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Ok I did it! I SOLD the 800 contracts of the JUNE 23 CALL options I purchased for $1.85 on Monday for $2.15 this morning. Yes, I could have gotten $2.20 around the opening, but I waited too long and when the VIX started going down I wanted to hold my gains so I let them go. How did I come out? Pretty damn sweet…gain of 16.22% or $24,000.00 (before commissions) in roughly three (3) trading days. Not a bad way to make a living…and not bad for my riskiest trade ever. If I was desensitized to this size and risk trade I would probably have held them for at least another couple of weeks, but when you’re up you’re up and you get out. 24k in three (3) days is enough for me.
Remember this quote: Bulls make money, bears make money, pigs get slaughtered. This is absolutely the truth…
Whoa Boy! This morning (Wednesday, March 23, 2016) I posted I had made the riskiest trade of my trading career by purchasing (buyer) 800 contracts of the JUNE 23 CALL option on the VIX [stock_quote symbol=vix] Monday. The total cost of the option was $148,800.00 and some change (with commissions). Yesterday (Tuesday) I was down more than $14,000.00! I ended today up $8,000.00! What a swing!
Very exciting!! I probably should have sold and been happy I was right – at least a little. Instead I held. I truly believe the VIX is going higher and it’s a June expiration. The problem is: the more the VIX goes up, the more my other trades go down (more than likely). The VIX going up usually means the market is going down because overall fear is increasing. So I realized this afternoon I’m really playing both sides of the equation which always make me nervous. If the VIX continues up on Thursday I might bail…
Yesterday I did not post because I was forced to attend a CE course for my Real Estate license. What a joke. I wish I could go into that, but I will not. I just know it cost me money because I was away from my real job and I couldn’t concentrate on trading.
With the terrorist attacks, oil, the dollar, and what I consider an over-bought market I’m just not sure what the next few weeks will hold. I truly do not see us moving back to 18,000 on the DOW [stock_quote symbol=.dji]. I have been shocked to see 17,500 hold for as long as it has.
I strongly believe, for the remainder of 2016, we are going to see a sideways market more than anything else. We will have ups and downs of course, but for the most part we’re going to sit. For those of us who love volatility it’s going to be pretty damn boring. For those who want to know how to trade a sideways market it’s simple: be the seller of options and let time decay make you money. That’s my plan…
On Monday I posted plans to SELL (write) option contracts for APRIL PUT’s for Denbury Resources, JC Penney, and Home Depot. Let’s review where I am currently:
[stock_quote symbol=dnr] – On Monday, I SOLD 100 contracts of the APRIL 2016 2.5 PUT for .35 cents per contract with 25 days remaining. There are now 23 days remaining (I actually said 26 on Monday when it was 25 days sorry!) and the option is trading at .45 cents per contract due to DNR losing value this week with oil slipping. I am down $1,000.00 currently, and feel I will be down more today and the rest of the week.
I mentioned Monday that I believed I would be assigned (exercised) on this trade and the probability of DNR remaining above $2.50 by the third Friday of April is slim. So far I was correct and anticipated this. Be prepared and be realistic when trading and you’ll be ok!
[stock_quote symbol=jcp] – On Monday, I placed an auto-order to SELL 100 contracts of the APRIL 11 PUT for .40 cents per contract. I stated I didn’t really care if it executed or not, but I believed JCP was headed lower this week. I was right and my order was executed moments ago for .40 cents per contract (perfect) and the option is trading at .37 cents per contract. I am up $300.00. Updated 11:24 AM
[stock_quote symbol=hd] – On Monday, I placed an auto-order to SELL 10 contracts of the APRIL 125 PUT for $2.25 per contract. The order executed yesterday and the option is currently trading at $2.08 per contract. I am up $170.00.
[stock_quote symbol=fcx] – You may have forgotten about FCX. I still have the MARCH(4) WEEKLY 8 PUT option having SOLD 100 contracts a couple of weeks ago. I am profitable $1,200.00 and the option will expire this Friday (Saturday actually). I do not see FCX going below $8.00 in the next 48 hours do you? Yay! Another cash-secured PUT success story…
[stock_quote symbol=mcd] – What can I say. I screwed up. I really thought MCD would dip a few dollars as it has over and over for the past few months. I purchased 100 contracts of the APRIL 115 PUT a week or two ago and was losing my ass. Monday I doubled-down and purchased another 100 contracts of the APRIL 115 PUT on an upward bounce. My cost basis is currently .345 cents per contract and the option is trading at .185 cents. I am down $3,200.00, but not out! I refuse to give up. I will begin buying the MAY PUT options next week and try to pull out of my APRIL’s. What a mess…but this is a great example of trading. It’s just how it goes sometimes.
[stock_quote symbol=nat] – On Monday, I SOLD 100 contracts of the APRIL 13 PUT for NAT. I don’t think I mentioned this because I trade sometimes after I post and don’t go back and update. I apologize. I SOLD these contracts for .20 cents per contract and I am currently down $250.00. I do not see NAT moving below $13.00 in 23 days. We shall see…
[stock_quote symbol=vix] – On Monday, I made one of the riskiest trades of my trading career, but I just knew I was right. I didn’t mention it because I did not want anyone to follow my lead. This is pure speculation, but I purchased (BUYER) 800 contracts of the JUNE 2016 23 CALL option on the VIX for $1.85 cents per contract. That’s right…I sank $148,800.00 on the VIX believing it will go back up in the next month. If I’m right, I stand to make a substantial amount of money. If I’m wrong, I cannot retire until I’m 70. I am currently down $4,000.00. If you think that’s bad, I was down $14,000.00 yesterday! haha! Here’s to having balls of steal…
Update! As of right now (11:18 AM March 23, 2016) I am even with the option trading at $1.85 per contract. I still find it funny that you can recover a substantial amount of money in just a few hours. I’ve been doing this a long time and I still get giddy when things like this happen. That’s how I know that trading is what I was always destined to do. It never gets old and I’m having fun watching this trade. It’s a lot of money to “play” with…but that’s why we play this game right? If you look at the chart for the VIX over the last 3, 6 and 12 months you will see that it is hovering around the bottom. Just a 30-40 cent bounce up would profit $24,000-$32,000. Tick tock…
I want to start doing this so I (and you the reader) can see the percentage of trades that are profitable and those that end in losses based on being the SELLER vs. BUYER. I did this yesterday (while in my class) and listed all trades over the past month and ALL of the trades as the SELLER made money and ALL of the trades as the BUYER lost money. I don’t think it could be any clearer…
DNR – SELLER – LOSS (new trade – should end profitable)
JCP – SELLER – PROFIT (updated 11:24 AM)
HD – SELLER – PROFIT
FCX – SELLER – PROFIT
MCD – BUYER – LOSS
NAT – SELLER – LOSS (new trade – should end profitable)
VIX – BUYER – EVEN (God help me!)
Another week of trading and mak’n that dolla! Honestly, I do not plan on doing much this week. It’s the first real week of Spring and I’m doing pretty good for the first quarter. I’m probably going to take some time off and watch the market from the bench. If I see something incredible happen or a good “deal” I will pounce, but I’m just going to relax. Sometimes you MUST take a mental break and just watch and listen…
With that said, I am and will be continuing to acquire shares of certain stocks / companies that I like and want to hold for the longer-term. I will create and submit auto-orders (set and forget) and let it all ride while I do things such as tan and mow the yard. The stocks I’m wanting to acquire include the following:
[stock_quote symbol=dnr] – I mentioned several weeks ago that I wanted to acquire somewhere between 20,000 and 50,000 shares and hold for many years. I am gradually attempting this by selling cash-secured PUT’s within a 30 day expiration as monthly income as well. This morning I SOLD 100 contracts of the APRIL 2016 2.5 PUT ($2.50 strike) with 26 days to expiration for .35 cents per contract. The total premium is $3,500.00 or $134.62 per day! DNR is an Oil & Gas speculative play – be careful.
I believe I will be assigned (exercised) on the above trade. The likelihood that DNR will be above or stay above $2.50 per share by the third Friday of April is slim. Knowing this, I chose the higher premium of the $2.50 strike and expect to acquire the 10,000 shares at expiration. After the premium my total per share cost will be $2.15. I can live with that…
[stock_quote symbol=jcp] – I was proud of last weeks trade and did indeed end the week profitable $3,200.00 as predicted and did not get exercised given the fact my strike was $11.00 and JCP closed higher than that on Friday. Good job and I’m feeling good about JCP overall. Therefore, I have an auto-order to SELL 100 contracts of the APRIL 2016 11 PUT (same strike as last weeks MARCH trade) for .40 cents per contract (thinking JCP will dip more over the next week or so). The total premium will be (if executed) $4,000.00 as well and required $110,000.00 in cash collateral (cash-secured PUT). Maybe it will execute, if it doesn’t no big deal. JCP is a retail sales play (and CEO restructure).
Never, ever, ever SELL an option without having the CASH (PUT) or STOCK (CALL) to cover the trade position. Otherwise, you are trading NAKED and this is very, very dangerous to your financial future. Follow Peter…ignore the temptation…
[stock_quote symbol=hd] – It’s Spring! It just wouldn’t be right NOT to buy or attempt to buy Home Depot! Love Home Depot – both the stock and the business. Therefore, in my trading portfolio, I have an auto-order to SELL 10 contracts of the MAY 2016 125 PUT for $2.25 per contract (thinking it will dip more today or this week). The total premium will be (if executed) $2,250.00 and required $125,000.00 in cash collateral (cash-secured PUT). Maybe it will execute, maybe it won’t. I’m not concerned. I would be fine with entering at $125 per share and I will be fine simply collecting a premium for trying. I doubt it will go that low during April, so it’s really just easy money if executed. HD is a housing market play and time of year.
Notice – I am not pressured or trying too hard. I don’t really care one way or the other if some of these execute. This is the joy of being UP for the quarter or month. I’m fine, I’m making money and I’m not trying to “force” a trade. That’s when you can get into serious trouble.
TGIF!! I am looking forward to laying around this weekend. What a long, intense, knuckle-biting rally week! I need a break…
Today is a quadruple witching day and for those of you who don’t know what that is it happens the third Friday, once every quarter, in March, June, September and December. It is a day when stock index futures, stock index options, stock options and single stock futures all expire on the same day. We, as active traders, watch for days like today because they often create higher volumes and higher volatility.
I have multiple stock options expiring today and I will be sad to see them go. I am always sad when options expire because I feel I have gotten to know them well during their short, and often times lucrative lives. Most options trade on monthly expiration dates – the third Friday of every month, but some trade on weekly expirations or every Friday. Today is the third Friday, so these are non-weekly, standard monthly expiration options. Below is my list and profits – none have been exercised yet. Remember, buyers have until noon on Saturday following expiration to exercise so it’s not over yet!
Alcoa [stock_quote symbol=aa] – Alcoa has had an amazing run lately. It was over $10.10 per share this morning briefly and I’ve enjoyed watching the underlying move up. Currently I hold 270 contracts of covered calls of the MARCH 9 CALL option. I sold them at .40 cents per contract way back when Alcoa was trading around $9.20 I believe. Fair market value right now is .84 cents and I am in the hole $11,915.00 which you might think is terrible. I just laugh because I was in the hole more than 20k this morning when this same option was trading at $1.15 per contract. It is decaying rapidly since today is expiration day and by the closing bell I will have made my entire premium of slightly over $10,800.00. I have not been exercised and do not predict I will be. Amazing right? haha!
Denbury Resources [stock_quote symbol=dnr] – Denbury has been on a good role lately as well, but has come down today. It hit $2.82 this morning and then sharply dipped around 9:30 AM. I can’t blame people for taking profits. Currently I hold 200 contracts of cash-secured put’s of the MARCH 2 PUT. I sold them at .10 cents per contract and fair market value is currently .025 and steadily decaying. I will keep the entire premium of $2,000.00 at the closing bell and have not (and will not) been exercised. Yay!
JC Penney [stock_quote symbol=jcp] – JC Penney has been a great trade. I am proud of this one. Originally sold 100 contracts of the MARCH 11 PUT for .19 cents per contract for a total premium of $1,900.00 on MONDAY! Then turned around and sold another 100 contracts at .13 cents per contract for a total premium of yet another $1,300.00 for a combined total premium of $3,200.00. There is no way I’m getting exercised and by the closing bell I will keep the entire premium of $3,200.00. Sweet!! Not bad for five (5) days of waiting!!
So let’s see…with all the premiums for expirations occurring today I will profit slightly over $16,000.00.
I thought I was going to clear closer to 20k, but realized my Freeport McMoran [stock_quote symbol=fcx] is a weekly option expiring next Friday – I keep forgetting this.
ALL of these option transactions occurred on or after Monday, March 14, 2016 and have ended profitable in a single business week.
I’m slowly trying to show everyone that you can make some serious cash and monthly income by being the seller. Have you figured this out yet?
No, not all the trades are winners. I am currently getting my lunch eaten by Chevron [stock_quote symbol=cvx] because I just happened to decide to short it by buying a total of 300 contracts of the APRIL 80 PUT with an average price of .32 cents. The option is currently worth .08 cents per contract and I am down a total of $7,450.00. OUCH!! No time for fear…I’m just buying more PUT’s as it continues up hoping for a large enough dip to get me out even or somewhat profitable. I have time…for now.
I will start buying down my cost basis Monday if Chevron continues up.
McDonald’s [stock_quote symbol=mcd] is also eating my lunch. Currently I hold 100 contracts of the APRIL 115 PUT with an average price of .49 cents per contract with a current value of .27 cents per contract. I am down a total of $2,200.00. OUCH!! Again, no time for fear…I’m just buying more PUT’s as the underlying continues up. It’s the same as Chevron. I must lower my cost basis.
Lumber Liquidators [stock_quote symbol=ll] just isn’t doing much. It’s up today and I hold 100 contracts of the MAY 8 PUT so I’m getting hammered on this one too. Currently I’m down $1,000.00, but have plenty of time for something to happen.
If you will notice – my LOSERS are ALL options I purchased. I was the buyer on every one. If you look above you will notice I am profitable on ALL the options I sold! This should be a good example of why being the seller is so much more profitable…buying is for speculators and risk takers. Selling is for someone who wants to make money…
Caterpillar [stock_quote symbol=cat] what can I say. What a comeback! Was anybody watching premarket trading? Down after an earnings warning was announced this morning (as it should have been) and then up all day! Caterpillar announced a quarterly Q1 profit and sales warning adjusted EPS (earnings per share) in the 65 to 70 cents per share range instead of the streets estimates of 95 cents. This was terrible and should have caused the stock to tumble, but instead it closes up $1.56 or 2.10%. Incredible…
The bottom line is with copper, oil and other commodities rising and miners needing equipment Caterpillar is bound to go higher. The short interest was high, almost 7.40% as of the end of February and again, more short covering today I’m sure.
You should have bought the stock back at $58.00 let’s be honest!! Now? Your only real choice is cash-secured puts. Maybe you’ll catch a dip, get exercised and acquire some shares at a discount. Otherwise, you can still make money as it sits around close to $75.00 and probably continues upward gradually.
Currently Caterpillar is paying $3.08 per share or 4.25% dividend yield annually and is trading at 21.58x forward earnings. Upcoming earnings announcement will be April 22, 2016.
SELL the MARCH 24 2016 74 PUT for .42 cents per contract (if it dips slightly on Friday you can probably get .45 per. If you sold 15 contracts (1500) shares you would need $111,000.00 liquid cash as collateral and your income premium for one (1) week would be $630.00 at .42 cents per. That’s a .00567% gain for one (1) week or 29.5% return annualized. If Caterpillar dips below $74.00 you could get exercised and acquire the shares for $73.58 per share – not bad.
SELL the MAY 20 2106 72.5 PUT for $2.39 per contract (if it dips slightly on Friday you can probably get it for $2.40 per. If you sold 15 contracts (1500) shares you would need $108,750.00 liquid cash as collateral and your income premium for sixty (60) days would be $3,585.00 at $2.39 per. That’s a .03296% gain for sixty (60) days or 19.8% return annualized. If Caterpillar dips below $72.50 you could get exercised and acquire the shares for $70.11 per share – really not bad! The $3,585.00 equates to $1,792.50 per month income or roughly $59.75 per day while you wait. Again, not bad.
See what I did with the title? Little play on words. Ok, so sue me, it’s 3:30 AM again, and I can’t sleep. I was just tossing and turning thinking about Nordic American Tanker [stock_quote symbol=nat] when curiosity got the best of me. So here I am doing a little research.
If a dip is truly coming, which I do believe it is, I must to be prepared. I currently hold a sizable position in Nordic in my primary portfolio long-term and, for the right price, I would love to add to that position. Therefore, I’m going to lay out my thoughts and ideas and maybe they will benefit the masses.
To add 10,000 shares to an existing stock position in Nordic American Tanker long-term.
I doubt, even with a dip, we will see $10.90 per share again anytime soon. I could be wrong, but given the trading price over the past few weeks we would have to see a complete market meltdown for this to occur. It’s not impossible, just not probable. However, I want to pay somewhere in the $10.50 – $11.50 per share range or die trying…
The closing price for Nordic on Monday was $13.44 per share. Looking through the option list at the MARCH (10 days to expiration), APRIL (38 days to expiration) and JULY (129 days to expiration) options we see pricing as follows:
MARCH $13 STRIKE PUT – $0.35 per contract – 10,000 shares (100 contracts) = $3,500.00 premium or $350.00 per day until expiration. Total per share price if exercised: $12.65. Total ROI option only: 2.7%
APRIL $13 STRIKE PUT – $0.75 per contract – 10,000 shares (100 contracts) = $7,500.00 premium or $197.00 per day until expiration. Total per share price if exercised: $12.25. Total ROI option only: 5.8%
JULY $13 STRIKE PUT – $1.90 per contract – 10,000 shares (100 contracts) = $19,000.00 premium or $147.00 per day until expiration. Total per share price if exercised: $11.10. Total ROI option only: 14.6%
For comparison let’s look at the $12 strike for the same periods:
MARCH $12 STRIKE PUT – $0.15 per contract – 10,000 shares (100 contracts) = $1,500.00 premium or $150.00 per day until expiration. Total per share price if exercised: $12.85. Total ROI option only: 1.2%
APRIL $12 STRIKE PUT – $0.40 per contract – 10,000 shares (100 contracts) = $4,000.00 premium or $105.26 per day until expiration. Total per share price if exercised: $12.60. Total ROI option only: 3.1%
JULY $12 STRIKE PUT – $1.35 per contract – 10,000 shares (100 contracts) = $13,500.00 premium or $104.65 per day until expiration. Total per share price if exercised: $11.65. Total ROI option only: 10.4%
ROI based on $130,000.00 total investment and option transaction only. ROI does not include stock gains or losses or annual dividend yield.
As you can plainly see the $13.00 strike pays more in premium and offers a larger ROI than the $12.00. More importantly with this transaction: the $13.00 strike actually gets us closer to my price per share target range than the $12.00. In fact, the JULY $1.90 looks perfect and not because of the high premium. Look closely and you will see the per-day profit on the premium is actually much less for the JULY than the MARCH.
The per-day profit is not a commonly used technique in determining the proper trade. However, I often use it to help determine the effectiveness of waiting and as a helpful visual comparison of trading vs. my real job. I know how much, on average, I net per day with my real job and if I can match it trading even better! It’s a simple tool for me, that’s all.
If I wasn’t concerned about purchase price per share (if exercised) I would definitely do the MARCH knowing that I would have a better chance to rinse and repeat for greater annualized returns due to the short expiration, and I’m banking it per day. However, I’m not interested in the short-term profit, I’m interested in potentially being exercised and acquiring the actual shares of stock at the discounted price. The longer expiration provides more time for things to go wrong for the buyer (and the market) increasing my chances of being exercised. Strategy my friends, strategy.
The JULY $13 STRIKE PUT for $1.90 per contract offers the best per share price of $11.10 if exercised. If the stock continues up I will make money. If the stock comes down I will make money. If the stock stays where it is I will make money. If the stock falls through the floor I will make money and possibly acquire the shares. There is no downside to this equation. No risk for me – as the seller.
If the intent is to possibly acquire additional shares of Nordic American Tanker and to get paid while waiting and patience is a strong virtue then SELLING the JULY $13 PUT (cash-secured) is the right choice. Why did I choose to sell a PUT? Because, if the buyer chooses to exercise his right to “PUT” his shares to me at the agreed upon strike price, I will then be the holder of the shares. That is my ultimate goal – to own more shares and have zero risk while trying. If the buyer does not exercise or I am not “assigned” (another word for being exercised) then I collect the premium only and start all over once the option expires on the third Friday of July 2016.
For clarification I will break it down even further (I know when I first started, I loved as much detail as possible):
SELL 100 (10,000 shares) of the JULY 15 2016 13 PUT with an auto limit-order at $1.90 per contract. Total premium $19,000.00. Total collateral $130,000.00.
You can make this trade with as little as $30,000.00 – $40,000.00 in your account, but I do not recommend this. The safest way to handle is to have slightly over $130,000.00 in cash in your account to cover the entire trade regardless.
If you believe NAT will continue to dip a little this week you could use $2.00 per contract and possibly make an extra grand. It’s always amazing to me how often a limit order will hit a number I choose randomly during the day. Sometimes I will place limit orders with numbers nowhere near where I want to be just to see if I can get it and they will indeed execute eventually. Fun to play with that, especially when you’re right. I have always been quite good at “feeling” the right number, you just have to be confident and let it work itself out. IF, at 7 AM (central time), when pre-market trading begins you see things heading down or that it’s going to be a “down” day I would definitely increase the limit order to $2.00, maybe even $2.25. You never know what the first 15 minutes of normal trading is going to look like and drastic option price swings can and will occur. You might get lucky…
This is an automatic order you can submit and forget. No need to watch it. It will either happen or it won’t and you need to learn to take advantage of being the seller – relax. Being the seller doesn’t require constant attention like being the buyer. If you’re nervous about the price per contract submit an order for 50 contracts at $1.90 and another 50 at $2.10. Learn to be flexible, flexibility can be lucrative.
Once executed you will be short $19,000.00 ($20,000.00 if you waited for $2.00 per contract) meaning the option will initially show a negative number and the only thing deducted from your cash balance will be the commission. Don’t panic, this is normal. In this case, the commission will be somewhere in the $100.00 range.
Yes, I will gladly pay $100.00 in commission to make $19,000.00. Never get upset about commissions – without them the brokerage firm would not be able to provide us with such conveniences.
As time passes, and everything being equal, time decay will slowly deteriorate the option value bringing your initial negative short position closer and closer to zero – gradually increasing your account balance in the process. This can happen slower or rapidly depending on the underlying stock movement. If Nordic takes off to $15 per share, the PUT option will become less and less valuable very quickly and, thus, you will become more and more profitable very quickly.
The opposite occurs if Nordic goes down, but remember, no matter what you get the entire premium at expiration. You will never actually “lose” money. You may get exercised and pay $13.00 per share for a stock that could be worth $8.00 at expiration, but that is the only real risk and at that point you do own the shares, you kept the premium and can sit on the stock (collecting the dividend and selling covered calls to subsidize loss) forever if you want. By expiration, if all goes well, your account balance will be $19,000.00 ahead and the option will expire. The end.
If Nordic drops through the floor and you are exercised, you will receive 10,000 additional shares paying $130,000.00 to the buyer of the option (the person that exercised) because you agreed to pay him $13.00 per share, and you will keep the premium as well. Thus, you technically paid $110,000.00 or $11.10 per share. See how this works? Win-win. Given the fact you actually paid $13.00 per share for the stock (before the premium) the dividend return would be 13.2% annually. It’s not the 15% I would like, but it’s not bad either.
I hope you have enjoyed my Nordic trade and you bet your ass I’m doing this in the next trading session! Please let me know if you have any questions or comments or find any errors in my calculations. It is now 5:15 AM and sometimes my eyes glaze over and I start missing things. It’s easy to do…good luck!