Friday, September 14, 2012

Random Thoughts

1) Helicopter Ben is fueling the risk on trade. Time to get out of bonds and into equities, especially hard assets like precious metals and oil stocks. I will be looking to sell out of the money puts on the dips. The only issue is: will there be dips as these dollar denominated commodities race higher.

2) The banks are safe with Ben at the helm. I wish I would have pulled the trigger on Bank of America a few days ago when it was below 8. It's probably still not too late to drink the punch.

3) For those of us who sell puts on weakness and fear this may be a challenging time. We'll need to balance patience and swinging at the fat pitch vs. standing at the station and missing the train. I'm glad I entered into my recent Caterpillar, Conoco Phillips, Phillip Morris and Intel trades so I've got some skin in the game.

4) Intel seems to have found support at 23. Writing puts at the 20, 21 and 22 strikes looks like a profitable set up to me.

5) Facebook seems to have found support at the 19/20 level. There are still some pretty nice put selling premiums to be had at the lower strikes. 

6) If you've got the capital, heavyweight AAPL has some nice premiums for out of the money put selling. The volume is so great that there are many option rolling opportunities should the trade go against you.

7) Perhaps weakness will be found in the risk off, high dividend securities, i.e., telecom, utilities and health care. Wherever it is we'll be watching :)

8) Have a great day and a great weekend!

7 comments:

  1. I have a decision to make today on the BP trade I am managing. First I understated the current ROI on it in my previous post as I was looking at the value in my holdings. When I actually set up the trade to close it, it showed a much higher credit. As it sits today it would be almost 20% since July 31.
    I will need to decide what strike to sell next week's call at. It is at resistance but with yesterday's news may close above it. If I see a reversal signal, I will sell the 43 again. If not, I may let it expire ITM and ride up the call that I own OR pick a strike 1-2 pts ahead of it. I will decide this afternoon depending on how far it is ITM, and if a signal forms.
    On Tuesday I had sold a weekly BPS in AAPL for a 1% ROI 595 610 strike. Only one contract filled though. So I'll make $16 on that!
    I can't do facebook - you mentioned before you dno't want to own it and neither do I. I can't wrap my head around that business so I have to try and ignore those premiums.
    I followed you on a couple of the Intel puts and will maybe add to it with some cash being freed up today.

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  2. Hey gbarbs, I'm not sure what to do with that BP spread but I do believe we're going to see it grind upwards with a weaker dollar.

    10-4 on FB and INTC.

    Right now I'm looking at some risk off stocks like Walgreen's, AT&T, Verizon, Southern Co., Altria, etc. They may be out of favor for a little while yet buoyed by their dividend?

    Take care, Chester

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  3. On BP, I just rolled the 43 call to next Friday for a .22 credit. This brought in $408, reducing my basis to $11,771. If I closed the spread today I would receive $14220. I chose 43 because it had sufficient time value and provides some cushion if BP drops. The chart is up against resistance established in March/April and also at the top of its channel, but at the same time I see no reversal signal and it did break through just a little. If it keeps going that is ok because I collected my TV for the week. If it dips the 43 will expire worthless and then I'll collect on the new call sold.

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  4. gbarbs, why do you prefer spreads over put selling? Any thoughts on use of margin? Thanks! Chester

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  5. Chester - i just started reading cohen's book. thanks for the recommendation. Maybe I will see puts differently once I get through the book. I have a margin acct with tradeking but they hold more than most brokerages, and then have a list of stocks that they hold even higher percentages for. Anyway I do sell naked puts but haven't done it like Jerry Lee too much. I started using them to lower my buy prices. Now I try to use them for cash flow and get them to expire worthless.
    Looking at January AAPL options for example I could buy a BCS 600/630 for 33% ROI, sell a BPS at the same strikes for 22.5% ROI. On a naked put the 660 strike would bring in $3165. Tradeking will hold $21612 on that which is under 15% ROI. So the spreads look like more cushion and more ROI. Maybe you can tell me why the put would be better. Easier to roll out for credit if the trade goes bad?
    I am still learning as I didn't even know what a put or call was before February so certainly would appreciate your thoughts. Comparing these different options I am not sure what additional risk I might take on for the higher ROI.

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  6. Do you think banks will tank when the Helicopter Ben's bubble bursts or they would survive his successor fixing the mess? I was thinking in buying BofA at the current levels as a long term holding (hoping that one day it can get back to 20 - 30-ish level and paying dividends. But I am not sure about this trade yet. Thanks for insight.

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