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  • Dividends Vs. Buybacks: Putting The Debate To Bed, Part II [View article]
    Honestly, I could never understand this obsession with dividends. How would dividends help you in 2008 when many high dividend stocks lost 90% of their value? Isn't it better to but deep ITM option and sell OTM option every month? Instead of 0.3% per month you will get 5-7% per month.
    Dec 18 12:35 AM | Likes Like |Link to Comment
  • A Different Way To Hedge With VXX [View article]
    What do you mean by 20x hedge? Making 2,150 on $150 credit? But you ignore margin requirements. Half of the sold 45 calls are naked. What are margin requirements for this position?
    Dec 18 12:03 AM | Likes Like |Link to Comment
  • A 'Covered Call' Trade On McDonald's Using LEAPS [View article]
    Honestly, I could never understand this obsession with dividends. What is the difference between someone already who already owns the shares and someone new? Does annual report worth 5-7% per month, especially when you can read it online? If you want higher delta, you can always go deeper ITM, get delta of ~95 (close enough considering that you sell calls every month) and still pay much less than the stock.
    Dec 17 11:59 PM | Likes Like |Link to Comment
  • A Different Way To Hedge With VXX [View article]
    Erick, this is an interesting way to play it. But it's a standalone play, not a hedge, right? You basically don't want it to go up, at least not sharply?
    Dec 16 07:37 PM | Likes Like |Link to Comment
  • A 'Covered Call' Trade On McDonald's Using LEAPS [View article]
    Richard, I'm just trying to understand your approach. Why the stock is better than the LEAPS? If you own them for as long as you own the stock, and sell the calls every month, how is it different from owning the stock? Look at the LEAPS as a stock substitute and the calls sold as dividend substitute, only much higher in percentage terms. You want to trade less? Buy two years LEAPS and sell the calls every three months, not every month. It will still yield much higher percentage return than the stock plus the dividend plus the "traditional" covered call.

    Of course, like I mentioned, leverage works both ways, but if you believe that MCD is a good long term investment, you shouldn't be worried.
    Dec 16 03:17 PM | Likes Like |Link to Comment
  • A 'Covered Call' Trade On McDonald's Using LEAPS [View article]
    Richard,

    The dividend is 2.9% per YEAR. That translates to 0.24% per month. If you sell OTM calls against the stock (100 strike in our case) you get an extra 1.33% per month if the stock is unchanged and extra 3% if the stock is above $100. When selling the same calls against the LEAPS, the extra returns are 4.8% and 10.0%.

    Wouldn’t you agree that this is better than the 0.24% dividend?
    Dec 16 01:24 PM | Likes Like |Link to Comment
  • A Conservative Options Strategy For Directional Traders [View article]
    No problem gators, feel free to ask. No question is dumb, we are all learning every day.
    Dec 15 07:45 PM | Likes Like |Link to Comment
  • A Good Option Strategy: Exploiting Earnings - Associated Rising Volatility [View article]
    I hope Jeff will have some comments here, I’m anxiously waiting for his response.

    One thing I definitely agree: with close expiration, the maximum holding should be no more than 2-4 days. You open 7-10 days before and the stock doesn’t move – theta will kill you. But in 2-4 days IV increase should be sufficient to offset the theta and even if the stock doesn’t move, the loss should be limited, maybe 10-15%.
    As an example, RIMM 16/17.5 strangle was opened at Dec. 2 at $1.65. For more than a week, IV hardly moved and the stock was stagnant. Ob this Monday, the strangle was worth around 90 cents. Today after the stock moved around 8-9% in the last few days and IV jumped to over 200%, the trade is worth today $1.80. That would a double. I personally would be ready to risk 10-15% to make a double. Buying 14/16 strangle yesterday would produce 20%+ gain today with the stock almost unchanged.

    So I believe at least for those high-flyers, even with earnings a day before expiration, it makes sense to buy 2-3 days before. IV jumps to the roof at the last few hours, far overcoming the theta.
    Dec 15 01:53 PM | Likes Like |Link to Comment
  • How To Buy Gold On Pullbacks [View article]
    Bionic1,
    When I wrote the article, GLD was trading above $160, so let’s analyze the trades based on $160 price and the credits mentioned (they are obviously different now).

    The risk/reward is directly related to the probability of success. You get more credit for 160/155 because the probability of success of this trade is lower than 155/150 trade. With 155/150 you get extra 5 points caution, so the potential maximum gain is lower.

    As for Credit vs. Debit, you could do 150/160 debit call spread for $2.80 with same profit potential (5.00/2.80=78.5%). Those are equivalent trades, I just like trading OTM options (more liquidity, no assignment risk etc.)
    Dec 15 12:08 PM | Likes Like |Link to Comment
  • S&P 500 In A Trading Range? You Can Profit From It [View article]
    The trade is currently up 33% after 6 days.
    Dec 15 11:20 AM | Likes Like |Link to Comment
  • How To Trade Post-Earnings Implied Volatility Collapse [View article]
    Monty, sorry for the late reply, I missed your comment.

    If BIDU had a big move upi (for example to 170area), the 155-160 spread would be worth about 4.50. So you would have to buy it back for $450. If you got $197 credit, your loss is 450-197=$253 or 84%.
    Dec 14 06:00 PM | Likes Like |Link to Comment
  • Pre-Earnings Implied Volatility Play On Nike [View article]
    Monty, this is the site - http://bit.ly/v4ZSUF

    The image is from this site. The red line shows the IV and you can see that it is well below historical levels before earnings.

    BTW, if you choose to take the trade, go for lower strikes (90.0/97.5 probably) to be delta neutral, unless NKE goes back to 96-96.5 tomorrow.
    Dec 14 05:45 PM | Likes Like |Link to Comment
  • How To Buy Gold On Pullbacks [View article]
    The article was written on Monday, GLD is 7 points lower since then. It does look oversold, but who knows. I would probably go further in time, maybe March expiration, but I still think this is a temporary pullback.
    Dec 14 04:54 PM | Likes Like |Link to Comment
  • A High-Probability Trade For Long Gold Exposure [View article]
    Not sure I would call this trade High-Probability. More like High-Risk High-Reward Low Probability.
    Dec 14 04:08 PM | Likes Like |Link to Comment
  • A Good Option Strategy: Exploiting Earnings - Associated Rising Volatility [View article]
    Eric,

    Those are next month trades with 5 weeks to expiration. Theta is still very small. Why not to enter a bit early to give the stock more time to trade and try to profit from the stock move and not only IV increase? Maybe tomorrow NKE and Friday BBBY.

    I entered NKE on Tuesday (7 days before earnings), see my article - http://seekingalpha.co...

    The main reason is the unusually low IV as you can see in the chart. I think it might jump any day now.
    Dec 14 04:06 PM | Likes Like |Link to Comment
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