W. Edward Olmstead

W. Edward Olmstead
Contributor since: 2012
Company: Dr. Olmstead's Options Trading Strategies
Lc_match,
Well said and further illustrates the questionable strategy of selling puts to acquire stock, particularly for a high risk stock.
Even though ASTX stock back up to $4.43, its chart looks like it is in a downtrending channel. Could now buy back the Jul 4.5 puts for $.30, which might not be a bad idea.
See my Facebook (FB) Instablog for an update on this trade.
For those who own FB stock and are showing a nice profit, here's a way to protect those gains:
http://seekingalpha.co...
UPDATE to the Facebook (FB) options trade as of 11/30/12:
My Seeking Alpha article of 8/15/12 presented a cheap and safe way to play FB into mid-January 2013 by using a combination of options. The trade involved buying a Jan 16 call in place of 100 shares of stock, and then protecting that position with the purchase of a Jan 20 put. The cost basis of the protective put was lowered by selling a Sept 18 put and a Sept 22 call. After the September expiration date, the residual option position had a cost basis of only $8.00 per share with the protective put limiting any potential loss to no more than $4.00 per share.
UPDATE to the Facebook (FB) options trade as of 11/30/12:
Based upon an equal dollar investment on 8/15/12, stock ownership would currently be providing a profit of 37%, while the residual option position is currently providing a profit of 47%. If FB stock continues to rise to $33, the option position will be showing a profit of 100% as compared with a 62% profit associated with stock ownership. The option position will continue to have put protection into mid-January 2013, whereas stock ownership has no such protection.
We've added Update #3 to this trade in our Olmstead Options blog, along with a recommendation on when to close out this trade.
http://bit.ly/Ot16AP
dmrosy --
Suppose the bid/ask spread on the current-month, at-the-money calls is 1.80/2.20. The average of those is 2.00 and the difference is .40. Then .40/2.00 = 20%. I would say those calls are not very liquid.
We've added Update #2 to this trade in our Olmstead Options blog, along with a suggestion on how to continue the trade, if you prefer not to close it out yet. It's showing a nice profit at this point.
http://bit.ly/RFKHJ0
http://bit.ly/Pi0yJR
Good article and good discussion on the pros and cons of covered calls. For those who are considering covered calls as an income strategy, we've discussed the potential pitfalls in several SA articles, as well as in our blog, though it's certainly covered in this discussion, as well.
Because one of the things we do on our site is options education, we also review why weekly options might work well as covered calls and explain how to use weekly options to create a diagonal spread. Our illustration uses iShares Silver Trust (SLV) weekly options.
Weekly options expire tomorrow (9/28). We've added an update to the SLV diagonal trade in our Olmstead Options blog, along with a suggestion on how to continue the trade, for those who prefer not to close it out yet.
http://bit.ly/UQer8I
Weekly options expire tomorrow (9/28). We've added an update to this trade in our Olmstead Options blog, along with a suggestion on how to continue the trade, if you prefer not to close it out yet.
http://bit.ly/PugREH
UPDATE TO THE FB OPTIONS TRADE as of 9/21/12:
My Seeking Alpha article of 8/15/12 presented a cheap and safe way to play FB into January 2013 by using a combination of options. The trade involved buying a Jan 16 call in place of 100 shares of stock, and then protecting that position with the purchase of a Jan 20 put. In order to lower the cost basis for the protective put, a Sept 18 put and a Sept 22 call were sold. On this expiration date (9/21) for the September options , the Sept 18 put expired worthless for a profit of $.70 and the Sept 22 call was bought to close for a profit of $.20. Thus, the cost basis for the Jan 20 put was lowered by $.90 down to $2.30.
The residual position of the Jan 16 call and Jan 20 put is currently showing a profit of almost 10% based upon the original cost of the trade. The residual position has the potential for unlimited profit if the price of FB rises. If the price of FB falls below $20, the protective put limits the loss to at most $4 per share at the January options expiration and only about $3 per share if the trade is closed by mid-December.
Hi Wealthlover (great name):
Let me first emphasize that the weekly options backspread trade on QCOM was based upon the assumption that the price of QCOM would receive a nice bounce following the iPhone 5 announcement by AAPL. The connection was that a QCOM product might be used with the iPhone 5, and an impressive announcement would boost QCOM stock price
I think you are inquiring about doing a similar backspread on QCOM using the weekly options of October 12 in anticipation of the AAPL earnings report on October 15. I would be hesitant to do that trade, since a QCOM response to AAPL earnings is not so clear. Also, AAPL might even pull back after its earnings report as it did in July.
ADDENDUM: 9/13/12 2:30pm ET
Qualcomm, Inc (QCOM) has moved up nicely yesterday and today. With QCOM currently trading above $64.00, the stock price has not quite reached the level we had projected, but the backspread trade with weekly options is showing a profit and should be closed now. One of the benefits of the backspread trade is that it is unnecessary to wait until expiration to get the best exit price for the trade. An exit at the current price provides a return of approximately 59% relative to the maximum risk on the trade, in only five trading days.
We do not own Facebook (FB), but we have covered it in several SA articles. In our blog we offer a few options strategies to buy in at a reduced risk, as well as a stock repair strategy if you are underwater.
In order for the stock repair strategy to work, however, the stock must make a small recovery over the next several months.
http://bit.ly/Q09M18
We do not own Facebook (FB), but we have covered it in several SA articles. In our blog we offer a few strategies to buy in at a reduced risk using options, as well as a stock repair strategy if you are underwater.
In order for the stock repair strategy to work, however, the stock must make a small recovery over the next several months.
http://bit.ly/Q09M18
We do not own Facebook (FB), but we have covered it in several SA articles and in our blog we offer a few strategies to buy in at a reduced risk using options, as well as a stock repair strategy if you are underwater.
In order for the stock repair strategy to work, however, the stock must make a small recovery over the next several months.
http://bit.ly/Q09M18
http://bit.ly/Q09M18
Although we do not own Facebook (FB), we have covered it in several SA articles. . In our blog we offer a few strategies to buy in at a reduced risk using options, as well as a stock repair strategy if you are underwater.
In order for the stock repair strategy to work, however, the stock must make a small recovery over the next several months.
http://bit.ly/Q09M18
We do not own Facebook (FB), but we have covered it in several SA articles and in our blog we offer a few strategies to buy in at a reduced risk using options, as well as a stock repair strategy if you are underwater.
In order for the stock repair strategy to work, however, the stock must make a small recovery over the next several months.
http://bit.ly/Q09M18
We have covered Facebook (FB) in several SA articles and in our blog we offer a few strategies to buy in at a reduced risk using options, as well as a stock repair strategy if you are underwater.
In order for the stock repair strategy to work, however, the stock must make a small recovery over the next several months.
http://bit.ly/Q09M18
We've covered FB a few times in our SA articles and in our blog we offer several strategies to buy into FB using options while minimizing risk, or to recover the full value of a stock whose price has suffered a large pullback.
For the repair strategy to be effective, it is necessary for the stock to make some modest gain in the next 3-4 months, so if you own FB and decide to employ this stock repair strategy be aware that it must make a small gain over the next several months in order for this strategy to be successful.
Hi Bionic,
You math is correct for closing the trade with the stock at $64.25 and for a breakeven point on the trade with the stock at $63.575.
You are presenting an alternate way of closing the trade. You are suggesting to exercise two of your long Sept 62.5 calls in order to buy 200 shares at $62.5 per share and then sell those 200 shares at the market price of $64.25 for a profit of $350. In order to complete the exit of the original trade, you would need to close the remaining position of one long Sept 62.50 call and one short Sept 60 call, which will result in a loss of $250. When combined with the original credit of $35, the net profit on the trade is $135 [350 – 250 + 35 = 135].
There are some potential problems with closing the trade in this alternate manner you suggest. When you exercise the two long Sept 62.5 calls, the shares of stock will not appear in your brokerage account until the following day. At that time, the stock price could be substantially changed from $64.25. You might get around this issue by initially shorting 200 shares of stock at $64.25 while waiting for the 200 exercised shares to appear in your account, but this could lead to margin complications that should be avoided.
We have no position in Facebook, but we've covered it a few times in our SA articles. In our blog we offer several strategies to trade FB using options while minimizing risk, as well as a stock repair strategy for those who already own the stock, or who may have another holding that is underwater.
http://bit.ly/Q09M18
http://bit.ly/Q09M18
We have no position in Facebook, but we've covered it a few times in our SA articles. In our blog we offer several strategies to trade FB using options while minimizing risk, as well as a stock repair strategy for those who already own the stock.
We have no position in FB, but in our blog we have featured several ways to play FB using options, including a stock repair strategy.
http://bit.ly/Q09M18
We've posted several SA articles on how to play FB with options and also offer several strategies in our blog, including a stock repair strategy. We have no position in FB.
http://bit.ly/Q09M18
We've posted several SA articles on how to play FB with options and also offer several strategies in our blog, including a stock repair strategy.
http://bit.ly/Q09M18
We've covered FB a few times in our SA articles and in our blog we offer several strategies to buy into FB using options while minimizing risk, or to recover the full value of a stock whose price has suffered a large pullback.
For the repair strategy to be effective, it is necessary for the stock to make some modest gain in the next 3-4 months, so if you own FB and decide to employ this stock repair strategy be aware that it must make a small gain over the next several months in order for this strategy to be successful.
http://bit.ly/NQRZEX
We've covered FB a few times in our SA articles and in our blog, we offer several strategies to buy into FB using options while minimizing risk, or to recover the full value of a stock whose price has suffered a large pullback.
For the repair strategy to be effective, it is necessary for the stock to make some modest gain in the next 3-4 months, so if you own FB and decide to employ this stock repair strategy be aware that it must make a small gain over the next several months in order for this strategy to be successful.
http://bit.ly/NQRjiU
We've covered FB a few times in our SA articles and in our blog, we offer several strategies to buy into FB using options while minimizing risk, or to recover the full value of a stock whose price has suffered a large pullback.
For the repair strategy to be effective, it is necessary for the stock to make some modest gain in the next 3-4 months, so if you own FB and decide to employ this stock repair strategy be aware that it must make a small gain over the next several months in order for this strategy to be successful.
http://bit.ly/Q09M18
In our blog, we offer several strategies to buy into FB using options, while minimizing risk.
http://bit.ly/Q09M18
Over the past few months we've posted several SA articles and entries in our blog on how to use options to trade FB and minimize your risk.
http://bit.ly/Q09M18