Long Dated APA Income

[cwelsh]

Well I wanted to start this on Friday, but could not for a variety of reasons, so I'm entering it today, even though I'm getting less income the first week.

First, LONG

Jan 72.5 Call

Jan 90 Put

Cost: $20.00.

If you do this enter it for less. The midpoint was $20.90 when I entered, but the spread was large, so I entered it at $20.00 and got an instant fill -- probably could have gotten it much cheaper.

Sold:

Weekly 77.5 Put

Weekly 82.5 Call

Credit: 0.53

(had I entered Friday i could have gotten $1.26 at the 80 strike level).

Max return this week: 2.65% (still not bad for 3 days if we get it).

Note, this is a REAL trade

[Rogers]

in @ 19.55 w/ .54 credit

[Hannes Kury]

This is my first try with this strategy, just 1 contract to learn the mechanics. I got the long side for 19.50 and a 0.54 credit for the shorts.

[cwelsh]

This should be a good one over time. It, VXX, AAPL, and SNDK tested the best, out of the ones I ran anyways. I'm sure there are tons more. If, three months from now, these are still working, I'll eventually expand and probably have 8-10 running at the same time, taking up about 1/3 of the portfolio.

Of course if you have that big of an allocation, you MUST have some sort of other trades on (whether its a VXX hedge or several earnings type trades), to profit from in case of a market move and provide protection.

[Rogers]

closed 82.5 call short

[Hannes Kury]

I also closed the short call for 0.82. Small loss for the first week.

[cwelsh]

I'm watching the 82.5 very closely, my technicals suggest that it will stay below 82.5, but definitely bears close watch and closing is NOT a bad idea.

[cwelsh]

though this does appear to be demonstrating why not to enter on Monday or Tuesday

[Hannes Kury]

though this does appear to be demonstrating why not to enter on Monday or Tuesday

Yes, in a good week it does not matter but in a not so good week there is not enough credit to break even.

[Hannes Kury]

Chris,

APA closed at 83.00 today.

I closed the short calls earlier today (according to the rules).

Just now I saw that the short puts have a b/a of 0.03/0.05.

My question is: should one close a cheap put like the above and eliminate the remote, but still existing, risk of large overnight gap down to the short put?

Thanks Hannes

[cwelsh]

That's a personal decision. I personally do not, as that .05, over the 6-8 weeks we do this trade, adds up to .40, include commissions from the extra trade, then you have probably something closer to .80 or so. That's almost an entire week of profits.

However, if you are more risk adverse, and losing 1-2% over a month time is worth not having the risk, then by all means close it.

Please note, I DID NOT close the APA position yesterday for the following reasons:

1. The technicals said it was SEVERELY overbought, and should open lower; but more importantly;

2. When I looked at it about 25 minutes before close, the loss in theta over night brought it back below the strike point. E.g. even if it didn't go down, as long as the opening the next day was not higher, there would be no loss.

This was done solely because I opened the trade to "late," and did not get the credit I wanted, so I took on more risk than Id advise anyone else having done. If I had gotten my $1.00 - $1.20 credit last Thursday, I would certainly have closed and just taken a profit in the .40 range.

[cwelsh]

I rolled today. As before, I'm using my trading statements to compile the below, so they are NET of commissions (e.g. they include commission costs), which will reduce the returns discussed above.

I closed the 77.5/82.5 for 0.13, or a net 1.8% return

I opened 77.5/82.5 for .82, or a maximum possible return of 4.1%

Edited November 8, 2012 by cwelsh

[Hannes Kury]

I sold the Nov 16 77.5P/82.5C for 0.86

[cwelsh]

Closed last week's for a 3.1% loss (again couldn't respond to alert timely enough -- need to look into the possibility of stop losses)

Opened the 72.5/77.5 for a max gain of possible of 2.5% this week -- like XOM the deltas just weren't friendly today.

[cwelsh]

Closed the week 3 position for a 2.33% gain (almost the max possible) and opened the 75/80 for a max possible gain of 2.4%