Selling cash secured puts is very similar to selling covered calls. But again, implied volatility in spwr right now is pretty low so their is not alot of premium to collect. Ideally, with options you want to sell volatility and buy low volatility. The beautiful thing about options is that you can choose an option strategy that best fits the level of volatiltiy.
If you sell a cash secured put, the general rule of thumb is that you are willing to own the stock at that strike price. For me, spwr becomes attractive again for initiating a new position around 33-34/share. So I would be looking to sell those strikes/puts. In order to get any decent premium you have to sell time value because the IV is low, so I would be looking at the December strikes.
But again, the process I oulined with selling calls holds true for selling puts. If you play outside of the envelope, your odds increase of having a successful trade. But again, always know what your second trade is if your thesis or trade changes and goes against you.
Trade_up, I don't disagree with you at all. The name of the game when it comes to managing money in the capital markets is risk management because you never know what the market will do. With that said, the process I outlined is exactly that. Mike's objective was to collect some option premium and not get his shares called away. By selling outside the envelope, you put the odds in your favor, but if it doesn't work out, know what your second move is in advance. Step #2 also has its merrits, but even Warren Buffet has experienced large 50% drawdowns. And step 3, is not without its risks either. Remember Knight Capital?
Risk management comes in many forms such as asset allocation, smaller bets spread out over many stocks, long/short, use of options etc.
Does that answer your question?
Nice work Mike. Here is how I look at options and hope you might find it helpful in taking some of the guess work out of the process. Let's assume you want to sell some calls that expire next Friday, September 19th. First, implied volatillity is very low for spwr right now so the premiums will not be all that attrative from a sellers point of view but lets go through the excersize anyway. SPWR closed friday at 38.07 and the implied volatility for september 20 ATM calls or 38 strike is approximately 36.24%. On Monday, you will have 5 trading days left till expiration. Therefore the options are pricing in a one standard deviation move of approximately $1.67 up or down. I got $1.67 by multiplying 38.07 * .3624 * SQroot 5/365. The normal distribution curve from statistics tells us that 68% of all outcomes will be between one standard deviation or between 36.40 and 39.73. Or a 32% chance spwr will close outside that window.
This is helpful in selecting strikes to sell. Given these odds, I would look immediately to selling the 40 strikes as the odds are in my favor of not being called out. This gets you off the starting block and into the game. However, stocks just like opponents in a competition, things can change quickly. So knowing what your second move is in advance is critical. If it expires worthless, you keep the premium and the stock and live to trade another day. If it is in the money, you can either take your profits and leave the table, or you can stay to play another week or longer by rolling up and out the covered call while keeping your stock. So lets assume spwr closes at 40.50 Friday. Your options are in the money so to buy them back you might pay .55 cents near the close. You would then look to the next week or following week to find a strike price that is equal to or higher than 40.50 and where you can sell a call for more than what you paid to buy it back. Therefore, never relinquishing your shares. So no need to sweat it out.
The USO looks like a good trade opportunity. Similar to GTAT, IV is very high and underling extremely oversold. Sell the puts and buy some calls. I actually may take this one.
Implied volatility is high and the stock is stretched on the downside statistically. This scenario usually favors selling options and capturing time decay. With that said, I'd consider selling some OTM puts and perhaps taking advantage of the recent carnage to go long some calls six or more months out. FWIW
Who wants to carry two items. In order for GPS tracking of distance, pace and time etc., you need the iphone nearby. Not gonna happen on a long run, bike or swim.
You have to have your phone with you. GPS works through the phone not the watch apparently.
Watch has no GPS and can only keep track of info through a wifi connection with your iphone. This won't replace Garmin, tomtom or other sport smart watches. Not 100% sure, but all these features only work on the iwatch if your iphone is nearby to relate to. Not for me. Sorry Aapl, but I do like the new phone and will upgrade my 4s most likely.
Actually, Implied volatility aka IV is the here and now. It is a dynamic calculation and changes in real time and does include all the factors you mentioned. In relative terms you can compare historical volatility with the current implied volatility and get a sense if the option market is pricing in something happening in the future.
For example, historical volatility might be 40% but the implied volatility is 70%. Therefore, you know the options market is pricing in a future event that could cause the underling to move within a bigger window. Hence, why you pretty much always see implied volatility and premium for options go up before earnings and then quickly losing value after the news is out.
Options, price in the probabilities of the future not the past. So based on implied volatility and standard deviations of it, you can determine the likelihood or probability of where the underling will be and put on your strategy accordingly.
Hi Trade up, There is actually a better way to try and figure out whether your options will expire worthless or in the money and that is to use implied volatility which is priced into the option and part of the option pricing model. Currently, the options market says spwr has an implied volatility measure of 35.47%. Using some simple math and a normal distribution curve you can determine the probability of success. Below are the numbers I used to come up with probabilities:
Share price: $38.45
Implied Volatility: 35.47%
Days till expiration: 15
To calculate one standard deviation, do the following:
38.45 * .3547 * square root of (15/365) = $2.76 or one standard deviation.
Applying the normal distribution bell curve, we know the price of spwr has a 34% chance of being between 38.45 and 41.21 (38.45+2.76), a 13.6% chance of being 41.21 and 43.97, and a 2.1% chance of being between 43.97 and 46.73 by September 20th..
Since you mentioned you were long the september 20, 42 strikes but didn't mention price, but lets assume you paid $1.00. Therefore you need spwr at 43 to break even. A price of 43 places spwr in the second standard deviation range which means the options are currently pricing in a 13.6% chance of spwr being between 41.21 and 43.97 or an 86.4% chance of not trading in the range you need to breakeven and make money.
Hope this helps..
I don't disagree with you Docthan. Im looking at the upward trend line from August 6th and spwr is sitting right on top of it. When that trend breaks, spwr will begin its move lower. So basically, I am looking for a close around 37.70 or lower to confirm the beginning of a sell off, but given the strength of spwr it could take a few more days or into next week to materialize if in fact it does materialize. My guess is as good as yours hence I always hedge so I can hope for the best and expect the worse. Currently long CSIQ and JASO leaps with veritcal spreads attached and recently acquired puts on spwr.
With volume drying up, gonna be hard to push this higher without some new reasons to buy spwr. And with volume drying up, spwr appears to being experiencing buyers exhaustion. As with all the other solar stocks. YGE reports tomorrow and I believe it is the last of the major solar companies to report. In otherwords, I expect the solar companies to move sideways to down or even slightly up(no big move), but my point here is that you can still make money or recoup some of your capital with covered calls or even protecting your gains with cheap puts. Either way, I do expect volatility to creep back in come September which is next week.
I would love to see some volatility creep back into these markets. Getting very bored during these dog days of summer.