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 Option Block 374: When To Exercise An Option...Never Trading Block: An aggressive selloff in the market today. VIX up 3 handles - about 22%. Apple off 3%. Nike, the other big player in the market today - up about $4. Odd Block: Calls and puts trade in EXH- looks like a straddle seller, puts close in KO- could be a put closer but not rolling, and calls trade in PBF- existing roll for calls Mail Block: Listener questions and comments
Around the Block: Closely watching the S&P. Will vol come down? Mike wants to sell an AAPL put spread on the bent phone pullback. Nike reports after the bell. |
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Option Block 373: Talking BABA, YHOO, AAPL and more Trading Block: A sea of red on the street today. Bad news out of China. Apple announced opening weekend iPhone 6 sales were over 10 million. Alibaba I.P.O. underwriters increased deal size to a record-setting $25 billion. Yahoo options went bonkers on Friday. Odd Block: Puts roll in Cliffs Natural Resources Inc. (CLF) risk reversal goes up in iShares Russell 2000 Growth Index (IWO), and call buyers in Shares of Global X Social Media Index ETF (SOCL).
Strategy Block: Mike Tosaw discusses ways to diversify your portfolio with non-correlated assets.
Around the Block: Vol is higher, emerging economies are growing, how stimulating was the stimulus? How will the market act into and out of the elections? |
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Option Block 372: Call Stupids and Bond Hedges
Trading Block: Alibaba IPO on Friday. Fed Meeting on Wednesday. Scots vote whether or not to stay in UK. Odd Block: Calls trade in Energy Transfer Partners (ETP) ratio spreads in Petroleo Brasilieiro Petrobras (PBR), put buyers jump into PDL Biopharma Inc. (PDLI).
Mail Block: Listener questions and comments Question from Lawrence Silverberg - Hi! “Doctor Larry” back again. Thanks for reading and answering my previous two questions / comments on the show! I’m a huge fan! I am considering a way to insure my bond portfolio with options. Honestly I'm not too concerned with rising interest rates in the next two to three years but I understand the risk exists. Additionally, a market crash seems like a bigger risk to me. Either way I see bonds having downside risk. Here's my thought process below: I'd love to hear your comment. Situation: I'm about 8-10 years to retirement. I have about 80% of my savings in just below investment grade bonds. These are big companies like Goodyear, Burger King, US steel, Morgan Stanley, Levi’s, Hertz, Ford, and many more. It's a very diverse bond ladder. Average return is just under 7%. They have appreciated a great deal over the past 8-9 years too. By rule of 72 I'm doubling my money every 10-11 years with interest. Hopefully faster with appreciation of the bonds too. The risk is if there is a period of rising rates (although I plan to hold to maturity) or a market crash like what happened in 2008. I was considering insuring this portfolio with LEAPS in HYG. A high yield bond EFT. It appears to be the most liquid options compared to other similar bond ETFs. As for stock volume it is second to only JNK. I can buy the Jan '16 puts ATM pretty cheap. These Leaps are trading at less than a 10% Implied Volatility. In the 2008 crash, HYG went from 105 to 65 and IV went from 10 to 22%. (NOTE: HYG TRADING $93 & JAN 2016 93 PUTS OFFERED @$9.30 - SO HAVE TO BE WILLING TO SPEND 10% OF YOUR HOLDING ON PROTECTION) I did not want to just buy puts naked but was looking at backspreads. This way I’m selling premium to get much less short theta and I’m buying more puts to get long Vega and short delta. The best spread I found was a Jan16 put backspread 1 by 4. Short one 85 put for each long four 70 puts. With theoretical pricing I can put the spread on for even money and possibly a $0.10 credit. I’d close this spread when the Jan 17 leaps are listed and add 12 more months of insurance. In summary, I have some upside risk as IV can go down to around 5% based on history but that’s the cost of insurance. When I roll to Jan17 I’d lose some money. Questions: How do I weight a bond portfolio to figure out how many contracts to trade? Similarly, how do I estimate downside risk of the bonds? Is HYG my best underlying? Is there a different spread that’s long Vega and short delta that you’d recommend? Would you use a diagonal instead of trading only one month? I can get a similar protection by trading a 1 by 2 diagonal. Short one Dec 90 put for each long two Jan 2016 $85 puts for around even money. I could then sell more (90 *or other strike) puts when the Dec expire. My hesitation here is that it’s harder to predict IV of two months. I think the short Dec will increase IV in a crash more than my long Jan16 and hurt performance.
If you read this (long) question on the air I’d really appreciate it. “Dr. Larry.” |
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Option Block 371: Talking TSLA, SCTY, YHOO and Alibaba Trading Block: NOTE: No Alex for the next six weeks. Our thoughts and prayers with him while he undergoes surgery. Alibaba IPO & Yahoo - Barron’s telling people to buy Nov 43-48 call spread to benefit from the IPO. TSLA & SCTY over 10%. A bad day for the wallet of Elon Musk. Odd Block: Puts filled in The Market Vectors Russia ETF (RSX), puts trade in Commscope Holding Co. (COMM) - newsletter?, calls trade in Itau Unibanco Holding SA (ITUB). Strategy Block: Ways to defend short premium when there might be a lot of movement in the market. Around the Block: Andrew thinks that this is the big one re: interest rates. Also looking at YHOO, Brazil, after the Fed, maybe selling some juice. Fed Wednesday: how will bonds react? |
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Option Block 370: Live Episode Spectacular!
Trading Block: Apple trading above $100 post iWatch/Mega - any changes to outlook/trading strategy here? CBOE Futures ExchangeSM (CFE) announced today that it plans to launch futures trading on the CBOE/CBOT 10-year U.S. Treasury Note Volatility IndexSM. 9/11 Anniversary - Bin Laden Put Options
Odd Block: Puts spreads trade in Market Vectors Russia ETF (RSX) Call Buyers Jump into Control4 Corp (CTRL) Giant Butterfly Trades in Autodesk, Inc. (ADSK) Long Term Call Options Rolling in BankAmericaCorp. (BAC)
Mail Block: iTunes Comment from LivHK - I am a relatively new listener. However, I had to turn the show off after 5 minutes - I am here to learn about option strategies, not listen to Apple hating rhetorics. I get it you do not like Apples platform but at least show you are not ignorant of Apple products if do decide to talk about it...I would love to hear your analysis on valuation, but a baseless claim that “3 years later the stock will definitely be worth a lot less than today?” Such thoughtless comments leads me to seriously doubt the quality of the content on the main topic. Question from Charlie - I am prepping for my series 7. What should I expect from an options perpsective? Any tips? Sorry I could not be there in Chicago as I would have loved to see the show live. But this is the next best thing. Thanks for all that you do. Question from Tom: First, huge fan. Second, question about the wheel-o-fun trade: Recently assigned on a short call in a collar position. Monday morning, I was long my protective put (a far-OTM leap), and decided to sell a weekly put that positioned me long about 25 delta. Now, I am wondering how all this will affect my margin SMA. From the margin perspective - is this a put spread, or is this a naked short put? After I put this on, I realized the margin was a bit fuzzy. Since I just rolled out of a covered call, I am obviously cash-secured, but I want to work this out before I find my foot in a bear trap. Thanks guys! Nice hats! AROUND THE BLOCK Where will we go from here? |
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Option Block 369: Short Puts and Ratios in AAPL
Trading Block: S&P glued to the 2000 handle. Go Pro very active today - Yahoo as well. TLT - blame the Viceroy. Odd Block: Puts trade in Valero Energy Corp. (VLO) Calls trade in Pattern Energy Group (PEGI) Calls trade in Apple Inc. (AAPL) Strategy Block: Good greed vs. Bad greed Mail Block: Comment from KaiserDog76 - Oh that Granny Smith tasted sour today! Lol I have to admit I ditched my calls shortly after the open and I am very, very glad I did, It got ugly for "Retail's" favorite fruit. NFLX could not even hold gains after announcing streaming rights to the new "Origins" Bat Man TV show. Yet.....Yet GPRO tacked on another $3...(clearing of the throat)..Ok.Oh, but wait! It gets better, Mobile Eye continues to make elderly and the "Peripherally" challenged excited as now whats the Market Cap? 10 Billion? An even bigger, Ok. I am interested to see how H&R Block HRB trades post earnings. Morgan Stanley looks very interesting to me as well. The Nat Gas export commodity play is looking juicy and unrealized. I had a good day so I have no reason to be surly. I just thought some of you might enjoy my commentary. Thanks for everything you do Mr. Longo. You and the fellow Rouge Scholars are the dose of sanity that this insane Market needs!. P.S.I love the new show! Reminds me of some of my favorite Old School Comics, Strange Tales..... Keep Up the Great work. I am loving all of it! Question from Catherine - I want to set up an options trading account for my son (who is 23 years old) and I want him to learn to trade options in a risk-managed way - do not really want him to know that he can use options for taking stupid risks (he will probably figure that out on his own soon enough). I contacted the customer services people at my broker (Options Express) to see how an account could be set up to achieve my goals and was told that initially all he could do would be to buy puts and buy calls. Seriously? That is exactly what I do not want him to do. I want him to control his risks better than that and to learn to put on spreads from the git go. Is there any way that my goal can be accomplished? - Cat Around the Block: Option Block Live! - This Thursday, Sept 11, 4pm Central @ Bennys Chop House (444 N Wabash) here in Chicago. |
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Option Block 368: Selling Premium in a Quiet Market Trading Block: A mild day on the street today. BP fiasco slaughters everything oil related. Apple had a four point loss. CBOE announces weeklies on SPX Odd Block: Calls buyers flood into QuickSilver, Inc (ZQK) Calls trade in JAKKS Pacific, Inc (JAKK) Calls trade in Corning Inc. (GLW) Mail Block: Question from Mandel - What is a premium writer to do in this market? Any suggestions for good income trades here? Strategy Block: Today, Uncle Mike Tosaw discusses the ratio spread Around the Block: Non-farms coming up on the horizon. FDA approves Merck cancer drug. |
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Option Block 367: Talking AAPL Collars Trading Block: A relatively quiet day on the street. GoPro and Twitter were the only two names Apple still seems to be reaching new high. How did Tosaw play it? Odd Block: Big put seller in Wells Fargo & Co. (WFC), puts trade in 21Vianet Group Inc. (VNET), and bullish paper in EZCHIP Semiconductor LTD (EZCH). Xpress Block: A very quiet day on the OX desk. 3 to 4 leg trade tickets on Street Smart is tentatively scheduled to release on Friday, Sept 5. Strategy Block: What you can do as a trader if you are not getting filled on your spread? Understanding the rules of risk management. Mail Block: Listener questions and comments
Around the Block: Holiday weekend, so keep an eye on decay. Will S&P stay above 2000? |
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Option Block 366: The Knife Edge of Volatility Trading Block: Most major indices up today on the street. Vol saw a bit of a rally as well. S&P briefly hit 2,000, but couldn't stay there.
Odd Block: Calls trade in Credit Suisse Group AG (CS), calls trade in H&R Block (HRB), and risk reversal trades in Lennar Corp (LEN).
Xpress Block: What’s new with IdeaHub? Futures side and securities side premium harvesting.
Mail Block: Listener questions and comments
Around the Block: Keeping an eye on the 10-year. Interest rates, where will the Fed go? |
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Option Block 365: The Great Apple $107 Debate Trading Block: A mild day on the street. Apple finally passes $100. What will Yellen say tomorrow and how will it affect the market? New study show advisors use of options increased 13% since 2011.
Odd Block: Calls trade in Jarden Corp. (JAH) calls trade in China Finance Online Co. (JRJC), and calls trade in Macerich Co. (MAC).
Xpress Block: Free pizza day at every Schwab/OX site today in celebration of the importing of the 3- and 4-leg trade ticket from OX to Schwab which is coming in Sept.
Strategy Block: A strategy of patience. Waiting for the right time to make a move in Apple and gold.
Mail Block: Goldman Fly Question from Pat - Love the show, it's really great and even though I'm clueless (as is shown by the following). Here's one that might be good for your "could've done the trade better" segment in Options Block. The following is the list of trades that I have made around Goldman. Sorry I don't have the volatilities or any other data from the trades but hopefully you'll be able to explain the error of my ways without them. Once I made the initial trade and GS didn't rebound quickly, I was trying to offset the cost of keeping the calls since I expected that Oct was plenty of time to get back to the 175 area. 3/27 - buy 2 10/18 170-180 call spreads for $3 debit (6.42/3.42) 4/25 - closed 180 call for $1.75 4/28 - closed 180 call for $1.50 5/1 - sold 175 call for 2.75 5/5 - closed 175 call for 1.60 6/6 - sold 175 call for 2.40 (the first one worked but I think they were both actually mistakes) 7/28 - closed 175 call for 5.37 debit, closed 170 call for 8.53 credit, sold 2 180 calls for 3.16 (each), bought 185 call for 1.65 (Resulting position is 170-180-185 fly) (Now it seems really inefficient) 8/7 - closed both 180 calls for 1.88 (each), 185 call for 0.96 Order currently in to sell 2 180s and a 185 for a 3.50 credit
I have the order in to recreate the fly to reduce the cost of the 170 since I don't think GS will get above 180. Besides discussing what I've done and any suggestions you have, what would be a better way to implement my current view of GS given that I own the 170 call? Thanks for all the help already and the future I'm sure I'll get. |