3SOF

The other two positions I have are:

FWLT 145/150 bear call spread
GD 85/80 bull put spread

I will get into more positions next week.  I'll let you know what I get into!   


Leaira

Quote from: capricho on November 20, 2007, 02:40:13 PM
I can't imagine how the Main will come close to reaching the target 30% by years end.

Well, I've been trading credit spreads since January, and my account is up 134% since then.  Come join us in the BetterTrades.com chat room. 

I forgot to add, the more credit you take in, the less money you can lose.  In the FSLR example, there's a fixed $5 spread.  On 10 contracts, you're putting $5000 at risk.  However, $1800 of it is money that the market paid me to open the trade, so there's only $3200 of my money at risk.  It's that amount that your %return is based on.

I put up $3200 of my money in order to make a proft of $1800 on it.

Here's a formula: 100*[ credit / (spread-credit) ] is the percent return.
(spread-credit) is the maximum risk, or the most that can be lost in the trade.

To lose on a credit spread, the stock has to trade at a price where the option you sold would become in-the-money.  In FSLR, I sold the 200 and bought the 195 puts.  If the stock dropped below 200, then the spread would be in trouble, and I'd have to unwind out of the spread.  I would have to buy back the 200 put to end the obligation.  Hopefully from that point on, the stock would keep dropping enough to make back my losses (and then some profit) on the remaining long 195 put.  But it doesn't always work out that way.  Sometimes I end up taking a loss on a trade if the stock doesn't move after stopping  me out of the spread. 

But when trading spreads, or any strategy, you would use the same entry and exit points.  I would have a stop buback order to buy back the short option before it got near the short strike price.  I trade spreads in trends, and usually use the 10EMA as a stop (for a stock that bounces off it as support).  I enter when it bounces, by selling the first put below the 10EMA, then buying the one below the one I sold.

Is this making sense to you?

A credit spread (or vertical spread) is an options trading strategy where you sell an option, then buy a cheaper one of a different strike price, both in the same expiration month.  Let's use FSLR as an example.  I'm bullish on FSLR, and based on the chart, I don't think it will drop below $200 in the next month.  So I sold to open the December 200 put for $13.80, and bought the December 195 put for $12.00.  WOW! I just noticed that I got filled for $1.80 credit, not the 1.40 I first thought!  This is a 56% return on the trade -- for one month!!

Now, as long as the stock stays above $200, the time value will keep eroding away at the two options, and the money will go right into my pocket!  When you are the seller of options, time decay works in your favor.  When you buy options, it works against you.  Credit spreads are a selling strategy.

For more info, come visit the chat room at www.bettertrades.com.  I hang out in there often.

I'm not in SPWR right now.  I'm bullish on the sector, but the stock hasn't given me a bullish entry yet.  It broke below the 20EMA and might test the 50EMA.  If it bounces from there, I might get into a 100/95 bull put spread.  I don't want to do a bear call spread cuz the sector is bullish.  I'd prolly have to end up unwinding out of the bear call spread.  I know that doing so can make you a fortune on the remaining long option, but I'd just rather have as many of my trades as possible work out from start to finish.

I love FSLR!  I've made a lot of money on it the last few months.  I just got into it yesterday.  I took $1.40 credit on a 200/195 bull put spread.  That's a 38% return!  It'll be a little less cuz I never hold spreads till expiration.  I always buy back for a small cost when the stock is done moving in that direction or the short option gets down to a dime or so.  Maybe a quarter on a volatile stock like FSLR.

I can tell you why it's been tanking all month.  The mail-order retail sector has been in a tailspin since Nov. 1 when all that bad news came out after the FED spoke on Halloween.  Although bullish at first, the FED news turned out to be more of a trick than a treat!

Well, no, FSLR won't be a 10-bagger, but it doesn't need to be.  Let's say you manage to trade credit spreads on FSLR every month, bringing in a 30% return.  To get a 30% return on a 5-point spread, that would require taking $1.20 credit on the trade.

Let's compound that for a year, by trading more contracts each month.  1.3 ^ 12 = 23.3, or a 2,230% return for a year.  That's like getting a 23-bagger in a year's time!  How long do you think it will take ASTI to increase 23 times its value, or even 10 times, from now?

A better stock in this sector is FSLR.  I just did a 200/195 bull put spread for $1.40 credit, or a 38% return for 5 weeks of trading!  I doubt the stock will go below 200 again.  It's up today despite a weak market.

That's exactly why I don't invest in stocks anymore.  I trade only credit spreads.  I didn't have a spread on this stock, but I had one on DRYS (bull put spread).  When the stocks in this sector turned over, my stop was hit (a contingency to buy back the short put), and I made a fortune on my remaining long puts as the stock was tanking.

I would really like to see another portfolio on 3SOF, dedicated to options in various strategies.  I guarantee you'll have a lot better performance than any of the portfolios you have now!   

It looks like it's time for 3SOF to switch to options.  The main portfolio is only up 5% year-to-date, which isn't much better than the S&P 500 at 2%.  3SOF works great in a bull market, but it appears to not be so bear-proof.  This is EXACTLY the problem I had in spring 2006 when I made the switch.  I lost $10,000 out of my portfolio cuz I had the entire thing invested in the types of stocks that are on the Main Portfolio.  I've been making money consistently since then. 

I'm up about 46% year-to-date in my account, and I trade options using mostly credit spreads.  I can make a 20-25% monthly return on my money when I trade them.  I had a loss for the July expiration cycle, but that was the only losing month I had since trading credit spreads.  I was busy moving to Florida and neglecting my portfolio.  I did a bunch of bear call spreads when the market looked toppy, then most of them went against me when it turned strong bullish.  I've gotten 20-25% return the rest of the time.

Leaira

The reason it went up so much is that it RIMM was doing a stock split.  Those usually move a lot faster to the upside than non-stock splits.  I wasn't watching RIMM, I should have, and I missed a great daytrade opportunity on Friday.  I could have spent $500 on 10 contracts of the Aug 210 call for 50 cents each, then sold them at 3:58 for over $10, making a $10,000 profit in a day!  $5000 would have made me $100,000!

Leaira

Why are we not writing covered calls on the optionable stocks that we buy for the 3SOF and Main portfolios?  You could make a lot more money than by just holding the stock.  Just a thought!

Leaira

Quote from: guitarman on January 18, 2007, 12:54:42 PM
Thanks Leaira
I played your pull back and got in at $73.5.
Applause
Now I'm in margin debt big time! LOL

Maybe MGLN is worth looking at too?

Best
GMan

G-Man,

Did you buy the stock or the call options?

I didn't get in yet.  I didn't want to buy on a down day like today -- too much selling pressure.  I see that the stock went down below the 10EMA and came back just below it, but still on high volume.  This might go down to bounce off the 20EMA at about 71.75 before continuing the uptrend.  I'll buy the call options if it does that. 

I'll prolly get them for about $4 a share (70 calls, that is) if the stock is at 71.75.  The open interest is 102, so it's barely high enough for me to consider it.  I won't get any more than 10 contracts.  The 75 calls have more open interest, but the delta isn't quite high enough cuz they're out of the money.

Maybe I'd be better off doing a bull put spread, like the Feb 70/65.  There's $1.05 natural credit in it right now.  There would be more if it comes down more, but I'd wait for a bounce off the 20EMA.

Leaira