How to view the entire chart:
1. Try clicking on the name of the most recent article in the column on the right. This will remove the "Archives" list.
2. Try right click on the chart itself and open it on a separate window.
I am sorry that I cannot always make the chart small enough to fit neatly on the left column. I want you to be able to see the details I want to point out.
I Hope this helps,
Juan
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In a previous article, I showed you a trade on AAPL which I entered not because it met ideal conditions but because I felt that it was hitting a target low on the Elliott wave analysis. Click on the link to "Stock of the Day" link on the right column here to view my dated forecasts. As earnings was approaching, AAPL seem like a good trade, as one would trade a bull call spread or a straddle. Take a look at my article. Notice that I did not recommend the AAPL trade because it was not filling any of my standard trades. I was relying on other less objective criteria.
http://stockoftheday.blogspot.com/2006/06/optionsxpress-pccrc-execution.html
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PUBLISHED 6/1/2006.
Today I was able to enter a PCCRC in a single ticket with OptionsXPress. I had to call it in, but they did do it in minutes, eventhough my bid was between the bid and the ask in the market. Note the dates and times of the image below and you will be convinced that I did do it.
I also talk to the people at THINK or SWIM and they too would do the trade if phoned in.
OX is already working in an order form to allow me to enter this trade.
TOS would consider it if I open an account with them.
Since OX allows me to do spreads in my IRA account, I want to stick with them.
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Instead of a rally, AAPL continued to decline slowly, without much of a spike in volatility with mounting losses on the call side. As earnings approached, my forecast on AAPL had become increasingly bullish, as my target on Friday, July 14th. I prepared to switch my long puts from a strike price of $62.5 to a strike price of $52.5. I even entered that transformation on the 14th in my Platinum file (see below). All I needed was a bullish signal that appeared on the following monday the 17th.
My records indicate that I made the switch early in the morning, at 9:38 to be precise. By doing this I was increasing my bearish risk, so I had to have a good reason for the move.
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7b3AA59FB8-BE50-4E3A-9E33-AF96D914F786%7d&siteid=yhoo&dist=yhoo
It is not often that you see pre-earnings comments like this. Considering the excessively bearish feeling in the stock, this was all I needed to confirm my already bullish expectations on the stock. Knowing that earnings were just around the corner, my forecast was cautiously optimistic. I took the risk, and it paid off, as AAPL jumped after earnings. Here is the resulting trade as of friday:
I have added this trade to the Shared folder (see right column here for instructions on how to share folders in Platinum).
My intention now that IV has declined is to change the long puts back up to the 62.5 strike price so that I have a typical PCCRC to take advantage of any volatility spike.
This would be a good time to enter a similar position, as the IV declines in the next few days. Eventually the stock should move strongly up, but just in case, I am planning to modify my trade.
The effect of my proposed modification is to reduce my cash requirements. In addition to the $3850 debit on this position, OptionsXPress is keeping a requirement of $10,000 for the difference between strike prices in my short and long puts. changing the strike prices would make my trade more delta neutral but it also would free some capital. Although it would increase my debit, it would eliminate the cash requirements, freeing about $3100 that I could use in another trade.
You may say, why not just closing the position, I am close my standard $3000 minimum profit, I could probably get that much with some limit orders to exit the trade. Perhaps this is right. However, AAPL has NOW become a typical candidate since IV is now low and the stock is back in momentum mode. What do you all think?
I would like to see some proposed adjustments to my current trade, ANYONE??
6 comments:
Juan,
This is a good trade with the potential to be a great one. Over the next couple of months you could bring in both Vega and Delta profits. I think AAPL is poised to move higher, along with the rest of the market, if the FED stops their rate hikes. Per Bernanke's words last week, a pause is a good possibility.
I like your proposed adjustment. An alternative would be to sell 10 of your Oct 52.5 puts and buy 10 Oct 62.5 puts. Like your proposed adjustmet this one will release the $10k you have tied up in cash requirements. However, this adjustment allows for less net debit (almost $4K less) and a much higher Delta (476 compared to 192). Not only will you free up the $10K in cash requirements but you'll save another $4K in debit and maintain a much higher positive Delta.
If your goal is Delta neutral then your proposed adjustment is the way to go. Although, the downside risk on my proposed adjustment is minimal and may be worth the $4K you would save in net debit. And if AAPL climbs higher...you'll really cash in.
This is a good idea Bryan. I am bullish on AAPL right now, and it seems like a waist to spend money on a higher strike put. On the other hand, the phylosophy of this trade is not to take unnecessary risks. I did take the risk before earnings, and turned into a winner. So perhaps I could moderate the trade now. I will study your recommendation, and let you know what I will do in the end.
Your risk, including the min profit from your proposed adjustment, will be right around $2,500, but you'll be saving about $3,800 in debit. If you're bullish on AAPL it may be the way to go.
Bryan, looking at the risk graph helped me see that doing what you propose, does not solve my problem in the intermediate term.
AAPL's move was good enough to take profit and count my blessings. The only reason to stay in the trade would be because of its own merits as a typical PCCRC which will, eventually, beging to pick up on volatility. My construct is a Calendar Straddle (all same strike price) when I have low IV (potential Vega gains) with slight Bullish prospects (Delta gains). In the days ahead, as volatility continues to decrease, my gains will mount as the Theta erodes my short puts. I expect AAPL to go sideways or continue to rally. So there is no urgency to either move. Let's keep an eye on the charts before making a final decision.
Why not then let the Oscillator tell me when to do the switch? You know I prefer the stochastics and the MACD. It looks like AAPL has short-term momentum in it still.
http://stockcharts.com/h-sc/ui?c=AAPL,uu[w,a]daclyyay[db][pd20,2!b50!f][vc60][iuah12,26,9!lp14,3,3]
Hi Juan, how are you handling the vol crush in many of your plays? I paper traded many PCCRCs on earnings candidates, even when IV in the long was low, post earning crush still resulted in a loss. AAPL made good gains only because it blasted past 1 std dev, if not it looks pretty bad.
Condor:
If you dare to go over earnings with a PCCRC (high risk high profits), you should keep your peace of mind because within a week or two, IV will begin to rise again, while the shorts suffer the pressure of Theta. That is, assuming that the stock remains close to the strike price of your shorts.
If, on the other hand, Delta takes over (as it did in the case of YHOO), and the stock move a large percentage down, then consider exiting the trade with your profit, the additional money to be made, hardly ever justify the risk of your profit.
Finally, if the stock jumps higher, you may change the position by rolling over your longs to a higher strike price, that is, if you feel the stock is overextended.
Try to be reactive, rather than proactive. Modify a trade too much and your commissions begin to mount.
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