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Let's trade trade trade, and then trade some more! Love the ladies on FOX business, and Fidelity loves me. I think that's enough. No book, No paid articles, No premium content, No company, just my own personal hedge fund - dammit. I'm such a failure. In case you don't GROK "GGjr" - that's Gordon... More
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  • BBRY: Making A Silk Purse Out Of A Sows Ear, Or How I Put Lipstick & Diamond Earrings On A Pig 12 comments
    Jul 1, 2013 9:30 AM

    Since there are a lot of disappointed BBRY fanboys here after Friday's little crash, I thought I might share what's working for me.

    I got into BBRY back in January after researching it for a friend (to talk him out of buying it) that was all hot to buy based on a call he got from someone at the CES with an advance phone sample or some other such "hot insider tip" info.

    "It will be $60 by May!!"

    yadda yadda.

    Like that's probable.

    Anyways, while looking it over to build my talking points to dissuade him I checked the options...

    hmmm..."weeklys" (most stocks do not have them)

    hmmm... a phat premium. (most stocks do not have them)

    = who cares if it goes up to $60 or not, I can make 1-3%% a week selling calls.

    So i tested the waters, with an initial purchase of 1000 shares @ $17.15

    01/22/2013 YOU BOUGHT
    Margin Shares: +1,000.000 Price: $17.15 Amount: -$17,150.00
    Settlement Date: 01/25/2013

    and then sold the weeklies:


    -1682999LJ CALL (RIMM) RESEARCH IN MOTION JAN 25 13 $18 (100 SHS)

    Margin Contracts: -10.000 Price: $0.38 Amount: $379.61

    Fees: $0.39

    Settlement Date: 01/23/2013

    for the math challenged, that's a ~2.21% yield or "dividend" if you will if you have a cash account, 4.4% if on margin.

    Since that plan worked out well over the next few weeks & months I have added to my position on drops and now have 20,000 shares @ an average cost of $14.66.

    Then comes Fridays wonderful earnings report.

    With a closing price of $10.46 on 6/28, that means I need to generate $84K somehow to get back to par.

    That can happen 2 ways, a +40% gain in share price (I'll not hold my breath) or some decent call sales. So basically I can either wait for divine intervention in the form of a white knight buyout or the dreaded "short squeeze" like a lot of people here seem to like to do - or I can proactively do something about it myself.

    20,000 shares = 200 calls.

    200 calls @ ~$0.30 per share/per week = some serious flash cash.

    If you do not understand call options, there are several good write-ups with suggestions online - read them all, then read them again.

    This is a great site:

    as it gives you a percentage of probability that your trade will go the way that you want - of course they cannot look ahead for the news - just chart patterns and volatility calcs and whatever else is in their proprietary algorithm etc.

    But basically, three things can happen every week:

    1) The stock finishes lower than the strike price so the calls expire worthless to the buyer and you keep the premium and the stock.

    2) The stock looks like it will finish higher than the strike by the close so you cover and roll to the next week.

    3) The stock goes to the moon while you are sleeping on the couch and your shares are called away.

    So.. you do have to think for yourself a little bit.

    On Friday afternoon I covered my 6/28 $14.50's for $0.01 and resold the July 5 $10.50's for $0.48 (X 200 X 100) =a $9,600.00 credit.


    -$84,000.00 paper equity Friday.

    +$9,600.00 cash this week


    = just $74,400.00 more to go.

    Beats buying and praying as an investment strategy anytime.

    JMO, YRMV.

    Disclosure: I am long BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: I sell weekly covered calls on BBRY, monthly/quarterly calls on RGR, NLY, AGNC, SBY, TWO, etc

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Comments (12)
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  • NPetersen
    , contributor
    Comments (55) | Send Message
    Wow. Impressive.
    I am going to have to investigate whether I can set this up for myself
    on a smaller scale.
    Currently in cash accounts and not sure of restrictions when it comes to selling options.
    6 Jul 2013, 08:18 AM Reply Like
  • GGjr
    , contributor
    Comments (1905) | Send Message
    Author’s reply » @NPetersen - You just need to apply, cash accounts can be approved for covered calls, and you will be approved unless you just opened the account yesterday. But not all trading interfaces are created equally. Make sure that the one you use is EZ to understand and that it shows the weekly options. That's why I use Fidelity instead of some other platform.


    Margin is not required and I do not recommend it unless you have a way to pay any house calls w/out selling stock.


    You might do it on paper for a month and see how well you do before putting your shares at risk. My personal feeling is that the stock is going "sideways" for at least another quarter or 2, and sideways is perfect for a covered call strategy.
    Find out the costs (the fees and commissions) before you do it, blocks smaller than 1000 shared (10 calls) may make the expenses dwarf the gains depending on where you are trading.
    I'm totally happy with 2% a week payments for being patient.
    6 Jul 2013, 10:52 AM Reply Like
  • LTI0723
    , contributor
    Comments (859) | Send Message
    Looks good on paper. I use a similar approach for NOK except I use monthly calls, out one or two months depending on SP and premium. I've been lucky there because I haven't been deeply underwater so even if the shares get called away, the strike price has always been at or above my original purchase price.


    My dilemma with BBRY is that, while I'd be happy to earn a "dividend" on my holdings while I wait, I don't want to get the shares called away irretrievably due to a major upside surprise. What's your strategy there, or are you prepared to let them go?
    3 Aug 2013, 01:34 PM Reply Like
  • GGjr
    , contributor
    Comments (1905) | Send Message
    Author’s reply » why would they be called away by "surprise"? 99.99% of the time call options on shares that are in the money are not called away until after the close on Friday.


    What kind of surprise are you dreaming of, a buy out offer at $20?


    I sold the $8.50's last week and the were "in the money" all week - my shares were not called.


    Same thing for next weeks.
    3 Aug 2013, 09:08 PM Reply Like
  • LTI0723
    , contributor
    Comments (859) | Send Message
    Thanks for the reply.


    In my experience, shares automatically get called away if the SP closes at or above the strike price at expiry. Not so bad if there is little movement in the price but with bbry having dropped so much I expect a significant recovery. If not, why continue to hold the shares. The question is, what will the catalyst be and will it be gradual enough that there will be time for those short the calls to react.
    4 Aug 2013, 11:20 AM Reply Like
  • GGjr
    , contributor
    Comments (1905) | Send Message
    Author’s reply » Of course they do, IF YOU DO NOT BUY THEM BACK AND ROLL THEM TO THE NEXT WEEK; or month if they are monthlies before the close.


    Did you miss that paragraph in options 101?


    If you sell them for $0.40 on Monday and them buy them back on Friday for $0.02 did you lose money? No, you just made a little less.


    If you pick the wrong strike (ie too low) and you sold them for $0.44 and then bought them back for $0.48 and then resold them for $0.50 - What was the net result?


    You might go back and look at my spreadsheet again.
    4 Aug 2013, 11:36 AM Reply Like
  • LTI0723
    , contributor
    Comments (859) | Send Message
    Trust me, I understand how options work. Remember, I've been doing the same thing for quite a while. It's not a concept that's hard to grasp. How you're going to handle the specific situation with BBRY being priced so low and due for a strong upward move that I'm interested in. Go back and read my original question again.


    To get the kind of premium on a short term weekly option (I think you said 48 cents) you are selling in the money. If the stock rises abruptly, you're done. That's my point. Case in point, what's the last call option you sold? How's it doing today? How are you going to roll that forward for net positive cash or are you going to let your shares go at a big loss?
    5 Aug 2013, 12:00 PM Reply Like
  • GGjr
    , contributor
    Comments (1905) | Send Message
    Author’s reply » the stock has "risen abruptly" +8% (for no obvious reason last I looked) today, and I sold the $8.50 calls last Friday - have my shares been called this am? no.


    Did the price of the options jump from $0.44 to $1.15? yes.


    Do I wish I'd waited to sell today? yes.


    The stock price will probably drop tomorrow, or Weds, or Thursday.. if it keeps going up then I can always buy to close and resell.


    as the "worst case scenario" the shares are called. So I buy them back and sell calls again.


    What is the huge risk here?
    5 Aug 2013, 12:32 PM Reply Like
  • LTI0723
    , contributor
    Comments (859) | Send Message
    It's not about huge risk.


    Holding the stock could be considered a huge risk but selling short term in the money calls is simply a trade off of potential stock appreciation for a return. Whether that trade off is worth it depends on your view of what the stock will do over the near term.


    My expectation is that the correction was over done and the stock was due for a sharp upward correction (today wasn't it). The timing will be unpredictable because the catalyst could be one of many, the timing of which is not known. If I didn't believe that the stock was due for an upward move, I would either sell (if I thought it was likely to continue dropping) or sell covered calls like you (if I thought it would drift for a while). That's my expectation with NOK and that's why I'm writing covered calls or puts on that stock.


    This started as a simple question as to what you're longer term expectation was wrt the stock price and how you would handle a sharp up move if you thought that was in the cards.
    5 Aug 2013, 05:27 PM Reply Like
  • GGjr
    , contributor
    Comments (1905) | Send Message
    Author’s reply » "This started as a simple question as to what you're longer term expectation was wrt the stock price and how you would handle a sharp up move if you thought that was in the cards."


    If there was a sharp up move for a good reason = it looked like it might have staying power - I'd immediately cover and roll the calls higher, but that would need to be a larger move than today (I still have all 350 of the calls I sold last Friday) and later in the week - like Thursday or Friday so there was less time value etc.


    I think it will drop back by the end of the week unless the news that bumped it up is really coming out tomorrow, I did not see anything worth that kind of move today - volume is low on all markets exaggerating movements..


    I think it will be $9-$10 in December.
    5 Aug 2013, 10:18 PM Reply Like
  • LTI0723
    , contributor
    Comments (859) | Send Message
    Best of luck to you. I'll be following your progress.
    7 Aug 2013, 01:47 PM Reply Like
  • GGjr
    , contributor
    Comments (1905) | Send Message
    Author’s reply » so far so good. ;-)
    7 Aug 2013, 02:47 PM Reply Like
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