Comments on: Keeping investing smart http://mytradersjournal.com/stock-options/2008/02/02/keeping-investing-smart/ Investing in Stocks Through Options Thu, 28 Aug 2008 05:36:03 +0000 http://wordpress.org/?v=2.6 By: Alex Fotopoulos http://mytradersjournal.com/stock-options/2008/02/02/keeping-investing-smart/#comment-1988 Alex Fotopoulos Sun, 03 Feb 2008 13:13:38 +0000 http://mytradersjournal.com/stock-options/2008/02/02/keeping-investing-smart/#comment-1988 Friday was good across the board for me. My biggest gainers were MOT, MRO, NVDA and VIP - mostly those since they were ITM and each $1 made a bigger diff. Yes, you can game it by using my method, but I try to balance that by making sure that each trade has a minimum of a 20% annualized return based on the formulas in my spreadsheets. Depending on the stock and if I'm going way OTM, I might go as low as 18%. I also get weary if my annualized return is greater than 40%. That's typically too much risk for me. It's a "low rent" way to for me to get a quick idea of where I stand when entering a position. It's not perfect, but serves me well most of the time. The other flaw with mine is 1/2 the underlying value becomes a lot more than 1/2 in a quick decline. I 50 strike on a stock that drops to 40 has a 1/2 value of 20, not 25. I don't have a formula for that yet, but try to keep an eye out. MRO just did that to me. Started at 60, worked all the way down to the mid 40s before bouncing, briefly. Friday was good across the board for me. My biggest gainers were MOT, MRO, NVDA and VIP - mostly those since they were ITM and each $1 made a bigger diff.
Yes, you can game it by using my method, but I try to balance that by making sure that each trade has a minimum of a 20% annualized return based on the formulas in my spreadsheets. Depending on the stock and if I’m going way OTM, I might go as low as 18%. I also get weary if my annualized return is greater than 40%. That’s typically too much risk for me. It’s a “low rent” way to for me to get a quick idea of where I stand when entering a position. It’s not perfect, but serves me well most of the time.
The other flaw with mine is 1/2 the underlying value becomes a lot more than 1/2 in a quick decline. I 50 strike on a stock that drops to 40 has a 1/2 value of 20, not 25. I don’t have a formula for that yet, but try to keep an eye out. MRO just did that to me. Started at 60, worked all the way down to the mid 40s before bouncing, briefly.

]]> By: Options Strategery http://mytradersjournal.com/stock-options/2008/02/02/keeping-investing-smart/#comment-1985 Options Strategery Sat, 02 Feb 2008 23:30:46 +0000 http://mytradersjournal.com/stock-options/2008/02/02/keeping-investing-smart/#comment-1985 Anything particular make a big contribution on Friday? It was pretty spread out for me and I pretty much matched in indexes. Did you beat the $DJI due to your leverage? I used to use a strategy like yours (of maximum investment covering half the underlying value) but then realized that that alone is not enough to be safe. I also try to calculate my delta for each underlying and then use the beta of that underlying to get an equivalent $SPX equivalent delta. So I can say, my $X portfolio has the same 'risk' as a $Y portfolio of SPY. It's not anywhere near perfect but it helps me limit risk even more. I try to follow both rules. The problem with the first rule is that it can be gamed. Suppose a stock is at 60 and I sell a 30 put. That should be less risky than selling a 30 put on the same stock at 30. Another way to think about it is that with your rule, you can simply buy really out of the money puts for $.05 and then take on more positions. That may be ok on a bankruptcy point of view (i.e. your rule prevents margin calls) but it doesn't prevent over leverage. My biggest problems come when I pick up too much delta. Anything particular make a big contribution on Friday? It was pretty spread out for me and I pretty much matched in indexes. Did you beat the $DJI due to your leverage?

I used to use a strategy like yours (of maximum investment covering half the underlying value) but then realized that that alone is not enough to be safe. I also try to calculate my delta for each underlying and then use the beta of that underlying to get an equivalent $SPX equivalent delta. So I can say, my $X portfolio has the same ‘risk’ as a $Y portfolio of SPY. It’s not anywhere near perfect but it helps me limit risk even more. I try to follow both rules.

The problem with the first rule is that it can be gamed. Suppose a stock is at 60 and I sell a 30 put. That should be less risky than selling a 30 put on the same stock at 30. Another way to think about it is that with your rule, you can simply buy really out of the money puts for $.05 and then take on more positions. That may be ok on a bankruptcy point of view (i.e. your rule prevents margin calls) but it doesn’t prevent over leverage. My biggest problems come when I pick up too much delta.

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