AAPL July 2012 Calendar

[Kim]

No, because I didn't trade it personally. I share many trades on SA, I cannot trade all of them and currently it doesn't fit in my portfolio.

[cwelsh]

I will be most likelly entering a variation of that trade tomorrow -- however I will most likely have wider strikes and end up with a credit around the $1.00 to $1.10 range.

[Hannes Kury]

I will be most likelly entering a variation of that trade tomorrow -- however I will most likely have wider strikes and end up with a credit around the $1.00 to $1.10 range.

Thanks Chris,

wider strikes for a somewhat lower credit - does that mean that the trade would be more "forgiving"? Would you mind publishing the parameters after you place the trade? Thanks!

[Kim]

The risk and reward are directly related. By going with wider strikes, the risk is lower but also the potential gain. It is always a tradeoff.

[tjlocke99]

The risk and reward are directly related. By going with wider strikes, the risk is lower but also the potential gain. It is always a tradeoff.

kim - i really don't get how the RIC hedge affects the P/L? couldn't purchasing a weekly RIC essentially make the trade safer but also create the likelihood of no profit plus alot of commission fees? i have alot of trouble "visualizing" anytime we sell weeklies because the P/L graphs don't seem to tell the whole picture.

R

[tjlocke99]

I will be most likelly entering a variation of that trade tomorrow -- however I will most likely have wider strikes and end up with a credit around the $1.00 to $1.10 range.

what about wider strikes but 10 points between the wings? i know it makes the max potential loss around $850 as opposed to around $350 with the trade kim recommends.

as i have been looking at ICs lately i have been more looking at the price difference in the wings rather than std deviation. for example some wings seem can actually be further out and have nearly the same price difference and thus provide very similar credit with less risk. also sometimes due to market sentiment the puts or calls at the same strike distance can be very different prices. chris - do you see that as an edge or do you feel the market is predicting a rise or fall when the puts or calls are more expensive for similar strike differences from the underlying price.

a made up example:

SPY @ 132

122 JUL PUT $1.15

142 JUL CALL $1.00

the put is still 10 points away but fetches a larger price.

[tjlocke99]

I will be most likelly entering a variation of that trade tomorrow -- however I will most likely have wider strikes and end up with a credit around the $1.00 to $1.10 range.

One more completely unrelated topic Chris. How are you maintaining a full time job and this much trading analysis with a new baby! Usually there is no such thing as "free time" after having children!!!!

[cwelsh]

You're example with SPY is actually the norm -- the market is almost always downward biased -- so you'll get more credit from puts than calls. Sometimes its .05% more sometimes its as much as 5% more.

That's part of my "compliant" against volatility -- volatility does NOT measure volatility, rather it measures downward market pressure sentiment. I mean if the markets jump 500 points in a day, the VIX is going to crash, even though volatility has spiked by an obscene amount. That said, most people would be happy if the market goes up 500 and sad if it goes down 500 -- which is why puts are more expensive.

As to the SD moves -- I always look at both. I have to know the risk of a trade prior to entering. Once I know the risk, I look at the strikes. As I've stated before, on a 10 point spread, if I can't get at least $1.00 (10% return), I just pass. However, let's say I could get $2.00 -- well I'll probably move a little further out, just for the additional cushion.

As to this exact trade analysis, AAPL has been WILDLY volatile. If I were to trade the June expiration (23 days left), I would be looking at the following:

In the last 30 days, a 30 day SD move is 58 points. The largest move over a 30 day period was a whopping 102 points -- which is frankly eye popping. In the last 30 days, a 14SD move is 25 points.

After going through all of the variations, I know I'll need at LEAST a 80 point cushion on the spread, and preferably much more.

To get my 10% return, I would have to use the 620/630 call and the 480/490 put. Simply not worth it.

Now Kim's trade was using the July spreads -- but I don't ever trade non-index based short condors further than six weeks out. I know what the "odds" and statistics say, but I can look at four years of trading logs (paper and actual) and tell you that I lose on those trades all the *#($& time.

As to my trading analysis -- ask Kim, it's dropped off some. That said, I've never slept much, only about 5 hours a night, since I was 15 or 16. It also helps to be the person in charge too.

[Kim]

kim - i really don't get how the RIC hedge affects the P/L? couldn't purchasing a weekly RIC essentially make the trade safer but also create the likelihood of no profit plus alot of commission fees? i have alot of trouble "visualizing" anytime we sell weeklies because the P/L graphs don't seem to tell the whole picture.

R

RIC will help if the stock becomes too volatile. You will win every week a little bit and at least partially offset the longer term IC losses.

Of course it will not always help - the stock might drift slowly in one direction and you lose on both. But if the stock makes wild swings bit still stays in the longer term IV range, then you might win on both.

[Rogers]

I am still in my May w4/July 555 calendar but have hedged it with weekly verticals (essentially a RIC)

[tjlocke99]

thank you kim and chris for your responses.

[Rogers]

Kim,

With AAPL at 572 what would be good strikes for a weekly RIC to hedge the JULY IC ?

[Kim]

Kim,

With AAPL at 572 what would be good strikes for a weekly RIC to hedge the JULY IC ?

565/570/575/580. But I'm not sure I would do it now, probably wait for the next week weeklies, which means waiting for Thursday.

[Rogers]

565/570/575/580. But I'm not sure I would do it now, probably wait for the next week weeklies, which means waiting for Thursday.

That's a good call.. Because volatility will probably be minimal until the Friday jobs report? Or because an RIC is better started at the beginning of a new weekly chain?

[Kim]

You need to give the stock enough time to move.

[cwelsh]

Again -- I have not done anything to this other than just keep rolling. I'm in the 560 calendar and rolled yesterday:

Bought 5 AAPL Jun 1 560 Call @ 18.79 (to close)

Sold 5 AAPL 560 Call @ 21.79 (to open)

Notice, even though it was DITM call at the time -- I still extracted time value premium in excess of what I need to in order for this trade to be profitable prior to July.

Here's an update of the trades to date:

5/11 Bought July 21 560 Call @34.83

Sold May 19 560 Call @12.98

5/18 Bought May 19 560 Call @ 0.06 (to close)

Sold May 25 560 Call @ 2.56 (to open)

5/24 Bought May 25 560 Call @9.35 (to close)

Sold June 1 560 Call @14.5 (to open)

5/31 Bought June 1 560 Call @18.79 (to close)

Sold June 8 560 Call @21.79 (to open)

Net revenue from short sales so far: -11.70

Weeks left: 6

Minimum needed per week: $1.95

And that's assuming ZERO time value left in the July trade in the last week -- which is next to impossible. I could exit this trade today for $17.85, which would result in an incredible gain -- but this stands to be an absolute home run of a trade, so I'm still holding.

[Rogers]

opened new weekly AAPL RIC hedge 550/555/560/565 @ 3.05

[LSS]

opened new weekly AAPL RIC hedge 550/555/560/565 @ 3.05

Great fill. Now more than $4.00...

[cwelsh]

I'm not sure this needed a hedge, but it looks like its going to turn out great.

[EugeneHill]

It seems counterintuitive that BOTH an RIC and calendar can make money on the same stock, it seems like they're voting against each other. Maybe the rich options prices on AAPL make this possible? Or different time-frames? Or luck?

I too opened a 560 Aug/Jun2 call calendar on AAPL. 1 spread, showing a profit already. My calendar on XOM is sucking wind, IBM and MCD have slight losses for the past month.

[cwelsh]

The calendars that you run for several weeks by shorting the weeklies will frequently have losses (hopefully small) in the first one to two weeks, so i wouldn't necessarily be concerned about that. Obviously if there's a significant move, then you need to be.

As far as hedging with a RIC, yes it runs opposite of the calendar. HOWEVER, you make money on the time frame difference. You calendar is longer term, rolls weekly, and the RIC protects against small changes.

Technically a straddle would work better than an RIC, but they're normally cost prohibitive.

As I've stated several times, I almost never use an RIC to hedge a calendar -- I'm much more likely to enter into a double calendar, a double diagnonal, or just roll the calendar to a different price -- if I don't close out all together.

[EugeneHill]

My 560 aug/jun2 AAPL calendar is looking kind of sick. With two big up days in AAPL there's not a whole lot of theta left in the short weekly and I suspect in danger of exercise since it's 16+ points under water.

I can roll to a 560 jun for $3 credit.

Here are my thoughts, please offer opinions, I take full responsibility of course, I just want other ideas:

1) hold the weekly until tomorrow, squeeze the last .50 of theta out

2) go ahead and roll to a 560 jun for $3+

3) close out the spread (~$350 loss)

4) roll the 560 to a 570 jun at a cost of about $375

5) create a double calendar at 575?

anything else? My normal inclination would be #3, just take my lumps and move on, but I wouldn't mind trying something else.

Thanks

[Kim]

I would probably go with #2. You want to do it as a few weeks play, right? $3 looks like a good credit, the stock is still not too far from 560. Definitely not #1 and probably not #4.

[cwelsh]

I'm not sure why your calendar is looking sick, my aapl is looking great right now. (Now I'm in the long July short june's, but that shouldn't make that big of a difference).

For those following me, I just rolled the Calendar as follows:

Bought AAPL June 8 560 Call @ 13.56 (to close)

Sold 5 AAPL June 16 560 Call @ 17.56 (to open)

That netted me another $4.00. Taking present value of the long july into consideration, this trade is up just over 25% since opening it on May 11. At the present point, we're almost to the "almost impossible to lose money" stage.

Unless AAPL goes #*($& through the roof (well over 100 points up), there will always be a time value spread between the two weeks. Depending on how close to the 560 strike we are, that amount could vary between $2-$9. So, even if AAPL keeps going up slowly, I'll still extract $2.00 of premium every week, and my long position keeps going up in value.

If AAPL drops, even to the 530 range, I can still extract $2.00 or so of premium. Once I've gotten the intial cost of the long position back (which should happen next week), even if AAPL drops to 0, I would still at least break even.

Now of course, if it keeps going up, at some point it will make sense to just take the gains and go, but, as you keep taking premium out, you are taking risk off the table.

[tjlocke99]

My 560 aug/jun2 AAPL calendar is looking kind of sick. With two big up days in AAPL there's not a whole lot of theta left in the short weekly and I suspect in danger of exercise since it's 16+ points under water.

I can roll to a 560 jun for $3 credit.

Here are my thoughts, please offer opinions, I take full responsibility of course, I just want other ideas:

1) hold the weekly until tomorrow, squeeze the last .50 of theta out

2) go ahead and roll to a 560 jun for $3+

3) close out the spread (~$350 loss)

4) roll the 560 to a 570 jun at a cost of about $375

5) create a double calendar at 575?

anything else? My normal inclination would be #3, just take my lumps and move on, but I wouldn't mind trying something else.

Thanks

What is wrong with option #5? I'm not sure about the 575 strike or how a double calendar would work with weeklies though?

[tjlocke99]

I'm not sure why your calendar is looking sick, my aapl is looking great right now. (Now I'm in the long July short june's, but that shouldn't make that big of a difference).

For those following me, I just rolled the Calendar as follows:

Bought AAPL June 8 560 Call @ 13.56 (to close)

Sold 5 AAPL June 16 560 Call @ 17.56 (to open)

That netted me another $4.00. Taking present value of the long july into consideration, this trade is up just over 25% since opening it on May 11. At the present point, we're almost to the "almost impossible to lose money" stage.

Unless AAPL goes #*($& through the roof (well over 100 points up), there will always be a time value spread between the two weeks. Depending on how close to the 560 strike we are, that amount could vary between $2-$9. So, even if AAPL keeps going up slowly, I'll still extract $2.00 of premium every week, and my long position keeps going up in value.

If AAPL drops, even to the 530 range, I can still extract $2.00 or so of premium. Once I've gotten the intial cost of the long position back (which should happen next week), even if AAPL drops to 0, I would still at least break even.

Now of course, if it keeps going up, at some point it will make sense to just take the gains and go, but, as you keep taking premium out, you are taking risk off the table.

Chris - did you make this some type of ratio trade? What about Eugene's question about being assigned?

Bought AAPL June 8 560 Call @ 13.56 (to close)

Sold 5 AAPL June 16 560 Call @ 17.56 (to open)

Also, you may want to be careful with this apple developer conference coming up. You could see some large stock moves from it.

[EugeneHill]

I forgot #6:

6) get busy @ work and forget to do anything haha.

which turns out to probably have been the best thing, things settled down a little later in the day, and today a straight 560->560 roll brought in 3.68.

I had just opened that aug-jun2 calendar, and as somebody pointed out the first couple of weeks of this type of play could lose money.

Can anybody recommend a book/site (besides steadyoptions ) that discusses calendars?

I got the Iron condor book by Benkilfa and am enjoying that, thank you whoever recommended it.

[cwelsh]

No it wasn't a ratio trade, just a typo -- I traded 5 contracts of both.

[Kim]

I forgot #6:
6) get busy @ work and forget to do anything haha.

which turns out to probably have been the best thing, things settled down a little later in the day, and today a straight 560->560 roll brought in 3.68.

I had just opened that aug-jun2 calendar, and as somebody pointed out the first couple of weeks of this type of play could lose money.

Can anybody recommend a book/site (besides steadyoptions ) that discusses calendars?

I got the Iron condor book by Benkilfa and am enjoying that, thank you whoever recommended it.

Sometimes you need some luck..

I'm not familiar with any book which is devoted to calendars only.

 

[EugeneHill]

I'm at another decision point in my aug/jun2 AAPL 560 call calendar spread.

The theta is almost completely gone from the jun2 option which is going for $11.5 more than I sold it for. The theta is almost gone too, so almost all of its value is intrinsic.

The delta is close to 100 for the short side, the long side's delta is 67, so for every $1 that AAPL rises the value of the spread drops by about $30.

I'll wait to see what happens today, but I want to have a plan

My choices:

1) wait, hope the short doesn't get exercised, look to roll tomorrow when the new weeklies come out, maybe to a higher strike.

2) close out both sides, take the loss which over the 3 weeks I've had it open would be about $300

3) roll the short up to a strike that still has extrinsic value (to avoid exercise). A 5 point roll would cost $500, 10 point about $900.

4) roll both sides up, using some of the gains on the long (5.5 points) to defray the loss on the short (-11.5 points).

5) something else, convert to a double calendar? This still wouldn't help the short 560 though.

Thanks for your thoughts. Pre-market it looks like AAPL is pretty flat, so I don't think I can count on much of a drop.

[Rogers]

I am in a 575/570 calendar that is about even right now. My two cents is that AAPL was weak yesterday in a strong market so I am hopeful it stays around 585 today and I will roll the short side tomorrow. I don't claim to be an expert on market direction or AAPL so it is just as likely to jump another dozen points today..

[Kim]

I would probably close it. We are about one month before earnings, the stock traditionally had a pre-earnings run in many cycles, I'm not sure it's a good time now for AAPL calendars.

[Rogers]

I closed my 575/570 calendar for a small gain. As Kim mentioned AAPL is getting more volatile lately..

[cwelsh]

It depends on how long dated your calendar is -- both my LEAP 560 calendar and Aug 570 calendar's are in good shape and I'll just keep rolling the weeklies on.

However, if I were in a July calendar, I might just consider exiting.

[Rogers]

I suppose that running an AAPL calendar during the earnings announcement could be dangerous. You could probably hedge it with a weekly RIC during the week on the announcement. On the positive side you would think that each week leading up to the announcement there is a premium on the calls you are selling against your long?

[EugeneHill]

I exited my weekly 560 calendar for an overall $250 loss which was small percentage wise. Long was August.

[cwelsh]

I suppose that running an AAPL calendar during the earnings announcement could be dangerous. You could probably hedge it with a weekly RIC during the week on the announcement. On the positive side you would think that each week leading up to the announcement there is a premium on the calls you are selling against your long?

Exactly -- and as long as I'm in the weeklies, it should be ok. With the announcement not until Jul 16, I have at least a few more weeks of weeklies to run. Just rechecked it all this morning, haven't rolled yet, but will either late this afternoon or early tomorrow.

I could get out now for about a 3% gain, but as long as I stick in my range (under 600 down to about 555), I'll stay positive, so will stay in for at least one more week.

Of course if things start moving I can get out too, liquidity is not a real problem here.

On another note, my long term DITM LEAP on AAPL is still working great, even though this week will probably be a loss. Trade itself is still up well over 25% in three months.

[EugeneHill]

Did you discuss the specifics of that DITM AAPL trade on this board? I'm doing something similar for MMM and VIX and so far so good, I'd be interested in an AAPL one too.

Do you typically sell your weekly short right at the money?

[cwelsh]

I think the discussion was actually on the old board, but I'm really not sure. And I try to sell the weekly short ATM, but sometimes that would just be too big of a loss, in which case I move closer to ATM.

For instance, if I a week ago I had shorted the AAPL 550, well to close that call, and then reopen at 585 would cost $35 -- and the DITM call has not increased that much. In those cases, I'll move up to something around 565-570. I still net a $2-3 credit, which is all I'm looking for, and move closer to the ATM trade.

Here's the details of the trade:

Long Jan 2013 340 AAPL Call Cost 244.90, entered 3/14/12

Then I sell the weekly each week. As of today, I've collected 65.90 of premium (have not sold this week's yet) and the LEAP is worth about 245.50 -- so its still going strong. With as much downside protection as that gives me, I will MOST LIKELY, just not be short any calls going into earnings, but still hold the long. Yes, that is a directional and speculative trade, but one that has downside protection and one that could result in large gains. Even if I lose half my gains, I can immediately start selling the calls again.

Still not sure though, I might just exit the entire position and then reenter post earnings, I'll have to evaluate further in a couple of weeks.

[Kim]

Chris, those are very nice gains. However, I disagree with your "downsize protection" part. You don't have a downsize protection as of NOW. You refer to the past gains. This is what people refer to when they say "now I'm paying with the house money". Once you made a gain, it is YOUR money. if you like to be long going into earnings, that's a different issue. But this is like a new trade. What you made so far is irrelevant for the decision to take or not to take that new trade. it's a new day every day, and you have to decide if you like the current position, no matter what happened in the past.

Correct me if I'm wrong.

[cwelsh]

Chris, those are very nice gains. However, I disagree with your "downsize protection" part. You don't have a downsize protection as of NOW. You refer to the past gains. This is what people refer to when they say "now I'm paying with the house money". Once you made a gain, it is YOUR money. if you like to be long going into earnings, that's a different issue. But this is like a new trade. What you made so far is irrelevant for the decision to take or not to take that new trade. it's a new day every day, and you have to decide if you like the current position, no matter what happened in the past.

Correct me if I'm wrong.

You're not wrong, my word choice was incredibly poor -- its not downside protection rather it has been money that has been made. However, with my long term AAPL outlook, and "money in the bank" I am more inclined to pursue a directional trade. That is more speculative in nature, and it will be reclassified as such in my overall portfolio (I allocate roughly 10-15% per month too what I refer to as speculative trades).

[EugeneHill]

Thanks for the details Chris. Did you target a particular delta when you bought the long side of this? That long cost you about 25k right?