# $10,000 Income Portfolio



## GOB

I thought I would start a thread showing all my trades for one of my accounts (credit to DMoney for the idea). This is a $10,000 account and the goal is to write options and generate continuous income. I don't want to be holding many stocks in my portfolio, but if I sell any naked puts they will be at prices I am comfortable owning the shares at. Either that or I'll roll them.

I'll primarily be using the following simple strategies:
- selling puts
- selling covered calls
- buying calls/puts
- bull call spreads (BuCS)
- bear call spreads (BeCS)
- bull put spreads (BuPS)
- bear put spreads (BePS)

I have already executed a few trades which I'll list below. From here on I'll be updating in real time.

Past trades:

Jun29:
BuPS: 1 AAPL 21JUL12 525/530 - +$30.94
Sold: 1 CLF 21JUL12 45.00 P - +$84.22

Jul06:
BuPS: 3 AAPL 21JUL12 555/560 - +$48.44

Jul09:
BuPS: 1 AAPL 18AUG12 555/560 - +$96.93

Jul10:
BuPS: 3 AAPL 21JUL12 565/570 - +$37.94
BuPS: 1 AAPL 19JUL13 490/495 - +$98.65

Summary:

Account Balance: $10,394 (CAD)
Unrealized P/L: -$126.37

My AAPL BuPS expiring in July look to be on track to finish out of the money. I may get assigned CLF which I will gladly take and start writing covered calls on. I am happy taking the risk on AAPL because even if the stock tanks and wipes out a fair bit of this account I have cash on hand to take advantage of a great buying opportunity. The risk/reward that this strategy offers suits me quite well at this stage of my life.

I may stay dormant until options expiry and Apple earnings. Depending on what happens after that I might look into some 2013/14 BuCS deep out of the money.


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## GOB

Decided to take a bit of a risk today:

BuPS: 3 AAPL 27JUL12 555/560 - +$139

Earnings on Tuesday will be volatile but AAPl will likely have another blowout and 8% is a long way to fall in a week. Decided to take advantage of the juicy premium.

My JUL20 plays are expiring worthless so those profits can be booked. I'll be looking for new plays on Monday - might get right back into selling a CLF put as I like their valuation.


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## GOB

Took advantage of the market sellthis that juiced the premiums this morning:

Sold: 1 CLF 18AUG12 40.00 P: +$87.38
Sold: 1 CDE 18AUG12 15.00 P: +$52.69
BuPS: 1 AAPL 27JUL12 530/525: +$33.62
BuCS: 1 AAPL 20OCT12 700/705: -$66.39

Decided to funnel a bit of my profit into a high risk high reward bull call spread. I see a reasonable chance AAPL can make $700 in 3 months given earnings are tomorrow and te next iPhone will likely be out by then. Potential $435 gain on a $65 stake. 

Will adjust the totals with commissions after I get my statement.


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## Dmoney

Interesting thread. Just to clarify, the final number is the gain/loss on a position?

You made $35 on the July spread?
Paid $65 for the October spread?

BuPS: 1 AAPL 27JUL12 530/525 - +$35.00
BuCS: 1 AAPL 20OCT12 700/705 - -$65.00


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## GOB

Thanks for stopping by. You're correct, the amount is the net credit/debit. BuPS is a credit, BuCS is a debit.


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## GOB

Couldn't resist myself...limit order just filled

BuCS 1 AAPL 27JUL12 645/650 - -$51.38

Potential $450 gain if AAPL pops after hours. Not expecting it to happen and it's profit I'm happy to risk. As more info comes in it seems more and more likely that AAPL has been pushed down and is going to report awesome numbers.


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## GOB

Bought a couple of long term BuCS on AAPL which were priced very attractively due to the earnings miss. 

BuCS 1 AAPL 19JAN14 625/630: -$176.53
BuCS 1 AAPL 19JAN14 670/675: -$151.50

I fully expect both of these to expire in the money. $675 is only 17% higher than the current price and $630 is under 10% higher and I've allowed 17 months for it to get there. No doubt earnings will grow far more than this so unless the P/E compresses even further this should be all but a sure thing. Very attractive gain for such a low risk trade. There is a good chance we hit these levels much earlier at which point I'll probably close them off to lock in profits.

My gamble on AAPL earnings didn't pay off. My SEP BuCS doesn't look good either but I went into these trades risking a little profit knowing odds of success were low. Fortunately I allowed enough downside room on my BuPS at $555/560 that it looks they will expire worthless despite AAPL's drop. Glad I played it safe. I am looking to get into a put or put spread on AMZN this morning to play their earnings which I think will disappoint. Another gamble, but with AAPL, NFLX, ZNGA, FB etc all dropping recently it looks like it won't take much to send AMZN down, considering they may report a loss and their current valuation is ridiculous. 

It looks like I may get assigned my CLF put at $40.00 which I don't mind. Earnings are out this morning, so we'll see what happens. I'm suprised it's dropped so quickly from the $45 level considering how undervalued it is to begin with. I'm happy to write covered calls on it and collect what looks to be a high, safe dividend while I wait for price to recover.


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## GOB

I have an order for an AMZN BePS that hasn't filled yet. Did mange to get a BeCS just now:

BeCS 1 AMZN 17AUG12 255/260: +$35.00


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## GOB

*July 2012 Monthly Update*

My first full month with this account was a good one. A couple of my initial trades were in late June but for convenience I'll lump everything into July

Jul 2012 Starting Balance: $10,000
Jul 2012 Ending Balance: $10,389.68
Jul 2012 ROI: 3.9%


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## GOB

I have been out of town for the last week and didn't get a chance to update the journal. I'm sure you have all heard about the Knight Capital trading glitch fiasco by now. As shares were plummeting toward $3 on Thursday I couldn't resist the opportunity to vultch:

Sold: 1 KCG 18AUG12 4.00 P: +$120
Sold: 4 KCG 22SEP12 4.00 P: +$620

No doubt it's a gamble but I feel KCG is a huge brokerage and will either recover or get bought out. They have been in the industry for a long time and represent a large retail base. Some will definitely leave because of this glitch but many will find it too bothersome or simply won't be able to. Trading glitches can happen to anyone and I feel the shares have been beaten down far too much. 

I thought I had made a huge mistake as shares dipped below $2.00 after hours on Thursday but made an awesome recovery yesterday to finish around $4.00. This is going to be an up and down ride. I could have got even juicier premiums if I had waited but I'm happy with my positions. If I get assigned the shares my ACB will be around $2.50 and I'll start writing covered calls on them right away. If KCG stays above $4.00 then the proceeds will be a great boost to my account. 

In other news, my AUG AAPL and AMZN spreads are on track to expire worthless. My puts on CLF and CDE could go either way. I am doing quite well so far but it's early. I really enjoy this kind of trading. Moderately high (but controlled) risk and high reward.


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## GOB

*Major Update*

I decided to elevate my risk a little and aim for higher premiums. To do this I wanted to be able to sell naked puts and covered calls on AAPL without always having to use spreads. I funded my account with another $10,500 to be able to do this, making the title of this thread a bit of a misnomer. I will have to take on margin to execute this strategy which definitely adds a new layer of risk. However, this is my only account with margin and my other accounts are doing extremely well so I can afford to take this risk. 

I plan to trade fairly close to the strike place with the intention of being assigned frequently. Once assigned, I'll sell calls at least $5-10 higher than my assignment so that I make premiums in addition to capital gains. Doing this on a weekly or monthly basis has a good chance of yielding excellent results. I will win if Apple stays flat or gains - my risk is a steep and lengthy drop which I deem unlikely given all the positive catalysts on the horizon. 

I placed my first trade today - had to choose a low strike price for margin reasons. 

Sold: 1 AAPL 18AUG12 595.00 P: +$81.00
Closed: BeCS 1 AMZN 17AUG12 255/260: -$4.00 (done to free up a little margin - netted about $30 off this spread)

I plan to deposit a little more into this account reasonably soon in order to ease the margin and allow me to continue making other plays as I have been.


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## humble_pie

but how could you have a "covered" call in aapl in a 10k account, or even in a 20k account, when a board lot of stock to cover even one short aapl call costs 62,000.

i do get that the covering stock might be in another account at the same broker. But am left wondering why split the options away from their margin-generating underlying stock & why cloister them in a tiny little margin-less cell of their own ...


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## GOB

IB allows about 4:1 margin. With my $21000 in the account my buying power is about $80000. I plan to actively reduce margin with gains and continual funding of the account. All trades will be from the single account - there's no splitting.


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## GOB

*Aug 13*

Buy to Close: 1 AAPL 18AUG12 595.00 P: -$32.00 (Total profit +$47.88)
Buy to Close: 1 CLF 18AUG12 40.00 P: -$4.14 (Total profit +$75.64)
Sold: 1 AAPL 18AUG12 620.00 P: +$217.38


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## GOB

*Aug 14*

Buy to Close: 1 AAPL 18AUG12 620.00 P: -$87.62 (Total profit +$129.76)
Sold: 1 AAPL 18AUG12 625.00 P: +$164.38


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## humble_pie

gob is your purpose here to force the assignment or will you be happy tracking aapl's progress with frequent put adjustments.

this thread is an excellent teaching module imho for options players who have passed beyond introductory stage & are itching to do more.

however 1 thing would worry me. Suppose gob is assigned at 625. His margin debt becomes something like 46-47k, perhaps a bit less depending on how much cash was in the account. Now suppose a sudden market correction takes aapl down to 475, say.

oops. Now the broker wants 10k. Especially at IB, the broker doesn't want 10k like after a polite margin call & a polite wait of a few hours. IB has already upped & sold the aapl shares the minute the margin turned negative. That, to best of my knowledge, is IB's policy.

a party who could easily transfer in extra cash in anticipation of such an IB margin call - ie a person who also has the time to track & calculate each downward ratchet in aapl's price during said market crash - such a party would be OK. But a party trapped by either lack of cash or lack of time could lose most of his account.


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## GOB

humble_pie, I am happy being assigned. The whole strategy of this portfolio is to get great options premiums on stocks that I wouldn't mind owning. If I do get assigned, the plan for this portfolio is to immediately write a covered call to get the premium and perhaps a small capital gain on share appreciation on top of it. So far, I've earned close to 10% in a month without ever owning a single share. Eventually, I will be assigned. In fact, I'm hoping to get into AAPL for the iPhone 5 launch. 

As for the risks you mentioned, you're 100% right. I'm aware of the risk I'm taking. I do know this stock very well and am watching it move all the time. I think the odds of a sudden drop like you mentioned are quite low, but non-zero so yes I am taking a risk. But the potential reward is an extremely good ROI. I plan to add funds to my account soon to lower my risk of a margin call. Also with each premium I receive I'm increasing my balance and lowering the amount of margin I use. 

Thanks for your input!


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## humble_pie

GOB said:


> ... I am happy being assigned. The whole strategy of this portfolio is to get great options premiums on stocks that I wouldn't mind owning. If I do get assigned, the plan for this portfolio is to immediately write a covered call to get the premium and perhaps a small capital gain on share appreciation on top of it. So far, I've earned close to 10% in a month without ever owning a single share. Eventually, I will be assigned. In fact, I'm hoping to get into AAPL for the iPhone 5 launch.


strategy is a 10. Well, maybe a 9.5 because of the risk. But taken as a whole this thread is an excellent teaching module so i hope others in cmf forum are listening up.

btw you know what the experts say. They say short put = long stock + short call. The strange thing is that this is not quite my own experience, speaking anecdotally. Generally i find stk minus call to be more profitable; however we are in an era of non-existent interest rates which would otherwise drag on long stock. Also i seldom deal in options as pricey as aapl.




> As for the risks you mentioned, you're 100% right. I'm aware of the risk I'm taking. I do know this stock very well and am watching it move all the time. I think the odds of a sudden drop like you mentioned are quite low, but non-zero so yes I am taking a risk.



gob i know that you understand the risk. I think you are managing it very well. You are, i believe, the forum member who mentioned aapl's big cash position as the cushion that would buffer any precipitous drop. Am i correct in assuming that even after paying the dividend co. would still have lots of cash left.


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## GOB

humble_pie said:


> strategy is a 10. Well, maybe a 9.5 because of the risk. But taken as a whole this thread is an excellent teaching module so i hope others in cmf forum are listening up.
> 
> btw you know what the experts say. They say short put = long stock + short call. The strange thing is that this is not quite my own experience, speaking anecdotally. Generally i find stk minus call to be more profitable; however we are in an era of non-existent interest rates which would otherwise drag on long stock. Also i seldom deal in options as pricey as aapl.
> 
> 
> gob i know that you understand the risk. I think you are managing it very well. You are, i believe, the forum member who mentioned aapl's big cash position as the cushion that would buffer any precipitous drop. Am i correct in assuming that even after paying the dividend co. would still have lots of cash left.


Thanks for the positive comments. AAPL is actually the perfect stock for my strategy because in a addition to knowing it like that back of my hand, as you said options are expensive, which is good for the seller. It's why I can get such great premiums. 

You are right about the dividend. Apple has $117 BILLION of cash in the back. Each quarter payment amounts to about 2-3 weeks of profit for them, so even with dividend and buyback the cash is going to continue its rapid growth. I called $530 as the last bottom and it hit almost exactly. I don't think we'll see that level again unless (until?) the whole market crashes. But I've made the decision not to trade in fear of such an event happening. If it does happen, this portfolio may get wiped out, but my others will survive and I'll have cash left to purchase tons of companies at rock bottom valuations.


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## Dmoney

GOB, how often do you plan on updating your portfolio balance?
Great thread with frequent updates, be interesting to see your progress over time.
Congrats on epic first month returns.


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## GOB

I'm planning to update the balance on a monthly basis, for several reasons:

1) It's easy to read off my monthly statement
2) It allows a good number of my positions to be closed to provide a realized gain/loss
3) It keeps me from thinking too short term - even though my trades are often short term my goal is to grow the portfolio with large, sustainable monthly gains

If I updated weekly most of the fluctuations in my account balance would be due to open unrealized positions, and that could be inaccurate and also lead to a false sense of confidence. 

Since you asked though, as of right now my account can be liquidated for $21,583. That's a $1083 gain on my $20500 deposit, or a 5.3% gain in about 1.5 months. Although, I have only been trading with a $10,000 deposit until the start of this week, so actual return is significantly higher (but I'm too lazy to calculate).


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## GOB

*Aug 15*

Bought to Close: 2 KCG 22SEP12 4.00 P: -$223.52 (Total profit $83.52)

Felt like reducing my exposure to KCG, locking in a little profit and freeing up some valuable margin. I still have an 17AUG12 put sell that will get assigned to me as well as 2 more 22SEP12 put sells that I will hang onto for now.

*Aug 16*

Bought to Close: 1 AAPL 17AUG12 625.00 P: -$20.62 (Total profit $143.76)
Sold: 1 AAPL 24AUG12 630.00 P: +$435.37


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## Lephturn

Thank you humble_pie for pointing me to this thread! Excellent idea GOB, this is great. Thank you so much for doing this. Can you share how you are going about trade identification?

Last week I exited my reversal/synthetic - I sold a Jan 13 505 Put and bought a Jan 13 545 Call. I did this back in May when AAPL got beat down into the $ 530s. I exited last week sometime when AAPL went up to $ 615. Although I should probably have held on to the 545 Call, I had over an 8k profit and I wanted to lock that in given it puts me up about 20% on the year. I'm not going to put much of that profit at risk. That was a massive bet with tight stops that I put on when I felt AAPL was extremely underpriced - I normally don't do big directional bets like that. It also tied up about 15k in cash initially and I happened to have that cash in the account at the time. As it moved higher and higher I kept the trade on, but with a really nice move over 600 I had the vast majority of the short put profit already in hand, so I closed it. That left me with the 545 Jan 13 call deep in the money. AAPL had made a big move so I had a great profit in hand and I felt volatility was going to keep coming in + theta was eating my profits so I closed that position as well.

Any thoughts on AAPL in this current low vol environment? I have been poking around at a call back spread as that would be a combination volatility and directional trade. I am still examining the term structure and looking for the right strikes, but I probably won't have time to find the right contracts until the weekend. I'm looking to go fishing - humble_pie style - next week some time.


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## humble_pie

another thought just struck me. Is it true that IB presently does not charge any commish or fee for option assignments ?

this would mean that an IB client can, theoretically speaking, acquire a large portfolio of diverse stocks with zero commish. All he has to do is sell puts close enough to the money that they will likely be exercised. If assignment doesn't occur, then keep on selling puts.

ooh. This prospect is making me giddy.


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## GOB

I believe you are correct that IB does not charge commission for US option exercises or assignments. Not sure about Canadian but I'll find out and let you know. 

Lephturn - Apple is in a tricky spot right not. All-time highs and a dramatic post earnings run-up imply that a correction may take place at any time. That being said the new iPhone is all but certainly launching next month, and there is the additional possibility of a smaller iPad at the same time or a little bit later that will dominate the 7" tablet market. Not to mention the recent first dividend payment and the mysterious television rumours. 

If I were you I would have held the Jan 2013 $495 call and waited for assignment (if you had the capital). Reason being Apple will report two absolutely mind-boggling earnings results after that option expires. There's a high chance that the stock will take off again in Feb-Apr 2013. EPS for the first two calendar year quarters will surely (in my opinion) be $30+. 

As for what to do right now, it's anybody's guess. I personally don't mind taking the risk of a correction while getting assigned the shares so I made another play today on Apple's strength:

*Aug 17*

Bought to Close: 1 AAPL 24AUG12 $630.00 P: -$203.51 (Total profit $231.86)
Sold: 1 AAPL 24AUG12 $640.00 P: +$499.37

I realise I'm playing on the edge here but it seems that as much I try chasing Apple doesn't want me owning their shares! Although my other accounts certainly appreciate it, it's actually not great for this portfolio that it's running up so fast - I'd much rather see it level out for a bit so I can play both sides nicely in a range. But I'll have to take what I'm given.


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## Lephturn

GOB said:


> I believe you are correct that IB does not charge commission for US option exercises or assignments. Not sure about Canadian but I'll find out and let you know.
> 
> Lephturn - Apple is in a tricky spot right not. All-time highs and a dramatic post earnings run-up imply that a correction may take place at any time. That being said the new iPhone is all but certainly launching next month, and there is the additional possibility of a smaller iPad at the same time or a little bit later that will dominate the 7" tablet market. Not to mention the recent first dividend payment and the mysterious television rumours.
> 
> If I were you I would have held the Jan 2013 $495 call and waited for assignment (if you had the capital). Reason being Apple will report two absolutely mind-boggling earnings results after that option expires. There's a high chance that the stock will take off again in Feb-Apr 2013. EPS for the first two calendar year quarters will surely (in my opinion) be $30+.


What I had was a Jan 2013 545 Call - so not as good as $ 495, but still nice.  Yes I probably should have left it on and then built a position around it to protect my gains, but I have such a nice profit I wanted to lock in some cash. If I ended the year right here I'd be in good shape, so I'm moving to lower risk positions.

What's got me looking for a different trade is the very low volatility. AAPL vol in the low 20's is cheap. That said you are right, a correction could happen at any time, and hence my thought to find a nice back spread. A back spread of selling a close to ATM call and then buying 2 more further out with at least 2 months to go should let me have a gain if the stock goes down (because vol will increase and I'm nicely vega positive), and a gain if it keeps shooting up, with the only big loss being if it sits in the hole between the strikes. That would only happen if I held it until expiration - which I would not do. I'm looking for a nice safe 10% or so on this play and I'm out.


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## GOB

Lephturn said:


> What I had was a Jan 2013 545 Call - so not as good as $ 495, but still nice.  Yes I probably should have left it on and then built a position around it to protect my gains, but I have such a nice profit I wanted to lock in some cash. If I ended the year right here I'd be in good shape, so I'm moving to lower risk positions.
> 
> What's got me looking for a different trade is the very low volatility. AAPL vol in the low 20's is cheap. That said you are right, a correction could happen at any time, and hence my thought to find a nice back spread. A back spread of selling a close to ATM call and then buying 2 more further out with at least 2 months to go should let me have a gain if the stock goes down (because vol will increase and I'm nicely vega positive), and a gain if it keeps shooting up, with the only big loss being if it sits in the hole between the strikes. That would only happen if I held it until expiration - which I would not do. I'm looking for a nice safe 10% or so on this play and I'm out.


That's fair enough - one can never be faulted for crystallizing healthy profits. That being said I won't be the least bit surprised to see AAPL around $750 by mid-2013 - maybe even sooner. 

Volatility is low, which would typically make it a great time to get into naked calls and bullish spreads. The trouble is the $80 run-up we've just experienced. In some ways I wish we were back down between $570-600 because I would be backing up the truck on calls with very high confidence that they would pay out handsomely. The current situation makes it a much more difficult proposition, although LEAPs may still be attractive. I do have a couple of spreads in this account that will likely pay out, and several calls bought much earlier in other accounts. 

I'm glad this thread is picking up - we're getting some good discussion here.


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## Dopplegangerr

GOB said:


> I'm glad this thread is picking up - we're getting some good discussion here.


I am reading all the responses every day and enjoy this thread very much. Wish I had something good to contribute, have to settle on being a lurker for now :encouragement:


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## GOB

Dopplegangerr said:


> I am reading all the responses every day and enjoy this thread very much. Wish I had something good to contribute, have to settle on being a lurker for now :encouragement:


No worries, glad you are reading. Nothing wrong with lurking, I did so for a long time and still do if I have nothing to contribute.


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## humble_pie

gob earlier upthread i mentioned the conventional wisdom which preaches that short put = long stock less short call.

however, this tiny pilot account is certainly defying the preaching. Here's what i mean:

- account has collected, by severely rough estimate, perhaps net 1200-1700 from a sequence of put sales. Please correct if this is wrong.

- if one assumes that account was commenced 12 july/12 with initial injection of 10,000 & bought 100 shares aapl on margin, the price at close on that day was 598.90, so cost was 59,890. Some time later an additional 10.5k was added to improve the margin.

- with aapl closing friday at 648.11, the 100 shares would be worth 64,811, so this account has harvested a paper gain of 4,921.00. This does not take into consideration any theoretical premium that would have been received if a call option or a sequence of call options had been sold against the 100 shares, so actual gains would have been higher.

what a difference between the 2 strategies. 1200-1700 for short puts vs 4,921 for long stk. Selling short call would push this notional return to date above 5000, i am thinking.

ouf. Who knew.

one advantage of a tiny pilot project like this account is that all the numbers stand out so clearly. Lilliputian, but clear as glass.


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## GOB

You are right - put selling is not equivalent to long stock and short call - there is so much variation due to the behaviour of the stock, strike price chosen etc. 

Part of me wanted to buy 100 shares of AAPL right away and sell covered calls on it, but I had told myself from the start that the only way I would take shares is if I sell a put and get assigned. I tried to stay disciplined. Unfortunately, AAPLs rapid rise means that purchasing the stock outright would have been a much more profitable venture. However, this is only known looking back after the fact. 

What this portfolio has shown is that this strategy is not the best for a rapidly rising (or falling) stock. Conversely, we can infer that it would be excellent for a stock that is flat or rangebound. Unfortunately I just started at the wrong time, but on the bright side I have made a good amount of money and the portfolio return has been excellent thus far. 

When AAPL begins to range for months on end (as it seems to do every year) I think this strategy will really start to shine.

A slight correction - I would not have been able to buy 100 shares or sell naked puts on AAPL with just the $10,000. About $17000-$19000 of equity is needed, so I wouldn't have been able to buy AAPL as early as you indicated.


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## GOB

Wow, this is really unbelievable. I've never been so annoyed with making money! Most valuable company in history...amazing, yet totally predictable years ago.

*Aug 20*

Bought to Close: 1 AAPL 24AUG12 $640.00 P: -$306.06 (Total profit +$193.31)
Sold: 1 AAPL 24AUG12 $645.00 P: +$413.93
Bought to Close: 1 AAPL 24AUG12 $645.00 P: -$215.06 (Total profit +$198.87)
Sold: 1 AAPL 24AUG12 $655.00 P: +$455.93

I have to look at this in perspective. Despite the fact that I could have easily made thousands of dollars if I bought the stock and sold calls, I'm still making outstanding gains by sticking to my strategy. This is really a unique move. A retracement could be just as vicious to the downside, and it could put me in a tricky spot. Let's see what happens.


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## Lephturn

Are you calculating your ROC - Return on Capital - or really in this case return on margin tied up? When I start doing that I end up selling various spreads as it gives me a better return with less risk.

In terms of short put = stock + selling CC's - really that's only "at expiration" if you don't adjust the position at all. It makes more sense in terms of risk, as a short put is equivalent to long stock + short call from a risk perspective if the security moves against you. Again - insert the works "at expiration" and in terms of maximum potential loss. In reality there are the rest of the greeks to worry about - so when you are short a call and the stock moves down quickly you will also get hurt by a jump in volatility as well short gamma quickly accelerating your short delta position.


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## GOB

I'm calculating the return on the equity I've put in. Basically that's how much I stand to lose so my gains should be measured against that. Even if I have $40k tied up in margin, the liquidation value of my account is the most accurate measuring stick, I think. 

What kind of spreads do you recommend? I have done a few but they were mostly relatively safe plays made either far out of the money or at times when AAPL was very undervalued. While I'll continue to do these as the opportunity arises, I've changed my strategy somewhat to get a more consistent weekly and monthly cashflow. How would you recommend incorporating spreads into this strategy?


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## humble_pie

hey Lilliput is doing great. You know what they say, gob. Never look back, never look off-course, never what-if, never second-guess ...

actually, retracements imho are nearly always faster & more brutal than the harder climb upwards. After exercise at 655, a mere downward dip of 10% would drop aapl back to 590; 15% & stk would be down to 557 & one might have to start worrying about the margin.

i didn't look at call prices but they must be dazzling. Cash from a call sale will help the margin.

it's great how you're sticking to your guns. Superficially it does appear that Lilliput would have done better if exercise had occurred the 1st week. But it's been a record-busting month & one swallow does not make a summer. Six short weeks of Lilliput are not enough to generate any predictable pattern.

meanwhile, it looks like coasting along selling short puts might harvest $500 or more a week, or at least 2000 a month. Soon - assuming no assignment - you'd be able to sell 2 puts. No matter what, life is sweet in Lilliput.


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## Lephturn

GOB said:


> I'm calculating the return on the equity I've put in. Basically that's how much I stand to lose so my gains should be measured against that. Even if I have $40k tied up in margin, the liquidation value of my account is the most accurate measuring stick, I think.
> 
> What kind of spreads do you recommend? I have done a few but they were mostly relatively safe plays made either far out of the money or at times when AAPL was very undervalued. While I'll continue to do these as the opportunity arises, I've changed my strategy somewhat to get a more consistent weekly and monthly cashflow. How would you recommend incorporating spreads into this strategy?


Well, I simply look at what my ROI would be and when I'm selling a naked put for example, I'll look at what happens if I buy another put further out and turn it into a spread. Even if it's a REALLY wide spread, simply doing that will often get me a better ROI such that I free up more margin for another trade - or failing that I can sell 2 spreads sometimes instead of just 1. Otherwise it's all situational.

Too bad I work all day - if I had the time to get my call back spread on last week I'd be way up. OH well. The reason I say a back spread is that by selling a call back spread I'm short an ATM call and long two further out calls. That spread works well in a low volatility environment so long as you give it enough time to work (I like 60 days or more). In AAPL that usually means a very small loss worst case if it goes down, with a loss hole between the strikes and then a wide open upside. Just what I like for a stock like this that could really run. The bonus is that it's great when vol is low and when the stock moves the vol increases. With volatility that low chances are even if the stock goes down you can make some money as the vol pops.


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## humble_pie

Lephturn said:


> ... when I'm selling a naked put, for example, I'll look at what happens if I buy another put further out and turn it into a spread.


i find it hard to agree with this, because the sequence of short puts in Lilliput are not being sold for their own sake. Each is sold purely to trigger exercise. It's a bullish strategy. To buy a different put to pair with the first that was sold would be to add a bearish torque. And i don't see that there would be a good reason for this.

because even if a put is bought, & if the stock is assigned, & if the stock then drops sharply, gob will not be able to exercise that put. Why not ? because he will need to hang onto the stock to cover the short call that he sold when the stock was first assigned ...

(it's true that he could exercise the put & end up with a naked short call in aapl. Which, even for Lilliput, would be totally cray-zee, imho.)


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## GOB

I've got to admit some of this stuff is a little over my head. I'm relatively new to options but I make sure to fully understand the plays I make. Options are amazing - there's so much you can do with them and you two seem well versed in various techniques and I thank you for contributing. humble_pie is right that this is a bullish play and I am actually indifferent to or even seeking assignment. A good chunk of the returns I expect to get are from getting assigned, selling covered calls on my underlying share and getting those premiums in addition to a $5-20 per share capital gain. 

I will soon be adding to the account so I have more breathing room for margin (and so that I'll be able to trade two lots more quickly). Probably another $9500 to bring my total deposits to an even $30,000.

In all honesty, no matter what my "potential" gains would be, if I can get a consistent $1000-2000 per month from a portfolio this size, I'd be EXTREMELY happy. And I think it is possible, though periods of drawdown will be inevitable. If AAPL ever does make a big retracement I'll be adding LEAPs that will juice returns even further. Win or lose, these upcoming months are going to be extremely interesting!


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## humble_pie

gob i apologize if we are focusing too much on your account. The thing is, it's a perfect teaching module because of its tiny size & also because of its time compression. Every move you make shows up in magnification.

& let's spell that word magnificent. You're making all the right moves, although i suppose this is what we should expect from you, you've posted here long enough to earn your marvellous reputation.

moving on to lephturn's long put suggestion - which you have not done - this would serve as insurance if aapl shares are assigned & if they subsequently plunge in value. After such a plunge, you wouldn't be able to - or at least you should not - exercise the put because such a move would leave you with a naked short call, which is the riskiest option position of all.

however, such a long put acting as insurance would have value because its price would soar. You could sell this long put insurance for good cash ... if ... but only if ... you would be assigned 100 aapl shares for 655, say, but price would crash to 580, say.

myself i don't think i'd do this. I wouldn't spend the $$ to buy the put in the 1st place. Because there already is a hedge of sorts in Lilliput.

the hedge is Lilliput's tiny size & its segregation from the mass or bulk of your portfolio. Gob, you are, i believe, already long aapl shares which have gained immensely. At least, this is how i've read your posts under the aapl thread. By splitting off a small fraction of $$ & creating Lilliput as a pilot project, you've already hedged. You didn't use your master account & pledge everything to a brand-new option program. Instead, you carved out just a small manageable portion of cash & used it to seed Lilliput.

i'm hoping enthusiasm won't induce you to add more cash to Lilliput in its early stage than you can afford to totally lose. Done right - steady as she goes - Lilliput is a strategy that means buying lower, selling higher, always with an added premium, forever & ever. It's a strategy that can last you for the rest of your life.


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## GOB

I appreciate the comments and welcome the focus on my account! I made the thread for people to look at and comment on, so please don't apologize. 

I'm not sure if I'm interpreting correctly, but you've alerted me to the possibility of selling a put after I've been assigned. This would provide me a bit of downside protection. I wouldn't end up with a naked call because I'd have the underlying shares and a covered call. An interesting point, and depending on price action I may decide to test it out - that is, if I ever get assigned (it's up to $670 pre-market...). 

You are exactly right about the segregation of this portfolio. I am very long on Apple in other portfolios and have already cashed in a bunch of options and am still long a few that are quite deep in the money at this point. I have been very successful so I decided to redirect a portion of the proceeds to test this strategy out. As risky as it is I don't see myself losing too much from it. I will be funding more, but be assured it is money I don't need and don't mind losing. 

I guess I'll do another flip this morning to add another few dollars this week...we'll see how early trading goes.


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## humble_pie

GOB said:


> I'm not sure if I'm interpreting correctly, but you've alerted me to the possibility of selling a put after I've been assigned. This would provide me a bit of downside protection. I wouldn't end up with a naked call because I'd have the underlying shares and a covered call.



no, not quite. Think ahead & imagine the various scenarios.

lepht's suggestion was to buy a long put as insurance against downward crash in aapl if you would be assigned. So that's what i talked about in couple previous posts.

now you are mentioning selling another put after you've been assigned (is everyone on board here ? after gob will have been assigned his existing short put, he will have zero puts. He will, however, commence selling a short call against the new shares.)

yes of course you could sell another put, as soon as the margin position supports it. You could even sell it right now, if margin would permit, which would mean you'd be short 2 puts, possibly with different strike prices. Or you could sell it after any assignment that might occur.

caution: please think about the margin here. I believe that you could probably top up the margin with additional cash at any time. Who knows, possibly you might have enough cash or other securities to inject into Lilliput that would permit you to sell 10 or 20 puts.

but my gut feeling is telling me that we are approaching the danger zone here. Everything is fine with Lilliput still in its original micro-dimensions. But the addition of more cash & more options might put you at high risk in a downturn.

what i'd like to see happen is for you to move through a complete cycle or 2 in the Lilliputian stage, so you experience the consequences on margin of assignment plus short call, etc, while the small size is keeping you safe. Meanwhile looking around, at every stage, at all the option possibiities & all the shifting relationships in option prices, just as you are doing.

upthread you mentioned that you never do any option trade without understanding it fully. I really applaud this. In options, experience. is. the. best. teacher. What i'd like you to have is the experience of a full cycle or 2.

(i don't know if lephturn will read this part of the thread, but if i could make a feeble joke, lepht is the only option trader i ever knew who did read the giant teaching bible MacMillan on Options & actually survived to trade them successfully in real life.)


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## GOB

Sorry...I meant buying a put after assignment as downside protection.

Your advice is well taken and I appreciate it. I am not going to do more than two puts at a time and that will only come after good profit has been made. I think it is actually safer though that I round off the account to $30,000 so that I can comfortably stomach a 50+ point drop


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## humble_pie

you could buy a put.

but then we're back to earlier comments. You couldn't exercise the put if assigned aapl shares crashed because you'd be left w naked call. You could sell it for cash, though.

however i thought you were bullish long-term ... btw bullish would mean selling a call with a higher strike price, if you do get assigned ...


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## Lephturn

I'm speaking of doing spreads instead of owning the underlying outright. I know that's what your doing GOB, but personally I can't swing 100 lots of AAPL - IB gives you much more margin leverage than OX gives me - I've only got 2:1 on the equities side. For me it means I can't take the assignment so I'm selling a spread instead. When selling a put spread I'm still bullish of course but tying up much less margin than I would be selling the naked put, so I can sell more put spreads or I can do other trades with that $.

Now that you are long the underlying, I would be careful selling puts. If you have another 10-20k to dump in if you need it that might be fine - you can take the assignment if you have to. I still may buy some "units" - that is far out of the money puts - like 5 delta. Something that will be quite cheap, and if AAPL has a correction will likely skyrocket in value. This way if you DO have to take assignment and the stock blows down through your PUT price, you will have some protection. The units won't do much for you on small corrections or consolidations, they'll only really pay off if it takes a big drop and volatility jumps up. For me it's worth it to have a little bit of cheap insurance out there to protect against those account-eating big drops. I know it's AAPL and I'm very bullish the company myself, but I still want some insurance against a massive loss.


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## GOB

*Aug 21*

Bought to Close: 1 AAPL 24AUG12 $655.00 P: -$261.06 (Total profit +$194.87)
Sold: 1 AAPL 24AUG12 $670.00 P: +$743.36

Well, looks like I may finally get assigned. Let the games begin! 

Lephturn, I'm not yet long underlying shares. You are right that I won't be selling more outs if that were the case. I only have enough margin for a single position at this point. If we close this week below $670 I should get the shares and I'll write a covered call for next week, likely for a strike price between $670-$685, depending on the action and the premiums.


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## humble_pie

(EDIT i just deleted a sentence that was totally wrong. Options can do this to people. Buy ? Sell ? it's easy to shoot oneself in the foot)

you can write the cc as soon as you're assigned, although you won't get the confirm until the following day. If aapl closes ce soir below 670 you will be assigned overnight. IB should confirm to you before market opens tomorrow. You could be ready to sell call immediately.

never mind that technically you'd have a naked call for couple of days; you should be a level 4 or 5 by now & IB trading platform should know expertly how to handle this. It should instantly recognize that the naked call is being offset by the incoming shares which have not settled yet, so it should adjust the margin accordingly. Naked call for 2 days until shares settle should be fine.

meanwhile you might want to line up some call possibilities that you could sell & begin tracking em. I don't know if you will be doing the weeklies or what. Whatever. Bullish means a higher strike price, especially if you skip weeklies & think markets could rise sharply after labour day. When in doubt between a) option or b) option having similar IVs, i always go for the more liquid contract, ie more open interest.


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## Lephturn

Wow - looked like a sure thing to be assigned this morning - then down to $ 650 - now headed up but you might still be OK.


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## humble_pie

applying the formula, it doesn't look as if assignment of the 670 put will occur ce soir because at the close there was still just over $2 remaining in the premium.

_PUTS: when (strike minus stock) > option bid = risk of assignment_

670.00 strike - 656.06 closing price = 13.94.
option bid at close was 16.00, so 2.06 remains in the premium.

however, it was a crazy day with 19,570 aug 24 670P traded. I don't believe there's any way to know if some parties exercised early today, for particular reasons of their own.

so gob's put could survive another day. Possibly all the way to expiration friday.

or gob might ratchet down his 670P tomorrow, or even on thurs or fri, which alas would cost a few $$.


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## GOB

Isn't it true that as long as the option isn't "deep" in or out of the money, that there will always be a time premium attached to it until expiration? This is why I expected to get assigned on Friday. Although your numbers and theory are correct, does it often happen like that?

Amid all the AAPL hoopla, I forgot to mention that I closed out my remaining KCG puts:

Bought to close: 2 KCG 22SEP12 4.00 P: -$240 (Total profit +$80)

I now have 100 shares of KCG that got assigned to me at the end of last week. I'll try to find a call to write on it today. It's now become a fairly insignificant part of this portfolio but I'll still play it like I envisioned.


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## humble_pie

this is a bravura performance. Félicitations !

i got carried away yesterday when i saw aapl plunging & thought of early assignment, but at the close there was plenty premium, as you say, to protect the put from assignment.

are you thinking of ratcheting the 670P down ? it's funny how different people are & how many option styles can evolve & how they can each be successful according to the trader's profile. Me, i'd ratchet down. But i imagine you are a person who will go through with the 670, advienne que pourra.


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## GOB

I won't be ratcheting down. Although being down 20 points represents a $2000 unrealised loss and seems high, AAPL can recover that amount in a day, as we've seen. I've already collected a couple thousand worth of premiums and will continue to write calls if/when I get assigned. 

It does feel a little risky holding at near an all-time high but all the stuff in the pipeline, I have full confidence we'll see $700+ by early next year or sooner.


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## Lephturn

GOB said:


> Isn't it true that as long as the option isn't "deep" in or out of the money, that there will always be a time premium attached to it until expiration? This is why I expected to get assigned on Friday. Although your numbers and theory are correct, does it often happen like that?


What I like about humble-pie's simple formula is that it ignores the theoretical and simply calculates the intrinsic value and compares it to the bid price. Of course that bid could jump up as the stock moves or somebody decides that this is a cheap gamble into the close, but basically nobody is going to buy the option and exercise it unless it's financially better than just selling the stock in the market.

In something other than AAPL that has far less volume I might worry about being assigned when there is still a few cents left in the option. This is because sometimes there is better liquidity in the options than in the stock - so for example if I wanted to dump my shares into the close but it's enough volume that I could potentially move the share price (lower volume stock) I might choose to pick up an option that's very close to the money and exercise it. I've not experienced this myself - but that's because like humble I NEVER leave a short option open into expiration. I always put a limit order in to close that position for pennies even if it's FAR out of the money. It's not worth the risk for a nickel. For something that is close to the money like this and has more risk - I'll take 80% profit and I'll have a limit order set to buy it back with a nice profit. I might also use an OCO order to have both a limit and a stop-limit bracketing the current price so that if I'm green on the trade I can ensure a fast move against me won't turn it into a loss.


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## GOB

A very nice recovery so far. I may not get assigned at all! Weeklies are crazy but I'm loving it.


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## Lephturn

I'm not playing in the weeklies. Sold a nice little Oct 615 - 585 put spread. Full value will be a $ 600 credit - but I've already got a limit order in to close it for $ 500.

I let the vol get away too much to be able to do well with my back spread at this point. On pure direction my call back spreads that look reasonable end up not breaking even until $ 700 or so. I needed to get this on 2 weeks ago, but this is a new trade for me so I'm not ready to jump on it yet. I'm still working on how to choose the right contract and strikes to get what I need out of it. Next time AAPL vol is in the low 20's I'll be ready with it.


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## humble_pie

GOB said:


> A very nice recovery so far. I may not get assigned at all! Weeklies are crazy but I'm loving it.



this is why i like options. Not having total control. Not knowing the exact end point. Going with the flow. Spotting the opportunities. Adjusting here, hedging there. Seldom losing. Always something new. An endless dance party.


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## Lephturn

GOB said:


> I won't be ratcheting down. Although being down 20 points represents a $2000 unrealised loss and seems high, AAPL can recover that amount in a day, as we've seen. I've already collected a couple thousand worth of premiums and will continue to write calls if/when I get assigned.
> 
> It does feel a little risky holding at near an all-time high but all the stuff in the pipeline, I have full confidence we'll see $700+ by early next year or sooner.


If you do get assigned, you can always run a collar - buy a put to protect from a large drop. You can even buy a put spread to clean up some of the negative theta at a level where you would be really happy to be long - say a $ 600 - $ 550 put spread out a few months. Or as I talked about earlier you can pick up a far OTM unit put. A 5 delta Jan 12 AAPL Put is the $ 470 for about $ 5.00. Should AAPL take a big quick correction - especially as we get closer to Jan 13 - that put will jump up in value pretty quickly.


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## GOB

Lephturn, those spread premiums look very attractive. Once I get more margin breathing room I'm going to join you with some spreads to supplement these large naked put/covered call positions.


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## Argonaut

Remember with spreads you can collect more premium by tightening them up with more contracts. 615/600 with two contracts would have netted you more. 615/605 with three contracts more still.


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## humble_pie

argo are we forgetting the jam factor.

jam factor is increasing probability of exercise as strike price of an otm short put gets notched up towards the money.

me i don't like much jam in spreads.


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## Lephturn

Argonaut said:


> Remember with spreads you can collect more premium by tightening them up with more contracts. 615/600 with two contracts would have netted you more. 615/605 with three contracts more still.


Right now (stock at $ 668) the 625-585 has a better ROI than 3 x 615-605. The 3x 615-605 is almost identical in ROI and P/L to the 615-585 I put on yesterday. The single bigger spread has a bit more positive theta and a slightly lower negative gamma. The tighter spread does have lower negative vega - so that could be a positive if it takes a drop and vol explodes.

I suspect the lower negative gamma is the "jam factor" you are talking about humble_pie?

Thanks guys - discussing these spreads and how we do strike selection is really helping me learn how to do this better. With that in mind, how did I select these strikes? Well basically I looked at the volatility, OI, and the price change during the day of those strikes. I ended up choosing strikes to sell that had a lot of OI and were reacting to price changes in the underlying in a way that lead me to believe they were being bid up. IE I chose the 615 strike to sell because as the stock came down that strike lost the least - it was an outlier in the curve. I also look at open interest from a "max pain" point of view - so if there is huge open interest around a certain strike it often helps to bracket or even pin the stock in a certain range - sometimes on a certain strike if there is huge call and put volume on either side of a certain strike. I did something inverse of that for the purchase strike of 585.

Check this site out: AAPLPain It's something you should look at. You can always just use the OI from your brokerage to figure this out, but I like his graphics and commentary.

Thanks for pointing that out though Argo - I will be sure to try tightening up and looking at more contracts in the future.

How do you guys do strike selection when looking at a spread like this?


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## humble_pie

how would i select a strike price ? there are so many details i work on long before i look at mathy greeky.

most important to me is whatever forecast i can put together for the long-term prospects of the underlying. I use charts, fundamentals, insider trading reports, news plus whatever i can make out of sector or geopolitical news.

when selling, i'm an assignmentphobe, so next i'll look for options with high open interest. Meaning i can wriggle em more easily later on when the time comes.

this morning i migrated 21 bce short calls forward in time. The situation was messy because 14 of those were USD ditm september 40s with zero premium left & obviously these were going to be assigned.

i couldn't permit it. There would be a big capital gain that i absolutely do not want to take in 2012. In fact from now on i'll be looking for losses only. So preventing the september assignment was my top priority. 

i also had 7 other canadian short calls in bce with a higher strike price. These i was planning to pick up & roll at the same time, so as to sell only 1 forward position of 21 calls. Some housecleaning was in order.

my working assumption for the stock was that bce along with many other telcos is fairly fully-priced & will likely plod in 2013. But i wanted to keep the sector holding. I've just sold US verizon holding so the only other telco i have is spanish telefonica.

going from this sleeper forecast, there was severely limited choice of strikes to sell, both in canada & in the US. The triple position was going to wind up as a slight debit, although the 7 short canadians could be done as a credit. There was really no choice. Consideration of mathy greeky attributes never crossed my mind.

i worked my 3 short calls one at a time & got a great price (ie better than the natural) in each. Fishing was greatly helped by the falling price in bce throughout the morning. I sold 21 calls as a first move, because deltas of the short calls were falling faster (i chose this morning of falling bce prices on purpose) (i still had the luxury of a whole month left to make my move) (all premium had already been beaten out of the US september 40s.)

you can see how opposed our approaches are, lephturn. At no time did i pay one iota of attention to vol delta theta gamma etc. OK maybe vol & delta, but only slightly. I do read all of your posts with rapt attention, lepht, & i do thank you so much. I am hoping to learn a great deal from you, if you don't mind.


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## Lephturn

I think I've been learning more from you guys than the other way around!

I'm learning lots for my registered accounts - dealing with intelligently selling premium around my core holdings is an area where I have very little experience and I've learned a lot form you already humble_pie!

I read and research a great deal - but my work is mostly around my open trading accounts - so I am focusing on trading around volatility and theta mostly, with a heavy lean towards selling premium. In these accounts I don't plan to hold underlying at all. I will highlight that what I bring forward is mostly based on my reading and research, not so much on experience. One of the great things about this forum is that we are all sharing our knowledge and experiences. One of the main reasons why I am more confident with spread strategies in open accounts is that I have much more expience. Multiple trades a month in the open account, whereas in my registered stuff my trading frequency is really every 3-6 months. By the frequency of the trades alone I've just done way more spread trading than working around underlying.

What I like about this thread and the Options one is that I can bring things I've learned in a book and tried a few times - share it - and then you folks can jump in and teach more about using it in reality. It's excellent, let's keep it up!

Side note: I just discovered this: https://www.tradingview.com - cool looking free live charting site that's sort of a social network. You may wish to check it out.


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## humble_pie

lepht i would just like to say that when rolling forward short call spreads on long stock, the trick is to do these on a falling day. Gamma/theta work to lower the delta of the near-term call - the one that has to be bought back - more than they lower the farther-out call - which is the one to be sold.

in other words in falling markets the farther-out-in-time call retains its premium better, so it should be sold first; & then the trader waits while the near-term call drops in price.

the catch is that while he waits trader will have a naked short call in the farther option plus a covered call in the near option, so margin & broker have to be OK with this.

in calls i know all this beyond a shadow of a doubt. However in puts i haven't found the reverse to be working quite so well for me, at least i don't have a gut feeling for the number sequences yet, because i don't do as many of these.


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## GOB

No action for me today. I'm hoping Apple stays flat tomorrow and I get assigned. Premiums look quite good for $675 and $680 calls. $500 a week with the potential for $500-1000 capital gains on top of it is great for a portfolio of this size. 

Interesting discussion on options and the different styles. Myself, I rely more on my knowledge of the stock to play options rather than studying the greeks, which I know very little about. I can see that I could definitely refine and improve my strategy if I had the knowledge that you two have on options.


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## humble_pie

A-Day. Let's wish for the man of the hour that aapl closes ce soir at 669.50. Just a hair below 670. Because clearly he's chafing to take Lilliput to the next level.

gob one of these days it would be nice if you'd post up this account's value in US dollars. Just a simple figure, to compare with the USD 20,500 that was injected only a few weeks ago.

the loud whoosh we'll hear will be socks being knocked off.


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## GOB

Big day for this account. $669.50 would be awesome! 

You'll get your update at the end of the month. I try not to look at the numbers myself, just making sure my margin is ok. The value of my positions can fluctuate so wildly relative to my account that I feel like anything more frequent than monthly reporting would be rather meaningless.


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## Lephturn

humble_pie said:


> lepht i would just like to say that when rolling forward short call spreads on long stock, the trick is to do these on a falling day. Gamma/theta work to lower the delta of the near-term call - the one that has to be bought back - more than they lower the farther-out call - which is the one to be sold.
> ---snip---
> in calls i know all this beyond a shadow of a doubt. However in puts i haven't found the reverse to be working quite so well for me, at least i don't have a gut feeling for the number sequences yet, because i don't do as many of these.


Hmmm - do you think this is because of equity skew? IE: puts being more expensive than calls and with a different vol curve?


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## Lephturn

GOB said:


> Big day for this account. $669.50 would be awesome!


Hmmm - the way the open set up and the open interest is looking, it could pin $ 655- $ 660. Then again this thing can jump around $20 so fast, you never know. Looks like you have a good shot to get your assignment.


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## humble_pie

the way i see it, it's because in a down market, gamma/theta cause the price of the near-term call to drop faster than the price of the farther-out call. Both calls are dropping, of course, but the one that has to be bought is dropping faster than the one that has to be sold.

trader hustles to sell before premium drops too much in general market downturn. Then sits & waits while the broad drop drives down the Buy candidate more rapidly.

i usually have any spreads i'm planning to do coasting along on my radar. They will each have a fairly standard gap. On a down day, the spread between the farther Sell & the nearer Buy will improve by 10-30 pennies, maybe more. If a credit spread, the gap will increase. If a rare debit is being done, will decrease. Everything gets even better if one can fish skilfully, although the near-term Buy market is usually a lot more stubborn than the far Sell side. That's why i mostly begin with the far Sell, because fishing successfully for these will be more difficult.

i'm not joking when i say i like down days. each: they are when i get busy.


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## GOB

Wow, HUGE win for Apple vs. Samsung. Not the $1 billion in damages, but the implications it has for Samsung and the Android OS.

My $670 put was well in the money at market close, but AAPL is now trading at $675 after hours on the back of this news. Can any of the options experts confirm that I would have been assigned before the stock went out of the money? As far as I understand, though the option technically doesn't expire until Saturday, trading of the option ends at the latest an hour or so after market closes on Friday. Really hope I've been assigned as I am already +$500 on the shares and can write a juicy covered call on Monday if the price holds here.


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## Lephturn

I believe you are assigned.

The issue is, when did the holders of those puts have to give notice of assignment? All brokerages will automatically exercise if an option is ITM by a penny. I think they do this at the close, using closing price. I do not believe they will consider the after hours session. Good fortune for you!

I thought Apple would win, but I didn't think they would come back this fast.


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## humble_pie

unconfirmed opinion since i don't trade the weeklies.

my belief is that only some of the index options continue trading past 4 pm,
aapl is not part of this group,
aapl trading ceased yesterday at 4 pm sharp,
your put was itm, so yes it will be assigned.

ps i believe that those index options which do continue to trade afterhours all cease at 4:15 pm, unlike afterhours stock trading.


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## GOB

Thanks - that is great news. This is a better scenario than I could ever have imagined!


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## humble_pie

aapl news is streaming your way perfectly. Often i get the feeling options are like an elegant 17th century court dance. Chamber music.

the really fun part comes when a revolutionary mob invades the palace & the music stops. Now the challenges begin in earnest !


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## GOB

Oh, there certainly will be challenges. The way I'm trading, it's inevitable that I'll get caught at a top and Apple will drop $50+. Hopefully by then I'll have a lot of profit built up, and maybe be able to trade a second lower position while the first works itself out.

If Apple opens at $675, I wonder what strike price I should write my covered call at. I'm leaning toward $690 or $695, thoughts?


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## humble_pie

GOB said:


> ... covered call ... thoughts?



until trading resumes monday morning all weekend option quotes in aapl will be pegged to friday's 663.22 closing price, so i imagine they are all hopelessly too low. I don't know of any way to get an accurate picture of what all series all classes will look like on monday. Especially not if euphoria sets in early mon am.

roughly this weekend i'd be looking north of 700 & i'd be identifying the series with big open interests.

i have no clue why sep 22 calls are like 6 times the aug 31s, although they're only 3 weeks farther out, ie 3 more opportunities in the weeklies. Perhaps lephturn would have insight. Until more detail emerges i for one would be inclining towards the septembers - i know i know, it's not what you want to do each:


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## Lephturn

I suspect it is because the Seps are post the event Sept. 21 which is the iPhone 5 launch. Looks like the iPad mini launch won't be until Oct. sometime.


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## Lephturn

GOB said:


> Oh, there certainly will be challenges. The way I'm trading, it's inevitable that I'll get caught at a top and Apple will drop $50+. Hopefully by then I'll have a lot of profit built up, and maybe be able to trade a second lower position while the first works itself out.
> 
> If Apple opens at $675, I wonder what strike price I should write my covered call at. I'm leaning toward $690 or $695, thoughts?


If you get long the stock and end up with nice gains, I think you would be crazy not to collar it. Protect those gains!


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## GOB

I have been assigned! It's going to be an exciting week!


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## Dopplegangerr

Good work, keep us updated


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## GOB

After doing some research, I think I'm going to see how the open and the first couple of hours of trading play out before I write any covered call. A lot of smart people seem to think there's a good chance of opening in the high $670s and then gapping up $10-20 dollars in short order, even possibly hitting $700. $700 sometime this week is certainly plausible. I don't want to write a covered call too close to the money in case we have a banner week here. I may not write one at all, actually. I'll be playing it by ear.


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## humble_pie

they say a camel is a horse designed by a committee. Gob you are always gracious about it but sometimes it must drive you to distraction to have onlookers kibbitzing over your shoulder. It's hard enough juggling all the options in the air without having the back seat drivers chattering & nattering.

that being said, may i natter. Unlike lephturn, i never collar. Puts are hyper expensive to buy, especially in these times, especially when over an entire lifetime the general market trend is most likely to be up ... so why spend a ton of $$ hedgitting & fidjitting over something that's not going to happen ...

however. Given Lilliput's financial profile & margin exposure, i think i'd take up one of lepht's good suggestions. I'd be looking to buy a dirt cheap far-out-of-the-money protective put. A lifebuoy to use only in a black swan titanic sinking.

gob at what downside price point in aapl would margin be putting you at extreme risk ? 600 ? 580 ? worse ? what kind of otm puts can be found at these depths ? the good thing is that today they should be getting cheaper by the minute ...

your idea to cruise around today in option prices is perfect. I just hope you can spare the time from the day job. In your favour is that you're able to make first-rate decisions so rapidly.


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## GOB

It looks like my plan of waiting it out and assessing has backfired somewhat. Apple has flatlined and options premiums have gone down. I'm going to hold off for now and wait for a spike, possibly at tomorrow's open.

Humble, I'll address your questions tonight.


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## GOB

Full disclosure - I made a terrible mistake. Apparently, if you are holding stocks overnight, margin requirements double from 4:1 to 2:1. So while I had plenty of margin to sell puts and hold AAPL throughout the day once I got assigned, I did not have enough at the end of the day when margin requirements double. My $9500 deposit came through today so I thought I had tons of margin to spare - in fact, I have almost $60,000 of "buying power" remaining so I didn't have a worry in the world about a margin call. Quite confusing. 

Anyway, long story short, I got margin called. It's not really a big deal because my positions were in profit anyway, but IB sold 10 of my AAPL shares. I think I need about an additional $1200 to satisfy my overnight margin requirement. I've made a transfer but it might take a couple of days. I now need to figure out what to do and perhaps you guys can offer some advice. Here are my options as I see them:

1) Buy back the 10 shares at market open (maybe even at a lower price than the sell!) and find a covered call to write that will give me a $1200+ premium. This will probably have to be a September option if I want the strike to be $680+ unless we get a large pop tomorrow.

2) Sell my remaining 90 shares (for about $500 profit at the current price) and go back to my put selling strategy. If I get assigned again my additional funds should have arrived and hopefully I will not have to deal with this issue again. 

Would appreciate any advice. The ironic thing is that if I sold a covered call soon after the open when AAPL hit $680+ I may have had enough so that this would have never happened! But then again, I would have not known about it and it could very well have screwed me over down the road. It's well known that IB doesn't hold your hand and is quite a complex broker, and I knew that going in, so I have to take full responsibly for this mishap. Humble, your question about how much margin I could withstand was quite prescient...

Here are my transactions for today, a result of a mad confusing scramble to free up margin when IB gave me a 10-minute warning before market close - not the best way to trade...

*Aug 27*

Bought: 100 AAPL @ $670.00: -$67,000
Sold to Close: BuCS 1 AAPL 20OCT12 700/705: +$97.19 (Total profit $32.19)
Sold to Close: 100 KCG @ $2.7301: -$127.99 (Total profit -$7.99)
Sold to Close: BuPS 1 AAPL 19JUL13 490/495: -$54.26 (Total profit $44.39)
Sold to Close: 10 AAPL @ $675.73: +$6756.30 (Total profit $56.30)

Remaining open positions are as follows:

90 AAPL @ $670.00
BuCS 1 AAPL 19JAN14 625/630: -$176.53
BuCS 1 AAPL 19JAN14 670/675: -$151.50

Not quite what I had in mind, but I did say this would be an exciting week!


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## humble_pie

2gob i checked around a bit & i believe that you have been reading the margin regulations & requirements for US IB customers, not canadian IB customers.

daytime margin terms for canadian customers are a bit more harsh, being something like 3.3/1 instead of 4/1. It was suggested to me that, in order to comfortably support a small account holding 100 shares of aapl, you might need to have injected a total of something like 33,000 in cash. In addition, it's possible that selling a covered call against those shares might affect the margin. Plus i notice you have other positions in Lilliput.

won't you please give IB a call first thing tomorrow to learn more. Tel 1-877-745-4222. Because, you see, until margin is up to a comfortable level, you will be dealing with this same problem over & over again.

if i were in your place, i wouldn't make any decision about what option strategy to pursue until i had briefed myself thoroughly on the margin situation. Wishing you the very best.

EDIT: original version of this message referred to "overnight" margin in 2nd para. My bad, mea culpa. It should have said daytime.

all the more reason to go straight to the horse's mouth & contact IB directly.


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## GOB

I can confirm that my margin requirement for end of day is 2:1, so I would need $33,500 in equity to hold the $670 position. Adding the two spreads I have would bump it up to $34,500. Currently I have 33,298. I am leaning towards selling off and writing a put - it's safer.


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## humble_pie

but i'm still hoping you will call IB to iron out all the details because i also believe the 4/1 daytime margin rate is only for US clients & canadian daytime rate is less favourable.

also i believe true margin is *less* than what they call the buying power that's visible on an account. BMO is another broker that riffs about buying power. This may have something with an ADP mainframe system. It's quite misleading. TDW par contre means true margin as of close yesterday when it presents margin figures.


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## GOB

I did phone and also tried the chat. I know for fact initial intraday margin is 4:1 because my original $10,000 deposit gave me $40,000 buying power. Eventually I managed to get them to confirm overnight margin is 2:1 and that they are really being misleading by not displaying that margin in the Margin tab of their iPhone app. This is why it took me by surprise - I regularly look at my margin and they were all positive by a lot. Oh well, I should have known better. 

*Aug 28*

Sold to Close: 90 AAPL @ $673.63: +$60,626.70 (Total profit $326.70)
Sold: 1 AAPL 31AUG12 $670.00 P: +$500

Back to the bread and butter. I feel a bit stupid for very thing that's happened but mistakes are the best way to learn . Glad I still ended up in the green...thanks Samsung!

Thanks humble as always for your help and concern.


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## humble_pie

hey you're still dancing each: you haven't missed a single step


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## Lephturn

GOB said:


> I did phone and also tried the chat. I know for fact initial intraday margin is 4:1 because my original $10,000 deposit gave me $40,000 buying power. Eventually I managed to get them to confirm overnight margin is 2:1 and that they are really being misleading by not displaying that margin in the Margin tab of their iPhone app. This is why it took me by surprise - I regularly look at my margin and they were all positive by a lot. Oh well, I should have known better.
> 
> *Aug 28*
> 
> Sold to Close: 90 AAPL @ $673.63: +$60,626.70 (Total profit $326.70)
> Sold: 1 AAPL 31AUG12 $670.00 P: +$500
> 
> Back to the bread and butter. I feel a bit stupid for very thing that's happened but mistakes are the best way to learn . Glad I still ended up in the green...thanks Samsung!
> 
> Thanks humble as always for your help and concern.


Yikes - well at least you were close on margin and they only sold off 10 shares! They way it worked out you would have been in great shape if they had blown out all of your AAPL at the open yesterday - but that's hindsight for you.

This is why I trade spreads - I don't want to be assigned. To me the ROI on 65k of cash and margin isn't worth it.


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## GOB

*Aug 30*

Another day at the office...

Bought to Close: 1 AAPL 31AUG12 $670.00 P: -$226.06 (Total profit $274.31)
Sold: 1 AAPL 31AUG12 $675.00 P: +$404.37

AAPL has been a bore this week. Very surprising given what happened on Friday after hours. Depending where we open tomorrow, I might get out of my current put and roll it forward a week, either at $670 or $675. Bernanke and Jackson Hole could send the markets in either direction so it's a good time to be cautious.


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## humble_pie

GOB said:


> *Aug 30*
> 
> Another day at the office...
> 
> Bought to Close: 1 AAPL 31AUG12 $670.00 P: -$226.06 (Total profit $274.31)
> Sold: 1 AAPL 31AUG12 $675.00 P: +$404.37


:biggrin:

wondering where that 2nd 31 aug 670P came from. Perhaps you had it tucked away somewhere behind the front lines ?


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## Lephturn

I'm nervous to get into anything before Jackson Hole. Still sitting on my little Oct 615-585 put spread and it's up $ 200.

IV seems to be ramping on the market running up into Jackson Hole, VIX cash has been climbing steadily. If you got the stones for it, you might do OK selling premium here if you think Jackson Hole will wind up being a "meh" and we won't go anywhere.


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## GOB

humble_pie said:


> :biggrin:
> 
> wondering where that 2nd 31 aug 670P came from. Perhaps you had it tucked away somewhere behind the front lines ?


That was my only put - see my Aug 28 post. I got into that put after I sold my shares.


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## GOB

Bad day. I'm just going to hang on at this point.


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## Lephturn

GOB said:


> Bad day. I'm just going to hang on at this point.


The day isn't over yet! You'll still have tomorrow as well, so who knows. Running this close to the money you are going to get picked off eventually - even in AAPL. I thought you were hoping for assignment?

I'm hoping we drip down $ 650 or so, it would be a nice entry.


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## GOB

Yep, I don't mind assignment. I now have the margin to hold on. Just a little weary about Jackson Hole, is all.


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## GOB

Since I've had a very successful month I decided to take a loss in order to lessen my risk ahead of tomorrow. Not sure if it was the right decision, but a lot of my moves are made in the spur of the moment and a lot is based on gut feel. Only time will tell. 

*Aug 30*
Bought to Close: 1 AAPL 31AUG12 $675.00 P: -$1075 (Total profit -$671.69)
Sold: 1 AAPL 07SEP12 $670.00 P: +$1084.36


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## humble_pie

taxwise the aug 675P did produce a small loss.

however the way i think of pairs such as the pair you did today - the other side being selling the sep 670P - i think of their net return as the real deal. Because that's how they affect cash & margin in the account.

seen from that perspective your move today created a small gain in cash. Looks like 9.36. A smart move imho. It will also give you a slight break from the hectic pace, which might be nice.


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## GOB

Thanks, that's the way I looked at it as well. A move to reduce that comes at no real cost, just a possible lost opportunity cost.


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## GOB

*August 2012 Monthly Update*

What a month! Some good trades, a stupid margin call, and crazy AAPL movement with all-time highs reached and fairly sharp retracement following.

August 2012 Starting Balance: $20,889.68
August 2012 Ending Balance: $23,446.72
August 2012 ROI: 12.2%
Total ROI to date: 14.4%
Annual projected ROI: 86.4%

Needless to say, I'm pleased with the results so far. I'm not expecting to continue at this torrid pace but we'll see what happens.

I have deposited additional funds that recently arrived in the account because of the updated margin situation, so my starting balance going into September will be $35,966.63 (with a total deposit of $33,000).


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## Dmoney

Fantastic monthly ROI... Keep those numbers running and you'll be a billionaire shortly .

Do you plan on sticking with just Apple, or broadening the portfolio out? I know this is just one component of a broader portfolio, and AAPL is an ideal stock to run this strategy on.


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## GOB

It's not restricted to AAPL but at this point I don't have the time to focus on anything else in addition. Also, there is the issue of margin - if I get assigned I will not have much room for other positions. As my account increases I definitely plan to get into other stocks as well. 

Right now though, I'll largely carry on doing what I'm doing. Can't argue with the results, so why mess with a good thing?


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## Dmoney

That's what I figured. I suppose with the short-term trading it stays exciting enough with just one stock. 
Trading a few months out each time leaves me pretty bored even with a handful.


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## Dopplegangerr

Wow fantastic job GOB. I look forward to reading this post every day. Keep up the good work


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## GOB

Well, it's official. Apple is holding an event on September 12 and it looks like they'll announce the iPhone 5. I thought they would call it "the new iPhone" just like te iPad but at the end of the day it's just a name. 

My $670 Sep 7 put sell is up around $500 right now. I'll hang on for now and probably make a decision on flipping it a little later on in the week. I don't want to play things too aggressively right now since we're close to all-time highs and also because AAPL tends to sell off after iPhone announcements. The announcement never lives up to the crazy hype, but once the sales numbers come in the stock goes on a tear.


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## GOB

Two days to expiry and AAPL is hovering right around my strike price. This is the perfect situation for my strategy - outstanding gains while the stock remains flat or rangebound. My short $670 put is up $659 right now. Tomorrow morning the Sep 14 weeklies will be released. Depending where we open I may book this profit and roll forward another week. If we open lower I'll likely hang on - don't mind getting assigned at $670 for iPhone announcement week.


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## Lephturn

I am still wondering if they are going to pull a surprise at some point with the TV.

Nice gain this week. I'll take a look tomorrow at the weeklies for something to sell. I need to look at the HV and IV - if we ramp into this event on the IV I may have missed my chance. Maybe a reverse iron condor if it hasn't moved up much yet and liquidate just before the announcement.


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## humble_pie

GOB said:


> My short $670 put is up $659 right now.


i'm lost in the deep dark woods. If the put is up 659 it would cost plenty $$ to buy it back, no ?


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## GOB

Sorry, perhaps my wording was confusing. I mean the profit on my sold put is currently $650 - sold for $10.85 and currently at $4.34.


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## humble_pie

yes, this was the other way to interpret your posts. Just wanted to make sure.

du tonnerre !


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## GOB

*Sep 6*

Bought to Close: 1 AAPL 07SEP12 $670.00 P @ $2.55: -$256.06 (Total profit +$828.30)
Sold: 1 AAPL 14SEP12 $670.00 P @ $10.20: +$1019.34


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## humble_pie

hmmmn i'm wondering if the short put rule might get proven if the aapl option experiment were to last a reasonable trial period, say one year. So far, trial period has only run 7 or 8 weeks. During this period, AAPL shares soared from 600 to 675. This short-term trial result has knocked the short put rule askew.

what we might be seeing now is re-emergence of the validity of the short put rule:

*short put = (long stock - short call)*


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## Lephturn

humble_pie said:


> hmmmn i'm wondering if the short put rule might get proven if the aapl option experiment were to last a reasonable trial period, say one year. So far, trial period has only run 7 or 8 weeks. During this period, AAPL shares soared from 600 to 675. This short-term trial result has knocked the short put rule askew.
> 
> what we might be seeing now is re-emergence of the validity of the short put rule:
> 
> *short put = (long stock - short call)*


I think you are seeing the variations in results based on where implied volatility is and how it moves. Nice premiums right now as we run up to the Sep 12th announcement - then the vol comes out for a while and the premiums may shrink appreciably.

Me - I'm looking at doing a reverse iron condor tomorrow. I'm going to price it tonight - the idea being to see if I can find something nice to buy late tomorrow after the vol has been sold off for the weekend so I don't pay for that theta but I have more time for news that could move it. This would only be a three day trade betting on the vol to pop more. I have to look at the vol surface and the skew tonight - I might be too late or it might not work in weeklies.

Me'h - maybe I'm over complicating this and I should just buy a call vertical.


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## humble_pie

Lephturn said:


> Nice premiums right now as we run up to the Sep 12th announcement - then the vol comes out for a while and the premiums may shrink appreciably.


exactly, that's why i was thinking a trial period of at least a full year is really necessary.

lepht whatever you do, i wish you huge success.


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## GOB

humble_pie said:


> hmmmn i'm wondering if the short put rule might get proven if the aapl option experiment were to last a reasonable trial period, say one year. So far, trial period has only run 7 or 8 weeks. During this period, AAPL shares soared from 600 to 675. This short-term trial result has knocked the short put rule askew.
> 
> what we might be seeing now is re-emergence of the validity of the short put rule:
> 
> *short put = (long stock - short call)*


Interesting theory. We may end up seeing my actions follow the rule, or we may not. As we have already seen, when the stock rockets up my strategy is less effective than simply holding long shares. However, when the stock is stagnant my strategy outperforms. For this reason alone one cannot assume my portfolio will track the equation all that well. Apple has potential to be rangebound for six months, which I am counting on happening sometime next year. I hope such an occurrence would be advantageous to my strategy. 

I started this journal a couple of months ago, but I only really started dealing with the big-money AAPL puts in mid-August. So yes, it is extremely early to be analyzing data. Keep the discussion going though, it's great.


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## avrex

GOB said:


> *Sep 6*
> Sold: 1 AAPL 14SEP12 $670.00 P @ $10.20: +$1019.34


wow, the weeklies are fascinating, aren't they. Look how fast this loses extrinsic value.


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## GOB

They really are amazing - floating profit of $424 already. I think selling is the way to go for weeklies.


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## Lephturn

GOB said:


> They really are amazing - floating profit of $424 already. I think selling is the way to go for weeklies.


The problem is that with the risk/reward ratio - it works until it doesn't, and when it doesn't it REALLY doesn't and can wipe out many profitable trades.


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## GOB

Lephturn said:


> The problem is that with the risk/reward ratio - it works until it doesn't, and when it doesn't it REALLY doesn't and can wipe out many profitable trades.


It could happen, but as long as I have the margin to support a large unrealized loss on the shares, I'm confident AAPL will be much higher in the future. That's the premise I'm trading on. Of course, during that time my income stream from the portfolio will drastically reduce but the idea is I won't have to take a loss unless there's a catastrophic event of some kind, even if I'm stuck deep in the red for a few months. In that sort of scenario I plan to get into some long term LEAPS and spreads which will be dirt cheap and have a good chance of paying out for some multibagger gains. 

As soon as I think AAPL is fairly valued or their growth and performance is more uncertain, I will either be much more careful or find a new stock to repeat the cycle. It will be incredibly difficult to find such a stock that is undervalued, growing so rapidly, and has such liquidity with excellent premiums, but who knows what the future has in store. 

I'm hoping AAPL continues to trade largely reactionary to trailing earnings, with next to nothing attributed to future growth. If this is the case I expect to be able to do this for 2-3 years longer, which can amount to quite a large sum of money. A 16 P/E for one of the most powerful and fastest growing non-startups in the world is still an incredible deal, after all. Not to mention the $120B in the bank as a nice safety net.

I'm anxious to see where we'll open tomorrow and how the week is going to play out. A lot of people are calling for $700+ next week but I think that may be a bit overzealous. I'm definitely not going to trade like it will hit $700 because that would be too risky. Ideally the stock will sell off slightly after the announcement and close around my $670 strike price. It should be a volatile week.


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## Dopplegangerr

Couldnt you take out some black swan insurance with a far off expiration date to cover you threw all these weeklies if the worst were to happen?


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## GOB

Dopplegangerr said:


> Couldnt you take out some black swan insurance with a far off expiration date to cover you threw all these weeklies if the worst were to happen?


I could do that, but even far OTM puts are quite expensive. I'll wait for Jan 2015 options and $700+ and take a look then. 

Looks like we won't be seeing $700 this week. Part of this drop is due to people getting ahead of the typical "sell the news" trend that iPhone launches tend to have. The other part may be the patent allegations going around. Samsung has said they will immediately sue Apple if the new iPhone has LTE. HTC has also validated their LTE patents (but have not proven infringement). Both these cases (as far as I can tell) are very similar to the assertions that Samsung lost in the last trial - standards essential patents that are already licensed to chip providers such as Intel and Qualcomm that have Apple as a customer. They are trying to double dip and cast Apple as an infringer when they are doing nothing wrong. Bottom line, it's an abuse of the patent system and has almost no chance of holding up in court. If patent concerns are cause of the selloff, it may continue a while longer and make a great buying opportunity.


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## humble_pie

although it looks to me like aapl options are cycle 1 (ie the primary cycle is jan-apr-jul-oct) & therefore the 2015 leaps should be out soon, nevertheless my observations have always been that newly-issued US leaps for the farthest years are always afflicted with Severe Montreal Syndrome in their first few months.

in other words they have humungous spreads, are not liquid & basically are nothing to play with. With other US leaps, it would be typical that 2015 spreads don't become normal until liquidity builds up, which is usually after january of the new year ...

however with aapl everything is compressed & exaggerated. Who knows, maybe the 2015s can get over Severe MS in a couple of weeks.


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## GOB

They will probably be expensive at the start but I don't think the spreads will be bad. There will be some pretty decent volume for AAPL. 

Terrible day. Hoping $660 holds...


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## GOB

*Sep 13*

Bought to Close: 1 AAPL 14SEP12 $670.00 P @ $2.20: -$220.68 (Total profit $798.66)
Sold: 1 AAPL 21SEP12 $675.00 P @ $9.40: +$939.30


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## GOB

Apologies for the lack of an update. I made a couple more trades last week trying to catch up to AAPL's incredible run

*Sep 13*

Bought to Close: 1 AAPL 21SEP12 $675.00 P @ $6.25: -$626.06 (Total profit $313.24)
Sold: 1 AAPL 21SEP12 $680.00 P @ $8.40: +$838.92

*Sep 14*
Bought to Close: 1 AAPL 21SEP12 $680.00 P @ $3.75: -$376.06 (Total profit $462.86)
Sold: 1 AAPL 21SET12 $690.00 P @ $7.05: +$703.93

Apple is up today in a down market, just missing the $700 mark. 2 million iPhone 5 preorders (sold out in an hour), inevitable massive lineups this Friday, and an all but certain upcoming iPad Mini announcement, all going into the always strong holiday quarter. There is a long way to go for this stock, but I am hoping for a less rapid rise, for my own greedy reasons. 

The reason I'm not concerned too much about Android is that profit share for Apple is much higher, and also iOS devices are used far more than their Android counterparts. Though iPhone market share is relatively low, their share of web traffic is much, much larger. iPads account for 91% of tablet web traffic. This leads to the conclusion that in general, people who actually use their mobile devices choose Apple. That tells me all I need to know.


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## Lephturn

My way way WAY more conservative trade closed today.

08/22/2012	O	STO	AAPL Oct12 615 Put	1	$12.98	$7.47 $1,290.50
08/22/2012	O	BTO	AAPL Oct12 585 Put	1	$6.99 $7.48 ($706.48)
09/17/2012	O	BTC	AAPL Oct12 615 Put	1	$1.89 $7.48 ($196.48)
09/17/2012	O	STC	AAPL Oct12 585 Put	1	$0.94 $7.47 $86.52

Total Realized Gain/Loss for AAPL	$474.06

The column between the option price and the total in/out is commissions and fees. I had an order sitting there to close it when I had about $ 500 of the possible $ 600 in the bank. 
That is % 19.91 Return on Margin. That does not mean I borrowed on margin - it means I had to set aside $ 3,000 in cash that I could not invest or trade - less the $ 619.96 credit I took in initially. So my return was $ 474.06 / $ 2,380.04. A good return for 27 days.

Looking for a new spread now. I was too slow on doing my ratio backspread prior to the announcement - it started running on me about a week before I thought it would. Oh well.


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## GOB

Nice trades Lephturn

*Sep 18*

Bought to Close: 1 AAPL 21SEP12 $690.00 P @ $2.68: -$268.68 (Total profit $435.25)
Sold: 1 AAPL 21SEP12 $695.00 P @ $4.25: +$424.31


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## humble_pie

aren't these beautiful. This thread is one of the best options teaching modules i have ever seen.

look how lephturn is taking in close to $500/month while tying up almost no capital & not spending very much time. Effortless.

look how gob is taking in close to (gasp) $500/week. He's tied up more capital - about 35k i believe - but he's got an exceptional strength that 99.9% of us lack. I for one certainly don't have it. Gob can make the right decisions so fast you'd never be able to see him move. Personally i don't think he's using an iPhone. I think he receives data direct to the brain & beams his orders to the broker. Effortless.

bravo, both.


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## GOB

Thanks humble, very kind words. I'm confident in my trading but I still think the real challenge is yet to come - when I'm holding shares in the red. 

If you think my decision making and trading speed is good now, wait until I get the iPhone 5 with LTE! :biggrin:


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## AGHFX

I have a question for, I guess anyone who is active in this thread. I've been following it for a while and I find GOB's journal pretty inspirational. I would create an entirely new thread for this but my question doesn't require much of an answer and it's a result of reading this thread. I, myself, am in my third year of university right now and am studying accounting. I'm doing co-ops pursuing my CA designation but I'm also taking extra finance courses and for the past year or so I have been reading investment blogs and journals every day. I saw a couple books referenced on here that are helpful to learn more about options trading. I'm wondering, however, if taking the Canadian Securities Course will help at all? Also, my university unfortunately doesn't have a trading club like GOB mentioned, but we do have a Bloomberg Terminal that I can easily book time on to become "Bloomberg Certified." I have been active in my own investing over the past couple months and I have learned a lot through this forum and my own experience but I'd like to know if you guys think these courses hold great benefit.

Thank you :chuncky:


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## GOB

Hi AGHFX

If you are just intending to trade for yourself, I don't see much value in taking courses to get designations. I didn't study finance and I never took any courses. Everything I've learned is self-taught from reading extensively and studying the markets on my own time and out of interest. I firmly believe that thanks to the power of the internet, an incredible amount of knowledge can be attained for zero cost. I believe I know more than 95% of analysts that cover Apple (at least more than they publicly disclose). 

The key ingredient is to absorb a large quantity of information. Look at both positive and negative articles, then connect the dots and figure out what makes sense. The exact same information is available to all of us, yet go to the AAPL thread and see the vast differences in opinion. The skill is sorting out the gold from the crap that's out there. I don't really think this can be taught.

Basic options (the ones I trade) are fairly simple to understand after some studying. If you want to delve deeper into the math though they get quite complex. Lenphturn seems to know quite a lot about the intricacies of option - I do not. I think money can be made with my simple level of understanding, but deeper knowledge would allow me to optimise and probably improve my results.


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## Lephturn

AGHFX said:


> I have a question for, I guess anyone who is active in this thread. I've been following it for a while and I find GOB's journal pretty inspirational. I would create an entirely new thread for this but my question doesn't require much of an answer and it's a result of reading this thread. I, myself, am in my third year of university right now and am studying accounting. I'm doing co-ops pursuing my CA designation but I'm also taking extra finance courses and for the past year or so I have been reading investment blogs and journals every day. I saw a couple books referenced on here that are helpful to learn more about options trading. I'm wondering, however, if taking the Canadian Securities Course will help at all? Also, my university unfortunately doesn't have a trading club like GOB mentioned, but we do have a Bloomberg Terminal that I can easily book time on to become "Bloomberg Certified." I have been active in my own investing over the past couple months and I have learned a lot through this forum and my own experience but I'd like to know if you guys think these courses hold great benefit.
> Thank you :chuncky:


Do the Canadian Securities Course. It is a really good foundation in finance and will provide an excellent base for making financial and investment decisions for the rest of your life. Every young person should complete this course. Correction... everybody should complete this course. Complete this and you are financially literate and can build on that from there.

In terms of the Bloomberg course - well only if you plan to go to work for a major financial institution. Those Bloomberg terminals are very expensive, so you won't have access to one as an individual investor unless you are extremely successful! I would focus on your CSC and then go here: http://education.optionseducation.org/login/index.php and work through all of their free material to get yourself a good grounding in options fundamentals. Get that done and we can give you some solid book recommendations as well. You would do well to start with "Options as a Strategic Investment" by Lawrence G. McMillan, and there are lots to read from there.


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## Dopplegangerr

Seriously GOB I dont know how you do it, and I am not even going to try and emulate it because I think I would just get smoked. You, Lephturn and any other apple options traders have got real guts because this bull seems real dangerous to me. Keep up the good work and keep the reports coming, just love reading them


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## humble_pie

lepht on your aapl put spread set forth above, might i ask you couple of questions.

- was there a particular reason to close this spread on 17 september ? aapl has flown higher since, spread had about 3 more weeks to run, another approach might have been to let it gently expire or not close until the very last few days when - if present circumstances continue - the buyback cost could have been pennies.

- what truly interests me is what would have happened if aapl had declined since 22 august. Both your puts would have become more expensive; however mathygreeky suggests to me that the price of the one to buy back (the oct 615P) would alas have risen farther & faster than the price of the one to sell (the oct 585P). This would have been unfortunate.

however, in the larger picture all would have been well *unless* aapl had taken an apocalyptic lunar crash & plunged to levels like 560 or 575.

assuming a mild drop to a level north of 615, all of your original profit would have survived intact, is this not so ? Possibly your margin position might have deteriorated very slightly, but not enough to cause trouble.

in case of apocalyptic lunar crash, there would have been at least 2 positive exit points. One the one hand you would have had your good old 585P to bail you out if necessary. This would have produced a modest loss of $3000 per contract. 

but much better would have been the other hand, which is that the short 615P could have been rolled over (or repaired or adjusted, as the terminology goes) to a 590P or a 600P, say, with a forward date; so no assignment would have occurred. All would have been well & the original profit from the august 22 sale would have been protected.

i'm rambling on about all this to point out that option trading is far less risky than is generally assumed. Almost always - i'd say 98% of the time - there are graceful exit dancing steps that can be executed.


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## humble_pie

AGHFX said:


> ... I'd like to know ...



such an extreme contrast between gob's advice to options newcomers & lephturn's !

gob ever the practical empiricist. Lepht the euclidian mathematician.

AFX i believe that for you, with your efficient academic approach, commencing the study of options with McMillan might not be a mind-numbing paralyzer. But for other people this daunting tome & others like it have been killers. Literally these giant theoretical texts have frightened them as option neonates into their trading graves before they ever got started.

i am definitely on gob's end of the spectrum. There's a kind of easy spiralling learning procedure, but i think it should be a practicum. It should be based on actual trading experiences imho. Tiny experiences at first. Read a little, buy or sell an option, track your option's price progress in relation to the underlying, just watching this spread as it shifts day by day will teach a lot, read some more, another option trade, etc.

as gob says, the internet is an astonishing source of powerful tools & resources. For option newcomers, i happen to like a small booklet from the montreal exchange website. It may not suit AFX as he seems to be an excellent & highly-motivated student, but still i think its slim 50 pages are worth checking out. Scroll down in the principal left column to Equity Options Reference Manual. MX website has excellent teaching webinars, too, at every level.

http://m-x.ca/educ_guides_strat_en.php

a big welcome to you & best wishes for great success.


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## Lephturn

humble_pie said:


> AFX i believe that for you, with your efficient academic approach, commencing the study of options with McMillan might not be a mind-numbing paralyzer. But for other people this daunting tome & others like it have been killers. Literally these giant theoretical texts have frightened them as option neonates into their trading graves before they ever got started.


I wouldn't recommend anybody start cold with McMillan - but if you do the OIC education track online first, McMillan should be reasonable. Given AGHFX's course of study, I think it's reasonable, where something that is TOO basic may well be a waste of time.


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## Lephturn

humble_pie said:


> lepht on your aapl put spread set forth above, might i ask you couple of questions.
> 
> - was there a particular reason to close this spread on 17 september ? aapl has flown higher since, spread had about 3 more weeks to run, another approach might have been to let it gently expire or not close until the very last few days when - if present circumstances continue - the buyback cost could have been pennies.
> 
> - what truly interests me is what would have happened if aapl had declined since 22 august. Both your puts would have become more expensive; however mathygreeky suggests to me that the price of the one to buy back (the oct 615P) would alas have risen farther & faster than the price of the one to sell (the oct 585P). This would have been unfortunate.


Basically simply because I had the majority of the value out of the trade. I didn't pick the timing, I simply put a limit order in for the spread and let it sit there. I think the real question is - why did I target that sell point? Well nothing complex - I had 80% of the value I could possibly get out of that spread. My thinking is that I don't want to have to think too much about it - I put the spread on and then bracketed it with an OCO order (Once Cancels Other) that gets me out at about 80% profit or if AAPL trades below I think $ 627 is the trigger I set. As I work and have many tiny children running around, I can't manage it intra-day easily and I don't want to rely on "judgement". I want to enter the trade with hard and pre-set exits.

Don't get me wrong - I still review my positions daily and would potentially do something like close the short side but leave the long side on if AAPL was moving down strongly and I could win that way. What I do not like is rolling. I think rolling is extremely dangerous because it allows be to fool myself into thinking I am not taking a loss. It also entices me to make additional trades on the same security where my forecast was just proven horribly wrong. It further gets me to take a trade that might not be the best trade to make out there to try and "get back to even" with a revenge trade on the same security. Rolling trades leads me into an emotional death valley from which my account may never escape!

So - if I put a spread on in AAPL and it moves against me and hits my stop - I'm out. I was wrong. I will review that trade, why I put it on, what rules I put in place, and if I followed my rules. That is far better for my process than rolling it. If I take a loss and I'm out, I can still do another trade if it looks like a good risk/reward/probability, but it is a separate event.

As I get better here I could work in doing more adjustments - but I think I'll need to plan them out ahead of time. For example build into my trade plan "if stock moves X by Y time I may adjust the position by.... etc. I'm sure more experience traders could do a better job of it - but for me rolling out a losing trade is just too emotionally dangerous. I'd have to plan the adjustments in advance and set some clear rules to determine when I'd adjust and how.


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## GOB

*Sep 20*

Bought to Close: 1 AAPL 21SEP12 $695.00 P @ $2.21: -$222.06 (Total profit $202.25)
Sold: 1 AAPL 28SEP12 $695.00 P @ $7.15: +$713.92

Could have had the SEP28 $695 for $8.00 with a little patience...oh well


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## humble_pie

lepht thanks so much for sharing. It fascinates me how our 2 approaches are polar opposites. Yet they both work.

for me rolling is not a death trap, it's a profitable credit operation 95% of the time. There are several excellent illustrations here in this thread.

gob has been rolling up with stunning profits for some time now. (EDIT he just posted that he rolled flat for another profit.)

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.

lepht the way i see it, the alternative you are proposing - ie passively accept cruel assignment at 695 & attempt subsequently to analyze the "mistake" - does seem like the real death trap to me. There gob would be, paying 695 for a 650 stock & having no chance to trade his way around this until stock might slowly creep its way back up the ladder. 

no chance to trade because margin would have taken a severe wallop with the 695 assignment.

of course for the real gob, all this is gossamer theory, because the real gob would probably accept such an apolyptic lunar assignment with good grace. But i wonder whether he'd spend any time "analyzing" his "mistake."




Lephturn said:


> ... I could work in doing more adjustments - but I think I'll need to plan them out ahead of time. For example build into my trade plan "if stock moves X by Y time I may adjust the position by.... etc. I'm sure more experience traders could do a better job of it - but for me rolling out a losing trade is just too emotionally dangerous. I'd have to plan the adjustments in advance and set some clear rules to determine when I'd adjust and how.


this is my polar opposite again. Precisely what i find so intriguing about options is courting an unknown future. I wouldn't dream of planning any strategies out. I always have a rough idea of where they could go, but i never prepick an exit point or anything else. I love adventuring along like huck finn ...


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## GOB

Another great discussion. 

Lephturn, your strategy makes sense to me if I'm making a quick play on a stock I don't have full confidence in long term. In that kind of situation, rolling can be quite dangerous if you aren't swift and accurate. In my case, I have utmost confidence in Apple continuing to rise over the next couple of years, easily over $1000. Thus, my thesis is that any assignment and time spent in the red is only temporary, as long my margin can handle it. Therefore I don't see assignment as a punishment but just another facet to the game I'm playing. 

Mistiming the price action of AAPL may be a mistake, but because of my confidence in the intermediate and long term action of the stock, it's not a mistake I need to take a loss on. On the contrary, it's a "mistake" I can continue to make profit on. 

All that said, I think we can all agree my risk is far greater than yours.


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## humble_pie

GOB said:


> Lephturn, your strategy makes sense to me if I'm making a quick play on a stock I don't have full confidence in long term. In that kind of situation, rolling can be quite dangerous if you aren't swift and accurate. In my case, I have utmost confidence in Apple continuing to rise over the next couple of years, easily over $1000. Thus, my thesis is that any assignment and time spent in the red is only temporary, as long my margin can handle it. Therefore I don't see assignment as a punishment but just another facet to the game I'm playing.


so true. I l.i.k.e my underlyings.

i don't have any as lucrative as aapl but i always try to be sure that i L.I.K.E em.



> ... my risk is far greater


there's risk as measured by the broker - use of margin, etc - & there's risk measured by the mindset of the trader, don't you think.

lepht had little objective measurable risk, but for him the amount was just right.

i can tolerate reasonably large amounts of measurable risk for various reasons, one being that i know from experience that i'll likely be able to skip through it.

in this pilot project, gob can tolerate what appears to be outrageous risk because a) he's got it under control & b) i believe there is a mother account holding long aapl shares which is severed from the pilot project. If the pilot project were folded into or combined with the mother account, its risk profile would immediately shrink.


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## Lephturn

humble_pie said:


> lepht thanks so much for sharing. It fascinates me how our 2 approaches are polar opposites. Yet they both work.
> for me rolling is not a death trap, it's a profitable credit operation 95% of the time. There are several excellent illustrations here in this thread.
> gob has been rolling up with stunning profits for some time now. (EDIT he just posted that he rolled flat for another profit.)
> 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.


This is an excellent discussion - and congrats on another quick premium sale GOB.

Let me clarify something - what I don't want to do is roll a big loss. GOB has not been doing that, he has primarily been closing winners and then opening new positions. I know you can describe this as rolling - but I don't like to do that for the reasons I mentioned. Rolling down when the one you are closing is a winner, flat, or even a minor loss can be OK. What's really bad is when it makes a big move against you and you roll it - where when you close the first position you take a big loss - but the credit for the one you roll out to mostly (or even more than) covers it. In those cases the reality is you are taking a loss and simply putting on another trade in hopes of making a profit that will cover the first loss. Well if you were so wrong on the first one, why would you think you are now going to be right? In addition, in order to cover the loss you will often need to put on an even more risky trade with worse probabilities, it can really lead me astray.

Now I get it - in something like AAPL the fundamentals are SO STRONG that you are willing to back up the truck and take assignment because you (we) are so certain that we will eventually be rewarded. But in the vast majority of cases I would rather take a small loss quickly and re-assess the situation than risk rolling ever increasing losses.

Also interesting is the fact that AAPL has a weird skew - it is one of the only stocks out there where the calls are often bid up higher than the equivalent puts. Taking assignment from this point of view might actually work out, as you can then aggressively write calls that are netting you more premium than the puts would. In this sense, taking assignment would work out to be a good move as your risk would be the same but you can collect more premium since the calls carry more premium than the equivalent puts.


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## humble_pie

*once more into the fray*

.
_half a league, half a league
half a league onward
rode the six hundred_

lepht let us take the aapl put example we have been discussing. In this hypothetical illustration - which is not what Gob is doing - investor has sold a 695P but lettuce suppose stock has plunged to 650. Inv is longterm bullish on aapl, therefore rolls his 695P into a 650P with a future date. He picks up a pfennig or 2 in gain for doing this.

how can this be death valley ? how has this investor lost money ? in what way is he repeating his mistake ? in what way has he ever made any mistake ?



> :biggrin: :biggrin: Well if you were so wrong on the first one, why would you think you are now going to be right? In addition, in order to cover the loss you will often need to put on an even more risky trade with worse probabilities, it can really lead me astray :biggrin: :biggrin:


there is no mistake. One has to look at the history & structure of the account, not just one pair of trades. Account shows that investor has succeeded wildly & made money hand over fist. In just over 2 months he has earned several thousand $$ selling puts on a capital cost of perhaps 35,000. If he had invested those funds in a HISA he would have collected $1.91 per day, or perhaps $125 to date.

in this lettuce suppose example, stock has plunged but investor (who has a good forecasting history) assumes the downturn is temporary. He still "likes" his stock. Meanwhile he has battened down the hatches, lost no money, harbours no death wish. Instead investor has collected gains at an annualized rate of return above 80%, avoided assignment, maintained his margin & is perfectly positioned to benefit from Xmas sales in iPhone5.

_when can their glory fade ?
O the wild charge they made !
honour the Light Brigade_


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## Lephturn

Put in that context, rolling may make sense yes. IF you have a long history of forecasting this stock and being correct, you may have more confidence.



> lepht let us take the aapl put example we have been discussing. In this hypothetical illustration - which is not what Gob is doing - investor has sold a 695P but lettuce suppose stock has plunged to 650. Inv is longterm bullish on aapl, therefore rolls his 695P into a 650P with a future date. He picks up a pfennig or 2 in gain for doing this.


So let's compare this to the alternative.Instead of rolling out and down the investor buys back the 695 for a loss. In this case he would not wait for the stock to plummet to $ 650 - but get out with a small loss relative to the gains of recent history. Let's say about a $ 400 loss - or about a week's worth of premium. Now instead of just rolling down to a 650p he accepts the smaller loss and then can choose to open that 650P when the stock has dipped to say $ 645 for a larger credit.

The only thing I disagree with is your contention that he has "lost no money". He has in fact sold a 695P for let's say $ 7.00 and been forced to buy it back for $ 49.00. He lost $ 4,200 on that transaction. Possibly he can sell a new 650P further out for say $ 28.00 and turn a good profit on the second trade - but they are two separate events. Could a good trader not do better by limiting his or her losses?

Also we should compare it to simply being assigned. In that case you have no need to buy back juiced up vol and you retain all of the credit for the initial 695P sale (less commissions and assignment fees). In this particular case you also have a situation where the call prices are higher priced than the puts, so taking assignment and selling calls against it (especially after a drop in price and the subsequent jump in volatitlity) might well be a better choice than rolling down and out. If you believe in the underlying to the degree that you would roll that loss down, wouldn't you be better off to simply get put the stock and write calls?

Partly I think this way because I am NOT risking $35k on my trades - but writing put spreads instead. My max loss is certain, but I will cut my losses before I get near max loss territory. From a strict risk/reward standpoint my method won't work - but when you weight it by probability it makes sense. Well to me anyway...


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## Lephturn

Just to compare strategies - I just executed another Oct put spread sale:

AAPL Oct12 670 Put / AAPL Oct12 675 Put Bid: 1.5	Ask: 1.75	Filled @ 1.56 4 / 4 WL Credit 1.60/1.50	DAY	ISE

I wanted to pull the trigger on one this morning with this low open. We'll see how it goes. I'd like to position a call back spread on the up side here if I get a chance as well to give myself some wide open upside.


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## GOB

Nice trade, feel free to keep posting them. I think this discussion proves the versatility of the options market - infinite combinations of risk and reward are possible depending on the trader's level of comfort. 

*Sep 24*

Sold: 1 AAPL $645.00 P @ $1.05: +$104.32


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## humble_pie

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.



Lephturn said:


> The only thing I disagree with is your contention that he has "lost no money". He has in fact sold a 695P for let's say $ 7.00 and been forced to buy it back for $ 49.00. He lost $ 4,200 on that transaction. Possibly he can sell a new 650P further out for say $ 28.00 and turn a good profit on the second trade - but they are two separate events. Could a good trader not do better by limiting his or her losses?


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.

i suppose to the tax man & to the options technical perfectionist, a short sell & its partnered buy-back are technically a loss. But the buy-back goes with another forward sale executed at the exact same second, so cash-wise there's no loss to the account.

for myself, cash & margin position are always king. To have bought back without selling another equivalent cash put at the same time would have been a cash loss & a margin impairment. Proceeding the way gob did just proceed is the most advantageous to cash, to margin & to the overall account. IMHO.




> Also we should compare it to simply being assigned. In that case you have no need to buy back juiced up vol and you retain all of the credit for the initial 695P sale (less commissions and assignment fees). In this particular case you also have a situation where the call prices are higher priced than the puts, so taking assignment and selling calls against it (especially after a drop in price and the subsequent jump in volatitlity) might well be a better choice than rolling down and out. If you believe in the underlying to the degree that you would roll that loss down, wouldn't you be better off to simply get put the stock and write calls ...


i for one think this could be handicapped from the getgo by having paid hypothetical 69,500 for the stock but now it's worth only 60,000 so there's a big account & margin impairment right off the bat.

also i ask myself - & yourself - if we are really so sure that selling the calls will guaranteed fetch so many more $$ than selling the puts. Please keep in mind that margin on the 69,500 cost is being paid now that the stock has been assigned, so margin interest would be a cost to bear.

lepht the point you have raised is so interesting & so important imho. We have discussed this issue quite a bit farther upthread & now here it surfaces again. Classic option theory says that short put = (long stock less short call.) In this thread, we can see vividly how things are working out, so the thread is a valuable workshop experience. To me, the surprising evidence so far has been just how lucrative put selling can be & how light short puts are on the margin compared to long stock ! 

in the end, gob should have the last word. As he says, we can all see & appreciate the infinite variety of options strategies.


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## GOB

humble, I'm still hanging onto my $695 put for now. The $645 put I sold today was for a little bit of extra income that I think has an extremely low chance of hitting this week. That being said, AAPL sold off after hours, so I am a bit uneasy. I'm going to monitor the open very closely tomorrow and may get rid of the $645. Margin is quite tight having two puts open, so a large drop could make things tricky. 

I wouldn't be surprised to see a quick selloff in AAPL right now, but am confident getting assigned and holding the $695. There are too many positive catalysts ahead to keep the stock down for long.


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## humble_pie

good game plan as usual. But i'm reminded of what mark wolfinger used to ask when somebody'd show him a hi risk short put with tiny premium. What, he'd say, you'd take on risk like that for THAT.

something else hard to believe is what looks like a 68 penny commission for one option contract. Doesn't IB have a minimum commission or am i just dumb ...


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## 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!


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## 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.


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## 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.


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## Lephturn

humble_pie said:


> 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.


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## 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/showt...come-Portfolio?p=145502&viewfull=1#post145502


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## 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.


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## 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!


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## 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.


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## 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.


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## 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 each:


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## GOB

I've been doing some thinking about rolling the put forward and now I'm sitting on the fence. If I had a bit more margin room I think the best strategy would be to roll this over, getting a small credit and reducing risk, and continuing to sell slightly more conservative weekly options concurrently - ensuring a continuous stream of good income. If I did that now it would be a tight squeeze. I now see the benefit of having a large enough account to comfortably handle two simultaneous puts - it allows for a lot more flexibility and reduction of risk, without sacrificing a large chunk of the profit potential. My goal is to get my account to this level shortly. 

I'll see how AAPL does tomorrow and Thursday and make a decision then. Hopefully price can stabilize or recover somewhat. It's likely I'll stick to my original plan and accept assignment. It's good to be able to sound things out here and get feedback.


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## humble_pie

hey gob one of my favourite travel writers is Paul Theroux.

he's got this great funny line in The Old Patagonian Express. Travelling south on an antiquated train, theroux finds himself seated in a railcar with some bolivian men who want to practice their english.

what is zis word you have in eengleesch *huacha,* asks one.

hmmn says theroux, i don't think we have the word huacha in english, can you give me an example using huacha in a sentence.

(i'll leave out theroux's punchline in the book & substitute a punchline written just for you.)

it's thursday today, gob, *huacha* gonna do about da put ??


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## GOB

Apple's at $673 right now. This puts it just over $20 below my strike, or about $15 if you add the premium I got. In the grand scheme of things, that's peanuts for AAPL. If this price holds through today and tomorrow I will hang onto my put and take assignment. Call premiums look pretty good and should hold me in good stead while I wait for the price to catch up. Who knows, maybe we end up closing above $695...crazier things have happened!


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## Lephturn

Now less than $9 below your put strike. You could get lucky again. 

With this down move the skew curve has flipped to a more normal equity skew - meaning there is more premium in the puts right now. It will take a big up move to get us back to the weird AAPL Fanboy skew that we see when it's trending up fast that the calls get bid up. The good news is that IV has jumped up to pre-earnings levels roughly so there should be good premium out there and a decent chance that vol comes in and let's you scalp some quick premium like you have been doing in recent weeks.

I have not had much time to discuss it - but here is what I did this week:
9/24
BTO 4 x AAPL Oct12 670 Put 
STO 4 x AAPL Oct12 675 Put
Net (after all comissions and fees) of $ 608.94 with a margin requirement of $ 2,000.00 or if AAPL hits Oct expiry above $ 675 a tidy 30% ROM.

Then on 9/25 I did a risk reversal for a nice little credit.
Sell To Open	1	AAPL Jan13 675 Put
Buy To Open	1	AAPL Jan13 690 Call
Net (after all comissions and fees) of $ 575.95
However - this bad boy is tying up margin of $27,424.20 so the initial credit is negligible, but this is my "sorta" synthetic long stock. My break-even on this reversal is $ 672.90 but I don't really start making hay until over $ 700.
I figure that I'll let the dust settle a bit (and IV come back in) and when AAPL starts to run up again I will pick up a cheap put to free up the rest of that cash. I have the cash at the moment so I can wait a bit for some cheaper units before I insure this thing and get a chunk of margin back.

I did the risk reversal too early - it was down $ 1,500 in value, but I was staying in unless it broke convincingly through $ 650 or closed below it. I didn't have a stop set, I just set alerts with OX and then I would have had to roll it or close it. Maybe this weekend I'll have time to look at what the rolls would have offered.


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## Argonaut

I like how you've tightened your spread, Lephty. Netted about $100 more for the same risk.


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## GOB

I'm now leaning towards rolling my option forward a week at a time. I don't like the price action of both AAPL and the market. Getting assigned means I am stuck holding the stock until it recovers. Due to the increased margin requirement it would mean that I wouldn't be able to pick up any long term bargains (bull call spreads) if the stock continues to drop. I've put in an order to buy back the put and sell the same strike a week out for a $2.10 credit. Hasn't filled yet - if we near the end of the day I may manually enter the trade for a smaller credit. 

Thoughts? I know I've been flip flopping this week but I think his path forward lowers some risk and increases opportunity if the price heads lower towards $650. Flipping weekly as opposed to a month or two out means I can stay on my toes and immediately react to any changes.


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## Lephturn

If you can roll it out just one week and get a small credit - well you guys have turned me around - that might be the way to go.

I think we're going to go out at 675-680.


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## Lephturn

Argonaut said:


> I like how you've tightened your spread, Lephty. Netted about $100 more for the same risk.


Thanks for pointing out my previous mistake Argo - I did some analysis in the last couple of weeks based on that and I am now doing a better job of planning around return on margin vs. probability and then just adjusting the number of contracts to get the right $ risk/reward.


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## humble_pie

GOB said:


> Flipping weekly as opposed to a month or two out means I can stay on my toes and immediately react to any changes.



exactly, no one is flip-flopping here.

the other side of the coin is that options are always repairable, always correctible, do not present crushing losses if well managed but tend to roll on forever.

forever wilt thou love/ and she be fair


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## GOB

Thanks guys - order just filled. 

*Sep 28*

Bought to Close: 1 AAPL 28SEP12 $695.00 P @ $20.13: -$2,013.69 (Total Profit: -$1,299.76)
Sold: 1 AAPL 04OCT12 $695.00 P @ $22.23: +$2,222.26


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## humble_pie

love it


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## Argonaut

I have a bunch of margin maintenance kicking around, so I opened up a spread that I that already sold before with more contracts.

Jan 2013 AAPL 515/525P x5

Lower risk than you guys, but I like to keep it very far out of the money. The premium is still there to be found unlike any other stock, so I can't complain.


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## GOB

Great trade. An incredible ~35% annualized return for a trade almost certain to pay out.


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## humble_pie

*open invitation to Canadian Capitalist*

sold 1 aapl july 600P at 50.40. It was the dizzying prospect of going above 50 that did me in.

dear CC & other graciously silent skeptics: i beg of you all to gather here one year hence. If aapl cracks below 560-580 we izz toast. The others here will be ok on their life rafts but i have no jacket on this one.

if the each: does not crack we izz rich at last


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## GOB

*September 2012 Monthly Update (and Thoughts)*

September 2012 Starting Balance: $35,946.72
September 2012 Ending Balance: $37,582.02
September 2012 ROI: 4.5%
Total ROI to date: 13.9%
Annual projected ROI: 55.6%
October starting balance: $39,582.02 (deposited $2,000)

This past week brought my returns back down to Earth, but I'm still happy with them and I'm still doing better than I expected to. The total and annual ROI aren't very precise because I keep adding funds to the account, so I'm calculating them conservatively (as if all the funds were there from Day 1). That's why total has dropped this month from the last, even though I made profit. 

The last week of price action and discussion here has really set me thinking about what the best strategy really is going forward with this portfolio. Despite my desire to own the stock (and I do own a fair bit in my other accounts), my experience thus far tells me selling puts is the way to go. 

Here's my thought process - if you find any holes in the logic, please let me know. It all seems a bit crazy but it works in my head.

I'm making 2 assumptions that I base my conclusions off:

1) AAPL will move up and down, but long term will be (much) higher than it is today. This should carry on until fundamentals or valuation changes, which should be evident to me. This assumption, of course, is not a sure thing but I'm willing to assume it is for the purpose of this portfolio.

2) Margin can be maintained as needed. This can be a sure thing if I'm careful and always have cash on hand to fund the account quickly if anything crazy happens.

Taking the above assumptions as fact, the best way to trade an aggressive options portfolio is simply selling weekly puts. Here's the crazy part - I think it may be a good idea to sell in the money puts (strike price above stock price). This makes sense for the following reasons:

1) It will allow me to capture much more of the upside in the stock. I missed out on a good chunk of AAPL's August and September run because the puts I sold were always at the money or out of the money, which meant I had to keep flipping to chase it up. 

2) If my put is about to expire in the money, I can roll it forward a week while at the same time getting a small credit. The worst case would be receiving almost no credit if the put is way in the money - never a loss because the option I buy will have more time decay than the option I sell. This rolling forward can theoretically continue on indefinitely, until the stock recovers as it always has in the past. The past does not guarantee the future, but again, I'm making the assumption that we haven't seen the end of the AAPL story. 

3) This method gives me more margin than holding the shares. If my account grows a little more, I'll be able to write two separate puts, which I can stagger to take advantage of price fluctuations and increase overall return. 

4) If the stock becomes oversold or stays low, I'll be able to write cheap bull call spreads for future gains. Related to 3), I'll have the margin to be able to do this. If I held the shares, I'd be deep in the red and likely wouldn't have much extra room to take on additional trades. 

For example, if my account was brand new today, I'd look to sell a $675 put next week. This allows me $10 of share price appreciation, and if we don't get there, I simply roll forward. If we drop to $650, I may enter some spreads to take advantage of the selloff. If we approach or exceed $675 next Friday, I'll roll forward a $685 put, and so on. Pretty similar to what I've been doing, I guess, just selling higher strike prices. It sounds riskier, but I think the risk is only minimally increased, and I can capture much more of the stock appreciation. 

Would love to hear everyone's thoughts on this. Please pick it apart if you find any concerns.


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## Argonaut

I like most of what you've said, and you have done a great job. Where I would differ is your idea to sell puts higher than the strike price. The premiums received have diminishing returns the further away from the strike you go. I prefer to just study option chains and don't look at the Greeks myself, but I'm sure there is a (deeper) mathematical explanation for this. Of course, the same is true the further you go out of the money, but this brings the much loved benefit of lower risk of assignment.


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## GOB

You might have a point there. I've only thought about this in my head. It'll be useful to see the live prices as the market moves and determine if going into the money is in fact worth it. Thanks for the feedback.


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## humble_pie

Argonaut said:


> The premiums received have diminishing returns the further away from the strike you go.


same thing with calls. DITM options are often 100 delta, so the premium consists of 100% intrinsic value & all the time value has already decayed. Bids on these options are frequently less than intrinsic value.

however, in nearer-term aapl options i'd expect this feature to be less prominent or even suppressed entirely. Not sure why. Which brings me to item No. 2.




> I prefer to just study option chains and don't look at the Greeks myself, but I'm sure there is a (deeper) mathematical explanation for this.


many traders operate like this. On a formal, taught-in-school basis, they may not analyze the greeks or pay any attention to the greeks.

however, what they do have is a wordless, pre-verbal but highly accurate sense for the mathygreeky numerical relationships.

i remember a math student friend explaining to me. We were discussing how so many female students develop math anxiety before the age of 10, how this is a huge problem which educators struggle persistently to solve.

my friend said that tiny children, at the ages of 2 & 3, will know how to set sticks in accurate numerical progressions, even though they don't have the vocabulary to discuss what they're doing & they can't explain their decisions.

the same thing happens with some option traders imho. It doesn't matter whether or not they can talk up a storm about gamma trading. When they look at an array of option prices, they are able to quickly pick & choose according to what seems to be instinct - except it's a "smart" instinct.


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## Dmoney

GOB said:


> *September 2012 Monthly Update (and Thoughts)*
> 
> September 2012 Starting Balance: $35,946.72
> September 2012 Ending Balance: $37,582.02
> September 2012 ROI: 4.5%
> Total ROI to date: 13.9%
> Annual projected ROI: 55.6%


Awesome returns GOB. Keep up the good work, and keep the updates flowing. Learning a ton from watching your trades and the discussion they generate. While I like my strategy so far, and am getting more comfortable with it by the month, clearly the versatility of options present phenomenal opportunities.

I'd like to give some other strategies a shot, but commissions would kill me. I'd need to be trading higher volumes in the more liquid US market to justify paying $100+ for a spread, and I'm not yet comfortable with the value of my portfolio to be entering significant additional positions.

Good luck!


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## humble_pie

GOB said:


> 1) ... my experience thus far tells me selling puts is the way to go.
> 
> ... the best way to trade an aggressive options portfolio is simply selling weekly puts. Here's the crazy part - I think it may be a good idea to sell in the money puts (strike price above stock price).
> 
> 2) If my put is about to expire in the money, I can roll it forward a week while at the same time getting a small credit. The worst case would be receiving almost no credit if the put is way in the money - never a loss because the option I buy will have more time decay than the option I sell.




1) greatly to my surprise, when i looked at friday's closing aapl option chains i saw that ITM put premiums are rising incrementally with each higher strike. It's the escalating incremental increase that surprised me, not the $$ amount related to each higher strike price. I was not expecting to see this so dramatically. The increment of the rise is somewhat greater with short-term puts like october weeklies, somewhat less with say the 2014 LEAPs.

hmmmn i'm going to have to ask my uber-options-knowledgeable friend about this.

obvious cautions about selling ITM puts have already occurred to gob i'm sure. That they work best in a rising market. When market turns down, the consequences could become trickier.


2) tricky consequences: puts that hover towards expiration not-too-far-in-the-money can usually (always, for me) be rolled forward for a credit. Sometimes a pleasingly significant credit. We've discussed this upthread. Since all of the previous put sells were found money, ie there was no cost base, this strategy has benefits.

however



> ... the worst case would be receiving almost no credit if the put is way in the money - never a loss because the option I buy will have more time decay than the option I sell


the true worst cases are savage deep drops that plunge an ITM put so deep in the money that, in practice, no rollovers are possible. At those extreme DITM levels, options often trade with no TV premium whatsoever, in fact bids & asks are usually lower/higher than intrinsic values.

in puts, in this extreme crash/collapse scenario, trader might want to roll down only a strike level or 2 in hopes of not having to pay through the nose to buy back the DITM whilst receiving phhhht-all for selling ATM. But alas he will find most or all of the roll-foward put candidates that are within the small range of strike prices close to his existing short will be identically priced. For him, there will be no possibility of profitable rollover. If he tries to roll down, he will find bids below the ask on his current short put. If he tries to roll forward, same obstacle. Geronimo.

next, the trader considers rolling down to a gah ATM put strike. This will create a whopping loss because, of course, he has to buy back his existing DITM short. Plus usually in such chaotic crash circumstances, dealers will increase their B/As, so one or the other or both of those dratted puts are going to sport a vicious bid or ask that will be far below or above intrinsic value.

this is Lephturn's death trap scenario.

a tentative out can sometimes be rolling insanely forward in time, like out to a 2015 put. This is totally depressing, because it puts a drag-lock on the account for such a long time. However the existence of stable LEAPS markets is another criterion that i have for choosing a stock to trade options on in the first place. During armageddon, while the mobs burn down the palace & guillotine all the royal heads into bloody pulp, taking refuge in a faraway-30-month-off LEAPs option to protect one's capital is not the worst thing that could happen.


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## GOB

Thanks for the advice - I don't have the experience to know what happens to pricing during major market events. If a severe drop happens, you're right - I will roll forward much further in time because of my belief in the stock. Hopefully if and when such an event occurs I'll have made enough to be participating in other trades as well to keep the cashflow going, so the account won't be completely frozen. A good thing to ponder though - I need to be careful not to be too aggressive, especially at all-time highs.


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## QUANTify-IT

Interesting thread guys.

I just can't however get completely away from the feeling that we're picking up pennies in front of steamrollers, except for the fact that you're picking up dollars, not pennies. lol.

I wish you the best GOB, but I've got to say how I've usually seen these things work out over time is an 80-90% win rate turns out to be something we can't afford to do.

My fear is as Humble_Pie states in his last, as that's what I've seen eventually happen if this strategy plays on long enough. Good Luck and don't fly too close to the flame!


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## Lephturn

We are about to find out - the steam roller is coming back at us in a hurry today. I'll try to find time to examine my (deep in the red) positions tonight and examine roll prospects.

The trick is, if the thing moves against you fast enough, you can't roll for a credit. My positions will provide some illumination of medium term positions, while GOB's will illuminate the short term positions.

That said - this is AAPL we are talking about, and it could wind up back at $ 700 by Friday. Or $ 550....

I'm goint to get long in my remaining accounts ASAP.


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## humble_pie

Lephturn said:


> ... The trick is, if the thing moves against you fast enough, you can't roll for a credit.


yup that's it. What was a doable cloud on a horizon yesterday is phhhhht impossible today. Happens to me all the time.

i was looking at my puts early this am, not since. I have 5 short jan 500Ps plus 1 short jul 600P sold only last week but it has no cover at all (will i buy a hedge ? no.) So far, so good, nothing to do.

over there in his own crennellated fortification bay on the ramparts, gob is probably cool, because it's still early in the week. The mob is still out in the fields.


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## GOB

QUANTify-IT said:


> Interesting thread guys.
> 
> I just can't however get completely away from the feeling that we're picking up pennies in front of steamrollers, except for the fact that you're picking up dollars, not pennies. lol.
> 
> I wish you the best GOB, but I've got to say how I've usually seen these things work out over time is an 80-90% win rate turns out to be something we can't afford to do.
> 
> My fear is as Humble_Pie states in his last, as that's what I've seen eventually happen if this strategy plays on long enough. Good Luck and don't fly too close to the flame!


Thanks for stopping by. I know what you mean with your words of caution, as I've seen many successful portfolios blow up never to be heard from again. I'm doing everything I can to avoid that outcome. Even with a rather drastic $55 drop from the recent to today's low, I'm still up a good bit, and my account isn't in danger. I simply have one option that's underwater which I'll roll forward until I can get rid of it for profit. 

The only way I'll lose is if another global market meltdown occurs, or my thesis about AAPL is dead wrong. I'm prepared to accept both cases, if they happen. 

Anyway, I put in an order to roll the put forward to the monthly Oct option for a $400 credit. It filled as AAPL rallied late in the day. Also put in a couple of stink bids for bull call spreads but they didn't fill.

*Oct 2*

Bought to Close: 1 AAPL 05OCT12 $695.00 P @ $35.11: -$3,511.69 (Total profit -$1289.43)
Sold: 1 AAPL 19OCT12 $695.00 P @ $39.11: +$3,910.22

If the iPad Mini announcement does in fact happen, I wouldn't be surprised if we're testing the highs again within a couple of weeks. Now that my option is locked down for a while, I'll start on a second round of puts, being a little bit more cautious. As I said in the AAPL thread, it looks like a lot of technical support levels have held, so we may see some upside soon.


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## Dmoney

Will be interesting to see how this portfolio performs when things don't go perfectly. I know my returns suffer when my puts get assigned and the underlying continues to drop. So far I've managed to keep the options premiums flowing, but at a certain point, it's difficult to salvage a position.

While I'm not as bullish on Apple as you are, I don't think it's going to be below $700 a year from now, so I think either way, you're going to come out ahead. The question I suppose is only how far ahead, and how your annualized returns stack up to long-only strategy.


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## GOB

Actually, the reason I'm using this strategy instead of straight long is to hopefully gain from both the ups and the downs in the stock as it gradually tracks the fundamentals over time. If AAPL returns to $700, I will have profited from rolling over my puts whereas I would have no such profit simply holding the stock until it recovers. Of course, it is just theory. Let's see what happens.


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## QUANTify-IT

GOB said:


> ........ If AAPL returns to $700, I will have profited from rolling over my puts *whereas I would have no such profit simply holding the stock until it recovers*. Of course, it is just theory. Let's see what happens.


That's not really true. If you're willing to play options and are willing to be put the stock?? (are you??) then I can think of ways that don't have near the risk profile of this method.

I've kind of lost track. What's the $$ amount of realized P&L so far? Have you tracked the average $$ made and lost per trade?


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## humble_pie

GOB said:


> If AAPL returns to $700, I will have profited from rolling over my puts whereas I would have no such profit simply holding the stock until it recovers. Of course, it is just theory. Let's see what happens.


i think this is true


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## QUANTify-IT

humble_pie said:


> i think this is true


Which part?

If aapl returns to $700?

or

He would have no chance to profit using any other method during the gyrations over time? 

or

It's just a theory?


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## GOB

QUANTify-IT said:


> That's not really true. If you're willing to play options and are willing to be put the stock?? (are you??) then I can think of ways that don't have near the risk profile of this method.
> 
> I've kind of lost track. What's the $$ amount of realized P&L so far? Have you tracked the average $$ made and lost per trade?


I'm still up around $3300 net even after this huge drop. I started selling AAPL puts in mid-August, so even at this stage I consider it a good return. When (if?) AAPL recovers I'll recoup most or all of the $4,000 of my current put on top of this. Go back to my very first posts on this strategy - I was fully aware this situation was going to come up. It's why I'm not worried in the least right now. 

You're most welcome to propose other strategies - in fact I encourage it. If you have a way to minimize risk while maintaining the profit potential that my strategy has, I'm all ears. But please read over some of the past few pages and be respectful. You should get a good feel of what I am doing, and why.


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## Argonaut

Hmm, $3300 doesn't seem like enough for the risk and time involved so far. I realize, taken in isolation, it's a great return on investment for any strategy a month or so in. But. In that same time frame, a single contract call buy could have netted more money. For a risk of say, $500-$1000? And zero chance of margin call. True, the sellers of options win more often than not. But, I'll stick to the low risk spreads therein.

All constructive conversation.


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## Dmoney

Argonaut said:


> But. In that same time frame, a single contract call buy could have netted more money. For a risk of say, $500-$1000? And zero chance of margin call.


This is something I run into myself when selling options. For pretty much every single trade I make, in hindsight, there is always a better trade that I could have made. The problem is, it's never the same trade.

For example, I sell a put for $1.50 with a $15 strike, the stock goes to $10. I would have been better off buying that put. BUT, I'm still better off than had I bought the stock outright at $15 or higher. 
The flipside, I sell a covered call and the stock runs up faster than anticipated. I would have been better off buying the call, or being straight long the stock. What I, and I think GOB, hope to achieve over the long run, is a net return above what a long-only strategy would have achieved. Only time will tell if this is the case.


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## QUANTify-IT

Dmoney said:


> This is something I run into myself when selling options. For pretty much every single trade I make, in hindsight, there is always a better trade that I could have made. The problem is, it's never the same trade.
> 
> For example, I sell a put for $1.50 with a $15 strike, the stock goes to $10. I would have been better off buying that put. BUT, I'm still better off than had I bought the stock outright at $15 or higher.
> The flipside, I sell a covered call and the stock runs up faster than anticipated. I would have been better off buying the call, or being straight long the stock. What I, and I think GOB, hope to achieve over the long run, is a net return above what a long-only strategy would have achieved. Only time will tell if this is the case.


 In hindsight there'll always be a better trade so I wouldn't worry about that part!

I think, as you're doing, is to first define your objective on a stock. Are you bullish or bearish or neutral? Assuming as most are that you're going to be bullish - you can't later state that by selling a put you were worse off than buying a put (from $15 to $10 in your example). The fact is you were bullish-inclined so you would have never bought a put in the first place! The only thing that happened is that your premise turn out to not be the way things worked out. That's all.

Being "right" as I like to say isn't something to be determined after the fact. Being "right" is setting up a trade that doesn't have unknown losses with capped gains. Being "right" is assuring yourself that no one bad day (and yes I mean one really bad day) can take you out of the game. If you can dream of the nastiest day your portfolio could have, and you look at it and say, yeah, that could easily lose me 40%, 50%, etc etc, well I would say that regardless of what the trade is, you're in a 'wrong' type trade.

I think it has been shown that people over-estimate the gains and under-estimate the risk. It's easy to do and to some extent understandable since these black swan events are pretty rare and you'd have to be a major risk-freak to be on guard all the time.

I class myself I guess, as one of those major risk freaks. Out of say 250 trading days a year I spend probably 225? fully hedged and the last 10% somewhere in between. Because of our risk-averse style we will never enter into a trade with a risk profile that limits the upside and allows for the chance of window-jumping days 

I believe it's key to limit the potential losses and in doing that is where one will find a strategy that has the chance of besting a long-only (by that I assume we mean someone that just buys and hold stock?) trader. Let's be honest here, there's just not that many people that can boast a portfolio that has beaten 10 year US Gov bonds so I suggest the real risk here is the trader/investor. People manufacture losses in their trading likes it's going out of style.


GOB:

Thanks for the info. I want to say right up front that no sane person would make a conclusion based on only 3-4 months of data. If you would, I suggest running your Gains & Losses (%) and win-rate(%) into a Monte Carlo system and run a few thousand trials, then get back to us with what it's saying. You'd have to make some assumptions to be sure, but that's what it's all about anyway. I've seen people run systems that they swore were positive expectancy games yet watched them fail the Monte Carlo system. I know why it happens and that's why I think it's a valid test. Remember, if there's a way to screw it up, we'll likely find it when we're doing it 'live'!


----------



## humble_pie

Argonaut said:


> Hmm, $3300 doesn't seem like enough for the risk and time involved so far.


imho this account takes almost no "time" at all. Perhaps 15 or 18 minutes each day, for a total of an hour or 2 each week.

monitoring aapl takes zero time. It's a by-product of the mother account, where the shares are. Surveying the matrix of option prices every day might take 15 minutes. Sending 1 or 2 orders each week might take 4 minutes.

all the rest of the time & effort can be charged to public relations. Reporting to us kibbitzers in the web. Dealing with our noisy questions & interruptions.

drop the generous communications to us rabble & gob is running a tight shop timewise. $3300 in 2 months on 35k capital is sensational return imho.


----------



## GOB

Argonaut said:


> Hmm, $3300 doesn't seem like enough for the risk and time involved so far. I realize, taken in isolation, it's a great return on investment for any strategy a month or so in. But. In that same time frame, a single contract call buy could have netted more money. For a risk of say, $500-$1000? And zero chance of margin call. True, the sellers of options win more often than not. But, I'll stick to the low risk spreads therein.
> 
> All constructive conversation.


I think the problem with this kind of retrospective analysis is that there will always be a better method in hindsight. The question to be asked is - is a straight call buying method always going to net more money? The answer is no. I think $3,300 is an excellent return (it was $6,000 just over a week ago) for under two month's work.

The problem I have with buying calls is - when do you close the position? Don't get me wrong - I have calls in other accounts (mostly LEAPs) and they're doing very well, but I wanted to avoid as much guessing as I could with this portfolio in order to get a somewhat consistent stream of income. 

As for the time involved, I'm not sure if you're referring to the time frame, or the time I take to monitor and trade this account. If the latter, humble is spot on. All of the research and analysis I do on the stock is done anyway because I have many other AAPL holdings to worry about. All I do is occasionally open my trading app and take a look at the prices, and perhaps enter an order. If my earnings were coverted to an hourly wage it would be exceptional and certainly far, far better than my day job.


----------



## GOB

*Oct 3*

Sold: 1 AAPL 05OCT12 $655.00 P @ $2.40: +$239.32


----------



## Lephturn

Lephturn said:


> I have not had much time to discuss it - but here is what I did this week:
> 9/24
> BTO 4 x AAPL Oct12 670 Put
> STO 4 x AAPL Oct12 675 Put
> Net (after all comissions and fees) of $ 608.94 with a margin requirement of $ 2,000.00 or if AAPL hits Oct expiry above $ 675 a tidy 30% ROM.


I could roll this out and down right now to Nov 655/650 for a $ 100 debit. I don't think I need to quite yet though, I've still got some a couple of weeks. If I can get it off for a credit I'll probably do it.

My risk reversal is January - so although it's getting killed right now I'm not repairing it yet. if AAPL closes below $ 650 I'm going to adjust it.


----------



## humble_pie

Lephturn said:


> I could roll this out and down right now to Nov 655/650 for a $ 100 debit. I don't think I need to quite yet though, I've still got some a couple of weeks. If I can get it off for a credit I'll probably do it.


these are the oct 20s ? absolutely wait & see je pense. I don't have anything so close in time ... but as of today i don't believe i'd roll as low as the 650s unless they were the best deal ... your spread here is looking good


----------



## QUANTify-IT

GOB said:


> *Oct 3*
> 
> Sold: 1 AAPL 05OCT12 $655.00 P @ $2.40: +$239.32


So you now have 2 Short-Puts?? The one @ Oct 5 and the other @ Oct 19 expiration?

Man I hope you score BIG in the next 2 weeks, but this is exactly the type of risk (if I'm reading you correctly) that people should never ever ever be taking. I just want to be on record about the real risk being taken here despite the possible upside.

I also trust you won't later be somehow adding into the mix some other AAPL positions you may have in another account as justification for doing something in this account. I say this because I've seen some posts about you having other AAPL positions. I believe you do, but to not state this at the outset, months ago, would be to totally invalidate the current process by not at least "paper-including" them from the outset in this account.

Good Luck GOB, I'm rooting for you.

For the record here, I have no AAPL positions either way ;-)


----------



## humble_pie

i love this new guy from now on none of us will ever be able to do or say anything right each:


----------



## QUANTify-IT

humble_pie said:


> i love this new guy from now on none of us will ever be able to do or say anything right each:


The 'new' guy is looking at incorrigible risk. You can do as you wish which I guess includes the cheap shots.


----------



## humble_pie

quant you are brand-new less than 3 days in this forum & you've been taking cheap shots & baiting members since the getgo.

alas you've given yourself away in options trading. You don't do any, period.

here you are on 1 oct/12:




QUANTify-IT said:


> Every once in a while (once or twice a year?) I will buy an OTM Leap and spend maybe 1/10 of 1% of my portfolio and forget about it. That's about as 'lottery ticket' as i get.


----------



## QUANTify-IT

cheap shots and baiting? You've got to be kidding me.

Check again. I'm talking risk management and ensuring I have GOB's positions correctly.

I've asked him to input his numbers so far into a Monte Carlo system and to report to us, the results.

I've not given any of my option trading 'away'.

If you re-read what I wrote it states clearly I take a flier once or twice a year with essentially ZERO money risked. It say right there 1/10 of one percent. It's that size because it's a total flier. It was placed in the lottery ticket category for a reason.

Now you tell me in your infinite mathematical brilliance how that in any way shape or form has anything to do with GOB's trading of options?

You're right, it DOESN'T.

He's risking loads, 1 or 2 times a year if I spot something, i risk the price of a coffee!

Give me a break dude and either sharpen your pencil or buy new batteries for your calculator.

You're not making any sense and your idea has more holes than swiss cheese.

You have absolutely no idea how I trade, but you do know I place a high amount of adherence to risk management.

But by all means, keep the cheap shots and weak arguments coming. You're not doing yourself any good.


----------



## GOB

QUANTify-IT said:


> So you now have 2 Short-Puts?? The one @ Oct 5 and the other @ Oct 19 expiration?
> 
> Man I hope you score BIG in the next 2 weeks, but this is exactly the type of risk (if I'm reading you correctly) that people should never ever ever be taking. I just want to be on record about the real risk being taken here despite the possible upside.
> 
> I also trust you won't later be somehow adding into the mix some other AAPL positions you may have in another account as justification for doing something in this account. I say this because I've seen some posts about you having other AAPL positions. I believe you do, but to not state this at the outset, months ago, would be to totally invalidate the current process by not at least "paper-including" them from the outset in this account.
> 
> Good Luck GOB, I'm rooting for you.
> 
> For the record here, I have no AAPL positions either way ;-)


I take it you haven't read my earlier posts as I suggested. I absolutely disclosed early on that I have many other AAPL positions in other accounts that have already made me large amounts of money (both booked profit and floating profit). I also acknowledged this is a somewhat higher risk strategy. However, if done right I can achieve great returns. Yes, the dollar value I take on by selling puts is huge, but let's be honest - AAPL isn't going to drop forever and in the long run it will track earnings that show no signs of going below double digit growth anytime soon. 

If AAPL does suffer a remarkable drop I'll simply enter some ridiculously cheap LEAPs at that time and make ally losses back (assuming AAPL's fundamentals haven't changed). While it will be an unpleasant experienced, I'm fully prepared to take a large loss in this portfolio if it comes to that. I have plans that I will execute if such events were to occur. 

I don't need to justify to you or anyone else whatever results I get here (although I guess I just did...). I'm taking on the risk and I'm willing to make profit or lose the money I risk.


----------



## QUANTify-IT

humble_pie said:


> alas you've given yourself away in options trading. You don't do any, period.


Before you make an even greater fool of yourself by making more baseless comments such as the above (or if you want to keep digging the hole it's fine with me) let me set you straight, son.

I use options all the time and in fact I would not trade stocks otherwise.

I use options mainly for risk management/hedging. Depending on the position held I will also use them for income but that is only after the capital in use has been protected entirely. If you really want to get into the current stock+option set-up we are currently slightly Delta positive and fairly heavily Theta positive until October's Option Ex. We are agnostic as to direction for a few percentage point until then.

I caution people to not make assumption they can't possibly have the first idea about.


----------



## QUANTify-IT

GOB said:


> ...I don't need to justify to you or anyone else whatever results I get here. I'm taking on the risk and I'm willing to make profit or lose the money I risk.


You're right you don't owe it to anyone else. I assume you would choose to owe it to yourself to run some risk management tools however.

I do suggest that it would have been far more statistically relevant to your 10K income portfolio to place in black and white how much of those previous unmentioned AAPL profits your were willing to risk with the $10K income account. It would make no sense to track the portfolio performance without that data.

It's just not how things are done. You don't honestly measure performance in a vacuum like that.

The reason why I am stating it now is because if you by chance to have to take a bath on a position and this account goes negative it's only too typical for people to coach it later and state that they're still up overall so it's "not that bad".

That may well be true, but the stated account and all of it's trades, performance and credibility of said, would be at that point completely ruined and rendered worthless.

It's best to state all the factors right up front which includes all the relevant numbers, or what is the point of the analysis of the process? It's flawed to do otherwise.

At any rate, seeing as I am delta positive myself I hope for both of our profitability's sake that the market stays flat to slightly up for the next couple of weeks.


----------



## HaroldCrump

Quantify, if you read through all the 5 previous pages of this thread, you will see that GOB's positions are not as risky as they might appear initially.
He has the short call positions covered via other accounts.
There is perhaps a margin call risk with the short puts, but keep in mind that the stock in question is Apple.
Not an Irish bank, not a small cap miner, and not a certain phone manufacturer with 3% market share.

At this time, there are at least 3 separate threads going on about options and options strategies.
Under the Investing section, there is a thread titled _Options_.

Won't you please review some of those threads and participate in those and give us some examples on how you use options for risk hegding.
There are some very eager and budding options traders on this group and we will appreciate a new member's insight.


----------



## humble_pie

hi there quant

the sole evidence in your brief 3-day sojourn here is that your option experience is limited to buying one LEAPs option once or twice a year, as quoted in the message set forth upthread.

this minimal experience does not qualify you to preach about options.

if you had a long & reliable history as an options trader in this forum - as everyone else posting on this topic does - the situation would be vastly different, but the fact is that you have no history whatsoever. Boasts do not count.

one more step & i fear you will be classed as a troll each:


----------



## GOB

QUANTify-IT said:


> You're right you don't owe it to anyone else. I assume you would choose to owe it to yourself to run some risk management tools however.
> 
> I do suggest that it would have been far more statistically relevant to your 10K income portfolio to place in black and white how much of those previous unmentioned AAPL profits your were willing to risk with the $10K income account. It would make no sense to track the portfolio performance without that data.
> 
> It's just not how things are done. You don't honestly measure performance in a vacuum like that.
> 
> The reason why I am stating it now is because if you by chance to have to take a bath on a position and this account goes negative it's only too typical for people to coach it later and state that they're still up overall so it's "not that bad".
> 
> That may well be true, but the stated account and all of it's trades, performance and credibility of said, would be at that point completely ruined and rendered worthless.
> 
> It's best to state all the factors right up front which includes all the relevant numbers, or what is the point of the analysis of the process? It's flawed to do otherwise.
> 
> At any rate, seeing as I am delta positive myself I hope for both of our profitability's sake that the market stays flat to slightly up for the next couple of weeks.


I'm willing to risk the entire account. Good enough for you? I don't feel the need to disclose my net worth to a bunch of strangers. If that makes the content of this thread worthless, feel free to leave but many people are learning here. 

Believe me, I know all about risk and over the past 21 pages I've given plenty of reasons why I'm comfortable taking on more risk at this point in time. I applaud your conservative style, but there's more than one way to skin a cat.

*Oct 3*

Bought to Close: 1 AAPL 05OCT12 $655.00 P @ $1.75: -$176.06 (Total profit $63.26)


----------



## QUANTify-IT

The good thing is my "newness" to this forum has zero correlation as to my option knowledge and performance.

That fact that you all too quickly made incorrect assumptions is not really my fault is it?

I suggest instead of stating assumptions without facts is less better than simply asking in the first place. 

This is why I ask GOB, gobs of questions - so I know what his positions are so what I am thinking is in line with what he is doing.

What "boasts" have I done. Are you reading what I write or do you just make stuff up as you go?

It seem you're more of a troll to this point in our conversation.


----------



## QUANTify-IT

GOB said:


> I'm willing to risk the entire account. Good enough for you? I don't feel the need to disclose my net worth to a bunch of strangers. If that makes the content of this thread worthless, feel free to leave but many people are learning here.
> 
> Believe me, I know all about risk and over the past 21 pages I've given plenty of reasons why I'm comfortable taking on more risk at this point in time. I applaud your conservative style, but there's more than one way to skin a cat.


Yeah I like that you're quantifying what you're willing to risk. I can't do math without hard numbers since I'd rather not make too many assumptions if I don't have to.

As to disclosing net worth, I don't think you need to go that far, but clearly your opted to open the thread under no duress so I expect someone that is willing to do so and to track performance of said account would also be willing to state quite clearly all the factors affecting the decisions being made in that account.

Good Luck again.


----------



## GOB

You also made several assumptions about my lack of understanding of the risk I'm and that I haven't disclosed my reasoning for the way I'm trading - even after I told you to go over my earlier posts. 

Let's stop the arguing please. Yes, I'm taking a risk. Yes, I might lose it all. Let's talk about something else, like what alternate strategies would you propose?


----------



## QUANTify-IT

GOB said:


> You also made several assumptions about my lack of understanding of the risk I'm and that I haven't disclosed my reasoning for the way I'm trading - even after I told you to go over my earlier posts.
> 
> Let's stop the arguing please. Yes, I'm taking a risk. Yes, I might lose it all. Let's talk about something else, like what alternate strategies would you propose?


I made no such assumption. 

I pointed out the risk you're taking. 

I _assume_ you know it. (It's kind of hard to not know since this is options 101 stuff)

I am wanting to be crystal clear to anyone and everyone that reads this forum that taking high-risk rolls in and of itself is an assisted suicide game.

I am liking that you're being crystal clear right now.

I don't see us as arguing at all. We're getting down to the math.

That's where is starts and ends with me. I am completely happy with the situation as it stands right now. You've made your position completely clear to me and whether I agree or not is completely another story and one of which that I don't even feel the need to enter since what I think personally is of no consequence to you.

We're all good, GOB.


----------



## QUANTify-IT

GOB said:


> You also made several assumptions about my lack of understanding of the risk I'm and that I haven't disclosed my reasoning for the way I'm trading - even after I told you to go over my earlier posts.
> 
> Let's stop the arguing please. Yes, I'm taking a risk. Yes, I might lose it all. Let's talk about something else, like what alternate strategies would you propose?


Just for the record here i DID read your posts. Specifically the first one...

" $10,000 Income Portfolio

I thought I would start a thread showing all my trades for one of my accounts (credit to DMoney for the idea). This is a $10,000 account and *the goal is to write options and generate continuous income*. I don't want to be holding many stocks in my portfolio, *but if I sell any naked puts they will be at prices I am comfortable owning the shares at. Either that or I'll roll them*."



No-where in that post did you state anything about using trades in this account against any other trades you made previously in other accounts, nor was it stated that you were OK with it going to zero. I'm pretty sure I would have seen that written somewhere along the way but it's been a lot of reading so who's to say what I missed the first time around.

You have to admit that even if it was not your intention, that what you're saying now is a lot different from what the first post stated as the intent of the account. (*BOLD* is mine of course)

Now maybe you can see why I felt the urge to ask you to clarify what it is you're doing with this.


----------



## Argonaut

QUANT, you're not contributing anything but hot air. Criticism and suggestions are all good, and GOB is happy to have them. But nowhere at all have you given any concrete examples to support your arguments, or any strategies for the collective to ponder.


----------



## GOB

QUANTify-IT said:


> Just for the record here i DID read your posts. Specifically the first one...
> 
> " $10,000 Income Portfolio
> 
> I thought I would start a thread showing all my trades for one of my accounts (credit to DMoney for the idea). This is a $10,000 account and *the goal is to write options and generate continuous income*. I don't want to be holding many stocks in my portfolio, *but if I sell any naked puts they will be at prices I am comfortable owning the shares at. Either that or I'll roll them*."
> 
> 
> 
> No-where in that post did you state anything about using trades in this account against any other trades you made previously in other accounts, nor was it stated that you were OK with it going to zero. I'm pretty sure I would have seen that written somewhere along the way but it's been a lot of reading so who's to say what I missed the first time around.
> 
> You have to admit that even if it was not your intention, that what you're saying now is a lot different from what the first post stated as the intent of the account. (*BOLD* is mine of course)
> 
> Now maybe you can see why I felt the urge to ask you to clarify what it is you're doing with this.


The bold is still correct to this day, and is what I have been doing. Perhaps I didn't mention my other holdings in the very first posts, but it has been alluded to many times. You can't hardly expect to read the very first post and then come in 21 pages later and assume nothing else has been said, can you? Truth be told, I can't be bothered going back and digging out other quotes, but everybody who's kept up with this thread is fully aware of my other holding and the various factors that influence my decisions here.


----------



## QUANTify-IT

Argonaut said:


> QUANT, you're not contributing anything but hot air. Criticism and suggestions are all good, and GOB is happy to have them. But nowhere at all have you given any concrete examples to support your arguments, or any strategies for the collective to ponder.


It's am atter of what one chooses to hear.

My contribution for one is risk management. How would you want me to help in risk management that is not even there? I can't, well except to say that limiting gains and exposing yourself to fat-tail risk has been proven not too profitable.

What do I suggest?

Well, stop doing it would be a start, lol.

I'm here watching and asking question to clarify what GOB is doing. As long as he's crystal clear to everyone that he's willing to let that account go to zero then I think we're ALL hands-off the wheel.

He's stated it clearly so in effect he's satisfied anything I ever want to see.

I've also mentioned that people might want to plug in their strategies into Monte Carls sims for a look-see of long-term viability.

The problem is people will hear only what they want to hear.

You want concrete examples of premium sellers making good money for a long time then end up blowing up eventually? 

They're a dime dozen so it's not too hard to find them if you go looking. That's all he's doing here. It's certainly not new.

Before you can ponder what it is that I do you'd have to see clearly why Monte Carlo sims, risk-adjusted returns and tail-risks are of extreme importance to long-term success, yet we can't even get past these yet. 

lol, there's precious little to be gained from moving forward with anything else until then is there?

Until then, now that GOB has clarified, I am very happy to sit back and watch and actually get my adrenalin rush through him - seriously!


----------



## QUANTify-IT

GOB said:


> The bold is still correct to this day, and is what I have been doing. Perhaps I didn't mention my other holdings in the very first posts, but it has been alluded to many times. *You can't hardly expect to read the very first post and then come in 21 pages later and assume nothing else has been said, can you?* Truth be told, I can't be bothered going back and digging out other quotes, but everybody who's kept up with this thread is fully aware of my other holding and the various factors that influence my decisions here.


C'mon GOB I just said I read the entire thing but 21 pages is a lot to come up against at once which is why *I ASKED* where I was unclear. Then I had babies tell me I am a troll (easy jab to make on the new guy), and that I had zero options knowledge because I am new to the forum and I will own up to taking once or twice a year a coffee-money option trade as if it were my only option tool in the bag! lol! Now that's funny!

You boys need to stop blaming me for asking questions you might not want to answer and then have me point to the math that you might not want to run.

How many more times in the last 4 posts do you want me to state I am happy with your clarification today?

Will one more time do the trick?


----------



## GOB

That's fine. Just out of interest, can you point me towards a Monte Carlo simulator?

I'm aware that I didn't invent this strategy. Where I hope to stand out is my decision to trade AAPL. I see limited downside and incredible upside, but I don't want to time the market too much more than I have already in other accounts. I also want slightly leveraged gains compared to holding straight stock, which I also have. If I'm wrong about AAPL, then certainly the outcomes you proposed will come to fruition. But I'm very confident in my analysis that has been pretty much spot on for years now.


----------



## QUANTify-IT

Allow me to do to you what Humble-Pie did to me earlier...



Argonaut said:


> It baffles me that someone makes $200k+ per year and knows nothing about money. Are you a hockey player? Extra time to think about investing during the lockout? A rockstar? Justin Bieber, is that you?


Now how do you guys feel?

Argo, was your comment helpful or contributory?

Are YOU a troll too?

Is the quote above a true and complete representation of what you have to offer?

Ya see what I mean guys?


The fact is i HAVE contributed to risk management for those interested in even looking. Your quote above, Argo, was 100% rubbish.

Doing the same with Humble-Pie's posts would be infinitely easier since as I was reading through all the threads prior to signing up it was clear to me he was the resident troll with the most visibility from what I read. What he did to me was not at all a surprise really.

Evidently I picked him out from a mile away and he did not disappoint my expectations of him.


----------



## QUANTify-IT

GOB said:


> That's fine. Just out of interest, can you point me towards a Monte Carlo simulator?
> 
> I'm aware that I didn't invent this strategy. Where I hope to stand out is my decision to trade AAPL. I see limited downside and incredible upside, but I don't want to time the market too much more than I have already in other accounts. I also want slightly leveraged gains compared to holding straight stock, which I also have. If I'm wrong about AAPL, then certainly the outcomes you proposed will come to fruition. But I'm very confident in my analysis that has been pretty much spot on for years now.


I think your choice of using AAPL with this strategy is a pretty darn good one. I thought that one right away.

You can build a monte carlo sim with excel. I don't have any links off hand, but if you search for it you'll find a pile of resources available. Using "kelly criterion" search in wikipedia will give you a decent (but static) formula for at least a basic foundation of the possibilities.

No sim we run will be 'real life' as that's not possible but I have found it to be of great help in the intuitive reasoning as to why and how to get the math working for us instead of against us.

All I can say is once I finally figured out in my mind that winning was all about not losing (too much) this entire game just because a ton easier and a heck of a lot more clear as to the pot-holes and culverts along the way.


----------



## GOB

Ok, that's enough. Please stop polluting my thread now. Keep things constructive or refrain from posting.


----------



## humble_pie

i think cmf should ban squant

he has nothing to say other than damage

this thread, once so pristine & happy, is now swollen up with a pustulent tumour


----------



## QUANTify-IT

GOB said:


> That's fine. Just out of interest, can you point me towards a Monte Carlo simulator?
> 
> I'm aware that I didn't invent this strategy. Where I hope to stand out is my decision to trade AAPL. I see limited downside and incredible upside, but I don't want to time the market too much more than I have already in other accounts. I also want slightly leveraged gains compared to holding straight stock, which I also have. If I'm wrong about AAPL, then certainly the outcomes you proposed will come to fruition. But I'm very confident in my analysis that has been pretty much spot on for years now.


If you can give me the number of trades you've done, the winners+losers, the avg % gain, the avg % losers I can do a quick run. It'll be pretty rough due to the lack of data point plus other factors but hey, it's a start.


----------



## humble_pie

i know it's hard to go back to the garden of eden, but less than 24 hours ago this thread was a vibrant creation centre that any business editor & publisher would give their eye teeth to be able to offer. It was a showpiece of youth coming of age in sophisticated option strategy. Almost impossible, but step by step Gob was proving it. To the delight of onlookers.

would the moderators please consider deleting all of quant's messages so we can get back to eden.


----------



## QUANTify-IT

humble_pie said:


> i know it's hard to go back to the garden of eden, but less than 24 hours ago this thread was a vibrant creation centre that any business editor & publisher would give their eye teeth to be able to offer. It was a showpiece of youth coming of age in sophisticated option strategy. Almost impossible, but step by step Gob was proving it. To the delight of onlookers.
> 
> would the moderators please consider deleting all of quant's messages so we can get back to eden.


you started it with your troll comments and making comments you had no basis to be saying. That's rich pal, and now you want to play the victim.

No worries buddy, I've found the ignore button with you. You're a waste of time and I suspect I'm not the first person to have noticed.


----------



## ddkay

Please argue opinions and not each other, thanks


----------



## QUANTify-IT

ddkay said:


> Please argue opinions and not each other, thanks


Agreed Entirely!

That's it exactly, and thank you.


----------



## GOB

Some lunch money for today:

*Oct 4*

Sold: 1 AAPL 05OCT12 $650.00 P @ $45.00: +$44.32


----------



## Dmoney

Wow, looking at the flexibility you have based on the amount of your commissions makes me suicidal. 
I'd be paying half my gains in commissions.

Take me out for lunch tomorrow?


----------



## GOB

Sorry Dmoney, lunch money got stolen by the bears! All I have left is a $1 special at Tim Hortons, but we'll have to split it. Looks like there is still weakness in the stock. 

*Oct 5*

Bought to Close: 1 AAPL 05OCT12 $650.00P @ $0.42: -$43.06 (Total profit $1.26)
Sold: 1 AAPL 12OCT12 $625.00 P @ $1.75: +$173.94

Already down $50 on the put...looks like I jumped in too early again. If we break $650 I will be a bit concerned.


----------



## humble_pie

just to update myself, whatever happened to that short 5 oct 695P we glimpsed last week ?

maybe i missed something along the way anyhow lunch at the desk today

one thing i've always admired is how the tdw reps work through lunch on ultra-busy days, taking calls the whole time but somehow inhaling their lunches - which i believe the big green delivers to em free - somehow assimilating their lunches via aerial osmosis. You never hear them even so much as swallowing.


----------



## GOB

Humble, the 05OCT12 $695P was rolled forward to 19OCT12 for a $400 credit. Holding two puts right now.


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## humble_pie

that's a 19 oct 695P i wonder ?

i asked my uber-uber-knowledgeable friend why the ITM put bids in aapl are increasing at an increasing rate at each level as the strikes go deeper DITM ... it's the rate of increase that is being questioned, not the increase itself of course ... he emailed he is stumped ... theoretically as argo says the rate of increase should be decreasing until finally there is little or no time/theoretical value left ... we plan to talk this weekend, email is failing us here.

friend asks Who Wants to Know ? What is the Knowledge that is being Pursued here ? he works in the biz but cannot imagine a trader aggressively selling DITM puts in aapl, like $40 above market ...


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## GOB

Yes, $695 strike. Was up over $1k earlier this week but is back in the red now. I'm glad I got a good credit for it as it may take a while to get back to those levels. 

Thanks for the research - it will be interesting to see what comes of it. I wasn't planning to sell DITM puts though, just maybe $5-10 in the money. Will probably play it safer for now though.


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## GOB

This stock is really trying my patience now. Good learning opportunity I guess

*Oct 8*

Bought to Close: 1 AAPL 12OCT12 $625.00 P @ $4.61: -$461.69 (Total Profit -$287.75)
Sold: 1 AAPL 19OCT12 $610.00P @ 5.36: +$535.30
Bought: 1 AAPL 15FEB13 700/710 BuCS @ $3.30: -$342.18


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## ddkay

Apple asked Foxcon workers to inspect for defects 0.02mm wide and they snapped. It's better than glass, but with anodized aluminum you have to be very careful, anyone that owns a bike should how easily an anodized finish scratches and fades over time... Nokia has more experience designing phones with this material.. check out the N8 scratch tests, that thing is solid


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## humble_pie

one among many benefits of a forum like this is that seeing how others handle certain stocks can push one into rethinking one's own strategy.

in aapl i've been doing a craven, cowardly custard pie strategy. Gob's exploits have caused me to rethink. 

i've decided i'll be a put seller only. Because i always have excess margin, so the margin cost of an array of puts will be zero. If assigned, i'll muster the cash.

out goes the cowardly custard. In comes prosciutto quiche w serrano peppers & a big dollop of wasabi on the side.

as my kids used to say on the cross-Channel ferryboats, Everybody to the Mustard Stations !


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## GOB

ddkay said:


> Apple asked Foxcon workers to inspect for defects 0.02mm wide and they snapped. It's better than glass, but with anodized aluminum you have to be very careful, anyone that owns a bike should how easily an anodized finish scratches and fades over time... Nokia has more experience designing phones with this material.. check out the N8 scratch tests, that thing is solid


I don't know if there is much truth in this as the number of rumours flying around right now are incredible, but if true this showcases the problems Apple is facing. On the one hand, people are complaining about their phones being "scratchable" (what do they expect?) and on the other, Apple is met with resistance on the production side when they attempt to improve it. It's not easy producing hundreds of thousands of phones every day with the type of quality of the iPhone 5. This may be contributing to the downward pressure on the stock, but my feeling is it's still temporary. I think the larger factor is the spread of bearish news to bring the stock down so the big boys can reload ahead of the iPad Mini and the historic holiday quarter.


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## GOB

humble_pie said:


> one among many benefits of a forum like this is that seeing how others handle certain stocks can push one into rethinking one's own strategy.
> 
> in aapl i've been doing a craven, cowardly custard pie strategy. Gob's exploits have caused me to rethink.
> 
> i've decided i'll be a put seller only. Because i always have excess margin, so the margin cost of an array of puts will be zero. If assigned, i'll muster the cash.
> 
> out goes the cowardly custard. In comes prosciutto quiche w serrano peppers & a big dollop of wasabi on the side.
> 
> as my kids used to say on the cross-Channel ferryboats, Everybody to the Mustard Stations !


Good luck! This journal has validated my strategy somewhat. Even if I were to liquidate my portfolio after this 10% drop, I'd still be up from where I started. We've seen two extremes since I started - a rapid rise and a rapid drop. Anything in between will be a piece of cake to handle after this. Of course, things could still get worse. As I've been saying from the start though, if I lose money here it means AAPL will be at a price that represents extreme undervaluation, and a price where LEAPs will be dirt cheap.


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## humble_pie

i don't see any value in the LEAPs right now, nor have i ever.

i was checking idly whether any nice diagonal might be present ... but that 2015 600 call would cost something like 150.00, while a july 700 call might find 50 or 51 ... nah, there's no money in this for a poor hardworkin tart ...


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## GOB

If timed correctly, LEAPs can be amazing. In spring 2011 I entered a Jan 2013 $500 call for just under $3,000 - turned into a $17,000 profit when we were flirting with $700. I'm still up $11,000 right now. I'm a huge fan of LEAPs


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## humble_pie

i looked carefully before i LEAPed

bt 1 aapl 2015 jan 400 @ 257.00 cost 25,711.24
sld 1 aapl 2013 jul 700 @ 45.85 proceeds 4,573.65


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## GOB

I decided this morning when we were in the $620s to give my deep red put a little more time to play out, lower risk a little and free up a tiny bit of margin. 

*Oct 9*
Bought to Close: 1 AAPL 19OCT12 $695.00P @ $62.55: -$6,255.69 (Total profit -$2,346.16)
Sold: 1 AAPL 16NOV12 $685.00P @ $63.95: +$6,394.17

It looks like the end of the bearishness may be near. There was quite a nice bounce at the 100 day EMA which is traditionally a great support level for AAPL. I have a feeling we could get back to $685 in short order, before my November put expires. 

Humble, good timing with your trades. You could get a nice double on that LEAP.


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## Argonaut

Nice move. You gain some time, lower the strike, and add cash to boot. Stealth.


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## humble_pie

that was rolling em out mille feuilles. It's almost impossible to imagine apple managers letting production problems get out of hand for long.

for my call spread, there won't be any double on the leap. The short july 700 is the other half of a diagonal spread. The most i might collect in this present edition is $30 while cost at present is about 21.14, so max profit is capped around 8.86. Which at 8,860 is not to be sneezed at.

it's likely that cost will be written down again & again during the 34-month life of the spread, as the short-term calls get sold.


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## Lephturn

I rolled my Oct spread but had to widen it for a credit. Probably shouldn't have done that, but we'll soon see.

Opener was:
09/24/2012	Sell To Open	4	AAPL Oct12 675 Put	$11.30	$4,512.42
09/24/2012	Buy To Open	4	AAPL Oct12 670 Put	$9.74 ($3,903.48)
Net $608.94 

Rolled to:
10/10/2012	Sell To Close	4	AAPL Oct12 670 Put	$32.86	$13,137.70
10/10/2012	Buy To Close	4	AAPL Oct12 675 Put	$37.25	($14,906.00)
Net ($1,768.30)

10/10/2012	Sell To Open	4	AAPL Nov12 625 Put	$23.19	$9,269.79
10/10/2012	Buy To Open	4	AAPL Nov12 605 Put	$15.93	($6,378.00)
Net $2,891.79 

Total so far: $1,732.43 

I widened the spread which was probably dumb. Otherwise I was in debit land. by $400 or so. I'm now rolled down and out to Nov so I can watch and see. Thoughts guys? Was widening it really a bad idea?

The new position is Delta=40.06 Gamma=-0.27 Theta=10.45 Vega=-31.08

Heavy negative vega position here, so provided the stock recovers as I expect I should gain value quickly as the vol comes in. The other spread got killed because the negative vol position overwhelmed the theta of the position in addition to the loss from delta and gamma exposure. I should have done a snapshot of the old position before I rolled it to compare the resulting greeks but I'll try to remember that for next time.


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## GOB

Lephturn, you should be fine. In fact, once I get rid of my $610 put next week (hopefully), I'm going to get into some BuPS, either weekly or for November depending on the pricing. They offer great returns, I don't know why I stopped playing them.


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## humble_pie

morning lephturn this looks to be putting you in a fine place. The spread is not too wide at all imho; in fact the way things are now running (up) the wide spread helps to offset the fact that the sold 625P may turn out to be a tad on the low side.

another good feature is the short term, so you are well-positioned for any iMini news that might break & also for Xmas sales in iPhone5.

for my part i've rec'd 5028.00 for selling 1 jul 600P plus rec'd net 3182.50 for rolling 1 apr 550P into a 2nd jul 600P, for a total of 8,210.00 cash on hand. I have no cover & right now am ready to pay 120,000.00 should both puts be assigned, although the situation could change & requires monitoring.

the fact that there will likely be little to do in aapl puts for the next 6 months is highly appealing to me. I've collected 8,210 in cash upfront & have other option positions to look after in the meantime.


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## GOB

Made some moves yesterday - didn't get a chance to update:

*Oct 11*

Bought to Close: 1 AAPL 21OCT12 $610.00P @ $2.30: -$231.06 (Total profit +$287.23)
Bought: 10 AAPL 21OCT12 $600/610 BuPS @ $0.83: +$815.77
Bought: 10 AAPL 21OCT12 $585/590 BuPS @ $0.25: +$226.69

Made these trades early in the morning before AAPL tanked. I think I'll still be safe with the spreads. If not, they are rollable.


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## GOB

Well, today has gone about as well as I could have hoped. I was a bit antsy about my 600/610 BuCS given the recent bearish price action of AAPL but we seemed to have settled down nicely approaching the close a few dollars up. I'm not out of the woods yet but I'm more positive today then I was over the weekend. I'll probably be a little more conservative in the future taking a smaller premium, at least until I can unload my Nov $685 put. As Lephturn has mentioned many times, spreads do have excellent potential especially at low commissions.


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## humble_pie

.


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## Lephturn

LOL my pastry loving friend. 

My rolled Nov spread is looking good.

AAPL Nov12 605/625 Put Spread	4 / -4 644.61	$324.00
Delta 43.87	Gamma -0.38 Theta 17.77 Vega -38.38

Nice positive theta there but pretty hefty short vol exposure. Pulled back some today but I'm still bullish based on fundamentals and even my Jan13 -675P + 690C risk reversal I still think is safe.

Sniffing around at back spread here longer term but I haven't found what I am looking for yet. I'm looking for something where I can go short a call and then long two further OTM calls where there is not a huge debit. I'll have to play around and dig for a good trade - with AAPL I may just do that rare thing of just going long a LEAP. The fundamentals are crazy good.


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## GOB

Nice trade Lephturn. I'm going to be pursuing more spreads as well. Next week is the iPad Mini and earnings so expect some volatility. 

I'm out of the AAPL thread. Probably for the best, as we were just going around in circles in there. The same silly arguments were put forth yesterday since the creation of that thread almost 1.5 years ago - I guess some people never learn. The second post in the thread all the way from May 2011 is a shining example of what I am just sick and tired of:



andrewf said:


> They need to keep pumping out blockbusters to maintain their earnings... hence multiple compression. Android is going to put some serious pressure on iOS device sales. Will people pay twice as much for half the device just for half-eaten fruit logo? Some will, but enough to justify a $300 billion market cap?


1. Lack of understanding (smartphones and tablets were and still are growing extremely fast, so no new blockbusters required to maintain/grow earnings)
2. Letting bias creep into investing thesis: ("Will people pay twice as much for half the device just for half-eaten fruit logo?")
3. Not a clue on how to value a company (we're 2 x $300 billion with no additional blockbuster product and are still undervalued)

This poster has been a relentless bear on the stock and is just changing his arguments to suit the times. That's fine, if the arguments he made had a shred of rationality or credibility. But they don't. They're all equally nonsensical and I have wasted hours upon hours repeatedly tearing them apart and proving myself to be correct. Unfortunately, some people are too sensitive and emotional to recognize the importance and value of a strongly worded, rational argument. I cannot make my points while blowing rainbows and lollipops up the you-know-whats of people who continually post nonsense in there. So at the expense of the people who did appreciate my posts, I'm gone. 

I'll continue posting here any Apple related thoughts and news.


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## Lephturn

I agree - I only occasionally venture into that AAPL thread. This is the valuable one anyway!

However I am always happy to see lots of negative sentiment around AAPL - I have to make my money from somebody! Trading is a simple wealth transfer - in order for us to make money somebody else has to lose it, so I always take that kind of negative sentiment with a smirk since when I make $ I am happy to take it from those folks. Not that those folks usually put any $ where their mouth is - for all the talking the AAPL bears do there is a distinct lack of posts about short trades. I tried to change that one to posting actual trades many months ago but eventually just gave up. One good thing came out of it though - I saw some of your posts so I knew to pay attention when you started this thread!

Cheers GOB - I very much appreciate your posts and your willingness to share actual trades. This thread is the single most valuable piece of content on the board as far as I am concerned. Much appreciated.


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## GOB

GOOG is plummeting. Took a big hit on accounting charges with the Motorola acquisition. Even backing that out, however, growth would have only been 8% YoY. Decidedly mediocre, and laughable when you consider it has a much higher P/E than AAPL. But so many people think GOOG is a better play...

I have been saying for a while, when 98% of your revenue comes from advertising, and advertising costs start flatlining or declining, GOOG is going to be in a world of trouble. The fact that the majority of high worth mobile users will no longer be providing revenues from using Google's mapping data is just a start.

I just have to laugh when I see comments on this forum like "GOOG will eat AAPL's lunch" without a shred of sound logic. Of course, if I attack such arguments I'm labeled an over zealous Apple loving troll, so from now on I'll just chuckle to myself.


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## Lephturn

Add to that Apple obviously editing GOOG out of their platforms - how's that mobile ad business going to go when google is not present on iOS by default? Answer... not good. 

And GOOG - halted with that early release - ouch! Would have been a good time to have a strangle on pre-earnings. Talk about a vol pop!

http://blogs.barrons.com/techtraderdaily/2012/10/18/goog-to-resume-at-320pm-est-files-amended-8-k/


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## Argonaut

Should have sold my call spread on GOOG. But still think that long-term they are a key company on this here planet Earth, and beyond.


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## GOB

Google isn't going to go away anytime soon. They are an extremely powerful company. The question, however, is the viability of their business model in terms of growth potential. They offer a diverse set of services, but all of it is done to sell ads. When cost per click rates have declined four quarters in a row, and Google is missing out on the most lucrative part of the faster growing ad sector (iOS devices) then I see the potential for trouble in the future. I see a much greater likelihood of Google's growth slowing much sooner than Apple's - in fact it is happening already before our eyes. Most of their money is being made in a declining industry, and they failed to execute to take proper advantage of the explosive growth of the mobile industry. 

I fully agree they're a key company and will be going forward, but does that equate to a good investment? I'm not sold on that part, though I'm not bearish enough to short it or anything. I see them becoming the next MSFT in fairly short order.

To boil it all down: Apple makes money on things people love; Google makes money on things people hate (ads). That's a powerful statement and it makes me stay far away from one and flock to the other both as a consumer and an investor.


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## Dmoney

GOB said:


> To boil it all down: Apple makes money on things people love; Google makes money on things people hate (ads). That's a powerful statement and it makes me stay far away from one and flock to the other both as a consumer and an investor.


Love this quote. 

Unfortunately, I've never bought into Apple, kicking myself now thanks to my flawless hindsight. 
I always underestimated people's desire to spend on wants, and continue to do so. I know that I'd never spend a penny of my $$$ on any Apple product (I would probably buy an iPod, but was saved by receiving one as a gift) and I project that on others. Fortunately for Apple shareholders, there are countless people who will buy 5 iterations of each of Apple's products. In the past couple years, I've realized that more than a tech company, Apple is a marketing machine. 

They have somehow convinced legions of their fans to do their marketing for them, which is incredibly powerful. The number of times I've heard ... "my Mac can do this" makes me want to blow up Apple's headquarters. But people are listening, people are buying, and every time I pass an Apple store, it's swamped. I might not bet on Apple, but I sure as hell won't bet against it.


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## GOB

DMoney, there are a couple of misconceptions you are making. 

1. Not that many people buy every single iteration of an iPhone/iPad/etc. Of course there are some, but the majority of users either upgrade every two to three years (like myself), are switching from other brands or are entirely new to the smartphone space. That segment of the consumer base is far, far higher and contribute much more to earnings than the ones who line up for every iteration. Replacement of technology is not a concept unique to the Apple consumer - most people will tend to upgrade their devices after a few years. In fact, since Apple supports older models much better than any other brand, I'd wager there is a greater percentage of people who use their iPhones for several years than any other competing model. I don't have the data to back that up, but it makes sense to me, and I see tons of 3G/3GS phones still being used. 

2. Apple certainly is a marketing machine, but in order for that to work continuously there has to be a rock solid product line behind all that marketing. You may not purchase Apple for whatever reasons you have, but the fact is Apple products are the best products available for the needs of a huge segment of the population. The marketing takes an already impressive device and turns it into a "must-have" (which is the whole point of marketing). Apple's popularity is also becoming a bit of a double-edged sword these days (antenna gate, Maps, scratching, etc.) where every little thing becomes overblown and scrutinized.


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## GOB

What an unbelievable day. I was happily thinking my spreads would expire worthless without a worry. Looks like it'll just make it but I went the safer route earlier this morning and closed out my 600/610s. Also went on a little shopping spree for next week and Apr 2013. Looks like there may be some even better bargains next week. 

*Oct 19*

Sold: 10 AAPL 21OCT12 $600/610 BuPS @ $0.39: -$400.24 (Total Profit +$415.53)
Expired: 10 AAPL 21OCT12 $585/590 BuPS (Total Profit +$226.69)
Bought: 16 AAPL 28OCT12 $560/565 BuPS @ $0.55: +$860.01
Bought: 3 AAPL 13APR109 $690/695 BuCS @ $1.50: -$452.53

I like BuPS. On a week where AAPL dropped over 3% (and over 6% from high to low) I still managed over $600 profit. Meanwhile my $685 put is waiting to recover tying up capital in the process. Perhaps I was too quick to hop on the put selling train. Although I still see the appeal for that, I'm starting to think spreads can provide equivalent returns while also allowing for more downside protection. I'm always learning.


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## Lephturn

AAPL slaughterfest today. Ouch.

This was on Wednesday:


> AAPL Nov12 605/625 Put Spread	4 / -4 644.61	$324.00
> Delta 43.87	Gamma -0.38 Theta 17.77 Vega -38.38


Same position right now:


> AAPL Nov12 605/625 Put Spread	4 / -4 Cost= -$2,904.00 Value= -$4,300.00 Gain/Loss= -$1,396.00
> Delta 45.42	Gamma -0.02 Theta -8.18 Vega 3.57


And that folks, is what happens when your spread goes in the money on the short side - your Theta and Vega invert. We'll see how next week progresses - but this will really test the waters. I don't want to see what happens when this thing crashes through 600. Ow. The next strong looking demand level I see is $ 590 or so.


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## GOB

Stay strong. This is a broad market sell-off and AAPL is paying for the poor earnings of GOOG, IBM, MSFT etc. Nothing has changed fundamentally for the company. If we are still low after earnings and IV drops - time to load up on some OTM 2013/2014/2015 BuCS. Just my opinion as always.


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## humble_pie

bt another diagonal pair in aapl this am. Stk was around 620.00

bt 1 aapl 2015 jan 400 @ 252.00 cost 25,211.24
sld 1 aapl jul 700 @ 42.50 proceeds 4,238.66
net cost 20,972.58.

profit is limited to (30,000.00-20,972.58) although as time passes, cost will be worked down via additional short-term call sales.

a possible return of 42.95% over 27 months is not to be sneezed at.


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## GOB

^ definitely not!

Could this finally be the bottom? To early to tell as we have two mega-volatile events coming up, but this looks very promising.

Just for the heck of it, I took a flyer on poor AMZN earnings with a cheap bear put spread. 

*Oct 22*

Bought: 1 AMZN 16NOV12 $185/190 BePS @ $0.29: -$31.12


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## humble_pie

lepht is after me for quantitative vol analysis so i am responding by retreating even more into the custard & saying it doesn't quite look as if iMini is going to wow america ...

gob with respect to your high-priced put - it was a nov 685, was it not - i've often been in situations like this. Occasionally with ITM puts, more often the opposite with DITM calls after stock has soared. What i do in these situations is gingerly mince my way forward, rolling rolling rolling like a croquet ball through wickets.

alas mincing delivers only morsel-sized profits or less. The capital unfortunately remains tied up, but the high-flying days of double-digit returns every month can be gone for a while. Especially when a particular stock has careened up or down into another different price stratum where, by gosh & by golly, it intends to stay.

it takes a while to coax all the option croquet balls through the wickets into the new lower (or higher) playing field but eventually they all do get there ...
.


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## GOB

Sorry I've been out of action for a while. I didn't post it but I sold 4 AAPL $645/650 BuPS on Wednesday for some grocery money. All spreads once again expired safely. Poor week for AAPL yet I banked some good money - close to $1,000. My $685 put continues to go deeper in the red along with the stock, but I remain confident that I can get rid of it in due time. The only problem is that it's tying up half my capital. Good lesson learned. 

Couldn't resist getting into some cheap bill spreads that I think have a great chance of paying out. Part of the plan or this portfolio was to accumulate cheap spreads as the opportunities become available, and think I've done a good job of it so far. Much like AAPL stock, I think 2013 will be a great year for this account. We will get out of this mess. 

*Oct 26*
Expired: 4 AAPL 26OCT12 $545/550 BuPS (Total Profit +$73.00)
Expired: 16 AAPL 26OCT12 $560/565 BuPS (Total Profit +$860.01)
Bought: 5 AAPL 21JUN13 $685/690 BuCS @ $1.50: -$754.99
Bought: 10 AAPL 02NOV12 $570/$575 BuPS @ $0.30: +$284.82
Bought: 1 AAPL 17JAN14 $650/$690 BuCS @ 14.00: -$1,401.50


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## humble_pie

*question for lephturn*

.

salut lephturn you can see how most option traders here are buzzing the strike price fringes of hi-volatilitiy stocks; ie they are doing put & call spreads at strike prices a considerable distance from market.

what's going on here is a probability calculation i think. Heaven knows i do enough of these myself. The idea is to work at extremities which probability suggests will never be exercised while staying in a super-liquid hi-volatility stock so that the premiums to be captured will be worthwhile.

probability of exercise increases, of course, as one moves the strikes closer to market price of the underlying. The rate of increase is a curved line, not a straight. My question is, do any of the greeks describe this progression ?

perhaps it's a function of gamma theta. I can see how the delta can be used as a measure, too. A low delta option will be further away from market; a hi-delta (i belong to the school that counts em as 100) will be ITM.

for want of a better term i've been calling probability-of-exercise the jam factor. However there has to be a better name.

below is a table showing aapl december 22 calls as of the close friday 26 october. Two pairs are underlined as an illustration, the 640/650s & the 690/700s. One can see that the 640/650s will bring in 2.50, with a clear possibility of exercise, while the 690/700 will bring in only .67 but the probabillity of exercise is greatly reduced.

all the pairs down to 600/610, which brackets friday's close at roughly 605, will form that perfectly curving line.

lepht you are the northern magus of option greeks. Any comment you might have to share would be so welcome.
.


----------



## Snuff_the_Rooster

> what's going on here is a probability calculation i think. ...............
> 
> probability of exercise increases, of course, as one moves the strikes closer to market price of the underlying. The rate of increase is a curved line, not a straight. My question is, do any of the greeks describe this progression ?
> 
> ..................
> for want of a better term i've been calling probability-of-exercise the jam factor



Maybe you're asking a question a notch or more above this, but let's start with the basics for anyone else that may be reading and are not aware of it. This probability-of-exercise is the delta(s). The rate of change of Delta is Gamma. I understand the natural inquisitiveness of traders but it's almost a moot point to attempt to read too much into it since things change daily and therefore your calculations would also necessarily change upon each incoming tick, every day. It would be a fruitless exercise to the bottom line unless your intent was to form a mid-to-heavy options pairing strategy upon strategy which I will admit we do often, but not for the reasons of being able to calculate a greek or a probability. For us at that point is purely hard P&L decisions.

The very nature of Delta and the Black-Scholes formula is as we know nothing but a calculation based on the Gaussian Distribution (with some practical modification over time) and so right out of the gate is a known flaw with respect to the reality of stock price movement.

The question becomes now one of asking ourselves how much error are we willingly letting ourselves be fooled by so as to make ourselves comfortable in our trade decisions. For us that answer is none at all. We recognize and appreciate the difference between hard numbers we can rely on and the other mental gymnastics we do to simply appease our psyche. 

I suppose one could work out the curved nature of all the Greeks using the formula, but again it's been done for you by your broker so the question in my mind other than a personal satisfaction and increase knowledge, is why would you want to?


----------



## Lephturn

humble_pie said:


> salut lephturn you can see how most option traders here are buzzing the strike price fringes of hi-volatility stocks; ie they are doing put & call spreads at strike prices a considerable distance from market.


But are they really that far from the market? It is often easy to look at something being $20 out of the money without considering how far that is in terms of a % move while at the same time comparing it to the realized or historical volatility of that underlying security. For this reason I like to use Bollinger Bands and tweak the settings to see what a 2 standard deviation move is for a particular stock. I will also change the settings for that indicator - I prefer 2.5 standard deviations, and I like to adjust the time period to shorter time frames when there has recently been increased volatility.



humble_pie said:


> what's going on here is a probability calculation i think. Heaven knows i do enough of these myself. The idea is to work at extremities which probability suggests will never be exercised while staying in a super-liquid hi-volatility stock so that the premiums to be captured will be worthwhile.
> 
> probability of exercise increases, of course, as one moves the strikes closer to market price of the underlying. The rate of increase is a curved line, not a straight. My question is, do any of the greeks describe this progression ?
> 
> perhaps it's a function of gamma theta. I can see how the delta can be used as a measure, too. A low delta option will be further away from market; a hi-delta (i belong to the school that counts em as 100) will be ITM.
> 
> for want of a better term i've been calling probability-of-exercise the jam factor. However there has to be a better name.
> 
> below is a table showing aapl december 22 calls as of the close friday 26 october. Two pairs are underlined as an illustration, the 640/650s & the 690/700s. One can see that the 640/650s will bring in 2.50, with a clear possibility of exercise, while the 690/700 will bring in only .67 but the probabillity of exercise is greatly reduced.
> 
> all the pairs down to 600/610, which brackets friday's close at roughly 605, will form that perfectly curving line.
> 
> lepht you are the northern magus of option greeks. Any comment you might have to share would be so welcome.


While Delta can be used as a rough approximation of probability - and often is - one must always remember the limitations of the Black-Scholes option pricing model that underlies the calculation of delta. A good description is here: http://en.wikipedia.org/wiki/Black–Scholes#Black.E2.80.93Scholes_in_practice

Basically the model assumes a log-normal distribution which does not fit the reality of price movements - the far out of the money options are more likely to land in the money than the model predicts. This is called "tail risk" in that if you draw a normal distribution curve the "tails" at the ends are fatter (more likely to occur) and the middle is slightly less likely to occur. The only thing this means to me is that I should buy insurance - what a market maker would call "units" - or very cheap far out of the money options to hedge in the unlikely event of a very large price change. In those situations, far out of the money options will normally increase in value far more than the model predicts, making them effective insurance.

In answer to your question about how the change in delta increases or decreases in a curve - yes this is measured by the option greek gamma. This is a tough one for me to grasp, as it is a 2nd order derivative - gamma is the rate of change of delta. I believe your "jam factor" is really gamma and you can get a good sense of it by examining an option chain not only for delta but also for gamma. To me the tricky part is understanding how "important" each greek is on the overall price of the option depending on how much time is left and how far in the money it is. I'm trying to get a good intuitive understanding around how the importance of the greeks changes as you get closer to expiry. The greeks are the best way I know to get a handle on what is happening, but you need to watch them change over time to really get a good handle on what's going on. I'm not there yet but I'm working on it.


----------



## Lephturn

@snuff,

I wouldn't want to calculate the greeks myself, but I do need to understand what assumptions they are based on and how they might be flawed. I agree with the limitations of the model and it's assumptions based on log-normal distribution.

I think we have the measurement tools we need in the greeks to understand how options pricing changes over time - what I am lacking is more visual tools. Something to take the greeks and graph them over time visually to help me understand how pricing moves and changes. Maybe I'm asking too much - heck I'd just like to be able to graph HV and IV to the same extent I can graph stock price without paying $ 250 / month for Live Vol!


----------



## Snuff_the_Rooster

Lephturn said:


> I think we have the measurement tools we need in the greeks to understand how options pricing changes over time - what I am lacking is more visual tools. Something to take the greeks and graph them over time visually to help me understand how pricing moves and changes. Maybe I'm asking too much - heck I'd just like to be able to graph HV and IV to the same extent I can graph stock price without paying $ 250 / month for Live Vol!


I don't know all the brokers out there near well enough to know which one have this capability, but I have something that would work for you. Interactive Brokers has an excel spreadsheet you can download and using DDE you can receive all the options data they have - including the greeks. From there you can chart and graph and calculate away to your hearts content and watch it all, live. They've done the tough part for you already.

I agree, people learn best by looking at a picture, which is why when I show concepts like this, pictures are what I use most. A picture will stick quicker and longer, a table of numbers doesn't.


----------



## avrex

@Snuff. Can you assist me in finding this spreadsheet?
Is it via their "Trader Workstation" or "Web Trader" platform?
or is the spreadsheet located elsewhere?


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## Lephturn

Wow - another reason for me to open an account with IB.

I don't want to close my OX account yet - I really like them overall - but IB has insanely low commissions and now this.

Would you be willing to pull one of these out and show us? Like say for AAPL's Nov or Jan expiry chain?


----------



## Snuff_the_Rooster

avrex said:


> @Snuff. Can you assist me in finding this spreadsheet?
> Is it via their "Trader Workstation" or "Web Trader" platform?
> or is the spreadsheet located elsewhere?


I'll clear a path right to their API front door for you.

http://individuals.interactivebrokers.com/en/p.php?f=programInterface&ib_entity=llc


Check the Getting Started Guides tab as well for any help you may need. 

I don't know if there's another way of doing it but the excel dde spreadsheet requires you to have TWS standalone installed and running. You need to check some boxes within TWS to allow for the connection to work also.

There are some help files about it somewhere I am sure.


----------



## Snuff_the_Rooster

Lephturn said:


> Would you be willing to pull one of these out and show us? Like say for AAPL's Nov or Jan expiry chain?


There's no incoming market data today due to the closed markets in the US.

Calls and Puts?

How may strikes above and below ATM?


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## avrex

Snuff_the_Rooster said:


> API front door http://individuals.interactivebrokers.com/en/p.php?f=programInterface&ib_entity=llc


Thank you, from another 'Alice In Chains' fan.


----------



## humble_pie

lepht re " are they really that far from the market ? "

yes, most of the ones we see mentioned here really *are that far.* 

avrex' stellar $20 above market call caper in amazon was indeed a rare close example & a highly successful one at that; but ottomh most of the spreads i see in this forum are far otm. Ask argo, ask meta, even gob sold a put pair in the 500 range which expired worthless (see gob's recent message upthread.) Leph you yourself had a put pair in the low 605/615 range, did you not. This is perhaps not so otm right now; however stk was north of 685 i believe when it was put on.

the way i see it, the challenge is to focus as finely as possible upon the strike price point at which a spread profit is maximal while probability of exercise still remains low.

somehow merely contemplating delta doesn't tell me all i want to know. As you say, intuition is important; although i've written upthread that i don't believe it is intuition so much as it is a sub-verbal or pre-verbal but precise understanding of how the number sequences flow.

(aside to snuff_the_rooster) markets will be closed tomorrow as well. If storm is bad in canada, even the tmx might shut down, which would automatically also close montreal.

perhaps given this data drought you might be able to show us your spreadsheet using canadian options from today ? potash was volume leader on montreal, followed by goldcorp. Januaries would be each: nice, would certainly appreciate this very much.


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## Snuff_the_Rooster

Once a market is closed i cannot get any greek data (or even a bid-ask) which includes at this point the canadian markets as it is about 5PM EST.

AVREX, here's a link to a tutorial on IB that I found. It's about 1hr long and I watched about 15 minutes of it. It'll at least show you how to set it up and get it running. 

http://individuals.interactivebrokers.com/en/general/education/priorWebinars.php?ib_entity=llc 

Click the API tab and then the "Getting Started with the DDE for Excel API". You'll have to download the player if you don't have it installed.

Then you can help these guys with their option chains :smilet-digitalpoint

You'll likely only be allowed 100 quotes and you'll have to enter the securities manually. Then I'll let you explain what it would take to do the above requests. :smilet-digitalpoint :smilet-digitalpoint

I'll do what I can to fulfill some of the above requests once the market gets up and running. As to the above link, I think anyone can view this tutorial so you can see first hand what it looks like.


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## Lephturn

I had to roll that spread down - it was higher. I did so flat but widened it which is turning out to be a big mistake.

AAPL Nov12 605/625 Put Spread	4 / -4 Sold for: -$2,904.00 Current Value: -$5,120.00 Net: -$2,216.00
Delta: 72.93	Gamma 0.43	Theta -27.83	Vega 27.32

What I am finding most interesting is that as the price moves against me and the short strike goes in the money key greeks invert - notably theta and vega. So what was a spread that made me money every day now loses me money every day.

I was testing something - I tried rolling down instead but I made the huge mistake of widening the spread and taking on more risk. Bad decision. I should have put my stop order in and gotten out. I may yet recover, but I need some recovery here.

I don't even want to talk about my January bullish risk reversal - I'm basically long 100 shares from $ 685. Ow. I would be OK with this except that I made a mistake and used the Jan contract without checking - earnings are not until after so I need to move to the Feb. contract. At some point I will roll it to Feb. to capture what I suspect will be record breaking earnings.

New rule for my trading plan. ALWAYS purchase 5-10 delta "units" as insurance on the position. The ballpark guideline I have is 10% of the invested capital of the position be used to buy units - but I'm going to have to learn as I go on this one. I have been using far OTM puts in the past based on notional value (IE if my position is 4 contracts I buy 4 far OTM puts) but it's clear this is not optimal. That would have been an improvement for me, but it wouldn't have protected me as much as I'd like.


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## Snuff_the_Rooster

I'll bet by this point you guys have your heads full of the possibilities that can be opened up to you once you get your live data into an excel spreadsheet format. All I can say is, yes you're right. :encouragement:

This is some powerful equipment being unleashed for the retail trader running on a simple windows box. It's not the be-all end-all because you still need to have a trading system or idea but it works very well for automated strategies -algorithms if you will. I don't run all of the strategies with this API as some are more conducive to other platforms that run parallel with Excel that are written in C#, but in a lot of cases I much prefer the ease of excel for myself.

If you can dream it, you can likely do it.


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## avrex

Thanks @Snuff. I will definitely look at this further.
I have a day off of work on Friday, so I hope to have some time to take a closer look then. thanks.


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## GOB

humble_pie said:


> he challenge is to focus as finely as possible upon the strike price point at which a spread profit is maximal while probability of exercise still remains low.


This is the million dollar question. I think a fair degree of intuition is involved, but studying the historical price action of a stock may also help. Lephturn's suggestion of playing just outside the lower bollinger band may also be a good idea. 

Historically, AAPL doesn't tend to drop more than 6-7% in any given week. This is a good guideline for me to use and still provides decent returns on a weekly basis. I am going to try to make sure most of my spreads are at or below this level, as it's a good margin of safety. I may use my intuition at times and play it a bit closer - for example if AAPL has already dropped 5% last week, the odds of another 5-7% drop the week after may be quite low. Or they may not...it all depends. The bottom line is use all the tools you have available and if you get in trouble - roll it out and live to trade another day.

I find weeklies to be the best for this spread strategy. A lot of unexpected swings can happen in a month (just look at this last month for AAPL) but only so much can happen in a week. If I used the spread strategy keeping a 6-7% margin of error, I could have made 10%+ while AAPL dropped 15%. Something to think about.

Snuff - welcome to the thread and thanks for your helpfulness.


----------



## Snuff_the_Rooster

humble_pie said:


> (aside to snuff_the_rooster) markets will be closed tomorrow as well. If storm is bad in canada, even the tmx might shut down, which would automatically also close montreal.
> 
> perhaps given this data drought you might be able to show us your spreadsheet using canadian options from today ? potash was volume leader on montreal, followed by goldcorp. Januaries would be each: nice, would certainly appreciate this very much.


well, i only have 50kb of attachment room I see.

The easiest way for me to upload that amount of data actually comes from IB's Analytics page - which i had just turned into a 255kb JPG and not from the spreadsheet itself. You would do it this way if you didn't need to calculate anything and just wanted to view the data. All the spreadsheet does is allow you to work with those numbers in excel format, live, where you can go nuts if you want to.

I guess I'll just suggest viewing the video that I had linked earlier and you'll see the exact excel spreadsheet in use.


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## humble_pie

very nice demo video, snuff. Thank you so much. Unfortunately it was so tiny i could hardly read it. There must be a way to enlarge the windows but i didn't take the time to hunt around for these controls. When i go back to study more perhaps i'll get lucky ...

ps there is a way of posting larger images here in cmf forum but one has to use a photo-hosting website like flickr. Save & except flickr recently began preventing clients from downloading their own images to 3rd parties unless clients pay the new subscription fee which is something like 6.95/month. There is a way around this woo hoo. But perhaps rival google's picasa image-hosting website is still free to users ?


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## Argonaut

I'm a little bit worried about my $525 level. The spread is more expensive than when I opened it both times. If AAPL doesn't hold at $600, I'm thinking it can hold at $575. No reason to panic yet. This is why I like going ridiculously far out of the money, as humble said.


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## humble_pie

.
yea that's where the truffles are
down low & dirty
525 is the new 625
.


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## Snuff_the_Rooster

GOB said:


> Historically, AAPL doesn't tend to drop more than 6-7% in any given week. This is a good guideline for me to use and still provides decent returns on a weekly basis. I am going to try to make sure most of my spreads are at or below this level, as it's a good margin of safety. I may use my intuition at times and play it a bit closer - for example if AAPL has already dropped 5% last week, the odds of another 5-7% drop the week after may be quite low. Or they may not...it all depends. The bottom line is use all the tools you have available and if you get in trouble - roll it out and live to trade another day.


Certainly not many guarantee's with this game but I've run some empirical data testing for you with respect to the above idea. I've used some of your parameters and the rest I simply made the call myself as to the input I would use. I ran the research from Jan 2008 to last Friday and what I tested for was the return for the week when the previous week had a negative return. I didn't use a negative return of 5%. I just called it a negative return of any magnitude. After correcting for the usual holiday fridays and mondays where we used the close of thursday and the open of tuesday instead, the parameters were to enter the trade at the open monday (or tues when no monday) and close the position the following friday (or thursday if no friday) @ close price of the stock.

The results of 252 weeks of data are that we had 100 instances of negative weeks. The returns of the week immediately following that week were on average slightly positive. The sum of those 100 returns of the following week was +12.8% for the stock.

If I step back from the numbers and look at the generated graph all i can say is the obvious which is we haven't had this many clustering down weeks on AAPL since the 2008 debacle. If we pop you'll likely see a 3%-5% move so it seems to say.

I haven't error checked much here, nor do I really see anything that would cause me to delve into the data further to formulate a trade out of it. I typically don't perform this type of analysis on stocks as a rule because it's just way too sketchy for my tastes.


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## GOB

*Oct 31*

Bought: 3 AAPL 02NOV12 $555/560 BuPS @ $0.20: +$53.26 (put an order for 10 lots but only 3 got filled)

I guess the month is over. What a crazy few weeks it's been, and it's certainly brought my performance back down to earth. I'm actually slightly negative now. Don't have time but will post the monthly summary and my thoughts tomorrow.




Snuff_the_Rooster said:


> Certainly not many guarantee's with this game but I've run some empirical data testing for you with respect to the above idea. I've used some of your parameters and the rest I simply made the call myself as to the input I would use. I ran the research from Jan 2008 to last Friday and what I tested for was the return for the week when the previous week had a negative return. I didn't use a negative return of 5%. I just called it a negative return of any magnitude. After correcting for the usual holiday fridays and mondays where we used the close of thursday and the open of tuesday instead, the parameters were to enter the trade at the open monday (or tues when no monday) and close the position the following friday (or thursday if no friday) @ close price of the stock.
> 
> The results of 252 weeks of data are that we had 100 instances of negative weeks. The returns of the week immediately following that week were on average slightly positive. The sum of those 100 returns of the following week was +12.8% for the stock.
> 
> If I step back from the numbers and look at the generated graph all i can say is the obvious which is we haven't had this many clustering down weeks on AAPL since the 2008 debacle. If we pop you'll likely see a 3%-5% move so it seems to say.
> 
> I haven't error checked much here, nor do I really see anything that would cause me to delve into the data further to formulate a trade out of it. I typically don't perform this type of analysis on stocks as a rule because it's just way too sketchy for my tastes.


Hey, thanks a lot for this - extremely valuable information. If you ever have the time I'd be interesting in exploring this a little deeper. Stuff like a distribution of percentage losses after a positive week and a negative week. A few simulations of different scenarios could provide a very strong foundation for an optimized BuPS strategy, I think. How long does it take you to run a simulation as you did?


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## Snuff_the_Rooster

GOB said:


> *Oct 31*
> 
> Bought: 3 AAPL 02NOV12 $555/560 BuPS @ $0.20: +$53.26 (put an order for 10 lots but only 3 got filled)
> 
> I guess the month is over. What a crazy few weeks it's been, and it's certainly brought my performance back down to earth. I'm actually slightly negative now. Don't have time but will post the monthly summary and my thoughts tomorrow.
> 
> 
> 
> 
> Hey, thanks a lot for this - extremely valuable information. If you ever have the time I'd be interesting in exploring this a little deeper. Stuff like a distribution of percentage losses after a positive week and a negative week. A few simulations of different scenarios could provide a very strong foundation for an optimized BuPS strategy, I think. How long does it take you to run a simulation as you did?



It really depends on the complexity of the question being asked of it, but the one above took less than 30mins. We don't trade aapl, the stock, so i had to load it into the database before I got going with any testing. I actually ran this from 1984 and looked at the output but I didn't feel that most of those years were a representation of recent years so I arbitrarily chose 2008 to the present.

If you were specific enough - unless you're ok with me making assumption where I need to, I would do my best to run whatever you want. I would caution on reading too much into any results that we derive from data snooping with individual stocks. They love to make you look bad due to their inherent non-predictability.

I've run enough of these events to know what a true pattern looks like and even then you'll not know when or if it will change and again, we don't run them on anything but entire indexes or at its smallest, individual sectors. 

This year I came up with a pattern that had been pervasive for 4 years? on the SPX. We had never seen it before, mainly because we weren't looking for it in the right way, but I tripped across it running some other scenario. I coined a less than fancy name for it and gave it some parameters. We ran the trade every week for 10 weeks, well except for one week because we felt for that week that it was destined to be incorrect - that's the human element we sometimes will drop in later. I believe our record was 7 wins, one abstain (which would have been a loss so our guess was a good one) and 2 losses for a nice net gain to boot.

I would hate to have to try and make a living off of these rather flimsy trades, lest you think I have drunk the kool-aid completely. We shut that process down and haven't run it since as it is outside of the parameters where we feel that it is of maximum value. The info we mined there was very compelling and instantly recognizable once we got it into the format but I have to say again there's nothing in the aapl testing thus far that resembles anything I would rely on.

You would do just as well to use a simple 200ma bounce and oversold stochastic as an entry for a position. Hey, when I am forced to trade stocks that's a lot of what I do. There's no way in hell I'd bet on a stock continuing to rise or to not fall when it's lifted off of it's 200dailyMA like aapl was. I already only trade large caps with good fundamentals and dividends but beyond that I'm all technical and math based. If I want a stock that bad then I buy it when it's in the ditch and at or below its 200dailyMA which has happened to aapl a few time in the past year or more. From there it's a lot easier to work with using the ideas that I set out in the other thread (the thread is called Options, I think it is) on how I'd play aapl from here if I had to. I don't even think it is completely in the ditch yet but i recognize it could bounce from 585.

Anyway, ask away and I'll see what I can run for you given enough time to do it.


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## Belguy

Any thoughts on this?

http://www.theglobeandmail.com/glob...h-that-handily-beat-the-index/article4842134/


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## GOB

*October 2012 Monthly Update (and Thoughts)*

October 2012 Starting Balance: $39,582.08
October 2012 Ending Balance: $37,256.78
Octobber 2012 ROI: -5.9%
Total ROI to date: -2.0%
Annual projected ROI: -6.0%
November starting balance: $37,256.78

Quite a swing, eh? As AAPL goes, so goes my portfolio. With my increased interest in spreads, I hope to change this correlation to: no matter where AAPL goes, my portfolio goes up. We saw this working the last couple of weeks but my old 16NOV12 $685 put negated all the gains I banked. 

I feel like we're really close to bottoming out now. I did some major scrambling in my other portfolios, sold some shares and bought some LEAPs. 

The positives here are that I'm only very slightly down, and have amassed quite a few BuCS positions that look quite promising and have a good chance of paying out. As soon as we bottom out there should be a big pop and my Nov put should start turning more green. It may take longer than two weeks so I will have to continue to roll it a little further out.


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## humble_pie

gob i take it you're not inclined to move on to the solution that some others favour, as in put a bullet through the 685 black eye.

i would not, myself. Only very rarely does an option position totally blow up imho. Like perhaps one out of thousands, once a decade. But the black eye is not a candidate.

an advantage of a hi-liquidity stock like aapl is that rolling forward & further out of the money is always possible. You've shown this to us gob & i am certainly grateful. In the past i've had some less-liquid options & for those the escape hatches are far more difficult to define.

plus you've already moved in the right direction. No remorse. No guilt. No hair shirt. No mea culpa. Instead, move immediately into other, better & more profitable approaches. Let the sleeping dog lie while its black eye heals. Move the poor creature around when necessary. The worst it can do is tie up some capital for a short time.


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## Snuff_the_Rooster

Yeah that's the problem with equities in general, GOB. You're tied to the market. With the inherent unpredictability of stocks it really makes a lot harder than it has to be. People find because of this that all it takes is to get some greater than normal swing in the security to really upset the apple cart - pun intended!

Stocks are tough because they're not really what I call Well Bounded. They can and do have huge swings and therein lies the problem. I've found by tightening that range a lot we've tamed the beast to the extent that it could still inflict some pain but it's never going to hurt you bad in any market. This also allows us to be profitable at levels much lower than our first guess. IE buy the SPX market @ 1400 have it go to 1300 and then back to 1350. Odds are good we'd be green without having to average down with more infusions of capital, which is how it's typically done.

As for AAPL being close to the bottom, i wouldn't have a clue of course. I just know from how I look at it that 585 was a fair shot as everyone and their dog saw the 200dailyMA so you would likely get some bounce. $15 was about it. I see Friday as either a shake-out or a sign we go lower. I don't really care which as i have my plan in either case but since I am now involved with it because sometimes I just enjoy the challenge, my next downside target is the $530 area.

I mentioned Stocks in the Ditch. I don't see AAPL as all the way there. This isn't near ditch territory yet. Technically I am all for giving it a shot to the long side here, but I wouldn't want anyone to assume this is the bottom.


----------



## Snuff_the_Rooster

Belguy said:


> Any thoughts on this?
> 
> http://www.theglobeandmail.com/glob...h-that-handily-beat-the-index/article4842134/


He's not a stats guy by profession? His rear-view mirror is not fogged up? He's seen the Yeti and can prove it?


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## GOB

Thanks for the comments 

Humble - you're right that I'm going to hang on to the put. Nothing has changed fundamentally and nothing has changed about my bullish stance for the future. If anything, with the iPad Mini and the revamped product lineup going into Apple's two strongest quarters, the case has only gotten stronger. I'm fully confident I'll be able to get rid of the put soon - perhaps even before years end. 

Snuff - your comments are very insightful and it's clear you have a good amount of experience. I feel this is nearing the bottom but you are right that its not a sure thing. It could very well drop more. Historically, the 200MA has been a huge area of support for the stock and its the point where it often zooms back up. In the past, these low levels and prime buying opportunities don't last very long before they are a distant afterthought. I've been through a few of these now, but mostly as a shareholder and not an options trader. $530 will be quite painful for this account but it will give me amazing plays in my other accounts. This is, of course, all assuming AAPL eventually recovers and moves on up to $800, $900 and $1000+ which I think it will.


----------



## GOB

I ventured over to the AAPL thread and just have to shake my head and laugh at what people are saying. The facts are staring them in the face but they refuse to acknowledge them. I'm so tempted to jump back in there but I'm a man of my word, and anyway it's a futile effort. I'll do it here instead for anyone interested. When I see people holding up to $700 and then getting shaken out and closing for 3% gain at these levels, my confidence increases about the chances that this is the bottom. They're played right into the hands of the big boys and acted exactly as expected. Perfect example of greed and fear combining to wipe out people's confidence in a stock that has huge growth ahead of it. 

I'm not saying I know everything and AAPL going up is a guarantee, but making judgements based on market share while ignoring profit share, and assuming iOS market share will continue to drop despite the last 3 months showing an increase in major markets such as the US is in a word...misguided (to put it politely). The argument is basically analogous to saying that Mercedes will go out of business because there are more Hyundais on the road. Android has had a high market share for a long time now, but iOS continues to be the first choice for developers and pull in the vast majority of profits. Apple continues to make far more money than Google, Samsung or anybody else. Nothing has changed. 





















> “In the United States the top of the market belongs to Apple,” Dan Rowinski reports for ReadWrite Mobile. “The big three U.S. cellular carriers – Verizon, AT&T and Sprint – have all posted their most recent quarterly earnings and between them 58% of smartphones sold were iPhones.”


Ignoring the US (leading market) trends and paying more attention to zero-value consumers who use Android smartphones as basic cellphones (not an insult, just a reality) is comical, to say the least. The vast majority of Android devices are cheap or zero cost phones with limited capabilities, for people who do not want anything more. The only competition Apple cares about are the higher end Android phones, most of which are sold in the US, Canada, UK and select parts of Asia. US and Canada numbers clearly show the iPhone is the device of preference among all others. Note that these numbers are only with a single week of iPhone 5 sales. Imagine what the next couple of quarters are going to be like...

In Canada, the big telcos reported similar staggering numbers of iPhone sales relative to the competition. Anecdotally, when I'm out and about, I see more iPhones than anything else. I actually see more Blackberries than Androids, but the clear majority are iPhones. Look around yourself and let me know what you see. These are the real numbers I care about as an investor, as the North American market is priority #1 for smartphone industry dollars. China is a close second and Apple is doing well there too. 

*Nov 2*

Expired: 3 AAPL 02NOV12 $555/560 BuPS @ $0.20: Total profit +$53.26
Expired: 10 AAPL 02NOV12 $570/$575 BuPS @ $0.30: Total profit +$284.82
Bought: 6 AAPL 16NOV12 $550/555 BuPS @ $0.45: +$260.85
Bought: 10 AAPL 09NOV12 $545/550 BuPS @ $0.21: +$197.07


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## Snuff_the_Rooster

This should give you some wood.

http://www.cnbc.com/id/49685548


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## GOB

Snuff_the_Rooster said:


> This should give you some wood.
> 
> http://www.cnbc.com/id/49685548


Interesting. I knew it was low but not that low. 

On a related note, Apple books possible US repatriation tax into "non-current" liabilities. If a tax holiday ever comes, they can move this money into earnings. 



> Other Non-Current Liabilities are any liabilities that Apple does not anticipate reconciling within the next year. The vast majority of this item on the balance sheet is money set aside to pay US corporate income tax on foreign earnings. Apple has stated on a number of occasions they do not intend to bring foreign earned money back into the US at the current 35% tax rate. They are, however, setting money aside as if they intended to do so.
> 
> In 2011 this account was $10 billion.
> 
> In 2012 this account was $16.6 billion.
> 
> Change in account +$6.6 billion.
> 
> The reported earnings for 2012 are $41.7 billion.
> 
> If Apple reported as if they were not planning on bring that money back to the US, earnings would have been $48.3 billion. This would mean a 15% increase in earnings just by changing the accounting practices.
> 
> In addition, this would have made the current EPS $51 vs $44, and the P/E as of writing would be 11.8 vs 13.7.


http://seekingalpha.com/article/958701-apple-is-sandbagging-more-than-you-think

Another little hidden gem that shows how safe Apple is playing it in their accounting. I'm not sure if they are by law required to account this way or not but it's something to be aware of - $16B (and always growing) that isn't current counted towards earnings may be added at some point in the future.

Edit: just realized your linked article also talks about the repatriation tax..silly me. Good to know regardless.


----------



## Snuff_the_Rooster

GOB said:


> Interesting. I knew it was low but not that low.


Yeah, I wasn't even referring to the headline, but to part of what you linked in the seekingalpha article.


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## Lephturn

GOB said:


> *Nov 2*
> 
> Expired: 3 AAPL 02NOV12 $555/560 BuPS @ $0.20: Total profit +$53.26
> Expired: 10 AAPL 02NOV12 $570/$575 BuPS @ $0.30: Total profit +$284.82
> Bought: 6 AAPL 16NOV12 $550/555 BuPS @ $0.45: +$260.85
> Bought: 10 AAPL 09NOV12 $545/550 BuPS @ $0.21: +$197.07


Nice work GOB - thanks for sharing. You are doing what I should have done. 

Any thoughts about getting long here? I'm looking at Jan Feb March calls - get long and sell weekly calls against them possibly.


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## GOB

It's a great time to get long here if you're willing to wait it out and write calls. For call options, it's also a good time but is be cautious of anything before Apr 2013 at a minimum. I have a feeling the stock could stagnate for a whole before the next leg up.


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## humble_pie

Lephturn said:


> I'm looking at Jan Feb March calls - get long and sell weekly calls against them possibly.


one could buy a 2015 LEAP instead of the stock. Costs far less. Functions in a call spread in lieu of stk. The way i see it, if a stock hasn't performed by jan 2015 which is 27 months, then i shouldn't be in that stock period.

it's true one does not receive the dividends. But US dividends with their 100% taxation consequences in canada do not appeal to me anyhow.

i always buy DITM LEAPs even though they are costly. I do so because in a draconian market rout - if AAPL were to plunge to the low 500s say - i would still be able to sell short-term calls against the LEAPs. In other words, if i'd bought a 2015 550 LEAP & stk fell to 500, i wouldn't want to have to sell 520 short-term calls because i'd be building in risk of loss. On the other hand, if i'd bought a 2015 400 LEAP & stk fell to 500 i could happily sell 520, 530 short-term calls without turning a hair.

in aapl i have a pair of 2015 jan 400s. I'm short 2 jul 700s but don't want to adjust to lower strikes in 2012 because max capital gain is already booked for this year. First week in jan/13 those julys will be on my wooden chopping block.


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## GOB

This is an aside from my portfolio, but I have entered into several 2014 and 2015 LEAPs in my TSFA, RRSP and cash accounts. The plan is to wait until AAPL goes on a run and then sell calls about $100 away from my initial LEAP strike prices. If AAPL gets back to the high $600s or cracks $700 I should be able to sell these calls for as much as, or more than I paid for the initial LEAPs. This will put me in a risk free scenario to bank $10,000 on each position (which will turn into BuCS). Although my journal here is currently seeing red, this is why I love it when AAPL drops. It's almost free money.

Legging into spreads of a high growth stock when it is severely sold off is a rare golden opportunity.


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## humble_pie

yea sounds like you have socked away the long leg of what are going to be diagonal call spreads.

if i may i'll comment that reg'd accounts are not going to allow diagonal or calendar or vertical structures. The long leg will not be allowed to cover for the short calls that a trader would wish to sell. Only the stock itself can be recognized as legitimate cover in reg'd accounts.

very daringly one can split the diag/calendar/vertical between reg'd & non-reg'd accounts. Argo has a proposal for this in the general Options thread. Why not go long in reg'd & sell the short side in margin where option is naked, argo said. I replied to this like so: the problem is that one has to be dead right w zero mistakes in order to keep booking the long gains in registered account.

if the trades reverse, then one is bleeding the reg'd account quickly as the long LEAPs crash with no tax deductions, while collecting taxable gains as short-term option sales in taxable account ... this is the exact opposite of what one wants ...


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## GOB

hmmm...thanks humble, I did not know that. Might have to leave my LEAPs naked for the RRSP then. There seems to be some confusion about being able to create a BuCS in the TFSA - some people say they have done it, just not as a single transaction (i.e. buy a call and sell one later, as I intend to do). I'll ask my broker and see what they say.


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## Argonaut

Apple has been completely obliterated. I am now fearing for my life at $525 with two months to go. Current loss on the spread is $2340, and maximum loss is $8000. Hmm, what to do.

Funny thing is, my normal portfolio was only down -0.11% today amidst the post-election slobberknocker.


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## Snuff_the_Rooster

I'm going to say I think she's at least 3/4 into the ditch now down here at $558. 

A clear break of the 200MA. Finished on its low on nice volume. Fear everywhere.

I'm still kind of hoping for $530 and I've got an alarm set for <$540 in case I fall asleep in the chair. Either way is fine with me I guess.


EDIT:

Seeing as the AAPL guys are here I'll follow my mini-trade on this thread too. Rolled my 630put to Jul 2013 600 put for cred of $19.50
NET costs after commissions are share+put = $653.54


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## Snuff_the_Rooster

So I was talking to apple today and she said the problem was she wasn't being treated right lately. Now, I'm no romantic, but I think you guys need to start serenading her a bit better.

http://www.youtube.com/watch?v=uyjoXJMQFvM

http://www.youtube.com/watch?v=8dvi-K-v6L8

Thank me later.


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## humble_pie

the only foreign market on which aapl trades is frankfurt. One can pick up a delayed quote easier on yahoo than on frankfurt. Yahoo symbol is APC.DE.

stk is up euro 5.25 in frankfurt this am.


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## Snuff_the_Rooster

i think this is called free-falling.

We're close enough for me. rolled down to 580P's of same date for -$12.00 w/ AAPl @ 542

don't like having to eat $1.50 at least on the spread but ya gotta do what ya gotta do.

will update net costs later.

Can't snuff the rooster.

This is why i need to know my downside all the time.


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## Snuff_the_Rooster

net costs stock+580P = $641.56


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## Snuff_the_Rooster

lol whoa, the <$540 alarm went of - it hit the ditch! finally.

huge volume again today. somebody set their hair on fire and ran through the fireworks factory :smilet-digitalpoint

full disclosure, we're down $16/sh as i write this.


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## GOB

I admit, this is getting quite uncomfortable even for me. Capitulation must be near...


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## humble_pie

them frankfurters is toast

the truth is i like these rollercoaster days. I like looking down from high on the ramparts while the barbarians batter at the iron portcullis far below. I like looking at the showers of arrows we defenders of the castle keep shooting. I like counting the bodies floating in the bloodstained moat. I even like the thick black smoke from the cauldrons of boiling oil that we're about to dump on the barbarians' heads.


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## Snuff_the_Rooster

I'm sure i like this game a little too much. 

My ES 1385 target has been tagged for 2 days here, so for now I'm just sitting back and watching the carnage for a move I can really love.


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## Dmoney

humble_pie said:


> them frankfurters is toast
> 
> the truth is i like these rollercoaster days. I like looking down from high on the ramparts while the barbarians batter at the iron portcullis far below. I like looking at the showers of arrows we defenders of the castle keep shooting. I like counting the bodies floating in the bloodstained moat. I even like the thick black smoke from the cauldrons of boiling oil that we're about to dump on the barbarians' heads.


Don't want to get on your bad side 

Are you long Apple?

I've been looking at the carnage thinking of it as a great opportunity to get in, but I have enough at risk already without adding more. Probably need another year of saving before I'm comfortable playing even one lonely Apple option.


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## Lephturn

Spreads are your friend Dmoney. 

I'm long & wrong - rolling out to give the fundamentals time to work.


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## Snuff_the_Rooster

Lephturn said:


> Spreads are your friend Dmoney.


you've got that right.


GOB, check your PM's from last night.


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## GOB

Hi all, been busy again with work and trade management but just want to let you know I rolled my $550 BuPS for this week into Dec 21. Bit of a panic move when AAPL was in the low $540s yesterday but it was too risky to hang on. Also rolled my elephant of a 16NOV12 $685P into a March 2013 $680 to give this thing more time. 

This portfolio is now deep in the red but on the flip side I have accumulated some amazing positions in other accounts (assuming I'm right about the future, of course). 

Will post the details later.


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## Argonaut

Happy about the move today. Hope AAPL puts some more distance between itself and 525 so that I can come out from under the bed.

I heard a rumour that Cramer sold some Apple from his trust yesterday, so that would be funny if it ended up being the bottom.


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## humble_pie

good to hear from gob, argo & lepht. Everybody is still on his or her feet. Nobody has lost it. So far the castle has not lost a single man or woman.

the noise is deafening. They are still hurling boulders at the exterior walls, but looking down from the ramparts we can see that half their army is dead or fled. I hate to think of all the drowned goths whose bodies have been dragged down by heavy armour to the bottom of the moat. Ugh.

the boiling oil yesterday was fun, though. Did you see em fall off the drawbridge as soon as we hit em. Like flies.

here inside the castle we still have plenty water, food, horses, hay, dairy goats, chickens, chopped wood, arrows, daggers, swords & boiling oil. The ladies are inside the keep embroidering, just as they did yesterday. Lothar the lute-player is singing to them & playing his viol as he always does after dinner.

argo congrats on the great job you did yesterday w your crossbow & please stop that about under the bed. This is your first major attack. In no time you will come to welcome them as très fun.

(signed)
13th century pudding


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## humble_pie

gob i wonder whether your strategy for the elephant is far-seeing enough.

it's a risky position. It was a spinebreaking nov 685P. Last week you rolled it down to a march 680P. That's still spinebreaking.

i would have looked to go lower because i'm mindful of the school of thought that says aapl's golden age is over. No need to say more. Volumes are included in those 5 words aapl's-golden-age-is-over.

if that turns out to be the case, deep ITM options like that march 680P will run out of future contracts to which they, in turn, can be profitably or even reasonably rolled. To illustrate, suppose Xmas sales & january earnings are disappointing, suppose then that appl remains in a new range of say 525-585. Severely deep ITM options would then lose all or nearly all premium except intrinsic value.

specifically, if next march mister market is convinced that aapl cannot bust out of 525-585, the premium for a march 680P will be almost the same as for jan 2014 680P & even for jan 2015 680P. All will be priced nearly identically. Going farther out in time will not gain more premium. In addition, the weak non-populated markets for these far OTM puts will mean excessively large B/As. 

bref the short march 680P holder will have nowhere to roll to. This unhappy scenario is a possibility, imho.

look at the highest strike price offered for july options, then compare with highest strike offered for octobers. It's july 1030 vs oct 860. The dealers just opened the octobers. They foresee no activity in the higher strike ranges, therefore have refused to open any series above 860.

on the other hand, going now to a lower strike price such as 650P while the jury is still out on aapl's future would lock in some possibility of future trading if the aapl's-golden-age-is-over script prevails.

of course, none of this will apply gob, if your main scenario is correct & aapl does recover to the 700 range & higher. But the probabilities of this happening are not as rosy as they were 2 months ago, would you not agree ? both iPhone5 & mini-tablet debuted with serious negatives such as, respectively, mapping flaws & high price. So i for one think it would be prudent to adjust one's option portfolio accordingly ...


----------



## Lephturn

humble_pie said:


> on the other hand, going now to a lower strike price such as 650P while the jury is still out on aapl's future would lock in some possibility of future trading if the aapl's-golden-age-is-over script prevails.
> 
> of course, none of this will apply gob, if your main scenario is correct & aapl does recover to the 700 range & higher. But the probabilities of this happening are not as rosy as they were 2 months ago, would you not agree ? both iPhone5 & mini-tablet debuted with serious negatives such as, respectively, mapping flaws & high price. So i for one think it would be prudent to adjust one's option portfolio accordingly ...


I am reluctant to roll out much past April. If you look at AAPL's results and how they are setting up releases they have become quite seasonal. The Jan release is the big hitter and the April should be good if recent history holds. I don't want to be long into July - Oct period next year. I will look to shift everything to Feb betting on a really nice earnings in January. The Jan 13's look like they'll expire before the earnings release so I will plan to move things to Feb. After that, I am betting on some sort of a product announcement set up for late March + the next quarter earnings which I expect to be solid. After that.... well I'll play it much more conservative than I have in the past.

Today will be critical - I need to see a green candle today and some follow-through to be certain the barbarians have made their final push. I don't want to stick my head up over the wall until I'm reasonably certain there is no reserve force of horse archers waiting to poke me in the eye.


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## Snuff_the_Rooster

haha.
Nothing worse than a poke in the eye on a Monday morning.


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## humble_pie

horse archers ? they don't have no horse archers.

what they have are fat waddling clydeshires pulled out of the fields last week along with the roughshod serfs who hastily turned their plowshares into swords & formed that ragged makeshift army.

poor devils half of em are dead by now.

still, one has to admit that their leader Fulkes Nera is one cunning old duke. He thinks if he sends enuf hordes out enuf times to enuf castles, he'll be able to pick up some new lands at half the cost.

(signed)
ramparts tart


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## GOB

humble, I am going to try to address all your points thoroughly:



humble_pie said:


> i would have looked to go lower because i'm mindful of the school of thought that says aapl's golden age is over. No need to say more. Volumes are included in those 5 words aapl's-golden-age-is-over.


As I've said from the start, I am investing this portfolio on the basis that AAPL is an undervalued stock with a large growth potential for at least the next two or three years. If I believed this to be the case at $600, $650, and $705, then I certainly believe it at $540. This retracement has been painful, no doubt, but it has *zero* effect on my fundamental analysis and longer term projections of the stock. If the golden age is indeed over, then I will be wrong and I will lose a lot of money. I've already mentally committed myself to that eventuality, but I don't believe it will happen. I cannot start trading this portfolio as if AAPL is a dead stock. If I believed that to be the case, I'd pull all my money out and invest elsewhere. 



humble_pie said:


> if that turns out to be the case, deep ITM options like that march 680P will run out of future contracts to which they, in turn, can be profitably or even reasonably rolled. To illustrate, suppose Xmas sales & january earnings are disappointing, suppose then that appl remains in a new range of say 525-585. Severely deep ITM options would then lose all or nearly all premium except intrinsic value.
> 
> specifically, if next march mister market is convinced that aapl cannot bust out of 525-585, the premium for a march 680P will be almost the same as for jan 2014 680P & even for jan 2015 680P. All will be priced nearly identically. Going farther out in time will not gain more premium. In addition, the weak non-populated markets for these far OTM puts will mean excessively large B/As.
> 
> bref the short march 680P holder will have nowhere to roll to. This unhappy scenario is a possibility, imho.


Anything is a possibility, but again I am trading as if nothing has changed fundamentally (and in my opinion, it hasn't). 




humble_pie said:


> of course, none of this will apply gob, if your main scenario is correct & aapl does recover to the 700 range & higher.


No reason to believe it won't. A stock growing at 20-60% annually, priced at a trailing P/E of 12, an ex-cash P/E of 9, and a forward P/E of 6.5 has not seen its best days. The growth is key, and it isn't stopping anytime soon. Apple has always been a reactionary stock, adjusting for each earnings report. As the earnings grow the stock will no choice but to play catch up. 

Worst case scenario if the stock stagnates - Apple can use its annual $50-60 (and growing) EPS and use a greater percentage of it towards dividends and buybacks. The market is not going to let AAPL become a 5% dividend payer if it's growing at double digits. 



humble_pie said:


> But the probabilities of this happening are not as rosy as they were 2 months ago, would you not agree ?


I (humbly) completely disagree. This is a momentum based sell-off, and has nothing to do with AAPL's future. I don't know how long you have been following AAPL closely, but I've been doing it long enough to place zero meaning on a sell-off like this. It's certainly been painful, but in hindsight it should not have been unexpected as it has happened before. We sold off from $644 to $530 just a few months ago! How soon we forget. The same stories about Apple peaking were being run then (and in 2011, and 2010...etc), and were promptly forgotten when the stock recovered and all-time highs were reached. This too shall pass. 

As further evidence, take a look at this table of bearish moves on AAPL:










From 2007 onwards, I don't think anybody could argue that the fundamental case for AAPL was weak. Yet, despite that, we repeatedly saw large selloffs in the stock. Again, I have seen this so many times and am unfazed. 

Trends show that bear moves in the stock actually precede amazing earnings in the following quarters:












> At least since the iPhone launched, every dramatic drop in share price was followed by a surge in earnings growth. One could even say the worse the bear, the better the growth.
> 
> Sounds completely counter-intuitive, but there is some perverse logic in this as well. The market reflects crises (as well as over-abundance) of confidence. Unforeseen growth is what creates wealth and the crisis in confidence is a reflection of the improbability of continuing out-performance. When Apple’s performance is foreseeable the stock moves slowly upward. When its performance is unforeseeable the stock moves dramatically downward.
> 
> A pithy way of putting it is: No news is good news. Good news is bad news.


http://www.asymco.com/2012/11/12/a-dramatic-reading/

Bottom line: The recent sell-off does not in any way mean the Apple story is over. 



humble_pie said:


> both iPhone5 & mini-tablet debuted with serious negatives such as, respectively, mapping flaws & high price. So i for one think it would be prudent to adjust one's option portfolio accordingly ...


I also disagree with this. Apple is so popular that it's a double edged sword. Their products are always highly anticipated and get tons of attention, but that also means they are scrutinized to a far deeper level than any other tech company and any little flaw (real or perceived) in their products is overblown. 

Examples:
- MacBook Air: no ports, expensive, no optical drive (huge success, gave a huge boost to notebook sales)
- iPad: "just a big iPod Touch" (spawned a multibillion dollar rapidly growing industry)
- iPhone 4: Antennagate (was best selling iPhone to date, still being sold)
- iPhone 4S: "not an iPhone 5", only difference is Siri (was best selling iPhone to date, still being sold)
- iPhone 5: Maps, scratching (best launch sales ever, will be best selling iPhone to date soon)
- iPad: expensive (best iPad launch sales ever, demand is off the charts)

Please do not fall into the trap of believing the media and assuming a few issues are going to slow down sales of these products. The fact is that all the products mentioned above went on to revolutionize industries and sell in record numbers. Isn't that what really matters? All indications are that both the iPhone 5 and iPad Mini are supply constrained, meaning demand is off the charts despite the media fiasco. That's what matters to me as a shareholder. Having tried out an iPad Mini myself, I can see why it's flying off the shelves. It's in an entirely different league than the $199 7" tablets. Is high price a negative when it's selling out? Quite the contrary. It means that Apple can get the margins that competitors cannot - that contributes to strong earnings and strong fundamentals. I would be worried if Apple had to compete on price in order to sell the iPad Mini.

Perhaps you are right and many people adjusted their positions in AAPL based on the negative sentiment about the new products. I certainly should have been more cautious when the Maps fiasco broke loose. But that was 20+% ago. To do so now would be to turn bearish at or near the bottom, and I think that would be a big mistake. At these levels, there has to be very little downside and a ton of upside. March seems like a short time, but AAPL recoveries can be extremely quick. Going into their best quarter ever, it's possible that option expires worthless, or gets close for an easy rollout. 

If AAPL is in the $550-$600 range a year from now, I will be quite surprised.


----------



## Snuff_the_Rooster

All i can say is I don't care what my beliefs are I'd like to have a position I can work with. This is going to be a bit of a bi-*-ch from the 680 level without a decent card in the hand and praying the for the flop to come in big.

I like those charts you have there.


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## GOB

You're right, and it's the reason I am leaning towards BuPS now instead of selling naked puts. Unfortunately, the realization struck just a little too late and now I'm left with a reminder. If I don't want to take a loss, I can either keep the strike high on a shorter term or lower the strike a bit but extend the term a great deal. Based on my experience with AAPL, I think the former option is better, as the stock often makes big runs especially before/during/after holiday earnings. This could very well be a distant memory in a couple months time.


----------



## humble_pie

gob we're not quite on the same page. The single option that is the most at risk right now - out of *all* the numerous aapl options mentioned in this thread by *all* the participants including myself - is that lone 680P. You yourself call it an elephant.

that's all i was writing about. About managing that one solitary rogue elephant down to a lower strike ASAP, so it doesn't drag on margin as much. About choosing last week to make the rogue easier to roll forward next march, if it should turn out that it has to be rolled forward one more time.

i wasn't posting about any of the other ongoing option spreads, including several at lower strikes that you continue to put on yourself. I certainly wasn't posting about aapl shares or aapl leaps. I absolutely was not posting about aapl's likely direction as a stock. I was just posting about getting runaway Babar the rogue elephant under control.


----------



## Lephturn

More later - was about to roll my Nov 605-625 BuPS - but woke up assigned on the 625. Should have rolled it last week. Woke up long 400 AAPL. Liquidated the trade for a major loss, will have to get back in later today.


----------



## Argonaut

We're starving and dying in the fortress by the day. After the siege is over I may remove this kind of put selling completely from my repertoire. I realize this sounds close to capitulation, but still. This is where it is horrible to have positions with Questrade. I will probably roll forward my Jan 525/515 to maybe a March 510/500. But in order to do so I have to call Questrade and have them execute it; giving up the sort of draconian control this maneuver requires.


----------



## Snuff_the_Rooster

that is one impressive weekly chart. 8 straight weeks of relentless pounding.


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## Lephturn

At this point I'm not all that unhappy that I got hit and forced out of the trade. There was quite the pucker factor when I saw the email that I just bought a quarter of a million dollars worth of AAPL. Luckily OX is great to deal with, they were fine to have me in the hole by over 100K for a few hours until I cleaned it up. By the way that far exceeded my allowable margin in this account. I called them to do it, although I could have handled it myself online.

Shame OX is dumping their canadian accounts, they have a link right on my positions page called "roll spread" that puts exactly the legs I need into their All-In-One trade ticket.

This is the situation that has taught me a painful lesson - set hard rules for when you will exit a spread vs. when you will adjust. Set up ahead of time when you will adjust and what those adjustments will be (or at least may be). If I had gone with my normal plan of simply exiting based on a set $ loss I would have been in much better shape.


----------



## Snuff_the_Rooster

Wow if that exceeded your limits I am impressed that you didn't just get it immediately closed out.


----------



## Cal

You should make a point to write down some of your personal trading rules. Keep them buy your computer.

Alot of people write out their goals and such. It is a good reminder.


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## GOB

Argo, don't capitulate. Your spread still looks promising, though uncomfortable at this point. 8 straight weeks of bloodbath - there's got to be some reprieve coming where we can make some adjustments. 

Lephturn, I am sorry for your losses. I try not to let my spreads get too deep into the money as it becomes paralyzing to try and roll them once it's too far down. I should have followed that reasoning with my put as well - it has created a massive strain on my account. 

I haven't listed my past few transactions, so here they are. Apologies for the delay but I have had a ton to deal with lately, trading and otherwise. 


*Nov 6*
Bought: 5 AAPL 16NOV12 $535/540 BuPS @ $0.25: +$113.79

*Nov 8*
Sold to Close: 10 AAPL 09NOV12 $545/550 BuPS @ $2.51: Total profit -$2,330.23
Bought: 10 AAPL 21DEC12 $555/560 BuPS @ $2.66: Total profit +$2,662
Bought to Close: 1 AAPL 16NOV12 $685 P @ $136.95: -$13,695.69 (Total profit -$7,301.52)
Sold: 1 AAPL 15MAR13 $680 P @ 140.29: +$14,028.00 

*Nov 12*
Sold to Close: 6 AAPL 16NOV12 $550/555 BuPS @ $2.99: Total profit -$1,632.89
Bought: 6 AAPL 21DEC12 $575/580 BuPS @ $3.49: +$2,094

*Nov 14*
Sold to Close: 5 AAPL 16NOV12 $535/540 BuPS @ $2.65: Total profit -$1,216.85
Bought: 5 AAPL 21DEC12 $545/550 BuPS @ $2.83: +$1,413

It is looking very ugly right now. I have taken some massive losses and am pinning a lot of my hopes on some sort of small recovery by December expiry. I guess I could roll those forward as well, but it will be tougher the lower we go. Perhaps I should move half of them out into mid 2013 while I still can - thoughts?

The NASDAQ is also down 11% from its recent high, so AAPL has suffered from its own problem in addition to a broad market selloff. I'm really not sure if the end is in sight or not. The $530 level represents a 2% dividend yield, which is often a key metric used buy dividend funds to screen for purchases. It's also a double bottom of the last low we had a few months ago, and with the increased EPS over the last time, we are sitting at a P/E below 12, without the cash backed out. An absurdly low valuation that will be even more absurd after next earnings. On the other hand, the market is turning bearish and seems to sell off every time Obama opens his mouth (it's happening again tomorrow..). Bottom line is it can go either way. 

Due to the massive losses I am actually getting fairly low on margin so I won't be entering any more trades from this account until the price recovers. Any moves I make will be maintenance manoeuvres to better position myself for what's coming up. 

I reiterate that fundamentally for the company, things have only gotten better this year. The success of the iPhone 5 and the iPad Mini are huge present and future catalysts for revenue and EPS growth. But at the same time a market can stay irrational for a long time. I'm still holding down the fort as best I can.


----------



## Snuff_the_Rooster

Thanks for the update GOB.

I know this isn't part of this thread but I mentioned it before on the options thread as a quasi-AAPL to the long side play with futures pairs, when I want to roll that way. Standard play a lot of equity guys make. I'm out of that trade now but to let you know it's been profitable every day but one (and now at high since over 1 week ago even as AAPL nearer lows so correlation not perfect). Right now the return on margin is about 30% in two weeks?. I don't recall what I made in 2 days or so but it was less than half that for sure but nice chip-in from rough to steal skin.

I only bring it up since it is an efficient use of funds to make similar play and you can easily defend trade unlike elephant play. It's not perfect AAPL substitute and you can cut arm off with a spoon if you need to so it has risk like all else but far more efficient and far better prob's with level headed guy at helm. Like I said before too, I dislike equity plays in general which includes equity futures except at extremes.


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## humble_pie

argo nobody is starvin dyin etc in the castle. The raiders have not even been able to breach the outer wall. They've lost half their army. They are weakened, camping out there in the fields with winter coming on, because the villagers are hiding food, won't cooperate to help them. Soon - when they are even weaker - a posse of our finest knights will set out on horseback from the rear postern gate to attack them in the field. They should be long gone ere Yule.

now argo look at the big tv premium built into the price of your short jan 525P. Last i noticed it was something like $26. This will keep you safe for the time being. Remember: risk of early assignment mainly occurs when: (strike minus stock) > option bid.

at such a time - or even such a moment, which is probably what happened to lephturn couple days ago - the counterparty will exercise instead of selling to the bid. Pro traders scour these markets looking for such tiny opportunities; it's my understanding they will exercise even for a penny or 2 per share.

so watch this number night & day, good sir argo. Meanwhile get ready your escape route. If it were myself & if i were rolling the 515/525Ps, i look for new positions with high open interest, meaning they themselves will be easier to trade when the time comes.

if sir gob's view has merit, spring should be a happy, peaceful time in the castle. Go upstairs now to the Great Hall where they are feasting on the kitchen's best.
.


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## Lephturn

The slaughter continues.... $ 510... could break $ 500 today. :frown:

Interesting - I picked up a Jan 495 Put a couple of weeks ago to hedge my short position, it's ramping up in value very quickly.


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## Snuff_the_Rooster

Seems only fitting after seeing Humble_Pie's pic.

http://www.youtube.com/watch?v=fdSLP-qz_fw

Damn funniest stuff ever made.


----------



## Snuff_the_Rooster

hey guys, just looking at market in general and it looks like tradeable bottom put in 5 mins ago. very sketchy call I put nothing on that not already on or adjusted this morning but this looks good I have to admit. US T-bills just blew off tops pretty big here. They did not make new highs though from last June however.


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## Lephturn

It's only a flesh wound! :tongue-new:

Nice hammer today. I would have liked to see it crack 530, but with it being Nov expiration I'm not sure that is reasonable. That nice reversal on over 44 million shares is what I have been looking for - that puts today in the top dozen days volume in the last three years. I just expected to see it at higher levels. Not only a nice V bottom on the 5 minute today, but closed near the highs for once!


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## Snuff_the_Rooster

blow-off looks like it held and run the rest of the day. I will talk babe ruth stories after horses in pen but drill down in 5min scale and look at "V" with major volume selling on almost all charts you choose. 

If this were first day of selling I think nothing of it but when panic sets in deep like I see + friday + option X, you get action you can love.


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## Snuff_the_Rooster

I see we cross-posted Lephturn. 

I hope you took calculated shot if you saw what I did and post at noon. I hoped to hold anyone ready to slit wrists down for 5 minutes to give them a chance to relax given what looked like it was forming. I'm not sure if you dumped put or had other longs or what is case.

I adjusted AAPL play just before I posted and add fair sized elephant play + adjust with usual conditions on other trades. I get a chance to see those Sunday PM in futures so I have my Lobster bib on in case I get to eat or i wash dishes for another week.


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## humble_pie

.

lords & ladies are feasting in the castle tonight

.












fringed blue robe on the left seems to be wearing his sword backwards
though maybe he's just happy the attack on AAPL is over

meanwhile serfs, vilains & peasants dine on rough tables far below the salt

.












lothar & his younger brother ludovic entertain the host in the Great Hall

.












as the evening wears on the party turns merrie

.


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## Snuff_the_Rooster

hehehe looks like it was lobster bib. eating all night. going to rest now.


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## Lephturn

Awesome - my only concern is that was a big gap open. It's pausing here around $ 548 but it could still have lets. If we retest that gap I'll bite again long(er).


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## Snuff_the_Rooster

you capitalize on look friday? - dump Put adjust long anything and/or everything?

this is type of move people like deer in headlights totally miss even if they see high prob opportunity on friday. I post for reason but if I am wrong I always say do it hedged and play smart but you have to see this stuff when doing it live and act.

To tell you rude truth just once if I may indulge but today likely biggest dollar winner day we ever have. Not percent move as we bigger now than ever but again all horses not in pen so no babe ruth stories just yet but we know how to keep majority of gains and we eat lobster like pigs.

All weekend i deal with buy and hold talking nonsense when they should have been positioning during beat-down instead of hiding under bed. I'll never get psychology of doing same dumb thing over and people not seeing problem.

Continuing to hedge so no fat-head syndrome then taking the rest of the day off. I will come back 30min to close + any alarms.

Good luck to you guys and don't take eye off risk.

As expected 10 yr T's crater.- think + act on smart risk play!


----------



## Snuff_the_Rooster

quite unbelievable +$38 on AAPL. I envisioned $530 when @ $600 but I admit I am shy of mark on +$38 today even though we bet elephant, hedged with hippo on general market move, lol. Good news we already positioned and capture move and now hedged with origami option play that only add to pile to Dec 7th from $0 to up to about $640 where we head out anyway.

Shy of best day I think so babe ruth head to showers and maybe another day but still good memories + stronger positions.


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## Snuff_the_Rooster

GOB I am reminded that this is your thread but you take aapl thread discussion and you bring it here so i follow you. With that if it OK with you I want to branch from main intent of thread for a post or two and show concept to strugglers in market and using my aapl trade as example. I show enough other trades that i will intentionally play differently to show various sub-methods of over-all stock trading plan.

I will provide basic frame work but not detail because no one learn anything worth it unless they work and think of concepts beign shown. Only then do people have chance of eating like elephant instead of sh-**ing like one in markets haha.

I give enough info that thinkers of group figure it out.

I did not intentionally make bad buy at $575 but it is irrelevant as i will show method regardless of stock move since that is never known. I make buy @ 575 as 200dma but say same post that I can see $530 so don't smoke glass pipe. Two days? (maybe 1 day?) before 505 print I say in other thread that if you in love with AAPL and that if you do hedge + not over-sized bet error then i would buy @ $530. OK so far I was 1 day off, my bad, haha.

I say then too that I intentionally not buy as I not in love plus given move I decide which sub-method I show is we move up from there - always subject to change, but I say I trade this with both hands behind back and show numbers to prove method is far bettre than monkeys average down on uranium plays.

Take a minute of go look at thread and we see what people do all the time and it just horribly worst way to play. They buy low sure that's good but they buy thinking they got bottom and use no hedge. Then we drop further and they buy more because it sch a good deal they are going to make 4 pots of gold by friday, haha. Then we drop again and they admit the heavily underwater and heavily over-bet sized. Let's face it people that is typical monkey move that people make all the time. What do they do now?? Bet more?? Hedge now?? Run under bed?? 

I digress to show stupid moves traders make and they admit it well everywhere on site.

Moving to AAPL trade with hands tied behind back = i choose not to add even once even though I see opportunity, and just deal with what was bad buy as it turns out, and then lets look at numbers of decision from worst @ 505 to current..

I not do math but you can see even with original position and no put-roll that position @ 505 not be underwater even 4%? even though stock deep into bowl down 12%. At some point position loss capped at <10% even if AAPl go to 400, 200, $1, haha. 

Position I took since original consist only of one simple move and is base position for guy that not even trade stocks much even though I know I net-winner regardless of market. It's just that stocks suck and are not good enough prob for me to bother with. As of $570 this AM (not there now and I make no move today) I am net positive on play. Some scratch head and wonder how buy at $575 be profitable when stock @ $570, lol welcome to world of options and understanding of model and how to use to your advantage even as you losing some money for time.

So we intentionally not do move that would obviously have been beneficial if move up, and our sole move is put-roll down. I suggest people note choice of put option as it might be key?? to reason? This is part where I require brains being turned on and I not explain further but simply point out rock to look under.

Let's discuss then pro+cons to decision of put-roll. As with all things option we get on one side and lose on other. What then do we lose? Simply put we give up possible more losses (small) as trade-off for getting out of hole quicker (IE we profit @ 570 when buy @ 575). Again if you scale in then you way ahead of curve now as 2nd scale in for me would have been 530 but I not in love plus I show other position which I will play out with explanation that will show scale in approach + other techniques that I intentionally not use here. So what put-roll amount to is either get out of hole quicker or accept slightly larger potential loss which never amount to more than 10% of position at worst and many months away. As long as sized right then you not incur so much as side-swipped mirror on Hummer = 3% to 4% of account max max max = no big deal and that take months to lose that much.

Key to put use is choice (think) and decision to roll. I only suggest you not roll unless large moves done as cause slippage each time but we talk tenths of percent so unless you try and do it every dollar vs every 10-20-30 dollar on AAPL size then you not shooting toes off so no worries.

AAPL now 564 and we sit and wait for market to move then we do move if it make sense. Why everyone not take care of money when so easy? Our max drawdown with put-roll down @ 505 was maybe 5%. What reason to sweat? We able to defend trade without even adding to pile which is something oversized no hedge monkeys cannot do and that is people downfall with big snow-ball.

Everybody get simple idea so far? Trying to show responsible techniques to concrete heads never easy. I'm not speaking to any one person in specific but in general and people need to get over self and think with logic! It's too easy.

I continue AAPL trade to completion at later date. + other positions that I show a bit about origami options which add cash to position with no added risk.

I see post long one. sorry haha


----------



## humble_pie

snuffters we like that U luv us so much.

perhaps you could elegantify your language. though.

remember i am the bag lady w 11 barefoot brats & a bushel of options but i am not gross or concrete head each:


----------



## Snuff_the_Rooster

humble_pie said:


> snuffters we like that U luv us so much.
> 
> perhaps you could elegantify your language. though.
> 
> remember i am the bag lady w 11 barefoot brats & a bushel of options but i am not gross or concrete head each:


haha you are right it is easy for me to fix language but I am too much in a hurry most of the time and write like a drunken Serbian on purpose really.

I will take your post and better my posting skills IE slow the heck down haha

Have a good day Humble-Pie




On another note that means a bit more to some than other IE PM's but look at 10yr T's still rolling from that call last thursday-friday as we watched it set up for a week or more looking for set numbers.

If PM buddy got that far in study, do you see what I mean? There's no sense arguing with people about it because they don't want to see what the "impossible" looks like :smilet-digitalpoint

If we had link space I'd show you more haha. But FYI we paring now.


----------



## Snuff_the_Rooster

Fresh IB Option Bulletin:



> OPTION CANCELLATION/MODIFICATION FEE REDUCTION #2
> 
> As part of our continued commitment to provide the most cost-effective execution services, Interactive Brokers (IB) is now further reducing the cap on U.S. option exchange order cancellation and modification fees, effective immediately. This cap will serve to reduce the exchange fees, originally assessed at per contract rates ranging from $2.10 - $0.10 to a maximum of $0.25. This change applies solely to U.S. option orders and does not apply to U.S. API/CTCI directed stock orders or European option and futures orders. Please refer to the Costs ( http://www.interactivebrokers.com/en/p.php?f=otherFees ) section of our website for further updates as we look for opportunities to reduce this fee further moving forward.
> 
> Interactive Brokers Customer Service
> 
> Message Reference Number: 5496226-1353433518467, Sent Date: 2012.11.20 12:44:55 -0500


----------



## avrex

One of the negatives of IB was their high update/cancellation fees. I remember once paying $10 for a cancellation.

This is great news!


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## lonewolf

Snuff_the_Rooster

I find your posts a lot easier to understand & read then most other posters. Iam one of the worst for understanding & knowing the rules of the english language but I like your way with words making it so much easier to read for me.


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## humble_pie

lonewolf it's good that U understand so well, would U like to write a summary abstract of snuff's message No. 353 for us :biggrin:


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## Snuff_the_Rooster

hahah humble.

It's meant for people that want to learn and are willing to put the effort in. So many people are so lazy and argumentative about things they provably know nothing/very little about that I don't make it easy on purpose.

If traders don't have the eye of the tiger then I don't want them to know and to know they're going to have to put in an effort. I don't spoon feed anyone. It's how I know who's responsible and serious enough. I have hope for lonewolf still.

I take monkey stock trades to prove with real time examples to show relative ease at which they can be traded without great loss and better probabilities of success.
I readily admit I have absolutley no use for lazy traders using poor technique. I usually end up tossing them out the door around my joint even if it's their own money they're BBQ-ing. I can't stand to see the stupid of it and being around it is not good for anyone and even pointing it out pre and post accident doesn't seem to make them any smarter, haha. Go figure.

Wax-on, Wax-off?? Who knew painting fence was useful elsewhere haha.


----------



## humble_pie

snuff i wonder if you realize that many of the terms you are using to describe members of this forum are somewhat insulting ?

what i find w options is that they are self-limiting. Folks who don't have the knack set out to learn w good intentions; but fairly soon they become confused & even overwhelmed. Almost without exception, they abandon the effort at that point.

folks who do have the knack - like avrex, argo, lephturn, dmoney, gob - pick everything up effortlessly, like honeybees extracting nectar. So there's no need to club em with a virtual 2x4.

imho


----------



## Snuff_the_Rooster

it's more so describing the moves/positions taken that are provably bad choices and then you get the usual argument on pros+cons of eating hand grenades/ IE no pros involved as decision is just bad on all accounts, haha

take your short put that was at one point 100% underwater and not defendable - you still would argue that it is something other than dumb move that was just poorly constructed from outset and anyone with a clue would/did tell you so.

But still you will not accept simple fact that it's not the act of losing in dice roll that was bad since we cannot know such results before-hand but set-up was 100% poor choice from outset so everything else afterwards was really just rewards and if you dig out it's just result of more dice rolling and not smart trade set-up.

Yet people want to argue...

This is why I say as bad as couch-tater with 6-9% is, it is better than 80%? of traders that will underperformed simple couch-tater as they devise own destruction quite well. The fact that I can tell you before hand is a result of seeing it for decades and accepting empirical data and not failing into emotional attachment to poor choices made.

Lets take option players in this thread since inception 6 months?? I suspect good odds that since they are net underwater in 6 months that they are under-performing couch taters and I ask how many more months just to get break even using same broken tactics?

yes I realize people hate to hear the truth and want to crucify the messenger. There again that is not the messengers fault either now is it?


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## humble_pie

snuff how on earth would you know what i would argue

i might instead hand you a bouquet of roses & lavenders

_" there are more things in heaven and earth Horatio than are dreamt of in your philosophies_"

a rooster who arrives here & within 2 weeks begins slinging mud at the respectful assembly because only he knows best is a bird of another feather


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## Snuff_the_Rooster

Because you've argued it before. Hell, you're arguing it now by just not accepting the facts. 

The biggest problem here is that you can't do anything but take personal offense when I speak about your trades. It's all over your posts. You can't make the separation.


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## humble_pie

see, there you go again.

who sez U & U only have "the facts."


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## Snuff_the_Rooster

trading facts as shown on current thread is more than enough, plus incessant whining and defending pros+cons of eating hand-grenades on same trades taken. Path to door all too well worn which includes steering clear of rational discussing of poor trades in order to learn what is truly wrong with the entire process. Empirical data tough to show anything else.

Lack of separation of math of trades vs emotion of trades.


----------



## underemployedactor

humble_pie said:


> snuff how on earth would you know what i would argue
> 
> i might instead hand you a bouquet of roses & lavenders
> 
> _" there are more things in heaven and earth Horatio than are dreamt of in your philosophies_"
> 
> a rooster who arrives here & within 2 weeks begins slinging mud at the respectful assembly because only he knows best is a bird of another feather


It's actually "philosophy" not "philosophies.


----------



## Argonaut

I thought it was obvious and unspoken since his first post that Snuff was the previously banned QUANTify-it.

In other news, they have agreed to let me out of my dungeon cell in the castle if I promise to stop my doomsaying. I agreed, and muttered something about trying to hold tower number 550.


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## humble_pie

snuffters thy name is "whiner."

(aside to actor) thanks ! there's nothing like a literate man ! & graceful to boot.


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## Snuff_the_Rooster

i don't think I could ask for better representation of exactly what I'm talking about with respect to traders not taking responsibility for their poor action even when given months of direct observation of flaws in their plans and then when it unravels as would be obvious to anyone with a clue, what we get is exactly what we're seeing here, haha.

Failure to take responsibility, failure to address trading problems, but of course much personal attacks from usual suspects on messenger that foresaw obvious many months ago and tried to warn.

You folks have summed it up far better yourself than I ever could and you leave a very good path to disaster for people with enough sense to set aside emotions and use logic. You people have provided much service to field of investors that are or will follow same. Thsi thread should be framed and mailed to every investor/trader out there as a case study.

The best part about this is I told you guys of the disaster that is what you were/are doing, sooner or later. All I got was personal attacks from irresponsible people who clearly were dead wrong given the math involved.

Now after it happens, which was inevitable, all I get now is more personal attacks from irresponsible people that are now 4 or 5 figures more poor as a result of obvious flawed plans. The sad part is not only have said poorer traders not learn anything, they do exactly what I said earlier today. I know, because I know. We see it all the time. You are not born a trader and you are not naturally a trader. The human psyche is not set up that way. You need to learn to think and act different than what nature allows for naturally. You guys are only proving this fact with every post, to the last man. I told you before, and I could not have been more right.

What is worse given what I've seen to this point is all that money and time lost has gone to waste and you will just keep doing the same dumb stuff over again until you reconcile the actual problems, which may never occur.

By all means, shoot the messenger that foretold your future well enough in advance to get you to at the very least to THINK about your flawed plans. That's what failed traders with failed plans always do, they shoot the messenger. Its why I don't really take it personal. They simply are too emotionally involved to make a logical decision, again to the last man.

Enjoy your failure. It must taste like crap right now, but it is what you ordered even after warning.

haha


----------



## underemployedactor

Always delighted to see Hamlet turning up in unlikely places. Keep it coming:encouragement:


----------



## underemployedactor

Snuff_the_Rooster said:


> i don't think I could ask for better representation of exactly what I'm talking about with respect to traders not taking responsibility for their poor action even when given months of direct observation of flaws in their plans and then when it unravels as would be obvious to anyone with a clue, what we get is exactly what we're seeing here, haha.
> 
> Failure to take responsibility, failure to address trading problems, but of course much personal attacks from usual suspects on messenger that foresaw obvious many months ago and tried to warn.
> 
> You folks have summed it up far better yourself than I ever could and you leave a very good path to disaster for people with enough sense to set aside emotions and use logic. You people have provided much service to field of investors that are or will follow same.
> 
> Enjoy!


Snuff, how could you have tried to warn "many months ago" when your first post was Oct 27,2012? I know this because your first post was in response to a thread I started. Perhaps the warning crows were from a doppelganger rooster?


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## humble_pie

snuffters whatever are U doing here.

you're definitely not an IB shill & i have impeccable reasons for saying so.

you're definitely not here because of our collegial, cooperative, sharing company which we have been enjoying - mostly unmolested - in this thread for several months now.

are U here to sell your hedge fund ? if so, yours is the world's worst sales approach.

are U here to vent yr filthy beak over anybody you can accost because nobody else in yr life is going to speak to U ? looks like.


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## humble_pie

argo, were you ever short a 550P ? i didn't notice ... i thought your worst was the 525 ... it's a bit difficult to keep everybody's trade history in mind ...

go round to the stables when you have time, sir argo, they're grooming you a faster, speedier, better horse, now that you've fought the battle so well.

.


----------



## Argonaut

You're right, short 525.. but I'd like 550 to hold for buffer sake.

Good news, I'm much better with a horse than a crossbow.


----------



## Lephturn

Snuff_the_Rooster said:


> Lets take option players in this thread since inception 6 months?? I suspect good odds that since they are net underwater in 6 months that they are under-performing couch taters and I ask how many more months just to get break even using same broken tactics?


This thread exists so that those of us participating can learn. We do post our good and bad trades - and discuss setups, actions etc. This is how we learn. Sometimes we need to take losses to learn those lessons, but we're far ahead of those who don't talk about their losers. I don't learn as much from the winners, so I don't tend to discuss those. Posting the losers here has value when we discuss it.

That value does not come from anyone saying in essence "that was dumb" or "math says that was bad" - constructive criticism is what is needed. I and many other posters in this thread are open to that type of feedback, heck, that's why GOB was good enough to start this thread. Note the word "constructive"... that's really important. 

FYI - though I've eaten one hand-grenade as you would no doubt describe it, I've learned a couple of valuable lessons from that trade. I have also had a couple of massive winners this year so I am actually not underwater, though this account is quite far below the high water mark for the year. Some times we have to learn lessons ourselves the hard way with real money and this thread helps me do that.


----------



## Four Pillars

humble_pie said:


> snuffters whatever are U doing here.


Trolling....


----------



## mrPPincer

humble_pie said:


> what i find w options is that they are self-limiting. Folks who don't have the knack set out to learn w good intentions; but fairly soon they become confused & even overwhelmed. Almost without exception, they abandon the effort at that point.
> 
> folks who do have the knack - like avrex, argo, lephturn, dmoney, gob - pick everything up effortlessly, like honeybees extracting nectar.


Pie, definitely no honeybee here but I do feel that there are tools here that are worthwhile for me taking the effort for to learn, step by step, until I think I have an intuitive feel for it.
I may never use options, but for me that's not entirely the point; for one thing, to me it's another potential tool in my toolbox if nothing else.

One valuable lesson I learned when in training in the armed forces many years ago was on my first day of instruction in the trade I had chosen.
The instruction that day began with a detailed descrption including proper names, proper usage of etc. of the most basic of tools, like the screwdriver, hammer, handsaw, crowbar, wrecking bar and so on.

To me, coming from a building construction background it all seemed extremely rudimentary, and I'm sure it was to most of the others as well, one of the more outspoken of us scoffed at the kindergarden level of the curriculum, and it was after the instuctor's response where I truly learned something of value that day.
Truth be told I don't remember the words, it was close to 30 years ago, but essentially he said to him keep your mouth shut and your eye on the ball, it gets tougher.

Within a month or so, as just a small part of our training, we were doing constructions and deconstructions of bailey bridges over a gully in the dead of night, multiple times in a night, and all of us knowing all the terminology, and the mechanics of it all and everything, even those who'd previously never held a hammer in their lives. (The bridge was built on rollers and extended over the gap until it was dropped on the far bank).

Point being, I guess, wrt options I'm now in a position somewhat like those guys that had never held a hammer before.

I'm intrigued by your idea of using LEAPS for your US equity exposure for capital gains over dividends, and I'm not averse to trying a little covered call writing at some point, and even possibly buying a protective put if I feel a need for insurance, and I have a rudimentary understanding of the butterfly and the iron condor, but I'm weak on the greeks and should probably brush up on my calculus, and have little experience researching underlying fundamentals.

Definitely not rushing into anything, and not interested in making new mistakes to learn from, but it's fun learning, and there is certainly a wealth of knowledge and experience to learn from here on CMF.


----------



## GOB

Wow, so this is what happens when I'm out of action for a couple of days. Seems like drama follows me around this site. 

I just want to reiterate to all that from the very beginning of this thread, I made the statement that this portfolio will live and die by the performance of AAPL. I was under no delusion that I was trading without risk or anything of the sort, and the bulk of my trading funds are not in the account I am sharing here. Those funds are being invested in a much more boring manner and wouldn't make for much of a thread. 

I think this thread has provided a wealth of information from everyone involved (even from Snuff, in his first few posts). AAPL has suffered a near 30% drop - to come out and gloat at a time like this isn't really fair. This portfolio is a mere 4 months old and has suffered from AAPL's worst correction in 4 years. Let's give it some time and wait for longer term results before drawing conclusions. Just like when I was making huge gains at the start, I warned that it meant very little and wasn't likely to be sustained. Neither are these lows, in my opinion. In hindsight, of course I have could traded better. I have learned a lot from my past actions. I never proclaimed to be an expert in options trading - besides buying and holding LEAPs, I only started these other strategies a few months ago. All I claim to have is a very sound knowledge of the fundamentals and trends of Apple.

Let's please keep this thread civil and helpful without personal attacks.


----------



## humble_pie

mister pincer your post has a zen-like tone that i think is so useful with all kinds of market trading/investing activities. Calm. Humour. Total absorption in the moment. From eyeing a hammer to building a military bridge in pitch dark in the middle of the night
.
for options, i don't believe one needs calculus. The greeks are going to osmose into a trader's consciousness whether he learns them formally or not. Somewhat like the wooden horse full of greek soldiers at troy.

the most appealing part of your post ? the fact that it's 100% task-oriented. It's a good reminder to us all.


----------



## mrPPincer

thanks! Has anyone mentioned lately that you could author a book on investing that is actually entertaining as well as informative?

exhibit A


humble_pie said:


> The greeks are going to osmose into a trader's consciousness whether he learns them formally or not. Somewhat like the wooden horse full of greek soldiers at troy.


My posts are not that imaginative, I just try to keep them as grammatically and factually correct as possible.
On that note, now that I think of it, if I recall correctly that course was 23 weeks long, so there was probably more than a mere month or so between the introduction to the basic hand tools and the night builds.

I'll shut up now, good luck with AAPL GOB, looks like it's up a bit last few days.


----------



## andrewf

Four Pillars said:


> Trolling....



+1


----------



## humble_pie

life is sweet once more in the castle.

brave lephturn is recovering unbelievably fast.
he was the first archer to step out onto the battlements
unfortunately he took an arrow from black fulques just below his right knee.

lothar has composed a new song about him.

mon cher lephturn
c'est à ta tour
de te laisser
parler d'amour

tu tiens ton arc
par la main gauche
tu tires ta flèche
par la main droite

t'es si courageux
notre doux héro
notre chevalier
de la gauchetière

.


----------



## GOB

*November 2012 Monthly Update*

October 2012 Starting Balance: $37,257
October 2012 Ending Balance: $32,772
Octobber 2012 ROI: -12.0%
Total ROI to date: -13.7%
Annual projected ROI: -33.0%
December starting balance: $32,772

Not much to be said that we don't know already. A gloomy month but it looks like the worst may be over. I have several BuCS that have a shot at paying off. 

I also just realized I didn't post my last activity. I rolled my elephant down (in hindsight, a bit too early) and bought a BuCS in mid-November:

*Nov 16*

Bought to Close: 1 AAPL 16MAR13 $680 P @ $174.73: -$17,400.73 (Total Profit -$3,445.69)
Sold: 1 AAPL 19OCT13 $660 P @ $173.48: +$17,346.92
Bought: 1 AAPL 17JAN15 $700/710 BuCS @ 3.00: -$301.47


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## GOB

*November 2012 Monthly Update*

October 2012 Starting Balance: $37,257
October 2012 Ending Balance: $32,772
Octobber 2012 ROI: -12.0%
Total ROI to date: -13.7%
Annual projected ROI: -33.0%
December starting balance: $32,772

Not much to be said that we don't know already. A gloomy month but it looks like the worst may be over. I have several BuCS that have a shot at paying off. 

I also just realized I didn't post my last activity. I rolled my elephant down (in hindsight, a bit too early) and bought a BuCS in mid-November:

*Nov 16*

Bought to Close: 1 AAPL 16MAR13 $680 P @ $174.73: -$17,400.73 (Total Profit -$3,445.69)
Sold: 1 AAPL 19OCT13 $660 P @ $173.48: +$17,346.92
Bought: 1 AAPL 17JAN15 $700/710 BuCS @ 3.00: -$301.47


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## humble_pie

this is thought to be the article that triggered today's plunge:

http://www.digitimes.com/news/a20121205PD203.html

either that or else black fulques is back sooner than expected


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## ddkay

11:15 EST - As Apple (AAPL) underperforms again today, observers have different theories why. StreetInsider.com points to clearing firms raising the margin requirement for clients seeking to buy shares to 60% from 30%, citing a " high concentration." Forbes suggests traders may be reading into AT&T's (T) comments this morning about smartphone sales so far this quarter. While T's numbers appear strong, the company's wireless chief also talked positively about Android products, as he frequently does. Finally, CNNMoney advances a theory that investors are disappointed that AAPL isn't on the special-dividend train. Whatever the reason, shares are now down 4.2% at $551.50; half of late November's rebound has been reversed in recent days. ([email protected])

I think the stock is just really bi polar :bi_polo:


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## Lephturn

This is a reaction to the raising of margin requirements. Nothing to do with the long term prospects of the stock IMO.

Might be time to do something....


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## Argonaut

Free money in AAPL options! Long 100 shares, then buying a put and selling a call with the same strike nearest current price. When I looked at it today, this worked in January but seemingly not in months after their next dividend. You'll get $1.00 or so as of right now, but sometimes it's more. Pays better than a savings account. Of course, I myself can't afford $50,000+ of AAPL.

In other news, I hate the action of this stock. Can't wait until January expiry.


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## humble_pie

really ? it's extremely rare that a triad like this would appear. Nearly always, as U know, long stk + long put + short call will work out to a few pennies above the strike price of the options, ie no bargain.

but once in a blue moon argo's triad does appear. I wouldn't have expected it in aapl. Will take a look.

EDIT: i believe the name for this trio may be an "inversion." Last time i ever discussed it w knowledgeable expert he told me to not breathe a word to anybody but hustle & close the gap ASAP. Usually the money involved is so small - ie long stk + long put + short call will add up to 5 or at best 10 pennies less than the strike price of the put - that it's necessary to do many thousand shares.


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## Argonaut

Triad appears to exist at times today, but I'm getting strange quotes. For instance, bid of 28.95 and ask of 20.00. This is on both Google Finance and Nasdaq websites.


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## humble_pie

Argonaut said:


> Triad appears to exist at times today, but I'm getting strange quotes. For instance, bid of 28.95 and ask of 20.00. This is on both Google Finance and Nasdaq websites.


i believe there were intermittent false quotes in aapl today although i didn't check em out at the time. I definitely did see em on several exchanges.

the pairs where put buy was priced less than call sell were the false quotes (ie puts were, should be & still are more expensive than calls.)

this configuration - puts more expensive than calls - means no inversion is possible.


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## Argonaut

For that situation, what about short stock + long call + short put?


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## humble_pie

Argonaut said:


> For that situation, what about short stock + long call + short put?



i see the possible profit on both sides in (long stk+long put+shrt call) when purchase/sell prices are in line, which is rare as has been said. All roads lead to rome & rome is the exit point.

but i cannot see profit on both sides in (shrt stk+shrt put+long call.) How do you see this unravelling. 

if stk goes down i see a loose end, namely, the short put. This is not rome.

if stk goes up the trio looks better.


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## Argonaut

I'm going to Hawaii for Christmas and New Years, and my AAPL position is threatening to ruin my vacation. I don't want to be fretting about the fiscal cliff on Waikiki Beach. From the time I leave until January expiry it'll be 30 Days in the Hole; humble pie. When you're in the hole, what is the best time to dig out with a rollover to March expiry? Before, during, or after vacation. Hmm.

At this point I'm hoping for the best and preparing for the worst, i.e. fiscal cliff non-negotiations and AAPL falls right past 525 and onto Newton's head.


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## avrex

That's a 525 short put. correct?
I would roll before and enjoy the beach.


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## humble_pie

hey argo great plans !

agree w avrex save & except for one fiddly detail which goes like this:

do you need a capital loss for 2012 ? if so, don't roll. Just close the position & take the loss.

you won't be able to make it up selling aapl puts for 30 days, but you can replace with a short put or put spread in something else, for example perhaps goog. Keep it much further away from the money, though. Short-term, too, because when the 30 days are up in january or whenever, you'll want to undo the temporary patch & get back to aapl options hell-for-leather once again ...

(signed)
loss-hunting pie


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## Argonaut

I don't need a capital loss, most of my gains are unrealized and a large portion of those are in TFSA. Big unregistered gains in AR and SLW, but not looking to sell those. But I may have learned something on tax consequences for options. If I close this position, then open a February or March one, there are no immediate tax consequences? I assumed that I would immediately trigger a capital loss on January 525/515, and then the Feb/March spread would be entirely different tax wise.


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## avrex

Each option transaction is a separate tax event.
Therefore rolling over now (i.e. closing your current position) would trigger a tax event, for this year, in your non-registered account.

Just so I don't hijack this thread, I've posted the taxation publication that I refer to, over in the Taxation Forum, if we want to continue the taxation discussion.
Taxation of Equity Options


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## humble_pie

avrex wouldn't rolling over now trigger 2 tax events, one for each option ? that's how i would do it.

one side - presumably the sell of the 515P - would be a gain. I know of no way to postpone this gain, so it would have to be taken in 2012 if the spread were closed in 2012.

the other side - buyback of the 525P - would be a loss, which could be carried forward to 2013 & beyond.

investor could avoid 2012 gains/losses in this january expiration pair by waiting until 2013 to wind up the positions. However being far away & perhaps out of touch during the holiday period definitely does present a dilemma. For that reason i'd tend to wind up before leaving the country.


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## avrex

humble_pie said:


> avrex wouldn't rolling over now trigger 2 tax events, one for each option ? that's how i would do it.


I agree, two tax events. Might as well close them both and start in the new year.


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## humble_pie

(aside to avrex & gob)

now that we are on the subject of option taxation, it occurs to me that GOB's aapl assignment of 100 shares & the immediately following sale of the same probably triggered a significant capital gain.

didn't think of it at the time.

(gob would have to use the averaged cost base of his existing holding of aapl shares) (for stock gains/losses reporting, we don't use the US FIFO approach here in canada, we use an averaged cost base per share when reporting partial or swing trades.)

lephturn, too, had a fairly large assignment of aapl shares, followed by immediate sale of the same. If lepht already held old aapl shares at far lower cost, there would be a significant capital gain to report. Ouch.

lends credence to my option religion: Never Ever Let Em Exercise Against You.


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## Argonaut

As per the advice I rolled forward today.

Turned Jan 515/525 into March 515/525, 8 contracts each. There was a credit but I'll have to wait until the dust is settled to see the exact amount. I'm sure I could have gotten better than the broker on the phone, but thems the breaks trading spreads with Questrade.

EDIT: Debit of 4.35 and a credit of 4.67, seems alright compared to the chains I looked at after. Anyway I've got an extra $250 and some piece of mind for the vacation.


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## Lephturn

humble_pie said:


> (aside to avrex & gob)
> lephturn, too, had a fairly large assignment of aapl shares, followed by immediate sale of the same. If lepht already held old aapl shares at far lower cost, there would be a significant capital gain to report. Ouch.
> 
> lends credence to my option religion: Never Ever Let Em Exercise Against You.


No other AAPL in this account so no worries. Your advice is still very good - your kungfu is strong.


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## Argonaut

Argo fiscal cliff strategy: use proceeds from my spread roll plus a bit extra; and marry my March AAPL set with a protective SPY put position. At worst it's a hedge, at best.. well, we won't go there.


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## humble_pie

has anybody seen GOB ?

somebody said they glimpsed him last weekend in the bars on crescent street, he was still doing OK with the elephant in his backpack but walking slowly & with difficulty

he said a real icebreaker for picking up cute girls though


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## GOB

Hi all, I'm here and still surviving. My regular income strategy has fallen to pieces until we get out of this mess so that's why I'm not around much anymore. I rolled my December positions early this week into Feb/March for a small net loss, and glad that I did. Rather than detail it all out I'll just put down what I'm holding now. 

10 16FEB13 565/570 BuPS
5 16FEB13 545/550 BuPS
6 15MAR13 595/600 BuPS

1 15FEB13 700/710 BuCS
3 19APR13 690/695 BuCS
5 21JUN13 685/690 BuCS 
1 17JAN14 630/650 BuCS
1 17JAN14 670/675 BuCS
1 16JAN15 700/710 BuCS

and the elephant...

1 18OCT13 660 Short Put

If we can get up to 570 by Feb I'll be largely out of the wood, but even that is looking questionable right now. I'm glad I bought myself the time though. My bull call spreads for the front end of the year are looking very unlikely to pay out, but I didn't pay much them. Those are basically a write-off at this point with a small chance of success. The 2014/2015 spreads still have a good shot of paying. 

I will be relying on a blowout earnings, but I'm not sure it's going to happen. The demand is certainly there, but the supply was questionable in the first half of the quarter. It looks to be sorted out now, but is it too late? Nobody knows. 

Long term the story hasn't changed. I still foresee stellar growth, certainly ample for the current valuation, for the rest of 2013 and beyond. Apple may want to start considering a larger buyback program to support the stock. This is why it's good to have cash in the bank, but I'm not sure they'll use it.


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## humble_pie

pour chaque saison
une grande option
à chaque mordu(e)
encore plus haut
Bonne et Heureuse Année


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## Causalien

*A cautionary tale*

I hope enough time has passed since this that we can all sit down as adults and sort out what happened with cool heads. I spent some time analyzing all the moves so that newcomers to the options world can learn something before they repeat the same mistakes. I've recently started teaching options classes here stateside and have realized that most of the people who are lured into the world of options did so with the wrong attitude and mindset. What GOB here has experienced is the model example of the experience of 99% of the people who took on options trading. 

Let's look at the portfolio at the end of the last post around November 30th.

http://i.imgur.com/Q1GBfpX.png

-$38k

Here it is today

http://i.imgur.com/T16Wnrx.png

-$56k

If you read the posts psychologically, you notice the following trend:

-Does things tentatively with caution
-Because doing something right, so double down. Ignores critics and just let the result do the argument
-Started little side maneuvers that skirts on danger but paid off
-Decline starts, side maneuver managed to save the downfall so continue on the dangerous maneuver
-Double down on the most dangerous maneuver
-Black swan event
-Explain the potential of coming back up by stating all the reasons on how the product is superior to everyone else's
-Denial
-Bankruptcy???

Having analyzed the full history, I can state the the most damaging maneuver that was made was made around September. When he doubled his pure naked put to two. However, the posts that he put up doesn't really fit the actual data that he gave us. Especially the jump from $23k to $39k. Analyzing that period, the most gain I observed is $5k from his portfolio. Indicating that he either brought his stake from his other account, injected more money or is now counting his margin money as his net worth (which coincidentally should be around $39k).

The data discrepancy isn't just with the gains. The losses are also diminished, but follows a typical pattern of online bantering, we double our gains and half our losses to appear good. Another reinforcement to my belief that seeking attention online by showing that you are successful at trading is the #1 detrimental cause to actually making money in real life. Without being truthful to your own losses, you cannot analyze the true cause of failure and hence, trade efficiently.

The need to show off his proficiency led him to roll the naked put down, further increasing the damage when he could've just take the initial $6k hit (which turned to $56k). Because rolling the naked put down instead of closing and taking the hit shows on paper as a gain for month end closing.

The other point of failure, I believe is in doing the naked put with margin. Normally, I recommend anyone who do a naked put to make sure that your cash can cover the cost of the naked put when it is exercised. However, GOB's mistake is in adding the margin into the calculation when trying to determine whether or not he can handle the naked put. Each one of his naked put uses up $36k of cash in case it gets exercised, further adding the the pyschological pressure. He wasn't in any financial state to be handle such an event, forcing him to look for money with all these bullish put spread and call spreads. Remember, you can call a price, or call a time, but you can never be right at both. 

As you can see from the chart, by November 30th, his last post, he should have $0 in his account and should've been margin called long before that. Most brokerage only allows a 20% negative margin before they liquidate for you, let along 100%. As of today, the portfolio would've lost $56k

Near the end, you can see the desperation by the type of call spreads he buys. Far out of the money call spreads are hail marry passes that says: "I wish it reaches that price"

Due to the discrepancies in cash and the fact that he calls his spreads Bullish put spreads and bullish call spreads, I have a suspicion that some of it is not true at all and might be a troll account. Simply put, anyone who actually trade options would call these operations selling a vertical put (sell put spread) or buying a vertical call (buy call spread) because none of the brokers uses BUPS or BUCS on their systems.


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## Toronto.gal

Causalien said:


> I spent some time analyzing all the moves so that newcomers to the *options world can learn something before they repeat the same mistakes. *
> 
> - typical pattern of *online bantering*
> - Another reinforcement to my belief that *seeking attention online *by showing that you are successful at trading is the #1 detrimental cause to actually making money in real life.
> - *Without being truthful* to your own losses
> - The *need to show off* his proficiency led him to roll the naked put down
> - I have a suspicion that *some of it is not true* at all and might be a troll account.


I will study your post carefully as I believe it has solid points, so thank you for that. However, if your intent is to be helpful & share your knowledge, then it would be nice if you could leave out some of your assumptious remarks, such as the above mentioned, which distract from the important points you're trying to make, and which help no one. 

Yes, GOB made many mistakes, no doubt about it, however, you could have started your own 'options cautionary tales' rather than using the OP, and/or made your comments here, but without the unnecessary rude remarks.

As someone wrote, 'the illusion that we understand the past fosters overconfidence in our ability to predict the future.' It is interesting to note, that the thread was active for 6 months, but not once did you offer any comment/constructive criticism here; even Belguy appeared once, lol [albeit surely by accident]. Certainly we know that everything makes sense in hindsight.

You previously made similar remarks elsewhere: "Because you have a moral duty to let people know that you suck, so they don't follow you and lose their shirt on the back of your pretended greatness. If I cared about appearing good at what I do, I would never have been able to weather the downturn like I did. I find that writing and showing off on forums like these is detrimental to the actual monetary success of portfolios in real life and that really rich people don't show off. I go for the big wins and due to the risks I take, I usually spend several years in disgrace burning money. Having the need to tell people about it and appearing good at the same time is the same trap that mutual fund managers gets locked into at the end of the year. Why am I saying this? It's as a warning to some of you so you can get away from talking about how great you are and actually go out and earn money. You are falling in the same trap that I used to fall into when I first begin to go into stocks and finances. *This is the reason why I decided to leave the forum, but I will drop back in whenever I am back in Canada to find knowledgeable people to discuss finance and business with. And boy, do I have stories to tell."*

So, if you have returned to the forum, please try to be polite.


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## andrewf

Is GOB still here to be offended?


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## Toronto.gal

I & others are still here, does that count? :rolleyes2:


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## james4beach

Don't be too hard on GOB.

In my work I look at many client portfolios, typical retail trading and investment accounts. I can tell you the unfortunate reality is that most accounts (well over 50%) that I see are *net losing money* over long periods of time, like once you get over 2 years. You don't hear about it much because people brag when they make money, not when they lose money.

I can assure you that very few people "get rich with stocks". It just doesn't happen!

This is one of the reasons I keep posting here about using savings accounts and GICs. It's just very hard to make money in stocks & options and _cash returns will very often exceed stock trading accounts_. While everyone knows the theory of a diversified portfolio, here's what happens in reality: you start speculating, psychology and wishful thinking takes over, you add to losing positions, you fail to track or criticize your own returns, and you fail to stick to a single methodology.

Usually, people trade ad hoc, incur losses, and eventually "forgive" their past mistakes and reset their account value to start over again. And go on losing money repeatedly. I certainly admit to doing this as well.

So GOB's experience is pretty typical, though perhaps a bit more severe.


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## Causalien

james4beach said:


> Don't be too hard on GOB.
> 
> In my work I look at many client portfolios, typical retail trading and investment accounts. I can tell you the unfortunate reality is that most accounts (well over 50%) that I see are *net losing money* over long periods of time, like once you get over 2 years. You don't hear about it much because people brag when they make money, not when they lose money.
> 
> I can assure you that very few people "get rich with stocks". It just doesn't happen!
> 
> This is one of the reasons I keep posting here about using savings accounts and GICs. It's just very hard to make money in stocks & options and _cash returns will very often exceed stock trading accounts_. While everyone knows the theory of a diversified portfolio, here's what happens in reality: you start speculating, psychology and wishful thinking takes over, you add to losing positions, you fail to track or criticize your own returns, and you fail to stick to a single methodology.
> 
> Usually, people trade ad hoc, incur losses, and eventually "forgive" their past mistakes and reset their account value to start over again. And go on losing money repeatedly. I certainly admit to doing this as well.
> 
> So GOB's experience is pretty typical, though perhaps a bit more severe.


I am just here for the memorial day weekend. Unfortunately holiday doesn't exist for bosses and I am still at the office... slacking off somewhat. But like I said, I left, most of my stock discussions are done elsewhere now. Heck I got students. But doesn't hurt to check back from time to time on progress.

Toronto Gal I get the feeling that you think I was directing the message at you. When in fact all my advices, especially the psychoanalysis, are aimed to everyone and tone down the "King maker" sentiment that some tends to get when they strike it big (I know because I experienced them myself, so it is what I used on myself when I went through the same thing). The only way to save people is to convince them that striking it big at the beginning is a typical newbie experience. It's whether or not they can keep their cool head later and manage the winning correctly that separates them from losing it all. The only way I know of doing that in this anonymous world of internet where nothing matters, is to try to convince them that they are not great at all.


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## humble_pie

my AAPL strangles moved into the black this am

there are so many advantages to avoiding those do-or-die short-term options ...


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## Cal

I was reading Causaliens post up thread, pointing out some of the trading errors. It made me think that statistically, for every trade we (the lay person) make, it is probably an institutional investor on the other end of the trade.

Which would make a fair argument for index or buy and hold investing.


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## humble_pie

GOB's tiny IB account - almost 100% in aapl options - was only a pilot project of paltry dollars. He had completely severed it from his parent account, which remained lodged at another broker.

the large margin available to the parent account was, therefore, not available to the splinter account, which Gob set up with $20,000 at interactive brokers. Later, he would inject another 20k. By very rough calc, i would project that Gob would have been able to collapse the account for something like 20k, so i'm roughing in his total losses on this interesting pilot experiment somewhere in the neighbourhood of $20,000. 

this is a very small amount of money. Most readers of this forum have lost $20k at some point in their investment lives. If they haven't yet, they will !

if Gob had set up his option experiment within his parent account, he would have been able to utilize the parent margin & no problems would have occurred. After all, he only had one single AAPL contract. Later, he would add a second contract, for a grand total of two (2) puts in aapl. This is hardly mad gambling.

i for one have far more than 2 option contracts going wrong nearly all of the time. This is normal for an option trader. What keeps the overall account positive is that the wayward options are still embedded in the parent account, which also includes a good number of successful plays & well-performing stock, so the total account remains sheltered at all times by plenty of margin.

if i had ever split off 2 losing contracts & sent them over to IB as an isolated pilot project, they could have easily been engulfed by margin failure, in the same way that Gob's splinter pilot project was engulfed.

Gob himself was an exceptionally brave, talented, honest & generous young person who was not afraid to experiment with risk. I for one think it is offensive for parties with zero options experience or limited options experience to visit this thread, in his absence, to crow over what they falsely imagine to be Gob's failure.


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## andrewf

Yes, yes, we're all awful human beings...


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## Toronto.gal

No, that's not it [with exceptions]. 

For better or worse, you Andrew, were by far, the most critical of GOB's overconfidence & moves under the AAPL thread, but for those who never said a word under either thread while OP was active, and criticize just after the fact, it's a bit late, and the motive of some, is not so much to help, but to ridicule. We all have the answers in hindsight after all.

If the intent is truly to save/teach/warn investors of mistakes of other members, a new thread with cautionary tales would seem more appropriate IMO. Using former members here as examples, would have made more sense while they were around, as how many are now going to review the 400+ posts that began more than a year ago?

*"Most readers of this forum have lost $20k at some point in their investment lives"* - this is true, and many also are very capable of recovering all losses. Early negative experiences/losses are also preferable than later in the game. 

*Cal:* from one DRIPper to another, I can't fully agree with you.


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## GOB

Hello all,

I am back. I know how this looks, and that many of you will think that I ran away as soon as things went sour for me. I probably wouldn't believe me either, and I don't want to get into details, but let me just say that over the past year, posting here was the last thing on my mind. It was difficult enough simply managing my portfolio without having to worry about defending myself against trolls. I had some serious sudden health issues and have taken a long time to recover from them. Fortunately my employer provides a good benefits plan that paid me a livable income while I was out of commission. I am back to normal now. 

As for my portfolio, I did take a huge hit as AAPL kept dropping all the way down below $400. But I survived and managed to avoid margin calls. I managed to enter some spreads near the bottom and profited quite well. I also resumed my weekly put selling strategy with good success, especially when the stock was in the $400s and low $500s. As we climb higher I'm growing more cautious - learned my lesson from last time. I've made several deposits and withdrawals (net positive deposits) since I last posted here, so I can't really say exactly where I am but I am above break-even from my starting point. At the end of trading today, my portfolio sits at $80,000. The put that I sold has been pushed out to Jan 2015 at $640 - I have confidence that the stock could eclipse $640 by then, or I will be able to roll it out further. I've also got into some great call spreads - Jan 2016 $500/$550 and $640/$705 that could both pay out well over 100%. 

Fundamentally, AAPL has a bright future ahead of it. 2013 was a tough year, with a net profit decline despite revenue growth. Margins took a hit, but I expect them to begin stabilizing here. 2012 margins were exceptionally high - Andrew, I will give you credit here that you were right, but I still don't believe high-end smartphones and tablets are going to be commoditized anytime soon. Margins should hold steady around here, which will mean good growth in both revenue and EPS for 2014. iPhone 5s and 5c are doing their job, and I think people are finally seeing Samsung for what they are - a company that produces second rate products and passes off gimmicks as innovation. The S4 is looking to be a huge disappointment, and iPhone share continues to grow in North America. The addition of China Mobile as a carrier partner is going to be absolutely massive for at least the next couple of years. The new iPad Air looks to be a massive success and is a great piece of hardware. Apple is losing tablet share, but only because it's so high to begin with. As the tablet market grows and reaches saturation, I expect Apple to maintain a large share of it and dominate the profit share. In both smartphones and tablets, iOS dominates usage statistics, indicating that iOS consumers actually use their products far more than Android or others. This is a huge fundamental positive for the years ahead, and means much more than market share to me. 

All this combined with a strong buyback to increase EPS, and yearly dividend growth, and I see this stock being much higher than it currently is. Given how volatile it is, it is difficult to put a time on it. My strategy going forward is to accumulate shares on dips and enter call spreads on dips. Also, I plan to take profit earlier, banking gains when I see them instead of being too greedy and holding out for more. 

Thanks to all who supported me and defended me in my absence. I apologize for leaving this project unannounced. I'll try to document my trades here but I might be a bit more casual about it.

P.S. I am more than happy for people to use this thread as an example of overconfidence or risky trading, but please be aware that right from the start, I knew about the risks and was willing to lose everything. I stated the risks right from the get-go, took the risk and faced the consequences. Even while being exclusively long on the worst performing stock in the S&P500, I managed to salvage a good part of my portfolio and recover from it.


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## Causalien

Glad you stayed in GOB. I myself have gone through the same experience twice. Once in the 1999 collapse, another in the 2008~2009 period. It's what you do after a collapse that matters. Whether or not you learned from your mistakes is important. Heck it hit me twice and I still get caught up in the same emotional loop from time to time.


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## GOB

Thanks. It was a tough year for all aspects of my life. Fortunately I just earmarked a portion of my portfolio to this admittedly risky strategy. I did quite nicely with my more passive investments.


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