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American Capital Agency Corp. Message Board

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  • reits_r_us reits_r_us Jan 27, 2013 9:53 PM Flag

    OT ....KMP

    OK, so here is the current deal. The volatility on the KMP options is down to 12.47%(that is low). Hence the option prices are relatively cheaper than a short time ago. One more day please with the PPS staying up and the 87.50's for 1.00 are looking like the trade(for me). I offset this against going short the shares on the EX date open, assuming a 87.50 open, if tomorrow's close is about 89.00.

    So, shorting the shares @ open on EX @ 87.50, with the best hedge, IMO, would be the Long Feb87.50Call @ 1.00. this would place your BE @ 86.50 on the short shares, with 1.00 risk above 87.50 by Feb OPEX.

    Therefore, because the volatility is driving down the option pricing, there is no longer any difference in BE, max risk, or max profit between the short shares vs the Long puts. The difference therefore favors the Long Puts because of the increased margin demand with the short shares. Said another way, you can leverage a much larger position with the options vs the shares. Therein lies the danger also, for allowing oneself more greed in exposing oneself to too much risk/loss per trade, for the "all in" crowd.

    My recommendation, to myself, is to trade no more than 1.67% of my trading capital on Long Puts on Monday's open. As you can read from my other post on this thread, tomorrow's open has been an historical high of the cycle within about half a buck. My next 1.67%% will be for tomorrow's close if the 87.50's are still competitive(about 1.00). My final 1.67% will be for Tuesday's open. I am hoping for an average of 1.00 or less for the Feb87.50'S.

    A double will hopefully occur within 4 days(true for last 7 consecutive Q's). I will exit 80% of my position there(sell limit @ 2.00). This will cover my cost plus some donuts. The reason I am not betting for a greater decline is historical odds. Of the last consecutive 10 Q's the closing PPS has only been significantly greater(by .05 or more), only 4 times of the 10 Q's, after 4 trading days post EX. I do not like those odds. I will hold 10% more for a sell limit of 2.50 and the remaining 10% for 3.00.

    This all starts in less than 12 hours from this posting on Monday's open. Join me??

    As always, I wish all of you much success and happiness and good fortune as we start out this trading season on the MLP's.

    DocReits

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    • bowhunterron@ymail.com bowhunterron Jan 28, 2013 2:44 PM Flag

      I am also in the trade with Feb87.5s@.91 good luck to all Bow

    • bowhunterron@ymail.com bowhunterron Jan 28, 2013 4:31 PM Flag

      I just layered in some more Feb 87.5s at the close, BE now .88 good luck again to all, we will see tomorrow.

    • Hey Doc -

      I too believe that KMP will experience a pull back........... however, I would much prefer to sit back and wait to see it (and the magnitude, as well), rather than betting on the come.
      Just my style. Too many 52 week high stocks out there right now!

      BTW - Is there something smaller than "crumbs"? :-)

      According to my math, your wager is quite small. You once stated that your trading capital is only 5% of your total capital.
      IF that's still true, then you are only betting 0.0835% (1.67 x 5) of your total capital.

      Also, you might want to take a peek @ WPZ - they just raised their quarterly distribution, and trend looks positive.

      Wishing you continued success on all your KMP adventures.

      Salty

      • 1 Reply to saltynacho
      • Thanks Salty,

        "You once stated that your trading capital is only 5% of your total capital.
        IF that's still true, then you are only betting 0.0835% (1.67 x 5) of your total capital."

        Yes, it is confusing. I suggest that no one ever risks more than 5% of their total capital on any one trade. That trade needs that 90+% confidence of a win or at least BE. On these "I'm not so sure" trades, I recommend 5% of your trading capital/per trade as a maximum risk. That trading capital being 20% of your total capital.

        Example. If I had 1 million total capital, I would never bet more than $50,000(5%) on any one trade. 20% of 1 million is 200k. That would be my trading capital. On less confident trades I would risk no more than 5% of this or $10,000 on any one trade.

        With FSC , for example, I have a 91% confidence in that trade, as I have mentioned. Its repeat ability gives me the confidence to wager up to 5% of my total capital per turn, which is the $50,000, based upon a hypothetical 1 million dollar account.

        Hopefully that clarifies my position to others and I thank you for bringing the question forward.

        Best to you Salty,

        DocReits

        BTW, thank you for the tip on WPZ. As you might know, I only trade stocks with consistent historical runs towards EX. WPZ does not qualify. Just my style....;-)

    • I'm in with the FEB 87.50's at .90....Good luck to us!

    • Jeez I'm getting creamed at the moment Doc. Not much better on KMP or EPD puts.
      We need an old fashioned correction!

 
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