$10,000 Income Portfolio

[GOB]

You're right. That quote is exactly what I've been thinking after the market closed today. But when taking the trade I was thinking "that's an easy $100". Perhaps I'm being a bit greedy. Funny how $100 can seem like a lot one moment and a pittance the next, depending on your emotions. In the future I will wait until I have more comfortable margin room. Despite my success to date, this is all quite new to me and there are definitely areas where I can improve.

The $0.68 commission is no joke. Buying back the put usually costs me about $1.06. I love IB!

[humble_pie]

on the general subject of whattodo/whattodo/lettucesellaputortwo, it occurs to me that the concept of time is all-important here.

fretting about the cost of buying back an option that one had sold short weeks or months ago is a rearward-looking mindset imho.

the price of an option sold weeks or months ago is irrelevant at any present moment, je pense. All that matters are the prices of the underlying & its array of options today. The only strategy that matters is the one that deals with what can be done about today & tomorrow. How to protect that cash on hand & drive that machine forward into the future.

if one thinks about it, the eternal passage of time is the salient feature of option trading. Every month, new options are issued by the dealers.

the situation is analagous to a successful retail store. New merchandise comes in, old merchandise gets marked down for sale. Store owner doesn't fret if he takes a loss on the old leftover merchandise. What he's focused on is the profit he can make out of sales per square foot in the store.

[GOB]

Sep 25

Bought to Close: 1 AAPL 28SEP12 $645.00 P @ $0.60: -$61.06 (Total Profit $43.26)

I feel better now. It wasn't a bad trade but I was playing it too tight on margin. Will be more cautious in the future.

[Lephturn]

lettuce look at what gob actually did here. He ratcheted down, even below the 650P level i was mentioning. Evidently he must be expecting a challenging period to ensue in aapl trading.

but lepht these aren't the correct figures at all. In the example i gave upthread (previous post) it was absolutely possible to buy back 695P & sell 650P a few months farther out for a positive amount. In terms of cash in the account - which to me is the important measure - there was no cash lost, instead a small cash gain.

How far off do you think those figures would be? Selling a weekly put that's out of the money for $7.00 - if it's $ 10 out of the money I don't think that's too far out of line. If the stock moves down to 650 that 695P is worth $45.00 in just intrinsic value! Add to that the price for the volatility spiking and I $ 49.00 doesn't seem too far out of line to me.

If you wind up cash/margin positive, then I can see doing this for something I am as confident in as AAPL. AAPL is one of the few where I would be comfortable doing this, but I see your point.

What we really need is a $50 drop in AAPL to see what happens.

[humble_pie]

lepht your figures certainly do seem out of line.

below, as i've already pointed out, is what i posted upthread when this issue began to be discussed. On that date - 20 september/12 - those were live quotes. Please notice the clear route of ratcheting down from 695P to 650P within 4 short weeks as a $2.50 credit spread. That is excellent money. It is $250 credit in return for escaping a lot of nightmare cash & margin consequences, supposing aapl were to plunge badly. As a short-term credit spread, this strategy would also provide plenty of room in the future to repair & adjust if stock would again change direction (ie the short time frame does not lock down.)

there are countless similar examples that can be found in AAPL & many other stocks. Won't you please stop going on about a fictitious $7 option sale that requires $49 to buy it back. It doesn't matter what figures can be generated by mathematical theory, in practical options markets some of these theoretical creations don't work out at all. This $7/49 idea in particular sounds bizarre. Perhaps the direction should be reversed here ? perhaps you should be the party to be asked, Where are You Getting these Figures ?

... but for accurate illustration let us suppose that aapl is plunging to around 650 & gob decides he's going to ratchet down his 695 put strike price.

a series of credit spreads stretches before him. Even rolling as briefly as into october 650P (note the drop in strike price) will net him 2.50 credit, or 250.00. He'll get to keep all accumulated profit to date, his margin will continue looking good, he can continue trading, plus he won't be assigned.

the farther out in time gob might go with 650P (i'm using 650s because they have elevated open interests), the bigger the credit spread that he would collect.

http://canadianmoneyforum.com/showth...l=1#post145502

[Lephturn]

Well we will soon see a real example with AAPL down below $ 680 today so far.

I get my numbers from looking at the price of a just out of the money weekly put, and then projecting it's value after a $50 decline in the share price in a week. I'll take a look tonight and examine my trades and GOB's in light of this pull back.

[Lephturn]

I couldn't resist this pullback. In for a wide open risk reversal. More tonight when I have time.

If it keeps going down I'll be turning to the dark side and trying out these rolls!

[humble_pie]

soon ? how about trying now ?

october puts looking meagre but very nice credit spreads are available in november P.

gob is not doing this but a more risk-averse trader could ratchet down to november 650P for a handsome credit of at least 3.25. That's $325 easy peasy money plus it scuttles nearly all risks for a few weeks. A few weeks might be a good idea. Give aapl a chance to find its sea legs again. Well before christmas.

[GOB]

That would be a great way to play it safe but playing it safe isn't the mantra of this account. I will let myself get assigned. Oct and Nov $700-$710 calls offer some good juicy premiums if the weeklies become too small as AAPL drops. I also want to be in the stock for the iPad Mini announcement (still a rumour at this point). I've gotten quite proficient with put selling - time to play the other side. The first time was a disaster so I'm looking to do better this time.

[humble_pie]

way to go. But yeah we knew.

still, it's only tuesday, maybe ratchet down a few bucks laters this week ...

right now a debit trade down to 675 in the septembers would cost maybe 12.40-12.50 but would save 20. I know i know it's not worth talking about saving $750 when you izz champing at the bit to inaugurate the next leg of the race