I know we are hurting and the wait is killing us. But we are very close to an extreme oversold condition. Which means we will see a bounce soon. I cannot pin point a price or how many days before the bounce is. But I can recommend a fairly safe way to shave of some losses and pay back to the MF's who is driving the price down.
Now this is not a strategy for the faint of heart and people who are stretched out on margin.
But if your account lets you, start selling some puts in increments. Only safe way to make money in options is selling them not buying. December (25) puts would be best. Right now they are at apx. $2.80 per contract. Start with may be 10-20 % of your position depending on your risk tolerance. If we go down some more (1-2) points sell another 10-20 %.
For those of you who are not familiar with options let me explain. The premium you will get right now per share is $2.8o.(1000 shares $2800) If it goes down some more tomorrow or the next day it will be more like $3-4 per share. You will get the entire premium if the stock closes at or above $25 by December 22nd.
With this strategy you are safe even if the price closes at below strike price. For the first round all the way down to $22.20 to be exact then you would break even, but as you can see you have quite a buffer zone. Especially if you do it in increments you can be even more safe and guaranteed to have a profit.
I am only saying do 10-20 % increments because we all know that LDK is a crazy stock and whoever is driving the price can obviously push it some more. Hopefully not too much more for all of our sake.
By the way this is very real money for me. Long 9000 shares (Down $90K) and Long -15 December 25 puts (sold today)
This is not a lot of money but you can do it over and over every month and they will add up. I'd be happy to share more strategies if anyone wants to know. Pay back the SOB's.
I also want to say, all the intelligent people already know fundamentally and future wise LDK is way undervalued. There is a very thin float and bad news waiting to be cleared out. So the stock can be manipulated very easy. So hang in there tight for the rough times. If you are not on margin don't even look till later December.
I was long STP last summer when it kept going down to low 20's. That was undervalued back then too. I had 10000 shares of STP with average price of 26 and sold half at 39 and got out at 56. Started buying LDK at 38 bucks and averaging down right now. Reason for selling STP because I feel nervous about US economy/stock market + Chinese stock market as well and wanted to lock in some profits. But I still feel confident about LDK and feel that there is real value and it will buck the trend even if the markets go down.
I am very optimistic about the inventory audit not because I know the outcome for sure but because after having a class action suit against them and hiring the top US legal firms they had formal filings with SEC and press releases stating that there are no issues. Your attorney is surely not going to let you make that kind of statements if they are not sure.
At this point even if they did have a problem everything is already priced in. Again this is what could happen with a recent IPO and thin float.
One more thing. If anyone knows about money flow, right now it's pointing at ~$60 level even after being down so much. Price is going to catch up with the money flow which is big. If anybody has tele-chart look at it.
It's a war out there.
Please explain to me how you get MS (Money Stream) to indicate a $ amount. I have Tellchart also an acct with IB.
The way I'm playing LDK is with a DEC Straddle.
Please reply - the MS question is important to me.
You say in the beginning:
"Only safe way to make money in options is selling them not buying."
You are scaring me half to death because in my understnding when you sell options you assume the reponsibility to exercise in the money options if you fail to buy to cover.
If I were to sell in the money calls down here and hold them to expiration I could be hurt very badly. Since the Dec 30s are $2.90 I would collect 290.00 on the sale and if the shares go to 38 I would have to cover for about $8 or $8 X 100 shares per contract or $800 less the $290 premium for a loss of $510. That is not safe. Also some people don't know that each option contract is for 100 shares and need to be told.
In the money calls have a Delta very close to 100%.
If I sell $30 puts they are $4.70 or $470 per contract. If the shares rise $10 that put will be in the money and I will keep the premium I received. If the shares stay under 30 I will be forced to buy them for 30 and that would hurt.
Kindly explain what I am missing here. The only safe option play I do is selling covered calls which can cost me my shares if I get to greedy on the strike trying to get a bigger premium.
If I am right promise me you will proof read you posts before you post them.
Some people on this board only have one oar in the water and might heed your advice!
Did you mean to say that one should sell puts not options? If so please post a correction. This is not a good matter to misspeak on. Most people hear options are wild and you can double in a day which while true, is rare. The fact that 80% expire out of the money and are never exercised is notable in my view.
Selling puts down here does seem like a money maker based on the assumption that the news will lift the shares but selling naked calls or naked puts requires level 4 option status and the margin requirement on naked options can be hundreds of percent not the requirement under Reg T of 50%.
If I am wrong would you straighten me out please?
are you seriously recommending using borrowed money!? not so sure how wise that is... there is a whole lot more that can go wrong.
can you clarify what you mean by "oversold?" do you mean there are a lot of shorts; and there is no more stock left to short? what are you basing this on? can you please give us a link or paste some additional explanation?
Well I originally said that this is not for people who are on margin or faint of heart.
So in a way when you sell an option you have a margin requirement but you will actually get cash in your account for the sale. What kind of margin is required apparently varies from broker to broker. I use Interactive brokers and as long as I'm not on margin for the actual shares of the stock I don't really get a margin call.
And actually this is what I was recommending because there is more room for error margin by selling option since we can't predict how far down it will go. It's like adding more shares in a limited way.
If you look at the previous posts you'll see that selling a put at this level DEC 25 to be exact gives you room to be wrong by almost $6. That's almost another 20%. On the other hand you can try to add more shares but you can increase your losses by quite a bit if the price comes down that much. So limit your loss and also upside too with selling options.
There are pros and cons to doing this. My view is I have enough risked right now and LDK is such a high octane stock it can go up 10-15 points in a heartbeat and keep going after that too. In the mean time I'll do trades like this to extract little profits.
Now as far as LDK being over sold is based on charts and indicators. I can recommend http://clearstation.etrade.com/ for charting education if you are not familiar with them. An indicator most traders and I use for identifying over sold or overbought condition is called stochastic. When this indicator is closer to the bottom it shows an oversold condition, if it�s closer to the top over bought. There are also fast and slow stochastic. Which right now both are pretty much on the floor. These indicators cannot pinpoint a certain price but they will tell you that bottom or top is near.
You should of course use your common sense and experience along with the charts.
Most traders would actually avoid this stock because it's in a down trend but I'm not just a trader of this stock but a long term investor.
Hope this helped.
You wrote a excellent article. We know solar energy is the future, not the oil. Although LDK wait too long for the inventory report but i guess they want to be careful. No matter what their earning is very good, regardless of the inventory.
Great post!!! I can do what you are doing but I like what you had to say. Your words were well thought out and gave a boost of confidence in me. I have my wife concerned about what is happening and I am trying my best to hold to what i Have left I started out with 1000 shares and now down to 550. I am bloody,bruised but still have hope and faith on my sdie to see this thru. Just wanted to say thanks for the great post!
StockWar, very interesting strategy.
But what happens if I sell some December25 puts now for $2.80, but come late December, LDK's stock price is below $25? Don't I have to forfit the shares I sold the puts against? Seems that's the big danger. I end up selling those shares for $2.80. Of course, as long as the stock price is at or above $25/share, I win. But God help us if LDK is at $24 when the puts come due.
Well like I said before if you sell now for $2.8 you would be actually safe all the way down to $22.20(25-2.8) which is a long way. Anything above $22.20 you make a profit. And what you would do if it did close below 25 is buy back the options to close the position not give up your shares. Of course if the price is 25 or more those options are worthless to the holder so you just walk away with the money.
And again if the price goes down more you can sell more and get a higher premium perhaps around $3-4. That's why you do it in increments with a stock that's so volatile like LDK. Then you can add little more profits.
There is no such thing is a sure trade. So there is of course risk. So only risk the money you can afford to lose.
But I think (so does the charts) LDK is much oversold and at least a short term bottom (from a trading point of view is near) for such trades.
I will not be selling my shares though. That is a long term hold. I just do trades around the edges with options.
JBM: it looks like the chance are that you cannot sell puts anyway. But if you can sell LDK puts at strike price of 25, then if the stock goes below 25 and someone bought your put exercises the option, then you are obligated to buy back LDK @ 25 regardless of the market price. But you would keep the premium. You will not lose your shares.
Great post, I'm not into options but have often thought of it.
I know you don't nearly have to put out the "money" as you do with LDK stock price. See my post above yours on lock-up fears.