AAPL weekly IC

[cwelsh]

I just entered a weekly IC on AAPL:

AAPL @ 567

560/565/570/575 IC filled at $4.10

Maximum profit, 21.95% on AAPL moving $7.00 or more. Busy getting weekly trades in, will fill in with more detail later.

[Kim]

I assume you meant RIC (buying the mid selling the wings)?

[cwelsh]

Yes, you're always hammering on that, I better get on top of it, or I'll confuse people here. When I'm tracking through TOS, I just cut and paste into my trade logs, and it calls it an Iron Condor.

But yes, long the mid and short the wings.

[LSS]

Looks like a good trade. The probability of AAPL moves $7 by next Friday is fairly high.

Chris, assuming AAPL moved out of the $560-$575 range by next Friday, are you going to sell before expiration at $4.9+, or let it expire to get the max profit?

[heechee]

What was expiration?

[cwelsh]

I will always take profits and run -- seen way too many reversals. The exit profit margin varies day by day too (closer to expiration more likely I am to hold -- so for instance if the stock swings 40 points next Thursday, I most likely would hold, but if swing 40 points over the weekend, I'll exit Monday).

[LSS]

Thanks. I am in this trade for $4.10 too. Let's see how it plays out.

[DERSIDC]

Chris, I recently switched over to TOS from Fidelity and I do like the platform a lot. I have a question about logging information about trades. How do you do that? I would welcome your thoughts on how best to keep track of trades so I can evaluate historical performance of what I'm doing. Do you do it in Excel or do you have a specialized program for that. I was disappointed in the lack of built-in historical trading performance information in TOS.

Thanks much

Cris

[Rogers]

I went with a weekly call Butterfly (570/580/585) for $2.50

Breakeven is 572, max profit is 580

[tjlocke99]

I went with a weekly call Butterfly (570/580/585) for $2.50

Breakeven is 572, max profit is 580

I went with a weekly call Butterfly (570/580/585) for $2.50

Breakeven is 572, max profit is 580

smasterlee,

I think you too the opposite of Chris's trade. Chris "sold" the Iron Condor (aka a Reverse Iron Condor). Thus he WANTS the stock to make a large move. Your butterfly seems very risky.

[tjlocke99]

I just entered a weekly IC on AAPL:

AAPL @ 567

560/565/570/575 IC filled at $4.10

Maximum profit, 21.95% on AAPL moving $7.00 or more. Busy getting weekly trades in, will fill in with more detail later.

Chris,

How is it this trade isn't profitable with apple currently at approximately 560.80 (down 1.52% today).

Richard

[cwelsh]

TJ:

The trade isn't profitable due to volaitility and time value -- both still exist, which makes profits harder. You will ONLY see a profit in this trade in the first few days of the week on a VERY large move (I would expect to see a profit after a 25-30 pt move), otherwise you have to wait until you can escape the TV of the trade. I typically can get out of this on Thursday, though frequently not till Friday.

That TV is also your cushion though in case the trade does not go as planned.

Chris,

How is it this trade isn't profitable with apple currently at approximately 560.80 (down 1.52% today).

Richard

[tjlocke99]

Thanks Chris. So is the reason you entered this trade last Friday versus say Weds, so that you leave yourself that chance of getting that large price move with the minimum theta decay?

Also, just so you know my screen name is tjlocke99, but my name is Richard.

Richard

[cwelsh]

Richard:

Well I couldn't have entered it last Wed because the weekly option did not exist yet -- if you're referring to why I didn't enter on THIS wed for a Friday expiration is yes, I want more time for a large move. If I get it, I can get out early for a profit. If I don't then it's equivalent to having waited later in the week.

[LSS]

Chris, are you still in this trade? AAPL has been trading between 560 and 575 in the past few days. Any advice on how to close it? Let out when AAPL moved towards one end of the range and sell the other side when it reverses?

[cwelsh]

With the reversal today, I'm still holding, but will keep an eye on it. If I can get out at even sometime today, I most likely will.

[cwelsh]

I'm definitely holding overnight, theta loss will probably be about .20 to .30, but with any move up or down should be more -- this is beginging to not look good though.

[LSS]

Chris, how will you handle to exit tomorrow if it opened within $560 and $575? The potential loss could be huge if it did not move tomorrow.

[cwelsh]

Actually the biggest losses are between 565-570 -- anything above that the losses won't be bad for this type of trade.

For instance, if it opens at 573 -- should be able to get out for just under $3.00. Don't forget you get a maxium return if it finishes above 575 or below 560. Between less so.

Yes that's still a 20-25% loss, but for these trades thats the expected loss. This again is where position sizing and risk managment is so important. I don't care about a 25% loss on a trade that only makes up 5% of the portfolio if that same size trade makes 15-20% three other times. At 15% that is still a 5% per month, at 20% its 8.75% gain -- in either case quite good.

I can't emphasize position size enough, virtually all of your trades should be in blocks of about the same set size. My rules let me trade in blocks between 5% and 10% of the portfolio size. I would be more comfortable at 2.5%-5% but I don't have enough capital for that (yet ). Don't ever let one trade control you.

[Kim]

Chris,

Unfortunately, no matter how many times we repeat that, many traders will still ignore the position sizing. I strongly recommend the Van Tharp books. You can start with this article - http://www.iitm.com/tips/Tips-MM.htm. van Tharp calls the position sizing the most important parameter in trading, and I agree.

Don't try to "guess" which trade will work better than others. Always assume the worst case scenario (well, reasonably worst case, not including tornadoes or breaking a leg ) and base your position sizing on those scenarios.

Read more here - http://steadyoptions.com/forum/topic/3-the-importance-of-position-sizing/.

[LSS]

Good read Kim.

The trade is looking very bad now, as AAPL seems trading in tight band of 564-568 now. Chris, are you still holding?

[cwelsh]

I am still holding, this is where trend analysis comes in. It also is where I frequenlty will sell the different legs out seperately. As there is basically no theta at all, you are only paying on intrinsic value and volatility.

So for instance, with AAPL trading right now at 572.30, I can leg out of the call side for 2.30, but the put side would only garner me .05.

What I am going to try to do, is watch the chart like a hawk all day -- its going up right now. If I can ever get $3.50 or so for the call side, I'll get out and take the loss (unless its still in a huge run up).

Ill then hold the put side and hope for a reversal later in the day.

[LSS]

The calls just missed $3.50 before AAPL reversed...hard to manage day trade.

[cwelsh]

Yep, it is, and back down now -- I will slowly lower that target throughout the day.

[cwelsh]

This is going from bad to worse (charts aren't behaving properly, particularly given NASDAQ performance today). #*($&

Its beggining to look like this is goign to peg around 570, if so, that is the worst possible result, and I'll just have to eat my loss after lunch. You DONT want to go into the last hour in the position if its pegging at 570 -- that could be a complete loss.

[LSS]

Guess we underestimated the probably of AAPL staying in 560-575 this week and luck is not on our side either...will take loss after lunch if it still pegs around 570.

[cwelsh]

This is the most bizarre volume AAPl chart I've seen -- it essentially has, for AAPL, zero volume starting right at 12:40ish EST --- and again, luck has something to do with it, but this was a pretty high probability trade last Thursday -- it just simply isn't panning out.

In retrospect, should have exited at $3.00

[cwelsh]

http://macdailynews.com/2012/05/04/why-isnt-apples-stock-price-north-of-600-its-the-volume-stupid/

And a comment:

8/27/2010 – $242

1/14/2011 – $348 UP 44% in 4 months

6/17/2011 – $315 sideways 5 months

7/26/2011 – $403 UP 28% in 1 month

11/25/2011 – $363 sideways 4 months

4/9/2012 – $636 UP 75% in 4 months

[LSS]

I got out at $0.70. Should have exited around $1 when the pattern of low volume appeared. Although I only allocated less than 10% to this trade, it wiped out almost all my gains in May. Better trade positioning is needed.

[Kim]

I think with those trades it is tricky to wait till Friday. I realize that today was probably not a typical day, but I still think the risk is too big to hold till Friday.

[cwelsh]

This is going to wipe out my SPY calendar, which sucks, but happens.

[LSS]

I think with those trades it is tricky to wait till Friday. I realize that today was probably not a typical day, but I still think the risk is too big to hold till Friday.

True. Holding to the last day will definitely be exposed to gamma risk. Maybe longer term IC is a better idea? The RUT IC is in good shape now. Any other IC ideas?

[cwelsh]

I got out even lower -- single worst trade of the year. Where we screwed up was NOT exiting when we could have for 20% loss this morning.

Holdign to Friday is tricky, but I always play the expectation and probability, and sometimes that ends up hurting you.

Still up on the month though (just instead of close to 20, now around 5-6)

[Marco]

I think with those trades it is tricky to wait till Friday. I realize that today was probably not a typical day, but I still think the risk is too big to hold till Friday.

yep, don't want to hindsight you guys, but I had this trade on for a few weeks earlier this year. Tried to buy the tightest $5 weekly RIC for ~4.00-4.20 on Fri or Mon. Lesson I learned (the hard way as well) was get out on the Thursday before the option expires - no matter what. It was very tempting to think all I need is a small move and I'll make the max pofit. If the small move goes the other way and the stock sits between the strikes you lose a lot. You usually still get $3-3.50 for it on Thur and if you bought at 4.00-4.20 that's something you can live with and considering I was aiming for $0.60-0.80 profit (would close the trade at 4.80-4.85) I'd be okay if the trade would work 2 out of 3 weeks. Holding it to Fri though and you are facing much bigger losses and you'd need to take the same risk again with a limited profit for quite a few more weeks to make up for that loss.

Anyway I stopped that trade after 5-6 weeks as It wasn't really working. Was only breaking even with the Thursday rule and lost money if I include the trades where I closed it Fri. AAPL obviously was volatile again as soon as I stopped but never felt trying it again.

m

[Marco]

Chris,

Unfortunately, no matter how many times we repeat that, many traders will still ignore the position sizing. I strongly recommend the Van Tharp books. You can start with this article - http://www.iitm.com/tips/Tips-MM.htm. van Tharp calls the position sizing the most important parameter in trading, and I agree.

Don't try to "guess" which trade will work better than others. Always assume the worst case scenario (well, reasonably worst case, not including tornadoes or breaking a leg ) and base your position sizing on those scenarios.

Read more here - http://steadyoptions...osition-sizing/.

have you spend the 200 bucks on his position sizing report? Is it worth it? Or do you get the same in one of his books at a better price?

[Kim]

I have his books but not the report. Don't know if it's worth $200. His books are excellent, probably the best read on trading philosophy.

[Marco]

thanks, will try 'Super Trader'

[Guest listolyman]

I have read half of super trader and i highly recommend it. Picking the right stock is not the most important decision. Working on yourself and position sizing are higher priorities.