I have to admit that there was a big element of luck in this trade, and when the stock declined to $38 on Friday, I felt tempted to leave the trade with a $2K loss, for fear of continued decline. Calendar spreads are definetly not for me. Here is the resulting trade after today's closure of the put calendar:
For those who missed it, here are the previous posts on RMBS and LTBS
http://stockoftheday.blogspot.com/2006/04/more-on-ltb.html
http://stockoftheday.blogspot.com/2006/04/i-have-entered-rmbs.html
The Elliott wave analysis at the time of entry was bullish:
8 comments:
Well done on the trade Juan and thanks for sharing. Best Wishes.
Juan,
I have called a halt on the LRCX and DNA trades. Both lost, but it was an interesting ride.
I am sorry to hear that you lost heart. I will keep these covered until I am finally out of them. My DNA RET analysis tells me that the stock is in an impulse series down, so I expect to make money in that direction. LRCX had a significant drop in volatility and not much happening after earnings. Since volatility is low, I expect the position to be favored by Vega later on.
SBUX is doing well, but it is looking tired now, I have transformed my trade by selling a portion of my long calls. The result is a straddle-like position. In essence, if the stock goes UP or DOWN, I make additional money. I will continue showing examples.
Fortitude:
My DNA trade is finally in black. I am not going to pretend that this has been easy, I certainly understand why you left the trade. I have had several assigments, and I have not decided how to deal with the short puts. If I short May again, they will be assigned for sure. I don't want to close the position because DNA is in an impulse wave down, and I anticipate that profits are going to mount from here on.
If you have the patience, I suggest that you go through every step I took. Note that the assigments have not been a bad thing at all. The way I account for the assigment of short puts is:
1. buy to close short puts at $0.
2. buy the stock at $90.
3. Sell the stock immediately, at as good a price as I can get (mostly around $78).
4. Elect to sell puts to offset the assigned puts.
Again, this is as complex as it gets. I said before that the worse case scenario is when the stock declines in low volatility. Still, I am close to breaking even, and possibly make money shortly.
http://platinum.optionetics.com/cgi-bin/platinumv30/op4email.php?trade_name=I|DNA|Apr06-Jun06|90|Call|Put™_date=2006-03-17&sym=DNA&num_legs=16&tra0=10:D06:90.000:0.17:DNA:2006-04-06:39.37799835:FFFF99:0:0&tra1=-10:D06:90.000:2.75:DNA:2006-03-20:25.27700043:FFFF99:0:0&tra2=9:P06:90.000:0:DNA:2006-04-21:0.00000000:FFFF99:0:0&tra3=1:P06:90.000:8.980:DNA:2006-04-18:0.00000000:FFFF99:0:0&tra4=-10:P06:90.000:3.700:DNA:2006-03-20:35.52199936:FFFF99:0:0&tra5=-16:E06:90.000:0.519:DNA:2006-04-06:30.20800018:E8E8E8:0:0&tra6=7:Q06:90.000:0:DNA:2006-04-25:0.00000000:E8E8E8:0:0&tra7=-1:Q06:90.000:9.130:DNA:2006-04-18:0.00000000:E8E8E8:0:0&tra8=-9:Q06:90.000:10.600:DNA:2006-04-24:40.59400177:E8E8E8:0:0&tra9=20:F06:90.000:5.150:DNA:2006-03-20:27.20800018:99FF66:0:0&tra10=20:R06:90.000:5.325:DNA:2006-03-20:32.34199905:66CCFF:0:0&tra11=900:F:0.000:90:DNA:2006-04-21:-1.00000000:FFFFFF:0:0&tra12=700:F:0.000:90:DNA:2006-04-25:-1.00000000:FFFFFF:0:0&tra13=-100:F:0.000:78.660:DNA:2006-04-26:-1.00000000:FFFFFF:0:0&tra14=-600:F:0.000:79.630:DNA:2006-04-25:-1.00000000:FFFFFF:0:0&tra15=-900:F:0.000:79.370:DNA:2006-04-24:-1.00000000:FFFFFF:0:0
Thanks for the link. I lost $290 on the DNA trade. LRCX I am not so sure about the accuracy of the amount, but it is a similar amount.
Still in SBUX.
It looks like Juan had transformed the position into a bearish strategy on 6th April which leads to the current breakeven position.
HK said: Juan had transformed the position into a bearish strategy on 6th April which leads to the current breakeven position.
Well, I am at a tiny profit (minus comissions). One factor is that I increased my short calls April 6th as I rolled over to May. This is why I did this:
1. The April 90 calls were near $0.15/share.
2. The stock had fallen below $80, which means that the strike price of 90 would not likely be reached by April expiry, and May became questionable.
Thus this is a reactive move. That is, I am seeing reality rather than anticipating it.
What has really made a difference as of late has been the assignments. my short put position has gone down from 10 in the original trade to 3 in the last few days... How? Why?
First note that I was able to do only 1 contract rollover on April to May 90 puts on the 18th. The difference was only a few pennies. The other 9 April 90 put contracts were assigned, so on Monday 24th I had 900 shares of DNA at $90. I simply sold those near the opening of trading on Monday without negative consequences to my account. I immediatelly sold 9 May 90 puts at $10.6.
The May 90 puts were assigned the next day. I was notified that 600 shares had been assigned. I sold them immediately, again, with no consequence to my account. However, at this point DNA was in a down trend so I had no immediate urgency to sell more May 90 puts. IF, however, I had insuficient funds in my account, the thing to do was to SELL some of my June 90 puts to raise funds. In fact, I could EASILY now SELL my June 90 puts and BUY June 80 puts. This would reduce my cost substantially. My June 90 puts are now moving fairly much like the stock would, since it is so DEEP in the money.
Yesterday, I was assigned an additional 100 shares, which I also sold. So as of right now, after taking all the credits and debit from previous bought and sold legs, here is what the trade looks like:
http://platinum.optionetics.com/cgi-bin/platinumv30/op4email.php?trade_name=I|DNA|™_date=2006-03-17&sym=DNA&num_legs=4&tra0=-16:E06:90.000:0.519:DNA:2006-04-06:30.20800018:E8E8E8:0:0&tra1=-3:Q06:90.000:10.453:DNA:2006-04-25:0.00000000:E8E8E8:0:0&tra2=20:F06:90.000:3.860:DNA:2006-03-20:19.80699921:99FF66:0:0&tra3=20:R06:90.000:8.728:DNA:2006-0! 3-20:51.88999939:66CCFF:0:0
Again, the debit is quite large, but one could free a lot of the capital by selling June 90 puts and buying June 80 puts. You could even increase or reduce the proportion of puts, to fit your expectations. I will probably do that shortly. I will keep you informed.
In the final analysis, the assigments made things more complicated than they should have been, and the steps more straight forward than the ended up being.
This IS the worse case scenario becuase the trade is slightly bullish when entered, and when the stock declines in low volatility, you become dependent on Delta to be strong enough to carry the day. Given the downtrend in DNA and in Biotech in general, my sure losing trade is now on the break even. This is why I can confidently say that this is a safe trade... If you have the nerve to stay in it and react, rather than predict, how the stock is going to act.
Fortitude said once that everyone likes to show their winning trades, hardly ever talking about their losers. Well, there is more to be learned by the failures than by the successes, I believe.
Juan,
RE: "Fortitude said once that everyone likes to show their winning trades, hardly ever talking about their losers. Well, there is more to be learned by the failures than by the successes, I believe."
**Smiles** I mentioned this in relation to companies selling their 'super dooper' strategies and software... ...I also questioned Juan too, with relation to success and failure rate too.
To be honest, I have just watched the ride and lost, with the only changes I made were during the rollover.
Juans changes have made a difference to the original trade too. The assignments would have given you extra time value too. In fact being assigned is beneficial to acquiring all the time value. You just sell another one.
ADLR was picked up by Profit Source at the London 2 Day Optionetics.
Projection of $30.73 by the 14th July 2006 for ADLR.
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