How To Play The Green Mountain Coffee Roasters Earnings Announcement [View article]
I did read the article, and I did not dispute your analysis. My point was that allocating 90% to earnings trade that can lose 80-90% if you are wrong is insane. In my opinion, allocating 50% to those trades is insane as well. There is always a possibility that despite your best analysis, you are still wrong. Earnings trades cannot be "fixed" or adjusted if something goes wrong, and allocating more than 10% to those trades is completely irresponsible.
How To Play The Green Mountain Coffee Roasters Earnings Announcement [View article]
Just finished to read your "earnings plays" report. Did you really recommend your members to buy 12 GMCR spreads at $3.78 each? That's 90% of the 5k portfolio!!!!! What if you were wrong????
"In the unlikely event (at least to me) that the stock falls 10%" - how can you say that?? GMCR has a history of 40-50% down moves. Don't you know how unpredictable earnings can be? If the stock was down even 15-20%, the trade would lose 80-90%, and the portfolio would lose over 80%.
Placing 90% of your portfolio in an earnings trade that has a chance (even a small one) to lose 80-90% shows complete lack of understanding of the most basic rules of trading, like risk management and position sizing.
How To Play The Salesforce.com Earnings Announcement [View article]
I understand that 6.6% move refers to average move after earnings, but again, it has nothing to do with current options prices. You assume that the stock might move 6.6% based on historical moves - looking at past moves, it moved 8-9% in 4 out of 5 last cycles. All moves have been to the upside. 2 years ago the stock moved 18% up.
And once again, the P/L charts are completely irrelevant when it comes to earnings and sharp changes to IV.
The fact that you made 22% in the last trades is irrelevant to the fact that your readers might take this trade and be completely unaware of a huge risk it has, even if the chance of a huge loss is not high.
How To Play The Salesforce.com Earnings Announcement [View article]
Terry, those P/L charts you keep posting on each one of your articles are VERY misleading since they assume unchanged IV after earnings. We all know that both June and May options IV will collapse after earnings so those charts mean absolutely nothing.
Also, your statement "These positions should make a gain if the stock moves as much as 6.6% higher (the average change for the past four quarters) after the announcement" is not accurate. The average change for the past four quarters is not relevant - the only relevant thing for this trade is the CURRENT options pricing.
It is also worth mentioning that if the stock moves ~10% or more (which happened more than once), the trade is very likely to lose 70-80%.
Trading Weekly Options With The SPDR Gold Trust And Others [View article]
The delta of the options is an approximate estimate of the probability of success (expiring in the money). ATM options for example will have delta of ~50 - meaning 50% chance of expiring ITM. In your example, you have 20% expiring above 965 and 20% expiring below 860 - total of 40%. And this was my question: it doesn't make sense to me that trade with theoretical probability of success of 40%, will have 75% success ratio. Not going to happen.
In general, probability of success is directly related to profit potential - http://seekingalpha.co.... You cannot have profit potential of 200% and win 75% of the time. There are no free lunches.
Trading Weekly Options With The SPDR Gold Trust And Others [View article]
garyxls, something doesn't add up.
You say that you are using longs around 20-22 delta. That means shorts around 19-17 delta (assuming 5 points spreads). To win, the stock has to be between the long and the short (no matter which direction), so around 20 delta. That gives you around 40% probability of success (20+20) yet you say you had 75% winners. The probability of ending between the strikes for maximum loss is around 60% yet you say you had only 1 maximum loser.
Of course you can increase your probabilities by closing early, but in this case there is no chance that you get the maximum gain.
Unraveling The VXX Roll Yield Riddle [View article]
Correct - this why I always limit the position size AND have few vega positive trades. It's all about portfolio balance.
With one long correction per year, you can expect to lose 50-60% on the VXX position. But rest of the time, you should be able to make 10-15% per month on average. Even with only 10% per month, you are WAY ahead. Even with 2 50% percent losses on the year, you still break even with 10% average gain per month. But with VXX on constant decline, you should be able to make more than 10% per month.
Unraveling The VXX Roll Yield Riddle [View article]
AllStreets, you are referring to calendar spread. The calendar spread has the maximum gain at the strike, so you actually want to select a strike 5-10% lower than the current price. However, you need to be precise in your strike selection to realize the maximum gain, plus this strategy will be very commissions consuming.
One alternative would be to go long deep ITM put 2-3 month further and short the front month put with strike slightly lower than the current price.
Unraveling The VXX Roll Yield Riddle [View article]
If you look at the VXX chart, you will find out that VXX is declining about 7-10% per month on average. There is no need for complicated algebra to see that. In the long term, shorting the VXX is the right strategy. It is true that there is always a risk of big IV spike. To mitigate that risk, we do the following:
1. Short VXX with ITM put options, not the stock. In case of really large IV spike, the loss is limited. 2. Limit the position size of the VXX trade to no more than 10%. 3. Hedge the risk with few vega positive trades.
Not sure if you are aware of the SA decision to discontinue the options category. This is the reason why we stopped writing articles. If you want to learn more about options, you are welcome to join the subscriptions services both I and Kevin have. Of course you should base your decision on your risk tolerance, the transparency of the service, the track record etc.
Do you really think that making 6k every week on 25k capital is realistic? That's 1,200% per year. If you think it is, then you have a LOT to learn, and you will be very disappointed when you really start trading.
10 Rules For Trading Calendar Spreads [View article]
The price targets are flexible and depend on many factors (volatility, time to expiration etc.) but in general, I have targets of 20-25% on the calendars. I also like to manage them separately and not as one double calendar order.
A Daily Options Trading Strategy For High-Flying Stocks [View article]
Just wondering - shouldn't the profit target be in percentage gains and not dollar gains? Using ATM options as an example, $1 gain on a $30 GOOG option is 3%, while $1 gain on a $1 FB option is a 100% gain. Achieving that gain on FB option would be a bit more difficult..
A Good Option Strategy: Exploiting Earnings - Associated Rising Volatility [View article]
Actually, most of the time the IV starting to rise much later than 14 days. You are correct that it might rise earlier, but in most cases, by entering earlier the IV rise will not be enough to offset the theta. The only exceptions are when the stock moves, in which case you might have some gamma gains.
How To Play The Green Mountain Coffee Roasters Earnings Announcement [View article]
How To Play The Green Mountain Coffee Roasters Earnings Announcement [View article]
"In the unlikely event (at least to me) that the stock falls 10%" - how can you say that?? GMCR has a history of 40-50% down moves. Don't you know how unpredictable earnings can be? If the stock was down even 15-20%, the trade would lose 80-90%, and the portfolio would lose over 80%.
Placing 90% of your portfolio in an earnings trade that has a chance (even a small one) to lose 80-90% shows complete lack of understanding of the most basic rules of trading, like risk management and position sizing.
How To Play The Salesforce.com Earnings Announcement [View article]
And once again, the P/L charts are completely irrelevant when it comes to earnings and sharp changes to IV.
The fact that you made 22% in the last trades is irrelevant to the fact that your readers might take this trade and be completely unaware of a huge risk it has, even if the chance of a huge loss is not high.
How To Play The Salesforce.com Earnings Announcement [View article]
Also, your statement "These positions should make a gain if the stock moves as much as 6.6% higher (the average change for the past four quarters) after the announcement" is not accurate. The average change for the past four quarters is not relevant - the only relevant thing for this trade is the CURRENT options pricing.
It is also worth mentioning that if the stock moves ~10% or more (which happened more than once), the trade is very likely to lose 70-80%.
Trading Weekly Options With The SPDR Gold Trust And Others [View article]
In general, probability of success is directly related to profit potential - http://seekingalpha.co.... You cannot have profit potential of 200% and win 75% of the time. There are no free lunches.
Trading Weekly Options With The SPDR Gold Trust And Others [View article]
You say that you are using longs around 20-22 delta. That means shorts around 19-17 delta (assuming 5 points spreads). To win, the stock has to be between the long and the short (no matter which direction), so around 20 delta. That gives you around 40% probability of success (20+20) yet you say you had 75% winners. The probability of ending between the strikes for maximum loss is around 60% yet you say you had only 1 maximum loser.
Of course you can increase your probabilities by closing early, but in this case there is no chance that you get the maximum gain.
Could you please clarify this for me?
A Story Worth Mentioning [View instapost]
The last article was on Jan.28. Do you need more confirmation?
Unraveling The VXX Roll Yield Riddle [View article]
With one long correction per year, you can expect to lose 50-60% on the VXX position. But rest of the time, you should be able to make 10-15% per month on average. Even with only 10% per month, you are WAY ahead. Even with 2 50% percent losses on the year, you still break even with 10% average gain per month. But with VXX on constant decline, you should be able to make more than 10% per month.
Unraveling The VXX Roll Yield Riddle [View article]
One alternative would be to go long deep ITM put 2-3 month further and short the front month put with strike slightly lower than the current price.
Unraveling The VXX Roll Yield Riddle [View article]
Unraveling The VXX Roll Yield Riddle [View article]
1. Short VXX with ITM put options, not the stock. In case of really large IV spike, the loss is limited.
2. Limit the position size of the VXX trade to no more than 10%.
3. Hedge the risk with few vega positive trades.
A Story Worth Mentioning [View instapost]
Not sure if you are aware of the SA decision to discontinue the options category. This is the reason why we stopped writing articles. If you want to learn more about options, you are welcome to join the subscriptions services both I and Kevin have. Of course you should base your decision on your risk tolerance, the transparency of the service, the track record etc.
Do you really think that making 6k every week on 25k capital is realistic? That's 1,200% per year. If you think it is, then you have a LOT to learn, and you will be very disappointed when you really start trading.
10 Rules For Trading Calendar Spreads [View article]
A Daily Options Trading Strategy For High-Flying Stocks [View article]
A Good Option Strategy: Exploiting Earnings - Associated Rising Volatility [View article]
Look at my performance page - http://bit.ly/16Ur5qM.
Most of my losers were caused by holding for too long. Examples include TIF, WFM, RL, JPM etc.
My 5-7 timeframe is based on over 400 trades sample. If you can provide some examples where 14 days was a better timeframe, please do it.
btw, Augen himself agrees that the introduction of weeklies changed the game and the timeframes are now much shorter.