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      • liberalweenie says

        Based on this trade, I looked at alternatives, and this seems to be a sort of sweet spot in terms of time & cost & strikes & spread (at the moment)…. My question is, with so many variables, how do you find these relatively optimal seeming bets? Is it a question of decent tools (like what exactly, LiveVol?) and/or persistence in looking at the various combos, or what? Like with the tools I have (from schwab), i’m unable to like look at volitility over time, for example. So I’m wanting to know what tools are really useful & necessary besides your hard won experience?

        • Enis says

          We vet a lot of potential structures before we decide on the trade we want, even for those as simple as a call spread or put spread (where strikes and maturities can still make a big difference). There are certain metrics we can look at to give us an overall gauge, like skew or implied volatility, but most of the time, the decision comes down to what structure offers the best risk/reward payout.

    • Dan says

      cant argue with a bullish thesis based on continued growth in PayPal. funny thing is we use paypal for subscriptions and they are horrible to deal with on both sides, as a customer and as merchant. thats just our experience but they seem to be pushing deeper and deeper into alternative payment options and the growth overseas could be massive……as for entry this would be a name that I would put on my buy list closer to 40 on broad market weakness.

  1. nobius says

    Enis’s JCP trade from today has a very similar profit point layout to a 16/19/22 call butterfly. In your trade, you take the following positions:

    buy 1 JCP 16 PUT
    sell 1 JCP 19 PUT
    sell 1 JCP 19 CALL
    buy 1 JCP 22 CALL

    At expiration, the maximum profit for this trade is with JCP at 19, maximum loss is with JCP below 16 or above 22.

    As I mentioned, an almost identical structure could be achieved via a call butterfly:
    buy 1 JCP 16 CALL
    sell 2 JCP 19 CALL
    buy 1 JCP 22 CALL

    I’m sure you had your reasons for the straddle/strangle approach over the butterfly, I’m just wondering if you could elaborate.

    By the way, your site, services, presentation, and customer interaction are all top-notch. Keep it up.

      • Sambodhi says

        Thanks Enis! Appreciate the quick response. On another note, I was a customer of and watched Dan on Fast Money often. I tried your service out as a trial and have been so impressed. Most importantly, it fits my style of trading, one where I’m not looking to scalp over 30-40 minutes. I’m been telling friends about checking your service out. One question about your style here: I notice that you trade structures that have 2-3 months to expiry (Dec/Jan/Feb dates). I’m curious if that has anything to do with your typical time to complete a trade. Do you look to hold for a few weeks typically or do you see how it goes with and expect some trades to take 60 days?

        • Enis says

          We trade maturities based on the individual stock and the volatility term structure. In many cases, going farther out provides more bang for your buck if volatility is priced differently, and that’s what we look for on those trades.

  2. up says

    What is your opinion on the following trade on its own merits and with respect to hedging the exposure of the QCOM calendar a bit.
    Buy BRCM Dec12 / Jan13 C35 Calendar for 0.21 cents
    - Dec vol a bit higher to sell
    - stock on lower end of range between 35-37 and 30
    - on strength in chip sector, may be a hedge for QCOM Calendar

  3. says

    Dan, I was out of business in NJ due to Sandy, and just realized that you had spread YHOO on 11/5 with a Dec 18 call.
    I am still long the Jan13 17.5 call at .39.
    The alternatives I am considering are:
    1) Sell the Dec 19 call for .21 (a la your thinking in selling the Dec 18 call).
    2) Sell the the Jan 19 call for .40 and be in the trade for the house money.
    3) Sell 1/2 for 1.00 to cover the cost of the trade and let the other half ride.
    4) Close the position for a 2.5X gain.
    I am detailing this because I want you to realize how useful your discussions are in helping relative novices think through the trades.
    However, I have trouble deciding how to make this next move.
    What is your methodology in structuring and optimizing the alternatives?

    • Dan says

      George, hope u and your family are doing ok and back to normal. all great options that u detail above, and I was obviously a little to early spreading the position. I dont think u can go wrong with any of those choices listed above, I would prob sell the dec 19 or the jan 19. we liked selling dec because we thought the stock was getting a little extended and wanted to take some premium in dec and then if stock was below 18 we would then sell some jan upside on a bounce……but a to your last question, a lot depends on where u feel the stock and the market is going near term, last week i wanted to lock in gains as i was worries about the sell off that we got, but YHOO showing amazing relative strength, will it continue? i have no clue so if u want to lock in some profits sell half, if u want to stay in the trade spread. and remember booking winners is always a good option! great question.

    • says

      Dan, to clarify, I see how you develop the rationale for trades. What i am really asking is how to make a an orderly and reasoned decision between alternatives in this seemingly relatively simple spread, which probably has possible complications that I may not even be aware of, much less the knowledge to take into consideration in a meaningful way. I tend to sit on trades far too long, both winners and losers. (This is contrast to, for example, a rather clear set of rules and guidelines for setting up and managing an iron condor credit spread.) I appreciated your guideline of selling 1/2 when a position doubles. At least it gave me a discipline for that situation. I subsequently developed a set of rules, e.g., sell 1/3 If the position exceeds 60%, etc. Anyway, if this is too much to answer because of the almost infinite diversity in options trading, I will be OK with no answer. Apropos of this, I am watching YHOO drop to a more favorable position for your Dec 18 call, and now wondering whether that is an alternative I should should consider. A few months ago I read a treatise that Enis referenced, from like 1880, by a trader who advocated making decisions, and not sitting on it.This is a discipline I aspire to acquire. If you got this far, thanks for reading this Sandy gave me time to think for 11 days without power, and you are getting a blast of it.

      • Dan says

        Well, the first part of your question you kind of answered. Basically have rules and stick to them. As you see in the market and in single name stocks, the reversals come at points where people didn’t follow their rules. They either keep doubling down to the point that they can’t take it anymore, then hate trade. This is our weakness as not fully evolved humans. As far as the YHOO, we really like the set-up of our structure here as the stock is hitting resistance at the 18 level. The Dec option will decay faster than the Jan and hopefully leave us with a better cost as we approach Dec.

  4. Sambodhi says

    Dan – wow, you closed the AAPL spread. Why? I was about to write you a note, first, telling you that the trade was awesome. While I didn’t join the trade, it was enough to make me decide to sign up as a member today. But curious why you closed here versus letting it run more. Its been working out so well. Thanks in advance for your explanation.

    • Enis says

      Dan’s on his way to do Fast Money, so I’ll take this one for him. We initiated the 1×2 call spread as a good risk/reward way to play for a shift in sentiment in AAPL from overly negative to neutral. In the past 3 days, implied volatility has indeed dropped, but the stock is still flat. With implied volatility now around 29, any further gains from this position are only going to come from waiting for the next few weeks for the stock to gradually grind higher.

      As a result, the risk/reward of this trade has changed significantly. Now it’s a much more one-way bet, and we’re risking 2.50 instead of 0.70, and our potential gains will likely only come from directional move higher in AAPL as opposed to any incremental gains from implied volatility.

      We might still try to play for an AAPL bounce in the next week, but if we do, it will be with a different structure given the changed parameters.

    • Enis says

      Here is what I just wrote to another sub’s question about what to do with it:

      Here is the issue with closing the position right now. If I close the position right now, I will lock in a loss of $2.00 (can probably close the spread for $4.30, $2 above the initial credit of $2.30). If I wait until Friday, and I am still forced to close the position for the max loss then, I will lose $2.70, worst case.

      If I wait, I am risking the incremental $0.70 to potentially make back the bulk of my loss if CMI sells off 2% or more in the next 3 days. I am going to leave the trade on as a result.

  5. mmenard says

    Hey guys: I forget who put on this trade: originally: it was a straight up Jan 17.5 call in Yahoo. Later you legged in a Dec 18 Call to form your calendar call spread. My question is with Yahoo so close to the 18 figure and so much time left before December expiration, how can you manage this trade so as not to cap your upside should Yahoo continue to appreciate – especially if we get a risk on move following a possible fiscal cliff deal? Thanks!

  6. up says

    Hello Dan, Enis, CC and Kristen,

    since following and often replicating your trades over the last year, I have come to familiarize myself with your general approach. From what I’ve seen most of Dan’s trades are directional, even calendars or butterflies. And, Enis’s trades are a bit more of a mix with some trades (GMCR, LNKD) also directionally neutral.

    I’d like to ask you for your opinion on calendars, iron condors, double diagonals, straddle/strangle, … that are set up as directionally neutral (premium-selling) trades. Do you tend to favor directional trades over more neutral range-bound trades? If so, is this for a lack of opportunities at the present time or for another reason, say because directionally neutral trades don’t match your approach of looking for event-driven opportunities? Other reasons why you may like or not like such setups? Are there market conditions where you will look actively for non-directional trades? What general framework would you suggest to follow when looking for some possibilities (range-bound technicals, elevated front month vol, delta level for strikes, time to expiration, …)?

    Just noticed that the questions added up a bit. Apologies.
    Thanks for taking the time to answer these.

    • Enis says

      Yes, this is a very long set of questions, with no easy answers. Let me tackle the general dichotomy between directional trades and directionally neutral trades. A few important distinctions:

      1) Directional trades are usually riskier than our directionally neutral trades, but also offer greater reward if we’re correct.

      2) The directionally neutral trades are almost always in high implied volatility names, as these types of trades involve range bets that need to collect sufficient premium to make it worthwhile.

      3) The options market does not offer any “easy” money. But it does offer probabilistic scenarios. We view our advantage as assessing those scenarios from a directional standpoint, but using the right options structure that lets us “win” in different ways. My JCP trade today is a good example of that. I think it’s a much better trade than blindly buying the stock.

      Putting all of this together, the main criterion for our directionally neutral trades is usually high implied volatility, or a big difference in implied volatility between different maturities. For directional trades, we are usually looking for cheaper implied volatility options, and spreading them vs. the expensive strikes.

    • Enis says

      We actually considered this trade. Our main fear is that CSCO has gapped big on earnings quite a bit in the past 2 years, so either a large gap down or large gap up could hurt this position a decent bit. That’s why Dan chose a lower risk calendar to play the event.

  7. DolfanHP says

    Hello, Enis… Quick question…. after reading your CoD post today, it seems to me that your level of conviction on the VIX trade is still high… the spread is much cheaper now… will you add on not to reduce cost, but to take advantage of the move you expect? Or will ou leave your risk as originally defined, and still see it as a good probability trade? Thanks!

    • Enis says

      I’ve been watching this trade for the past week, as COH got back under $55. It’s been a frustrating trade. I think the market might have one more capitulation move lower this week, which is why I’ve held on. However, the time decay is going to pick up on the COH, so I have my trigger on the exit on COH, just hoping it doesn’t rally much more.

  8. fred1821 says

    First off you guys are great!!! I have watched options action for years and just stumbled on your website. Any thoughts on KORS, the implied move is about 12%, it has reported a total of three quarters before and has blown past expectations each one. I also thought that if RL and COH could report a decent quarter, that they have a great shot, especially since it appears to still be growth story. It remains very under penetrated as oppsed to COH. And looking at potential trades the implied VOL is at about pumped up to 120 this month, and dec, feb respectively is 65 and 60. Therefore I was looking at a call calender selling the nov 60 and buying the dec 60 calls.


    • Enis says

      Thanks for the compliment – now please tell everyone you know the same thing.

      Kidding aside, KORS is an interesting name because there is so little earnings history. It’s had 3 earnings report since its IPO, and all were big up moves, 27.5%, 7.5%, and 16.5%, for an average of about 17%.

      So the 12% implied move maybe looks cheap, but we only have a sample size of 3, so hard to put too much weight on that. Perhaps an interesting way to play for another big up move would be the Nov / Dec 55 call calendar, which would cost around $0.70. That’s a lower risk way to play the name than outright buying premium. Also, there is a lot of congestion around 55, so might serve as resistance.

      On the downside, 45 is obvious support, so again, the Nov / Dec 45 put calendar might be the trade there.

    • Enis says

      The key to the AAPL 1×2 call spread’s value right now is actually not the stock direction (at least for the next couple weeks), but the way implied volatility changes. For example, AAPL’s stock price was at one point today unchanged relative to our entry of the trade on Friday, but the 1×2 call spread is worth almost double the $0.70 Dan paid on Friday. The reason for that is that implied volatility compressed.

      If you can buy the Dec 570 / 600 1×2 call spread below $1.00 at some point in the next week, then I think that’s a pretty good entry.

      • Sambodhi says

        Thanks Enis. Yes, I saw that too when AAPL was around 541. The same trade would have cost $1.5-1.6 I think. Helpful insight. Would also be great to then understand how you picked the implied volatility opportunity. Was it just given the two day big movement and your expectation that the moves would be be smaller in daily size?

        • Enis says

          We all did agree that AAPL sentiment was getting too bearish, but we also preferred to institute a bullish bet through a short implied volatility bet rather than a pure long delta bet. It’s an important distinction.

          The 1×2 call spread’s main weakness would be if you thought AAPL was going to rally $50 in the next week. In that case, we might actually lose money on our long 1×2 call spread in the near term (I still think it’d be a good trade over the next month). But if you thought any bounce was going to be gradual from here, then the 1×2 is a much, much better trade than just buying the stock. Because the 1×2 will hardly lose if the stock continues lower, and will be a much better trade if the stock stays rangebound, as has been the case so far.

  9. alotero01 says

    why instead of doing the FB call spread november, didn’t you do the december since the lock up expiration is on Nov 12 and we can assume that the stock will go lower and we can get a better change to get a better call spread? Just curious.

  10. mmenard says

    Earlier this week I asked about LGF. I went ahead and bought Dec 16 Calls expecting good earnings. With the stock up over 13% today I’m wondering if I should sell half my position or rather leg into a call spread by selling Dec 18 calls. What do you recommend? Thanks!

  11. Mythflyer says


    I’m hoping you can help me with LVS. I while back it was put to me when it dropped below the put strike of a risk reversal. My basis is 43.99 with a current price of 42.78. I could just take the loss, or even enter a simple covered call to get back in the green. But I also looked at selling 2 OTM Calls (per 100 shares I own already) and buying 1 ITM call to prevent being exposed on the short call. Was it you, Dan, who explained this type of structure on Options Action a while back? I just can’t seem to make the numbers work for any strike prices or expirations. The IV’s are pretty even across the strikes and are sitting at about 30% above Historic Vol. What am I missing here? Apparently now is not the right time for this trade structure but I need help understanding why it won’t work. What should I be looking for here?

    Thanks – Myth

    • CC says

      Sorry to just get back on this, and obv the stock is back near your price, but yes, a 1×2, especially if you can find one for close to even, is a great way to add leverage on a losing long for an upside move. You basically don’t add downside risk but you juice your upside potential and have a short call at a level you’d probably want to sell your long stock at anyway. So generally a no brainer.

    • Enis says

      If CMI stock closes above 92.50, but below 97.50, then you will be short CMI stock after next Friday’s expiry. If you do not have the necessary margin to stay short CMI stock, your broker will close out of your short stock position on Nov. 19.

      If CMI stock closes above 97.50, then the call spread will expire at $5 (so you would lose $2.70 if you sold the spread at $2.30), and you will have no residual position after expiration.

      If CMI stock closes below 92.50, the position expires worthless, and there is nothing for you to do.

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