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Northern Tier Energy LP Message Board

  • lizahuang54321 lizahuang54321 Jul 22, 2013 2:46 PM Flag

    Updated NTI puts trades

    As promised I update my NTI puts trade with today's roll forward:
    The first part is a cut and paste of the brokerage transaction history.
    Following that are some calculations that I make to keep track of how the strategy is progressing.
    As of today I have sold the initial puts and rolled forward 3 times. I don't try to time the roll to get the best premium, I simply do it every Monday following options expiration as a new strike opens up.
    Today the March 2014 strike expiration was opened.
    In summary, I have now collected a total of $3081.67 from this trade.
    Today's net credit was better than previous as volatility for this security is rising.
    I will repeat the process in 3 months for another ~$600 or so credit.

    07/22/13 Sold Short 10 NTI Mar 22 '14 $22.50 Put(NTI) @ $3.30 3,290.80
    07/22/13 Bought To Cover 10 NTI Dec 21 '13 $22.50 Put(NTI) @ $2.65 -2,659.14

    04/22/13 Sold Short 10 NTI Dec 21 '13 $22.50 Put(NTI) @ $2.05 2,040.77
    04/22/13 Bought To Cover 10 NTI Sep 21 '13 $22.50 Put(NTI) @ $1.55 -1,559.18

    01/22/13 Sold Short 10 NTI Sep 21 '13 $22.50 Put(NTI) @ $2.28 2,270.76
    01/22/13 Bought To Cover 10 NTI Jun 22 '13 $22.50 Put(NTI) @ $1.78 -1,789.18

    12/21/12 Sold Short 10 NTI Jun 22 '13 $22.50 Put(NTI) @ $1.50 1,486.83

    Total credits:
    12/21/2012 1486.83
    01/22/2013 481.58
    04/22/2013 481.59
    07/22/2013 631.66
    -----------------------------
    total 3081.67

    Total exposure : 10 contracts at $22.50 = $22500
    Total premiums received so far = $3081.67
    = effective 'basis' if assigned = (22500 - 3081.67) / 1000 = $19.41

    Of course, walrathcrai will claimed this is all a fake as he believes this strategy is 'impossible' and there is no such strategy.

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    • Even if not exercised, add up all your trades and you have received only a net of $3,081.66. If you had just done the last trade you would have netted $3,290.80. So as you can see, you lost slightly on the first 6 trades after buying back your short positions.

      Sentiment: Buy

      • 2 Replies to boss1819
      • Umm, I received $3,081.66, never put any money in and you conclude it is a loss. Well if being given $3k for doing nothing is considered a loss in your book, then all I can say is give me more losses.

        " If you had just done the last trade you would have netted $3,290.80."
        Well, here you have changed your argument. You are saying that I collected ~$3100 but if I had had perfect foresight and known what the market was going to do 1 year into the future then I could have made ~$3300. Well, that's a pretty silly argument. If we knew precisely what the market would do 1 year into the future then we would all be billionaires. I don't recall ever saying that my income from this strategy is the maximum that can ever be made by taking any possible set of actions. Without knowing the future I am collecting $300k per year (and rising) including $100k from this put rolling at an effort of a couple of hours of almost automated activity each month. That's fine by me and I'm not upset that there are other possible scenarios where I could have made a few hundred more had I known the direction of the market in advance.

      • That's a point you'll NEVER get Liz to admit.

    • Yes, but if you had not gone through with all these trades and only made the last trade of short March 22 puts, your cost, if the puts were exercised, would be $19.20 (22.50-3.30). This is lower than your calculated cost above.

      Sentiment: Buy

      • 1 Reply to boss1819
      • Missing the point still...

        "if the puts were exercised,"

        I have explained over and over that I have no intention of ever being exercised.
        The strategy is purely to generate regular income.
        And if I "had not gone through with all these trades and only made the last trade of short March 22 puts" I would have missed out on 3 of those roll premiums and so would have generated less income.
        Again, I am purely capturing time premium. I am not interested in being exercised.
        Making only the last trade means I would have lost 9 months worth of time premium.

        Most of the people arguing against it seem to have not understood the whole rationale of what I am doing, even though I've explained it so many times. I spent a lot of time explaining how I can avoid exercise indefinitely even is the security goes far in the money. I explained I expect never to be assigned, yet the argument here is " if the puts were exercised". Completely missing the point.

    • To be clear I don't believe the RESULTS are as good as you claim. You say that selling puts is an example of your risk taking and then claim there is no risk because you never lose money. You seem to have trouble keeping your stories straight.

    • you have losses on trade 1 (about $300)
      you have gain on trade 2 (abut 660)
      you have loss on trade 3 (about 610)
      On the third trade you sold for 3290 - if you bought back today it would cost 4500 a loss of 1300. (DOnt you ueually plan to buy back before expiration)?

      SO... where does this 'strategy' put $500 into your pockets every 3 months? SO far if you closed it today you've lost $1500 over the last year and your had to have money in your account to cover the naked put.

      If you wait to expiration and the price stays the same - you own the stock at 19.41 and the stock is 20.80 you've made a profit of 1400. Thats 1400/15 months = approx 90$/month...

      The sock price culd get better - or go down. If the price drops below 19.41 - you have lost money... again.

      At the same time. Taking the 22500 collateral that you need for the naked put investing it in an index fund in January 2013 with the 16.64% return on the sp500 you would have made 3700 If you only had to put up 50% you would have made 1850.. Much better then your current loss of 1500.

      Despite all the back and forth bickering. This strategy does not seem to be one to be supported.

      • 3 Replies to martin50401
      • "The sock price culd get better - or go down."

        Once again, I don't care.
        Either way I still collect my $600 (or whatever) each quarter.

        "Taking the 22500 collateral that you need for the naked put investing"

        Another misconception. This is naked puts. That means I don't have the 22500 in my account. What you are suggesting then is buying an index fund with $22500 in margin funds on which I would have to pay margin interest. With the put selling I don't pay any margin interest and I don't need the cash in my account. I could argue that my 'yield' is infinite - $600 * 4 = $2400 per year divided by my cost which is...oh yes, zero, I didn't actually put up any funds at all.
        $2400 / 0 = infinite yield (or free money)

      • "SO... where does this 'strategy' put $500 into your pockets every 3 months?"

        Umm, right here
        Total credits:
        12/21/2012 1486.83
        01/22/2013 481.58
        04/22/2013 481.59
        07/22/2013 631.66
        -----------------------------
        total 3081.67

        Look at the pair of transactions on each date, subtract the "Bought to Cover" amount from the "sold Short" amount and you will see there the credit amounts above come from. Did you flunk math, by any chance?

      • Rather than looking at the trades by the buy and the sell, consider the trades made on the same date as one trade. If you do that it should become clear. If you do that you see that the following dollar amounts were deposited into my account on each of those dates.

        Total credits:
        12/21/2012 1486.83
        01/22/2013 481.58
        04/22/2013 481.59
        07/22/2013 631.66
        -----------------------------
        total 3081.67

    • You have a great strategy that obviously took much forethought to finalize.
      Writing options is the only long term method for consistent profits.
      However, this is obviously a strategy of "It takes money to make money"
      Looking at your trades, making around $200.00 a month for an average
      player (like me) is a waste of resources. I make many times that amount
      with less risk (in my mind).
      But, x50 positions, as you have, and you're in FAT city and you have tax
      advantages, too.
      Sorry if I sound negative. I'm just trying to point out a slight glitch.
      CONGRATULATIONS and keep up the good work AND thank you for
      sharing your strategy (even to those who don't believe).

      • 2 Replies to rsantos1111
      • Well, my portfolio as a whole generates $300,000 cash income per year and that figure grows expoentially due to compounding which is mostly tax deferred. I explained the $100k/yr from put selling and that thus far I have been able to harvest capital losses to offset the taxes (that won't last forever of course). The other $200k/yr is from distributions from my portfolio of high yielding MLPs, trusts and ex-Canroys. The majority of that $200k is also tax deferred due to MLP tax deferral and depletion deductions. So, it is $300k/yr mostly tax deferred income which compounds at a very fast rate since the overall portfolio yield is ~15%. At that rate, the rune of 72 says that I double both my portfolio value and the portfolio income every 5 years or so. So the goal is to have the $300k/yr grow to $600k/yr in 5 years, then to $1.2m/yr in another 5 years.

        As for "It takes money to make money", that is true because to be able to perform this strategy with as many as 50 naked put positions does require me to have a pretty good margin capacity.

        Yes, I'm sure there are other strategies with higher (but less certain) rewards. I like my approach because it is very hands-off. Apart from the once a month rolling forward I don't need to do anything other than reinvest my income. It's a strategy that gives predictable, consistent and growing income without me having to put in much effort.

      • " I make many times that amount
        with less risk (in my mind)."
        Would you care to tell us how? TIA

        Sentiment: Hold

    • Liza,
      went through all your past responses. 2 questions for you--1. what is the rational for selling contracts so far out in future? any advantages?thoughts? and 2. which are the other 50 stocks you sell puts on ( would you mind sharing? I like your mechanised approach and also like the fact that you are not risking large amount of capital -as apposed to buying stocks and selling covered calls. 3. are there any advantages/pecularities of high beta stocks that maybe leveraged for selling puts??

      • 1 Reply to adoshi4
      • 2. I am using almost all high yield securities like MLPs. Most of them are more stable and reliable ones than NTI. Reason for using the high yield ones is that the distribution is factored into the time premium, so I tend to get good premiums. Also the yield tends to support the price, so it's less likely that the price drops well below my strike unless something bad happens at the company. The disadvantage is that these are mostly thinly traded.
        3. High beta stocks will give you high premiums however they are more risky. So I tend not to use high beta stocks for this purpose. NTI is one of the exceptions. I am doing it on all the new variable distribution MLPs like NTI however most of the others I use are more stable vehicles like pipeline MLPs.

        1. Why sell so far out. Well, I find myself repeating the same answers over and over and I have explained this already. One is that I have the mindset of "give me the most money now so I can invest it for 10% return or pay down my margin". Another factor is that because I typically sell to open 8 months out and buy to cover 5 months out, then I never have any chance of assignment. There is so much time premium left in the option when I roll that it is never going to be assigned even if well in the money. That gives peace of mind. I wrote a detailed explanation on why this means I will never be assigned in an earlier post.

    • Liza, please explain your strategy. I sell puts also, but don't cover and roll forward unless in danger of being assigned. I try and sell 2 or 3 months out to get the most in time value deterioration.

      • 1 Reply to c_stan22
      • Yes, yours is another valid strategy. I used to do that but switched to my current approach as the way you do it I found more nerve-wracking. I like the fact that my approach is almost automated and that I am NEVER in danger of assignment even if the price drops well below my strike (I already explained the reason why that is the case). To me, this comfort level outweighs the chance to make a slightly higher return your way.

    • Your 'accounting' is wrong.

      the trades are not paired the way you do it (just wait till you do your taxes). The sold shorts will go with the buy to covers. so really you have lost money every month- (total about 200) except the most recent one where you made 3290 (3290-200 = approx the 3081.67 you are using as profit.) and this assumes that you dont buy back the march 2014 puts at a loss as well (which is what you have been doing)

      FYI If you had just kept your original trade selling the June 22 '13 puts you would have had a profit of 1486.83 (because those expired worthless) in June you could have then sold March puts for 3290 and you would have been far ahead than your 'strategy' of losing money on almost every trade you've made except the 'current open' one.

      • 2 Replies to ialkl59
      • Wait till I do my taxes? I have been following this strategy for 4-5 years so have had quite a few years of tax returns already.

        You still miss the whole point. I already said I don't care about the prior 3 month period and whether that was a gain or a loss. Whichever it is, the net result of every roll is a credit of $500-$600 cash into my account. If I keep collecting that $500-$600 into my account every 3 months I really don't care whether you call my past results a gain or a loss. Those 'losses' are still money coming into my account - money never goes out of my account.

        And you also miss the point that some of the 3 month holds are gains, some are losses, but when money comes into my account each time, the overall result over a period of time HAS TO BE that the gains outweigh the losses. How can I keep collecting $500-$600 every quarter on this trade if they are all losses. If I do it long enough and collect more and more money, it has to end up as a profit (assuming NTI doesn't go to zero and never recover). After all, if I do this for 9 years I will collect the entire $22.50 strike price in premiums. At that point how could I have a loss unless the price of NTI is below zero?

        Really, a lot of people here are pretty dense.

      • Yes, this is all true. There is a tax generated loss from these trades so far and the gain could be lot more if the first put sale was let expire to zero. On the other hand, she reduced the basis for $22.5p by $2500 from these trades. She did generate extra cash flow of $2500 which can be looked at as profit. This is a scenario where both sides of an argument can be right.

        Sentiment: Hold

    • To everyone interested in selling puts for income, this is a fantastic strategy that Liza and professional traders use to create an income flow, but make sure you completely understand this options strategy and do not follow blindly. To learn options visit the OIC site ( Options Industry Council) and watch the tutorials and read the explanations. Be sure you thoroughly understand what it is you are doing.

      Liza's numerous posts on put selling are also great examples of this strategy, read her old posts.

      Thank you Liza for sharing your trades and techniques.

      Good luck to everyone!
      Igster

    • I like your math. You pay more to Buy to Close than you received when you sold the Put. What is missing here? It looks like you are about $200 in the hole with the six trades and hoping for 'what' outcome?

      Sentiment: Hold

      • 1 Reply to ese_inc
      • I guess you are not understanding the strategy. So far I collected $3081.67 into my account from this sequence of trades. No money has come from my account. Every 3 months another $5-600 comes into my account. I can let that go on as long as I like? So how exactly do I end up in a hole if I receive $$500-600 into my account every 3 months and no money ever debits from my account?

        The realized gain or loss on any single iteration is of complete indifference since for every group of sell to open and buy to close, the new sell to open will always be $500-$600 higher due to the fact that the further out expiration always has a higher time premium.

        If someone told you they would give you $500 every 3 months forever or for as long as you want and you never have to pay anything back, would you say it might leave you 'in the hole'?

        Strange logic.

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