This was a good week in general for my account. Everything I owned improved, except for my BA put, but I’m not worried about it long-term. Yahoo jumped high enough to make my November options extremely cheap, so I decided to close them today. While YHOO was trading at $43.01, I bought to close three YHOO November $37 naked puts for $0.14 each and paid $43.70 including $1.70 in commission. I ended with a realized gain of $209.82 in three and a half weeks, which pushed my annualized gain to almost 30%.
This is the type of trade I wouldn’t have made in previous years, but for roughly the equivalent of $0.10 a week in time value, it was an easy decision with my current mindset of taking profits when I can. I think I can find another trade that’ll earn more than $43.70 with $11,100 held to back it over the next four weeks.
As I was writing this, I looked back at my other positions and saw BABA fit the same criteria after they rallied big too. My put didn’t have much upside left for the amount of cash I was keeping on hand to handle an assignment. While BABA was trading at $96.39, I bought to close one BABA November $80 naked put for $0.35 and paid $35.24 including $0.24 in commission. This trade ended with a realized gain of $139.97 in fewer than four weeks, which shifted my annualized gain to nearly 25%.
Both of these positions had approximately 0.40% upside left in them, which is close to 5% annualized. Even though they would have to fall more than 14% (YHOO) and 17% (BABA), the risk/reward didn’t favor keeping the positions open. I opened up a lot of cash by closing these positions and have over $33,000 available to trade without risking margin. The S&P 500 has traded up to its 50 and 100-day moving averages and might be hitting short-term resistance. I decided to wait out today to see how it behaves and might add more exposure early next week.
TLT Weekly Put Spread Series – Update 5
Before I opened my current TLT spread, I had a realized loss of $243.88 on the series. I bought the current $120/122 spread for $344.88 (including commission). That raised my total output to $578.76. While TLT was trading at $119.78 (with two hours to go in the trading day), I sold to close my three TLT October 24 $120/122 put spreads for $1.95 each and received $580.25 after paying $4.75 in commission. I sold the $122 strike puts for $2.21 and bought the $120 strikes for $0.26. This closing trade brings my total realized gain to $1.49 for the series of trades that I started on October 1. That’s not a typo. I made a whopping one dollar and forty-nine cents for a few weeks’ work.
I didn’t try to time the exact bottom or wait until the final couple of minutes of the day to make this trade. I actually entered my limit order yesterday to make sure I didn’t miss a good dip in TLT that could get me out with all but the last $0.05 per spread. I could’ve risked waiting until the end of the day, but this was a lot less stressful. Even though I didn’t do much better than break even, I felt like I learned a good bit with this series of trades. If nothing else, I learned (again) that trading weeklies (options that expire every Friday) can be very time consuming and commissions can quickly eat into profits, even with Interactive Broker’s low fees.
I didn’t open a new TLT spread position today for next week’s expiration. The 20-day moving average broke support intra-day yesterday, but held today. I’m curious if this was just a one-week slide for TLT and if it’ll resume its run next week. I don’t think that will be the case, but next Friday is Halloween and my son has the day off from school, so I don’t want to be stuck behind my desk worrying about a few dollars when I could give him some more time. I liked working TLT and plan to come back to it as market conditions and my time allow it.
Hello Alex,
I’m glad you saw improvements in your account, sure enough we saw some market volatility in the last couple weeks.
I’m a bit disappointed in YHOO run-up lately. I was hoping for a good entry point to sell some Nov puts…I will have to wait- maybe market will give me an opportunity, as I’m hoping YHOO will dip into $40-$41, then I would sell some puts.
Here is my (unrelated) question: do you ever play into earnings announcements? Or is it too risky strategy? Take a look in TWTR options: Nov call and puts have about 70% IV. Obviously, you could say that huge vol is for a reason, as post-earnings stock price move could be HUGE. Anyway, I’m generally bullish on Twitter and as a safe play I sold NOV 44 puts on Friday for $1.46 and obviously, today I could have done that for 30 cents more. We’ll see what happens in a month.
I’m keeping an eye on YHOO still too. I just sold a BABA (still related to YHOO) put that I’ll write-up this afternoon.
I don’t try to time earnings announcements usually because they are too hard to predict. A company can beat, but give a poor forecast. Sometimes I’ll try to work a trade far OTM if it seems premiums are higher than they should be, but not often. I prefer to look at where I think the company will be on a longer-term basis and if they can do more than perform for any given earnings announcement. A lot of traders are good at working earnings. I found I’m not.
TWTR scares me. I don’t follow it closely enough to understand how it is going to find earnings growth. I’m sure they can monetize better still and will, but I like to see earnings before I get in. I’m not 100% strict on that, but try to consider it. BABA (today’s trade for me) has a P/E of 45 and that’s pushing it for my limits.
What do you think about FB on the drop today?
FB post earnings confused me even more than TWTR. I guess it was priced for perfection as it was trading at all time high right before earnings. TWTR, on the other hand was nowhere near its all-time high, so in my opinion a lot of negativity already priced-in. Granted, I sold my $44 Nov puts way too early and I’m holding to my paper losses,- no intention to give-up just yet.
Here is my thesis: Selling implied vol. before earnings and buying it back after earnings on most liquid NASDAQ listed names. Basically it would be profitable if historically implied vol B4 earnings is higher than realized (after earnings).
Do you have any take on that? I wonder if anybody did a research to compare the 2: implied vs realized vol during earnings.
I think traders see a better future with FB earnings growth than with TWTR and that makes a big difference for any quarterly misses.
I’ve read something comparing vol pre and post-earnings announcements. (It’s been a while and I don’t remember where.) It varies by stock, but many stocks don’t move as much post-earnings as their options vol predicts. It all comes back to traders being overly fearful or greedy. I might have read it in Barron’s. You could email Steve Sears, the Options Editor. He’s pretty good about responding. Maybe check CBOE first to see if they have any white papers on it.
Selling some iron condors on a stock you are considering for a short trade can make it a little safer.