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.
Wednesday, February 8, 2017
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.
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.
Friday, December 30, 2016
Shorting $JNUG the Junior Miners ETF
What a year, huh? A lot of volatility, crazy happenings around the election and overall a 10% gain in the SPY. So, what did I do for myself? Nothing good. As with every year, I think I can trade my way to profits, and that hasn't worked. Maybe it works for other people, but never has for me.
So, I am back to trying a sensible long term strategy. This time, revisiting this strategy of shorting the leveraged ETFs. I think I spread myself too thin last time, a lot of different ETFs, and trying to guess market direction, instead of using the daily rebalancing of the 3X ETFs in my favor.
So, I am now short $JNUG, the Junior miners 3X ETF. I am offsetting this with a long position in $GDXJ, the single junior miners ETF. I am using about a 2.6% ratio rather a flat 3.0 as would be indicated. I'll let you know how it works.
From my observation, $JNUG is one of the most volatile of the #X ETFs, and is also available to short on occasion. I got some. We'll see how it works.
Thanks for reading, I'll let you know how it works out.
So, I am back to trying a sensible long term strategy. This time, revisiting this strategy of shorting the leveraged ETFs. I think I spread myself too thin last time, a lot of different ETFs, and trying to guess market direction, instead of using the daily rebalancing of the 3X ETFs in my favor.
So, I am now short $JNUG, the Junior miners 3X ETF. I am offsetting this with a long position in $GDXJ, the single junior miners ETF. I am using about a 2.6% ratio rather a flat 3.0 as would be indicated. I'll let you know how it works.
From my observation, $JNUG is one of the most volatile of the #X ETFs, and is also available to short on occasion. I got some. We'll see how it works.
Thanks for reading, I'll let you know how it works out.
Wednesday, February 24, 2016
Leveraging the Home Builders
I shorted up two more leveraged 3X ETFs yesterday the Direxion Bull and Bear ETFs, $NAIL and $CLAW. Like most of the things I trade, I have no idea if these are going up, down or sideways, I am in the trade for the decaying effects of daily rebalancing.
A word on these ETFs. They aren't really the best idea from one standpoint, in that they are very illiquid and have pretty big bid and ask spreads. If you move in out of them a lot, the spread will be very damaging. Therefore, this really needs to be a long term play.
I hope to pretty much never cover this pair, and have them both decay to practically zero. But I don't know if that will happen. Life gets in the way sometimes.
I'm thinking of converting this strategy to a pay service through MarketFy. Of course, it would be helpful to have some positive history.
Good luck and good trading. The usual disclaimer applies.
A word on these ETFs. They aren't really the best idea from one standpoint, in that they are very illiquid and have pretty big bid and ask spreads. If you move in out of them a lot, the spread will be very damaging. Therefore, this really needs to be a long term play.
I hope to pretty much never cover this pair, and have them both decay to practically zero. But I don't know if that will happen. Life gets in the way sometimes.
I'm thinking of converting this strategy to a pay service through MarketFy. Of course, it would be helpful to have some positive history.
Good luck and good trading. The usual disclaimer applies.
Monday, February 22, 2016
A New Start
A few weeks ago I restarted the concept of the Leveraged ETF shortlist. This time, instead of randomly picking assorted ETFs, I shorted pairs of opposite ETFs. Things like $NUGT, which is a bull 3X Gold miners ETF, and it's opposite Bear ETF, $DUST.
I will say I was surprised that one day I was able to short $DUST, I hadn't been able to for a long while. So when it was available, I grabbed it.
So, as of today, I have 3 pairs, $DUST and $NUGT, $SQQQ and $TQQQ and $VXX and $XIV. I don't want to have too many, because of the commission cost, but not too few because this strategy isn't flawless.
How can it fail? If one of the ETFs in a pair falls too much. I can explain this more some other time. For now, just know that the best thing to happen is that the funds are volatile and fall equally over time. As of now, all these pairs are winners. We will see if that holds up.
Happy trading.
I will say I was surprised that one day I was able to short $DUST, I hadn't been able to for a long while. So when it was available, I grabbed it.
So, as of today, I have 3 pairs, $DUST and $NUGT, $SQQQ and $TQQQ and $VXX and $XIV. I don't want to have too many, because of the commission cost, but not too few because this strategy isn't flawless.
How can it fail? If one of the ETFs in a pair falls too much. I can explain this more some other time. For now, just know that the best thing to happen is that the funds are volatile and fall equally over time. As of now, all these pairs are winners. We will see if that holds up.
Happy trading.
Saturday, January 9, 2016
Six Month Review
It's been a while since I posted here. I had abandoned my strategy, but I wanted to go back and see what would have happened if I hadnt. Here's a look at the stock price when I did my initial short many months ago and where it would be at Friday's close, adjusted for stock splits as appropriate.
As you can see from the table below, the strategy was pretty much a disaster The negative impacts of the 3X leveraging were more than offset by declines in the market, particularly in the Russia and China markets $NUGT was a huge winner, but most everything else did badly I would probably need more time, or to include more bearish positions.
As you can see from the table below, the strategy was pretty much a disaster The negative impacts of the 3X leveraging were more than offset by declines in the market, particularly in the Russia and China markets $NUGT was a huge winner, but most everything else did badly I would probably need more time, or to include more bearish positions.
Close | Initial Short | Current Price | ||
| NUGT | 9.60 | 2.85 | ||
| BIS | 29.13 | 35.73 | ||
| TZA | 9.42 | 14.18 | ||
| VIXM | 53.67 | 59.70 | ||
| RUSS | 32.68 | 48.59 | ||
| CORN | 22.99 | 21.08 | ||
| FAZ | 10.89 | 12.70 | ||
| UVXY | 36.25 | 42.81 | ||
| FXP | 28.22 | 51.87 | ||
| XIV | 47.34 | 20.43 |
Friday, December 18, 2015
A New Short Position
I added a new position this week, a small short position in $NAIL the Direxion Daily Homebuilders & Suppliers Bull 3X ETF. That is, a leveraged ETF that seeks to triple the Daily performance of the homebuilders.index.
I don't have any special insight into the homebuilders, but I think I have a pretty good idea of the long term performance of these specialty leveraged ETFs, which is lousy. This one has only been in existence for a few months and is already down by 30% or so.
It's pretty volatile and rarely traded. The most difficult thing about it is finding somewhere you can short it, and I was lucky enough to find enough for a small short position.
As always, the key to winning as a short with these funds it to hold the position other an extended period. Buying and selling in a matter of days doesn't play to it's weakness as a daily rebalanced fund.
Best of luck trading.
I don't have any special insight into the homebuilders, but I think I have a pretty good idea of the long term performance of these specialty leveraged ETFs, which is lousy. This one has only been in existence for a few months and is already down by 30% or so.
It's pretty volatile and rarely traded. The most difficult thing about it is finding somewhere you can short it, and I was lucky enough to find enough for a small short position.
As always, the key to winning as a short with these funds it to hold the position other an extended period. Buying and selling in a matter of days doesn't play to it's weakness as a daily rebalanced fund.
Best of luck trading.
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