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American Capital Agency Corp. Message Board

  • reits_r_us reits_r_us Jan 6, 2012 6:01 PM Flag

    OT -Looking over my shoulder (2)

    Here we are,

    What a great trading day for our spreads. At only day six of the New Year and we are up 30% on our way to 200%. My avg cost on the EVEP spread was 3.55. My return today was 4.80 for a net 1.25/ spread times our model 35 Spreads(12.5k) giving us $4,375.00.

    The 166 model EPD spreads(12.5k) @ .75/ spread....(exited at .95/spread) returned .20/spread giving us $3,320 for a total of $7,695.00. That gives us a return so far this year of 30% on the model 25K.

    Get ready now for the pull backs in both AGNC and EVEP. We will grab the near ITM Calls for Feb on EVEP(16.4k) and the 26/27 and 27/28 AGNC Bull Call Spreads(16.3k) for March.

    Enjoy the ride.....may we all prosper!

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    • As I mentioned, you have to SHORT the options in (b) if you are betting that the differential will increase. Hence the limited gain and unlimited loss. With (a) you are long the options, hence the reverse gain/loss profile in case of a large market move.

      Of course I understand that the differential can widen while the PPS of the stocks goes up or down. The two scenarios I recommended (long/short shares or (a)) will be profitable no matter how the PPS moves, as long as KMP-KMR increases. As I said, the options trade (a) will make windfall profits if both companies' PPSs plummet in a market crash.

      If you have doubts about this, work each scenario out in detail with each of the alternatives.

    • Both (a) and (b) contain one Call and one Put, so it seems to me that both have the same attributes (limited loss and unlimited gain).

      There are three scenarios in which the differential of KMP-KMR can increase:
      (1) KMP increases while KMR decreases;
      (2) Both KMP and KMR increase, but KMP increases faster each day;
      (3) Both KMP and KMR decease, but KMR decreases faster each day.

      I can't be sure which scenario will happen; all I'm sure is that KMP-KMR will increase.

      Is there an option spread ("two-leg position") that will make money REGARDLESS of which scenario (1, 2, 3) plays out?

    • There are also other option combinations for this,such as long/short calls only or long/short puts only. My experience has been best with long/short shares or long calls and long puts.

    • You can't bet on the differential directly. You have to have a two-leg position, one in KMP and one in KMR.

      As I mentioned, you can do it with shares or options. For options, you can go long the options in your (a) or SHORT the options in your (B).

      I suggested (a) because, if the underlying moves a lot, it has limited loss but (virtually) unlimited gain. (B) has the reverse -- limited gain but (virtually) unlimited loss. (B) however also has the advantage of selling time premium, which comes with signifcantly higher margin requirements. Consider (B) if time premium is more than negligible compared to expected increase in the PPS differential.

    • Yeah,

      I did foresee a drop of 1.00+ from the top 28+. It's running over that a little. I was too early with my 70 Calls. We should see back and forth then back at OPEX(Jan). Hoping this is the bottom, and then a push back to 48+.

      EPD has never, in recent history, closed on DBEX( day B4 EX), lower than any of the PPS marks on the three week run up to EX.

      I am counting on history to mark this the same, meaning so far at least 28+ on day B4 EX. Why should this time be different. We had such a run that this is profit taking. I was a fool to follow you Rim...;-)

      I broke my trading rules, and followed you on impulse. My bad, not yours. My plan, as stated earlier in this thread, was to enter on the 18th, on a pullback like this and then run toward EX.

      I like EVEP much better for doing the same. Well, we sit now and let the players capitulate and then onwards. This is still a great MLP, but I have my limit orders in to get out on a 28 approach.

      We'll see...my model portfolio instructions still hold. Follow the model and not this madman's flights of hysteria on his off label use of his funds.

    • Thanks and I hope you are right Jim.

      I bought in a couple of time in the last two day before the big drop off with 120 Feb$25 Calls for between $2.25 and $2.30. Would dearly love to see EPD go over $48.

      GL2UA and go AGNC & EPD.


      RIMBoomer

    • Hey All,

      I get the impression that this is not a welcome thread from various sectors..including the continuing two star salute. I figured if any were enjoying the thread those would move up. I know about the detractors but WTH has always been my sentiment...in other words ...? The more pertinent question for me is why am I doing this?

      I thought I would be able to help some of the Olee's out there with a play by play on how to triple their money over a year in a rather low risk(as far as options go)play book.

      I have given you the run down on my fav MLP..EVEP. The others are EPD, KMP and OKS. I think you know what the only mReit is I trade...;-) The seasoned folks I believe are into their own things, which is understandable.

      I was trying to maybe show how money management and low % return, high volume contract trading is IMO the recipe for staying in the option game as long as possible B4 you have your lunch handed to you on just a few trades that move against you.

      Follow my steps I have already outlined in this "Looking Over My Shoulder Thread" for EVEP and EPD for the rest of this month(I have given play by play for this and next month) rinse and repeat each Q.

      We should hit 100% gain by Feb OPEX on the original 25K model portfolio. I have also given instructions for the ratio spreads and how to play them on AGNC on any pull backs.

      To those who have corresponded with me on this thread, much success. To Peter and Jim and Roy, Mc, Fred, Tc,Richard, Ben, Joe and Bob and X you have my mail at DocReits@gmail.com.

      Happy Trails Everyone...

      • 4 Replies to reits_r_us
      • Doc, even though we don't always see eye-to-eye on some topics, Nevertheless I value your posts and have profited immensely from them. But, like the person who sits in the Oval Office making some unpopular decisions, you can't give up trying to get through to people here ... at least not for 4 more years.

        Perseverance.

      • I am very , very appreciative of all of your info, especially since I am a newby to options. I am following all of your post. Thanks

      • Doc -

        I will go out on a limb and say that I speak for many silent students of your trades when I say that to have you hang up your spikes on this thread is going to leave a fair number of people caught off base.

        I for one have been following closely, placing a few trades, and looking forward to each successive installment. And the back and forth with others at your level about pros and cons and alternatives is all the more educational.

        If you are truly going to drop this effort, I would just like to say thanks for your efforts so far, and it is a shame for me not to be able to continue learning in this fashion. I hope you'll reconsider or find another venue for continuing the play by play.
        Best,
        5x

      • Doc,

        I don't have authorization to sell to open calls or puts and therefore I can't participate in the different spreads you are demonstrating. However, I am trying to learn about them and watching how effective your trades turn out helps me. I would like to continue to be a part of your correspondence in this area.

        I have tried to get help from Fidelity in getting my authorization upgraded, but I am being told they can't give me guidance on how I need to fill out my application. I have margin authority with one account, but I still can't sell to close puts or calls. Any advice in this area would be most welcome.

        GL2UA and go AGNC.

        RIMBoomer

    • Hi Doc

      Are you looking for a pull back in EPD as well?
      If so to what pps and what contract month are you looking at?

      thx!
      Roy

    • Great job Doc! At this rate you'll easily exceed you're 200% goal.

      Btwwhat do you make of today's flash crash in the MLPs?

      • 1 Reply to roym717
      • From lisa EEP board:

        WSJ reports traders say it was a fat finger

        By Scott Patterson and Mark Gongloff

        Did somebody drop their sandwich on the “sell” button today?

        Plains All American Pipeline suffered through a gigantic swoon just before lunchtime, dropping 6% in less than 20 minutes for no apparent reason on unusually heavy volume.

        Then it bounced back, though it ended the day down more than 1%.

        About 2.4 million shares changed hands today, nearly five times the average of the past 30 days, according to FactSet.

        Since the May 6, 2010, flash crash the market hasn’t had a similarly devastating event.

        But there has been an epidemic of so-called mini-flash crashes, share dives in single names — and there was another today.

        In addition to Plains All American, shares of several oil and gas companies, such as Enterprise Products Partners and Sunoco Logistics Partners, shot sharply lower shortly before noon.

        Word on the trading floors quickly spread that the cause was a “fat finger” from a large trading firm (yes, there was a specific name, but MarketBeat can’t confirm the rumor).

        Shares quickly rebounded, just as the market did on May 6.

 
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