Moving to Optionists

Hi,

I have create a new blog "optionists.blogspot.com" which I plan to move to. I kind of like the name better...This may take some time, but please do visit my new blog. Thanks.

Week of Jan 18, 2010

My STP Jan 15 Put turned out well. Not too good for my AIG Jan 35 Put. I ended up with a lost of $31. I rolled over to AIG May 33 Put which was traded at $7.15. An approximate 4%/month not factoring in  compounding interest.

I need to watch my STP Feb 16 Put cautiously now that earning season is here. STP result is due March 4.

All in all my Jan trade ended with ~2.9% gain. As long as I could maintain this and not overly ambitious, I am happy.

One thing that is hurting my overall portfolio is the long positions that I have. It has been dropping quite a lot late. All my AIG, BAC and C are in reds... :(

Jan 6, 2010

I have been looking at opportunity at the financial sector. Should the economy pick up, I believe some of the beaten down stock could post good potential for high return. I have some Citigroup shares but I would not add more of that to my portfolio. I decided to buy a long term call. I bought Jan 5 Call (expiring Jan 2012) at $0.63. I am quite optimistic on this but will see how it goes.

Any comments?

Week of Jan 4, 2010

First of all, I would like to wish everyone a Happy 2010. I hope your wishes would come through and have a great time making profit trading.

I been out since early December. To summarize and update my status.

1. 12/17/09: Close my STP Dec 16 Put which expired worthless. I opened this at $2.05 back in Oct. All in ~ 5.7% gain per month.

2. Here are my current open trades.
- AIG Jan 35 Put ($5.95) - Last traded at $5.3
- AIG Feb 30 Put ($2.93) - Last traded at $2.76
- STP Jan 15 Put ($1.86) - Last traded at $0.18
- STP Feb 16 Put ($1.2) - Last traded at $1.11

Well that's all for now. Hope I could close my STP Jan 15 fast if the trend continue to be going down.

I am still on target achieving at average 3% return/month since I started last July. I hope this would continue.

Happy trading everyone.

Week of Dec 7, 2009

A couple of trades since my last blog. I know I had been out for a while.

I closed my STP Nov 16 Put at $1.59, which I opened at $1.7. Minus trading fees, I made a small lost. At the same time,  I sold STP Jan 15 Put at $1.86, which is at $0.65 now.

Yesterday, I closed my STP Dec 14 Put at $0.15, which I opened at $1.25. All in, a 7% gain.

I am hoping to close my STP Dec 16 Put soon if the trend is favourable.

Ciao for now and may you all have a prosperous week.

OPTION Basics (3) (CALL and PUT - Sellers' Perspective)

Now, we turn our attention towards “sellers” perspectives.

Call Option

Sell Call: When an investor sells a Call, he is selling the right to Call buyer, or granting the Call buyer the right to buy 100 shares of the underlying stock at the striking price from him, any time prior to the expiration. Another way of putting it is the seller is obligated to sell 100 shares of the underlying stock to the Call buyer at the strike price.

In contrast to the Call buyers, Call sellers collect the premiums.

Example 1:

Mr. A sells “1 AIG Aug 12 Call at $1.50”.

Mr. A is selling the right to the Call buyer, say Mr.B, to purchase 100 shares of AIG at the price of $12/share between the point of transaction till the expiry date from Mr. A.

The call seller, Mr. A would collect the $1.50/share (the premium).

Suppose at the end of the expiration, AIG stock was traded at $10/share, the option would expire worthless and the Call seller, Mr.A, would earn the full premium.

So a Call seller is bearish on the stock. He will earn the full premium if the shares expire below the strike price.

Uncovered Calls/Covered Calls

When you sell a call but you do not own 100 shares of the underlying stock, this option is call “naked option”; “uncovered option” or “uncovered call”. This type of trade is extremely risky as the share price could have unlimited up side.

Given the earlier example:

Mr. A sells “1 AIG Aug 12 Call at $1.50”.

Suppose the share of AIG has gone up to $30/share. The buyer exercises the option. Mr. A needs to buy 100 shares of AIG from the market at $30/share and sell them to the Call buyer at $12/share.

Thus for Call seller, it is always good to own 100 shares of the underlying stock.

So when you own the 100 share of the underlying stock and when you sell the Call, you are covering your position. Such trade is called “Covered Calls”
Put Option

Sell Put: When you sell a Put, you are granting the Put buyer to sell you 100 shares of the underlying stock at the strike price. Should the Put is exercised, you are obligated to buy 100 shares from the Put buyer. 

Put sellers collect premium.

Example 2:

Mr. A sells “1 AIG Aug 12 Put at $1.50”.

Mr. A is granting the Put buyer to sell him 100 shares of AIG at $12/share.

Suppose at the end of the expiration, AIG stock has risen to $15/share. The option would expire worthless and Mr.A would collect the full premium.

Thus, Put seller is bullish on the stock. He hopes that the share price would close above the strike price, thus the option would expires worthless so that he could collect the premium.

Week of Oct 19, 2009

Exactly a week ago, I sold an AIG Nov 45 Call @ $4.85. AIG was traded at high $43 then. Thanks to recent drop, I closed this call today at $2.87. A net gain of ~4% in a week. I am quite happy with this trade even though I am fully aware that potentially AIG could drop further from here. I am trying to lock in on the profit for my Nov target. 

On a separate note, I sold STP Dec 16 Put @ $2.05. This is a potential 5.5%/month gain. Hope my choice is right.