com and her notes on the market outlook were so great and expressing my point of view, that I decided to re-post it here for my readers.

Her opinion (as an experienced trader) is what I believe in myself and what I try to stress to my friends when we talk about options and when they immediately tell me after I tell them what I do, that options are risky.

My answer is: “Yes, they are risky, if you have no clue what are you doing and trade them. Otherwise they are safer than stocks.”

My emphasis added:

My outlook for today was for weakness but still a slightly positive close. That obviously is not going to happen…

Meanwhile to help calm some nervousness I wrote this article on Understanding Investing In Stocks. Most investors are trapped by the emotion of stock investing. They have read books, taken courses, joined various websites but still end up with losses or substandard profits. They know they could do better but can’t figure out how. This article is open to all investors. It explains how to understand the small size of the stock markets in general and how to approach everything from stock selection to the role options play in protecting and boosting portfolios. When financial planners and brokers advise investors that “options are too risky”, they truly do not understand the stock market at all. It is not options that are “too risky” but stocks. Stocks in general are “risky” and options are what assists in controlling some of the risk of investing in stocks.

If you want to read the whole article, go to Teddi’s blog and read Understanding Investing In Stocks

It is worth reading.

Once you are done, you will stay calm…

Happy trading & investing.

 




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New Trade & Rollover – SELL DEC14 CALLS & ROLL SEP14 PUTS on TASR

New Trade & Rollover - SELL DEC14 CALLS & ROLL SEP14 PUTS on TASR

Taser Int. (TASR) started trading day with a renewed sell off. It opened at $12.88, briefly raised to $13.02 a share and then continued sharply lower. Within an hour the stock dropped all the way down to $11.97 a share.

Weakness I could see on my indicators along with the price action convinced me that it would be a good idea to roll my put positions lower and further in time.

Although yesterday it looked like my put contracts are still safe – have enough time and the selloff wasn’t large and strong, this morning the situation changed.

 

TASR
TASR under a sell off today morning convinced me to roll down my puts to protect my trade.

 

Investors are pessimistic about this company, so I expect more rollovers of my put trades.

This price action convinced me about the weakness in the stock so I decided scale into more naked calls against this stock to generate cash available for protection of my puts.

Trade Detail

Trade 1

STO -10 DEC14 14 calls $0.90

Trade 2

BTC 15 SEP14 13 puts @ 1.45 & STO -17 DEC14 12 puts $1.20 for CREDIT 1.00

Now the stock needs to stay in the range 12 – 14 a share. If that happens I will realize full profit as both sides of this trade expire worthless and I will keep premiums from puts as well as from calls.

If any of the side gets breached, I will roll that leg again down (or up in case of calls) and further away in time.

I will keep you posted on this trade.

Happy trading and investing!
 




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