AAPL Earnings Double Diagonal

It's earnings season for Apple once again. Normally the options volatility will increase in the option chain that coincides with the earnings date. Earnings is set to be released on Jan 22.
I decided to place a double diagonal to capture the increase in volatility. The chart looks like I will make only a few dollars at expiration but I have a 9 vega. Meaning that for every point increase in IV, I should see a $9 profit. I expect to see about ~10 point increase in IV by Jan expiration.

Trade
STO JAN 95 CALL
BTO FEB 100 CALL
$1.65

STO JAN 75 PUT
BTO FEB 70 PUT
$1.46

ALK ascending triangle

ALK(Alaska Air) is showing ascending triangle. The stock has been forming a triangle for almost 2 months. It recent broke out of the triangle and heading upwards. I decided to place a bullish calender to capture any movement.



Placed Jan/Feb 30 Put calendar for $1.43. This trade is mostly speculative trade because it may never reach above $30. $27 was the upper band before the breakout. I may look to remove the trade once it reaches 25% profit.

OIH result

OIH did not breakdown much but time decay did work in my favor. I was able to collect all the credit. 7.75% for a one month trade.

Options Trading Rules

Here is a list of some rules to follow when getting started with options.

Rule 1
Get educated.
Options behavior differently then stock and have several factors that cause options price changes.

Rule 2
Open a brokerage account that can handle options.
Thinkorswim is best brokerage that specialize in options with risk and reward graph.

Rule 3
Use option simulator software
Optionvue is good but pricey software. Thinkorswim has a integrated simulator with each trading account.

Rule 4
Paper trade first.
This is the best way to learn with fake money before you put real money to work. Practice makes perfect.

Rule 5
Set your profit and loss target.
Have an idea of when to exit the trade is very important. Never get into a trade just to get in. Have a stop loss or adjustment plan ready at all times.

Rule 6
Trade small, trade often.
Don't put all your eggs in one basket. Keep each trade small and spread it around among different options/ strategies.

Rule 7
Understand a strategy inside and out.
Learn a strategy and dissect piece by piece to understand what factors go into making the strategy work. Only then will you know when and how to apply the strategy and make it generate a consistent return.

Nice Descending Triangle on OIH

I saw a nice descending triangle forming on OIH and placed a bear call spread on the Nov 17.

STO DEC 115 Call
BTO DEC 120 Call
for $0.36 credit.
Projected ROI of 7.75%

I could have gone close to the money but I wanted it to have some wiggle room incase it trended upwards.

As it stands now, it going to expire worthless but I'll mostly likely close it for a few cent to free up some capital.

What a year!

This year trading credit spreads has been really tough for any trader. Two years ago, the Dow hardly moved 400 points in one month. Now you see that kind of movement in one day. The short strike of any position easily is tested in matter days. With the volatile market I decided to use a low risk diagonal to hedge against any downside.

On 10/24 BTO 50/52 Nov/Dec Call Diagonal. Max risk was $7 on the downside and $207 on the upside. Right now its sitting pretty with less than two weeks to go.

TOS training

I love the TOS platform. It's a must if you trade options. Plus its free with your account. Contact me if you want a free quick demo that will get you started and learn how powerful this platform can be.

Contact info:
aroyale15@yahoo.com

GS calendar 21% gain

Closed out GS today after the stock as the stock began pulling back this morning. Had the 190 and 200 put calendar. Though its in the sweet spot now its better to get out before it makes a strong move.
The profit was not easy to get because the stock moved 20 points since I opened the trade.
Lessons learned: Be patient, roll with trend, take profits

Rocketship GS

Goldmansach has shot up quite a bit this week. It was around 180 earlier this week and then now its 192. From a candlestick aspect an anbandoned baby pattern is starting to form. Meaning that if mondays price gaps lower and stay lower its a bearish situtation. However if it continues to trend higher than I will need to adjust my position inorder to stay with this earning play. So far i'm down $94 on a $950 risk.



Existing postition




With 195 put calendar if price continues to rise

GS earnings calendar

Goldmansachs is having earnings June 2. So it a good candidate for a calendar spread. The June 2 earnings event will increase the June contracts while allowing the May contracts to decay quickly.

BTO May/June 180 Put for $4.55
Risk to reward will be 1:1
Breakeven are $170 and $191

Volatility

Volatility is a prediction that a stock will likely more. A high IV will mean that stocks has high probability that it will move one direction or another.

Debt spreads generally do better with increasing volatility.
Credit spreads generally do better with decreasing volatility.

Examples of debit spread
bull call spread
bear put spread
long call
long put
calendars

Examples of credit spread
bear call spread
bull put spread
short call
short put

AAPL double calendar earnings play

On 3/25/08
BTO April/May 130 put calendar for $3.29
BTO April/May 160 call calendar for $3.12

Earnings was going to be released 4/23/08 so that meant the IV would increase and stay higher than the front month. IV for front was 46% and back month 51%. This a negative skew of 5%, not really good for a time spread but I knew that IV would increase in the back month so I didn't care about the front month.

Exit on 4/15/08
STC April/May 130 put calendar for $3.09
STC April/May 160 call calendar for $4.66

IV for front month is 45% and back month 56%. Nice profit of $1.34 or 21% return in 20 days. Not bad. I noticed at if I exited today, I could have got a 24.5% return. The current price of $157 is very close to the 160 peak.

I really like this double calendar strategies on stocks that are about to have earnings. Watch out for other trades similar to this in upcoming postings.

Componets of any trade

There are three things that make up all options trades
1. Price (delta)
2. Time (theta)
3. Volatility (vega)

Most of the time price is hard to control so you must rely on time and volatility.
Time is just selling premium. To generate a monthly income you need to sell premium and let time decay work in your favor.
Volatility is select strategies that will capitalize the change in volatility. Calendars are great for options that will increase in IV such as earnings and when IV is near the low of historical IV. When IV is higher than normal than using credit spreads will benefit the most.

What a day!

Today's massive move helps the market recover after several days of down movement. It always seems that Mr Fed is late to the event. This should have been done long ago when all the banks were reporting massive writedowns.

It's been a while since i updated this blog. I plan to be more active in reporting my option trades. So far, I gotten better at risk management. By far my weakest link. Option trading is all about risk management. Second is time decay.