An Apple Iron Condor For 17% Credit Against Risk [View article]
While I understand these comments, my feeling is that Apple's $500 price is irrelevant. The trade earns $1.70 for $10 of risk. As of market close today, you could close out the put spread for $0.65 and net $0.55 on the trade for 6 days. The call spread has increased to $0.70 (for a $0.10 loss in value). The Delta numbers for both spreads are unchanged. The March 485/465 spread is comparing apples to oranges as the 485 strike has twice the spread ($20 vs $10), a Delta of 18 and would be in the money with only a 10% decrease from the current price. I would also disagree that Apple is not a good choice for an iron condor. Because it is so volatile, it rewards you for risk. Yes, you need to manage the risk, but that holds true for any trade. I don't see many other places where you can generate a 17% return against amount-at-risk while also targeting very low Delta numbers. But that's why we all do what we do. Every trade has a buyer and seller - so thanks for reading and taking the time to comment. Phil
An Apple Iron Condor For 17% Credit Against Risk [View article]
Agree with the second half of your comment. These kinds of trades need to be closely monitored and, in many cases, would be best closed 2-3 weeks prior to expiration (or whenever your profit target is reached). The April positions expire the week prior to Apple's earnings release. March positions, which I do own, offer lower premiums that may not satisfy many investors' risk-reward requirements.
Options Strategies To Profit From Google's Blood Bath [View article]
I tend to avoid DITM spreads because, in my view, the return is not worth the risk. I'd rather buy a naked DITM call that provides more upside with only a slightly higher risk profile than the type of spread you're suggesting.
Use Tesla's Weakness To Buy-Write Profits [View article]
Selling puts is a totally different approach, but one that some people prefer. While I will occasionally sell puts, I don't like the fact that my max gain is the premium collected, while my max loss is huge. I prefer buy-write trades, with a strike price that I think is a bit of a stretch and/or a price I'm happy to sell at. Admittedly with buy-write trades you still have a huge max loss, but I prefer its risk-reward balance to naked puts.
10 For 12: 10 Buy-Writes With A 12% Return In A Flat Market [View article]
Buying and selling shorter term options is often a more profitable approach -- however the premiums may be so low that, combined with transaction costs, the trades don't make financial sense unless you're buying/selling 25 or more contracts. This piece was focused on earning a decent return even if the underlying stocks don't move upward. If you have a strong belief in a particular security, than LEAP covered calls are probably not the right approach.
Re option exercising, usually nothing happens until the last week prior to expiration. The owner of the option can exercise earlier, but that's quite rare. If you were to use an approach like this, you should assume that you will hold both positions (long stock and short option) until Jan. 2013.
A Buy-Write 'Dogs Of The Dow' Strategy For 2012 [View article]
Joseph I hear you and totally agree. That's why I phrased it as "guaranteed realized gains." I almost added a further caveat that this trade cannot protect the investor from a falling stock price -- but felt that was too obvious. But you are correct, there are probably many readers of SA who may not understand the difference between realized gains and unrealized losses. I will try to be more mindful in the future. Best -- Phil
LEAP Spreads To Return 125%-Plus For 2012 [View article]
David Not sure I understand why the profit calc is confusing. If you bought a stock for $7.80 and then sold it for $20, your profit would be $12.20 -- or a 156% gain. Options profits are calculated the same way.
And yes, all of these trades reach maximum profit potential with gains of 20% or so in the underlying stock. That's why everyone needs to do their own analysis and perhaps one or two of these trades will offer a risk reward scenario he/she is comfortable with. The flip side is that the breakeven point for CAT, for example, is an approx. 7% gain -- i.e., if CAT closes at $97.80 in Jan. 2013, the long position will be worth $7.80 (minus transaction costs and spreads of course) or exactly what you paid.
The kind of spreads I've illustrated provide a means to substantially leverage a stock price move -- in the case of CAT, to leverage a 20% move to a 156% move. Best -- Phil
LEAP Spreads To Return 125%-Plus For 2012 [View article]
Selling calls throughout the year would actually increase your initial cost -- because the short position would have less of a time premium vs the long position. That strategy might serve to reduce your total cost over the 13-month period, but it's a crap shoot. If the underlying stock surges, the short call could be exercised forcing you to either sell shares short or buy out the option. The other alternative is that the value of the long position would have had a correlated surge so you could simply sell that position to buy back the short. I like to keep things simple but there are many ways to play spreads.
LEAP Spreads To Return 125%-Plus For 2012 [View article]
The difference between the long and short positions is $20 (the long $90 and the short $110). If CAT were to close at exactly $110 on Jan. 19, 2013, the long position would be worth $20 and the short would be $0, so you would sell the long for $20. Your cost was $7.80 so your gain is $12.20. The mistake you and the previous commenter are making is that you are double counting the $7.80 in your calculation. Your $7.80 didn't turn into $12.20, it turned into $20.
LEAP Spreads To Return 125%-Plus For 2012 [View article]
$12.20 is your gain but your position at the end of the spread would be worth $20, so you've effectively turned $7.80 into $20. The return formula is your profit of $12.20 divided by your cost of $7.80.
LEAP Spreads To Return 125%-Plus For 2012 [View article]
No return is ever guaranteed. These are indeed debit spreads which is what the "Cost" column indicates. I am not advocating any of these trades but provide the data to help other investors make their own decisions based on their own analysis. Having said that, however, a case could be made for each of these stocks having strong returns in 2012, and a vertical spread is a way to leverage those returns. Any option position uses leverage to maximize return while managing maximum loss.
10 For 12: 10 Buy-Writes With A 12% Return In A Flat Market [View article]
I absolutely agree that near-term call writing is preferable from a total return perspective. It is, however, a more aggressive approach. I like to combine both long- and near-term strategies. The LEAP approach I presented works more like a junk bond -- less risky than a pure stock position but with a higher return than a fixed income holding.
10 For 12: 10 Buy-Writes With A 12% Return In A Flat Market [View article]
Hi I consider any VIX level over 20 to be higher than the norm, and the S&P PE ratio (both TTM and FTM) is lower than at anytime over the last 30 years. Thanks Phil
An Apple Iron Condor For 17% Credit Against Risk [View article]
The March 485/465 spread is comparing apples to oranges as the 485 strike has twice the spread ($20 vs $10), a Delta of 18 and would be in the money with only a 10% decrease from the current price.
I would also disagree that Apple is not a good choice for an iron condor. Because it is so volatile, it rewards you for risk. Yes, you need to manage the risk, but that holds true for any trade. I don't see many other places where you can generate a 17% return against amount-at-risk while also targeting very low Delta numbers.
But that's why we all do what we do. Every trade has a buyer and seller - so thanks for reading and taking the time to comment.
Phil
An Apple Iron Condor For 17% Credit Against Risk [View article]
5 Apple Options Trades As We Approach $500 [View article]
Options Strategies To Profit From Google's Blood Bath [View article]
Use Tesla's Weakness To Buy-Write Profits [View article]
10 For 12: 10 Buy-Writes With A 12% Return In A Flat Market [View article]
Re option exercising, usually nothing happens until the last week prior to expiration. The owner of the option can exercise earlier, but that's quite rare. If you were to use an approach like this, you should assume that you will hold both positions (long stock and short option) until Jan. 2013.
A Buy-Write 'Dogs Of The Dow' Strategy For 2012 [View article]
I hear you and totally agree. That's why I phrased it as "guaranteed realized gains." I almost added a further caveat that this trade cannot protect the investor from a falling stock price -- but felt that was too obvious. But you are correct, there are probably many readers of SA who may not understand the difference between realized gains and unrealized losses. I will try to be more mindful in the future.
Best -- Phil
LEAP Spreads To Return 125%-Plus For 2012 [View article]
Not sure I understand why the profit calc is confusing. If you bought a stock for $7.80 and then sold it for $20, your profit would be $12.20 -- or a 156% gain. Options profits are calculated the same way.
And yes, all of these trades reach maximum profit potential with gains of 20% or so in the underlying stock. That's why everyone needs to do their own analysis and perhaps one or two of these trades will offer a risk reward scenario he/she is comfortable with. The flip side is that the breakeven point for CAT, for example, is an approx. 7% gain -- i.e., if CAT closes at $97.80 in Jan. 2013, the long position will be worth $7.80 (minus transaction costs and spreads of course) or exactly what you paid.
The kind of spreads I've illustrated provide a means to substantially leverage a stock price move -- in the case of CAT, to leverage a 20% move to a 156% move.
Best -- Phil
LEAP Spreads To Return 125%-Plus For 2012 [View article]
LEAP Spreads To Return 125%-Plus For 2012 [View article]
LEAP Spreads To Return 125%-Plus For 2012 [View article]
LEAP Spreads To Return 125%-Plus For 2012 [View article]
10 For 12: 10 Buy-Writes With A 12% Return In A Flat Market [View article]
10 For 12: 10 Buy-Writes With A 12% Return In A Flat Market [View article]
I consider any VIX level over 20 to be higher than the norm, and the S&P PE ratio (both TTM and FTM) is lower than at anytime over the last 30 years.
Thanks
Phil