STATUS REPORT AND NEW TIPS

January 31st, 2011
  1. After holding Bank of America stock for years, and not being able to get a decent premium writing calls against it, a few months ago I sold the stock at about $13 and wrote the Feb 14 puts naked, taking in about $1,400.  So in effect I sold at about $14.40.  The stock rallied soon after I sold it (naturally), but then declined when Wikileaks’ founder told a TV interviewer that he had a lot of dirt on a major US bank (probably Bank of America).

The stock is just under $14 now, but I expect it to go back up to $14 before expiration in February.  If not, I’ll reacquire my stock, but I’ve got the $14 premium.

  1. A while back I recommended RIO.  Since then it had declined a bit in price, with the market as a whole, and it’s around $68.  I sold a put spread at 60, with a hedge at 50.  So now the same spread could be written for even more premium.  It still seems like a good idea to me.
  1. I lost most of my premium in AAPL during its decline, but I’m still a few thousand dollars ahead.  In the hopes of staying there, I sold my long 340 calls with  a March expiration, and replaced them with the same calls in June.  Yes I paid more out, but I did this so that my long position would not suffer a decline in time value premium.  One of the reasons I rarely hold long calls is just that: every day that goes by when the time left gets short, results in a decline in value.  By going out further I will avoid that, and my results will be based on stock price, not time left.  I still think Apple is a great stock to own, and because of its high price calls are the way to own it.

Merv

ACTIONS WHILE THE MARKET MOVES UP

January 25th, 2011

As the market continues its strong motion upward, call spreads lose money.  That’s part of the plan.  The underlying portfolio goes up, and the spread losses are recouped when the market levels off or falls.

So this week I rolled up the SPY call spread from the June 130s to the June 135s.  I paid $5,000 to buy back the 130s, and collected $2,600 from the new sale, for a debit of $2,400.  I took in about $5,000 when I sold the 130s, so overall (not going before that) I am $2,600 ahead.  Now I’m waiting for the market to cool down before I write another call spread on the SPY.

On RIO (Rio Tinto PLC) I am holding my put spread where I sold the 60 puts and bought the 50 puts to hedge, for a credit of $500.  Not a big trade, but it’s going my way.

Finally, I continue to hold WAG and continue to sell calls against it.  I bought back the 40 calls when the stock got to that point, and sold the 42 calls,  for a debit of $1,000—still less than I collected from the sale of the 40 calls.  I remain ahead on the options, while the stock continues to go up.  But I value the stock at 42 and will not roll up again if it goes to that.  I will let the stock be called away at 42.  And if it stays below 42 I will continue to write calls against it for premium income until it is called away, whenever that is.

Be sure and watch the trades on “merv’s trades.”

mlh

A WILD WEEK FOR APPL

January 24th, 2011

Well, it’s been an exciting week.  When I teach options I always warn against unexpected events.  I remember when everyone said that the CEO of MCA was holding back the stock price.  Then he had a medical episode and was taken to the hospital.  The stock jumped way up.

This week Steve Jobs left Apple to handle his medical problems, and the stock went way down.  And is continuing down.

As you may recall I was holding a put spread (continued from my earlier put spread that expired Friday at a $4,000 profit—unaffected by these new events) and a long call spread at 340, short the 360 as a hedge to reduce the cost of the buy.

When I heard the news I closed out the put spread at once.  I haven’t seen the figures yet but I probably lost about $1,600 on it.  As soon as it appears that Apple has bottomed out I will rewrite it and recapture this premium—and probably a lot more because of the increased volatility.

I’m holding on to the long calls for now.  But I will probably take the substantial profit on the short call on Monday.  Then I’ll watch the stock and decide what to do with the long call.  I still believe AAPL will go over 340 again, but if it doesn’t appear to be headed that way by early February I will sell the March Calls at a loss and buy calls longer out.

Meanwhile, my BAC, GE, and NUAN put positions are all in good shape and profitable—so far.  Take a look at Merv’s Trades to see what I mean.

And I would love to hear your thoughts on Apple.

merv

IT TAKES NERVES OF STEEL

January 19th, 2011

I rarely take a position based on expectation of profits from a change in a stock price.  My thing is to take in option premiums, which usually works best when the underlying stock or ETF doesn’t move too much—maybe just inches up over the years, and keeps paying a dividend.

I did something different last week, and recommended AAPL as a stock likely to go up–even further than its already extraordinary rise.  I love my IPAD, and am doing well with my new IMAC.

Following my own advice, when the stock was about 345 I wrote a put spread for March, selling the 340s and buying the 320s to hedge.  I took in about $7,000 on that trade.  The I wrote a bull call spread, where I bought the 340s and sold the 360s to help pay for the 340s, and gave back the $7,000 and more.  I haven’t done that in years.

My position is such that I will lose money when AAPL is below 346, but do very nicely when it goes above that.  Then suddenly it was announced that Steve Jobs was leaving for medical reasons.  A lot of people panicked, and sold out their positions.  The stock dropped a lot on the European market.

I decided to keep calm.  As I expected, the earnings report was way over the analyst’s estimates.  The stock rebounded back to 345.  I still think it will climb.  I kept calm.  But there is a bit of perspiration on my brow.  Stay tuned.

alert

January 11th, 2011

ALERT

There is a rumor that AAPL will announce a stock split this month, perhaps at the Jan 18th reporting date.  There are a number of other rumors that make the stock likely to go up in the near term.  While calls are very expensive, the purchase of the stock or writing a put spread, intending to close it out well in advance of the expiration date, seem like  good ideas right now.

You might also look at FXI, the china ETF, as it is trading at just below it’s net asset value.

merv

still rolling up with the market

January 9th, 2011

I am still rolling up positions.  This week I rolled up NICE systems (NICE) from the Feb 35’s to the August 40, giving back $200.

British Petroleum (BP) continues its extraordinary upswing, and I rolled up the April 45’s to the July $47.50’s (my cost), giving back $100  of the $2,500 premium I took in.  That’s been a good ride, with several good premiums in my pocket, and now if the stock is called away at $47.50, as I expect it will be eventually, I will have made a nice return from the option premiums.  This is the classic “in and out” strategy discussed in my book and in the tutorials.

Finally, I had to roll up the short SPY position, which I hold against the June 135 long hedge.  I bought back the March 126 as the SPY got to that point, for $4,730, and sold the June 130’s for $4,738, in effect keeping the past premiums.  This spread was not as profitable as I had predicted, although it was profitable, because of the unexpected strength of the market.

If you want to emulate some of these trades, either for educational purposes or in your own portfolios, be sure to look at the details in “merv’s trades.”  And please post your thoughts on the blog reply section at the end of the blog.   mlh

TRYING TO KEEP UP WITH THE MARKET

January 3rd, 2011

With the market going crazy we’re rolling our covered calls up.  When we can roll up without losing the original premium it’s a very good thing!  Our underlying portfolio goes up while our income stays the same.  Here’s what we did today; be sure to follow our test trades on <merv’s trades>:

We bought back the 10 calls of SPY March $126 @ $4.63 and simultaneously we sold 10 new calls of SPY June $130 @ 4.84

This results in an additional 21 cents in premium taken in and we rolled up the short to $130 and the stock is currently trading at $127.50.

Our long position on this option spread is sitting at $135 June to protect against a runaway market.

We bought back the 10 calls of BP April $45 @ 2.73 and simultaneously we sold the 10 new calls for July $47.50 @ $2.50.

The result is a loss of premium of 23 cents on the roll up, but we own the stock and have a strike at a $2.50 higher price point.

BP is trading at $45.30 right now.

Wd bought back the 10 calls of NICE Feb $35 @ $1.80 and simultaneously we sold the 10 new calls for Aug $40 @ 1.67

The result is a loss of premium on the roll up of 13 cents, but we have added $5 per share on the upside for the price of the stock and the stock is trading now at $35.5