Well hopefully everyone had a nice Holiday and we're ready to ring the New Year, 2012 , in with some money.
Ready or not there are only 14 more trading days left until Jan OPEX. Amazing! What my hope is, is that EVEP will stay above 65, EPD above 45 and that I will get my March AGNC 27/29/30 1/3/2 ratio for .5 or less.
For our model 25K 200% trading we should concentrate now on the next phase of the EVEP cycle which is the final week's run to EX. So we will be going long EVEP with deep ITM Calls on 1/23/12 after you're hopefully adding up your profits post OPEX.
The goal is to get the closest strike below the current PPS at the time ( if 67 PPS then get the Feb65 or 60Call), so that the strike + premium is as close as possible to the current PPS...we call this getting the Call @ Parity.
The PPS should run a couple dollars above Jan 23rd's PPS to Feb 3rd(EX)'s PPS. Allocate 50% of your total 25K + 50% of your profit from this first trade to the new Calls. I estimate 14K, which should buy you between 15-20 Calls.
The other 50% of the portfolio we'll use to immediately purchase at close on Feb 2nd (if Feb 3rd is EX date, and EVEP is at 70, for example), the Feb75Put. Those will probably be about 6.50, if PPS is at 70.00. We'll unload half of those one day later and hold the rest for either a disaster day or Feb OPEX(Feb 17th).
Questions/suggestions welcome...let's make some money!
Sometimes you wish you had just gone "all in". I need more X in my life. The problem is I am not in my 20's, or even close, and I desperately need to preserve capital.
Hence my conservative approach to our 200%. If I had gone to straight Long Calls on EVEP and EPD, we'd have pretty much reached that 200% in the last 10-14 days of trading. We might also have lost most of it (15-20% chance).
Yes, that 15-20% chance. Fortunes are often made or lost in that range. I want to reach the finish line(Dec 31, 2012) with our 200 % in tow. So, I am going to be erring most times on the way side of caution. Right, you say, this guy is trading speculative options and he says he's cautious.
Spreads are the cautious side of option trading. You are hoping for a lesser percentage gain because you are betting against yourself by selling the same security with the short option that you are buying with the Long options....a compromise. We lose out on these tremendous rallies we are seeing now by participating in only a small % of the gain, in order to suffer less potential(%) loss when the PPS moves against us.
Trust me on this, I am delighted in the EVEP surge. Even though we are not participating in this full run we want this PPS to run to 80+. The reason, "The Bigger They Are The Harder They Fall" my dad's expression. He was a pugilist and encouraged me to knock the snot out of the largest kids I could find in the brawl. You had the most energy and adrenaline at the start of the fight so you spent that on the tougher kids, and once spent you took care of the rest. Built character.
Back to EVEP. You will note historically that the higher the surge to EX the bigger the drop post EX. There is where we will focus our effort. Note last Q 76 ,day B4 EX , to 65 at Nov OPEX ...11.00+ in about two weeks+. We want momentum into Feb EX. So we don't want this run to fizzle.
I am a little concerned on the typical OPEX pull back. Ideally we would pull back to 65-66 at OPEX, unload our spreads and then run to EX with just ITM naked FebCalls.
Get ready on any extra cash you have after getting out of the EPD spreads for the AGNC spreads at SPO. I anticipate an entry PPS available of 27.50-27.70 range. These should allow some great March spreads. Especially the 26/27 and 27/28 Bull Call Spreads. Sweet if we can get the 26/27 for .8 or less and the 27/28 for .6. That is money above 26.80 on the former and 27.60 on the latter at Mar OPEX. Screaming deal.
Have a good day and good trading!
Doc, I bought 300 contracts of the EPD spread at $.767 and today finished closing the positions at $0.95, making $5490 before commissions. I have a nice smile on my face.
I bought 50 contracts of the EVEP spread at $3.70 and am trying to close the positions at $4.85, but no luck so far.
Thank you very much, and do you have suggestions on closing the EVEP spread?
Congrats Mc and your welcome!
I just got filled on all of my EVEP spreads at 4.80. I'm sure you did too. I also got out of my 60/70/80 EVEP Butterfly Spreads at 7.17(cost 4.00). Whoopeeee..... I had my doubts on the EVEP escape. Very difficult, but with the surge to 70 it hit with that momentum.
If you haven't gotten out move to 4.80. I got hit there..
Smiling big here too. It is one of the best feelings in the world to sit back and simply move key strokes and make money....
More to come....
Good morning everyone! Yes, this is off topic, so may the two star fiends have fun...;-). You know what type of kid they were in school, raising their hands and being the ones who would say, "Look what Johnny did". I was Johnny, and spent a lot of time down at Mother Superior's office, waiting until after school when I would find the tattlers (two star folks)and beat the he11 out of them.
We used to have really bloody fights with blood pouring from our faces. Kids don't fight like that anymore. Too bad. Built character. Now, the new breed of tatters end up in back room dealings seeing how they can get there agendas passed with the rest of society be dam#ed.
They need me in their lives. My gang would just beat the living he11 out of them. I remember one crotchety neighbor who would chase us down for swiping an apple off his tree that hung over the street. That guy could really run. He chased down my neighbor BillyS. running and we were on bikes. He threw Billy off his bike and broke him up pretty good.
Andy R. and I later returned to his place. We had invented the coolest thing. Clothes pin flame throwers. Anybody remember? You took the old wooden clothes pin. Rearranged the spring and arm to click downwards. You glued a flint down on the surface from a match box(the wooden match boxes) set your wooden match in just right and click the spring.
Honestly, it would throw that match all the way across the street, lit!
We burned down that guys whole yard. We only meant to burn some of his shrubs. It was exciting in a weird way watching the city of Seattle's old hook and ladder come screaming down the street. We wanted to stick around but just didn't want the risk of getting caught by looking so guilty. Mother Superior would have beat the he11 out of us.
That guy never chased us again...well, no apples anyway...
Hey Doc -
I remember!!! However I can recall making the same sort of clothes pin match shooters, but with Diamond brand self-striking wooden matches -
the kind one could ignite with their thumbnail or on your Levis!
I also can remember making a marble gun (pipe fittings, a firecracker, a glass marble & some wadding) strictly mind you, as an experiment :-)
(Just an "Excitable Boy" - Warren Zevon)
After shooting a marble through the 5/8 inch wooden sheathing of a garage at 10 paces, I choose another topic for the science fair LOL
>>So, if I wanted to hold the calls to maximize the dividend run, wouldn't the Feb calls be my best choice>>
Yes!! According to those numbers I posted I would get the first strike ITM for Feb.,from the then current PPS, on a significant pull back. 1.00-2.00 dollars.
Yes, good luck to all of us!
>>I was wrong and we will be called early if this trend continues on EVEP.>>
We would love to be called now. As I have mentioned, if called, we can immediately exercise the Long side of the Spread(60's), your broker auto-covering the Short shares, and handing you 5.00(65's assigned short, covered by 60's exercised Long). We no longer have to worry about retracement to OPEX and we are out with all of the loot we wanted. Doesn't get much better than that.
>> Is it a good idea to buy february calls now.>>
No. We want to buy them on down days. Hopefully when EVEP retraces to 65.00 at or around OPEX. Might not happen, but that is what historically has occurred.
Hang on Peter and enjoy the ride....;-)
Nice call on EVEP. Been following your thread and the stock since you originally posted. PPS up nicely almost hit 68 yesterday.
I see that EVEP has gone past 70 (up to 72) in the last 2 quarters prior to exdiv. And that the divvy run up usually begins a month out from exdiv or right about now for this quarter.
I'm looking at the FEB 70 for $1.50 as a good chance to nearly double (or better) my money b4 exdiv. Never done a call swap before. I usually hold for the divvy run up and sell prior to exdiv.
If I can buy the Feb 70 Calls for $1.50 and sell the Feb 75 Calls for $ .50 cents that would make my net invest $1 on the Feb 70 Calls. Giving me a possible triple by exdiv.
This might be an elementary ques, but If I want to sell my Feb 70 Calls prior to exdiv, how to I get out of the Feb 75 Calls I sold without buying the stock?
>>but If I want to sell my Feb 70 Calls prior to exdiv, how to I get out of the Feb 75 Calls I sold without buying the stock?<
That is the dilemma with holding spreads on EX months as I originally posted at the beginning of this thread. It is tough to get out of the Short leg of the Spread B4 EX because the bid/ask works against you reducing greatly the inherent value of the spread(the difference between the strikes).
So even deep ITM spreads, as an eg 60/65 at a PPS of 70+, at the EX, will only pay maybe 4.00 to liquidate.
The better play IMO, as I mentioned earlier, is to play the deep ITM Calls upon any pull back between now and Jan OPEX. There is a typical pull back around each OPEX as folks exercise their Calls and sell their shares. That is a good time to go deep ITM as close to parity as possible to grab a few extra dollars up to EX and then liquidate.
If you read all of my posts on this subject, I walk you through it...
Good Morning Peter,
I believe at about a 90-95% confidence level that EVEP will finish the race to OPEX at 65 or better. As I said at the beginning of this thread my intention was not to get into money management but here we are.
With a 90-95% confidence level there is left a 5-10% doubt. I would be delighted to exit at a 5-10% reduction in potential profit after only a week or so into the trade with two weeks remaining to OPEX.
I don't believe I will be filled at 4.80-4.90 yet, but stranger things have happened. I have about a dozen open orders always on tap for strange things. Like 1000's of shares to be purchased in the low 20's on AGNC. Like 100's of contracts on AGNC 13Jan25Calls in the 2.5-2.7 range. 100's of contracts in the 27/29/30 1/3/2 ratio Spread I've mentioned, and these open orders to close EVEP for a 90%+ win opportunity for not having to be concerned about Black Swan events.
There was my reasoning. I am not thinking any different than when I entered this trade. I still have lots of money(more than the 12.5k) riding on the EVEP bet. This is money management 101.
Have a good one Peter...
I exited 50 contracts of our EPD Spreads today for .95. I placed an open GTC order at a limit of .95. I sold the Long Jan44Calls @ 3.14 and bought(covered) the Jan45Calls @ 2.19, making the .95. I bought them as you recall for .75. I figure a .05 sacrifice is worth the early out.
I also feel a dime or two off of the EVEP spread is worth the early close. So you can set a limit at 4.90 or 4.80 to exit that trade. You place a limit of 4.80(eg) to "buy to close" the 65 and "sell to close" the 60.
I was not expecting to get filled on the EPD as I mentioned B4, getting out near the full spread difference(1.00) is not usually doable B4 OPEX.
"I exited 50 contracts of our EPD Spreads today for .95. I placed an open GTC order at a limit of .95. I sold the Long Jan44Calls @ 3.14 and bought(covered) the Jan45Calls @ 2.19, making the .95. I bought them as you recall for .75. I figure a .05 sacrifice is worth the early out."
Nice trade, doc. I was wondering if you'd keep all these spreads open through OPEX.
I just put in a limit order at .95 for 200 contracts of EPD at Fidelity and it filled immediately.
Doc, I wish I could meet you and buy you a drink. I appreciate your taking care of those of us still learning and trying to make a buck or two.
I know some of this is off topic but I will trade AGNC under this thread later on this, or next month, so hang in there.
Right now I am preparing for Feb EX on EVEP. As you know, I rely heavily on historical patterns and I have been looking for the best algorithm for the last 1 and 1/2 year Post EX date declines.
I also look at volatility patterns surrounding the EX date and have come up with the following trade:
On the day B4 EX, right B4 the close, for EVEP, take the difference in the intra-day spread( High minus low)and add that to the distribution(dividend) amount.
Purchase the Near month(Feb) Puts at the next strike price above the PPS near the close. Purchase these at the close on this day B4 EX.
Place a limit order at the close on this same day to purchase shares at a price of the PPS, near close, minus the amount you determined above.
Example: PPS is at 70.80 15 minutes B4 close on day B4 EX. Purchase the Feb75Puts at 5.60/contract(See Feb options and Feb70 Put cf to current PPS today). Place a limit order to purchase shares at the intra-day difference + the distribution (say 3.00 + .80 = 3.80). So limit to buy the same # of shares that correspond to the # of Put contracts(say 20 contracts, so 2000 shares)@ 70.80 - 3.80 = 67.00.
This is the cool part you may not know. The 67 purchase locks in your gross proceeds between the strike of the Put(75) and the PPS you purchased at(67) or 8.00. You paid 5.6 for the Puts so your net profit is 2.40/contract(20) or $4800 for an overnight trade.
You can exercise your 20 Put contracts and you end up assigned(Short) 2000 shares at 75.00, they will immediately be cancelled with the Long shares @ 67.00 and your account will be credited the 8.00. Cost 5.60, profit $4800.00.
Hey Doc -
I suspect that many are in fact looking over your shoulder!!
However, I also believe there is one individual that's looking directly at you :-)