AAPL – Gift from the Gods – Sept-9-2013

Although I am agnostic towards religion bordering on Atheism (In fact, I read an article claiming that religion agnostic people are basically coward atheists – pretty funny). But I have some sort of belief in an external power which we have no idea about. I believe we are ants doing our business, bashing our boss, hating traffic, but we have no idea what truly exists out there.

Anyway, back to trading and making some moonaay!!! So, AAPL got slaughtered after their Sept 10th 2013 annoucement right? And I lost a decent amount of money (90% of the traders out there will tell out about how much they made but will stay mum on when they lost). But hey! I know when a stock is over-extended – Just from experience – either to the upside or to the downside. That is what makes me monay and lots of it too. Let us be conservative and average it out to a pocket change of $10k a month. Doesn’t sound right? Right? Ok then F.O and don’t read this……I must be one of those spam binary options bloggers on youtube!

Anyway, what I want to say here is…when any stock with solid fundamentals pulls back crazy like this, you don’t short……..you go long! (Why? Because retail traders like you and me are famous for showing up late to the party. By the time we hear the bad news….the down move is already over! Does that answer your question about “Man!! I am unlucky…when I buy a stock it falls and when I short …it goes up) That is what makes you money. TSLA..when it pulled back to $100 from an analyst bad-rating, I loaded up like no tomorrow. Same thing happening here with AAPL!

Alternate Covered Call – Covered call write on your long ITM calls

Sometimes you end up a situation where you were bullish on a stock and you buy some long calls on it and the stop just ends up in a whipsaw range-bound price action. Take YELP for example

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YELP had hit $58 (I bought puts here and sold them at $51). Then, when I noticed the euphoria had clearly died and the imminent pullback had happened,  I bought naked calls at $48. The only thing I didn’t know was that for the next 20 days YELP wanted to “play dead” like my dog Max. The stock refused to budge. I was losing precious Theta on my long positions everyday.

Most option newbies are familar with covered call writes. They own a stock and they sell some OTM covered calls against it.

Did you know you can do the same for ITM calls too. When a call is deep in the money, it’s delta is very near to 1. This means it behaves exactly like “real stock”. You can start selling OTM calls against your long position and collect theta and possibly keep the whole premium if the options don’t reach the OTM strikes you sold. Isn’t this great?????? The best thing about this strategy is, IT TIES UP $0 ADDITIONAL CAPITAL. It is almost like free money!!

But there is always a catch; isn’t there? The catch is if the stock moves up, your gains will be muted because the OTM calls you sold will gain value and reduce the profits you can get from the naked calls. But this is short-term if the stock expires below the OTM strikes, then you strike GOLD, so to say. If it blows through your strike, then you cap out your gains and simply close out your position as 1 spread.

Keltzner Channels are your friend

I don’t believe in cluttering up your screen with 10 technical indicators and trying to act like you know the future. However, some of them are very useful. Take, Keltzener channel for example; I love this indicator. It doesn’t help me pick a stock but if I know a stock and I have a directional bias, it gives me exact entry points to get into a trade. And it works nicely on a 1, 5, 15 min, 1 hour, or 1 day chart the same.

I will take GDX as an example. Look at the chart below. I was bearish on GDX around 5/28 but I didn’t know when to put on the bearish play. Keltzner channels is there to help…What you do is you wait for the stock to cross the upper end of the channel (if you are bearish). In my case it was between 5/30 – 6/6/2013. I sold a $30-$35 bear call spread on 6/3 and closed it today for a maximum profit.

Bottomline, reversion to the mean does not always apply to Volatility but to Stock Prices too.

Screen Shot 2013-08-06 at 11.26.54 PM

Easy money from irrational exuberance – YELP!!

I cannot tell you how many times these trades work for me. I love them. Basically, stay away from earnings plays (because of the outliars like FB, BIDU etc + inflated vol before earnings). What you do is wait like a Python after earnings. You do need to do some research about the stock though so that you know if the post-earnings move is justified or not.

If the post-earnings move is way way out of the expected move that the options were implying, then it becomes a potential trade for you. Case in point YELP. It shot up $22% in 1 day even after the company reported a loss (the loss was less than what analysts expected. Ha!). I was ok till this point, but then the comedian Cramer says in CNBC that AAPL should buy YELP for $75. The stock shot up another 10% in 1 day. This was a clear red flag for me. Whereas people were buying it left and right and saying that it will be $65 next week and even $100 in a month, all I had to do was wait till it hit the top of its ‘extended range’ and buy some PUTS. Now, when a stock is so obviously overbought/oversold, I don’t trade spreads; I just go long an option naked!!

With Yelp, the stock dropped from almost $59 to $52 in 1 day and it is going down as I speak. Bottomline, the cliche “be greedy when others are fearful and be fearful when others are greedy” is TRUE !

These opportunities don’t arise every day, but believe me they arise often and guess who gets to go the bank laughing? YOU!!

Saving a losing Earnings Iron Condor

So far, earnings season has been good for me. I played mostly Iron Condors at .09 or .10 delta positions. But as you may have read before, Iron Condors mostly win, but they do lose sometimes and then the loss is huge.  I am writing this blog entry not only to put forth an idea or two to save your losing earnings Iron Condor but hoping that others can leave comments with their ideas too.

  1. My Earnings Plays so far:
  2. AAPL – Success
  3. NFLX – Success
  4. HLF – Success (just now. Ha!)
  5. FFIV – Success
  6. BIDU – All previous profits got Wiped Out !!!! STOP!!! Details below

Day before earnings BIDU @113.08 IV = front 94%
expected move = $7 i.e 6.19%

Iron Condor credit = .40c
(10 delta) 125/130 call = will absorb 10.6% move
(10 delta) 101/97.5 put = will absorb 10.6% move

So, all the above plays gave me nice returns day after day. But BIDU jumped 20%. I had to take the huge loss and just close my Condor.

But, I still managed to save my ass. Since the option pricing and the actual move were so completely disproportionate, I just had to make a directional assumption that the stock will retrace. I just waited for the stock to start falling, once it did, I just bought a naked PUT. Then when the stock hit bottom and was clearly oversold, I sold the PUT and bought a CALL. Not only did I cover my loss but actually made a decent profit.

So, is that a strategy to recover from a failed earnings Condor. Absolutely NOT!! eg. If you had put on a Facebook (FB) earnings condor, you would have been wiped out and then some. And if you had put on a strategy like above, you would be heading towards bankruptcy.

The only takeaways really for me are :

  1. Stay away from stocks which have been coiling up like a Python for some time. FB is the biggest example. It was a dead stock for months.
  2. Looking at earnings history and stock movement during earnings helps. With FB there is hardly any history.
  3. Finally, if none of the above are true and the stock still does a wild move, just keep your eyes open for a bounce trade. It just might be possible to recover from your failed Condor.

Please leave any comments if you know of any other ideas to recover from an Iron Condor during earnings. Or if you think any other strategy is superior like a back/ratio spread.

ZYNGA oh ZNGA !!!!

ZNGA is basically an underdog (right now at $2.22). I have immense respect for Mark Pincus and have faith that he can get the company out from the dumps.

Having said that. Here are my positions with ZNGA so far :

  • SOLD 3 Jan 19th $3 PUTS  for $256
  • SOLD 5 Mar 16th $3 PUTS for $326
  • SOLD 5 Jun 22nd $2.5 PUTS for $330
  • HOLD Equity 500 shares @$3. Total invested $1500. Current Value  $1100
  • UPDATE Nov 26th – ZNGA really seems to have bottomed out now and is showing signs of recovery. The stock is at $2.43 and my conviction is showing hope..the puts I have sold are becoming cheaper and my equity is gaining back its value.

This is almost a faith play for me due to my confidence in Zynga and M. Pincus. Obviously, the goal is for the PUTS to expire worthless and I keep my $912 in profits. But even if it gets assigned to me, I see this company recovering pretty soon.

Option Plays CSCO, DELL, EXEL

CSCO STRADDLE -

  • Bought the Nov 17th $17 Straddle, one week before earnings.
  • Earnings came out spectacular, but stock only moved 6% (CSCO has a history of moving 12% during earnings).
  • Update Nov 17th - Couldn’t sell the Straddle because even at $18, I had a 16.6% loss
  • Finally, rolled over the $17 call to Dec for a very small price.
  • The expectation now is Obama will take a decision about the Fiscal cliff and the stock should continue its climb up. Although, $18 is proving to be a strong resistance right now.
  • Update Nov 19th – As expected CSCO continues its climb up. It is at 18.27 right now. If I had closed my straddle above, I would have lost 16%. But since I rolled over the call, I am now almost break-even (3.3% loss right now) even after including the price I paid for the roll-over to Dec 22 expiry.
  • Update Nov 26th – CSCO has climbed up to 19.06 now and I am thanking myself for rolling over my call. Because now I have a profit of 54% in 10 days 
  • Update Nov 30th – CLOSED CSCO when it hit $19.10 for a total profit of 56.6%

DELL STRADDLE-

  • Bought Dec 22nd $9 straddle one week before earnings, because I realized I made a mistake with CSCO by buying such less time.
  • Earnings came out horrible, but Murphy’s law….the stock dropped only 5% and I don’t have a profit yet. Although, looking at the very bearish chart, it appears the slide will continue. The only caveat being the stock is already trading at a 52 week low.
  • Update Nov 19th – Dell is still rangebound between $8.80 – $9.20 and does not want to budge. This is despite the confirmed downtrend as show in the chart below. I still have until Dec 22 for the straddle to expire, so we will see.
  • Update Nov 26th – Dell actually reversed nicely and is at $9.94 right now. So, my so called “educated guess” of Dell dropping even further wasn’t actually true. Anyway, that is good news for me..because my straddle which was decaying theta like crazy is back to break-even and any movement up from here would be a profit. Note however, that I would like to close my position 2 weeks before expiry if possible because of the exponential theta decay in last two weeks.
  • Update Dec 3rd – Wow! Dell is going up strooong…it hit $10.20 and looking at the technicals the trend is just starting…so I will sell my position in 1 week since I am up quite a bit already.

EXEL STRADDLE-

  • While DELL and CSCO were earnings play, I also bought an FDA play 20 days before the FDA decision for EXEL. The implied volatility was relatively low and it seems like a nice purchase for now. Plus, FDA plays always show wild movements, so we will see how this turns out on Nov 29th.
  • Update Nov 19th – This is obviously an FDA play (PDUFA date = Nov 29th) and my Christmas gifts are going to be bought from this money!! Right now the stock is in a consolidation as you can see in the chart. I did not buy this straddle to make money on Implied Volatility rise. The hope is to see a massive up or down movement like DVAX did last week (down 57% on FDA advisory committee’s questioning of the safety of the phase III clinical trials)
  • Update Nov 26th – After reading more and more about EXEL, my position is actually now bullish so ended up doubling my calls. This is not a straddle anymore..because I am more bullish and in no way am delta neutral now. Although, the chances of approval are likely, but the reports I have read are saying that the good news is almost factored in and the jump will not be too much. But I don’t believe these “predictions” since they know about the future only as much as I do. Also, the chart below shows consolidation and undecidedness since it is not leaning in any direction plus the bollinger bands have been tightening up continuously….so my guess is the pop should be “even” in both directions.
  • Update Nov 30th – Murphy’s law??? When have you heard a Bio stock doing nothing on FDA approval. This is crazy. FDA approved Exelixis thyroid Cancer drug and the stock actually fell 7%. I did close 1/2 of my PUTS when it hit the day low. But I am Bullish with more Calls than Puts. Still have till Dec 22 to see if the stock goes back up. Please feel free to leave a comment because the price action is logic defying for me. (I do understand that the market for Thyroid cancer is very small..but still !!)
  • Update Dec 3rd – So, this is crazy and defies all logic. FDA approved drug and the stock is doing nothing. Well..not that crazy actually. Here is my theory…and feel free to shoot holes because I opened this blog to get slaughtered :). If you look at last 3 months…EXEL had been building momentum and 70% – 80% analysts said EXEL will get FDA approval. What does it mean? It means if FDA rejection happened the stock would have easily lost 50% of its value, but approval wouldn’t have done anything and that is what happened really. So, a straddle wasn’t very wise in this case. Anyway, the stock dropped to $4.56 today. I sold my $5 puts and got back most of my PUT money. My calls are hemorrhaging like crazy though..I was stupid to buy calls. And OTM calls…seriously??? What was I thinking? I deserved it frankly.

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