Today, I was anxiously looking for a trade and finally did :) I thought with the time decay accelerating, I should increase my risk appetite a bit, so I was looking for a bullish stock that has pulled back and the answer was FSLR. I have seen that on RIMM before. After RIMM reported strong results, it had a 20-25% jump and then a brief pullback and then continued its bullish action. So, looking at the two day chart of FSLR, I guessed it will close above $170 at option expiration in two weeks, so decided to sell 2 $170 put contracts around $4 and buy 2 $165 put contracts around $2.9. Risk/Reward is $780/$220, which can give a gain of around 28% if it closes above $170. It may be a bit on the edge, but I decided to give it a try :)
By the way, I sold my other MAR contract today as I lost faith in the buyout. The lesson is: Buy about a week after rumor, sell on news or even before news. Based on experience, it is best to close all option positions well before the expiration as the time decay is a real killer. I only have BAC as a strangle as it has the potential to move big any day. We will see how that will do though.
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I see you have sold naked options in past trades, similiar to the optionpremiumcollector (where is he lately?). I sell naked options on the MNX or NDX index - mnxoptions.blogspot.com. It helps to see what (how) others trade - check it out. Do you plan on selling any puts in order to get into stocks that may have a pullback soon?
ReplyDeleteMNX
Hi MNX,
ReplyDeleteThanks for your message. I don't know either about OPC. I hope he is fine. I tasted a bit of naked put selling, but I found myself not comfortable with "totally naked" put writing although all of my ideas were right. I now prefer selling put/call spreads instead. Here are my reasons:
1) By selling bullish put spread, you are insured in case the stock really plunges even though you do not really believe so.
2) You get more margin compared to naked put, so your return on margin is going to be actually more.
3) You can manage your trade a lot easier in case the trend really changes. For example, you can close the short part (sold put) and let the long part (the bought put) compensate your loss, or if you believe in the stock, you can jump and write another put spread for the next month, etc.
MNX, I actually prefer to only collect premiums as I don't believe in any stock right now for long term, but that is a good idea if you are long on a specific stock. I only have a bullish call spread on a gold stock (AUY), which I may consider owning and keep writing covered calls on it (not sure though). I also own CTIC for now. I think there is a lot of money that can be earned by only collecting option premiums. I am planning to be adaptable to market conditions. I try to follow the weekly trends to decide what trade to enter. If a down trend is confirmed, I may consider selling bearish call spreads.