A Tesla Bearish Option Spread and an Update on $UVXY

I was a bit reckless with my option trades today, and surprisingly, I didn't get burned.  I may actually make some money on it. It will probably come back to haunt me.


I sold a call spread on Tesla ($TSLA) with a one day expiration.  The stock came out with earnings last night, and although the stock initially went up, it faded quickly and was down by 10 am or so, when I put this on. 


The stock had dropped from $280 last night down to $260, so I sold a put spread:


Sold the $262.50 for $2.24 for expiration tomorrow.
Bought the $272.50 for $0.55 for the same date. 


If the stock stays below I get the entire spread.  Short duration, but there was still a fair amount of implied volatility, so a decent return. 


Stock dropped to $256 by the close, so I could have taken it off for a solid win, but will hold for a bit tomorrow.  If it stays near that price I will let it expire worthless. 


An update on $UVXY.  If you haven't tried this strategy, one thing that can happen when you sell a call or put is that they can be exercised early.  That happened to me today, the $19 call I sold was bought back, locking in my losses.  Bad. However, $UVXY continued going up, so the exercise stopped me from taking larger losses.  Good!


The $21 call trade I sold isn't looking great either.  The stock closed near $22, and the option expires tomorrow.  I need a solid fade to make any money, and I'm not confident about it. 


That's the risk of doing this.  A few bad trades can really blow up your account.

A Bullish Option Spread on $AAPL

I have a long term put option on Apple, but since I have been watching it closely, I saw that it had been upgraded this morning.  The stock seemed to be steady, so I thought it might be good to put on a very short term bullish spread on.  I had some cash available from my winning $YELP spread that expired on Friday.


I sold a put spread (which is bullish).


Sold the $135 weekly put for this Friday for 40 cents
Bought the $132 strike weekly put also for this Friday for 9 cents.  The underlying stock was trading around $136.20 at the time.


If this works, that is, if $AAPL stays over $135 through close on Friday, I'll pick up the whole 31 cents (that is, $31 per option.)  The stock closed at $136.69, and I am already in the black. 


It's probably not smart to trade such short duration, I don't really have much chance of picking up much of the implied volatility, but it's a straight directional bet that the stock won't go down, or go down very much in a short time frame.


I'd like to update my position on the trades I made last week.  I have two bullish bets on $UVXY, short a $19 call and a $21 call.  The $21 looks OK, $UVXY closed at $20.69, that would pay off if it stays here.  The $19 is losing at this point, but $UVXY can fall quickly, so I will hang on to it for a few days.  Of course, it can also spike, but I have offsetting long calls at higher prices to give me some comfort.


Enjoy trading.

Shorting the Spike in $UVXY with a Call Spread

If you read yesterday's post, you saw I made a bearish bet on $UVXY, which is more or less a bullish bet on the market.  I got stung a bit, although it was done with options that don't expire until next Friday.


I was taken to task a bit for not using the correct terminology on $UVXY and the $VIX, to which I will plead no contest.  For my purposes, it's not important to identify the how the products work exactly.  I don't need to understand the physics of gravity to know I will hurt myself if I jump off a building. 


With that out of the way, $UVXY did spike this morning, and rather than wait, I sold another call spread at higher strikes.  Putting on more risk but hoping for a drop as the markets quiet down for the weekend and contango kicks in.


Sold the $21 February 24 Call
Bought the $25 February 24 Call


I got a credit of about a dollar again.  Price of the underlying was $20.80 at the time I put it on.  The price jumped to $22 before closing at $20.11, so I am ahead on this trade at end of day, but behind on the one I made yesterday at the 19 strike.


A word on liquidity.  I closed out a trade today I didn't discuss when I opened it on $RH.  I had sold the 26 strike and for a while I was looking pretty good, as the stock dropped below $25.  I didn't take it off with a win because I couldn't get a good price because the option was illiquid, hardly any bids.  It's teaching me to focus on activity traded options.  Even if I see a very good deal, I may pass if I can't cover when I want to.


As it turns out, $RH got a buy recommendation and the stock jumped over $27.  Lesson learned (hopefully). 


Good luck trading.

Weekly Put Spread on $TSLA

I sold a put spread on $TSLA today, stock has been a monster, and I think it has a chance to continue to run.  I can't see fighting this trend at this point.  Stock has a ridiculous valuation, but never short a stock based on valuation. 


As I did with $YELP, I used the weekly calls, for a lot of risk and a quick payoff.  I can't recommend this as a good strategy, but it can work. 


Actual trade was short the 275 put and bought the 260 put for just short of a credit of $3 per option on the 2/17/17 when the stock price of around $277.  Closed above $280, so already in the green.


I was surprised, I had originally looked at the 270 strike but would have only sold for $1.35.  Not enough payoff for the risk on this high flyer.  I could have stretched to a longer date, but decided to just cut the cushion.  Either it runs like crazy or it reverses hard, and no amount of cushion will help.


Risky play, but I accept that. 


Only trade I made today, others I have on are still working, including $YELP losing a bit more.


By the way, if you haven't caught Sean McLaughin's options podcast, I recommend it.  You can find the link on his twitter account, @chicagosean

Short Term Call Spread on YELP

On Friday, I put on a call spread on $YELP, sold the 36.50 and bought the 38.50 for a credit of 45 cents, expiring next Friday.  Yelp reported that morning and dropped 5 bucks, I put this trade on when the stock price was $36.  It closed at $35.84.

I mentioned  this to Sean McLaughlin, host of the Gimme Some Options podcast, who called a one week play "bold."  That gave me something to think about.

Many of this trades, and some of mine, are for longer duration,  where the goal is to pick up premium as the the implied volatility peters out over the life of the option.  I have no problems with this, it's a solid strategy. 

Making a trade on a short dated option is different.  The plan on my Yelp trade is mostly directional.  I think Yelp is going to sit here or continue to slide over the next week.  If so, I get the whole premium.  I gave myself a little cushion by going with the $36.50, and probably  cost myself a dime or two. If I'm wrong, it could ugly, but will be over fast.

We will see how it works out.

Update on Tesoro Call Spread

A few days ago I sold a weekly call spread on $TSRO based on the idea it had run too much and was due to fall back in short order.  I bought a 195 call and sold the 185 for this week.  I netted $2 and if the stock stayed under $185 I would keep the whole spread.

Unfortunately, after I put it on, Tesaro went up a bit more and hovered around the $185 mark.  If it shot up to $195 I would be out $1,000 per option.  Or an $800 loss. 

I prefer to close out early if there is any question but couldn't do it because the option wasn't very liquid.  I decided to wait it out this morning and decided to put in a limit order, buying back the $185 strike for a dollar.  I was on the road and couldn't watch the position closely.

The stock dropped almost immediately this morning and held just under $185 for most of the morning, and around 11 my limit order filled, giving me a good profit of $100 per option less commissions.

As it turned out, the stock closed at $182. If I held all day I would have gotten the entire $2.  OK, a win is a win and l'll take it.  It could have been a loss, so I'm happy.

One thing I re-learned is that it's better to trade options that are more liquid.  There are times you just need to end the trade early.

A Put Spread on Chipotle $CMG

I am a little late posting this, and I feel bad because it has been a winner so far, but well, that's the way it is.  A few days ago I sold a put spread on Chipotle, $CMG.  I sold the $395 and bought the $375, both in May, for a possible $800 gain.  Price when I took out the spread was around $398.


A few keys points:


May is really far out for me.  This has a long time to work.  I got the idea from Jim Cramer, he said he thought Chipotle would come back from the dietary issues they had, but it would take 18 months.  We are now a year past that, so six more months would be around 18.  I figure there is some leeway in that so I chose May. (And honestly, Cramer doesn't know, he may be better at estimating that stuff than some people, or maybe not)


The other thing I was instead of multiple puts at close strike prices, I did one with a wide spread.  This gave me a decent return (40%) and lowered commissions.  Risk is pretty high, but not so much I didn't take the wager.


So, just two days out of 60 or so $CMG is up 20 bucks.  A lucky run.  I am already up $150 or so.  I don't think it's likely I will wait it out if I keep this profit.  Although I haven't yet.


I have a couple more positions I'll get to over the next week.  A teaser is that one involves $LABU.

A short term Option Call Spread on $TSRO

In my last post, I discussed why it's better to use a long time frame when selling option spreads. In this point, I am going to show why I ignored that advice.


I sold a call spread on $TSRO today, selling this week's $185 for $3.47 and buying the $195 for $1.47, a $200 spread per option contract.  As usual when selling the spread, a pretty bad risk/reward ratio, 5 to 1 against.  If the stock goes to $195, I loss the entire amount.  Dumb, maybe.


Well, that's why the call it risk.  Yes, it's a potential loss, but a defined one, pretty much.  Is $TSRO going to $195?  It already jumped $20 today to $182 (it was $183 when I put the trade on.) 


The positive is that it doesn't have much time to go up.  The $20 jump today can be traced to a takeover rumor.  We will see if it has legs.  My play is that it doesn't and drops, or at least holds steady through Friday, two days away.  If I get a drop tomorrow, I'll close it early.


Probably more to discuss on this, but I want to get this posted, and chances are no one will read it anyone. 

Selling a put spread on $AAPL

I've been playing around the last few years on option plays.  I'll admit, I haven't spent a lot of time on terminology, so there are better places to find out what an Iron Condor is, and other lingo.


Still, I think that you can profit from this kind of trading.  I have, although I generate enough losses to make me wonder if it can be worthwhile over time.  I still think the answer is yes, but like any other kind of trading, it's probably better as entertainment than a real moneymaker.


Others may disagree with any part of that statement.


PUT SPREADS ON APPLE $AAPL


I put together a simple put spread on $AAPL.  With the stock price around $130, I sold the $125 May 17 put for $2.90 and bought the $115 put for $0.96.  If the stock is over $125 upon expiration, I keep the entire difference of $1.96 per option, (since options are for blocks of 100 shares, that's $196.)


It seems like a decent trade, a high probability of success.  The problem with this strategy is lousy risk/reward ratio.  If $AAPL price falls to $115, I lose the entire spread of $1,000 (less the $196.)  You can see why some people this isn't smart.  I can agree with that. You need a lot of wins to make up for a few really bad losses. 


I've blown up sometimes using these on short durations.  You can make good returns with weekly put or call spreads but if you are wrong, you can completely blow up your account.  So, I am stretching the time frame by going all the way out to May. 


If I get lucky and get some positive movement, I'll close the position early with a win.


I'll try to let you know how it works out.