New Trade - XOM put diagonal by Joseph

Fundamentals:
1. XOM released its earnings report on 10/29/2009. The stock drops after the earnings.
2. EX-date for dividend on 11/11/2009. In the past year, after the dividend date, the stock drops $2- $6.
Technical:
1. MACD sell signal, RSI at 49, and 5ema below 20ema
2. 50 sma at 70.6. Might serve at support
Expectation: Price is between $73 and $70 at 2009 Nov expiration.
Trade: Stock at $72.43
BTO 2010 Jan 75 put at 4.83
STO 2009 Nov 70 put at 0.86
Net debit 3.97
BE at $73.2
Delta -28.
Maximum risk: $3.97. Max profit: $2.1.
PE: 20% gain
SE: Roll short call up/out if very bullish

Volatility Collapse after earnings - good day trades? - by Joseph

It has caught my attention that stocks with big drop after earnings have the tendency to rebound on the next day.
Recent examples are ISRG, BIDU, FSLR.
If we check the options of the ATM put, we found that the value of the put drops a lot. Need to find out what are the causes of the decrease in value.
IV drop could be one of the reason.
For example, this morning, the high of FSLR Nov 09 strike 125 put was 8.3. It dropped to around 5.
If one has enough margin in the account, he can sell the put and buy back later for profit (3.3/8.3 = 39%.)
Another choice is to sell Bull put (125, 120), the best entry price is 2.7 and the best exit price is 1.5. (1.2/1.5=80%)
Of course, the above is the ideal situation. The gain will not be so much in real trades. However, 10-20% should not be impossible.

One other thing we need to do before doing this type of trades is secondary exit.
The obvious answer is stock ownership. The issue is that whether we want to own a stock with bad earnings.
Please give your thought on this type of trades. It could be very profitable.
There are still earnings next week, let's get prepared for them.

PNC - Roll SC

Ted has rolled the PNC SC from Nov 55 to Nov 52.5.

The respective risk profile are shown above.

By rolling, it has added cushion from the trade profitable range from 51.2 - 67 to 48.3- 66.4. This is executed with discipline as was planned on the secondary exits

It will still be a very profitable trade with target ROI 25% still a high probability.

He got a decent 1.8 credit for the Dec 52.5 SC

Trades by Ted: APPL PNC - Call Diagonal - 10-26

AAPL

AAPL stock Price 204.

STO SC Nov 210 and BTO LC Apr 200 for a debit of 18.5 ( Risk )

PE: ROI 25%

If bullish, roll the short call up and out ( BE: 228)
If bearish : roll the short call down ( BE: 200.5)
If stagnant, Let the short call expire, take profit and short another call


PNC

PNC stock Price =52.79

STO Nov 55 SC
BTO Feb 50 LC

Debit = 4.9 ( Risk )

This is a bullish trade.
PE : 25%

If bearish ( below BE : 51.15 ) roll the short call down
If very bullish ( price > 1 to 2 strike above SC price of 55, roll the SC up )

Trade by Joseph - AAPL ITM bull call - Oct 26

ITM bull call on AAPL:
BTO April 10 strike 175 call
STO April 10 strike 180 call
The mid price of this trade is 3.73. ROI is 1.27/3.73 = 34% in 6 months.
The natural price is 4.45. ROI is 0.55/4.45 = 12.3%
If we can get a fill at (3.73+4.45)/2 = 4.09. The return is 22%.

MCD an unconventional call calendar - 10-23-2009

I have a trade for MCD Calendar.

I am trying out a ITM Call Calendar. This is a new idea. Probably there are some loopholes I am not aware as I am still learning calendar. The reward versus seems too high to be true. Please post comments if you find any loopholes


BTO Jan 55 C = 4.75
STO Nov 55 C = 4.45

Debit ( Risk ) = 0.3

PE: Target at 200% ROI

SE: - If stock becomes bearish ( < 52), exit with a small profit or breakeven
- If stock becomes bullish ( >60 ) roll the short call up.
Considerations:


· Expectation: MCD is expected to be short term bearish moving down from current price of 59. It has hit a temporary resistance. I expect the stock to end by Nov expiration to between 51 and 58. If it does, I will make money.

· It is actually a short term bearish calendar. It is like shorting the stock for 1 month but in this case the upside risk is limited to 0.3. Also, if the stock goes really bearish and gap down a lot <50, I will also lose 0.3

· You can also place a LC Jan 60 and a SC 57.5. As long as the stock stays below 60, you will not lose money even if the stock goes to zero. The flip side is that if the stock goes above 60, you will lose more money than the 55/55 call calendar proposed

· In my case, I believe the stock will not go down below 51 by Nov expiration and will not go above 59. My risk is limited to a small amount of 0.3 but my maximum reward if the stock finished at 55 is 1.25.

GS Put Calendar - additional analysis

I did a detail analysis of the put calendar trade for GS yesterday, Oct 21st.

First, I define the level for the various trends. I use theta and delta to estimate the gains and losses as the stock moves in each direction. This will define the points that adjustment will be made.

In additional, I added a spreadsheet for automated calculation for future calendars. For those who are interested in getting a copy of the spreadsheet, please place a request on the comment section or email the post to me and I will send it to you.


Considerations

· Stock bounces off resistance despite good results
· Overall trend of stock = bullish
· Overall market trend = Bullish
· Credit ( 4.4 ) > time decay ( .09*30=2.7) = Good

Comments

· Note that Calendar wins 4 out 6 trends. While you can lose 100% if the stock goes very bullish or bearish, your gains are substantial in between.
· I am using theta and delta to project my ROI. I left out GAMMA but it has the effect of increasing my profit in a bearish or slightly bearish trend as it increases the delta as volatility increases towards expiration. GAMMA will benefit my long put.
· Maximum profit is achieved when stock is slightly bearish at 180
· Interesting to note that if trend is slightly bearish, LP may gain value but the time decay actually offsets the gain and results in a loss of –0.3
· Watch out for prices as it goes too bullish or too bearish and adjust accordingly. Execute your secondary exit without hesitation.
· Adding a protective call at 190 if the trend gets very bullish. The trade is effectively turned into a strangle once the SC expired
· Roll down