Comments on: Down, but not out

By: Options Strategery

Options Strategery — Wed, 19 Mar 2008 06:49:10 +0000

Generally, I try to sell volatility. So I usually only sell options that are on the high end of historical implied volatility (nothing to do with historical volatility). However, when you get a once in a decade credit crunch, it’s quite interesting. I learn something new everyday.

I never thought Wachovia would have 90%+ volatility. I know the dividend is at risk but the price action and the options price it as if the company is gonna get dragged under…

I used today to load up on hedges. Did it right before the fed meeting so I am little underwater on them but I’d rather miss upside than get margin called. I don’t want to get mauled like Bear.

By: jgoldstein

jgoldstein — Tue, 18 Mar 2008 23:59:31 +0000

Regarding volatility - its important to for us to realize that volatility is not one way!! Its bi-directional. If we are on the right side of the move, great! If not and we are overextended, we might be subject to a margin call. What I am trying to learn is how to use volatility in my selection process. Two different stocks with same price, strike and expiration can have markedly different premiums due to the volatility factor. It might make a difference if one is a buyer or a seller!!

By: Alex Fotopoulos

Alex Fotopoulos — Tue, 18 Mar 2008 23:25:45 +0000

Exactly, I think that sounds like it’s been the cause of your margin calls as much, if not more than the drops in the underlying’s value. It all adds together to beat you hard if you are running close to margin limits. If you are not close to margin limits the spike in volatility is just there for paper loses or better opportunities to sell new options. I didn’t take advantage of it yesterday due to fear of what might happen today (3/18), but of course in hind site I should have. I was eyeing FWLT and VIP in particular. If this rally looks good by Wednesday aftn I might lower my limits to get in deeper on both of those.

re: FNM - I wrote a new post this afternoon that showed my rush to save myself on FNM after it broke through 25 and really took off. At least it finished $1 off its high of the day.

By: Options Strategery

Options Strategery — Tue, 18 Mar 2008 18:49:41 +0000

I know we had a discussion about volatility and how it affects options positions a while back. I learned something (obvious) today. Spike in volatility eats away at your buying power so you need to make sure you reserve for that to avoid margin calls.

By: Alex Fotopoulos

Alex Fotopoulos — Tue, 18 Mar 2008 14:07:42 +0000

So far you are right on FNM. I entered a limit to sell 2 naked puts OTM this morning and I should’ve sold at market prices since FNM is up $1 since then. I see a trend line it’s hitting at 25 AND the 20 day moving average. If it breaks this range I’ll have to counter my original move with new naked puts. I have a trade alert set to text my phone if it goes above 25.25. I’m also curious how it’ll react to the Fed cut.

By: mule65

mule65 — Mon, 17 Mar 2008 23:29:06 +0000

Hmmm, IMHO, jury still out on those Fannie Mae naked calls. The trend’s your friend but it might not be a cake walk. Good luck.

By: Alex Fotopoulos

Alex Fotopoulos — Mon, 17 Mar 2008 22:10:50 +0000

Nice adjustment on those.

By: Warren

Warren — Mon, 17 Mar 2008 18:39:55 +0000

Hang in their…………….your daily posts on your trades are very helpfull and educational. I have “Married Puts” on POT, MOS, CF, initiated on 2/14/08 with initial risk of around 9.5% (if exercised), two weeks ago I was able to adjust too reduce the risk to .7% (if exercised). Like you mentioned many times, the increase in volatility makes for more opportunities too adjust ones trade……keep your blog posts coming………..”stay hedged”….Warren