I am an opportunistic trader that utilizes a variety of strategies to participate in a stock price move. Sometimes I just use stock, long or short, sometimes I use just Options, and sometimes I use a combination of the two. Sometimes the opportunity requires patience to set up – even though I can see it coiling on a chart – as the setup has to be anticipated.
In reviewing several charts this morning, I noticed several stocks that had price banging its head (from below) on a down-trending (DT) line above. I like this setup because at some point it will break above this DT line and I want to play that move.
One such stock is $IO:
One thing to note here is this: once price does break above the DT line, there will be some formidable resistance next at the 50 & 200 SMA (simple moving average) at 6.50 & 6.65. Volume is trying to increase here so be ready for the imminent break.
Anticipate, but be patient.
This week was extra busy as it was May Options expiration. This meant some extra time spent planning for adjustments/exits on existing positions that had May options set to expire. There were no newly added stock or option positions this week that made it to the weekend. As of Friday at noon, the short May 50 Call in $DDD was the only position that had options set to expire (and it did). All other positions have options for next week or further out.
Here is the Summary (I have added a G/L column which reflects price chance only from entry to current or booked gains – does not include Option piece gains/losses):
I came in to the week with a full team. 1 position achieved the Complete status: $BDX. I have exited this position to book the gains. I am leaving in $ONXX for another attempt (good gain there so far on several attempts). $ACT was called away due to the Call side of the Collar being ITM (in the money) – those gains are now booked (was already in the Complete status column for the Fab 5). $BA looks great and should have a really good shot at getting the $100 Roll in the next week or so. I have two slots to fill going into next week.
Here is the Summary:
Fab 5 Performance Info
- 31 with Complete status since inception (October 2011)
- Average gain of $11.93
- 40 with Not Complete status
- Average gain of $2.33
One of the stocks that I have stalking this week is $TXRH and it looks ready for a new breakout. What I have been monitoring is the elevated RSI (wanted to see it work off some) and I also wanted to see how the MACD would resolve (has become embedded here, does it bounce or cross down).
A look at the Daily chart:
There are several ways to start a trade here. One of the easier ways to play is to just go long stock and protect with a Put. Here is how it works:
- You go long the stock
- You buy a near-the-money Put to protect against any downside move
- One reason this may be tough here is that you only have the 22.50 & 25 strikes to work with.
Other trade ideas:
- A June 22.5/25 Risk Reversal
- Long the June 25 Call ($.30)
- Short the June 22.5 Put ($.25)
- This trade can be done for a $.05 debit at the moment
- Note: the June 20 Call has very large Open Interest so this makes me more bullish
- Buy the June 25 Call for a $.30 debit
Each month I have a week where my Option trading activity takes on a life of its own as I review all my positions that have May options as part of the trade. This week those options are expiring so I have been going through my process of planning and executing any adjustments/exits that I want to make.
As I have added managed accounts for clients in recent months, this process becomes even more important to ensure that I exit trades that may be tired – or I look for good spots to adjust existing positions.
I have made a lot of adjustments this week and here is what I have left to address:
- $DDD I am long stock and short the May 50 Call (earlier Blog post with more detail on this one). This is currently OTM so it has a chance to expire worthless, let me keep premium collected
- $OSTK I am short stock and long the May 25 Call so I need to get value from it this week or move to a June strike
- $TSLA I exited my short stock position earlier (hit a stop) so I am now left with a May 80/90 Risk Reversal. Current bid ask on this is: 1.40/1.40 lol
- All other positions have been moved to May 24 weekly or June (or beyond)
There are no current earnings trades with May options
$ACT I am long stock with a May 115/105 Collar. Price is above 115 level so I need to decide if I will let it get called away or move to a June collar. Given it has already achieved the Complete status I will likely let this position get closed for me
- $ADBE I am long the June/May 40 Put Calendar. The May piece is to protect the short June piece so will leave until expiration
- $APO I am long stock with a short May 27.5 Call (Cov Call). I expect these to go poof, keep premium collected
- $ARUN I am short the May 17 Put. I am watching closely, but expect these to go poof, keep premium collected
- $BAC I am long stock and short the May 13 Call so I need to either let it get called or move to next week (or further out)
- $CBS I am short the May 49 Put. I expect these to go poof, keep premium collected
- $IMPV I am short the May 45 Call (part of Call Calendar). I expect these to go poof, keep premium collected
- $MPEL I am short the May 22 Put. I expect these to go poof, keep premium collected
- $SODA I am long stock & short the May 60/57.5 Strangle. Given the short Call is ITM I will need to address this by Friday or the stock will get called away
- $SYMC I am long stock and short the May 25 Call. I expect these to go poof, keep premium collected
- $SYNA I am short the May 37 Put (part of R/R CS). I expect these to go poof, keep premium collected
Had to do that.
Since you are here anyway, I really want to layout the Covered Call trade with $DDD as the example. I am currently long and have been selling upside Calls against the stock as it moved up. When this is done at the same time, it is referred to as a buy-write. When you own stock and then sell Calls against later, it is referred to as a Covered Call.
Yesterday I made the most recent adjustment to my trade by buying back the short May 47 Calls (had been sold for .85) and then selling the May 50 Calls. These were going at 2.27 at the time so the premium was significant for Calls that are expiring Friday. This adjustment was at a debit of $2.22 when filled.
I had made the decision at the time that the key $50 price level would be a good battle area for May expiration so that is why I chose that strike. Currently price on the stock is hovering around the 48.75 area and the May 50 Calls are at a .80/.85 bid/ask. The significant move down in the value of the Calls has helped to offset the pullback in price – exactly what the premium sale is supposed to do.
Just one of several ways to protect a long position.
Note: The “net” on the Option pieces for this trade up to this point is now a debit of $1.37 and my stock entry was at 40.18 (I noted my entry here on my Blog this past weekend).
I have had a long stock position in $JCP since 4/11/2013 and have made a few adjustments along the way on the Option pieces. The most recent adjustment was a strategy that I have added to the Playbook this year involving being long stock and selling a Strangle. Here is the breakdown:
- Be long the underlying stock
- Sell an upside Call against the stock
- Sell a downside Put where you are comfortable owning more stock (take into account the sold strike and all the premium collected from selling the strangle)
A few points to make about this strategy – and why I would do it when I did:
- The stock is expected to be volatile so the Option IV is elevated so I would like to take advantage of selling some premium
- I don’t mind owning more below but do want a hefty cushion
- Being capped above is ok too as the premium collected gives a very wide range to trade
Here is the specific adjustment that I made, noted in this post $JCP" href="http://deraldmuniz.com/2013/05/04/position-update-05032013">here:
I am long stock and sold the June 17 Call & 16 Put (the Strangle). I collected 2.70 in premium but some of this was used to close a short Call that already existed (covered call at the time). The net premium collected was $2.15 so this gave me a range of 13.85 to 19.15 until June expiration.
Here is the current price info on all 3 pieces to this trade:
- The stock is at 18.48
- The June 17 Call has a bid/ask of 2.27/2.30
- The June 16 Put has a bid/ask of .54/.55
Things I am evaluating:
- If left alone, the stock could be called away at any time given the short 17 Call strike is already ITM (in the money)
- I am considering some cheap Puts to cover the short premium at the June 16 strike as well. The May 16 Put is currently $.12 so cheap insurance for the week. The June 15 Put is $.34 so more expensive to protect but creates a short Put Spread which would cap the downside risk
This was an active week for the Fab 5 as I managed to get every slot filled up – only to have one slot free up when I exited the final Option piece in $ONXX. However, I elected to keep $ONXX in the mix for a re-entry – and did so after earnings. The $BDX position looks very promising to be the next to do the $100 Roll (within $.40 of it at the close on Friday).
The big mover was $ACT though. It has already done the $100 Roll but I had left in due to some continued rumors regarding some M&A potential. Friday I had to do several Option adjustments to create a Collar and move up the Put strike as the rumors became actual news.
Here is the Summary:
I have added a few to the candidate list:
A rarity for me, I have six newly added positions this week that survived into the weekend:
As for existing positions, the $SPRD position pulled back a bit this week but recovered some of that on Friday (although the short Calls do their job to offset some of the pullback in price on the stock). $DVA was a nice post-earnings performer and is currently above the $130 strike area (capped by a short Call in June so that may need to be adjusted). I have sold a June 72 straddle in $EWW as it pulled back on Friday.
Here is a Summary:
I like to look at a lot of different time-frames when doing chart review and today the 60 minute chart in $TSLA caught my eye:
A big up move post-earnings and now a much needed rest as volume goes into cruise control mode.
No matter what your bias or position may be, consider these few points:
- If you are long, protect these gains with a Stop or buy June 75 Puts
- If you are short, I would imagine you appreciate the rest here. You can buy June 80 Calls to protect against any more up movement
- If you have no position, what is the higher probability move here over the next few weeks?
- How much of the short interest has covered?