This video clip shows what to do to modify a winning PRC on RIMM. This is in response to Accountholder questions.
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http://www.pathometrix.com/Movies/RIMM2.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
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18 comments:
Brilliant! I so much appreciate that demonstration. The position is very close to mine and convincing case for rolling the strike down on half the position. One question comes to mind, since the potential for gains here looks better than most, on the short side, would be what would happen if instead of locking in the profits, taking some off the table, by rolling down from 65 to 60 in 10 of the long calls, we kept the investment but bought 15 calls (or the number of extras we could afford without adding money, in exchange for the 10 we were closing, in this rolldown? We'd be keeping around the same investment? Would our profit potential increasse significantly in that case?
Now I haven't forgotten my concern that if another court ruling comes through or RIMM comes up with some other excellent solution to keep themselves in biz, that the stock could reverse and our profits be lost, but I'm just experimenting with the greed. :)
There was an editorial in the WSJ yesterday that mentioned the US Govt has 700,000 blackberries that the employees "need" and went to court to exempt those from whatever holds the court puts on the use of blackberries... well, something like that. The government is putting a lot of weight behind, indirectly, supporting RIMM! The editorial was critical of this, by the way, but my thought was that there's a very powerful force that wants RIMM to get out of this problem, and I consider that a wild card against us that could put some influence on the courts in RIMM's favor at any time.
So I haven't foregone my idea of taking some profits and lowering the risk and I will place an order to do that exact rolldown now. As you point out it gives me a little cash, too, and I can always use that.
I also liked your showing the Fib method you use for calculating where to set a stop loss. And the comment about stochastics. I happen to like Stochastics very much as an indicator for trading but didn't think in terms of using it to exit a longer term position like this one.
If it weren't an ongoing court case I'd want to expand my position but remember, they halted trading today and they could if there's a positive ruling, too. So we could lose the possibillity of getting out at our stop prices if there were a court ruling, stopping trading, stock opening much higher. So that makes me feel more vulnerable in this, which is probably a good thing.
My paper profits on the AAPL trade are much less now, with the stock down, but I am more confident it will come back higher. This could be bad, that I'm so confident. I'm thinking maybe I should be as nervous about AAPL as RIMM and be more careful to protect the profits when they occur!
OK! I did exactly what you recommended and rolled ten from 65 to 60. I am so pleased with your recommendation!
RIMM has gone totally against us today. Even though I anticipated a bouce, I didn't think it would be this powerful. Now I'm sorry I didn't close yesterday, but I'm not closing today because all the profits are gone on the position itself now, and there was no news to generate this upward move in the stock. I'm viewing it as something that will not hold up and that the stock will fall again.
Well, we'll see!
That looks good accountholder.... Should RIMM breakdown again, you could add to your 60 puts at a lower price.
Buying calls would neutralize Delta but increase Vega. This is not a good time to do this because the volatility on RIMM is probably high. When you buy calls and puts is like entering a straddle. With a straddle you are hoping to have a spike in volatility, so you avoid it when volatility is high.
I don't think you need to panic, you did exactly what you needed to do, I just wished I had done the same. Despite the bounce, RIMM looks bearish to me.
Yes, I don't have a lot of cash now because I used it to enter a BRCM CRC today, but I would add to the RIMM 60 puts if the stock seems to be falling again. As it now I'm actually in a slight loss on the trade itself, not counting the money I took out today with that rollover, though.
The reason I am pretty sure it will drop again is that there was no news to justify the move. There's a possibility that insiders know something positive and that's what moved it, but assuming that isn't the case, it was possibly brought up by short covering or some manipulation or a bunch of optimists, lol! But that won't hold it up if the court news continues to be bad, IMO. Still, the best thing would have been to cover yesterday and re-initiate a short today at 64 if we still felt like it. Yes there are commissions but one can't operate based on that, because the profits should well outweigh them. That's my current conclusion. Silly stock is still hanging on the window ledge up there!
accountholder,
RE: "Yes, I don't have a lot of cash now because I used it to enter a BRCM CRC today,"
Don't put all your eggs in one basket, ensure that you have some money in reserve for the next great trade. **Smiles**
I was also not able to close my RIMM position yesterday, due to other commitments, I was not able to look at the trade before the close and exit it. Now we are all faced with a decision of what to do. What happened to all our money management plans? **Smiles**
Juan,
This Blog just seems to get better. **Smiles**
This news item came through and it's not so good. The company will remain hurt by all this even if they settle, because a lot of confidence and sales will have been lost, but if they settle the stock could soar. I'm trying to think of a graceful way to exit. Any ideas? Here's the news item:
RESEARCH IN MOTION LTD. (RIMM)
Analysts speculate a settlement of co.'s patent dispute with
NTP Inc. will come sooner rather than later and say that
the final tally to RIM may be lower than the $1B some
watchers are anticipating.
Price: C$74.88
Net Change: Up C$4.02
% Change 5.6%
Volume: 475,500 shares
----- -----
(END) Dow Jones Newswires
12-01-05 1400ET
Copyright (c) 2005 Dow Jones & Company, Inc.
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Okay, when the stock was up to 65.50 I figured I'd had enough so I closed the position on the LONG 60 PUT, at $2 loss, probably the worst price I could have gotten, but at least I capped the loss. Now I'm holding an equal amount, 10 each, of March 65 puts long and Dec 65 puts short. I guess that took care of my profits in it but it capped my losses, which I need to force myself to do. Waited too long, but at least stopped the bleeding.
Okay, when the stock was up to 65.50 I figured I'd had enough so I closed the position on the LONG 60 PUT, at $2 loss, probably the worst price I could have gotten, but at least I capped the loss. Now I'm holding an equal amount, 10 each, of March 65 puts long and Dec 65 puts short. I guess that took care of my profits in it but it capped my losses, which I need to force myself to do. Waited too long, but at least stopped the bleeding.
Accountholder
I sincerely hope that you consider the following, as a way to control your trading anxiety. Believe me we all go through it.
1. Divide your trading account in 10 equal portions.
2. Do NOT exceed 1/10th of your account in any one trade.
3. Always look for candidates in the bearish and bullish sides, even if the market is trending in either direction.
4. Do NOT exit the trade until a Fibonacci retracement has been hit.
5. Select 5 month out for call longs and 3 month out for put longs, and always short the front month.
6. If the stock moves strongly towards the next strike price in your favor, do what as I demonstrated with RIMM, by shifting the long call or put the next strike price (higher or lower respectively).
7. Forget about individual trades, even leave the computer during trading hours, think of your trades as long-term. Let the trades work.
8. Always place contingency order.
9. Do NOT second guess yourself, losses are a fact of life when trading. Minimizing them is part of the game.
10. There are always bullish days and bearish days, don't exit your bullish trades in a bearish day or your bearish trades in a bullish day. If you have made up your mind to get out, use the 60 min chart (stochastics) and wait a buy/sell signal. This, of course, unless your contingency order has been triggered.
11. Don't look back or try to reenter a trade you have been triggered out of, unless the conditions we have described before are met again.
12. Don't look back! Don't look back! Don't look back!
I started the 11K challenge to demonstrate that this is not easy, but that if you do things consistently, you can have better gains than a CD or de S&P500. Perseverance and Discipine are a MUST!
Juan: I had many reasons to sell those 60 strike puts and possibly should have unloaded the rest of the position, too. Here was my thinking:
1. I thought the stop was triggered. I read your review of RIMM and it seemed like 65+ was the trigger point. And I was in a situation where losses were increasing on the position and I have to learn to limit my losses. Even if I'm wrong and the stock reverses and goes right down, it could continue up and I'd lose even more. The stock had gone up to 65.6 and I couldn't afford to lose more. I still have those equal short and long positions that are still in the money, barely so. But they will balance each other out and maybe I can work them so there's a profit in the end.
2. I understand what you're saying about making these all very long term but I've found a few things from doing this. Sometimes I'm presented with a good profit early and I have a position far out in time and think I can do much better if I hold, but lots of times I end up missing my chance for the best profit by not taking it when it presents itself. AMZN was one of those where I had an excellent profit quickly, and then faced a big loss, and tried to get myself out of the loss but I still have a position that's not fabulously profitable. Turned out to be fairly messy. Yes, the mistake there was to hold through earnings, but if you're never holding through earnings why take a five month position?
3. You mentioned the Stochastics as turning up as an indication to sell. The Stochastics did turn up in RIMM. They didn't cross, but turned up and are over 54. Furthermore there was an engulfing white candle on the Daily chart and it indicates a change in direction toward up. Those two technical indicators told me that there was a good chance the stock would continue to go up.
These three factors converged and I had to do something to extricate myself from the most risky part of the trade, though I exited at a 2 point loss. At least I capped the loss there and might be able to balance that against profits in the rest of the position. The original gain I had and could have taken yesterday is gone, of course, but that seems to validate my point in #2, which was to take the profits when I had them available.
Hi Juan,
i'm still studying your system and i have a questions here. Except for RIMM, most of yr CRC and PRC was done on high volume spikes with gap up or down. In such a scenario, wouldn't IV be high for such kind of trade as effectively, one is sill net long and vega is positive.
Back to RIMM, my assessment for RIMM is it's currently undergoing an ABC with wave A as the drop to 61 and B as last night's rise back to 65.5.
What's your view on this?
Hi huat
>>i'm still studying your system and i have a questions here. Except for RIMM, most of yr CRC and PRC was done on high volume spikes with gap up or down.
RIMM triggered my system sometime back, as the stock droped below 60. As the stock bounced back, it did not exceed the Fibonacci ratio I have set up. You will here us discuss this often here. We used oscillators for a sell signal to enter the put trade.
You CAN use Optionetics Platinum to see which stock triggered the system in November, and to see if they had corrected enough to set up another entry point.
>> In such a scenario, wouldn't IV be high for such kind of trade as effectively, one is sill net long and vega is positive.
THis is why I prefer to buy options three or more months out and sell front month options in a ratio. Selling front month usually limits the volatility effects because you are selling high volatility and buying the lower vol. THis is called volatility skew. If there is a volatility skew so much the better, but it is not absolutely necessary. Buying calls or puts alone, leave you at the mercy of the volatility crush. It is also better to buy a spread, than a long call or put, because you can shave a 10¢ of the ask.
>>Back to RIMM, my assessment for RIMM is it's currently undergoing an ABC with wave A as the drop to 61 and B as last night's rise back to 65.5.
What's your view on this?
I have entered my charts in one of the video clips.
This morning I have a cash to use, and I'm looking over the possibilities. More about this at the end of this post.
My best performer is my AAPL position. When there was this recent drop I closed the front month calls. Yesterday I opened them again, somewhat fewer, holding out thinking I can add more as it rises. When the stock was a little over 70 yesterday, I added one fifth of the Jan 70's against my long Apri 70 position. When the stock was a little over 71 I added another one fifth, so my ratio is now 2 short to 5 long. My thought is that when it gets 75, at which point we might have another retracement I could have added again to the shorts.
I know you don't like to close the shorts, and it increases risk, but it gave me big advantages in the move back up, because I didn't have the shorts to diminish my gains and therefore the gains were much better. The long position was unencumbered.
As of the close yesterday, therefore, I had a 50% gain in the long position (alone) from time of entry in it on 11/17/05, and 10% loss in the short position (alone) from time of entry on it yesterday, on 12/1/05. The buying back of those long calls was done at a profit, so that I still benefitted from having had them, because the stock was down and they'd lost time value.
As I review it, I was undecided between selling the Dec or the Jan's on the short side yesterday. oon the one hand, there are only two weeks to run on the Decembers and I thought I'd have to roll them in a week if we seem to be over 70. But I've learned from you they have a big advantage in volatility and in the possibility they could expire worthless. I vacillated about this, and finally went with the Jan because it brought in a lot more money, the difference between the two months was way over $2, so that seemed like a very good advantage to the January.
I know you don't approve of closing the shorts, trading them, but I wanted to share this with you as something to think about since it brought me such good results in this case. It was tempting to stay with just the long and not bother with any shorts, frankly, but I do believe there will be a retracement and it's very good to have the short position in place when that happens.
With my cash this morning one thing I'm thinking about is whether it's time soon to move out to the 75's from the 70's, also to add to the position in AAPL as it is, in the ratio it is. Or whether if I do move to the 75's to add to the position at that time, so instead of having 50 long on the April 70's to buy 100 long, just as an example. I don't have that much cash, but some increase might be warranted, unless we're really too close to the top now.
I also looked over at Optionetics and have added to it, Briefing.com, which has good info in a timely fashion. Some stocks I am considering for today are PTRY, WMG, OMNI, the last one based on last night's news on briefing.com, which could bring it to Optionetics listings tomorrow.
Accountholder, sorry if I sound like I am lecturing you... My daugher hates that, heheheh
I don't mean to impose my strategy on you, I am sure that you have your reasons for doing what you do. However, over the last 3 years, I have spent countless hours backtesting strategies to com up with one that could give good returns and allow me to do other things I need to do, including this blog. I also wanted to apply what I have learned about the greeks (Vega, Theta and Delta, most importantly), and put them all to work in my favor. By shorting the front month you are assured control over Theta and Vega... The shorts are there for a reason. You take advantage of Delta by buying the back month, which is less affected by Theta and Vega. When you buy back front month shorts, you are buying expensive options and eliminate the protection against Theta decay. A CRC is meant to allow you to control the losses in cases of violent move in the stock against you, so you are not as vulnerable as when you are when you hold a long call or put without hedge. If you buy front month, you are going to the market with the bulk of traders and speculators, and end up being at their mercy.
The purpose of this blog is to discuss systems that will help you make money consistently, and without taking a toll from your emotions. That is why is so important that you wait for the stock to signal to you that it is time, not an easy thing to do. You need candidates that come to your attention for some important reason. This is why I have shown you ways to do searches to find candidates (and there is more to come).
Well said... especially agree with the part of increasing the no. of back months to increase delta than to decrease the no. of front months
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