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Individual investor from Germany, looking around the world for investment opportunities, especially where options markets are available. The US is head and shoulders regarding Options market liquidity, but there are also (options) opportunities in Europe, mainly in leading indexes and blue... More
  • AAPL - Long Term Perfmormance Covered Call Trade In Possibly More Rocky Times 72 comments
    Aug 1, 2014 4:36 AM | about stocks: AAPL

    Be long AAPL - or, for someone who likes to trade Options:

    Buy a leap call Jan-2016, e.g. $105 and continuously sell calls against it. Because we are just before earnings - and especially if you are bullish - stay away far enough; I sold the Sep $105 call against it (so it is effectively a calendar spread at the moment). I will keep selling calls. If AAPL rips upwards, you need to roll the call up and further out. There are 17 more months to go, so plenty of opportunity to make money if AAPL does not drop. Keep the overall position delta-positive if you are bullish AAPL. As long as your short calls have a strike at least as high as the leap call, and are not in the money, that is always the case.

    There is always temptation to just buy out of the money calls, but if you do it often, the odds are just against you. That is the nature of the options game.

    Of course, if one holds outright long stock, you may enjoy the ride - and in addition to the dividend you may collect option premium by selling calls against your position.

    Disclosure: I am bullish AAPL via Options exactly as described.

    9 Jul, 01:22 PM

    (Remark : originally published as comment here seekingalpha.com/article/2305965-apple-b... - I will continue to publish updates here as things happen)

    Disclosure: The author is long AAPL.

    Additional disclosure: Position via Options as described

    Stocks: AAPL
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Comments (72)
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  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » After publishing, a discussion started with 2 fellow commenters - TechEnthusiast and Three Cheese Fondue - who added their twists to it and I would like to thank them for that again. If interested go there, see link above.

     

    The main questions arose about the impact of a bullish earnings surprise on this - I pointed out that especially the overall delta of the position is important to me (and would provide reasonable protection).

     

    As it turned out, earnings were moderately bullish; the all time highs were not reached yet again- so all has been well so far.

     

    With the first potentially serious market correction in the making since opening the trades, I will continue posting here.
    1 Aug 2014, 04:43 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » OK ... so the first new actual post:

     

    Market correction has started and the position is holding up well.
    Will AAPL peaking at just below $100, we were at a plus of some $120. With Thursday's (July-31) decline, we are still at +$60 - all coming from the short call (long call at a scratch right now). Essentially, AAPL is where it was at the beginning of the trade. So - covered call structure working as a charm right now. Keeping fingers crossed. Money making in an essential sideways market.

     

    If the corrections goes further, I will be in better shape than an owner of classic, a.k.a. "rich man's" covered call - as my stock replacement (leap call) only declines with the delta that it has (some 0.45) rather than with the full might of one lot of stock per contract.

     

    Of course we think long-term (that is what was stated at the beginning) but it does not hurt to use less capital and still be better protected.

     

    --

     

    I plan to roll the short call a bit later - so far it has declined by some 46%. Rolling would be better if AAPL rebounded a bit before doing that.
    1 Aug 2014, 04:55 AM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    I had some leftover 78.51 October strikes that I sold early in the day's downturn and rolled them out to April 80's and 85's for slightly less money.

     

    I need to keep some dry powder in case AAPL finds the low 90's or high 80's (and I will load up on Jan 2016 80 calls at that point). But mostly I feel much more comfortable rolling out my calls at this point. I feel good about AAPL the stock, but I am not so sure about the market over-all. When the delta is very near 1, any market action can really pinch. Now I have the time to endure any rough patches in the coming months.

     

    I am almost all long at this point. I am waiting for some positive price action to sell OTM calls maybe in the OCT 105 or 110 area. I'm still getting used to the new numbers. Pre-split I was just getting locked in to what I thought was a good margin of safety and now I am doing a lot of multiplying by 7 to double check my assumptions.

     

    So what I'd like to do is see AAPL reach 100 and sell the OCT 110's at that point. It's possible they could be in the money by expiration, but that would be a nice problem to have. (That would mean a 50%+ gain on the April 80's.)
    1 Aug 2014, 11:04 AM Reply Like
  • olafl
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    Comments (121) | Send Message
     
    Author’s reply » Trade update: Rolling Sept-105 to Oct-110 for even money and a realized gain of 69¢ per contract. The reasons:

     

    - To create space for the product release event in September: If AAPL rips up as a reaction, I can participate. But I also retain a small buffer against any down turn. Position a bit more bullish.
    - Today was possibly the last day (if stock continues to go up) to do it for even money.

     

    So why do I do those call sells in the first place? Answer: To always collect more premium and have a buffer against a down turn. In hindsight of course we know that the market and especially AAPL have recovered well. I like moderately bullish delta (going with the stock price) and a theta (time decay) as high as possible, for my overall options position in the stock. And a binary event, such as product releases and earnings - no matter the contents - can always go both ways.
    13 Aug 2014, 03:40 PM Reply Like
  • TechEnthusiast
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    Comments (798) | Send Message
     
    I ended up getting impatient and selling Oct 105's against half my position. I am still waiting to sell calls on the other half. Not sure if this run up will continue or not. Like you indicated, it's hard to both leave room for the bullish news and also collect a decent premium. I am still hoping to sell October 110's if there is a rally to 100, but I'm obviously running out of time. Next target will probably be December calls.

     

    I enjoy reading your thinking and the moves your making. Please do continue to update as things progress.
    13 Aug 2014, 04:36 PM Reply Like
  • olafl
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    Comments (121) | Send Message
     
    Author’s reply » I am also always happy to exchange ideas, definitely. It makes you a better trader as you get a fresh perspective on things. Especially with options, where there is a million ways to go about it. Matter of fact, this weekend I am going to go to an Options Traders Meeting (in Hamburg, Germany), just for that very reason.

     

    I think one can live with these Oct-105's, too. You still make decent money if the stock goes up after the product event.
    I think it is always good to collect premium as a buffer and give up some of the upside, essentially at all times. For me, this decreased the pain on AAPL's downturn after Sept-2012 significantly.

     

    And let us be honest: We do not know whether that good AAPL stock will actually go up. We can believe it, but what the market does is another matter.
    14 Aug 2014, 03:24 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » Ok - this second we are touching the all time high again, which we hit 2 years ago. Of course, a breakout would be bullish. However, with the product event looming, the market has already anticipated positive news, and it will be a truly binary event that can go both ways.

     

    Let's reflect on this remarkable milestone.
    Some of us have suffered a bit during the last 23 months. Who would have thunk that AAPL was going to go (down) against the market for so long?

     

    As it is, my position is at 69¢ realized gain, plus $1.70 unrealized gain:
    Oct-110-calls =-29¢; Jan16-105-calls= +$1.99.

     

    Should AAPL climb further, I will roll my short call again:
    Up the strike and out in time, rolling for even money or credit, and I'd like to be at least 10% otm for the product release event in September. If necessary, rolling will be done right before the event.

     

    The November options life span will include the next earnings as well (should happen during the week after Oct expiration), so that will have to be considered as well.
    19 Aug 2014, 12:31 PM Reply Like
  • olafl
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    Author’s reply » Here is the next update - after NFP, first options trading minutes today and 3 trading days before the iphone6-announcement event:

     

    AAPL at $98.75; some 2% lower than last time; plus short term IV increased for Sept. 9's scheduled event.

     

    The stock is at a great price level for me to keep the short call as it is. Never mind the few more trading days. Unless something rather unforeseen happens before the event, I will not roll. And after the fact, possible 2-3 trading days later when it becomes clear just how the market will have digested the event, I'll be going to decide anew. The October call will not last until earnings, so an IV collaps can be expected (to my benefit).

     

    Should AAPL rally up, I will keep the $110 October short call until 1 week before expiration, to benefit from time decay (I'd be in a comfortable position as my long leap call would appreciate). In the unlikely event of AAPL rallying 20% on this event along, I might roll earlier. Again, I consider such a strong move (based on one binary event) unlikely - though not impossible. Of course, such big a move to the downside would hurt a little - but I consider it just as unlikely.

     

    Should AAPL crash, I will likely roll the short call down; same expiry - to collect more premium during the 40-some days until Oct. expiration.

     

    In any event, in a few weeks I will have to select a short call with expiry Nov. or later to carry thru earnings. AAPL earnings are regularly released during the week after the "1st monthly options expiry in a quarter" - that is, in Jan, April, July, Oct a few days after monthly options expiration.

     

    The P&L update as of now:
    Realized gain 69¢ (as in last post; with no positions changed)
    Plus $1.33 unrealized gain (short call Oct -6¢; long call Jan-2016 +1.39¢)

     

    Next post next week, some time after the event.
    5 Sep 2014, 09:33 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » almost 2 trading days after the iphone-6 release event:
    Here we go; in terms of AAPL price movement, this event was pretty much a non-event. Everybody who has watched AAPL binary events knows that 10% up or down are not extraordinary. So a 1% move (plus change) is next to nothing.
    In any case, we are up only slightly (AAPL=$100 even as I write this) - and this means the following:

     

    - I will keep the short call, for further time decay - as it turns out, it is positioned almost perfectly. It will expire before earnings, and I intend to roll after a further 20¢ or so time decay. The next short call will be held thru earnings, I will plan for a 10-15% otm call at the time of earnings.

     

    - P&L has further improved a little:
    Realized gain +69¢
    Unrealized gain: short call Oct-$110 +15¢
    Unrealized gain: long call Jan2016-$105 +$2.04
    total unrealized gain +$2.19

     

    Next post will be after the upcoming roll, and that may well be before Oct expiration.
    11 Sep 2014, 02:28 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » Next Update: AAPL at $102.20; I realized that AAPL reports after the Oct4 weekly option cycle, i.e.; one week more to go. I also tought that I can grab a few more dollars before earnings; with AAPL trading sidewise now.
    Therefore I sold the Oct4 109 call and bought back my short Oct (monthly) 110 call; for a net credit of 40¢; gain realized with the 110 call is 38¢.
    So the total statistics is now:
    Realized gain +$1.07
    Unrealized gain $2.64 (leap call, based on current price)
    24 Sep 2014, 09:53 AM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    I bought my monthlies that I had for Oct several weeks ago (not at the optimal time, but at a profit) and I have been selling weeklies. Today I bought back Sep 26 105's for a nickel and sold the Oct 3 105's for $0.25. Having to roll them out would not offend me one bit, but I don't think I will have to. I am not going to try this going into earnings, however. I'll either be much further out or (more likely) I will be at a much higher strike. Or I may just wait for earnings to sell the following Friday's (i.e. ten days later, not later that same week).
    25 Sep 2014, 12:39 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » ... also, with todays movements a performance update:
    AAPL=$98.28; so essentially a $4 drop.
    Unrealized gain is $1.32, i.e.; less than yesterday (also by $1.32). So now one can see the beauty of performance covered call structure: The loss is significantly less then with normal covered call, let along naked stock.
    My effective delta was just 33%; a covered call with that strike would've had some 80%, and stock of course the full $3.92 (as of now)
    25 Sep 2014, 03:15 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » Yes, very good indeed. If you are into weeklies, you may be able to make some decent money. I typically like somewhat longer duration (exceptions apply).

     

    Whether one trades earnings is a matter of "taste". I will very likely do it - with some 10% distance of the call sold. Because the enriched premium is something one could benefit from. If AAPL rips up after earnings I would have I high class problem. This week, with all the ridicule about iphone-6 bent like a banana, and a screwed OS update, and the general selloff - one would not even think of this now.

     

    In any case, 4 weeks can be a long time in the markets and the sentiment may change back in favor of AAPL.

     

    Additional trade:
    With today's sell off, I noticed an IV spike, so I opened an additional trade (which is not directly related to a performance covered call) but is something I like to do, because often it works surprisingly well:

     

    Sold an at the money STRADDLE (Oct-17 $98.57-Strike), and for margin reduction buying two wide wings (essentially a long strangle, 90/105 Strikes) all for a credit of $3.95.

     

    Clearly, straddles are not for everybody, because you are always in the money. But If the stock does not fall out of bed completely, or makes new all time highs before the earnings, it makes money.

     

    You can disregard this trade as it is not really part of the "performance covered call" history but I thought I'd share it anyway.
    25 Sep 2014, 03:06 PM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    I'm glad you described the Straddle. I have read about Straddles and Strangles but have never walked myself through one. I may do that at least on paper.

     

    I closed out the 105s this morning and sold 1/3 of the position at 103 (still Oct 3). I didn't want to sell any more in case this proves to be a temporary market jitter into Oct. If the market and AAPL continue to fall, not sure what I will do with the rest of my uncovered calls. But they are April 2015 and Jan 2016, so there is no urgency. I don't want to get stuck selling calls in the high 90s though only to see the stock retake 100 into earnings. So I may sit tight, or on any rebound, sell 105s again.

     

    I don't have a great deal of experience with weeklies, but I paper traded them a bit this summer. Having to roll them out is a high class problem but a sudden boost in the share price can really leave a mark.
    25 Sep 2014, 04:55 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » What is the rest of your "uncovered calls"? We started this conversation beneath some other person's article some months ago, and I do not quite recall what your positions were. You bought in-the-money calls (is that what you refer to as "uncovered" now?) and sold calls against them (part of which you rolled, with the remainder closed, as described in your last answer). So which contracts do you currently own in total in AAPL? Of course, I am only curious about the relations (not actual trade sizes); e.g. "buy 1 Jan-2016 80 sell 2 Oct1-105" would also represent "buy 10 Jan-2016 80 sell 20 Oct1-105" or buy-100 sell-200 - (or even 1000 and 2000 ... what do I know .... )

     

    Covered/Uncovered typically refers to short options only as it refers to the special tail risk that one faces as an options writer.

     

    I just want to understand what exactly you mean, and which ones are open positions right now - and certainly not be nit-picky about language - heck, I am not even an English native speaker :)
    26 Sep 2014, 03:13 AM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    I see. My language is certainly imprecise. I am self-taught.

     

    By "uncovered" I always mean a long call that I haven't sold against. I see how this is not the precise meaning.

     

    But if I had 10 $100 calls and I sold 5 120's I would consider the other five eligible for future call selling and so "uncovered". I'll try to clean up my speech.

     

    Right now I have these long calls: April 80's, Jan 2016 80's, and Jan 2016 100's in approximately equal number.

     

    I sold Oct 103's yesterday. I sold April 10 105's this morning. I still have a third of my calls "uncovered" by which I mean not encumbered with a short call position. I will sell calls against these if I see price action that I like.

     

    I don't mind you nit-picking about language. I would rather use language that is understood, so I am continually learning how to characterize what I am doing.
    26 Sep 2014, 11:28 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » OK, I see; quite a few long somewhat deep in the money calls, which you have not sold short term calls against.
    This means two things: If AAPL rips up, you'll make a lot of money (more than I, as I am not as "delta-long" as you). If however AAPL goes down, you also lose a lot. Especially a leveraged investment in the stock for the determined AAPL bull. There is of course nothing wrong with it - as long as one knows that the market is also able to repeat the "inexplicable" decline of AAPL stock like after September 2012.

     

    There is one more thing that you may want to look at: If AAPL trades sidewise, you'll probably lose money if you don't sell against your long calls; to me, that is typically part of the equation: I get stock prognosis wrong occasionally (I guess like anybody) - therefore I like to benefit from premium decay (rather than lose from it) by selling contracts -at the price of giving up some upside.
    27 Sep 2014, 06:09 PM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    I am entirely with you on selling against the long calls. It is just that as I am new to the weeklies I am hesitant to sell the whole amount. I want to get .25 per and if that price is not at a level I am comfortable, I am holding back a bit. I am sure with some clarity this coming week, I'll find a position I like for Oct 10. Then the next glitch is earnings. Again, I am not sure I want to sell weeklies before earnings, so I may have some longs that have no corresponding covered calls sold against them in the second half of October at least for a little while.

     

    Again, all of this is just new and experimental. I used to wait for a pop and sell calls three months out and collect the time decay. I may do that again in the future, but for now I am seeing what weeklies can do for me.

     

    I still have a very clear memory of the hit I took in 2012, when I thought the stock could not possibly go as low as it did, so I do accept the notion that AAPL may be trading at 85 in April or even lower, causing me to see huge losses. Thanks for the reality check, but you'll find no argument from me. This is not about thinking it is a sure thing.

     

    That is partially why I am deep in the money on the 2016's, or at least on half of them. Right now if AAPL is 100 in 15 months I will have collected plenty on the calls I will have sold by then. And if it is 110 or better, yes I do make some money. My expectation is that AAPL will be above 110 in January of 2016. Of course I could be wrong.

     

    I guess with weeklies I am trying to have my cake and eat it too. I want to earn income from selling them but fundamentally profit from however high the stock can climb in 15 months. That is something that just selling calls that are 3-6 months out doesn't do. You are capping gains. Nothing wrong with that. Making money is not a bad thing just because you could have made a few bucks more, but with a stock,like AAPL you never know how high it might pop.
    27 Sep 2014, 06:37 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » OK, here is a position update:
    I closed out the straddle plus its wings (always meant as a shorter term trade) at $2.71. with AAPL at around $99.60.
    After commission a gain of $1.18. Margin (per share) was around $8. It was some 14.7% return on capital after just 2 weeks. Not bad. AAPL has behaved very well with regard of this trade (price pretty much staying put).

     

    The best outcome would of course have been AAPL at $98.57 on Oct-17. Of course one could gamble that AAPL continues like that until then, but taking profits early is not bad for this kind of trade. UPDATE: Position was closed before the news event "FOMC minutes release". I have no idea what the market will do next. Right now, broad market goes up, AAPL follows just slightly..... and with only the performance covered call on, of course I'd now prefer a strong AAPL (getting to $109 on Oct-24th). So far for my wish list :) . Next Update will likely be a few days before the Oct-week-4-Expiration since I will have to roll my short call. I will have a replacement to carry the trade thru earnings. In my view, it is worth it, with the inflated premium.
    8 Oct 2014, 02:12 PM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    Awesome job. Thanks for the update.

     

    Looks like some good news is coming Apple's way. The Oct 16th event, the release in China, and earnings all in the next three weeks.

     

    Retailer Jingdong is showing 8.6 million reservations to pre-order the iPhone in China. It is hard to see them selling less than ten million phones in the first few days. That is even assuming that JD.com has a number of redundant reservations and that they will be a substantial portion of total orders. If you add in the three carriers and other major resellers and retailers, you can get to some scary high figures for this China release.

     

    Anyway, I enjoy your continued updates of your trading strategy. Glad to see it is working so well for you.
    9 Oct 2014, 02:34 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » Here is the next update, earlier than planned. I rolled my short call Oct-week4-$109 out today. Reason for this: As AAPL enthusiasts know, there is not only going to be the earnings release, but also the IPAD release and some business news from Asia coming up. Also - Mr. Icahn propped up the stock on a very bad day for the general market. I expect a possible real drop in the general market. If AAPL cannot withstand that, the conditions for rolling would worsen: The delta of my old contract is smaller than that of the new one. To gain maximum flexibility regarding up and down markets, I rolled to December, So I sold a Dec-$110 call, collecting $1.27. The buy-back of the old contract cost me 34¢, resulting in a realized gain of 24¢.
    AAPL currently at $101.

     

    Therefore, my current positions in AAPL are now:
    Long Call Jan-2016-$105
    Short Call Dec-$110

     

    Total realized gain:
    $1.31 (rolls of performance covered call)
    $1.18 (extra strangle-with-wings trade)

     

    Unrealized gain at this moment (long call): $1.88
    9 Oct 2014, 01:28 PM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    I did something for similar reasons today. I went way out and sold Jan 2016 $130 calls, covered by my Jan 2016 100s. I will still be selling weeklies against my April 80s and my Jan 2016 80s, but I just wanted to lock in something to hedge against a general market decline. And of course today's strength in AAPL seemed like the right time for this. I may close out these 130s if we get a big dip, but I will probably just let them ride.

     

    With the way Icahn was talking AAPL might be 150 by next January, but that is what my 80s are for. So now I'm kind of happy either way, which is right where I want to be.
    9 Oct 2014, 04:34 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » ... and why not doing it that way. That'll work too. Your time decay of 2016's contract is significantly less, but still, the basic concept of performance covered call is in place. I just checked: Yesterday's close of your 100's was $12.15 and of your new $130's was $3.72. Your combined delta between the two is about 0.34 (for each $ appreciation or decline you gain/lose) 34¢ per share.

     

    As for my personal taste, writing options that far out is not what I typically do (because of the reduced time decay -- where I love to buy long lasting contracts, for that same reason), but of course it still works.

     

    Just be aware, if you do not sell against some of your long calls that are in the money, you bear almost the full market risk (and chance of course, both directions). You are very long delta. Your Jan2016-$80 calls currently have a delta of 0.8, so each of these contracts will do the same as 80 shares of AAPL right now.

     

    Your personal handle TechEnthusiast suggests you may be also enthusiastic about AAPL. I am, too, in a way .. but I also got burned in 2012, having been one of a million people who'd never expected SUCH a downturn of the stock.

     

    Therefore, as for myself: Too much delta exposure to any one stock won't happen again. Should AAPL rip up in the wake of the upcoming events, enjoy the gains (I would also make profit, but a more modest one). If however AAPL loses, well, it is just money. And in the case of options there is always a counter party, so you'll have made some unknown soul a little happier :)

     

    ... and one correction of my last post (cannot edit there anymore)
    The extra trade was a straddle with wings (not strangle with wings), as written in earlier posts
    10 Oct 2014, 09:28 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » ... yet another position update: It looks to me as if AAPL is going strong through the current market phase (though I expect still more of a crash of the broad market).
    With the first event (ipad) in 2 days and the possibility to realize more profit, as well as giving the stock a little more buffer to the upside, I decided I roll into January for even money or better. January expiry will be before the Q4 earnings (Q3 earnings due this coming Monday).

     

    As a general rule: If and when I roll, it should always be for a realized gain, for an increased premium, or both.

     

    That means, should AAPL rip up in the future, and my short call be down money (actually a high class problem because the gain comes from the "stock replacement" call ), I will roll out in time but only to a strike that allows at least an even money roll. The realized loss should be earmarked and those same rules apply until break even (short calls). All of this means, I may roll from in-the-money to in-the-money (later expiration).... but we aren't there yet. AAPL first has to demonstrate it is actually a strong stock.

     

    Should I be up money on the short call (including any past losses compensated), I will roll to whatever I feel is an appropriate strike (possible collecting less premium - but more is of course still better).
    Today, my short call has been up money by about a quarter.
    Therefore, I rolled into the Jan-$112.86 (legacy - odd number due to split) strike for $0.03 (even money), for a realized gain of 24¢.

     

    With this, the downside buffer is (in theory) the same as before; with a slightly lesser time decay.

     

    One could well say, this is also an attempt to have the cake and eat it too. But hey, I am up money, trading my market opinion (somewhat bullish AAPL) and keep a buffer against downside risk.

     

    Therefore, the numbers are:
    Total realized gain:
    $1.55 (rolls of performance covered call)
    $1.18 (extra straddle with-wings trade)

     

    Unrealized gain at this moment (long call): $1.39,
    with AAPL currently trading at $99.85
    14 Oct 2014, 01:01 PM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    I had read in a comment on some article your notion to roll out for an increased premium, and I thought that through. There seems to be some real advantages to that, not the least of which is that you are maintaining downside protection, rather than chasing the stock price.

     

    I had the opportunity to close out my Oct 18 $105's today for .04, which I took. As I sell calls that are 10-14 days out, I am always looking to buy them back at .05 or less because I don't have to pay the commission on the contracts (just the trade), which can reduce friction a decent amount over time.

     

    So I am still short the Jan 2016 $130's against my Jan 2016 100's, but now I have other calls that will allow me to sell the next batch of near dated covered calls.

     

    I think I may be more bullish on AAPL in general than you, and I am expecting a decent bump in the near future, possibly on event news, but more likely on sales in China or forward guidance at earnings. So I am sitting tight right now, waiting for a price bump. If shares pop, I will be looking for a good strike to sell Oct 24's or Oct 31's. As I said above I am attracted to prices above .25, and then the hope would be to buy them back as soon as the price hits a nickel or less. Of course the "art" is in getting the .25 on something that won't be in the money.

     

    This is why I am very interested in your roll out strategy. When I do eventually get caught short, I am going to try and stick with the same rule of thumb (or at least similar) and collect the same or better premium and allow that to tell me which date and strike to roll out to.

     

    Do you ever settle for the same premium or does it have to be higher?
    14 Oct 2014, 07:59 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » As per the last roll, I settled for essentially the same premium. 3¢ net credit (new short call more expensive by that amount) is within "friction" - it paid the commission so essentially the roll was even money.

     

    A more comprehensive answer to your question is: If the short call is down money, in order to avoid being whip-sawed, I insist on at least as much premium. Because in that situation, you (temporarily) realize a loss (short call i.t.m. due to strong stock performance); and if the stock then takes a breather, you may not be able to make up for the loss with your new short call. Upon the next roll, with the stock somewhat down, you may be tempted to go further down with the strike (because you otherwise collect too little) - which sets you up for another whip-sawing, should AAPL rip up again. One has to remember, that however bullish a stock is, it typically takes some "breather" occasionally.

     

    Therefore: Should I ever be down money (I am just talking the short call here) as per the situation described above, I will insist on at least even money upon the next roll. This may mean rolling from in the money to also in the money (later expiration) That way I buy myself more time to make up for the loss. Once that loss has been compensated (by a later profit) I feel free to choose a strike I like.

     

    Also, if I haven't been down money with the short calls (just as it is now) I feel free to chose a strike I like. That may mean I accept less premium for the new call (the roll would be for a small debit). Though I always like a buffer to the downside, and for "theta decay" (time decay) so selling cheaper than buying back is unlikely.
    With weeklies you cannot do that much obviously (I like to go further out, as per my positions) but the basic concepts are the same.

     

    It is entirely possible that AAPL rips up much more with much more velocity (as you may expect - I for one am a bit more cautious). If that is the case (and I end up somewhat deep in the money) I can roll further out in time, but at some point, this strategy will meet its limits. Overall - with the "stock replacement" 2016's long calls bearing the main load of making profit at that point - I will certainly be up money, with a healthy (but not extraordinary) profit and thus have a high class problem to solve:
    What to do next with this position: Close all out for a profit, or "reset" it and start over with new short calls (I would consider that a new trade. And I would even consider rolling my "principal" - stock replacement - from 2016 to 2017 as they are now available).

     

    Right now, as I write this, we are pre-market. The head wind is stiff, with the broad market tanking further. AAPL in the 97's for the first time in a little while. Nothing much has happened to it, but should we get a *real* selloff now, I am happy to have limited my downside a bit.
    15 Oct 2014, 09:17 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » This seems to get "real". If after earnings the options prices are as high as they are now (due to the market conditions), and if AAPL gives any direction as to where it intends to go - it will be extra premium selling time, again. Just as a pre-announcement.
    15 Oct 2014, 12:39 PM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    Thanks for your description of your process. I think it seems a very intelligent approach and it encourages me to continue to try and understand it so that I can employ its principles.
    15 Oct 2014, 07:24 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » The "exciting 7 days with AAPL news" (Ipads and earnings) look like a complete "non-event" with respect to stock price movement.
    I am aware that a final "decision" by the market on a proper reaction (not just "knee-jerk") may take up to 2 days. But it looks unlikely that I have to change anything fast. With that "lame" movement by the AAPL stock, and a general Vol-Crush in the overall market (VIX tanked big time Monday and this past Friday), I also expect a vol crush in AAPL options tomorrow (with the events behind us), making a special Vol-trade like short straddle/strange unlikely at this time.
    20 Oct 2014, 05:24 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » With this slight up move (by earnings standards), we can enjoy the benefits of the IV collapse (as an options writer who is net short "vega", and theta); AAPL had delayed that until after the earnings (whereas it has been going on in the overall market since its turn on Oct-15/16).

     

    With no position changes, we now have an improved P&L:

     

    Total realized gain:
    $1.55 (rolls of performance covered call)
    $1.18 (extra straddle with-wings trade)
    unrealized gain:
    Short call 14¢
    Long call $2.34
    with AAPL currently trading at $102.00

     

    There will be no additional vola trades as the IV has collapsed significantly already.
    21 Oct 2014, 09:59 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » OK, here's the next trade: An additional bullish position

     

    - With the overall market continuing its "V" shape recovery with force, including almost all sectors (except gold mines)
    - With AAPL at all time highs, and even stronger than the overall market (which still has a ways to go to the old highs)

     

    I set up a so called Risk Reversal trade with a bullish bias.
    Risk Reversal is selling on one side (here: downside) and with that premium buy on the other (here: upside). Do not ask me why it is called risk reversal, but that is the expression. Since you sell and buy naked simultaneously, there is essentially undefined/unlimited risk to the adverse side (here: downside) and potentially unlimited profit potential to the favorable side (here: upside). If the stock only moves small in any direction, you keep the net premium (if any) and that's it.

     

    With the volatility skew (downside options relatively more expensive than upside options - that is the normal condition in most indexes and stocks - based on the measure "implied volatility") I was able to sell a November Put and buy a December Call,

     

    i.e.; I am exposed to downside risk for only another 30 days but will have a chance for a good upside for 58 days - and all for a small credit that essentially covers the commission (round turn).

     

    The trade is as follows:
    Sell Nov $97,5 Put (monthly) at a price of 47¢
    Buy Dec $115 Call (monthly) at a price of 40¢
    (AAPL at around $104.65)
    On a very bullish day, I could take advantage of a small market dip (rumors about yet another Ebola scare, this time in NY-city) to get into that trade.

     

    Should it become necessary, to react doing any downside by AAPL stock, I will decide based on chart analysis.

     

    I will likely not hold until expiration, with the intent to buy back the put first cheaply if the opportunity arises, and also to take any decent profit of the call.
    23 Oct 2014, 03:26 PM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    Interesting.
    23 Oct 2014, 09:28 PM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    I sold some Oct 31 105's too early apparently. So today I rolled out half of them to Nov 14 107 instead. I didn't quite follow the "break even or better" rule, but it was fairly close.

     

    So now I will see if the 105 move deep under water by next Friday. If they do, I'll roll the rest of them out to Nov 14 107's and see what happens.
    24 Oct 2014, 01:13 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » I believe, if you narrowly miss break even on a roll that is generally okay. One has got to be pragmatic. If you miss it frequently AND realize a loss at the same time though it would be another matter - as it would set you up for a money losing scheme with your short calls.

     

    What the outcome will be - we shall see. There is a FED event coming up on Wednesday. These are important as they are sometime watershed moments for the market. The thing is: All of the recent past FED events turned out to be bullish - supposedly because the FED itself is "dovish" right now. But every series in the market has got to break at some point. Because otherwise we'd all get rich easily by trading it all-out. In reality, markets anticipate; and thus we cannot know beforehand, how much FED action (or wording) is priced in already. The true market reaction often only happens on Thursday (it may differ from the "knee-jerk" reaction on Wed. afternoon).

     

    Bottom line, should the market dip (and we do NOT know beforehand because it is in the future :) of course your remaining Oct31th would work perfectly as they'd set up to expire worthless and give you a downside buffer at the same time.

     

    If AAPL rips up, they will be deeply underwater as you say and you'd have to think about how to roll them. Because the debit you 'd have to pay would be much larger than the couple dimes you probably paid yesterday: The Oct-31s would start to rip up almost like the stock when getting a few bucks into the money. I.e.; delta increases, and all of this is called "gamma risk".

     

    One possibility is giving them a lot more time (rolling to monthlies, possibly at least Decembers) - that way you'd get closer to break-even on the roll.
    24 Oct 2014, 08:10 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » This is just a P&L update - with all the important events behind us: Product releases, earnings, FED-event etc.
    AAPL a little heavy (currently $106.84), but of course still close to its new all time highs, on a otherwise up market.
    With no position changes, we now have an improved P&L:

     

    Total realized gain:
    $1.55 (rolls of performance covered call - PCC)
    $1.18 (extra straddle with-wings trade)
    Unrealized gain: Performance covered call
    Short call -67¢
    Long call $4.84
    Unrealized gain: Risk Reversal bullish trade
    Short put 27¢
    long call 21¢

     

    all for a performance as follows:
    the PCC: $1.55 (realized) + $4.17 (unrealized)
    other trades: $1.18 (realized) + 48¢ (unrealized)

     

    The next likely change will be buying back
    the short put Nov $97.5
    30 Oct 2014, 03:49 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » .... and here we go. With the market - and AAPL - at all time highs, again (thanx Japan currency board et al. for announcing a stocks buy program for the coming years), the put could be bought back for cheap. And - ever eager to collect even more premium, I sold a Dec $120-call and thus made my remaining long $115-call position into a vertical spread.

     

    bought to close AAPL Nov 97.5 call for 10¢, realized gain 35¢
    sold to open AAPL Dec 120 call for 34¢

     

    With AAPL at 109.32, total P&L is as follows:

     

    Total realized gain:
    $1.55 (rolls of performance covered call - PCC)
    $1.53 (extra trades: straddle and risk reversal)
    Unrealized gain: Performance covered call
    Short call -$1.37
    Long call $6.04
    Unrealized gain: Vertical spread, bullish trade
    long call 60¢
    Short call -3¢

     

    all for a performance as follows:
    the PCC: $1.55 (realized) + $4.67 (unrealized)
    other trades: $1.53 (realized) + 57¢ (unrealized)
    3 Nov 2014, 03:17 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » Today's position change
    - With AAPL having been real strong these past days
    - With the market possibly starting another correction today
    - With my debit spread near - but still out of - the money, but remaining days (Dec monthlies) getting fewer

     

    I decided to close the debit spread for an (additional) gain (it started once as a risk reversal, with some small profit already realized); also decided to roll the Jan 112.86 short call (part of the performance covered call structure) and - using the gains from the debit spread - roll up higher in Strike.

     

    The $112.86 call was closed at a realized loss, and rolled to a Feb 120 call for a debit. This is typically against my declared rule (either close at a gain or roll for a credit) and I do this only because I realized gains with that other trade (risk reversal-turned-debit spread).

     

    The position changes are therefore as follows:
    sell AAPL debit spread Dec 150/120 for $1.15, realized profit $1.05
    roll AAPL short call Jan $112.86 into Feb $120 for a debit of $1.12
    realized loss -$2.75.

     

    Total P&L is therefore:
    Rolls of performance covered call - PCC:
    unrealized $7.84 realized -$1.20

     

    Extra straddle with-wings trade
    realized $2.23

     

    Current positions:
    +AAPL Jan-2016 Call $105
    -AAPL Feb-2015 Call $120

     

    i.e.; just a performance covered call with no extra positions
    13 Nov 2014, 02:27 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » Happy New Year to everybody.

     

    Just for the record, this is how my AAPL trading has done in 2014, and where we are currently:

     

    2014 closing prices: AAPL= $110.70. When my first AAPL options trade covered here was opened (Jul-9,2014) , AAPL was trading at around $95.50. P&L AAPL stock therefore $15.20.

     

    realized P&L
    Performance Covered Call -$1.20
    Extra trades: $2.23

     

    unrealized P&L
    Performance Covered Call
    AAPL -1 C120-Feb-2015: +$1.01
    AAPL +1 C-105-Jan-2016: +$7.39

     

    Total P&L:
    realized: $1.03
    unrealized $8.40 ---> overall P&L = $9.43

     

    My "Position-delta" - realized and unrealized - since the start is therefore 9.43/15.20 = 62%. This is how much of the long stock trader's gains I made.
    Given that the total risk of the strategy at any given moment was significantly lower than with just long stock, I consider this a real success. Given that a *real* market correction can come at any time - and by some accounts is long overdue - this position is much safer going forward.

     

    Plans for 2015: As long as AAPL remains somewhat bullish, I will keep going like that. There are two exit scenarios:

     

    (1) Should AAPL clearly break its uptrend (remember 2012 anyone?) I will exit this strategy. Chances are, I will be able to exit with an overall profit.

     

    (2) Should AAPL rip to the upside in a forceful, even "brutal" way (who knows what will happen?) I might be facing a high class problem: Rolling the short call (which in this case probably has gotten deep into the money) up in strike and out in time may not be useful anymore, i.e.; the strategy maxes out and there is no sensible prospect for generating profit left - in which case I will liquidate all. However, if the rules regarding rolls are always applied, this will indeed be a high-class problem as this position will be very well in the profit zone.

     

    Of course, in that case somebody just owning stock or long naked calls will have been better off, but that will only be known in hindsight. Without it, the risks to the downside are just as present and are well taken care of by this strategy.
    1 Jan, 11:24 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » ... an extra trade set up today. Due to short term weakness in AAPL and what I believe is a good supportive trend line currently at $105, I set up a ratio put spread: +1 P,$106 -2 P,$105; total credit = 51¢, DTE only 4!
    This trade makes money as long as AAPL is above $103.49 by this Friday (wk2)-Expiration. Theoretical max gain (in case AAPL closes at $105 on Friday): $0.51 + $1 = $1.51. If AAPL stays or bounces up, I am going to keep the 51¢
    5 Jan, 01:32 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » ... and closed that extra trade @ 13¢. (yesterday, today it would be even less); gain realized = 38¢.
    It all adds up ...
    Readying myself for the earnings. Feb-$120-Call that I have on (together with the leap) should be just fine as of now.
    8 Jan, 11:56 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL @ 108.59
    we are 1 week before earnings
    Short Call Feb-$120 valued at only $0.79; bought it back for a profit of $1.84
    I will sell another (possibly March exp.) before earnings.
    But there was no point in keeping this one.
    The expected move as priced into the earnings is $5.50 (calculate the approx. MMM by multiplying the atm-straddle of weekly options expiring Friday after earnings x0.85: wk5-$109-Straddle =
    $3.50+$3 = $6.50
    x 0.85 = $5.52
    Depending on where we are on Monday, I will likely go for a $10 gap.

     

    Statistics Totals are now:
    realized P&L
    Performance Covered Call $0.64
    Extra trades: $2.61

     

    unrealized P&L
    Performance Covered Call
    AAPL +1 C-105-Jan-2016: +$6.44 (short call leg currently missing)

     

    Total P&L:
    realized: $3.25
    unrealized $6.44 ---> overall P&L = $9.69

     

    20 Jan, 03:34 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL @ $109.50
    sold one additional PUT Feb-$100 @ $1.28
    run-up to earnings.
    This is clearly an increase of delta (and downside risk).
    But with the rich premium and the distance from current price I find it interesting. Should this go wrong (bad earnings), I will have to carry it forward / roll. Another possibility is of course to let assignment happen.

     

    Before earnings, I will also sell on the upside. Stay tuned (the large crowd reading this :) )
    21 Jan, 03:26 PM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    It's worth writing out regardless of who reads it. And if someone happens along and gets an education, well all the better.
    21 Jan, 09:04 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » Yes, thank you. I know that you stop by once in a while - maybe more people do, who never comment - and therefore it is my pleasure.
    I will keep writing this for as long as my AAPL trades are on.

     

    And with this - here is my latest addition
    AAPL @ 111.15

     

    After 2 days of strength in Apple, I thought it is a great time to sell against my leap call again. It turns out that buying back the Feb-$120 (see 2 days ago) was a great call (of course, you know that only in hindsight), as it has appreciated since. With earnings approaching, I intended to collect more of that relatively rich premium.
    It would have been fun to sell that very same call again, at a higher price. But I decided against it.

     

    Once again, an attempt to have my cake and eat it too! Rich premium and room for an up move of the AAPL price post-earnings at the same time. This only works by going a little further out in time.

     

    Therefore, I sold a Mar-$125 call @ $1.02
    This is therefore the new short leg of my performance covered call.

     

    My positions are currently

     

    -1 Put Feb-$100 (extra additional positive delta)
    -1 Call Mar-$125 (short leg performance covered call)
    +1 Call Jan2016-$105 (long leg performance covered call)
    22 Jan, 11:15 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » ... and since there was quite some market action due to Mr. Draghi's "bazooka" (crashed the Euro, and crashed UP the stock market), I might as well include P&L again; with AAPL having moved up by $1.25 since I made that last trade. AAPL @ 112.40

     

    Realized P&L
    $3.25
    Unrealized P&L:
    Short Put 46¢
    Short Call -17¢
    Long (Leap) Call $8.04
    Total P&L unrealized = $8.33
    overall P&L = $11.58

     

    I just checked: It all started on July-9 with AAPL at around $95
    The stock has gained $17.40 -which is of course more, but for the most part the combined risk in these trades of mine has been significantly less (we can debate the short put which will be on for a total of no more than 3 weeks - and likely only one - within a 7 month period). Hindsight in trading is of course 20-20 and therefore this has been a great performance.

     

    The AAPL chart actually looks bullish, but I am not going to get greedy and increase the risk too much. I expect the short put to be closed right after earnings - or, in the case of real bad earnings a couple weeks later.
    I am bullish (see below) but this trade setup of mine remains moderately bullish (not aggressively so). The task is, to get as great a performance out of a *limited risk* strategy as possible. This will cap my upside. Plus, every bull market will end someday (AAPL traders remember 2012/3).

     

    --- And finally another jab at central bankers: I actually live in the Euro zone currency space. With them destroying our currency like they do (although inflation has not set in just yet), the term "trading paper currency" gets a new meaning for me :) - no, we can still buy things with it as before (except import from the US would be more expensive)
    Never mind. Be bullish equity if equities are bullish and then you make some money. It has been great days for me lately. 
    22 Jan, 05:14 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » Before the earnings with AAPL@109.14 I had the following P&L:
    Realized:
    $3.25
    Unrealized:
    Short Put -23¢
    Short Call -4¢
    Long Call $6.19
    Total unrealized = $5.92
    overall P&L = $9.17
    This is much less than last time, because of very weak market and increased IV. The stock seems to move higher past earnings initially, so if that holds, the whole situation will be much improved tomorrow.

     

    There will be a vol crush, depleting time value in both the shorts quite a bit, and if the stock goes higher, I will of course benefit from it, too

     

    I actually have put on ratio trade baskets today
    for a very small credit of 5¢ each:
    All DTE=3: Buy 1x$101 Put; sell 2x$97 Put
    This was just in case that AAPL had shocked the market (and me). It could have been a nice "air bag" then. But no harm, no foul.
    As it is now, they'll expire worthless this Friday for a negligible gain.
    27 Jan, 04:43 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » After earnings: gap up, we do not even know whether it will hold. Nevertheless, while it is still fun :) calculate the changed P&L.
    Newest addition ratio spread is a negligible quantity as expected. It ties up margin till Friday, but it believe I will not need it so I'll let them expire worthless.

     

    Otherwise P&L (AAPL@116.19)
    Realized:
    $3.25
    Unrealized:
    Short Put $1.07¢
    Short Call -25¢
    Long Call $9.99
    Total unrealized = $10.81
    overall P&L = $14.06

     

    That means, on a gap of $7 we gained almost $5, for a position performance (equivalent to delta) of 71%. Not bad for a performance covered call strategy. This is just a snapshot as AAPL keeps moving, maybe unsurprisingly so.

     

    Just for the fun of doing the numbers, I might post again; later in the day. Also, I am going to buy back the short put $100 at 19¢
    28 Jan, 09:46 AM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    I accumulated Jan 30 $100 calls late last week and on Monday. Yesterday I was really preparing myself for a total wipe-out and was reminding myself why I don't play earnings anymore (or hadn't for a while until this last one). It seemed so clear to me last week that they were going to crush it, but yesterday it looked like analysts had gotten so bullish there was a real chance for a sell-off after earnings. And I do think the stage was set for one if not for the blistering report they released.

     

    So all came out dandy in the end. But I still think I need to stick to longer term strategies. My 2017 LEAPS are looking sensible...
    28 Jan, 10:16 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » Earnings are rolling dices, no matter which company. Congrats, it worked out for you. I am actually determined to never bet the farm on any one thing, ever, and therefore trade small size - because regular income by trading is important.
    And I agree, longer term plays may be better, especially this year. 2015's market is much more volatile, and short term plays are harder.

     

    In any case, for completion, I bought back $100 puts @ 19¢ for a gain of $107. Therefore, total realized gain is $4.32. With the market having dropped, it is less fun to update the rest :) - of course I wished to do that @AAPL=$118+ - so saving this for next time.
    28 Jan, 04:06 PM Reply Like
  • TechEnthusiast
    , contributor
    Comments (798) | Send Message
     
    Yes, I have learned my lesson in the past about being too heavily into one idea or strategy. I was not "all-in" by any means on this earnings call. But even the modest amount I was in started to look like it could easily turn against me. (When I said total wipe out I meant of that play, not of my portfolio or anything.)

     

    The past two Decembers had AAPL dropping substantially even after a beat, so I was not terribly confident when I saw how soft the market was on Tuesday. It was nice to book some gains, but it was not the farm by any stretch.

     

    Your strategy is complicated for someone of my experience. It seems well thought out and certainly seems to be working for you. But I can not follow every idea as completely as I would like. I get most of it, but some of your short hand loses me. That's not your problem it is mine, so don't take it as a criticism. I am merely stating why I don't chime in more. I enjoy following your narrative though, and am learning just by reading about your trades.
    28 Jan, 07:21 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » All right, I am glad u like it and I will keep going. It is, after all, also a bit of a trading journal. And that is something that is recommended by many pros. (I do write a brief one - not this epic length per trade - every day on all my trades just for myself, not just AAPL).

     

    Trading wise, what I am trying to do is limiting the risk to the downside as much as possible, while keeping as much upside potential as possible and at the same time not suffering from options premium time decay. A good compromise in terms of wanting to keep the cake and eat it, too. AAPL is a stock that has strong trends in BOTH directions as we know. Matter of fact, I got burned, too in 2012/3 because I would not believe that the stock went down THAT much. By way of my trading I am trying to make sure it does not happen to me again (the getting burned), even if I happen to grasp the beginning of an earnest downturn rather late, again.

     

    Of course, options offer so much, there is something in them for everybody who makes a serious effort. I am certainly not saying that anybody should trade the way I do.

     

    Consider all I say here as talking loudly to myself, and others can listen in :)
    Nobody needs to contribute to this - but they are welcome - and I will answer questions (and there aren't stupid ones in my view) or get into an exchange of ideas, if somebody does contribute. Otherwise I will keep talking to myself and hopefully making good AAPL trades.
    31 Jan, 06:10 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » sold more puts (March $110 @$1.20) this morning to boost bullish performance.
    AAPL was @ $119.8
    It looks like some AAPL strength is on; falling below the strike price would worsen the picture.

     

    This generally gets me more "delta long".
    4 Feb, 02:10 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL@120.87
    It looks like AAPL is taking to new highs.
    Rolling short call March-$125 to April $128.57 for even-money
    (7c credit).
    Realized loss $1.14 for this roll.
    Total realized gain of all trades $3.18

     

    My general rule, as described earlier, is rolling for a realized gain or for a credit (or even money).
    This new contract allows a bit more upside while giving essential the same partial downside protection. The trade in is less time decay.

     

    I have a few short puts on since last week, plus one debit bull spread. Up and until a target of $130 max I intend to be this bullish. Next earnings in April (after monthly expiration) will be consideren in time.
    Today of course is nice for AAPLists!
    10 Feb, 10:27 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » ... and here is more: AAPL@121.68
    Closed my debit spread. It does not quite work as nicely as I want it to.
    Only modest gain, but more downside risk in case of pullback (and not much time left). Actually I just realize that the post when I opened it was never put online. In any case, put debit spread 119/121 with DTE17 was closed at a small gain of 24¢, thereby my total realized gain now at $3.42

     

    Replacement: Calendar Spread $130s. March/May; bought @ $2.35
    Why: A bit of bullishness at low IV, with the intent to roll the short call.
    The long call is after the next earnings, so should keep some of its juice.

     

    ----

     

    My short puts of course do well and the rest of my positions as a whole.

     

    ---

     

    I am delta long AAPL - and for those people it's party time! Of course, nobody knows how long it will last, but I am planning for $130ish - all the while trying to protect myself against any sharp pullback.

     

    Therefore, I do not gain as a pure long stock holder does, but am better protected against any downside.

     

    ----

     

    Positions now on are:
    Short Put March $1.10 sold @ $1.20 on Feb-04, P&L u/r = 58¢
    Short Put April $1.15 sold @ $3.35 also on Feb-04; P&L u/r = 93¢
    (this would also have been in the post that was not published by mistake)

     

    Calendar Spread (just put on) consisting of
    - short call $130 March
    - long call $ 130 May

     

    Performance covered call consisting of:
    - short call $128.57 April P&L u/r = -9¢
    - long call $105 Jan-2016 P&L u/r = $13.99

     

    ----

     

    total P&L is therefore
    $3.42 realized
    $15.41 unrealized
    10 Feb, 01:24 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » ... and sometimes it is 3 in a day when there is a party!
    (enjoy while it lasts !)
    SA does not let me edit the last entry - so 3rd entry today

     

    AAPL @121.99
    One position closed due to continued AAPL strength
    March $120 bought back @59¢ for a gain of 60¢
    Reason: I often like to close premium trades @50% max gain. Reason here: It was a quick affair (position open for only 1 week), and the remaining time of many more weeks would've made the trade far less effective w.r.t. time decay.

     

    So total realized P&L now at $4.02
    10 Feb, 03:07 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL@$124.45

     

    With AAPL moving real fast, I am moving, too.
    Bought back short put APR $115 @$1.78
    for a realized gain of $1.55; total realized gain = $5.57

     

    Reason for closing this trade: it participated in the up-rip and has now given up significant portion of its value. Even though less than 50%, this is still worth taking. Held it for just 1 week and it expires 9 weeks from now. So it was the right thing to do.

     

    WEEKLY or LONGER TERM
    This is actually a prime example why I like 6-10 week options best (in many cases). The intent is NOT to hold until close to expiration. They have much juice in them, and if the stock does move the right way (as in this case) you make a handsome profit. Much better than with short weeklies.

     

    With AAPL, the bull-fest goes on it seems.
    With my 2 short put strikes liquidated, I am less delta long now.
    Should AAPL consolidate now, I might enter again.

     

    Calendar Spread and Performance Covered Call (both of which also gained) remain as they are.
    11 Feb, 03:10 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL @ 126.66
    Truly amazing - I am posting everyday, because AAPL is real active.
    (Of course, it is the company and its stock's performance that is truly amazing).

     

    Before I introduce my newest trade, let me state this: One Great Company is stunning the investment world, but at some point - when expectations are through the roof again, there will be some reversal.

     

    AAPL is a very trend-heavy stock, and we will see a hefty decline at some point. My task will be: Protecting my AAPL investment, and adapt to it. Apple has always been a GREAT company - that did NOT stop the market to crush its stock - amid a bull market, mind you! - by 40%. I stand ready to make sure to be not run over by it, when it happens, again.

     

    But for now, the party continues ....

     

    And with that:

     

    New Trade opened.
    I assume that the current uplift of stock price behaves similar to the last ones. If one looks at a chart, this brings us to a range of $130-132.
    I am of the opinion, that at that point AAPL will take a break. The stock seems to want to move in "waves": Periods of sidewise action followed by (currently very bullish) outbursts.

     

    To take advantage of a target range (and not unlimited upside in a very short time), I opened a ratio spread @ $1.08 credit

     

    Buy 1 call March wk1 $129
    Sell 3 calls March wk1 $132

     

    Why these ones?
    The weeklies are a ways to go here, because they trade in $1 increments (which I need here) and this is a short time trade.
    These ratio spreads are one of the few occasions where I like shorter term options. Otherwise, I stated in my last post, why I like longer term options better. But then again, it had to be 22DTE options and not shorter term, because they have enough juice in them.

     

    Max gain at AAPL=$132 (if I kept it until expiration which I very likely will not do) would be $4.08.
    I am aiming to keep the premium and, possibly collect a little bit more, should AAPL settle in the target region.

     

    No risk to the downside with this trade - I'd make money.
    No risk if AAPL treads sidewise - I'd make money.

     

    Break even @ expiration would be at AAPL=$134.04, as the intrinsic value would be $1.08 to buy back (shorts between them outweigh the long) .

     

    With this trade I am telling the market:
    Beat me to it! Bring AAPL even higher than $134 within 3 weeks (even though it has already ripped up) - or else I make money!
    12 Feb, 12:54 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL@132.06
    Today, I've been active - with AAPL continuing to rip the way it does
    (congrats to long-only stock holders - you are having the most fun right now - but that is not my way of trading and investing as I am always concerned about downside risk).

     

    So - was working 3 trades
    (1) transitioned my $130 calendar spread into a diagonal spread
    sell Mar C-130, buy April C-$132.86.
    Spread was up money, roll for 25¢ credit, realized P&L -$2.44
    (2) rolled my ratio spread 2 strikes up and one week forward for even money; it is now +1 C-$131 -3 C-$134 Mar-13 (was 129/132)
    (3) opened an additional ratio spread DTE4: +1 C-$132 -3 C-$135
    @22¢; P&L = -55¢

     

    Rationale for the respective trades:
    (1) and (2) help the positions to cope better with the higher prices; delta somewhat more positive, and premium decay optimized.

     

    (3) Up and until AAPL=$1.35 this hedges the other ratio spread; if the stock does not go beyond $136.40 by Friday - but does go up further - it will make money. Lower break even point $132.22. If the stock closes below that on Friday, I'll lose some or all of those 22¢; but that should be made up by other trades - especially the other ratio spread (by time decay).
    23 Feb, 01:18 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL@131.75 (earlier today)
    With the stock generally THAT strong (yesterday and today we entered way into the $133's), I decided the "liquidation break" where AAPL lost $1.50 temporarily was a perfect time to move my ratio spread (the one with more DTE) into a safer place: up and out, again.

     

    If you do it, while under less "pressure" you get better conditions for the roll of the options. Hence the price drop today was a great opportunity.

     

    There are no $1 strike increments in the March monthlies (yet), however, the March-Week4's are already available, liquid, and with $1's

     

    Bought back Wk2 ratio spread +1 C131 -3 C134 @ $2.38
    Sold Wk4 ratio spread +1 C134 -3 C137 @ 2.50
    Realized loss for now -86¢; net credit 12¢

     

    Of course, the idea with the current situation is that while AAPL is racing higher, every stock needs to rest some time, in which case I want my ratio spread to expire in the tent or otm.

     

    The very short term ratio spread is still on. You can watch the time decay, comparing its value at the same AAPL price today and yesterday! So that is fun. As long as AAPL remains below $136.40; preferably expiring @$135 this coming Friday.
    24 Feb, 02:54 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » On March-5, I actually rolled the ratio spread Mar-Wk4 further out (at the time, AAPL hat its first dip), to collect more premium.
    I bought back the 134/137 @70¢ for a profit of $1.73
    sold Apr-Monthly +1*$134,29 -3*137,14 @$1.98
    so all for a total credit of $1.28.
    ----
    today, I bought this back @76¢ . Of course, AAPL is "suffering" a little these days (@$124.21). Booked another $1.13 realized gain (note: these are net gains/losses after commission, as shown in my account). Of course, my bullish long-term position also suffered a little, together with the stock, albeit less.

     

    I sold a new diagonal today: Mar-wk4 127/129@76¢

     

    Last total P&L posted was $5.57
    On Feb-23: -$2.99
    On Feb-24: -$0.86
    On Mar-05: $1.73
    today: $1.13
    Total P&L realized: $4.58
    unrealized P&L:
    Performance Cov. C: (-1*Apr-$128.57 + 1*Jan2016-$105) $15.40
    diagonalized calendar (-1*Apr-$132.86 + 1*May-$130) $2.97
    Total P&L unrealized = $18.37
    Total = $22.95
    AAPL stock has gained $29.21 since first trade described here.
    Therefore my "delta" (relative performance) = 78.5%
    That is actually an awesome number. In all fairness, I briefly had more risk to the downside than 100x AAPL stock (when I sold some naked Puts, for a period of 2 weeks).
    But generally with a strategy that is safe against any drop as in 2012, I am very happy.

     

    The good relative performance can be explained by the sidewise to down action, during which call premium collected of course benefit handsomely. Should AAPL resume its strength, of course this relative performance will drop back (still making gains of course, albeit smaller than the stock holder)
    12 Mar, 01:33 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » EDIT (not possible anymore in the actual entry above):
    Sold ratio spread @$1.25 (not $76¢)
    12 Mar, 03:27 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » ratio spread's going to expire worthless today. I will not closeout position, it is far enough otm. So, booking $1.25 realized gain.
    Next ratio spread on the upside will follow. I'd like a bit more strength to get better premium. AAPL has been weak the past few days.
    27 Mar, 02:10 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » next ratio spread DTE11: +1*C-126 -3*C-128@$0.97 credit
    AAPL @$125.01
    30 Mar, 11:55 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » closed calendar spread's short position. Long is naked now; is half-way paid for, and will be held thru earnings. Realized gain on this closing trade: $3.09; the roll earlier resulted in a $2.44 loss, so total for this one is now $0.65

     

    Totals:
    Realized gain: $8.92

     

    Unrealized (all positions combined as read from acct window) $16.70

     

    sum = $25.62.
    AAPL @ 125.18.
    My "performance delta" is 25.62/30 = 85%
    Real happy. Of course AAPL trading sidewise lets premium sellers shine. Any sharp movement up might change that ratio. Any movement down lets me suffer less than the stock holder.
    31 Mar, 12:24 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL@126.48
    OK, This is the kind of fun trades you can make at times -
    collect money on opening AND on closing the trade. This occurs most often with ratio spreads (and to some extent with diagonals as well).
    Closed the ratio spread as follows: I bought back at "-12¢"; that is, the position value flipped sign.
    Reason being: At opening, I collected more money for the three shorts than I spent on the one long contract. Whereas now, on closing, the short contracts have given up so much value that combined between them they are worth less than the long contract. Of course, I could've aimed for the biggest prize: Expiration on Friday with AAPL@$128 (tip of the tent of the P&L curve of the ratio spread). The probability of hitting the jackpot is small - therefore, I normally do not aim for it.
    So I believe, this was a good opportunity to closeout this trade.
    realized gain on this one: $1.03 per basket. Of course, I collected only some 97 cents for it on opening. The remainder is Commission

     

    I might open a new one shortly.

     

    I am not planning on holding any ratio spread through earnings. It looks like AAPL earnings will be announced after the APR-week4 expiry. That is what the options prices indicate and some web sites state. However, there is conflicting information on other web sites and it is also contrary to their habit of reporting the week after monthly expiration. So I shall remain cautious there.

     

    The biggest risk to these ratios is a rapid up move of AAPL stock. If that happens, you'll have to react: Alternatives to closing the position out quickly include rolling forward (a good option with ratio spreads, but on a violent up move of the underlying that only goes so far...) and selling on the downside as well, to partially hedge.

     

    Generally, if you plan on doing short term ratio spreads: Do not plan on going on vacation while the position is open.
    7 Apr, 03:55 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL@126.50 (at time of opening the trade described)
    With Apple gaining a little today I opened another ratio spread
    DTE14 +1C129 -3C131 @91¢

     

    it is clear now that AAPL is going to report after wk4 expiration. I am betting that any major break out of its recent price range (presumably to the upside) will occur after the earnings. I have also got a buffer all the way up to $132.45 now - which is where break-even is regarding this trade.

     

    Should AAPL rip above this level, I will liquidate close to expiration (at a loss) and re-open a similar trade after the earnings (intention then: to collect as much premium as was necessary to buy this one back). Of course, I hope that the trade will get to zero before expiration instead (it can, as it is a ratio spread) - and I'd book the premium as profit.

     

    During earnings, I like this weekly ratio spread trading suspended.
    10 Apr, 05:26 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL@127.33
    Rolled the short call that is part of the PCC, and which has been around for some time now one week forward. Reason: Earnings are definitely scheduled for after wk4 expiration, so I can take in some more premium fairly safely before that.
    Sold Apr C-128.57 Bought Apr-wk4-C-130
    net credit 33¢
    realized profit = $1.58
    13 Apr, 12:17 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL@126.13
    Penny by penny upwards. I bought back short call wk4-C-130@46¢
    realized profit = 45¢.
    If a short contract "contracts" (pun intended) by 50% in 2 days, you should take profit. That is my belief.
    Options - especially premium selling - works differently, as you cannot "let your winners run" really. Once the premium is low, the risk outweighs the remaining profit potential.

     

    With earnings coming out soon, I will close out all the ratio stuff before it, and may sell some more of the high premium options. I am generally bullish AAPL, so I will attempt to catch some upside, while protecting the downside somewhat.
    15 Apr, 01:09 PM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL@125.20
    using today's weakness to buy back the ratio spread @6c
    realized gain 75¢

     

    total realized gain $12.73
    unrealized $14.84
    sum = $27.57

     

    last time when I summed up the numbers (Mar-31) I had a total of $25.26, with AAPL price almost the same as today. So the premium decay really worked well on a sideways move of AAPL.
    17 Apr, 10:42 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » Positioning for Earning - AAPL @ 132.88

     

    Sold Jun-C-145 @ 1.66

     

    As it stands now, I've got open
    1 PPC consisting of +Jan2016-C105 -Jun-C-145
    1 vert. Spread consisting of +May-C-130 -May-C-135

     

    This collection of contracts is clearly bullish even though above $145, an outright stock holder would of course fare better; but this positioning protects a little better to the downside.

     

    realized gain $12.73
    unrealized gain as of now $22.40
    sum = $35.13

     

    AAPL-Gain=37.88

     

    Let's wait and see what the earnings bring. "Everybody" expects them to cause an up move. That could be a contra indicator. Though mid- to long term I certainly remain bullish. Should the earnings be less than expected, I believe any drop in stock price will be bought back.

     

    Still - to be less exposed to risk (than long only stock) is what I prefer.I believe I will do more this week - once we know where we stand.
    27 Apr, 10:02 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » AAPL@ $131.0
    Who said something about "contra indicator" yesterday :)

     

    As it is, I had the chance to buy back the short call sold yesterday for an almost 50% max gain. As mentioned on another occasion: As a premium seller, you should take the opportunity to take profits if they occur that fast. With 51 DTE, it takes 50x as much time to earn the rest of the profit.
    That is often not worth it.
    Bought back C-Jun-$145 @85¢; realized 79¢ profit.
    I will sell more premium, but first wait to find out where AAPL will settle a few days after earnings.

     

    It looks that nothing's for sure - especially not the "obvious" fact that AAPL has got to go up. It actually performed a big reverse to the downside after initially being at a historic record.

     

    This move by the market is to wash out short term long AAPL gamblers - especially those who bet too big positions on the earnings and maybe on the chart formation. Always keep your guard and trade small is my motto.

     

    ----

     

    I said yesterday: "I believe any drop in stock price will be bought back".
    We'll see whether and when that happens. I'll be ready.
    28 Apr, 10:58 AM Reply Like
  • olafl
    , contributor
    Comments (121) | Send Message
     
    Author’s reply » looks like we find the price of AAPL has gotten to a lower level than anticipated.
    AAPL@126.20
    If you sell calls now, you may get "whip-sawed".
    But I still do want to collect premium.
    Therefore I decided to get premium via time, while keeping some distance to the U/L. 14$ difference should do. If not, I face a "high-class problem" as I would benefit greatly from AAPL getting to $140.
    Sold July-C-$140 Call against my long call.

     

    Actually, also sold my debit vertical spread (the one that originated as a calendar, went diagonal and then vertical). Booked loss 97¢ for that one. But it had long been paid for (short legs calendar and diagonal).
    30 Apr, 11:40 AM Reply Like
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