Here is another video. This one in response to a contributor who decided to share his/her success with us, but is not sure on what to do now. Here are some ideas and some RET projections and the status of the TA analysis. Please use your own judgement, I am not a guru, I cannot read the future, I just simply make educated guesses, and try to protect myself.
http://www.pathometrix.com/Movies/HET.mov
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28 comments:
Hi Juan,
Thanks for making the trade into a video. And thanks for going through with the all the options i posted though i think you misintepreted my 3 a)b).
1. Roll the CRC into a 75-80 Bull call spread (however more debit would be required, hence more risk)
2. Sell the whole CRC (IV is low which makes it not the best time to liquidate)
3. Wait and hold till Apr expiry and cover the 5 shorts
a) with stocks on the mkt on Monday, holding 7 long May 75.
b) with the 5 long calls, holding 2 long May 75.
They were meant to be done on the first day of Apr expiry. I like the way you morph the trade, using part or all of the May longs to finance the Aug calls. Never thought of this myself and never see you does this in your past trades too... =P
regards
Lee
HI Juan,
After some experimenting on CRC, the below are my observations. i feel that the CRCs works better on stocks that
a.(exhibit low IV + great fundamentals + lovely charts) than
b.(exhibit low IV + great fundamentals + lovely charts + 5% price move + volume spikes + catalyst).
Not that b. is no good, but trades with such characteristics falls under momentum trading more, which usually means such trades is best closed within 2 months before the momentum dies. Furthermore, the price move tends to raise the IV across the board a little which makes the trade slightly expensive.
HET falls under category a. It was done with a long term view and with a beautiful charts. In fact, the best time to buy this trade is when stock has broken the EW4 and at the onset of EW5. As we all knows, sometimes the stocks take a few tries to start EW5 even though the retracement in EW4 has being completed.
Having said the above, it is still the best to choose around 3 to 4 months between the 2 expiry and not more because, "what if i'm wrong". It's still easier to get out and it cost cheaper and if things goes our way, we can then do the adjustment on the long that you have suggested.
regards
Lee
Thanks for sharing the trade.
First off I would like to comment on the RET prediction. As all in the forum knows by now I tend to bias to impulsive moves in RET. I have stock as 83-94.5 as high probability range and 80.4-105 as the full range.
Lee,
On your comments on CRC.
Wouldn't you want momentum stocks to trade than sleeping ones. Reason I say is, wouldn't you have all the greeks working for you. For example if a stock does not have a catalyst then chances for a delta play is limited. Not that it won't occur but it is not backed my fundamentals.
Trying to see your rationale behind this.
Hi Varun,
where i'm coming from is this too, the greater the momentum, then the chances for a "anti-momentum" is higher. To make it worse, this momentum causes one to enter the CRC at a higher price than normal due to a small hike in the IV.
My observation is that it works well for stocks that moves slowly up (1-2% every day), in a trend than a huge and sudden >5% move cos most often than not, such sudden moves would follow in the near future with a sudden profit taking (or what i term anti-momentum) too. and if the anti-momentum are too strong, it triggers a reversal.
regards
Lee
Also, if your stops are set too close, you would be stopped out before the real move started.
The recent DNA example is probably a good case of a stong anti-momentum (profit taking). I have a few trades done using only stong charts and sound sector outlook without the hype that have done well.
Over here, "well" may not mean super huge proit but rather the comfort level i have with the trade. I could sent you some of my trades if you could leave your email.
Great discussion guys. This trial and error approach is what leads us into having our own biases about our choices that would eventually lead to confidence in our tading. I don't think that there is a right and wrong answer, as long as you can do it with enough reproducibility to make enough profits.
I am leaning toward using the Sarmiento System with stocks near the 52 week lows and applying CRC's or BCS's on them. As for momentum stocks, those are high fliers for which I apply the PCCRC when the volatility is low. But you know all this of course.
Be sure to share your trades with as much detail as you want, hopefully we could discuss how to select candidates and follow them up, as with the HET example.
My e-mail is realinvestor101@yahoo.ca
On the example of DNA the cause for the loss is not only due to anti-momentum. But also due to the fact that volatility did not jump when the stock dropped. This usually means the chances of stock having an upward momentum in the near future is high. If the anti momentum (bearish) is permanent generally the volatility increases. Does not work 100% but the probabilities are very high. (I have not done enough testing on this to be sure. However, I have read on a number of books of this phenomenon).
In agreement on pure CRC and PRC you would rather have stocks move 1-2% daily. However, if you are going to trade momentum stocks then have to cover the put side as well.
Fortitude,
The picture was taken when I went to Advanced Seminar with Optionetics.
Varun,
RE: "...the fact that volatility did not jump when the stock dropped. This usually means the chances of stock having an upward momentum in the near future is high. If the anti momentum (bearish) is permanent generally the volatility increases. Does not work 100% but the probabilities are very high. (I have not done enough testing on this to be sure. However, I have read on a number of books of this phenomenon)."
Very interesting. Any references on the books please?
The photograph, taken at the Optionetics Advanced Seminar, I can't recall that shrub at the back of your left shoulder being in the room. **Smiles**
Thanks for the wonderful contributions. Here is my take on the volatility rebound:
I have backtested dozens of PCCRC's that end up making money most of the time, but rarely lose money because one of the 3 horses (greeks) pull the carriage. Here are the scenarios in my experience (practical and backtesting).
1. The Stock goes UP with low volatility: Delta gains.
2. The Stock goes Up with high volatility: Delta and Vega gains. This is actually the BEST scenario. One example I have show here is CEPH.
3. The Stock goes sideways with low volatility: Theta gains, month after month.
4. The Stock goes sideways with high volatility: Vega gains. This has actually happened to me with SNDK last year. Leaving the position before volatility declines is essential to retain the gains.
5. The Stock goes down with high volatility: This is rare now a days, but it happens in a bear market. EBAY in Dec. 1995 was a perfect example of this.
The only losing scenario is when the stock goes down with low volatility. This is how do you deal with it and why I know that in the end you will recover your loses and even make money.
1. You MUST have sufficient time left in the trade, the reversal may take time.
2. Because volatility has not spiked, it is quite possible that the stock will rebound, when it begins to do so, you can sell some of your long puts that are deep in the money. Your short term shorts are rolled over month after month, and you collect the difference between first and second month. Eventually those shorts begin to lose value.
3. The stock may continue to decline slowly, if it does the Delta may eventually produce profits as it exceeds the loss from the call side of the trade.
I have 2 positions that declined strongly but slowly, with low volatility. ANF and WFMI are the stocks. They are both now jumping back up and I made the necesary changes. Once the plays are completed I will be making a demonstration on that.
So you see, momentum stocks are MEANT to be traded by PCCRC. You must make an effort to make sure that you enter at the right time (volatility low IV/SV low). BUT if things go badly, there IS much you can do to profit anyway.
As for the DNA.... Wait and see. I am still bullish on it.
Quote: "So you see, momentum stocks are MEANT to be traded by PCCRC. "
Exactly!... entered a CRC with DNA. Big mistake.
I'm a little baffled by this. Why is it that at times, you use a CRC for a (gap up + vol spikes) and once a while u use a PCCRC?? I remembered you saying PCCRC is for high fliers. DNA ain't exactly flying high for the past 1/2 a year.
Quote: "As for the DNA.... Wait and see. I am still bullish on it."
Same here, but a tight stop would have got me out long ago. This would be an interesting case study.
Quote: "In agreement on pure CRC and PRC you would rather have stocks move 1-2% daily. However, if you are going to trade momentum stocks then have to cover the put side as well."
I thought if you trade momentum, as the name suggest, you go in the direction of the momentum.
It is only when the stocks loses the momentum when it moves higher (and as a result IV)and becomes a high flier, then u do a PCCRC since the upside is unlimited by the drop is steep too.
corrections: "but the drop is steep too"
Lee said: Exactly!... entered a CRC with DNA. Big mistake.
I'm a little baffled by this. Why is it that at times, you use a CRC for a (gap up + vol spikes) and once a while u use a PCCRC?? I remembered you saying PCCRC is for high fliers. DNA ain't exactly flying high for the past 1/2 a year.
Juan: OK, so you were hurt on this trade. Don't feel bad, these things happen. I am not going to sit here and say you did anything wrong. Let's try to learn from that, and perhaps not lose our cool in case DNA DOES bounce back. Just when you thought you had a sure thing, your trade went against you and you feel that somehow you were cheated.
Let me explain my position first. I discussed CRC and PCCRC on this DNA trade and contemplated both sides of the trade and finally settled for the PCCRC. If I had decided for the CRC, I would had placed my Fibonacci stop-loss and perhaps would have been out of the trade and not think about it again. If I had placed no stop-loss, I would now be looking at the charts and see if it would be wise to stay in the trade or cut my losses right now. At least, I have a good chance to have the shorts expiring worthless, and then, eventually, the stock could rebound, and I could still make money.
In your HET trade, you rolled over the short twice before you begun to make really good money, one the stock jumped over your strike price. That is certainly one approach you could follow. If you have 10 trades like this, you might cut your losses on DNA and move on. That IS the risk on directional trades. You HAVE to accept that, I am sorry to say.
Why did I choose DNA? because it is still a momentum stock. At the time of entry, I said that I considered DNA a high flier, perhaps not because of the last few weeks, but certainly because of the last few years. Would you be surprised if DNA jumped 10 points tomorrow? I would not. Thus, a PCCRC is quite appropriate. The PCCRC is a trade that you can hold for months, that is its advantage.
I hope this helps, but I sense your frustration. I don't mean to sound preachy or like the owner of the truth, I can only tell you in all honesty what has been my experience. What you do with it is up to you.
Lee said: I thought if you trade momentum, as the name suggest, you go in the direction of the momentum.
Yes indeed. That is what I do. Starting with the jump in high volume. Not all of the trades are going to go your way. So use your instinct too.
lee said: It is only when the stocks loses the momentum when it moves higher (and as a result IV)and becomes a high flier, then u do a PCCRC since the upside is unlimited by the drop is steep too.
A stock may go up with a spike in volatility, when that happens you get the biggest gains (Delta and Vega both work for you). Then you have to lock in profits by selling your longs and buying equal or higher number of contracts at a higher strike price. Currently, AKAM and NVDA (2 positions I have) have done that. I will show examples later on.
You COULD use PCCRC as a hedged bullish trade too, but you may find that it is too costly, compared to a small CRC, and perhaps you could get comparable amounts of profits at a lower debit. So there is nothing wrong with what you did on DNA. The only way to reduce the pain is to distribute it among other trades in your portfolio. If you do not have the stomach to tolerate the ups and downs of options trading (this is certainly typical), selecting PCCRC's only (like Fortitude has been doing lately), is certainly a way to reduce the stress.
I would like everyone to consider the PIVOT system to get into trades. I have been using it together with OptionsXPress price target alerts and it works better than to jumping on a trade like DNA on the first day my system is triggered. I will explain this in a video. BUT Please visit this site, so you get an idea of what I am talking about. Using this system, we may have avoided premature entry on DNA.
http://www.tradeology.com/pivotpoint.html
Hi Juan,
Dun get me wrong, no frustrations here. Simply confused at the distinction between using one (CRC) or the other (PCCRC). In fact, this DNA is to me, a very good example and case study for future references. I always take losses as something to improve upon. :-)
Quote: "If I had decided for the CRC, I would had placed my Fibonacci stop-loss and perhaps would have been out of the trade and not think about it again."
High momentum stocks have the ability to move big in either directions, and sometimes, the stock would have moved past yr stop loss point by a fair bit before u could say "abracadabra" (abit exagerated here, jus a joke).
Btw, i am getting Thinkorswim to come up with a standardised order format for CRC and PRC and subsequently PCCRC.
Anyway, this is great discussion! Let's keep this up! :D
Lee: Dun get me wrong, no frustrations here.
Well, I am glad. Can't help but feel a bit responsible.
Lee: In fact, this DNA is to me, a very good example and case study for future references
OK, we will keep an eye on both trades.
Lee: High momentum stocks have the ability to move big in either directions, and sometimes, the stock would have moved past yr stop loss point
yes, I thing that is always possible with a vertical trade. This is why I only trade a small portion of my total capital in each of these trades. This is also why I am willing to bet a larger percent of my capital on a PCCRC. This is also in part why I settled for a PCCRC on DNA. I am willing to hold this position for months, because I like DNA as a company, fundamentally speaking.
I will definetly have a discussion on the Pivot points very shortly.
Thanks to you Lee. I hope this encourages others to post their thoughts too.
Great discussion here.
Fortitude, I don't have references on where I read this, but I think it was with Naternburg book. But I thought it was an awsome idea and memorized it sometime back. The picture was outside Bellagio at the seminar. lol...
Lee,
I have to give examples of directional strategies I have done in the past which has hurt me the most. AAPL was a good example where stock went down to 50 and I panicked and got out. If I didn't stock went up to 80s later on. This taught me an important lesson. "what if i am wrong". Now I generally trade this way. I may buy a really OTM put just to cover myself. I am yet to trade using real money. But when I do I will post it here.
I have been trading with real money for almost two years now. One of the key lessons I learnt was that the market moves due to sentiment of the stocks (Fear and Greed). In the example we are looking at DNA I am betting on it going up. But then I am also want to ensure that the put side is covered. Is this going to happen? I have no idea. However, the probablility is stacked in the favour.
Juan,
Interesting article on Pivot Point. Eagerly waiting for your videos.
There is an instructor in Optionetics I enjoy reading.
http://www.optionetics.com/articles/search_article.asp?searchStr=scott&searchType=3
Not sure if I got it clear earlier. The trade I have is in PCCRC for DNA. as an alternate I could have entered
CRC and OTM put for example 80 put when the stock was around 90. Again when I played with numbers I prefered PCCRC so I entered this way.
HUAT AH !!!
RE: “I could sent you some of my trades if you could leave your email.”
Please e-mail me at;
Fortitude42@gmail.com
RE: “Btw, i am getting Thinkorswim to come up with a standardised order format for CRC and PRC and subsequently PCCRC.”
Well done. How much does it cost to get into one contract of a PCCRC? That is;
+2 Call back month
-1 Call front month
+2 Put back month
-1 Put front month
On IB it costs 6 x $0.75 = $4.50. I had thought until recently it was $6 on IB, but HK posted the cost changes recently on here.
Varun
RE: “I don't have references on where I read this, but I think it was with Naternburg book. But I thought it was an awsome idea and memorized it sometime back. The picture was outside Bellagio at the seminar. lol...”
I have Natenbergs ‘Option Volatility and Pricing’ book, with the sentence ‘Advanced Trading Strategies and Techniques’, written underneath, so that is probably the one you are referring too. Please don’t forget to memorize the page numbers next time… **Smiles** To continue the joking, I knew that photograph with the shrub at the back of your left shoulder couldn’t have been in the room, because it would have been taking up (or wasting) floor space to ‘cram more’ punters in… **Smiles** Thanks Varun.
With regards to Juans discussion;
RE: “If you do not have the stomach to tolerate the ups and downs of options trading (this is certainly typical), selecting PCCRC's only (like Fortitude has been doing lately), is certainly a way to reduce the stress.”
I concur, that I am less stressed about it and can now take a more dispassionate view at the moment. To be honest I am not even looking at the chart too much on DNA LRCX or SBUX. All I have been doing is reviewing the trade every day (managing the trade), because of the possibility of assignment and with IB I have less time to manage the assignment if it happens.
RE: “The only losing scenario is when the stock goes down with low volatility. This is how do you deal with it and why I know that in the end you will recover your loses and even make money.
1. You MUST have sufficient time left in the trade, the reversal may take time.”
RE: “I am willing to hold this position for months, because I like DNA as a company, fundamentally speaking.”
Then Juan, when do you think we should roll the back month from June06 to Sept06? My guess is leave it to one week until the expiration of the front month (Currently April 06). However, perhaps we should also look at the history of the price for the rollover too. I shall e-mail you the snapshots of the one months price history graph of the June06 to Sept06 back month rollover to you. Perhaps this can be used for a topic for further discussion? I leave it up to you. **Smiles**
Varun
RE: There is an instructor in Optionetics I enjoy reading.
http://www.optionetics.com/articles/search_article.asp?searchStr=scott&searchType=3
I've read his articles and discussion forum too. Nice one on that NMTS. We could really take some pointers from him on the CRCs and PRCs we do, since they're modifications of calendars.
will sent you guys the trades once i've sorted them out.
Cheers
Lee
Fortitude said: Then Juan, when do you think we should roll the back month from June06 to Sept06?
I have not discussed this at all. Chances are you won't be doing this because the stock either moves strongly in either direction (delta gains) and the strike prices are deeply ITM or OTM. BUT volatility may be a factor. Keep the June options unless you see that they rise in volatility while the Sept's do not.
This would have to be a very unique case, and I would consider this only when the situation presents itself as an opportunity to take Vega profits. You would certainly have to increase the debit in the trade because of Theta.
Juan,
My question as to whether for DNA "we should roll the back month from June06 to Sept06?", came about in response to your couple of comments, "You MUST have sufficient time left in the trade, the reversal may take time” and “I am willing to hold this position for months".
Your reply to it; "BUT volatility may be a factor. Keep the June options unless you see that they rise in volatility while the Sept's do not", will be kept in mind.
SBUX is going to plan, as you predicted. LRCX not so good, at the moment and again I am so relaxed about the trades I am in, I am not too worried.
It would be interesting to read an 'Uncle Ed' update on the LRCX trade.
Just to update everybody here, I am in three trades, LRCX, SBUX and DNA. Since opening, I am currently down $250 overall at the moment. One trade is going to plan, the other two are 'taking their time'.
The subconscious mind is an incredible thing, for instance I was thinking of nothing at all yesterday, when from no where in particular, a potential answer popped into my thoughts about the IB assignment problem.
If you sell a Call and then subsequently get assigned during the life of that sold Call, the buyer (who exercised the right and assigned you), buys the stock at the strike price from you. So you have to buy at market to obtain the underlying Stock to clear the position.
If you sell a Put and then subsequently get assigned during the life of that sold Put, the Seller (who exercised the right and assigned you), sells the stock at the strike price to you. So you have to sell at market to offload the underlying Stock to clear the position.
The solution seems therefore simple. If you place a 'liquidate last' on ALL positions, Puts, Calls (and bought stock, in the case of Collars), then when you get assigned and have a subsequent margin problem, surely IB will liquidate what you have been assigned with?
I then made enquiries as to whether this assumption was correct. Steve Kelsey from the Hong Kong Branch of IB replied;
“That makes sense and should work if you are only holding US stocks and options. If you were holding say, HK futures, then they could be liquidated during the Asian day / US Sunday night, before the US Monday open.”
In reply I wrote;
“RE: "That makes sense and should work if you are only holding US stocks and options. If you were holding say, HK futures, then they could be liquidated during the Asian day / US Sunday night, before the US Monday open."
Actually at the moment I am only trading US Options on IB, so that would appear to be alright. Your mention of trading on multiple exchanges, opens up further potential scenarios, but it is well that you warned of the possibility.
It would appear that if a trader was trading on both Hong Kong and the US markets and the margin call was because of being assigned in the US, then liquidation could occur on the traders' positions in Hong Kong, even if the US market hadn't opened and all positions had been 'manually scheduled' to be liquidated last.
If a trader was assigned after the close of business on the HK market, could that trader be liquidated on his US positions, even if all positions have been 'manually scheduled' to be liquidated last because of a margin call?
I await a reply from Steve Kelsey on this question, but wanted to share the information and ask other IB users whether they have tried ‘the liquidate last’ on all their positions, as a way of tackling the potential IB liquidation of positions at random, when they have a margin call.
**CORRECTION**
RE: "Just to update everybody here, I am in three trades, LRCX, SBUX and DNA. Since opening, I am currently down $250 overall at the moment. One trade is going to plan, the other two are 'taking their time'."
Just to update you, my position is now only down $125. Just looked before lunch, you see I am so laid back about PCCRC I just put the trade on and wait.... **Smiles**
I know 'Uncle Ed' will be pleased... **Smiles**
(Never doubt 'Uncle Ed' I say)
Sent you guys my trades updated till 4 Apr. They all started off as CRCs but may not not bear any resemblance to it now.
They may not be the best adjustment. If you have better suggestions and ideas, please leave yr comments
Let's do some serious case studies on these! =)
Lee, I have looked at your BA trade. Try this and see if you like it better:
Instead of closing the trade at strike price 70 and opening a new one at $75, do the following:
1. Rollover 5 March 70 short calls to 5 April 70 short calls.
2. Sell 7 Macy 80 calls and buy 8 (or more) May 75 calls (or June).
Doing this has the following advantages:
1. Reduce the number of contracts being traded, so you may incur less in commissions (double check this with your broker).
2. Open your trade to the downside, in case these stock begins to fall.
I will look at the other trades as well. This is too much fun! Thanks for the opportunity to look at your trading style.
I am opening an account with IB, just to see if it works better than OX. I intend to trade one or two PCCRC's there, exclusively.
Summarizing Fortitude's note, I need to place all of my positions under the "liquidate last order" so that if I am assigned a number of shares beyond my margin allowance, only the assigned position would be liquidated.
I an PCCRC I have on ANF, the recent decline in the stock has resulted in 3, yes 3 assigments in one of my accounts in OX. Their approach is to send me an e-mail stating that I have to take a action before the end of the trading day. What I have done is to close the assigned stock (from my short put). BUT I have immediately sold an equal number of contracts at the same strike price, only with a following month expiration. (IF) You do not want to change the character of the trade, for as long as you are in it.
Dear Juan,
Glad to read you are joining us at IB. **Smiles**
I have contacted IB today over this 'liquidate last' process. Incidently the Webtrader will only open, when the Trader Workstation is inactive.
I was told it is best to activate the 'liquidate last' process, through the Trader Work Station, not the Webtrader.
When the Trader Workstation is open, there is the tool bar of; 'File', 'Page, 'Ticker', 'Order', .....
In the second row under that there is; 'Order', 'Transmit', 'Cancel', 'Account',..
So left click the 'Account' button (Donated by the $, £ and euro together), in the second row and fourth along.
When the Separate 'Account' Window has opened, one should see the Portfolio Page at the bottom. If you can't, then click on the 'up/down' arrow keys and eventually the Portfolio page will reveal itself.
Right click on a position and up pops another window and second up from the bottom in that window, you will see the 'liquidate last' button. Left click on that and you will see in the far right column in that Portfolio page (Liquidate Last), the 'NO' change to 'YES'. I have done this for ALL my current positions, either bought or sold.
This will resolve now, any potential margin calls after assignment. It still means that i need to monitor, because if the stock position is neither sold (Put assignment) or bought (Call assignment), I don't want the stock, I want to sell more options to maintain my position.
Best Wishes to all.
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