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The Deliberate Trader
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We are semi-professional traders. By that we mean that we are accomplished professionals in other fields, who have gained knowledge, skill and experience at trading the markets almost as a matter of self-defense. We were dissatisfied at the way fund managers, investment “professionals” and/or... More
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The Deliberate Trader, LLC
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  • Trading AAPL In 2013 - Bottom Of The 3rd Inning

    Back in January we posted a chart showing AAPL stock holders what they might expect for price action during the year. One of the things we said was that resistance should be strong in the 475.00 range due to a chart gap and Fibonacci resistance.

    Sure enough, on February 11th the 475.00 resistance area was tested and the stock closed a tad above it....on one day. Since then, the stock has resumed its obvious down trend (lower highs and lower lows). However, it is presently perched at the 390.00 - 410.00 support band; and odds are good that it may bounce from here.

    (click to enlarge)

    Someone looking at the chart today may say that buying puts might be a good strategy to protect a long position. However, we think that the horse has already left that barn. Purchasing puts after a steady decline almost always affords a marginal return or loss. We would rather reduce our cost basis in an existing position where price has eroded by selling covered calls and naked puts. However, as in most things, timing is everything.

    Aggressive traders may want to sell May 370 puts for 10.00. The effect is a potential opportunity to own AAPL shares at 360.00, or if the options expire the annualized return on investment is about 32%.

    Our experience is that as a general rule the options with the shorter term expiration dates (30 -60 days) have higher implied volatility and more quickly eroding time value (theta) than longer term options. Also, while having lower value in absolute dollars and cents than options with strikes at-the-money (ATM) or in-the-money (NYSEARCA:ITM), farther out-of-the-money (OTM) options generally have higher option implied volatility and lower risk (higher probability of expiration) for option sellers.

    For those already holding AAPL shares, selling the May 370 put has the effect of reducing your cost basis by either adding to the position or a subtraction of the premium fully earned at expiration from the original cost basis in the position. If you could reduce your cost basis by about $10.00 every 30 days while the stock trades sideways to up, that would not be a bad thing.

    However, there is no guarantee that the price will hold up (another good reason for a shorter term expiration period), so you need to carefully monitor price action. The next level of solid support appears to be all the way down to 320.00. Whether or when the price declines to that level is a guess; however, it is definitely not out of the question. Investors who have no intention of divesting their shares should consider some option techniques for improving their returns over time. Covered calls is another popular technique; however, timing is also important and we would not probably look to sell calls until price jumps up to the 460.00 - 470.00 range.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: The option techniques we employ can be used with any optionable stock. The use of the AAPL stock chart is by way of example; and it is not a specific recommendation to trade the stock or its options. Rely upon your own due diligence, skill and experience before entering into any securities transaction.

    Apr 19 8:02 PM | Link | 1 Comment
  • Trading AAPL In 2013

    Planning ahead if you want to protect positions in AAPL, lower your cost basis or add to your position using options, here are some key support and resistance levels.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jan 26 1:30 PM | Link | 2 Comments
  • Large Profit Potential In SGYP Using A Short Term Option

    For December 31, 2012

    The Trade:

    Sell SGYP January 5.00 puts for 1.05 or better.


    We will use limit orders to sell the options.

    The Objective:

    We are selling ATM near term puts for two reasons: 1) the option implied volatility for this stock is highly elevated; and 2) the short term nature of the trade exposes our capital to the market for as little time as possible. In the event the market closes above 5.00 on January 19, 2013 the put options will expire worthless and we will be left with a profit of 1.05 on a 5.00 investment, with our capital at risk for less than 30 days. That is our objective. The annualized return on invested capital is over 250%. In the event the stock closes below 5.00 in mid-January, we will own it at 3.95.

    Synergy's primary drug, plecanatide, is similar to a natural human hormone that regulates the secretion of fluid into the intestine. Plecanatide is being developed to treat Chronic Idiopathic Constipation (CIC) and Constipation Predominant Irritable Bowel Syndrome (IBS-C). The company is engaged in various clinical studies to test the drug; and if the results are successful, eventually leading to potential FDA approval, the market for the drug is economically viable. The company recently announced the beginning of a new trial here:

    An excellent write up on the company's operations, the status of plecanatide trials and the possible value of the stock is here:

    Risk Control:

    The trade carries significant risk; and it should only be traded from within the speculative segment of the portfolio. The risk is that the stock sells off below 3.95 a share, which is our break even point for the trade. This is 20% below the present market price. It is also below major Fibonacci support on the candlestick charts. A point and figure chart shows this stock outperforming the general market and its peers. We think that 3.95 is an acceptable cushion against the risk of loss, especially in relation to the potential reward, and in consideration of the very short duration of our exposure.

    Happy New Year!

    The Deliberate Trader

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SGYP over the next 72 hours.

    Dec 30 6:00 PM | Link | 2 Comments
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