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Tuesday, March 27, 2012

Repair a Call Option by Rolling to a Debit Call Spread

Many times you buy a long call and the underlying stock moves lower. The stock now needs to move up even more than initially and has less time to do so. Your position starts losing money and you can basically exit for a loss, or stay in the trade hoping for the best. Another alternative is to lower your breakeven point if you think there are good chances for the stock to go up. This can be done by getting out of your current position and entering a Bull Call Spread.

Sunday, March 25, 2012

Weekend Portfolio Analysis (03-25-2012)

It was a predominantly bearish week, but showing strength during the US session. Weakness overnight in Europe that was reversed later during the US session. That's how in spite of having 4 bull daily candles out of 5, the S&P500 lost -0.3% this week according to Finviz.

Thursday, March 22, 2012

April SPY Spread closed

Demo-Trading:

BUY TO CLOSE 14 April SPY 145 CALL @0.24
SELL TO CLOSE 14 April SPY 147 CALL @0.08
Debit: 0.16

Tuesday, March 20, 2012

Locking profits on a Vertical Spread

Let's say you trade a vertical spread on XYZ instrument. XYZ is trading at 100 and you place a Bull bet, you buy a 105 Call for 0.75 and sell a 107 Call for 0.50. All that for a net debit of 0.25 and a max return of 1.75 (2 point wide spread - 0.25 risk = 1.75 max reward)

Sunday, March 18, 2012

Weekend Portfolio Analysis (03-18-2012)

As expected in last weekend's analysis the markets moved up during the week (plus 2%). The SPY 141/143 Bear Call spread had to be closed on Tuesday (I don't feel bad for that) although I could have closed it for full profit on Friday. March expiration cycle was a tough one where out of the four trades played, only one could be taken to expiration for full profit.

Wednesday, March 14, 2012

April SPY Bear Credit Spread

Demo-trading:
SELL 14 SPY April 145 Call (@0.49)
BUY 14 SPY April 147 Call (@0.23)

March SPY Spread Closed

Demo-Trading:

BUY TO CLOSE 14 March SPY 141 CALL @0.21
SELL TO CLOSE 14 March SPY 143 CALL @0.03
Debit: 0.18

Tuesday, March 13, 2012

Tips for reviewing Expert Advisors

Yes, we all know the vast majority of them are scams, or don't work in the end. However, successful automated trading is indeed possible with the right proven methods, that use sound trading principles and are backed up by serious statistical studies. One of the most common examples is that of the Turtles of Richard Dennis. Plus, most trading volume nowadays is done by algorithmic trading (I don't have the sources for specific numbers but I've read anywhere from 60 to 80% on the daily volumes on the NYSE).

Saturday, March 10, 2012

Weekend Portfolio Analysis (03-10-2012)

Finally some fun! A week with a 2% down day. It had been a while since the last one of those. Funny how headlines all over the internet were talking like it was the end of the universe. After that Tuesday, the market resumed its uptrend, and closed the week with no major damages. S&P500 only lost 0.1% overall this week and now indicators are showing we are far from overbought. I think an assault to resistance at 1380 is very likely this week.

Wednesday, March 7, 2012

March IWM Bull Put Spread closed

Demo-Trading:

BUY TO CLOSE 14 March IWM 76 PUT @0.33
SELL TO CLOSE 14 March IWM 74 PUT @0.16
Debit: 0.17

How to adjust or roll a Credit Spread

XYZ is trading at $100, 30 days to expiration. You play a Credit Call Spread selling the 110 Call and buying the 115 Call for protection. The goal is for XYZ to not hit $110 by expiration. Let's assume that a credit of $2.00 is obtained (that is $200 per contract per leg played).

10 days later XYZ is trading at $109, certainly threatening your position and you have a temporary loss of $100. With 20 days to expiration it seems very likely that XYZ can advance one more point to the upside. At this point you can close your trade for a small loss. You can also hope for the best and wait for XYZ to reverse (hope is never the best decision), or you can adjust your position.

Tuesday, March 6, 2012

April IWM Bull Put Spread

Demo-trading:
SELL 14 IWM April 72 Put (@0.95)
BUY 14 IWM April 70 Put (@0.67)

Saturday, March 3, 2012

Weekend Portfolio Analysis (03-03-2012)

Things are getting clearer for the March expiration portfolio as only two weeks remain. The market was a little weird this week as we saw the SP500 advance +0.4%, Dow Jones +0.1% however the Russell 2000 index went down -3.0% in the week. This makes me a little concerned about my positions in the IWM etf (which tracks the Russell). Let's go one by one: