Seeking Alpha

Wolf Option Tra...'s  Instablog

Wolf Option Trading
Send Message
I started trading back in the mid 90's while in junior high school and high school. My focus in college was on investment analysis. I have traded since the mid 90's with quite a few failures until I discovered how option trading could help me. I learned the lessons the hard way about options in... More
  • Using Crayons to guide you 0 comments
    Sep 22, 2010 9:50 PM | about stocks: INTC, GE
    With the S&P near 1,130 aka SPY 113 the market is definitely not in a place to be just buying into it.

    Caught the bottom?  A myriad of strategies exist, this isnt really focused in your direction.

    Want to really get a grasp of driving your portfolio to less volatility and hopefully better profitability. 

    Breakout your crayons people. 
    INTC: 200 day MA, $20.54, Top of Range $24 bottom range of 16.50 @ 19.01
    GE: 200 day MA $16.16, Top of Range $19 bottom range of 13 @ 16.50

    Two names, Two cases, dividend yields all above 2%, all in the middle of their ranges based on the past year or so.  Use crayons to establish  the top end of the range and the bottom end of the range. 

    Need to have some bullish market exposure but dont want to be buying at the midpoint of the recent ranges in case the market trades back down then look at the following type of strategies.

    Buy GE at 16.50, buy GE Dec $16-14 put spread for $0.45, sell a $18 call for $0.29 and collect a $0.12 dividend payment.  Your cost average in GE is $16.54.  You have protection from $16-14, have upside until $18.  If GE trades down by December, your cost average would be at $14.54 but thats also your maximum value at risk (MVAR if GE traded below $14).  If GE trades to $18, your called away and book $1.46 in gains or 10.04% (1.46/14.54).  This gets your some upside profitability and decent gains in % terms before year end if the market decides to rally.  However you dont agree to get long GE in terms of MVAR until 12% lower. 

    INTC is a bit easier. Buy INTC @ 19.01, buy $19-16 put spreads for $0.90 and collect at least one $0.16 dividend.  Your effective cost average on INTC would be 19.75.  However you gain the flexibility to sell covered calls in the future to reduce this average or "day trade movements" and have a backstop of protection from $19-16.  The upside is unlimited BUT your MVAR is $16.75 ($19.75-$3) so your not really agreeing to get long INTC until 11.8% lower. 

    Overall this type of a strategy can be implented to lower the volatility of your portfolio as your making crayonesque type of lines and dont have to worry or second guess oneself based on market noise when it appears.

    Are there risks inherent in this?  Yes, but they are lower than the currently offered by the market if it moves down as your not committed to the stock until a much lower price.  Can you trade out of both the GE and INTC situations along the way if market situations change the effective ranges (say we enter into a depression) you can.  You could then also get "short" via the put spreads and collect profits in the market decline (though you would have some losses on the stock side offsetting these profits but should net out if one can take action in a prudent enough manner).

    Be smart out there folks, as nothing is determined and there is no guarantee which direction this market may head.  If your looking to get some more profits out of this market before year end then think about putting on some hedges that also protect you from downside risks that are out there lurking but many appear to be forgetting about.

    Disclosure: Long INTC, short INTC calls, long INTC puts, short INTC puts, net bullish, no positions in GE
    Themes: Collars, GE, INTC Stocks: INTC, GE
Back To Wolf Option Trading's Instablog HomePage »

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

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers


  • TLT 1:2 call ratio on Nov $108-$110 fetching $0.25 net credit, end path short at $112.25 or sub 2.40% yield on 10-yr Treasury, tasty
    Sep 22, 2010
  • TLT trade (see blog), buying all short $109 calls and selling the $110's long. Closing it out for 90ish% of potential gains. See SA blog
    Sep 10, 2010
  • The widow maker or V-F settled at $0.799 representing 20.96% contango for UNG if it stayed the same
    Aug 30, 2010
More »

Latest Comments

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