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Dan – I believe there is a typo on your AMZN trade. I believe you mean to say that profits begin trailing off at $200 (not $234.20).
Can you speak a little more as to how you would manage this trade. Specifically, if there were to be a sharp decline in the stock, at what point/time would you seek to take profits? Thanks
We really think 220 is a spot that’s possible on a solid selloff, we spread it much lower to lower our premium risk.
AMZN. Sure would like to try a butterfly, but I’m wary of testing AMZN… As a leading technology strategy consultant, I’m aware that AMZN runs nearly every startup of note (and not of note) on the internet… They are the leading cloud vendor out there in fact, and thus they subsidize their own infrastructure, while they build their warehouses. Truly they don’t earn much (yet), i’m not sure when they might change… and betting across Christmas sales doesn’t make me comfortable when there is so much sentiment in their direction (with cause, for they’re undoubtedly the monster Etailer out there). So I’ll track this on paper, unless it gets alot cheaper. Looking forward to further complicated options plays to learn from y’all.
Yes. This stock is very tough to predict a turning point and has crushed alot of shorts in the past. We picked the Fly because of that history. We love the company but just think the stock is a little absurd here. But we don’t have a crystal ball, and definitely are not willing to bet the bank on a short AMZN trade.
Your Amazon trade raised a butterfly question for me. Especially with a long time till expiration trade, I wondered what you thought of unbalanced wings. I hate to get the direction right, and still end up losing if the magnitude is greater than I expect. I will often buy the outside wing one strike smaller than the inner wing. What are your thoughts on this, or perhaps you would never go to expiration, and would instead book profits long before the outer wing ever turned your winner into a loser?
As long as you understand the risks they can make sense in high premium names. We did the fly so wide down to 160for that reason. (not wanting to buy a big wing)
HI Dan,
I just looked at your new AMZIN trade. I was wondering what was your rationale in buying a put butterfly when the stock is down about 2% today. Would is not be more desirable to be bearish once we have any sort of rally next week? Also regarding the choice of 240/200/160 strikes, Do you think we need protection all the way down to 160? what do u think of 240/210/180 strikes as it would cost about 4.00 at the current level.
Thanks,
Prabhakar.
The fly isn’t a huge short delta so catching it on an up or down 1% day doesn’t make a massive difference. This stock is difficult to short to say the least, so we liked the Fly as a way to minimize premium risk in case we’re wrong. As far as strikes, we debated this alot internally. We think 220 is realistic, 200 is if things get ugly. We decided on the wide down to 160 precisely because we didn’t want to pay alot for that downside wing, and any move down in the stock towards 240 and below will get this trade profitable.
Thanks CC for your insight.
Dan, I haven’t seen a QQQ trade update. Did I miss it? What plans now? Youd mentioned cutting your losses at some point. Thanks
no update, but want to see what happens Monday, if any follow through on the downside.
Enis – what are your current thoughts on the BA trade. On this move down today are you thinking of selling a lower strike put to reduce risk?
Thanks
I don’t plan to sell anything against it right now. I am still annoyed with myself for taking off the Dec 72.5 put, but aside from that, I have the same thesis. If stock gets near $73, then I might sell the Jan13 70 put. But not enough premium in that option right now to sell it.
Should we have played the fiscal cliff using SPY instead of VIX?
not sure how to answer, in hindsight I could think of a lot of ways that i could have played this move today!
Hi Enis, Dan
I saw your post on ILMN in too many options;
I bought a lot of 57.5 Jan Calls from ILMN on Monday, because i researched the company fairly well and knew there would be an offer eventually one way or the other higher than the previous offer ($51).
I paid $1.25 for the calls and today got rid of 2/3s of the position for an average of 2.50. I was going to let the other half ride but didnt want to risk a big amount so i sold the 62.5 calls for $0.70.
Would you have waited instead and not turned it into a call spread? (if the offer comes at 65, i could make 8 times the money i put in)
Was it a mistake to take 2/3s of the position off? (instead maybe take 1/3 and let 2/3s ride?)
Thank you,
Baran
What you did is very disciplined and for a profit so definitely don’t over-analyze it. Maybe next time sell half, then turn the other half into the spread? It all depends on how confident you are on the follow through. But you can’t complain with profits so good trading!
Is there an opportunity to either modify or put on a trade structure for the NKE earnings event? Put calendar should take advantage of elevated IV from this week and then set up for negative near term outlook for NKE.
yes we just posted Considering Our Options http://www.riskreversal.com/2012/12/20/considering-our-options-nke-dec-95-92-50-put-spread/ The problem that I have here now is that I have traded so much around this position and have the cost for a $2.5 put spread low enough, I am inclined to just let it ride. If I were looking at the set up with fresh eyes today I would probably consider a put calendar much like Enis’ trade earlier in the week.
Do you guys think that CRM might be a good candidate for a put spread? It touched the top end of it’s channel and looks like the upward momentum is slowing down – it can easily pull back to it’s 160 level which could act as support if there are any negative comments or any year end profit taking in CRM due to tax reasons. What are your thoughts? Or is it better to maybe sell a call spread on the name say 2 to 3 months out if we think this might consolidate here (if not fall)?
Hi Dan, Enis, CC – any comments on my question on CRM pulling back? The trade that i’m considering is Sell Feb call spread $165/$180 – collect $6.35 each. Then use that credit to buy Feb put spread $155/$145 for $1.55 each (so you can get 4 puts for each call spread you sell). As long as CRM stays below $170 this trade should be break even, but really benefit on some kind of a pull back.
Yes, but do understand the risk of the stock ripping higher, $8.65. And intrinsically that call spread is already worth 4, so you are making a very tight bet that the stock doesn’t go up from here. So just know that the call spread isn’t 6.35 of “premium” as if it was out of the money. Since the 165s are in the money, you are only getting a few dollars in premium, and the rest is basically short hard deltas… if that makes sense.
http://www.riskreversal.com/2012/12/05/options-education-bear-call-spreads-and-bull-put-spreads/ this explains the intrinsic/ premium thing I was referring to?
Hey CC, yes fully understand that. What is your technical perspective on CRM and do you think that it might move sideways at this point and potentially pull back over the next few weeks to it’s earlier resistance and now support of $160?
Don’t have a strong opinion. It’s been off our radar for a while. I would say it’s way above its moving averages of 154 and 147. So general market weakness could send it lower, but haven’t looked at it in a while. It’s a crazy stock.
Hi, good question, the stock this morning just made new all time highs, and appears to be breaking out of a 2 yr range. This is a scary stock to be short, and to be very honest, your guess is as good as mine, investors care little about valuation, and trying to pick a top in names like this and AMZN have appeared to be fruitless. Selling call spreads vs buying put spreads make sense from a vol perspective, but if u were to get direction right on a sizable move would prob prefer the risk reward of owning premium. it is a tough call.
NKE reports after the close. W/the stock price at $97+ what are your expectations? If as you originally supposed the company reports headwinds for 2013, what price action do you anticipate in one day? Many thx,
Hi, Enis previewed today: http://www.riskreversal.com/2012/12/20/earnings-preview-nike-nke-after-close/ and I updated my options with my existing position here: http://www.riskreversal.com/2012/12/20/considering-our-options-nke-dec-95-92-50-put-spread/ I am pretty mixed on the position here….while I do believe they will feel multiple headwinds into the new year, I also feel that if guidance is better than expected the stock could pop above resitance at it’s 200 day moving avg around $100. But because I have the cost of the Put Spread down to a level that i am comfortable with, i am likely to leave the position on and let it ride. with the stock above $96 I will need a 5% move lower to break-even, which isnt exactly great at this point….any weakness into the close I may take it off.
I cannot believe that Fast Money discussed increased trader activity in JCI Jan $30calls :) I am out of the trade as I had entered the Jan $28 call when the stock was $26. Story of my life…just venting.
So my question is this: I hold JCI stock as well from $26.30. What would be my best covered call option?
HI, Overwrites are not my game, but with the stock up 20% since your purchase i guess u can collar the stock to limit downside after such a big run, sell the stock and book profits and maybe replace with calls or call spreads to define risk, or just sell a call and consider a limit order, with little cushion on the downside.
I was thinking the 105/100 jan put.
CMI I was considering another spread on CMI today but do you feel this is putting more money towards a potentially bad trade? It seems a bit extended to me. Any ideas? Thank you
I rarely add money to my losing trades because of past experience. I do think CMI is extended, but I already have a put spread position on it, so doing nothing more right now.
Do you think there is any correlation between lower volume stocks, CMI, Wynn, NKE and the price action. Less stock trading, lower price movement?
Usually that’s the case. Volume will pick up when people care again.
Team,
GE is dropped more than 3% in about 5 days. Earlier I saw CBOE report high call volume for $24 strike price (dont remember what date) expiring Jan. Today GE is down again – is this the right time to buy calls for GE?
I’m less optimistic on the industrial companies than most market participants given the poor Q2 and Q3 earnings reports overall, and the weak state of global manufacturing. Traders are obviously anticipating a 2013 turnaround, but count me skeptical on that point.
Team,
Do you see any potential for a VIX spread or other strategy that targets the Fiscal cliff deadline?
yes writing one up actually, will post soon.
Morning Enis,
Since FedEx has reported earnings this morning, it is up just about 3%, and the trade is on the border of going against us. In a situation like this, would turning this into a butterfly to take risk off the table be appropriate? I was thinking along the lines of buying back the December weeklies, and selling the Jan 90s, and buying the 87.5s.
Not a bad idea at all. Basically the decision here is similar to the QCOM calendar I went over yesterday http://www.riskreversal.com/2012/12/18/considering-our-options-qcom-decjan13-call-calendar/ Take the profits here, wait for the stock to come back in a little and make more, or, as you said, turn it into a less risky bearish position by closing Dec and selling some Jan downside in the form of a PS or Fly. Basically depends on being bearish in the name here or just happy with the profits from an inside move.
xlf- couple weeks ago in you commentary section, you list a buyer of calls for feb xlf. was there a reason you didn’t like the trade. i did buy them and it worked out.
i do follow your section when someone is buying big blocks. good job for the info
..
.
.
Nice trade, good to hear that it helped. There are many large blocks that trade every day, so we generally like to keep track of what’s trading, but we’re rarely going to piggyback a trade just because of the large volume. It’s certainly useful to keep your eye on it, though.
Hi Guys,
I have a general question. I own a number of options in KCG, now that they are going to be bought out, what happens to those ? Do they convert to the new company ?
Thanks!
Brett
Hi Brett,
For these types of stock specific questions, I recommend the Options Clearing Corp website, optionsclearing.com, where you can find out the potential adjustments for options as a result of corporate actions.
Thanks Enis !
Hi Enis,
Since ADBE is now trading above 37, what are your thoughts on it here? Since the short leg of your ADBE Put Diagonal is trading pretty cheap at ~.15, would you consider buying these back assuming you are not closing the position out entirely?
Hi,
I’ve thought about taking this put off, but since it’s more than 10% out-of-the-money, and I’m long the Apr 34 put as well, I’ve decided to leave it on for now. Part of my thought is that even if ADBE starts to inch down 3-5% over the next few weeks, the Jan13 33 put won’t gain much value as the time decay will offset the directional gain.
Dan/Enis – does this AAPL move change the hypothesis for the QQQ trade? (Emis – do you still think this goes below 500 in the next few weeks?) Wondering how you read these sudden moves (although headline induced).
AAPL for the moment feels like it has found its footing, but obviously that could change quickly. the qqq dec 31st 64/62 put spread has lost more than 2/3rds of its value with the etf above $66, so at this point it is not worth selling here…..I will look to cut my losses on a move lower…..but at this point I am stuck in this trade.
Dan/Enis,
Looks like AAPL had an outside reversal day yesterday and a nice gap move up today. Would you consider playing it to the upside here for a short term bounce?
thanks
I’m still cautious on it, but that’s only one trader’s humble opinion. We certainly have our eye on it for a potential trade, waiting for a good entry (that may or may not materialize)
Hello Enis,
On your $FDX trade, if you are neutral on the move, and think front month volatility is too high, why choose the put calendar instead of a call calendar or both? If your view is that the implied move priced into the options is too high, would you ever straddle it, long both put and call calendar spreads?
Thanks
This is a great question. I considered many possible structures (selling Dec straddle / buy Dec strangle; sell Dec straddle / buy Jan13 strangle; the 90 put calendar, the 92.5 call calendar, the 95 call calendar, etc), and chose this one for 2 main reasons.
1) It’s a delta neutral trade that is only 2 legs. This trade will act very similar to the 4 legged trades, but easier to manage going forward.
2) It has a bit more flexibility since it’s a calendar. That’s to say, on Friday, I’ll only be long one option, which I can spread if I’d like, or leave outright if I prefer, depending on where stock has moved. I’m not forced to close the trade out like I would on a Dec only trade.
I know that you guys are generally on similar pages for trades, but still like to provide different and unique viewpoints. I don’t know if this is asking too much, or if maybe a positive site upgrade, but when coming out with new trades, what if everybody weighed in? Even as simple as a vote of agree, disagree, or neutral, with a few sentences explaining why or why not. I think having contrarian opinions, or supporting opinions, could help those of us with limited portfolios on overall conviction level of new trades.
good points, we vet all trades as a group and rarely do we not have a consensus. while it is not possible to incorporate most of your suggestions for some simple logistical reasons, we will think about ways to infuse broader commentary from the 3 of us.