Options, understandings and tacticsAlan – We open here a forum for discussing options. It might be helpful to open the discussion with a copy of the paragraphs that I wrote 4/24 about options. I don’t know how to cut-and-paste that material.
Before I opened this discussion forum, I noticed a question about choosing a stock that might perform well as an option. I’ve already briefly addressed the subject…and would appreciate knowing about the thinking of others.
I have years of experience, but could not pass myself off as an ”expert.” I prefer that this discussion forum be a gathering of investors with an interest in options…with all of those with greater experience contributing things that they have learned. Our goal is to benefit one another.
This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.
UPS- A Dangerous Head & Shoulders Just Formed on UPS United Parcel Service
By Bottarelli Research Published Monday, April 13, 2015
Wall Street’s dirty little secret of the past year has been to write off weak revenues as irrelevant so long as capital, labor, and energy remain dirt cheap. But now we’re seeing those advantages vanish, and revenues aren’t picking up enough to cover the difference. This bind is showing up in charts across the board, as the big players slide toward the exits.
Case in point, United Parcel Service UPS – NYSE is hanging on by its fingernails as it sets up a dangerous Head & Shoulders sell signal. UPS is doing its best to fight through this. For example, we just read that it plans to spend more than $1 billion expanding its network in Europe. Maybe this effort will pay off, and maybe it won’t. Germany may be growing, but much of the rest of the EU is languishing.
But one thing is for sure: More than $1 billion in red ink is going to hit the books long before any possible sales gains.
Bottarelli Research Tip: We’ve already seen the classic lower right shoulder as price limped along in 2015. And now the neckline — the last gasp support level in the scenario — has broken. The common calculation in this setup is to double the gap between the head and neckline. This yields a conservative target of $92.81 and a speculative target of $79.60.
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With LEAPS, you don’t need to act fast to profit. New trades are issued every Saturday morning, and the average holding time is a few months. And what about the performance? Glad you asked. So far in 2015, LEAPS has hit winners on 12 out of 13 total trades. What’s more, our last 10 trades have all been closed for profits. If you think LEAPS sounds like a good fit for you, then we invite you to join us. Click here to start your free trial. Besst2ALL!-Benjamin
Lawrence Et All,
Hi, requesting some advice on options. A few of us hold May call options on KPTI.
If you’ve held it or just watched it for a few months, it has been a wild ride. Even holding 1 call I have seen it bounce from $500 red to $500 green overnight and vice versa unfortunately. As the time value deteriorates, I ask…..other than Ben’s info posting this morning, has anyone more up-to-date info. I held a call option on RCPT and it too was a wild ride. Sold it for a bonus $500 but left $2000 in someone else’s pocket. I and the others realize May will be here soon. Any offerings of advice from the group?
thanks Lulu Et All, long or calls KPTI
$KPTI
Hi Lulu,
After experiencing the same sort of wild ride that you described, I sold my KPTI options about a month ago, and now hold KPTI shares only. Not knowing the particulars of your option position (other than May expiration), I can only assume that it has increased in value over the past few weeks (paralleling the underlying stock). Generally speaking – unless there is a catalyst prior to the expiration date – it is usually better to sell a profitable call option on a day that the share price is rising, and about 30 days before the option expiration date. During the last 30 days, the extrinsic (time) value of the option starts to regressively decrease at a faster rate until the extrinsic value reaches zero on the expiration date. On the expiration date, the option value is purely intrinsic (approximately equal to the current share price minus the strike price). If you sell during that approximate 30-day window (assuming no pre-expiration date catalyst), you are more likely to: (a) lock in profits; (b) realize a higher return on capital (time-value of $$$$); and (c) free up capital to invest in other opportunities. In this case, you may want to consider investing some capital in Aug 2015 KPTI options (e.g., the $30 call: bid 6.40; ask 7.30; last 6.35). According to my calendar, KPTI may release results on one or more of its Phase 2 Selixinor solid tumor clinical trials toward the end of 2Q 2015 (most likely after the May options expire). I’m glad you brought this up, Lulu, because researching this piqued my interest in looking for a good entry point to buy August KPTI slightly in-the-money options (probably the $30 Calls). Assuming that the clinical trial data are positive, the options should generate an excellent ROI.
KPTI-Hi, Lawrence, it’s good to see ya post 🙂 I was trying to “roll” my ATNM Thursday aby using TDA OTA and it did not work out…I have Aug 2.50 calls and wanted to move further out (more time) I suppose TDA is going to charge me for both transactions….I have looked around and found nothing on “rolling” and doing it with one transaction/commission. Also desire to do the same with KPTI May 35 and Aug 35 calls. ‘apreciate ya, Frank and ALL input. Of course I have not forgot about CLDN, was perhaps going to roll ARWR, TGTX and HALO as well. Best-Ben
Agree…if you delay closing out to near the expiration date you might not even get the intrinsic value on the bid price. To say nothing of the risk of a bad price reversal.
I’ve had to exercise a few expiring options because I could not get intrinsic value very close to expiration.
$KPTI Lawrence. Many thanks…. I sold 1 call to cover the cost of both. I will sell the other $30 call after AACR presentations. (Great Google calendar) Fingers crossed Good news = Green. Appreciate the guidance very very much. Hopefully this winter, I’ll be given a project to become more useful on this site. Gratefully Lulu
I agree with Lawrence,,,Adage is pigs get fat,,,hogs get slaughtered,,,,better to leave some possible in favor of sure. if you see your chips on table double and you have your bag ready for the redouble,,,,,,,,may be empty bag…..
Really you leave nothing behind when you cash in,,,you were paid for your chips,,,perhaps a greater risk taker bought them when you sold at peak and takes the loss. The law of unforseen occurence and unexpected consequences cannot be evaded.
There’s nothing more exciting than hitting on an option.
However, I read that 90% of all issued options expire worthless.
That means that the sellers of the options are making the money 90% of the time.
I tried it myself and have found that selling covered calls and cash covered puts
does indeed make money more consistently for me than buying calls and puts.
Still like to speculate on calls and puts…but it is a losing game in the long run.
$ CLDN…for example: You could buy it for 18.87 yesterday. The May 20 calls were 8.00 bid, 8.40 ask.
So buy 100 shares and sell a may 20 call for 8.20. Your cost basis on the stock is 10.67
after you collect the premium !
Or, if you already own the shares, sell the covered call for 8.20. You are selling out at 18.87+8.20= $ 27.07 on a stock you paid 18.87. Not a bad return for 40 days or so.
Even if the stock goes to $ 25, you are ahead…you sold out for 27.07
Seems to me that the heated market in biotech is good for this kind of thing.
Plenty of people trying to hit the lottery. May try it myself tomorrow.
Morning hendrixnuzzles Et All, Lawrence etc.
I’m running through the threads posted past my bed time and I leave for work in 5 minutes ( 1 hour B4 open). Thanks for giving us option examples, this helps us follow and learn from real examples, actual reference price, dates etc.
Ive listened to all here, and appreciate your answers. Recalling that each time my KPTI option was green , I felt greedy and it was suddenly red again. So I am going to sell 1 and hold the other. Put my sell to close in this morning as there is no other way to track it during the day. If it goes to the sky or not, I’ll have less risk.
cheers
PS, I think I shud have put this on the options thread?
Lulu
One of the Biggest Trades You’ll Ever See
Kinder Morgan (KMI – NYSE) By Bottarelli Research Published Thursday, April 16, 2015
Most people are familiar with the major oil exploration and production companies. Exxon Mobile XOM – NYSE, Conoco Phillips COP – NYSE, and Halliburton HAL – NYSE are household names. Few people, though, know much about the companies who lay the pipelines to transport all this oil.
In this lesser known sector of the market Kinder Morgan KMI – NYSE is one of the biggest players. Earlier today, a trader made a titanic sized bet on the long term future of this $94 billion dollar company. He bought 100,000 KMI January of 2017 50/60 bull call spreads for $1.00 each.
Bottarelli Research Translation: This is one of the biggest orders I’ve seen this year. The math is easy: 100,000 contracts at $1.00 a piece comes to $10 million in pure option premium.
Granted, this trade has almost 2 full years to play out, but this is a gigantic bet any way you slice it. The breakeven price at expiration for the trade is $51, which would require a 17% move higher in KMI. If the stock is unable to make it to $50 (which is a 15% move), then all $10 million could be flushed down the drain.
Things really get interesting here if KMI is able to rally all the way to the short strike of the spread at $60. This would require an incredible 37% move, but the payoff would be enormous. At $60, each spread maxes out its worth at $10 a piece, good for a profit of $90 million. If you’re looking for a longer term name to hold in your portfolio, it sure looks like KMI is a solid bet. But if you want short-term profits, then you need to be trading our HOW alerts. See below….
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Thanks Benjamin!
I too have had great success this year with options/calls. My second biggest gain ever occurred last week with GE. Bought 100 GE May15 (27) for .06 cents within 3 hours they ran to 1.70 I sold out at a 1,400% gain and exercised 5 calls into 500 shares @ 27. With hopes of taking advantage of the $50 billion buyback! **This was all created on a $600 investment!
I also took advantage with purchasing 50 KMI April17 (42.5) @ .20 sold them today for 1.15. I exercise five of those calls to purchase 500 shares at 42.50 to take it vantage of this tremendous company that seems to grow and increase dividends substantially… Owning this company’s like printing money.
With the Avengers movie coming out this summer and the announcement of the new Star Wars movie with Harrison Ford in Decembeber, I thought what better time to buy Disney calls than today?
Picked up DIS Jan15 2016 (115) @ 4.50 if the price should ever go down I will certainly average down to buy more. I’m certian these calls will end up in the $$$.
$KMI, GE etc. – Why not share with others SPECIFICALLY what you are trading WHEN you trade and your perception, thoughts on the trade instead of after the fact? Best-Ben
Nice to see others here keeping an eye on NON-bio companies I own and admire. As it happens, Long $KMI
$SLB- A Gutsy (But Correct) Call on an Oil Pullback Schlumberger Limited (SLB – NYSE)
By Bottarelli Research Published Friday, April 17, 2015
The energy sector has seen a huge recovery over the past few weeks, but it looks like it could be time for a breather for some of these new high flyers.
Schlumberger SLB – NYSE has moved up from $80.00 in mid-March to $95.00 earlier this week, highlighted by a strong earnings report released just last night. But one big-money trader thinks this is a “sell the news” situation. Earlier today, he bought 10,000 SLB May 87.5 puts for $0.85 apiece.
Bottarelli Research Translation: This looks like a pretty timely bet. As you can see from today’s big reversal, SLB is starting to get overbought. It was severely rejected earlier this morning at its 200 day-moving average.
At $0.85 per contract, this trader is putting up $850,000 in pure option premium. With a break-even price at expiration of $86.65, SLB would have to pull back around $5.00 within the next month — a pretty big move. But considering where SLB was just a month ago, it sure doesn’t seem out of the question. Best2ALL!-Benjamin
For Ben and others with questions about rolling options to extend their duration:
Tastytrade (TT) offers great options training at a great price (free!). In the linked video, the TT team talks about positions they will roll, when they will roll them and if there is anything else that you should consider when rolling. They also talk about the positions that they will not roll and their rationale.
https://www.tastytrade.com/tt/daily_recaps/2015-04-20/episodes/rolling-04-20-2015?locale=en-US
Lawrence Mc-Re: rolling: thank you so very much. Have an awesome day chief!
Time Warner (TWX – NYSE) By Bottarelli Research Published Tuesday, April 21, 2015
There’s been talk of consolidation in the media sector for some time now. You’ll often hear talking heads spouting about which companies will be joining up, but you rarely actually see these talking heads putting their money where their mouth is.
That’s not the case for one heavy hitting options trader. Earlier today this trader set his sights on broadcasting giant Time Warner TWX – NYSE by purchasing 22,000 TWX July 92.50 calls for $0.81 apiece.
Bottarelli Research Translation: This is a pretty wild order. For this trade to make money at expiration, TWX has to trade to $93.31 — an 11% increase. Time Warner is no flash-in-the-pan biotech stock — it will take some serious news for the stock to make a move that size.
Clearly this trader thinks serious news is coming. At $0.81 per contract, he’s putting up $1.8 million in pure option premium. If TWX fails to get on its horse over the next few months, all $1.8 million will be flushed down the drain. Best2ALL!-Benjamin
Remember Ben, someone sold them!, so feel the opposite.
TIVO- http://investorplace.com/2015/04/trade-of-the-day-tivo-tivo/?sid=20150427TOTD&cp=TOTD&ct=20150427&cc=eletter&en=4742881?cpp=TOTD&enn=4742881#.VT5Ic9JVhHw Best2ALL!-Benjamin
CCE- From Bottarelli Research:
They share very similar names, but Coca-Cola KO – NYSE, and Coca-Cola Enterprises CCE – NYSE are two different companies. KO is the beverage behemoth you’re all familiar with, while CCE is a bottling company of KO products.
Earlier today one sharp money trader made an enormous bet on the long-term future of Coca-Cola Enterprises. This customer bought 50,000 CCE January 49 calls for $2.00 each.
Bottarelli Research Translation: This right here is a huge bet. 50,000 calls at $2.00 apiece comes to $10 million in option premium. With a break-even price at expiration of $51.00, CCE has to move 12.8% over the next nine months for this trade to make money.
That’s a pretty big move, and it’s likely this customer is speculating on some sort of news announcement. In 2010, KO acquired CCE’s bottling operations in North America. Perhaps now KO is looking to acquire their bottling operations for the rest of the world?
That’s pure speculation on our part, but you can be certain that this customer and his $10 million in newly bought option premium are counting on a catalyst to drive CCE much higher in 2015. Best2ALL!-Benjmin
$GLD-Betting Big on Fed Dovishness SPDR Gold Trust ETF (GLD – NYSE)
By Bottarelli Research Published Tuesday, April 28, 2015
Tomorrow all eyes will be tuned squarely on the Federal Open Market Committee as they conclude their monthly two-day meeting. The Fed has been saying for months that they’d like to start raising interest rates soon, but as of yet market conditions have not allowed them to do so. Going into tomorrow’s meeting, it’s not a question of whether or not they’ll raise rates right now (they won’t) — it’s a question of what hints they’ll give as to when rate increases will finally start.
There’s not really a “pure play” on Fed activity, but one instrument many choose is gold — specifically the SPDR Gold Trust ETF GLD – NYSE. One trader made a very large bet earlier today as he bought over 30,000 GLD June 120 calls for $1.18 each. GLD
Bottarelli Research Translation: This is a bet that the Fed announcement will be “dovish,” which is to say any discussion of raising interest rates further will be pushed off further. Lower interest rates means a weaker dollar, and a weaker dollar means asset classes priced in dollar terms (like gold) should go higher.
This trade has a break-even price at expiration in June of $121.18, requiring GLD to rally over 4% from current levels. Gold prices are generally not that volatile, so 4% would be a strong move. Our trader here seems pretty confident about the prospects though. At $1.18 per contract, he’s putting up $3.5 million in pure option premium. If GLD is unable to stage a rally over the next few months, then all these options could expire worthless.
How’s This for a Track Record? We’ve hit winners on 26 out of 27 trades since March. That’s enough to grow $1,000 into $80k. And it gets better. We’re also 9 for 9 on our explosive new “H.O.W.” trades. That’s enough to grow $1,000 into $32k. Add it up, and you could be making over $110k in less than 1 month. Best2ALL!-Benjamin
Sogiam, I appreciate these tidbits from Bottarelli…..have you, are you following these purchases? I will record this one for curiosity……..cheers
Yes Lulu I do, in a small fashion only if I am interested and have a understanding of the equity. It’s a learning experience. I should have posted the TWTR puts that they e-mailed and which returned 150% but I do not do puts yet. btw-I believe Conversations with God is a grand read, as is anything that brings you closer to your Maker 🙂 Don’t let organized religion throw you in their hell! Best-Ben
Cheers Ben, Im going to rack them too. Mind you they can be sold at anytime when in green so one would have to watch them daily or have an alert.
I couldn’t imagine reading ‘just the bible’. That would be like having a bucket list and never leaving the house. Im reading ‘friendship with God’ now. …same author. Nope, none of that organized for me……I do not like to be told what to do, when and how!!
Thanks Gummie friend
lulu
$GILD
George (re your 5-15-15 question under Post 45 on the main KSS thread):
I am considering January 2016 bull spreads (105-125). GILD has an estimated PDUFA date of November 6th for Tenofovir Alafenamide (TAF) – and I prefer an expiration date that reaches at least 30 days beyond the estimated PDUFA to accommodate a postponement (and there are no December GILD options). Of 11 analysts who have reported on GILD in the past 30 days, the average TP is in the 120-125 range. I am also optimistic that GILD will complete a significant needle-moving acquisition before the end of the year. If GILD SP experiences a significant downward correction before the PDUFA, I will most likely close out the short call options in the spreads (at a profit), increasing the potential upside profitability of the long call options. Please let me know if you have a better plan – I’m always interested in exploring alternatives. Trading GILD options has been an excellent source of income for me (and several other Gummies) in the past year.
Lawrence-most appreciated-I have no real plan since I only buy calls or puts-very unsophisticated I know-but your timeframe of January makes sense to me based on what you mentioned in your comment-& because of my firm belief that despite the huge market move we have experienced since 2009-we will still march higher due to the ongoing credit boom albeit it with starts & fits-when the credit boom turns into a credit bust then it will be tough going for sure but see absolutely no signs that the credit boom is slowing & there are decent reasons to think it will continue for several years at the minimum
Nice spread Lawrence!!!
I am buying some Jan16 calls for Gild with a $97.50 strike. The higher delta means higher risk as the option is more sensitive either way to price movement, but I like ITM options.
Earlier this year, I sold a bunch of Jan16 $105 puts on Gild, and for a little while, I was very nervous about them, as GILD was in the $9x range, and I sure didn’t want to get assigned but now I think they will be just fine.
The beauty of your spread Lawrence is that if the price goes above $125 and you get assigned, you can exercise your $105 calls to buy and get called away at the $125 price.
In retrospect, I should have bought puts to offset the ones I sold, but I think it will work out ok.
I am a complete beginner at options but realise that I should be starting to make use of them not only to try to make some money but also to provide a bit of insurance by way of buying protective puts , specifically in connection with my $ARWR shares. Although I have just opened an IB account I hold these ARWR shares with TD Direct who do not provide an options service. Apologies for a VERY basic question but if I bought the put options now via IB and wanted to exercise them at a later date would I be able to use the shares held in my TD Direct account to do this. I’m thinking not in which case am I stuck with no way of protecting what I’ve invested in the ARWR shares? Thanks
Hi Cyndy,
I think it will be pretty difficult to exercise if the security you are selling is at a different broker than where you own the put. In that case it will probably be easier to sell the put at a profit in the account where it is located.
Hi HN,
I agree that both shares and options need to be in the same account. Unless I read her post wrong, it appeared to me that Cyndy is contemplating buying protective puts – so you must be referring to the end-game: selling to close the protective puts that she bought at the outset. See my post below for concerns about the economic viability of even buying puts on such a low-cap stock. I would be interested in hearing your take on that issue.
Hi Lawrence, and Cyndy en passant: Larry I agree 100% that purchasing puts in biotech is usually not viable, especially in low cap stocks, on account of the high premiums and outrageous bid/ask spreads. (I did not specifically look at ARWR options before responding to Cyndy.) I also agree that ARWR is not at present a front-line pick, there are too many other good uses for the money in light of the dozens of stocks that Doc unequivocably rates as “Lon/Buy”. I did as you did…sold out ARWR to wait for another day and put the money to work elsewhere. Just didn’t think a reco from me on ARWR was what Cyndy was looking for.
Cyndy, besides my opinion on ARWR (which is tantamount to Doc’s opinion as I understand it), my opinion is that in biotech you will be better off SELLING both calls and puts, rather than BUYING them, especially if you are more concerned about capital protection and risk as opposed to going for risky, leveraged capital gains. Sorry for not fully explaining my POV in the original post.
From Larry’s posts, it is pretty clear he is experienced and is involved in more complex strategies than I am, or that you should attempt at first. But if you are interested, I’d be glad to give you some examples of how I think options could be used to reduce risk in biotech, as opposed to adding to your risk. Specifically, I am involved with options strategies in ESPR, BLUE, CLVS, and I am considering similar action in RCPT.
Long $ESPR $BLUE…short puts in $CLVS….no position $RCPT
Best regards both Larry and Cyndy
Cyndy: Bite the bullet and sell out TD. Then do IB for a lot less trading costs.
Cyndy: Sooner or later you will have to sell existing stox via TD, so their costs will be the same as today. You re-buy at roughly a $ from IB. Its a price worth paying to effect the divorce. Get out of my life TD, you heap of crap. Onward and upward.
Alan,
Perhaps further explanation of the no-cost transfer (with personal example) would be helpful. About a year ago, I became totally frustrated with trading platform issues, slow execution on trades, and less than satisfactory customer service rendered by Broker XYZ. After some research, I decided to open a new account at IB and transferred all of my holdings (shares and options) to IB at no cost. If I had sold those holdings at Broker XYZ and paid their customary internet transaction commissions, it would have cost me $400-$500 plus another $75-$100 to repurchase the same positions at IB – not to mention the tax headaches involved with having to deal with wash sales (for American shareholders), and loss of potential long term capital gain savings.
If Cyndy is not a US account holder/taxpayer, the consequences may vary significantly. The best thing to do is discuss the situation with the brokers, and then decide on a course of action.
I had no idea there was a no cost program. I managed it, but I assumed this was a special arrangement as my shares were held by my bank which had sold out to TD, so they offered the free transfer to anywhere…I used IB. But it took an age and 10 phone calls before it was complete.
$ARWR
Hi Cyndy,
Until about 2 months ago, I was a strong believer in and held a long position in $ARWR. Although I still have generally positive sentiment toward the company, I reached the conclusion that I could get a better return on capital by taking a small loss on $ARWR and investing in other companies (such as $ESPR, $ZFGN, and $OVAS). Depending on your risk-reward perspective and patience, holding $ARWR may be the right move for you, and I understand your desire to “protect” your investment (i.e., conserve capital). Here are a couple of issues to consider:
(1) If you are going to play options off owned shares, then you need to have both the shares and the options in the same account. Two possibilities:
(a) Keep the shares at TD and get authorization to trade options (should take less than 48 hours to get a response) – and do the option trades thru TD; (b) Transfer the shares uses the no-cost program that I believe all brokers participate in; it takes about 5 business days to complete; you need to initiate it with TD, but you will need account information and IB routing numbers to pass to TD. You will not be able to trade those shares until the transfer is complete. FYI, if you go with (1)(a) you can later transfer both the shares and options to IB. Brokers on both ends should be ready, willing, and able to help you with the details of the transfer.
(2) Rather than buying puts (at about $1.50 per share for the December $6 puts). With that put, the SP needs to drop below your break-even point ($4.50) for it to work in your favor. It may be more advantageous to sell covered calls (e.g., September $7 calls) – and collect and retain premium of approximately $.88 per share ($88 for each 100 shares). If the SP has not increased above $7 prior to expiration, you have realized a profit of about $80-$85 per hundred shares. If the SP goes above $7 and the option is exercised, you still get to keep the premium and will receive $700 for each 100 shares called. (You can also close out the option early – hopefully for a profit; wash, rinse, and repeat). Keep selling covered calls – you may need to change the strike price to fit changed circumstances.
No current position in $ARWR
Cyndy,
I just re-read your post and picked up on your statement that TD Direct does not handle option trades. In that case, you should consider the no-cost program to transfer the shares to IB. For me that would be preferrable to selling the shares at TD and re-purchasing them at IB – incurring brokerage fees on both transactions.
FWIW I would echo Lawrence,,,I reduced my $ARWR to a token size to free up money even tho I took a small loss. In general you are more likely to lose the premium you pay in buying puts than making money on the deal, but if the bottom drops out you gain some “insurance” against that,,,a hedge, You could accomplish much the same thing by selling your holdings ahead of a binary event but If you buy back in before 30 days you run afoul of tax restrictions unless trading in a standard IRA. frank
Thomas & HN Say I own a herd of cattle that is not quite ready for market,perhaps they may gain another 100 pounds each if fed for another month. The price is attractive now ,say $1.00
a pound on the hoof. That price may drop in a month as more beef comes out of feedlots.
I “put’ an offer of a forward contract to a cattle buyer that I will give him $50 now if he will guarantee $1.00 a pound price then. Cattle are sold by the hundred weight so he says yes I will Guarantee $100.00 a hundred for 30 days. I have lots of pasture grass and some corn to last that long so we strike a deal. In say 28 days my cattle have not only gained 100 pounds each but are now prime beef which nets another ten cents a pound. One scenario,the price has held. I sell on the open market having made $100. on the weight gain plus another $100 ,,,The $1.00 a hundred prime price on a now 1000 pound animal.
The buyer keeps that $50.00 premium I paid him but I net $150.00 more $200.00 minus the $50 cost of that put that I bought from the buyer.
Second scenario,,,everything the same but now the price has dropped to $95.00 a 100.
On the open market I would now get $950 plus the $100 prime bonus or $1050.00.
Apparently a push? Except if I had sold early I would only be selling 900 ponds or $900.00
so I actually profit $50.00.
Of course if the market was flooded and price dropped to $90.00 a hundred it would pay me well to have hedged.
Buying a put gives you the right though not the obligation to sell at a certain/sure price at a later date. The cattle buyer, or seller of the put would have to purchase at the certain price no matter how low it may have gone at the date agreed on. He enters into such a deal because he also needs to know what his future costs will be.
A few hours ago A Chinese billionaire lost $15 billion dollars in the last 30 minutes of trading. I surmise he would have liked to have bought a put somewhere in the afternoon run up in price. If he had simply sold his holding he would likely have been accused of insider trading or similar,,been accused of corruption and possibly a bullet to the back of his head. China,remember? Li Hejun,,,,solar film. He doubtless knew that such a runup was unsustainable but was trapped by circumstances. Was it manipulation by sources unknown?????????????????
Frank,
Thanks for the analogy. I do understand how many use options to both hedge and also profit but it also involves timing and expiration dates but those are at least known. For me smart and shrewd individuals (like many here in gumshoe land) can greatly improve their gains and minimize their losses trading or exercising options. I am much more negative on straight out shorting (especially for emerging Biotechs) since the potential loss can be huge and many traders are just manipulating share value for personal gain and couldn’t care less about the company or the science. I also understand how shorting can help contain runaway increase in share value (and the market in general) just it is so perilous to short Biotechs….even the more established giants.
V/R
Tom
Thomas I totally agree with you,,mainly beca edc ause of various regulations and tax laws it is difficult to hedge against loss. That is why I am trying to kick around some ideas to see if it is possible to mitigate risk at this time,as we may be in or entering over bought territory in Bio,,,,or maybe not. Very hard to tell by rational means. If it is more likely than not that stocks drop on binary events it should be a given that you sell before they do and buy back after,,,,except fo tax regs. etc. For straight trading purposes I like to sell covered puts and calls and occasionally buy calls in combo with buying the underlying stock to gain a few more pennies. Similar to what HN is doing with an added twist or two. Those would be classed as mildy bullish plays. I would have to be pretty much convinced a stock was going to drop severely before I would buy a put although Ihave in past made a little by doing so,,,,the most you lose is the premium you pay plus broker fee which is small with my broker. You do have to run the numbers to see if the premium cost vs risk mitigation is likely to pay. Risk cannot be removed,only mitigated.
IMHO frank
If that was too garbled,,,my daughter let the cat in which jumped onto the keyboard in my lap and then batted the mouse around. I see I did not fix everything,,,,BAD cat!!!!
EDC-Frank, maybe the GOOD cat’s trying to tell us something 🙂
Direxion Daily Emerging Markets Bull 3X Shares
Best-Ben
HM, Benny, Lawrence, Frank, thanks a lot for all the advice, really appreciate it. To digest it I need more than the minute I have just now so will do that tonight or tomorrow and , if you don’t mind, ask any more questions when I’ve done that. One thing I am wondering is how long it took your transfer to IB to go through Lawrence? I did think about it but worried about being “locked out” and not able to trade for a while
Cyndy: It took me nearly a month. But the cash was immediate. So I sold to cash what I could and waited for the longs….which I intended to hold anyway.
Please dont ever feel bad about asking for advice…youre as much a part of this team as anyone simply coz you respect its value.
Remember, your stox are going up/down exactly the same amount whether on TD or IB and you can sell at anytime. Only the trading costs are different.
I transferred everything to IB from another broker about 7 years ago. If my memory serves me right, I just fill out a form at the IB website, and I began trading at IB just a few days later.
RE: Post 40 dtd 5/22 at 4:51 pm
For Cyndy: about 5 business days
Cyndy, there’s no reason that the transfer has to be an “all or nothing” event. Best-Ben