Please take a look at my previously posted analysis on AAPL using RET.
http://homepage.mac.com/paperprofit1/.Public/AAPL.pdf
My PCCRC on AAPL has gone from $8000 to $10,000 in profits in the last 2 days. I have also reduced my debit by rolling over my shorts, just before the big jump, as Jobs was speaking at MacWorld. All I had to do was monitor The IV for the front and second month. Than as Jobs announced the iphone I made my trade.
I will discuss my entire position on AAPL shortly. For now, take a look at the forecast on AAPL.
After the jump in stock price, what next for AAPL? Here is my updated AAPL forecast:
http://homepage.mac.com/paperprofit1/.Public/AAPL1.pdf
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21 comments:
Hi Juan,
I am keen to see your platinum entries on AAPL since you entered the trade.
Regards,
Mary
hi
if i use crc instead, is it the same criteria? what is the entry point?
happy trading
The CRC would be appropriate for almost any bullish opportunity.
Go ahead an explore the CRC as a back test with any sep up you consider a good opportunity, you will find it to be a good approach.
Optionetics teaches you many strategies to enter a trade, but their goal are quite different. They all fit different circumstances better.
I like the CRC because is it open ended with "unlimited" reward.
Assuming that the RET analysis is correct, and that AAPL found a bottom at $76 and it is now rallying towards $140, a CRC would be a good trade as long as you use the right expiration dates.
You can also use a Bull Call Spread or a simple call, but you should check the volatility.
I think that AAPL is short-term overextended. Earnings may cause a pullback (unless they have a blowout Q, which is quite possible). Eventually AAPl will go back up. So A CRC may be the thing.
There is always a risk, particularly if you enter a position just before earnings. A CRC, if the stock pullsback before a big rally, may work just fine.
Hi Juan,
Could I ask a few qws about your pccrc.
• What is QST
• What stop losses do you use (I would imagine 50% of the max possible losses or at 30 days before expiry of the long options.)
• What do you use, other than the 30% profit as exit points for the pccrc
• What settings for your BB, EW (count ).
• Looking through your pivot point calc video, it seems like something that you came up with, does it have some logic to it or ?fibonoacchi thing? (more impt has it brought good results) and what do you use it with TA wise.
• What does a low put call ratio tell us about the options on the stock. Do you still use that as a filter criteria for selecting pccrc?
• Any drawbacks on the PCCRC, other than being expensive and needing adv knowledge ot the greeks?
Thanks keep up the good work, I will be working on the back test to see if there are ways to lower the debit and yet still maintain the profitability of the trade. May consider getting the mc millian book, also thinking of putting the trades slightly OTM. Cheers
Piko, thanks for your imput.
QST is the Quantum Swing Trading system marketed by Bill Poulos. You can google either term and you will find details about this system. I believe it is a good start for a trader that has limited funds. The only thing Bill does not cover completely in his program is option's trading. However if you have attended seminars with Optionetics, Option's University or have sufficient experience in option trading, you should be able to follow Bill's rules with options. It can be quite lucrative.
The PCCRC does not have a clear "stop loss" point. I have never lost more than 20% in a trade, simply because the structure is protected. A good decision point as to whether to continue a trade or close it comes one week before expiration when you must decide if the modified trade looks like a good one.
I have explained in my articles some of the reasons one would get out of a profitable PCCRC. Time to expiration of the longs is one, exceedingly high IV of the logs (more than 50% IV). Having made 30% on your money is a good one, even if it is early in life of the trade (why wait until something goes wrong?). The best way to know what to expect is to backtest, perhaps using Optionetic's Platinum.
I don't understand your question about the EW. You say "your BB", do you mean Bollinger Bands? please clarify your question.
The Pivot Point is something I picked up from a Mark McRae, check it out here:
http://www.tradeology.com/pivotpoint.html
This is a bit arbitrary, and has to do with resistance/support breakdowns. This is suited for Forex trading, but it may also be applicable for short-term options' trading.
• What does a low put call ratio tell us about the options on the stock.
It may mean that investors are not too concern about the downside potential. This may also be an indicator of volatility. In which context did you see this in my writtings? I don't remember using this measure as indicator. Perhaps I did in the past and am using something else now. I am more interested in picking low IV for the back month and high IV for the front month, and a low IV/SV ratio (below 1). These conditions occurr right after earnings, so I have been focusing on companies reporting good earnings and raising guidance.
• Any drawbacks on the PCCRC, other than being expensive and needing adv knowledge ot the greeks?
Knowledge of greeks is essencial. I don't see the PCCRC as "expensive" because the risk is low. My concern is the commissions so I tend to use stocks with prices above $30, that way I can keep the number of contracts down (lower commissions). You don't have to make trades with 10-20 contracts or $25,000 capital as I do. You could do fine with trades of $5000 or maybe even $2000.
If I had $20,000 to trade, I would do 5-10 PCCRC's of $2000-$4000 each. Use your judgement here. We do not want to exceed our capital. Be cautious. Be sure to back test this so you understand the risks.
I don't necessarily recommend the McMillan book. The reason I quote it is because it is where I first saw the description of the PCCRC and the Calendar Straddle. However, it seems like a comprehensive book of strategies an option trader should have handy for consultation.
Good luck to you.
I see you're using OptionXpress.
Consider a better broker...
either: ThinkorSwim or Interactive Brokers.
Just trying to save you some money.
Murray
Murray
Interactive Brokers is the best for doing PCCRC's.
ThinkorSwim will not allow the PCCRC in a single ticket and neither does OptionXPress.
OptionsXPress is the only one that allows Options in an IRA account (as far as I know). So this is why I use it. I have adapted my order entry of a PCCRC with a combination Long Straddle/short Straddle.
Thanks for your imput.
Hi Juan,
I am looking at double calender ratio TLJ that is slightly OTM with the same entry criteria that you mentioned. The debit is less but we do get what we pay for, the stock would need to make a bigger move for the spread to make money and the theta zone is OTM so the stk needs to trend a bit to reach there. The Vegas is slightly less but I would think gamma would ramp up if and when the stk moves either direction. The FX of IV is the same. What is your take on this method?
Also what do you think of putting PCCRC near earnings to play exclusively the IV rush?
Hi juan
I managed to have a look at QST, just wondering how u use the info that they provide. Which particular service do you subscribe to?
Also when I went through the plat video that u put out for the stock screener I wonder if this is the only method you use to find and analyse your trades. What other considerations eg TA RET MACD etc do you use to give you the confirmation that you would like to see before putting the trade in.
piko, some of your statements are unclear to me. Why don't you enter your proposed trade so we can discuss it in detail. I am willing to post a Platinum risk graph so we can be more specific about that.
Use this format as an example:
Underlying: AAPL
Date of Entry: Jan, 26 2007.
BTO 10 April 85 calls @$6.8
STO 5 Feb 85 calls@$2.9
BTO 10 April 85 puts @$5.3
STO 5 Feb 85 puts @$2.2
This will help me see exactly what your proposed trade is to better comment on each greek.
If this is something I have not done in the past, I will be expecting your imput as to how you select each candidate. It should make a good source of discussion.
The PCCRC could be an excellent substitute for an earnings straddle, so-to-speak. Be sure that the stock in question has a history of raising IV near earnings, and be sure to exit the position on the day of earnings (assuming the company reports after hours) or the day before earnings (assumiing the company reports before the market opens).
The short-term options will also increase in IV, so a pure straddle may be best suited for that kind of situation.
Invariably, other greeks will have an effect, so a decline in stock price may negatively influence your results unless you construct your PCCRC with a neutral to bearish bias. Feel free to post your examples here so we can discuss each item in detail.
piko said: I managed to have a look at QST, just wondering how u use the info that they provide. Which particular service do you subscribe to?
Juan: I would follow QST's rules to the letter, otherwise you are not really following their method. I have access to IqCharts, Telecharts and Advanced Get. I have entered QST search criteria on each of these services. Frankly, I prefer IqCharts, but the other two will do just fine. If you sign up to QST Profitfeeder, they will tell you which of their stock meet the search criteria.
piko said: Also when I went through the plat video that u put out for the stock screener I wonder if this is the only method you use to find and analyse your trades. What other considerations eg TA RET MACD etc do you use to give you the confirmation that you would like to see before putting the trade in
Juan: There are so many methods, many of them acceptable, so I would encourage you do some research, test your own or discuss some here. I don't want to impose my own because in the end it is all about what YOU believe strongly enough to stick with when the method is not working.
The hard part is to persevere.
Just for your information, I rely on stochastics as entry signals, and moving averages as support/resistance spots. It is crucial to understand that the entry method is NEVER a 100%, in fact, I would consider myself lucky to find a 60% success method. It is the exit rules that create the necessary discipline to stay in the game through hard times.
QST suggests a 3 step exit which should be used always, or adapted to your own approach, whether you trade options or the stock itself.
Good luck! and DO share your thoughts, and keep on asking questions so that I have the opportunity to share what I know, and hopefully you'll share what you know.
Thanks.
Dear Juan,
I only do options trading for now and have no experience in stocks nor futures. My only experience in commodities are at buying cheap groceries at the end of the working day at the wet market… depending on whoever is there its considered and art… but nevermind…
I am trying to find stocks using ‘cheap iv stocks with a 90 day 10-15% gyration finder, then put the list through the IV/SV ‘eyeball’ making sure its >1 (that you mentioned) and see what happens and that the long IV are at the low end of the spectrum and/or below 40.
Looking for stocks that move across the midline as much as possible. Not being bearish or bullish, just go somewhere fast kinda thing.
I use Profit source and plat and that’s it. My education is mostly from optionetics and from forums like this as well as reading from OC’s vega journal. I like the idea and practice of playing vega primarily. Selling theta is like watching grass grow and if the stock moves somewhere you loose money. Which has been happening a bit here. BTW my education in options and for that matter anything regarding the markets started about 10 mts ago. so I am still learning the ropes and finding more ropes to learn up, its about time I choose a good rope to hang my hat on. This is in regard to TA as well as options strategy. So I appreciate your explainations that you put across and the effort that you put in.
Anyway about QST I presume that when you use the QST strategy to the letter you are using it to buy ITM positions and exit at their prescribed 1/3 exit points, not that you use it for choosing a stock to get into a PCCRC. Have I got that right?
As for the double cal ratio TLJ, I will post an eg soon.
With respect to the QST, I am using ATM calls, or puts with 2 months to expiration. (>30, <90) and I exit at the prescribed 1/3 exit points. BUT I use my own variant of the search criteria. Be sure to use exactly as prescribed. Vary the method only when you think that your variant is better, and only after backtesting. Bill Poulos recommends his method for a reason, unless you are willing to the homework, it does not make much sense to change it.
piko said: I am trying to find stocks using ‘cheap iv stocks with a 90 day 10-15% gyration finder, then put the list through the IV/SV ‘eyeball’ making sure its >1 (that you mentioned) and see what happens and that the long IV are at the low end of the spectrum and/or below 40.
I use <1 IV/SV, not >1 IV/SV. This is very important. I use this when selecting stocks with IV skew or high fliers (best performers of the last 90 days). This is different than your method in that you are choosing stocks forming triangles (I pressume that this is what you mean with the 90 day 10-15% gyration finder). This gyration finder is a optionetics platinum function, right? Please take the time to show us your method, and DO show us one or two examples of your "double cal ratio TLJ" strategy.
Thanks
I forgot to say that I obtain candidates in 3 approaches already described in this blog:
1. The high fliers... The best performing stocks of the last 90 days. You can use Platinum to find these.
2. Stocks with a volatility skew where the back month IV is much lower than the front month IV.
3. After earnings >10% winners. The IV should be in decline right after earnings. Stocks must have a history of increase IV towards earnings. The fundamentals must be exceedingly good.
Hi Juan,
I have a couple of questions with regard to PCCRC.
1. You mentioned that one of the PCCRC candidate selection criteria is to choose stocks that have moved more than 10% on great earnings with great fundamentals. What fundamental analysis do you do? Which ratios do you look at to decide if the fundamentals of the company are good?
2. Do you use any technical analysis besides RET analysis to select PCCRC candidates. What I mean is that do you use TA to time your entry etc?
Your reply is appreciated!
Thanks,
TD
TD Said: 1. You mentioned that one of the PCCRC candidate selection criteria is to choose stocks that have moved more than 10% on great earnings with great fundamentals. What fundamental analysis do you do? Which ratios do you look at to decide if the fundamentals of the company are good?
Juan: TD, fundamental analysis is a complex issue, but I would recommend that you read Peter Lynch's books, which is what I read a while back ago.
When a stock jumps 10% after earnings it is usually because of a surprise either because the company beats expectations or the CFO guides earnings higher in the months to come.
When that happens, an inbalance between stock price and earnings forces the price higher. You can quickly calculate the P.E. ratio BEFORE earnings and the P.E. after earnings. Further, you can calculate what the new price SHOULD be based on the new guidance AND the old PE. To be honest, guidance a higher guidance is good enough to place a PCCRC. I let my instinct guide me, if I like the company's prospects. With time you will learn to recongnize good candidates.
TD said: 2. Do you use any technical analysis besides RET analysis to select PCCRC candidates. What I mean is that do you use TA to time your entry etc?
Juan: I have used plenty of technical analysis in the past and I still use. BUT with the PCCRC and the 10% jump rule, you have a very good chance to have a continued rally.
Take for example EBAY, following earnings, the stock opened with a >10% gain last week in a day where the major indices were falling hard.
http://finance.yahoo.com/q/h?s=EBAY&t=2007-01-25T17:29:00-05:00&id=24498729
As ilustrated by EBAY, there is no guarantees that a continued rally will follow. No one can tell the future. However, EBAY looks really strong now as it held above the 50dMA (support after the jump) and the upper Bollinger band is being forced UP. The MACD looks bullish, but the stochastics is questionable.
The reason I would have entered the trade would have little to do with short-term technical indicators. I would pay some attention to the Elliott wave analysis, which gives me an impression to see if the stock could rally. However, if all failed and EBAY fell strongly, the PCCRC is a protective trade, hedged against a strong move down.
My point is, you can never be sure, so it pays to use a hedge system like mine.
Hi Juan,
Thanks for replying to my post. I have a few other questions:
1. How do you use Platinum to find the high flying stock in tha past 90 days?
2. Does the RET software have backtesting feature that Profit Source has? What I mean is that does the RET software allow you to go back in time and do your EW analysis etc?
I have joined the 'Club Elliottician' and am currently browsing through 16 of the 60 modules of the Elliott Certification course. I have 'profit source' and am not very confident in the wave count they use - have been wrong on direction (more importantly, entry time) most of the time. But this is just my personal opinion.
Thanks,
TD
I describe the process of selecting high fliers in detail in my PDF document written a while back.
To read about my strategies you should get my papers in PDF format. To download the files, go to this site:
http://www.pathometrix.com/Archives/JISarPapers.zip
Go through the documents, and then ask any additional questions you may have.
The RET does NOT have a search feature like Advanced Get does, but you can load any chart at any point in time you specify. Even if it is in the past. But here again, you cannot travel through time as you can with advanced get "training" mode.
In other words, RET is not so much a "trading" software as it is a forecasting tool. You select the stock you want to work on and then do a long-term, intermediate-term and short-term analysis to forecast where the stock may go.
I honestly believe that Rick Swannelle, the author of RET and founder of Elliottician, truly knows Elliott wave analysis. PLUS, he recruited the help of Robert Prechter when writting his software. But I let them do the saling.
I don't trust Elliott analysis with AdvancedGet simply because it does not follow the Elliott principles, and it does not consider certain "unusual" patterns that you actually see very often now a days.
The reason it is very difficult to forecasts with A.G. is that it assumes that you always have impulsive patterns UP and correctives down. RET, on the other hand, allows for multiple patterns with various degrees of accuracy, and let you see the potential counts. A.G. gives you only one.
I am glad that Elliottician allows people to explore their material for free now a days. I hope this helps.
I describe the process of selecting high fliers in detail in my PDF document written a while back.
To read about my strategies you should get my papers in PDF format. To download the files, go to this site:
http://www.pathometrix.com/Archives/JISarPapers.zip
Go through the documents, and then ask any additional questions you may have.
The RET does NOT have a search feature like Advanced Get does, but you can load any chart at any point in time you specify. Even if it is in the past. But here again, you cannot travel through time as you can with advanced get "training" mode.
In other words, RET is not so much a "trading" software as it is a forecasting tool. You select the stock you want to work on and then do a long-term, intermediate-term and short-term analysis to forecast where the stock may go.
I honestly believe that Rick Swannelle, the author of RET and founder of Elliottician, truly knows Elliott wave analysis. PLUS, he recruited the help of Robert Prechter when writting his software. But I let them do the saling.
I don't trust Elliott analysis with AdvancedGet simply because it does not follow the Elliott principles, and it does not consider certain "unusual" patterns that you actually see very often now a days.
The reason it is very difficult to forecasts with A.G. is that it assumes that you always have impulsive patterns UP and correctives down. RET, on the other hand, allows for multiple patterns with various degrees of accuracy, and let you see the potential counts. A.G. gives you only one.
I am glad that Elliottician allows people to explore their material for free now a days. I hope this helps.
Dear juan,
I am BT the PCC and would like to know what TA and greeks do you use to monitor the trade. Eg
DMI to assess momentum, MACD
Deltas to scalp when >50??
EW ?
Also how far out do you go for the long legs?
In the back testing I find that IV crush on the longs really kill the trade and you cant protect against it , this goes only if we haven’t done our proper homework. I would exit the trade if that tends to happen. There is one issue I am trying to resolve. There are some options that are incessantly IV above 40 but after earnings or whatever the long IV’s drop down to some low point which is still above 40% what do you do with these stocks. Provided that they are IV:SV <1 ?
Also when we are doing earnings play with IV skew, I use the super skew to look for high skews (plat feature) then day after earnings the IV drops off like a tonne of bricks. Including the >90 day IV’s hopefully the deltas are putting the trade into a profit zone. Then exit the trade with the profit if the profits are >2%/day or stay on and ride it out and ‘ let the profits run’? What would be some guiding thoughts Juan. I did a BT trade on Goog (and broke some rules) which ended up loosing some money, though initially made some profits.
Here is the trade
GOOG at 192
ENTRY DATE 2/1/5
BTO 4X CALL/PUT JUN05 @190
STO 2X CALL/PUT FEB05 @190
There was a skew and IV of the >90 day longs at entry was 45% The lowest low of the Long Ivs were about 42% over a 6-9 month period, bear in mind this was when goog just came up to the plate. Day after the trade was placed it was in a profit of 830 within 24 hrs. ie 6% profit in 1 day. I stayed on for a few months and in 2 weeks the profits ran up to $1230 on a 12000 debit at long IV’s 47%. I kept to the 30% exit strategy so I stayed on the trade. Eventually IV’s dropped to 38 and stayed that way even though there were some impressive moves done by GOOG during this time. overall I lost money on this trade because of IV crush to below 42% (ie the lowest known IV at that time). So from now onwards will keep to the >40 IV trades.
Juan when you mention using stochastics as entry were you referring to QST or do you use stoch < 40 rule for PCCRC as well.
How do you put the RG image on the blog?
the skew you saw in GOOG was because of earnings. You job was to leave the trade after earnings (once the news are out, IV declines) or enter much much earlier, in advanced of earnings.
My first ever PCCRC was on GOOG, right after the blackout period 3 months after the IPO. The stock jumped from 120 to 180 (if I remember correctly), giving me 10,000 in profits in just a couple of days.
I don't use stochastics for PCCRC's. The logic being that I am not looking for stocks that are at the bottom of there 2 week cicle.
The Stochastic is used by the QST method. I favor stochastics as an entry signal.
Only I can place images in this blog. If you have an internet address for an image, I can place it in an article in particular. you can post the address of an image here and people can take a look at it that way. There are places in the internet that host images.
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