SteadyOptions'  Instablog

SteadyOptions
Send Message
Active part-time options trader. Trades mostly non-directional strategies, like pre-earnings strangles and iron condors. Likes to trade strategies with negative correlation. Lives in Toronto, Canada. Follow me on Twitter: http://twitter.com/#!/akivak
My blog:
Mastering The Non-Directional Trading
  • Apple Trading Log 13 comments
    Mar 14, 2012 7:31 PM | about stocks: AAPL

    In my article 'Apple Euphoria Peaks - Time For Caution?' I showed some ways to play Apple pullback. Specifically, I suggested the following trade with the stock trading around $502.60:

    • Sell AAPL March 2012 520 call
    • Buy AAPL March 2012 525 call

    The trade could be done for 1.50 credit.

    I suggested to partially protecting the trade with a Reverse Iron Condor using weekly options.

    Using this week's options, the following trade could be placed:

    • Sell AAPL February 2012 495 put
    • Buy AAPL February 2012 500 put
    • Buy AAPL February 2012 505 call
    • Sell AAPL February 2012 510 call

    Exit strategy for the weekly trade: place separate limit orders for call and put spreads at $4.50 (reduce to 4.00 if necessary).

    Here is the trading log for this strategy using 10k portfolio or 10 contracts:

    Trade

    Stock price

    Open Date

    Price

    Close Date

    Price

    P/L

    Sell Mar. 520/525 call

    $502.60

    13/02

    1.50

    16/03 0.00 -$3,500

    Buy Feb. 500/495 put

    $502.60

    13/02

    1.90

    17/02

    1.00

    -$900

    Buy Feb. 505/510 call

    $502.60

    13/02

    1.75

    15/02

    4.50

    $2,750

    Buy Feb. W4 500/495 put

    $502.30

    17/02

    2.00

    24/02

    0.00

    -$2,000

    Buy Feb. W4 505/510 call

    $502.30

    17/02

    2.00

    23/02

    4.20

    $2,200

    Buy Mar. W1 515/510 put

    $517.10

    23/02

    1.90

    02/03

    0.00

    -$1,900

    Buy Mar. W1 520/525 call

    $517.10

    23/02

    1.90

    29/02

    4.70

    $2,800

    Buy Mar. W2 540/535 put

    $542.10

    02/03

    1.90

    07/03

    4.00

    $2,100

    Buy Mar. W1 545/550 call

    $542.10

    02/03

    1.90

    08/03

    1.90

    $0.00

    Total P/L

             

    $1,550

    Stocks: AAPL
Back To SteadyOptions' Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (13)
Track new comments
  • us271782
    , contributor
    Comments (2) | Send Message
     
    This method of protecting vertical spreads is new to me. Is this something you do frequently in your trading? Does it work for credit spreads on the indexes? I appreciate your input and hope to use this in my own trading.
    17 Feb 2012, 08:50 AM Reply Like
  • SteadyOptions
    , contributor
    Comments (2686) | Send Message
     
    Author’s reply » I don't use it frequently and it has its disadvantages (what if the stock doesn't move? you lose more on a weekly RIC than win on the credit spread). But I think with proper management, it should work well.
    17 Feb 2012, 09:20 AM Reply Like
  • WSLama
    , contributor
    Comments (116) | Send Message
     
    Why do you call the weekly RICs protection for the March put credit spread? To me they are just separate strategies. AAPL is still strong. The March $520-$525 put credit spread is about $2.10 today. I am thinking entering it on Thursday. Would it be too risky now? AAPL closed today at $513. Even when you recommended the credit spread, it was never 10%, only 3-4%.
    22 Feb 2012, 10:35 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2686) | Send Message
     
    Author’s reply » It is not exactly full protection, but if the stock makes a strong move, the RIC will make money and partially offset the losses in the credit spread. The spread is too close, I agree, but after such parabolic move, I just felt that it would be difficult for AAPL to penetrate the 520 level. I still think the chances for the stock to go lower in the short term are fairly high.
    22 Feb 2012, 11:11 PM Reply Like
  • marc'o'polo
    , contributor
    Comments (42) | Send Message
     
    I like the strategy of buying a very thight RIC and then closing out one leg for more than what you've paid for the combo and hope for a reversal so you can close out the other leg. Nice way to make more than 5$ on a RIC with a max profit of 5$. I read that log after I read that endless discussion on how you dare to say that AAPL might not go to 800$ tomorrow :) well done one the option strategy
    23 Feb 2012, 04:57 PM Reply Like
  • marc'o'polo
    , contributor
    Comments (42) | Send Message
     
    a trading idea based on that:
    the 510/515/520/525 RIC expiring in one week costs you 3.80 so the break even is ~1.3% up or down (stock at 517) Sticking the weekly returns of the last 3 years (data from yahoo finance) into a spread sheet I see that about 70% of the time the weekly return was 1.3% or more. From that the fair price for the RIC would be 0.7 * 5$ (max profit) = 3.5$. Now in ~80% of all observations the weekly RANGE (weeks high - weeks low) was 3% or more. So if you open a weekly RIC for say ~3.80 and put in sell orders for each leg (CallSpread and PutSpread) at 4.50 and as soon as one is triggered you will be happy to close the other one for say 1 you should be able to achieve that quite often (?) Obviously 3% range doesnt tell you anything about how the stock moved in that week (if it goes up or down in a straight line you will only make money on one leg and the other expires worthless. But the stock wont move in a straight line every week. Thoughts? m.
    23 Feb 2012, 05:56 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2686) | Send Message
     
    Author’s reply » That's exactly the plan. However, it's easier said than done. In order to get the 4.50, the spread has to be at least 5-10 points ITM and very close to expiration (around Thursday probably). Last week I actually got more than $5 for the spread, but the stock had a huge run, so I was able to sell the call spread for 4.50.
    23 Feb 2012, 06:46 PM Reply Like
  • marc'o'polo
    , contributor
    Comments (42) | Send Message
     
    I see what you mean now. I have the 2nd mar 510/515/520/525 RIC on and could now sell the CallSpread for ~ 4.6 (mid, with AAPL 20$ above the upper strike) hoping for a drop in the next couple of days to sell the PutSpread for 0.4 or above. But the odds are its not going to drop enough for the PS to have any value so I'm probably holding on to the whole combo aiming for something closer to the 5$ max profit ..
    29 Feb 2012, 12:28 PM Reply Like
  • allenlicn
    , contributor
    Comments (8) | Send Message
     
    is the "stock price" the price when you open the trade?
    24 Feb 2012, 11:37 AM Reply Like
  • SteadyOptions
    , contributor
    Comments (2686) | Send Message
     
    Author’s reply » Yes.
    24 Feb 2012, 01:39 PM Reply Like
  • allenlicn
    , contributor
    Comments (8) | Send Message
     
    Buy Feb. W4 505/510 call $517.30 17/02 2.00 23/02 4.20

     

    you don't normally buy in the money calls. unless, it's part of ric and $517.30 was a typo.

     

    if so, do you normally close out one leg of the trade at a time?
    24 Feb 2012, 02:16 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2686) | Send Message
     
    Author’s reply » It was part of RIC and the price was 502, the 517 was a typo.
    24 Feb 2012, 03:44 PM Reply Like
  • stmf45@yahoo.com
    , contributor
    Comments (544) | Send Message
     
    This is way to complicated.
    12 Mar 2012, 01:15 AM Reply Like
Full index of posts »
Latest Followers

StockTalks

  • How NOT To Gamble On $AAPL Earnings - http://tinyurl.com/gthwx5g
    Jul 26, 2016
  • Closed fourth $SPX fly winner in 10 days for 34% gain. Previous winners 30%, 22% an 27%. Love this market! 5 out of 5 winners in 2016.
    Jan 13, 2016
  • Closed $INTC straddle for 11% gain, 3 hours of holding. This is how we trade volatility. Our fourth double digit winner in 2016.
    Jan 13, 2016
More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.