Lets discuss some real time option trades

[utrecht]

On top of my mechanical naked index put selling, I also make a few regular options trades every week. If there is any interest, I'd be willing to post some of them so people can follow along. I'd love any of you other option traders to do the same if you'd like to.

Mods...feel free to move this to the Stock Analysis forum if you think that's where it should be.

A lot of my option trades are very short term and related to earnings coming out. I set up a trade that has a 4-1 or higher risk reward ratio. If I'm wrong about which way the stock is going after earnings I lose money obviously, but if I'm right, I can make 4+ times more than if I'm wrong. Based on this math, even if I'm only guessing and known nothing about the company itself, I still make money if I "guess" right half the time.

When earnings come out after hours, the stock normally goes crazy right off the bat but a lot of times if settles right back close to where it was. You cant trade options after hours but you can trade stocks, so I'm looking for a way to lock in gains on my option trade after hours. So here's a question before I post any real trades.

This is a real trade I made on Thursday. Texas Instruments was doing a mid quarter update and issuing guidance for next quarter. I bought a put butterfly using the Dec 26 / 28 / 30 strikes. My maximum profit comes with TXN at 28. TXN was at 29.75 or so.

After hours it dropped like a rock. Before the bell Friday morning TXN was at exactly 28. If it opened at 28 and I closed the butterfly, I had approx an $8000 profit. The question for anyone who knows is this: Could I not buy X number of TXN shares so if it rises before the market opens, I make enough money on the stock to make up for the money I lose in the option trade between now and then and lock in gains that I have even though I cant close out the option trade when the market is closed?

TXN ended up opening at 28.60 or so and I still had a $3500+ profit. I was driving to the airport to pick up relatives and by the time I got there and closed the trade from my phone, TXN was at 29.25 and I only made $1280 on the trade (minus commission).

PS..risk / reward on this trade was max loss of $2880 and max gain of $13120 or 4.5-1

 

[Ed_The_Gypsy]

Let's not. Find an on-line poker site.

 

[utrecht]

Actually I made over $250,000 playing online poker over a 5 year period before I got burned out and stopped playing. It has since been shut down by some clowns in Washington who think they know what is best for everyone else. I can drive down the street and play but cant play online. Brilliant!

 

[utrecht]

This TXN trade is actually a bad example of trading the stock premarket to lock in option gains. Since its a butterfly, my max profit is right at 28. Above or below 28 and my gains start to diminish. A better example is a regular call or put or even a spread, but the question remains...can I buy (or short) stock premarket hours as a method of locking in option gains and then sell the stock and close the option trade at the same time?

 

[KiraC]

Do you watch Options Action on Friday nights? I always like to see their recommendations. This week they highlighted Best Buy (earnings play), Google (projected to $700 by March - wow!) and FedEx (possible Calendar play). I'm always looking for ideas and then follow them up with technical analysis before making a decision on a trade.

 

[utrecht]

Yes I do watch it and Ive made a few trades based on their recommendations. I actually have a spreadsheet and track all of their trades and they are profitable. I will be putting on the Google trade this morning. I'm also looking at the BBY earnings trade but haven't decided about that one yet.

 

[KiraC]

Awesome! I was considering putting those on this morning too.

 

[utrecht]

I put on the Google trade but since the market had already sold off, I collected 10.75 instead of the 10 mentioned on the show. I also decided to trade BBYs earnings, but I didnt like the risk / reward ratio of the trade discussed. I just bought (35) Dec 29 Calls for .50 each. I'll most likely sell them at the opening tomorrow, but this is a case where I might want to trade the stock premarket to lock in gains (if I have gains after earnings are released).

 

[jerome len]

You're doing better than I do on a short term basis. I just don't understand what you do in your short term trading but I would like to know more. On the other hand, I'm busy, and I don't have the time to follow closely. And, with my luck I'd probably lose more than I would gain.

So, someday when I have more time I'd love to try it.......but where do I go to gain the knowledge?

 

[utrecht]

Yes, these short term option trades are not something that can be left alone. If you cant watch them, dont do them. I missed out on $2200 in profit on Friday during a 30 minute drive to the airport. However, there are plenty of longer term option trades that can be made that don't need constant monitoring. Either way, if you don't understand the trade, don't make it. You have to learn before you earn

 

[utrecht]

Well the Besy Buy earnings trade was a total bust, but heres what I like about these earnings trades. As of right now BBY is down $3.04 from when IO made the options trade. My Dec 29 Call dropped 0.55. But if BBY had climbed the same $3.04, the option wouldve gone up about $1 so I wouldve made almost double what I lost. If I made 10 of these trades and 5 were winners and 5 were losers, I would make a good chunk of change.

 

[KiraC]

Bummed a little on the BB bust. Since we have a couple days until expiration it may go up some and recover a little of the current loss. I'm going to ride it for a little while to see what happens. Good thing it was a managed risk.

Now waiting for sector rotation and MCD to pull back to low 90's before going making it's next move up.

 

[utrecht]

FDX earnings came out this morning. There was a FDX trade discussed on Options Action last Friday. I didnt make the trade because it was a calendar spread which i dont like, but I did buy calls yesterday before the market closed. I forgot to post this trade last night so it could be watched in real time by whoever was interested, so I wont post details now but suffice it to say, I made quite a bit more than the $2000 I lost on the BBY trade.

 

[KiraC]

great job! I was watching them this morning and I'm amazed it keeps shooting upward. I've only done a few call trades with mixed results. I probably need to go back and study them more.

 

[FinanceDude]

Sounds like a lot of work............

 

[utrecht]

Yes, it is a lot of work. No denying that, but if I can make 5 figures per month clicking my mouse, its worth it.

Heres my newest trade. ADBE earnings come out after the bell. Its currently at 26.50. I sold a Dec 26 / 24 put spread for .52 (expires tomorrow) anticipating a drop after earnings are released.

 

[FIRE'd@51]

Heres my newest trade. ADBE earnings come out after the bell. Its currently at 26.50. I sold a Dec 26 / 24 put spread for .52 (expires tomorrow) anticipating a drop after earnings are released.

If you expect the stock to go down, wouldn't you BUY a put spread? Selling a put spread is a bullish strategy.

 

[ERD50]

.... so I wouldve made almost double what I lost. If I made 10 of these trades and 5 were winners and 5 were losers, I would make a good chunk of change.

I don't think it's realistic to expect that the people on the other side of those trades will part with their money so easily and regularly.

-ERD50

 

[utrecht]

If you expect the stock to go down, wouldn't you BUY a put spread? Selling a put spread is a bullish strategy.

My bad. I bought a put spread, although I wish I had sold one at this point. Stock is rallying after hours

 

[utrecht]

I don't think it's realistic to expect that the people on the other side of those trades will part with their money so easily and regularly.

-ERD50

Keep watching this thread and we will see. Its not like I just started doing this. Ive posted 2 trades so far. One went against me and one went my way. I lost $2000 on one and made $3600 on the other (same initial investment). That's pretty normal.

Not sure how long I'll keep this thread going. I think I'm on the wrong forum to discuss these risky investments. I doubt too many people are all that interested.

 

[ERD50]

Keep watching this thread and we will see. Its not like I just started doing this. Ive posted 2 trades so far. One went against me and one went my way. I lost $2000 on one and made $3600 on the other (same initial investment). That's pretty normal.

Not sure how long I'll keep this thread going. I think I'm on the wrong forum to discuss these risky investments. I doubt too many people are all that interested.

I'm very interested. And it seems others are also. If some others are not, I promise not to force them to read this thread.

I wouldn't necessarily define these trades as 'risky'. In the OP, you said:

reward on this trade was max loss of $2880 and max gain of $13120 or 4.5-1

So that is a clearly defined max loss. It's only 'risky' if that represents more loss than you can afford in a single trade. And far less risky than many here take with what they would call a 'safe' investment.

But I'll still stand by my statement that the people on the other side of the trade aren't likely to part with their money so easily and regularly. Logic tells me that if these trades were obviously and regularly imbalanced, the pros (computers most likely) would come in and take those bets, and supply/demand would eat up that advantage so fast that it would be gone before our screens updated.

As we observed in dixonge's thread, it can take a long time for the law of averages to catch up with you.

To the extent you are taking on risk, you should expect that risk to be rewarded. If you expect to regularly take in gains in excess of that risk, well, good luck.

-ERD50

 

[clifp]

I'll start posting my SPY trades either on this thread or the other one.

I am in the process of freeing up cash one of my IRAs. (The last element is selling my Berkshire A, which isn't easy to since it require talking to the brokers at Schwab, not surprisingly their system isn't set up to deal with $100,000+ share of stock).

When this is I done I intend to write slightly out of the money and covered call on SPY and also slightly out of the money puts each week. I'll be owning SPY and also will have cash secured puts. Since this won't be utilizing margin it should pretty good experiment compared to B&H for SPY.

I also signed up for an OptionHouse account (one of the premiums was 1 year subscription to M* newsletters) I am not sure what option trades I'll be doing in the account.

 

[ERD50]

I'll start posting my SPY trades either on this thread or the other one.... I intend to write slightly out of the money and covered call on SPY and also slightly out of the money puts each week. I'll be owning SPY and also will have cash secured puts. Since this won't be utilizing margin it should pretty good experiment compared to B&H for SPY.

That should be very interesting. You'll normally be 1/2 in cash, so in an up market, you'd need to do pretty well to make up for not having that money in the market. But selling on both sides, maybe those premiums could exceed B&H over time.

Please do post your trades.


-ERD50

 

[utrecht]

I'll start posting my SPY trades either on this thread or the other one.

I am in the process of freeing up cash one of my IRAs. (The last element is selling my Berkshire A, which isn't easy to since it require talking to the brokers at Schwab, not surprisingly their system isn't set up to deal with $100,000+ share of stock).

When this is I done I intend to write slightly out of the money and covered call on SPY and also slightly out of the money puts each week. I'll be owning SPY and also will have cash secured puts. Since this won't be utilizing margin it should pretty good experiment compared to B&H for SPY.

I also signed up for an OptionHouse account (one of the premiums was 1 year subscription to M* newsletters) I am not sure what option trades I'll be doing in the account.

They have some good sign up bonuses depending on how much money you are depositing. I was going to get a 30" Dell monitor but to avoid having to pay taxes on it they offered me $250 cash and a 23" monitor which I accepted.

 

[utrecht]

If there does turn out to be interest and others get involved, I will post all of my option trades. I average about one per day. Some are earnings related trades that last 1-5 days and others are trades that I keep on for several months. So far Ive only talked about the very short term earnings trades. My goal is to get other people involved and learn from things that they are doing.