http://www.pathometrix.com/Movies/AAPL1.mov
This is s quicktime movie, so if you don't have quicktime you will have to downloaded from Apple.com. If you have an iPod, you probably have quicktime already. if not, here is where you can get it:
http://www.apple.com/quicktime/mac.html
I have previously posted this clip on AAPL's PCCRC already.
http://www.pathometrix.com/Movies/AAPL.mov
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Update Nov. 28th, 2005.
I have done the switch from 15 Jan 60 calls to 15 Jan 70 calls. IF AAPL shows signs of rally again, I can buy more of these calls to increase my deltas.
As AAPL openned higher, with a gap, it looked like a doji early in the morning, so I suspected that the stock would either begin to decline or stay put for the rest of the day. The decline is now a long black body, suggesting that AAPL will be going sideways, perhaps until Jan earnings. We'll see...
13 comments:
Hey Juan Sarmiento. Nice blog. You may want to check out emini future trading. It's got lots of info on emini future trading.
That was a comprehensive analysis. While I don't understand a lot of that yet, I thought I'd show you the way I have handled this in a similar time frame. I will try to paste in the transactions here. In summary, I entered more aggressively by taking the 65 strike on 11/2, but balanced it by taking a longer position in time, choosing December short and April long. I panicked out of this on 11/16 with a large profit, thinking the stock would retrace. When it didn't, I entered the next day, when the stock price was over $1 higher, but this time I entered more out of the money. With the stock at around 66.5 I entered the 70 Aprils long and the 70 December short. I currently have another large profit. I am willing to exit the position if there is a top and I do know how to read candles, so I'm trying to watch carefully for the top. I confirm that the long white candlestick yesterday is still bullish and we don't have any top formation yet. I don't have the ability to make those optionetics charts that you can make that are so interesting so if you have time to get around to doing this for me, great. Otherwise I can wing this. My advantage was in going out of the money; this gave me a larger profit potential I think, Now that my strike is so near my gains may start to be less startling, maybe after the stock gets to 71 or 72? What do you think of that?
Another question I think might warrant a separate topic would be how everyone sets stop losses. What tools you use and how you are able to execute them. I sure haven't mastered what I can do at OptionsXpress on this yet.
Let's see if this paste works now:
The following transaction has been completed on 11/2/2005 1:40:09 PM (ET):
Symbol: .QAADM
Description: AAPL APR 2006 65 Call
Stock: AAPL at 59.51
Action: BOT TO OPEN
Quantity: 40 contract(s)
Price: $5.25
Commission: $44.00
Reg Fees: $0.00
Net Amt: $21,044.00
The following transaction has been completed on 11/2/2005 1:40:09 PM (ET):
Symbol: .QAALM
Description: AAPL DEC 65 Call
Stock: AAPL at 59.51
Action: SLD TO OPEN
Quantity: 20 contract(s)
Price: $1.50
Commission: $22.00
Reg Fees: $0.13
Net Amt: $2,977.87
The following transaction has been completed on 11/16/2005 11:39:14 AM (ET):
Symbol: .QAADM
Description: AAPL APR 2006 65 Call
Stock: AAPL at 64.22
Action: SLD TO CLOSE
Quantity: 40 contract(s)
Price: $7.55
Commission: $44.00
Reg Fees: $1.26
Net Amt: $30,154.74
The following transaction has been completed on 11/16/2005 11:39:14 AM (ET):
Symbol: .QAALM
Description: AAPL DEC 65 Call
Stock: AAPL at 64.22
Action: BOT TO CLOSE
Quantity: 20 contract(s)
Price: $2.70
Commission: $22.00
Reg Fees: $0.00
Net Amt: $5,422.00
The following transaction has been completed on 11/17/2005 9:32:34 AM (ET):
Symbol: .QAADN
Description: AAPL APR 2006 70 Call
Stock: AAPL at 65.54
Action: BOT TO OPEN
Quantity: 50 contract(s)
Price: $6.15
Commission: $50.00
Reg Fees: $0.00
Net Amt: $30,800.00
The following transaction has been completed on 11/17/2005 9:32:34 AM (ET):
Symbol: .QAALN
Description: AAPL DEC 70 Call
Stock: AAPL at 65.54
Action: SLD TO OPEN
Quantity: 25 contract(s)
Price: $1.30
Commission: $25.00
Reg Fees: $0.13
Net Amt: $3,224.87
Note that the current position that is active is the one I entered on 11/17/05, both the long of 50 calls April 70 and the short of 25 calls December 70.
Any suggestions about a better way to have done this would be appreciated.
Accountholder, you should consider getting an optionetics Platinum subscription to keep track of your positions, after all you are putting quite a bit of money on each trade, and a platinum subscription would cost you a lot less than some of the commissions you are doing.
OptionXpress has a lot of features and contingency stop orders are what I use. They are very helpful and will teach you how to do it. Using a contingency order is not that hard, if you have a Fibonacci tool.
I will be covering some of these issues as we go, so please be patient. I intend to post more tutorials in the future.
Juan: I'd be interested in your comments on the strike price and time in regard to optimal gains. I think that going out of the money on a stock on which we're very bullish but taking it further out in time provides somewhat more potential gains, but I wonder if there's a way to prove that; to determine the optimal spread for a PRC or CRC in regard to those issues.
That's the reason I put out more personal info in my prior post than I'm very comfortable posting: so we could look at that issue. Seemed like we needed some real numbers to work with.
The first trade was for two weeks, put in 18066.13, made a $6666.61 profit. On the second trade I put in $27,575.13 and in 8 days, 1-1/2 of which were trading holidays, the paper profit is $5500.
As for Optionetics Platinum it costs $1000 a year just for stocks, and frankly I don't have the money to do it now. I have to pay commissions but I don't have to pay for Optionetics. It does look good and when I have the money I promise I'll do it. Remember, I told you I'd switch to OptionsXpress eventually and it took a while but I did do it.
I'm enjoying the tutorials you're preparing very much! Excellent teaching tool.
Part of my question on this that I didn't articulate is that if our position is more than a few points in the money doesn't the ratio -- the relationship of a point of stock increase to increase in percentage of profit -- get rather lower? Like, once the position is into the money by five points don't you then go to point to point profit from greater profit than that when the position was less far into the money?
>>>In summary, I entered more aggressively by taking the 65 strike on 11/2, but balanced it by taking a longer position in time, choosing December short and April long.
Generally speaking, I would have done the same (if AAPL had triggered my system). However, AAPL qualifies as a high flier so I would have preferred to enter a PCCRC, as long as the conditions of volatility apply. Fortunately, AAPL is in an aggressive bull move, so what you did, was just fine. The problem with AAPL is that you should expect the unexpected by earnings. Volatility Hill shut up on the day of earnings and then drop the day after. The direction the stock may take is anyone’s guess, but I would bet that it will go down. Thus, it make little sense to go beyond January in the calls (at least for now). Always consider buying Jan, April, Jul and Oct calls when it comes to AAPL, they then to gain on volatility alone. Always be out by earnings, because it IS a wild card.
>>>I panicked out of this on 11/16 with a large profit, thinking the stock would retrace. When it didn't, I entered the next day, when the stock price was over $1 higher, but this time I entered more out of the money.
OTM options will give you the best results, but only if the stock DOES move ITM, which of course AAPL did. Instead of panicking, you can always sell additional front month calls as a way to take profits. That would limit your risk, and then you can always buy back front month calls or ad to your long position. You would have done this the next day.
>>>With the stock at around 66.5 I entered the 70 Aprils long and the 70 December short.
This turned out very well for you. I would use candlestick patterns to call the top. Doing this switch all at the same time is probably fine too. Since stock fell the next day you did fine!
>>>I currently have another large profit. I am willing to exit the position if there is a top and I do know how to read candles, so I'm trying to watch carefully for the top.
Well, this would depend on your expectations of course, but what I can suggest is that you be careful near Jan expiration, because you’d have earnings! The wild card.
>>>I confirm that the long white candlestick yesterday is still bullish and we don't have any top formation yet. I don't have the ability to make those optionetics charts that you can make that are so interesting so if you have time to get around to doing this for me, great.
The important thing about optionetics charts is to have an understanding of the “greeks”: Delta, Vega, Theta and Gamma. If you don’t want to buy an Optionetics Platinum, there is an alternative, an Excel spreadsheet with Macros that calculate the greeks and risk graphs for you.
Contact Rei Kaininito and ask abou the Options Calculator. Be sure to mention my name.
optcalc@kaininito.com
>>>Otherwise I can wing this. My advantage was in going out of the money; this gave me a larger profit potential I think, Now that my strike is so near my gains may start to be less startling, maybe after the stock gets to 71 or 72? What do you think of that?
OTM calls have a larger Gamma (potential change in Delta). Once your options move in ATM territory, both Delta and Gamma decrease. However, Theta increases because your short calls may expire worthless. Understanding the greeks is not so hard, but it Is very useful. You obviously already have a sense of what they do, even if you don’t know them yet!
>>> Another question I think might warrant a separate topic would be how everyone sets stop losses.
Use Stockcharts.com. IN every chart there is an annotations facility that you can use to calculate the Fibonacci retracements.
http://stockcharts.com/def/servlet/SC.web?c=AAPL,uu[w,a]daclyyay[db][pb50!b200!f][vc60][iUa12,26,9!Lp14,3,3]&pref=G
Stockcharts even shows you the previous low ($54.17 in this case), all you have to do is click “annotate” and use the Fibonacci tool to figure our what would be the 62.8% retracement of the current rally, and set a stop loss contingency order with OptionsXpress. I will do a clip tutorial in due time.
>> What tools you use and how you are able to execute them. I sure haven't mastered what I can do at OptionsXpress on this yet.
Call or chat with OptionXPress personnel, they will tell you how to do the contingency stop order. Currently, that would be $60 for AAPL. You need to ask them how to set a close order for your position if AAPL falls below $60. They’s explain it in detail, and better than I can from here.
>>>I'd be interested in your comments on the strike price and time in regard to optimal gains.
If you are thinking that there is an increase in the reward, you are right, but there is also an increase in the risk. Buy entering an OTM position, you have a greater potencial for gains, but also your risk is increased as you stoploss would be triggered after a loto of damage has been done. To have a clear Picture knowing the greeks helps to make the comparison between different positions. Experience will tell you a lot. In the case of AAPL, the big move up has made you good profits as your options moved into the Money (TWICE now). You are way over exposed if the stock begins to decline, and your stoploss is set in the low 60’s. The best approach is to reduce the load, as you see a reversal candlestick pattern.
>>> I think that going out of the money on a stock on which we're very bullish but taking it further out in time provides somewhat more potential gains, but I wonder if there's a way to prove that;
Theoretically, long-term options are cheaper when you factor in “TIME”. The farter away, and you divide your premium by the number of days to expiration, the better the price for you. Selling front month is exactly the opposite. Because there are less days to expiration, you are selling more premium/day. Additionally, the volatility tends to be higher in the front month, as people disregards the long-term options when the stock is moving strongly. This is the Vega of each option. You can use Platinum to determine that, but also that information can be found in OptionsXPress — Ask them. The OptionsCalculator can calculate the Vega on each option as well. These are critical items that have made me prefer the PRC and CRC’s, over plain puts and calls.
>>> to determine the optimal spread for a PRC or CRC in regard to those issues. That's the reason I put out more personal info in my prior post than I'm very comfortable posting: so we could look at that issue. Seemed like we needed some real numbers to work with.
I’ll keep that in mind as we discuss more examples.
>>> The first trade was for two weeks, put in 18066.13, made a $6666.61 profit. On the second trade I put in $27,575.13 and in 8 days, 1-1/2 of which were trading holidays, the paper profit is $5500. As for Optionetics Platinum it costs $1000 a year just for stocks, and frankly I don't have the money to do it now.
I suppose that your reservation about telling us about the specifics of you trades is warranted because of what I am about to say: With this kind of profits, you should be able to afford Platinum!!! Oh well, I don’t mean to give you a hard time, just look into the OptionsCalculator, it is a toke price and, although it is more complicated, it will give you some impression of what the greeks do!
>>> I have to pay commissions but I don't have to pay for Optionetics. It does look good and when I have the money I promise I'll do it. Remember, I told you I'd switch to OptionsXpress eventually and it took a while but I did do it.
Knowing about the greeks is a MUST. Having said that, if I had to trade without them, I would always do CRC’s and PRC’s, even if I could not calculate the greeks.
>>> I'm enjoying the tutorials you're preparing very much! Excellent teaching tool.
Be sure to mention it to your friends elsewhere. We need more people here.
>>>Part of my question on this that I didn't articulate is that if our position is more than a few points in the money doesn't the ratio -- the relationship of a point of stock increase to increase in percentage of profit -- get rather lower? Like, once the position is into the money by five points don't you then go to point to point profit from greater profit than that when the position was less far into the money?
I think that what you are saying is that you believe that as the stock price moves near the strike price (was OTM now it is ITM), that your profit potential is decreased.
This may be clear to you if you study the greeks for each one of your options.
Delta is the rate of change in the price of an option with change in the price of the underlying stock.
IN the case of AAPL Dec calls, Delta is different for each strike price:
55 calls: Delta=100
65 calls: Delta=78
70 calls: Delta=48
75 calls: Delta=23
90 calls: Delta=0
This means that with every $1 the stock goes up, the 55 calls increase $1 (or 100%), the 70 calls increase $0.48, and the 90 calls does not increase at all (they are likely to expire worthless). However, because they are much cheaper, the $75 calls are worth buying, if you expect the stock to hit >$75 by expiration.
Gamma refers to the rate of change in Delta with the change in the price of the underlying stock.
The Delta of the 55 calls is not likely to change, it is almost like owning the stock itself at this point. Gamma is near 0.
The Delta of the 70 calls, on the other hand, are likely to increase (even before the market today), as the stock moves ITM. Gamma is 6% in this case. So having some gamma is a good thing!
Well done on the AAPL trading.
Juan: That's exactly what I was trying to get-at, and you've nailed it. The Delta was what I was looking for. So, reading your last post, I see that the 70 calls have a way to go before they'll reach 100 Delta and still therefore will generate a better return than dollar for dollar movement. It seems like the stock would have to be 85 before the 70's would have 100 Delta, but maybe I'm projecting too much based on the prices you gave me.
One thing that I don't understand though... a few days ago the December 80 AAPL calls were .10 and today they traded at .45. Oh, never mind. I understand. That large move is reflected by the lower number in Delta. I think I have this straight and finally re-understand one of the Greeks.
Gamma is something I need to think about a little more, though. :)
Accountholder
Be sure to buy "Options as a strategic investment" by Lawrence G. McMillan, it has everything you ever wanted to know about options, including the greeks.
Each option has a greek, and you can find their values in OptionXpress, please ask them for assistance on how to get them.
Juan,
An excellent presentation of what you are trying to achieve.
I haven't tried one of these Put Call Ratio Calendars yet.
Regarding AAPL, I have been waiting for a retracement for some time on this Stock and just watched it climb up.
Thanks.
I will be posting a clip on how to make a selection of a PCCRC (PUT CALL CALENDAR RATIO COMBINATION — I must remember that mouth full name.
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