lol...you are still posting on Ihub.

First time I have checked Ihub since April of last year.

I was hoping I would come back and all my bagholding had paid off. Strangely, it hasn't.

We are doing well. Youngest is about 6 months old and cutting two teeth. Starting to sleep through the night, finally.

My wife's dad has been pretty sick recently and we have been having to deal with that. He lives near us and really close to our kids.

Haven't actually traded at all since last year. I think I got a little burned out. I will get back into it soon. I will let you know.

Not a bad article explaining Cash-secured Put selling....

www.ifii.com/articles/644211472/how-to-buy-apple-below

What I found interesting is this paragraph...

nothing much. Just trying to get through this newborn phase without killing someone. We started extinguishing his nighttime feeding a week ago, because he was killing us. Getting more sleep now.

Bought the new Simcity game for the PC. Pretty good. You can play multiplayer.

Check out the link. Pretty cool...

www.theblaze.com/stories/see-the-10-craziest-coolest-zaniest-most-seizure-inducing-christmas-light-shows-of-2012/

I agree that AAPL is at a well tested support level.

Personally, I think that the fiscal cliff saga is not going to be settled going into the NewYear and all stocks are going to tank. I hope I am wrong. I am staying out of options right now anyway because of this mess and with the Holidays coming up, I can't pay as much attention as I would like.

With that being said, Since IV is so high, it is definitely preferable to open up a Net Negative VEGA strategy. Both the Iron Condor and Directional Butterfly fit this mold.

At this point, I would more likely open the Butterfly, since it expose less capital to risk.

I would definitely not do the reverse Calendar. It is a negative VEGA trade, but as he discussed, it takes a lot more margin to garner similar absolute returns.

MMs are always delta neutralizing their positions....usually with long stock.

Interesting...

Thanks for that info.

Not sure how to take it. Could be good and bad. Good in the fact that it will make options trading more accessible to people, and better to able to perfectly hedge positions if that is what you use them for. Bad in the fact that it might bring down the Daily Volume and Open Interest on the 100 lot "classic" options on these securities, so it could widen the bid/ask on the strikes.

All of those securities are highly liquid anyway, so I can't imagine it would be that big a deal on the bid/ask.

All good.

You weren't helped by an extra two days of premium erosion.

I am going to get out my ruler and smack your hand the next time I see you put a trade on like that though...

lolzzzzzzzzzzzzzzzzzzzzzzzzzz....

They are now at $0.37.

You need to sell them and salvage some capital.

My concern for you now is that now you are having to suffer through an extra day of erosion since the market isn't open today and there is a possibility that it won't open tomorrow, so that might be 4 days of theta guided erosion since Saturday.

I also worry that the market will be down when it opens because of this storm.

I think you might be screwed on this position. We will see in the end I guess. Hopefully, it will have a big upswing and you can get out of this position without much harm. I am not counting on it though.

At least on close on Friday, you are still $0.15 OTM on the options.

How much will it erode into Monday? Good question. It depends on if the MM's brought down the volatility on you over the weekend to avoid those selling the options not take advantage of over-the weekend theta.

Technically, it will erode by the theta per day, including weekend days. However, it is common for the MM's to drop the volatility before the weekend.

I guess we will see where it is at on Monday. If you have any profit Monday morning I would sell and get out. If it is down, I would get out then as well.

This is just a low probability trade.

Currently, QQQ is at $65.31. I am not sure what it was when you bought it, but let me show you why that was not a good entry in general...

You bought an OTM Weekly Call. What does QQQ have to be at just to breakeven on your position?

Answer - it has to be at $66.31 by expiration next Friday. The security has to go up ~1.5% next week to breakeven. Does that sound like good odds? You bought an OTM weekly option. It is all "time value" that you purchased. You have no intrinsic value to the option. The entire purchasing price is subject to erosion based on an accelerating theta. Options' premiums erode quicker and quicker as it approaches expiration. No option expires any quicker than a weekly option.

If the market doesn't move and stays under $65.60, you lose 100%. If it goes down (50% probability based on chance) you lose 100%. If it goes up 1.5% in 1 week, you break even. It would have to go up near 3% next week to make 100%.

Never, never, never buy an OTM weekly option.

If anything, sell it.

If you really want to go long on options, time is against you, so you need to enter a position that has the lowest time erosion as possible. And, the deeper ITM you get, the less premium you have to pay, yet still can leverage your capital.

What did you buy and for what price?

AAPL down about 10 right now...but it was well within the anticipated standard deviation move that the MM's were pricing in.

Selling a Straddle, strangle, ATM Butterfly, or Iron Condor before earnings would have reaped significant gains.

QQQ sitting on its 200 MA. Seems like a good support line.

Maybe want to hedge your bet by buying a Bull Call debit spread instead. It won't make as much money if QQQ bounces up, but it will be more forgiving if it cuts through the support line.

IV has dropped about 17% on QQQ today. at 18.95 Avg IV, it is sitting right about in the middle of its Volatility range. Because of that, going long on the Call probably won't get too hurt by a decreasing volatility if QQQ goes back up....but the IV does have some room to go down further. Another reason why a Call spread might be better since it lessens the impact of an IV change against the position.

Good Article from Motley Fools...

www.fool.com/investing/general/2012/10/18/15-biases-that-make-you-a-bad-investor.aspx

We went to Pigeon Forge, TN.

You would need to set the butterfly ~6% away from the current price.

This is a position that you wouldn't adjust. You would put it on pre-earnings and take it on post-earnings.

Sorry, I have been on vacation and not focusing on investing, so it took me a while to get back to you.

What you want to do during earnings is take full advantage of the anticipated IV drop (IV crush). Currently, AAPL's IV is around 38. You can anticipate it dropping to near 22-24 after earnings based on its HV (Historic Volatility).

The best strategy to use is a time bomb butterfly. Essentially, you are selling a buttefly OTM at the direction you think it will move. You seem to have an bullish bias, so we will go with that.

First, calculate what the MM's have priced into the expected move after earnings. The best way to do that is to calculate what the straddle costs. Currently, the Oct 12 (weekly) straddle costs ~$37.22. Divide that by the share price of $626 and you get an anticipated move of 5.9% either direction after earnings.

So, what I would do is sell a butterfly about 6% OTM. In this case it would be at 660 strike if you were bullish. Make it a 10 point wide contract to cut down on capital exposed. So, you would buy 1 contract of the 650 Call, sell 2 contracts of the 660 Call and buy 1 contract of the 670 Call. This would be a net negative Vega position, so when IV drops, the position benefits.

The next question is to whether you sell the weekly butterfly (3 days to exp), or the November monthly butterfly (24 days to exp). To different strategies. Both would cost about the same. The weekly would give you much more profit if you are correct but be less forgiving on the move in that direction. If you sold the November butterfly, you wouldn't make as much money, but the landing zone of profit is wider.

See PnL below...



This graph depicts AAPL on Thursday with an IV drop. There are two green lines. The higher one would be the weekly curve. The flatter one would be the Nov monthly curve. What you can see is that the weekly gives you more profit but narrows the breakevens. In this case, the graph is not totally accurate, because earnings announcements is after the bell on Thursday, so the Friday curve would be more accurate. Usually, AAPL has earnings announcements on Tuesday, so there is time to get out without competing against the expiration PnL on the weekly. But, because you can only unload the butterfly on Friday (day of expiration on the weekly), this makes the weekly entry less attractive. The flatter green line would be the Nov exp butterfly after earnings. The November butterfly would cost $52.50 + commissions per spread. Maximum loss would be $52.50 + commissions. Maximum profit on Friday would be ~96% return. Breakevens would be about $611 and $694.

These type of timebomb butterflies, I would sell just after earnings. If it went your way, you could hang onto it and ride more profit. Maximum potential profit would be ~1600% at expiration in 24 days. Likely you wouldn't make this amount of money unless AAPL was at $660 that day. The longer you hold it, the greater an exaggerated move would destroy your profit because Gamma would also increase substantially near the wings.

The timebomb butterfly is a great strategy for earnings, because it takes advantage of the IV crush, they are cheap with possibility of a lot of profit, and they are very forgiving.

Butterfly vs Long Call. Just depends on your gamble on the momentum of the move.

Personally, I would always use a spread. It "spreads" the risk of a major loss. Plus, if you buy a long Call at this volatility, you have to calculate what your long Call would be after the IV crush. Even with a larger upside move, you might not make any money, as the MM's bring down the option's price on you through this anticipated IV drop. A long Call is a Vega positive net position, so a drop in IV will kill the position and the odds are stacked against you to make money. However, if you pick a strike that is near OTM, then if AAPL jumps far, most of your value will be intrinsic, which is not subjected to volatility manipulation. You would be paying a high premium for the time value to enter however. If AAPL does go down, you are toast.

I will look at AAPL next week and give you an idea of a possible butterfly position.

I don't think you would get a bad fill just by opening AAPL the day of or day before earnings. AAPL is has one of the most liquid option's market.

Selling an IC 1-2 days before earnings is essentially selling the strangle but hedging the potential losses by buying long Puts and Calls against the shorts. There should be no problem with fills and you could almost always get near midpoint on Apple.

The reason why you don't want to play a Calendar is that a Calendar benefits from an increased Volatility.

Currently, AAPL is already in its upper IV range, so there is little room to move on Volatility to benefit the position.

However, you can expect IV to drop precipitously after earnings, which will crush your position.

If you took it off before earnings, then it would be reasonable IF you opened the position prior to the IV jump going into earnings.

The one situation that Calendars can be effectively played going into earnings if you had the front short month expire before earnings and the long back month expire after earnings. In that case, your long's IV tends to go up into earnings and the short does not move quite as much.

Better to play VEGA negative positions on earnings and take advantage of the IV crush. This would include butterflies and Iron Condors.

AAPL has burned me several times.

It is a wild stallion that is difficult to tame.

Anticipated IV crush after earnings should help your IC if the price behaves before then.

Big move today because of the upcoming announcement of the new mini ipad on Oct 25th.

Good Article from Tycoon Reports today...

www.ifii.com/articles/110101187/day-trading-stop-it

Good Post...

investorshub.advfn.com/boards/read_msg.aspx?message_id=80062112

investorshub.advfn.com/boards/read_msg.aspx?message_id=79991172



www.sec.gov/litigation/complaints/2012/comp22495.pdf

Would have, could have, should have....

looks like your short 136 got called away (assigned). lolzzzzz..

I was worried about that.

I assume you cleared your books on that trade at this point.

I have a Calendar Spread on RUT right now.

I wouldn't want to get you into Calendars at this time.

too complex in regards to management and adjustments. Plus, it would take more capital, which you don't need to do right now.

Regardless, here is my PnL on it currently...



Debit to open the 5 contract RUT Calendar was $3850.

Currently up ~1.95% or $75. Been in the trade 2 days.

Profit target is 15%. Max loss would be 15% as well.

A Calendar spread or "time spread" is essentially buying a far expiration option, usually ATM, and selling a near expiration option against it. The profit comes from realizing that the near expiration option's premium, or time value, erodes quicker than the far expiration's premium. This is a net theta positive strategy, so time works in your favor.

It is also a Net Vega positive strategy. So, if IV goes up (market goes down), the position benefits. This is a good strategy when the market is overall low volatility, like now. VIX ~14. The volatility is much more likely to go up from here. It can't go down much lower.

This is just one of the non-directional positions that I will open.

Again, management and adjustments is fairly complex, as is a high capital requirement, so I would not involve yourself now in them. Just continue learning the fundamentals of options trading first.

ex-dividend date is 9/21/2012


You have a 131-136-141 butterfly in a 1-2-1 contract distribution.

You need to buy back the 136-141 credit spread (1 contract each), and sell the 131-136 debit spread (1 contract each.

It is two trades. So...

Trade 1 -

buy to close SPY Oct12 136 Call 1 contract
sell to close SPY Oct 141 Call 1 contract

(ie...buying back the credit spread)

This will be a net debit transaction.

Trade 2 -

sell to close SPY Oct12 131 Call 1 contract
buy to close SPY Oct12 136 Call 1 contract

(ie...sell the debit spread)

This will be a net credit transaction.

All the Calls got so far ITM, that there was no liquidity and the MM's were not moving the butterfly order.

Because we had to turn it into two exit orders, commissions increases a little. It hurts you more than me due to your position size. Sorry.

Realize that this was a spec trade. I "gambled" that SPY would go down upon entry. It went against us pretty quick, and the QE3 didn't help. Managing like I did could have rescued it or at least cut down on the loss. I forgot about dividends on SPY. That was a mistake.

The value of this strategy is understanding that as long as you can keep losses to ~50% of capital during poorly anticipated directional moves, the months that you get the direction correct, you can bank an easy 50-100% profit, sometimes more. So, if you are correct 1/2 the time, the profits typically outweigh the losses and this is a longterm winning strategy. Also realize that in regards to Money Management, you don't want to put more than 5-10% of total capital in your cumulative spec trades per month. You want to balance them out with about 40-50% in non-directional plays and ~40% in long-term plays.

Because it is so deep ITM, it probably won't fill the butterfly. It wouldn't for me either.

You need to close the credit side first and then the debit side.

The concern is my ITM shorted 136 Calls. If I get assigned...well...wouldn't want that to happen.

I closed the 131-136-141 butterfly today.

Still holding onto my long 139 and 4 148 Calls. That gives me a substantial net positive Delta on the position. Not necessarily wear I wan to be right now.

I might unwind the 139 Call and capture the profit off that leg before SPY heads south again.

The OCT 148 OTM Calls are valued at 0.93 right now with a theta of 0.03. Lossing about 4% / day / contract holding onto them. With 29 days left to expiration, the theta will accelerate a little bit moving forward.

Have a realized loss of $987 at this point. Currently, a $150.25 price on SPY brings me to breakeven. If I unload that 139 Call, the BE is at $151.46, but maximum loss on the position goes from -$2089 to -$1346. Probably ought to do damage control and unwind that 139 Call.

My want to close out the SPY butterfly today. They are paying out dividends and since we have ITM short Calls, we could be assigned.

I didn't realize that the dividend was coming out.

Here is what your PnL curve would have looked like, had you hung onto the Sept 145 Call bought at $0.78 on Sept 12th...



You would have been up 55% on the exposed capital with some significant positive net Delta in this uptrend, and only small net negative Theta (which means that now time is working against you).

This is why, once you adjust, particularly with single options, you just hold onto them and don't daytrade them. You need to incorporate them into the entire position and manage the net position.

You hedged harder than I did at the time. You went from a net negative Delta of -13, to a positive net Delta of 32 after buying the 45 Delta 145 Sept Call. That is why you would have been up at this point, and I am still down, albeit in far better shape at this point.

My suggestion before opening the 145 Call would have been to only cut the negative Delta in 1/2 and just hedge the position. What you did is turn the directional bias into a bullish net position. This is not bad, but just realize what you did by buying the 145.

In this case it worked out, since the FOMC announced its QE3, which was likely. My intent on my position was to maintain a bearish overall bias, but hedge the upside move.

Hindsight is 20/20 in regards to me not moving to a bullish bias. But, that is the value of knowing what you are actually doing with these adjustments. It would have worked for you this time had you hung onto the 145 Call.

Let me know when and at what price you closed the 145 Call at, so that I can put it into your spread on my PnL graph.

Good job on the Bull Call Debit Spread. Seems pretty safe at this point.

I had a bull call spread on AAPL earlier in the year at 425-430 going into February earnings. Made ~100% on it at the close.

APPL is a beast again. Reminds me when I tried to guess the price movement momentum early in Feburary with a few Iron Condors and got crushed on both of them because AAPL wouldn't slow down. The bigger problem was that I did adjust/exit quick enough. I learned some valuable lessons those few weeks on these spreads, never to repeat the errors I had made during that time.

I did have a bullish directional butterfly on AAPL open going into the Iphone announcement. I got whipsawed out at my maximum loss before it shot up significantly.

It wasn't a big loss, and not a lot of capital. In Hindsight, I could have given the spread some time to mature, but I hit maximum loss and was trying to maintain discipline. Although it hurt me on my AAPL butterfly this week, in the end, strong discipline to exit these positions at your designated maximum loss, and closing the spread at your target profit is pivotal to maintain a consistent life in the options investing world.

Here is my PnL graph from EOD today...



Would have been down 33% on the position had I not hedged yesterday with the OTM Calls.

Currently down only 20%.

Like I said...I have no intention of selling my Calls right now. SPY is up about another $1 since you made your post.

I am holding my position now. I have no current intent to sell my Calls. They are still acting as a good hedge.

I will let you know when i manage my position.

but it was a good anticipatory hedge.

I just bought 4 contracts of the SPY Oct 148 Call at 0.68. Cut my net delta on the position from -100 to about -20. Still bearish bias, but I feel better going into tomorrow.

I might unload them on Friday if SPY doesn't move.

FOMC makes announcements tomorrow concerning possible more rate cuts and possibility of QE3. Some experts predict a 60% chance of a QE3 announcement. This will potentially shoot the market up tomorrow.

It may be wise to buy 1 Call against this bearish Butterfly, at least for tomorrow to hedge this announcement.