Monthly Option Trade Log

[mslk 10]

i'm newbie when it comes to active\day\swing\trend-trading but i've been trading options (primarily for income) for a little bit. i'm starting this thread to share some of my option trades and to record how i'm doing on them. hopefully this will help me cover the cost of learning how to day-trade! :haha:

 

most of my trades are *selling* put options on big safe companies with dividends, with the intent the option expires worthless and i collect the premium. if it doesn't expire then i get to buy the stock at a discount.

 

Disclaimer: i am not an investment professional and this is NOT investment advice!

 

first trade abbott labs (ABT)

- sell, to open, abbott labs (ABT) august $50 puts for at least $0.9.

- if options expire worthless, i get 9% return on my 20% margin requirement for 2 months work

- if it i'm obligated to buy the stock at $50, and taking into account the $0.9 premium, i'm buying the stock at 4.7% discount

- ABT pays a 3.7% dividend, has a strong balance sheet, and is a large diversified health care company just ready for the onslaught of baby-boomers

 

-mslk

[optiontimer 10]

...

- if it i'm obligated to buy the stock at $50, and taking into account the $0.9 premium, i'm buying the stock at 4.7% discount...

 

Unless the stock declines to $45, and it is put to you at $50 - then you will be paying an 9.1% premium, and that doesn't take into account commissions and fees.

 

Its a matter of perspective.

 

Good luck with your trading.

 

-optiontimer

[SIUYA 11]

 

- if options expire worthless, i get 9% return on my 20% margin requirement for 2 months work

 

adding to optiontimers IMHO perfect analysis is that, you will get a

 

90 cents/5000 cents = 1.8% return for 2 months (still not too bad)

 

This is because your actual exposure is $50.

While this is a conservative view, it will also accurately reflects reality if things go bad.

 

(while not anti selling options, it never really features in my trading but often people underestimate the risks of selling them, verses the perceived returns)

[Pony 10]

I really wish I knew something/anything about options, because that sounds like a very plausible strategy.

[reset.no.regret 10]

Unless the stock declines to $45, and it is put to you at $50 - then you will be paying an 9.1% premium, and that doesn't take into account commissions and fees.

 

Its a matter of perspective.

 

Good luck with your trading.

 

-optiontimer

 

There is always the option of buying back the put if the stock go against him.

[optiontimer 10]

There is always the option of buying back the put if the stock go against him.

 

Of course, but he sold it for $0.90, which means he collected $90 less commissions and fees.

 

If the stock declines to $49, how much will it cost him to buy it back? Even on opex he'll pay a dime above intrinsic, plus commission and fees, or $110 + costs.

 

How much will he pay if the stock is at $48? $45? $30?

 

The risk, even on a "safe" company like ABT, is very real. ABT traded as high as $57.36 the week ending 2/13/09. During the week ending 3/13/09, ABT traded as low as $44.10. Had he sold the April $55 for $0.90, he'd have either been buying the stock for $55 while it was $11 lower at the market, or he'd have bought back his $90 put for a cool $1100. That's risk!

 

I know one trader who had sold AMSC April 22.50 puts for $1.25, and with two weeks to expiration the stock closed just below $25. The next day it opened at $13. He hoped the sell-off was over done, and by the time the margin clerk came a calling, he was forced to close them at $11. So he sold them and "collected" $125 less commissions and fees. He bought them back paying $1100, plus commissions and fees. The stock is now $8.62.

 

As SIUYA said, when it comes to being short options, "often people underestimate the risks of selling them."

 

I wish him good luck with his trading, but I think he could benefit from another perspective.

 

-OT

[SIUYA 11]

the other problem with buying back the put is that often if the stock is in a bit of trouble volatility goes up and liquidity can dry up in the market (depends on the stock). The other rule which must be adhered if adopting a short volatility strategy is always buy the options back when they are a few cents - who cares if they are theoretically worth zero, you did not sell them because of their theoretical values.....buy them back when you have made most of the money. It will only take one day to wipe out lots of gains.

 

Selling options IS a valid strategy - but you need to know the risks and what your real exposure is.....additionally it generally helps to approach it in a portfolio insurance company like manner, knowing that the ''law'' of large numbers (if there really is such a thing ) then works partially in your favour.

 

Think about this, and many people dont, or when they do it makes them think more about the risk retruns - the most you will make when selling options (or most things) is the price you sell it for. There is no possibility to compound returns from the original trade.

[reset.no.regret 10]

I was suggesting buying back the put as a risk management technique opposed to letting the option expire and being assigned - that was the only point I was trying to make. Depending on the critera used to exit he could/would still lose money buying it back; but not nearly as much as being assigned a dropping stock.

 

I'm not trying to argue the points being made, I think all the things mentioned are valid in this case; however, they are also valid is most cases: underlying instrument moves against you, gapping down hard overnight, profit rapidly eroding, etc. Ultimately, I think we are saying the same thing - know your risk before entering the trade and have an exit strategy in case things turn against you.

[mslk 10]

adding to optiontimers IMHO perfect analysis is that, you will get a

 

90 cents/5000 cents = 1.8% return for 2 months (still not too bad)

 

This is because your actual exposure is $50.

While this is a conservative view, it will also accurately reflects reality if things go bad.

 

(while not anti selling options, it never really features in my trading but often people underestimate the risks of selling them, verses the perceived returns)

 

optiontimer\siuya - thanks for the feedback, yes i haven't discussed the risk of this trade, or more importantly i haven't defined the exit. the risk mitigation i've taken is based on fundamentals of the company. essentially, i only sell these options for companies i *would* buy and i am long-term bullish on. if i do get put the shares i will start to sell covered calls on the shares to generate more income, and i also get to collect the dividends. so you won't see me doing this for linkedin or salesform.com

 

and even though the mathematical exposure is $50, the *probably* exposure is not as ABT is not going to $0 anytime soon.

 

but you've given me some good things to think about with regards to the exit. maybe i need to set a target where i buy back the puts or buy a put somewhere below $50?

 

-mslk

[mslk 10]

The other rule which must be adhered if adopting a short volatility strategy is always buy the options back when they are a few cents - who cares if they are theoretically worth zero, you did not sell them because of their theoretical values.....buy them back when you have made most of the money. It will only take one day to wipe out lots of gains.

 

thanks for this nugget suiya! makes complete sense and i will start doing this :thumbs up:

-mslk

[mslk 10]

update exelon (EXC)

- in april i sold june $41 puts for $0.7 and they expired worthless last week

- booked a 8% gain on the $8.2 margin

 

second trade exelon (EXC)

- sell, to open, exelon (EXC) august $41 puts for at least $0.9, stock is at $42

- if options expire worthless, i get 11% return on my 20% margin requirement of $8.2 for 2 months work

- if it i'm obligated to buy the stock at $41, and taking into account the $0.9 premium, i'm buying the stock at 4.5% discount

- EXC pays a 5.1% dividend and is one of the best utility\energy stocks on the market. if i am put the stock i will sell covered calls to improve the returns

 

-mslk

[optiontimer 10]

... the risk mitigation i've taken is based on fundamentals of the company...

 

In options trading time, and timing, is everything, and fundamentals have little to nothing to do with it.

 

I understand what you are trying to do, and I hope you do well with your strategy. I still do not believe that you appreciate the reward to risk ratio with which you are playing.

 

I look forward to following your journal, and I again, I do hope that you do very, very well.

 

-optiontimer

[JUANEBAT 10]

I was suggesting buying back the put as a risk management technique opposed to letting the option expire and being assigned - that was the only point I was trying to make. Depending on the critera used to exit he could/would still lose money buying it back; but not nearly as much as being assigned a dropping stock

 

The opinion of buying back as a risk management technique is valid, but in other hand

the fact that the breakeven point is the strike price minus the premiun collected is often not fully appreciate, at time of assigment . SO lets says if you had a credit of $1000.00 and you buy back TO CLOSE A short OPEN POSITION , you have to give back the credit to pay for the increase in price of the option .plus the spread BID_ASK , plus commision ..while if assigned you keep the premium and buy the underlying at strike price and sell at actual current price. ( Hopefully with a lost of less than $1000)

If you do the math , especially in OTM options , and based on that math you sell short

same number of shares , before being assigned , then you are ahead beign assigned ..as opposed to buying to close The drawback is that is needed a relatively large account or margin to sell short .

 

Did I explained myself well or my terrible syntax is bearish. :

[mslk 10]

[HIGHLIGHT YELLOW]

Did I explained myself well or my terrible syntax is bearish. :

 

yes thanks for the note, i need an excel sheet to figure all of this out before executing a trade!

-mslk

[JUANEBAT 10]

What all that means is ...that if you have a large enough account , or margin .

AND you feel that your sold option is gettting close to be in the money , is better to cover it and let it be assigned , rather than closing it buying back

 

Doing so you keep the original credit , and no slippage loss (BID-ask) , no commision

Then you close the position that is against you at no loss .

 

:doh:...

 

Moderated Message:

I have not seen this discussed in details in any book so far or in any forum . and mostly the prevailing concept is buy it back to close, don't be assigned ....in my opinion is not the best way .....but would like discuss it further for reassurance as it can be very productive money management issue to prevent disater

[mslk 10]

New Trades - July 25, 2011

 

johnson & johnson (JNJ)

- sell, to open, jnj (JNJ) sept $65 puts for at least $0.87, stock is ~ $66

- if options expire worthless, i get 6.7% return on my margin in two months ($0.87 / (20% of $65 strike) == 6.7%)

- if it i'm obligated to buy the stock at $65, and taking into account the $0.87 premium, i'm buying the stock at 3.7% discount

 

medtronic (MDT)

- sell, to open, medtronic (MDT) sept $35 puts for at least $0.6, stock is ~ $37

- if options expire worthless, i get 8.6% return on my margin in two months ($0.6 / (20% of $35 strike) == 8.6%)

- if it i'm obligated to buy the stock at $35, and taking into account the $0.6 premium, i'm buying the stock at 6.9% discount

 

microsoft (MSFT)

- sell, to open, microsoft (MSFT) sept $26 puts for at least $0.46, stock is ~ $27

- if options expire worthless, i get 7.4% return on my margin in two months ($0.46 / (20% of $26 strike) == 7.4%)

- if it i'm obligated to buy the stock at $26, and taking into account the $0.46 premium, i'm buying the stock at 5.9% discount

 

will update trades from last week's expiration shortly ...

 

-mslk

[optiontimer 10]

New Trades - July 25, 2011

 

johnson & johnson (JNJ)

- sell, to open, jnj (JNJ) sept $65 puts for at least $0.87, stock is ~ $66... if it i'm obligated to buy the stock at $65, and taking into account the $0.87 premium, i'm buying the stock at 3.7% discount

 

Stock is now $61.12, so you paid a 4.7% premium based upon your cost basis, exclusive of of commissions and fees.

 

medtronic (MDT)

- sell, to open, medtronic (MDT) sept $35 puts for at least $0.6, stock is ~ $37... if it i'm obligated to buy the stock at $35, and taking into account the $0.6 premium, i'm buying the stock at 6.9% discount

 

Stock is now $31.07, so you paid a 9.7% premium based upon your cost basis, exclusive of of commissions and fees.

 

microsoft (MSFT)

- sell, to open, microsoft (MSFT) sept $26 puts for at least $0.46, stock is ~ $27... if it i'm obligated to buy the stock at $26, and taking into account the $0.46 premium, i'm buying the stock at 5.9% discount

 

Stock is now $24.48, so you paid a 4.1% premium based upon your cost basis, exclusive of of commissions and fees.

 

This is the type of risk I was warning of earlier in your thread, when you seemed only to focus upon your potential ability to buy stock "at a discount." It is a discount until the stock continues to decline, now it is a premium that you paid.

 

Unless the stock declines ... and it is put to you ... then you will be paying a ...premium, and that doesn't take into account commissions and fees.

 

Its a matter of perspective....

 

-optiontimer

 

That discount you thought you were getting turns into a premium very quickly. As SIUYA cautioned earlier in this thread, when it scomes to selling options,

 

... often people underestimate the risks of selling them, verses the perceived return

 

And, if I may, here is another lesson worth jotting down in your notebook.

 

In options trading, time and timing, is everything...

 

I do wish you well with your trading, and I hope other would-be options traders do not follow your present path.

 

Options should be used to magnify gains and limit losses. You have it backwards.

 

-optiontimer

[mslk 10]

thanks for the feedback. this market has definetely turned some of these trades in the wrong direction! but i just have to wait it out and see how they are closer to expiry in sept.

- mslk

[mslk 10]

i'm newbie when it comes to active\day\swing\trend-trading but i've been trading options (primarily for income) for a little bit. i'm starting this thread to share some of my option trades and to record how i'm doing on them. hopefully this will help me cover the cost of learning how to day-trade! :haha:

 

most of my trades are *selling* put options on big safe companies with dividends, with the intent the option expires worthless and i collect the premium. if it doesn't expire then i get to buy the stock at a discount.

 

Disclaimer: i am not an investment professional and this is NOT investment advice!

 

first trade abbott labs (ABT)

- sell, to open, abbott labs (ABT) august $50 puts for at least $0.9.

- if options expire worthless, i get 9% return on my 20% margin requirement for 2 months work

- if it i'm obligated to buy the stock at $50, and taking into account the $0.9 premium, i'm buying the stock at 4.7% discount

- ABT pays a 3.7% dividend, has a strong balance sheet, and is a large diversified health care company just ready for the onslaught of baby-boomers

 

-mslk

 

On the day before expiry, I bought the option back at $0.68 for a profit of $0.22 for a return of 2.2%. The S&P downgrade really messed up some of my trades. happy this was still profitable.

 

-mslk

Edited August 26, 2011 by mslk

[mslk 10]

update exelon (EXC)

- in april i sold june $41 puts for $0.7 and they expired worthless last week

- booked a 8% gain on the $8.2 margin

 

second trade exelon (EXC)

- sell, to open, exelon (EXC) august $41 puts for at least $0.9, stock is at $42

- if options expire worthless, i get 11% return on my 20% margin requirement of $8.2 for 2 months work

- if it i'm obligated to buy the stock at $41, and taking into account the $0.9 premium, i'm buying the stock at 4.5% discount

- EXC pays a 5.1% dividend and is one of the best utility\energy stocks on the market. if i am put the stock i will sell covered calls to improve the returns

 

-mslk

 

better result on this trade, closed a day early (thanks SUIYA for the rec! ). bought back at $0.05 for a profit of $0.85 - a 10.4% return on the original margin. EXC is a good stock for this strategy because of its price range is relatively tight.

 

-mslk

[mslk 10]

better result on this trade, closed a day early (thanks SUIYA for the rec! ). bought back at $0.05 for a profit of $0.85 - a 10.4% return on the original margin. EXC is a good stock for this strategy because of its price range is relatively tight.

 

-mslk

 

time go back to the well on (EXC)

- sell, to open, exelon (EXC) october $41 puts for at least $1.1, stock is at $42

- if options expire worthless, i get 13.4% return

- if it i'm obligated to buy the stock at $41, and taking into account the $1.1 premium, i'm buying the stock at 5% discount

 

-mslk

[mslk 10]

Stock is now $61.12, so you paid a 4.7% premium based upon your cost basis, exclusive of of commissions and fees.

 

stock back up to $64+ and trade almost back in the black

 

Stock is now $31.07, so you paid a 9.7% premium based upon your cost basis, exclusive of of commissions and fees.

 

stock back up to $34+ and trade almost back in the black

 

Stock is now $24.48, so you paid a 4.1% premium based upon your cost basis, exclusive of of commissions and fees.

 

stock back up to $25+ and trade almost back in the black

 

This is the type of risk I was warning of earlier in your thread, when you seemed only to focus upon your potential ability to buy stock "at a discount." It is a discount until the stock continues to decline, now it is a premium that you paid.

 

yup there is risk with every trade and yes it sucks buying stock at a premium! thankfully i haven't had to yet.

 

Options should be used to magnify gains and limit losses. You have it backwards.

 

agreed that is one way of using options, but its not the only way.

 

- mslk

[mslk 10]

sorry for the late update but happy to show most sept trades went well. please see below ...

 

New Trades - July 25, 2011

 

johnson & johnson (JNJ)

- sell, to open, jnj (JNJ) sept $65 puts for at least $0.87, stock is ~ $66

- if options expire worthless, i get 6.7% return on my margin in two months ($0.87 / (20% of $65 strike) == 6.7%)

- if it i'm obligated to buy the stock at $65, and taking into account the $0.87 premium, i'm buying the stock at 3.7% discount

 

shares assigned to me at $65, collected premium of $0.87, shared now at $64.18. So i'm about break even on this trade.

 

sold nov $65 calls for $1.66. if it goes back up to $65 and foreced to sell, i'll be profiting both my original $0.87 + my new $1.66 calls. if JNJ hangs around where it is at, i will continue to sell calls against it. this is the power of trading options against *strong* companies like JNJ

 

 

medtronic (MDT)

- sell, to open, medtronic (MDT) sept $35 puts for at least $0.6, stock is ~ $37

- if options expire worthless, i get 8.6% return on my margin in two months ($0.6 / (20% of $35 strike) == 8.6%)

- if it i'm obligated to buy the stock at $35, and taking into account the $0.6 premium, i'm buying the stock at 6.9% discount

 

expired and collected entire premium

 

microsoft (MSFT)

- sell, to open, microsoft (MSFT) sept $26 puts for at least $0.46, stock is ~ $27

- if options expire worthless, i get 7.4% return on my margin in two months ($0.46 / (20% of $26 strike) == 7.4%)

- if it i'm obligated to buy the stock at $26, and taking into account the $0.46 premium, i'm buying the stock at 5.9% discount

 

expired and collected entire premium

[mslk 10]

new trades - sept 2011

 

MSFT

- sell, to open, nov $24 puts for at $1.03, stock is ~ $25

- if options expire worthless, i get 21.4% return on my margin in two months ($1.03 / (20% of $24 strike) == 21.4%)

 

MDT

- sell, to open, nov $32 puts for at $1.5, stock is ~ $33.5

- if options expire worthless, i get 23.4% return on my margin in two months ($1.5 / (20% of $32 strike) == 23.4%)

 

**these trades are working out WELL ... why buy stocks when you can make 20% on your margin requirements every 2 months?!

 

-mslk

[mslk 10]

new trades - oct 2011

 

XOM

- sell, to open, jan $65 puts for at $2.45, stock is ~ $73.5

- if options expire worthless, i get 18.8% return on my margin in three months ($12.45 / (20% of $65 strike) == 18.8%)

- XOM would have to drop from $73.5 all the way to $62.5 before I'm losing this trade. most recent time XOM was that low was back in oct 2010.

 

MCD

- sell, to open, jan $72.5 puts for at $1.13, stock is ~ $87

- if options expire worthless, i get 7.8% return on my margin in three months ($1.13 / (20% of $72.5 strike) == 7.8%)

- MCD would have to drop from $87 all the way to $71.5 before I'm losing this trade. most recent time MCD was that low was back in aug 2010.

 

KO

- sell, to open, nov $65 puts for at $1.29, stock is ~ $67

- if options expire worthless, i get 9.9% return on my margin in *one* months ($1.29 / (20% of $65 strike) == 9.9%)

 

 

and all of these trades, i would be *happy* to purchase these shares at the strike prices ... so the strategy is simple, collect put premiums until you can buy your shares at fire-sale prices

 

- mslk