Long Dated SNDK Income

[cwelsh 1,551]

This is an actual trade:

SNDK at 42.34

LONG SNDK Dec 47 Put

LONG SNDK Dec 38 Call

Net debit: 10.69

SHORT Nov1 44 Call

SHORT Nov1 41 Put

Net credit: $0.76

Same rules as with the VXX, ideally run this 6-7 weeks.

[Kelly Park 10]

Chris:

Following you verbatim on VXX. Trying to actually think on this one!

Right now, SNDK is at 42.77, so if I'm looking for .80 delta on the longs and .30 on the shorts, I see 48/38 for the longs and 44/41.5 for the shorts. For the short Put, there is a .27 and a .34 delta available. In that kind of case, which way to err? To the outside to be a bit more conservative?

[cwelsh 1,551]

Chris:

Following you verbatim on VXX. Trying to actually think on this one!

Right now, SNDK is at 42.77, so if I'm looking for .80 delta on the longs and .30 on the shorts, I see 48/38 for the longs and 44/41.5 for the shorts. For the short Put, there is a .27 and a .34 delta available. In that kind of case, which way to err? To the outside to be a bit more conservative?

On the shorts, I tend to err on the outside (going further), to provide more protection, if the long position delta choices are .78 and .82 (or something like that), I'll go with the lower, as its less capital committed, potentially increasing returns.

[tjlocke99 18]

This is an actual trade:

SNDK at 42.34

LONG SNDK Dec 47 Put

LONG SNDK Dec 38 Call

Net debit: 10.69

SHORT Nov1 44 Call

SHORT Nov1 41 Put

Net credit: $0.76

Same rules as with the VXX, ideally run this 6-7 weeks.

Chris,

In reading some books on Iron Condors I see that deep OTM options decay the greatest % amount 90 to 30 days from expiration and that ATM options decay the most in the last 30 days.

Therefore do you think it may be better to go long the January or even Feb expiry and short the Dec OTM expiry and close the shorts in Nov?

Thanks!

[tjlocke99 18]

This is an actual trade:

SNDK at 42.34

LONG SNDK Dec 47 Put

LONG SNDK Dec 38 Call

Net debit: 10.69

SHORT Nov1 44 Call

SHORT Nov1 41 Put

Net credit: $0.76

Same rules as with the VXX, ideally run this 6-7 weeks.

Chris,

Sorry for the 2nd response on this post, but what criteria attracted you to SNDK?

Thanks!

[srf335 14]

Chris,

Assuming this trade is still centered fairly well, will you normally roll the short strangle on Thursday? Looks like about a $0.60 to 0.65 credit to roll at the same 41/44 strikes at the moment with only 0.11 left on the current strangle to gain. If you "re-centered" the short strangle at 42/45 the credit to roll drops to around $0.50 - 0.55.

Edited November 1, 2012 by srf335

[cwelsh 1,551]

SNDK has had quite a spike today, and was getting close to the 44 short position, so that made the decision on rolling today or tomorrow easy. Unfortunately, with the 44 almost being hit, profits did go down some.

CLOSED the 41/44, for a net return, inclusive of commissions, of 2.98% on the week.

I then sold the 43/45 next week for a 0.96 credit. None of the strikes were right at .30 deltas, so I'm not 100% comfortable with this, as I believe it'll take adjusting. But the credit is high enough that shouldn't be a problem.

[trhanson 590]

I'm going to follow along paper trading this one as well as if I got in yesterday. I'm also going to be more concervative probably.

BTO JAN 39 C (.78D) 6.20

BTO JAN 49 P (-.75D) 5.95

Total in long: 12.15

STO NOV9 42.5 P .43

STO NOV9 45.5 C .36

Total Credit this week: .79 (6.5%)

Remember, those numbers would have been from yesterday

[cwelsh 1,551]

Hopefully everyone has been watching, SNDK did hit 45. After some close chart watching, I closed out the 45 short call position for .71. That leaves me 0.25 credit so far this week. As long as SNDK stays above 43 between now and the end of the week, it'll still be profitable (around 2.3%).

Again, below target, but profit is profit.

Edited November 6, 2012 by cwelsh

[trhanson 590]

For what it's worth, I'm still holding on to my 45.5 call, but I'm considering dumping all my shorts in my paper trade account due to election.

[Kelly Park 10]

Chris:

What with all the other trades going on, I never got in on this one last week. Generally speaking, how much difference do you think it would make to enter one of these trades late? Seems like you would lose the credit from any week you missed, of course, but also a small amount of theta on the longs. I would tink that entering a week or two late would decrease but not eliminate the value of the trade. After that, opening the longs another month out would seem to make more sense. Any idea how much flexibility there is with how far out the longs are at opening?

[cwelsh 1,551]

Entering late is really not that big of a deal, particularly if you do it on Thursday. I would say if you get in more than two weeks late, just use the next month on the longs.

Which longs you use is something I'm still researching. I know if we start with less than six weeks left, you basically reduce the chance of the trade working by half (as if you have two bad weeks, you need two good weeks to BE, then you get out).

If you go too far out though, you overpay and don't get a high enough return on the risk. So far, I try to find something that's over six weeks out (normally 2-3 months), that can generate around a 5% weekly return -- that's a loose guideline though.

[cwelsh 1,551]

For what it's worth, I'm still holding on to my 45.5 call, but I'm considering dumping all my shorts in my paper trade account due to election.

I'd keep holding the 45.5 call too --- but I would be closely watching it all day. It looks like the opening spike has completely reversed, so you should be ok. But, I certainly wouldn't want to go into tomorrow holding a 45.49 position.

[cwelsh 1,551]

WHY WE DON"T ROLL:

I was just looking at whether or not I should sell the 46 strikes for .29 or not. That seemed quite a nice credit.

What happens if we do? Well, instead of .25 credit, I now have a .54 credit -- doubled!!

But wait, let's pull out the old option calculator. If SNDK hits my 46 strike tomorrow, or Thursday, how much will it cost to get out? Well on Wednesday, it would cost, assuming I can get out right at 46, .62. On Thursday, .55.

In either case, it's a loss. Don't risk the loss, this strategy is all about capturing 7-8% profits in good weeks and 0-2% in bad weeks. If you start tossing in 4-8% losses occasionally, you shoot yourself. Don't forget, if the trade stays right at the midpoint of the long positions, the longs WILL LOSE VALUE, not much since we were at .80 delta or higher, but it will lose some.

[cwelsh 1,551]

As before, the following are NET of commissions:

I closed the 43/46 for .51, resulting in a 0.04% loss for the week (basically break even)

I opened the 41.5/44 for .92, leaving a potential max of a 8.5% return.

[trhanson 590]

Last week (buyback in parenthesis):

STO NOV9 42.5 P .43 (.37)

STO NOV9 45.5 C .36 (.02)

Net Credit last week: .40

This week:

STO NOV17 41.5 P -.32d .51

STO NOV17 44 C .28d .39

Credit: .90

Edited November 8, 2012 by trhanson

[Rogers 263]

SNDK caught me off guard and I held the short put too long.. It's a learning experience but for me I think it's best to close the short when it gets hit regardless of my gut feeling or technical analysis.

[cwelsh 1,551]

Me too -- I was caught in the other job yesterday afternoon, and did not exit. Looks like a rebound today though.

Ideally, if there is a wild swing it happens on Thursday or Friday morning -- leaving plenty of time to actually do something about it.

[trhanson 590]

I totally didn't see it happen last night, but got a lucky break.

Roll 41.5 to 40 for -.51. Can still get .39 this week.

Edited November 9, 2012 by trhanson

[Hannes Kury 7]

Playing this with 1 contract.

Long Jan 36C(80) and Jan 47P(78), 12.68 debit

Short Nov 16 40P(29) and 42.5C(27), 0.71 credit

[tjlocke99 18]

Playing this with 1 contract.

Long Jan 36C(80) and Jan 47P(78), 12.68 debit

Short Nov 16 40P(29) and 42.5C(27), 0.71 credit

Could someone comment on this. The original long call at 40 is now barely ITM. The 49 Put is DEEP in the money. Does this affect the strategy at all? I mean if you sell a 40 16 Nov call against a 40 Dec call than that is part of a risky calendar play. What happens if SNDK goes below the long call by going below 40?

[Hannes Kury 7]

Could someone comment on this. The original long call at 40 is now barely ITM. The 49 Put is DEEP in the money. Does this affect the strategy at all? I mean if you sell a 40 16 Nov call against a 40 Dec call than that is part of a risky calendar play. What happens if SNDK goes below the long call by going below 40?

Richard,

check the Chris's first post in this thread. There you see the original LONG SNDK Dec 47 Put and LONG SNDK Dec 38 Call.

[tjlocke99 18]

Richard,

check the Chris's first post in this thread. There you see the original LONG SNDK Dec 47 Put and LONG SNDK Dec 38 Call.

I am really sorry. My day job makes it almost impossible for me to keep up with this anymore

I think my point is still valid though in that the long call or put could end up being very directional correct? Isn't that an issue since that long position had covered the losses on the short position?

[Hannes Kury 7]

I am really sorry. My day job makes it almost impossible for me to keep up with this anymore

I think my point is still valid though in that the long call or put could end up being very directional correct? Isn't that an issue since that long position had covered the losses on the short position?

Richard,

I am not an expert but my current long spread and my current short spread both have a delta of .02. That is not directional but maybe you mean something different.

[trhanson 590]

You are correct to a point. It can end up being slightly directional, but really directional. Lets assume that at the tail end of november SNDK is trading at $39 (which is the strike that I'm in at. At that point in time, the 39 C is worth 2.20 and the 49 Put is worth 10.05 making the long 12.25, or a profit of .10 for not much gain. Lets assume that in the next 2 weeks, SNDK rallies hard and meets back at the middle at 43 on Dec 14. the 39 C is worth 4.58 and the 49 P is now worth 6.30 for a total of 10.88 or a loss of 10.4%. Assuming you can manage to get and average of 4% per week of the initial outlay (which is conservative, I believe), you would still be up 14% and still have more weeks to continue to sell. So it's not too big of an issue.

That being said, I think the original strategy has you roll your long strangle when one of the strikes is passed. At the very least, you will have been able to use the strangle for coverage for free at that point. I think if SNDK came down to 39, I'd go 1 more week and then roll it the next week if it was above 39, but the rules for rolling the longs will still need some refinement I think.

[Hannes Kury 7]

Nice explanation Tyler. What do you use to calculate the future prices under defined certain circumstances?

[trhanson 590]

Just an options calculator

http://www.optionsprofitcalculator.com/calculator/straddle.html

That's the one I like to use in a pinch, but my broker has a nicer one. It doesn't predict IV changes at all, but it will take Theta into account.

[tjlocke99 18]

You are correct to a point. It can end up being slightly directional, but really directional. Lets assume that at the tail end of november SNDK is trading at $39 (which is the strike that I'm in at. At that point in time, the 39 C is worth 2.20 and the 49 Put is worth 10.05 making the long 12.25, or a profit of .10 for not much gain. Lets assume that in the next 2 weeks, SNDK rallies hard and meets back at the middle at 43 on Dec 14. the 39 C is worth 4.58 and the 49 P is now worth 6.30 for a total of 10.88 or a loss of 10.4%. Assuming you can manage to get and average of 4% per week of the initial outlay (which is conservative, I believe), you would still be up 14% and still have more weeks to continue to sell. So it's not too big of an issue.

That being said, I think the original strategy has you roll your long strangle when one of the strikes is passed. At the very least, you will have been able to use the strangle for coverage for free at that point. I think if SNDK came down to 39, I'd go 1 more week and then roll it the next week if it was above 39, but the rules for rolling the longs will still need some refinement I think.

Thank you Tyler. If SNDK rallied hard over those 2 weeks you would also invariably lose money or break even on your weekly short strangles. Therefore you would lose.

To illustrate my point again I will leverage your example:

1. SNDK is trading at $39.50 on a Monday (which is the long call we are holding). At that point in time, the 39 C is worth 2.50 and the 49 Put is worth 10.35 making the long 12.25, or a profit of .10 for not much gain

2. we are forced to exit our short call on this same Monday. Therefore we own ONLY the long strangle until the upcoming Thurs.

3. between Mon and Thurs SNDK rallies to 44. We have no lost probably around 5-7% on the long at this point.

I do like what you said though. Maybe I'd roll the long strangle when it gets within 2% of the strike. You roll the entire long strangle right? Not just the side where the underlying price is getting close to the strike?

Thanks for bearing with me! Also, sorry for my poor postings last week. I was very pressed for time, and I was not very clear in my writing.

[tjlocke99 18]

One more question.

For those of us who can't manage our positions during the day, is anyone setting limit prices on each of the short positions? How would you do this? Would it be a stop loss order on an option? Any idea on how to determine what price you set the stop loss at because our rules are based on the underlying price, not the option price. I am thinking of setting this stop loss on each short 1% higher than the total credit I received. This would keep my losses around 1-2%.

Also I am not sure if this would work well given the bid/ask spread.

I re-read the original post on this. I didn't see any comment on this.

Thanks!

[trhanson 590]

Thank you Tyler. If SNDK rallied hard over those 2 weeks you would also invariably lose money or break even on your weekly short strangles. Therefore you would lose.

To illustrate my point again I will leverage your example:

1. SNDK is trading at $39.50 on a Monday (which is the long call we are holding). At that point in time, the 39 C is worth 2.50 and the 49 Put is worth 10.35 making the long 12.25, or a profit of .10 for not much gain

2. we are forced to exit our short call on this same Monday. Therefore we own ONLY the long strangle until the upcoming Thurs.

3. between Mon and Thurs SNDK rallies to 44. We have no lost probably around 5-7% on the long at this point.

I do like what you said though. Maybe I'd roll the long strangle when it gets within 2% of the strike. You roll the entire long strangle right? Not just the side where the underlying price is getting close to the strike?

Thanks for bearing with me! Also, sorry for my poor postings last week. I was very pressed for time, and I was not very clear in my writing.

Yup, you would close it entirely and open a new one with 80 deltas (or so). And you are very close with that situation, but the odds of getting whipsawed like that are not exactly high. And then at that point, you still own the longs and can continue to sell short against them. Perhaps the longs will move back to profitability after that while selling short. Even if they didn't and you lost 10-12% total on the longs, that probably means you made 5-7% per week on the shorts far outweighing it.

It's not a risk free strategy (is there one?), but I think it could work out pretty well. That being said, I'm just paper trading for now, as I don't 100% understand how it will all pay out yet either, but from what I have seen so far, I'm quite impressed.

And on your question about the limits, I don't really know. I have access to trade pretty much at any time, so I just pop my head in every couple hours and see where things are. If they are getting closer, I might chekc more often. If you need to use a stop loss, I think you would probably want to use a stop limit, but the interaction between the price and the option is tough. I suppose you could use a calculator to figure out what the option would be worth if it crosses, set your stop just ahead of that with a limit just behind it.

[Hannes Kury 7]

One more question.

For those of us who can't manage our positions during the day, is anyone setting limit prices on each of the short positions? How would you do this? Would it be a stop loss order on an option? Any idea on how to determine what price you set the stop loss at because our rules are based on the underlying price, not the option price. I am thinking of setting this stop loss on each short 1% higher than the total credit I received. This would keep my losses around 1-2%.

Also I am not sure if this would work well given the bid/ask spread.

I re-read the original post on this. I didn't see any comment on this.

Thanks!

It looks like on IB in the alarm function you can set up a order which will be executed when the alarm condition is met. I have no experience with it.

[Hannes Kury 7]

SNDK at 40.

STC Nov 16 40 Put at 0.74 (0.69). I am holding the 42.5 short call. Small loss for the week.

[trhanson 590]

With SNDK at 40, dumped my 40 put for .71 debit. Not a good week for this trade. Best case scenario is 2.63% loss (assuming the price stays low, the 44 C should be able to buy back at 1c or so)

This brings up the question of rolling. Should one actually roll if right away in the week you get hit? This turned what would have been a slight up to BE to being a down due to the price of SNDK falling through. I think the conservative play would be to not roll, but by that token, you are paying the theta on your longs. Too small of a sample size on rolls to see if they are worth it or to form good rules...

[Hannes Kury 7]

The chart does not look very good. Before covering my put I thought there might be more downside in the next couple of days and the long strangle could become profitable. I would then take that profit and later open a new long with 80 deltas.

[tjlocke99 18]

With SNDK at 40, dumped my 40 put for .71 debit. Not a good week for this trade. Best case scenario is 2.63% loss (assuming the price stays low, the 44 C should be able to buy back at 1c or so)

This brings up the question of rolling. Should one actually roll if right away in the week you get hit? This turned what would have been a slight up to BE to being a down due to the price of SNDK falling through. I think the conservative play would be to not roll, but by that token, you are paying the theta on your longs. Too small of a sample size on rolls to see if they are worth it or to form good rules...

Its not just the theta on the longs. Again the longs are now directional therefore if there is a reversal you'll lose on the longs and the current call you are still short will become a loss.

[trhanson 590]

I wasn't meaning rolling your longs. I was talking about rolling your short if it gets busted right away or not. I'm still thinking about rules regarding rolling of the longs.

[cwelsh 1,551]

Right now, I am evolving to rolling the shorts if they get hit on Friday but likely otherwise no.

But there's an EASY test -- use an option calculator -- remember the goal is to try to BE if the shorts are hit. So if you can roll and lets say get a.70 credit, whip out the option calculator and figure out how much it will cost to buy them back if they get hit again the next day (worst case scenario). If it's .70 (or even .75 or so), then roll, otherwise don't.

[trhanson 590]

Loss last week was .33 or 2.72%

NOV 24 41 C (D .26) .29

NOV 24 38.5 P (D -.29) .39

Total credit .68 or 5.6%

[cwelsh 1,551]

Stayed in a little too long before exiting the short this week.

But out at a 2.5% loss last week over all and just entered the

38/40.5 for a max gain of 7.2% after commissions

[cwelsh 1,551]

SNDK is still performing well. On Friday, I closed for a 6.8% gain and opened the 38.5/41 for a a max possible 5.34% gain

[tjlocke99 18]

Chris,

Thanks for all of your posts. You thinking about rolling that 41 call up a .5 now as its getting close so early in the week?

[cwelsh 1,551]

Im thinking of closing it -- I'm done rolling -- betting against the trend is just not a good idea. I'm not doing it yet though -- even when it hits the 41 (if it hits 41) I should still be able to get out at BE.

[tjlocke99 18]

so you'd close the put at the same time?

thanks!

[cwelsh 1,551]

I almost never close out the other side -- those pennies add up over time. But if I could get out for .01-.02, I would consider it -- but not for .05-.10 (which is where the price is now).

[tjlocke99 18]

Based on what you said I'm thinking when one of the short strikes get touched I'll buy a directional long I am kidding of course, but it would be another interesting thing to test.

[cwelsh 1,551]

Based on what you said I'm thinking when one of the short strikes get touched I'll buy a directional long I am kidding of course, but it would be another interesting thing to test.

That's called momentum based technical analysis -- and its basically the underlying principle behind what day traders too. If that's something you want to get into, I'd recommend reading:

http://www.amazon.com/Technical-Analysis-Financial-Markets-Comprehensive/dp/0735200661

and then completing the study guide too. Also, be sure to backtest thoroughly. Personally i try to avoid momentum trading, I always was finding myself wrong, but I know several people that can do it quite well.

[trhanson 590]

As mentioned in the VXX thread, I have to start my PT over so here we go again.

LONG

JAN 36 C (D 80) 4.6

JAN 45 P (D -82) 5.5

Total long: 10.1

SHORT

DEC 7 41.5 C (D 21) 0.23

DEC 7 39 P (D -23) 0.27

Max Credit: 0.50 (4.95%)

[cwelsh 1,551]

I'm short the 38/41 this week for a max of 4.03%.

[fieldydwb 31]

Hi Chris,

 

Do you guys still do these trades?