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Cant worry about the inflation yet.
As a doctor, you have to worry about saving the patient first, then you treat the cold.
Right now as far as things go, we are in a slight deflationary state. As people are willing to accept a negative yield from US tbills, and oil not shooting up into $200 any time soon.
But yes, down the line, it can be an issue, but guess what, all the fed has to do is start taking money out of the money supply and it will start cutting inflation.
Besides, inflation is great for one thing... the stock market.
Not all derivatives are bad... and that is not what it owns directly, but rather either clears or holds for others.
and FYI, Bank of America, JPM, Citi will NOT be allowed to fail. End of story.
If these derivatives fail, and the firms fail... the financial system will be done and over with.
Keep in mind that bull call spreads and calendar spreads are slightly different strategies.
Calendar spread, all you care about is time premium decay.
Bull call spreads, you are looking to capture a part of the move up, with limited downside and less money at stake.
One of the good things about covered calls, is that at any time, you can do a few things.
If you do passive covered call writing, all you care about is expiration.
If you want to do it more actively, you can at any point...
1. Roll up (Buy call back, and write one of higher strike)
2. Roll down (buy call back, and write one of lower strike)
3. Roll out (buy call back of near month, and write another a month out).
You can also roll up and out, down and out, etc. What you are trying to do is capitalize on the time decay of the call.
80% of all calls that are bought expire worthless. What you are doing, is making that money. If you think the stock will move up, and would want to capitalize on that, than you would write a call option out of the money, so if UYG is now $5.55, you can write the $7's. Less downside protection and less premium, but if called, you get the time premium, PLUS the gain from $5.55 to $7.
You can actually write a covered call, go away, come back at expiration, write other... and you would be ok!
No, it cannot. I called and spoke to my Proshares rep.
The only way for it to go to $0, is if the index falls 50% in a day.
The proshares are not based on a fixed point, but reset daily.
If uyg is $10 today. If index goes up 5%, uyg goes up to $11. The follow day, the percentage is based off of the closing price. It is not fixed like the early ETN's were with oil up and down at a base of $50.
Very good point. Depends on when it hits $10. I just want the time decay. If it goes to $10, then the Jan 10's also go up. If it is around $10 on friday, I would actually close out the spread. Otherwise, chance of it getting called monday or tuesday is early and small.
Other thing you can do is jsut buy shares on open market.
Technicals look good, but.... I would nto be buying when it is breaking above the bollinger bands. Standard 20,2 bands means 2 standard deviation units, hence there is a 96% chance it will fall back to within the bands.
If you are holding it, why not target getting out at $5 or so, and if you are afraid it will run to $8, then use some money to buy out of the money calls, say at $7.50 or $8 if avail. If it continues to run after $5, the out of the money calls will run.
Even though it was bad news, but what I have been saying a few times before, most of joe six packs are out of the market, no more weak hands. Hedge funds stopped the outflows.
Take a look at the macd on any chart, Dow, S&p, or any stocks you follow, for the most part, even if it was going lower, the bears were not out in full force, and macd was reversing up.
You cant look at prices only, have to look at other factors as well.
Great book to read on this, is "Trading for a Living" by Dr. Alexander Elder
Even though it was bad news, but what I have been saying a few times before, most of joe six packs are out of the market, no more weak hands. Hedge funds stopped the outflows.
Take a look at the macd on any chart, Dow, S&p, or any stocks you follow, for the most part, even if it was going lower, the bears were not out in full force, and macd was reversing up.
You cant look at prices only, have to look at other factors as well.
Great book to read on this, is "Trading for a Living" by Dr. Alexander Elder
Sure,
Covered Call, lets say xyz.
You can buy the shares for $3, and write dec 08 $3 strike for
$.30.
If company goes bust, the most you can lose is $2.70. You lose the shares, but keep the premium.
Instead of putting more into shares, I bought an equivalent number of shares via a proxy, Jan 2010 $2.50 options.
When you write calls, for it to be covered, it simply means, if your calls get called, you can produce the shares. So you can write calls and still be covered if. 1. you own the shares outright. 2. have the shares somwhere else. 3. hold company stock options. or 4. Stock options.
So my proxy for the shares is the Jan 2010 calls. If the calls I write get called, and I am assigned, I can use my 2010 calls to exercise, and deliver the shares.
Same scenario. If XYZ dec calls sell for $.30, Jan 2010 calls sell for $1. I can write the calls against them. If company goes bust, most I lose is $1 I paid for premium for my 2010 options, minus the $.30 I receive for the dec 08 premium.
Only caveat, is unlike underlying stock, the longer term calls I have, will expire in the future.
The whole basis is that that take 2 options, same strike, only difference is months, the rate of decay for the time premium is much greater in the options nearer expieration, as opposed to longer term options.
The very same reason why alot of people are getting screwed on out of the money SKF options people bought that are out of the money.
That is correct.
As long as you have at least as many contracts as you are writing against, and as long as they are at the same strike, or the ones that are longer term are lower strike, you are good.
If the one that gets written is called, you exercise your longer term call early. But typically, if it is in the money, you would just buy he written option back.
Was going to say, Since GNW such a cheap stock its all good, depend on cost basis.
I started doing calendar spreads on options after my WAMU experience. Since in my Roth and Traditional I could only do covered writes, I bought wamu shares, and kept writing calls against them. Then wamu went bust. =P
The good, options saved me 30% of hte loseses. So made a 10k loss down to 5 or 6k or so. Bad news, it was a loss. So my takeway from WAMU was the following.
Avoid buying gamble stocks outright, and do it on a basket instead. That, or if you look at the post I had before, trading rules, or maybe I didnt post it yet, dont have any one holding be more than 25% of your holdings under 10k trading account, or 10% of a more than 10k trading account.
So what I did with Ford, is instead of paying $2 a share then, just bought $2.50 calls, for Jan 2010 for a $1. I wrote dec 08 calls for $.40 cents, so 40% of my basis is paid for, in 8 days, Will write the next set, and voila, in 2 months, my 1 year long leap is paid for. I can either close out position, or keep writing.
With UYG, did the same thing.
While options are a gamble... you know exactly how much you stand to lose, less you are writing naked calls.
So if you have $2k of stock you would buy typically, you should not be buying $2k worth of options that control $20k worth of stock. As long as you are disciplined, you can do very well.
One of Dennis Gartman's rules which I love, and did not know others followed till I started following him. Typically you have people who trade, er invest fundamentals, and others trade technicals. Gartman's whole trading mantra is make desicions based on fundamentals, when they are supported by technicals.
Hope that helps.
Sorry bud.
Next week I would suggest a rally if S&p holds 818 or so. Fed meeting on tuesday, and last real trading week before the new years. Starting the 22nd, the following monday is Hanukkah, wed is xmas eve, xmas on thursday, boxing day 26th.
Then the 29th and 30th you have two trading days.
Send me a private message with email, I will send you the call calculator I have, you can add commissions and all.
30% for 37 days or so aint bad, annualized of 300%.
It could very well be called away early which would be a win for you if you are ok with the gain.
Also, you do have a descent downside protection. Then in Jan, you can roll up, let me it be called away, but topic for different day.
Ford's biggest thing is for GM/Chrysler to survive.... as the supplier are the same.
In the long term, if GM struggles, would be good for ford to take their market share.
for ford, its a fine line... need gm to be ok, but not amazingly well,
If GM/Chrysler go bankrupt, it will have a bad effect on supplier, and the image in general.
Otherwise, Ford doesnt need the money, just a fallback if need be. When credit markets survive, they can refinance.
On the other topic, Calendar spreads/ Option backed buy - writes, while you dont tie up your cash, you do have to have margin in the account as it is considered a calendar spread, and requires level 1 margin in the account. I think bare min $2k?
Otherwise, to buy calls, even if you only have $250 in account, you can buy as much as you want with options.
With calendar spread, even if it costs you $250, you need a min of 2k i believe as margin.
Calendar Spreads/Option backed Covered Calls
Ford
Long Jan 2010 $2.50, Short Dec $3's (first month)
UYG
Long June 09 $7, Short Dec $7's (Second month now)
Long Calls
CBI - Jan $12.50, (Cashed out my base when it popped, now just letting the profits ride)
CY - Jan $5
what are you holding if dont mind me asking?
Good stuff, congrats.
I have a feeling we may be seeing a pretty good week next week.
From the calls from our technical analyst, could be good if we hold the 818 level on S&P as we are going through the inverted head and shoulders.
Next week we also have on tuesday the fed meeting and most likely cut. Also, like hte lask week to trade before the following holiday week.
Covered calls. =)
Option premiums decay over the weekend, esp this weekend.
Ford has a fat premium.
Buy ford for $3, write Dec 08 3's for $.30
10% in 7 days.
If you are writing short term months, direction really doesnt matter.
If you are doing Buy writes as they are designed... you only really should care where stock is at the expiration. Yet, I know how we cant help ourselves but to look at the market daily.
Just as suspected, white house comes in with tarp funds, and all ok.
The only issue is, there is only $15 billion left in Tarp from the original 350.
I understand the need for GM/Chrysler to go bankrupt, as it would be best for business, but not best for america.
In the eyes of foreign investors...
GM Bankrupt = USA bankrupt.
FYI, GMAC, Ford Motor Credit, and Chrysler Finance... are all applying to be banks.
Just as suspected, white house comes in with tarp funds, and all ok.
The only issue is, there is only $15 billion left in Tarp from the original 350.
I understand the need for GM/Chrysler to go bankrupt, as it would be best for business, but not best for america.
In the eyes of foreign investors...
GM Bankrupt = USA bankrupt.
Will depend on tomorrow, Paulson can use the Tarp money for this.
Kiss GM goodbye, Vote failed. Lets see if Paulson can pull something out of his butt. At the same time, didnt pass the AMT patch from the looks of it either.
yup, Kiss GM goodbye, Vote failed. Lets see if Paulson can pull something out of his butt.
Kiss GM goodbye, Vote failed. Lets see if Paulson can pull something out of his butt.
Ok, so just did the numbers.
The aprils are good, the only thing is, you are just playing the premium. Considering the stock is at $5.98 and a strike of $6, you are not leaving for upside and can get called away.
annualized yield is about 100%
Personally, I would Buy now, and write the Dec 6's for $.45
In 8 days, next monday, Write the Jan $7.50's for another $.45 and upside.
Otherwise, write the dec's, let them expire, if stock pops, write the next options chain then. Anytime you have a write on it, esp since auy is showing strength, you are capping upside.
All depends on if you are happy being assigned, how much it would cost you to get assigned, as well as if you would be happy with 33% if AUY pops to $10
Will reply in full later, but just wanted to say... I was thinking the exact same thing about AUY. =)
Vote on Bailout to begin in 5 mins, tentative deal done.
http://www.c-span.org/Watch/C-SPAN2_wm.aspx
Vote on Bailout to begin in 5 mins, tentative deal done.
http://www.c-span.org/Watch/C-SPAN2_wm.aspx
Vote on Bailout to begin in 5 mins, tentative deal done.
http://www.c-span.org/Watch/C-SPAN2_wm.aspx
The calls that I am writing, I am selling the Decembers, if in Calendar spreads, I buy Leaps, 2010, as it gives me most leverage with lowest time decay of premium.
For plain old calls, I am now buying Jan's.
If you want to gamble, go decembers.
Yes, that is exactly what it means.
Example.
You buy XYZ option, Dec Strike $5 for $.50.
Stock is at $5.25.
This means that $.25 is intrinsic value, $.25 time value.
At expiration, all time value is gone, and only intrinsic is left. If stock is at $5.01 or higher, your broker will buy the shares for $5 a share. you lose $.49.
Typically, you would sell your calls before they expire.
Option Premium is made of two things...
Time Value + Intrinsic Value.
Out of the money is all time value. When options expire Friday/Sat of next week, it will go to 0.
If option is in the money by even 1 cent, it will be exercised.
Dennis Gartman's Trading Rules
GARTMAN'S SIMPLE
RULES OF TRADING
1. Never, Ever, Ever, Under Any Circumstance, Add To A Losing
Position... Ever! Adding to losing positions will lead to ruin. You can count
on it. Ask the Nobel Laureates in Economics at Long Term Capital!
2. Trade Like A Mercenary Soldier: As Jesse Livermore said, it is not
ours to be bullish or bearish, but to be right.
3. Mental Capital Trumps Real Capital: Capital comes in two types;
mental and real. Holding losing positions costs measurable real capital, but
immeasurable mental capital.
4. We Are Not A Business Of Buying Low And Selling High; We are,
however, a business of buying high and selling higher. Strength begets
strength, and weakness further weakness almost always.
5. In Bull Markets One Can Only Be Long or Neutral, and in bear
markets, one can only be short or neutral. This may seem self-evident, but
very few understand it, and fewer still embrace it.
6. "Markets Can Remain Illogical Far Longer Than You Or I Can
Remain Solvent." J.M. Keynes. Illogic does often reign, and it is our duty
to learn to handle it as best we might.
7. Buy Markets That Show The Greatest Strength; Sell Markets
That Show The Greatest Weakness: Metaphorically, when bearish we
need to throw rocks into the wettest paper sacks, for they break most
easily. When bullish we need to sail the strongest winds, for they carry
the farthest.
8. Think Like A Fundamentalist; Trade Like A Chartist: The
fundamentals may drive a market and need to be understood, but if the
chart is not bullish, why be bullish? Trade when the technicals and
fundamentals, as you understand them, run in concert, one with the other.
9. Trading Runs in Cycles; Some Good; Most Bad: In "good times,"
even errors turn to profits; in "bad times," the most well researched trade
will go awry. This is the nature of trading; accept it and move on.
10. Keep Your Technical Systems Simple: Complicated systems breed
confusion; simplicity breeds elegance. The great traders we've known
have the simplest methods of trading. There is a correlation here!
11: In Trading/Investing, An Understanding Of Mass Psychology is
Often More Important Than An Understanding of Economics: Simply
put, "When they are cryin', you should be buyin'! and when they are yellin',
you should be sellin'!" This is psychology at work and its most elegant.
12. It Takes Buying And Lots Of It To Put A Market Up; It Takes
Only A Lack Of Buying To Put Any Market Down: Gravity is an amazing
force of nature; it is even more amazing in the world of investing.
13. There Is Never Just One Cockroach: The lesson of most markets
is that bad news follows bad... usually hard upon and always with
detrimental effect upon price, until such time as panic prevails and the
weakest hands finally exit their positions.
14. Be Patient With Winning Trades; Be Enormously Impatient with
Losing Trades: The older we get, the more small losses we take each
year... and our profits grow accordingly.
15. Fear Turns To Greed At Break Even... And Vice Versa: Know
this; understand this; accept this and deal with it.
16. Do More Of That Which Is Working and Less Of That Which Is
Not: This works in life as well as trading. Do the things that have been
proven of merit. Add to winning trades; Cut or eliminate losing ones. If
there is a "secret" to trading (and of life), this is it.
17. All Rules Are Meant To Be Broken.... but only very, very
infrequently. Genius comes in knowing how truly infrequently one can do so
and still prosper, but when one must, one must!
A Must have free daily newsletter....
no, not mine... but Dennis Gartman, as seen on CNBC, Bloomberg, etc, has a free daily newsletter that goes out.
Great and respected technical analyst. Down 5% this year, vs 30%+ for market, and alot of others.
http://www.thegartmanletter.com/
Go, subscribe.
ML and C i believe also had reports of it going to $25, if China slows down even more. I am still trying to get my hands on that report though.
Btw, these are the same folks who said it was going to $200.
For those interested in buy-writes and calendar spreads.
Posted a few buy-write and calendar spread ideas on my forum.
http://investorshub.advfn.com/boards/board.aspx?board_id=14678
Posted a few buy-write and calendar spread ideas on my forum.
http://investorshub.advfn.com/boards/board.aspx?board_id=14678
Posted a few buy-write and calendar spread ideas on my forum.
http://investorshub.advfn.com/boards/board.aspx?board_id=14678