hcgdavis 1:45 pm on Friday, June 29, 2018
Tags: Fuzzy ( 414 ), pietrade ( 143 ), pietrades ( 240 )

#pietrades Looks like I am…

Looks like I am being assigned or assigned early on TQQQ, FAS, MU, and will sell calls on Monday. This morning’s bounce looked like it would make these a lot easier. We have comcast at work and entire east coast internet was out which made work hard with an EHR. Looks like the bounce fizzled later afternoon.

Anyway, for those with big accounts, you can take #pietrade one step further. If I had bigger accounts I would do this. The decay is great on weeklies, but weeks like this they all tend to get run over at the same time. I personally would run 3 different names in each account and since I have 5-6 accounts that would give good diversification. My ultimate goal is to sell #pietrade ladders. Start the process 21 DTE. Each week add a new trade in the same 3 names. But for example using XBI. The 7 day ATM put is going for 0.77-.99 (95-96 strike) so can’t even get a buck. But if you go out 21 DTE you can sell the 92 put for 1.03-1.10. Three more dollars OTM so less likely to be breached and if you are breached probably at a better place to take assignment because it is a much bigger pull back. The only draw back is you are in the trade 2 more weeks and tying up capital.

But if your goal is income and you have a large enough account, it would be highly effective. I have tried it on small scale and whenever I was assigned they ended up wining in 1-2 weeks because it was usually at the end of a pull back. I could only run 3 contracts on 1 name or 1-2 contracts on 3 names. So it was not bringing in my income goal but when the accounts are larger this will be my main trading tactic.

Ultimate goal is 10 contracts on 3 names in each account for 3 weeks rolling. If you can get $1.00 or better that would be $3000 a week x however many accounts you have. Nice paycheck either way 🙂 To do that probably need a 300k account if using margin or twice that in a non margin account. You would also need names around $100.

Have a great weekend, update which calls I sell on Monday. If looks like more of a rebound I may leave them uncovered for a few days.

#fuzzy

jdietz1954 2:14 pm on Friday, June 29, 2018

Yes, My goal is to grow the trading capital back up. I looked at that concept and I agree the three week ladder is the place to be. Right now I need the churn of the shorter weeklies and better management. My MU assignment is a bit painful. I should have shut it down on the break down. Only 1 contract which is a break.
- hcgdavis 3:45 pm on Friday, June 29, 2018
  
  We can work it back in about 2-6 weeks depending on what the market does, no worries it will make some money in a few weeks.
MikeL 10:01 am on Saturday, June 30, 2018

Just a few thoughts on the subject, trying to make sure I get it right… 🙂

1. Even when we go with a three week ladder, it is more important to start a position after a pullback.
If I enter at the top of the trading range, a stock can move down too far in 3 weeks.
This creates a bit of a challenge if we use only a few names (not all names would have a pullback every week), so having more names in a basket might help.

2. I would like to clarify your comment about account size for non margin accounts. If I do 10 contracts on 3 names per week, for 3 weeks ladder, on $100 stocks, then I probably would need $900K + in the account. Is that right?

3. Using ETF’s would reduce single stock exposure, but premiums are lower.
Using leveraged ETF’s in all accounts is probably not a good idea from the risk management point of view.

4. Have you considered using a Jade or Big Lizard for pietrades?
Extra premium if the stock moves down, and no risk (but less premium) to the upside.
As an example TQQQ for July 13th. Stock is at $57.11
STO 54 PUT, STO 60 CALL, BTO 61 CALL
Credit about $1.55

If TQQQ goes up above $61, you make $0.55. If it goes down, you get extra $0.30 to reduce cost basis.
What are the flaws in this approach?

5. Any other strategies that could be used to improve pietrades?
- hcgdavis 12:40 pm on Saturday, June 30, 2018
  
  Yeah all good ideas. Depends on how you want to trade.
  
  1. With a ladder would not have to wait for a pull back, you would be farther OTM in the first place so if your strike was hit it would more of a pull back most likely. As you laddered on new trades they would naturally follow the market up and down so still probably less likely to have to adjust.
  
  2. Margin based on buying power reduction. I personally don’t use more than 20-50% margin at any time. That way even a 50% pull back should not trigger a margin call. If you have portfolio margin, the ROI is much higher because the margin is treated differently. So yes a cash account you would need more like 900k. But in a margin account the initial requirement for buying power on the XBI example above is only 16.8k. Yes to buy it will cost 92k but you will most likely roll instead of always taking assignment.
  
  3. Yes on leveraged products keep it small. Even TOS treats those as cash secured and requires the entire amount of cash to cover the trade.
  
  4. Yes I have converted some to jade lizards and strangles to help recover them and it usually works quicker. What I may do with MU Monday is sell an ATM credit spread, that way if it rebounds and keeps moving up gains are not capped. Or even and ITM call credit spread to bring in more premium but not cap the upside. Goal is to collect 0.5 per week, then can break even in about 6 weeks if it stays flat, quicker if it moves up.
  
  5. Always looking for ways to improve trading. I think that is the goal of everyone here. I have been doing them for over a year non stop. Best ideas I have found is take a mild directional bias, sell as much premium as you can, roll options a few times but if can’t get more than 0.5 on the roll better to let assign or call out and start over. Also don’t chase trades, that’s why I did not do LABU last week it had run from 82 to 120 and has now pulled back to 92. If it is extended, move on to another name, there is always another trade out there 🙂
  - MikeL 1:40 pm on Saturday, June 30, 2018
    
    What I may do with MU Monday is sell an ATM credit spread, that way if it rebounds and keeps moving up gains are not capped. Or even and ITM call credit spread to bring in more premium but not cap the upside.
    
    I am trying to wrap my brain around this idea of selling ATM or ITM call credit spread against shares.
    TOS analyze tab is showing that any move up would increase the break even point due to a full loss on the spread.
    So this would work as protection if MU keeps going down, but not so much if it moves up.
    
    Could you please provide an example of how this would work?
    - hcgdavis 4:03 pm on Saturday, June 30, 2018
      
      ok so I am assigned MU at cost basis of 58.44 for me. If I sell anything below that and it takes off to the upside again I will be called out below my cost basis. Then a paper loss becomes a real loss.
      
      So MU closed at 52.28. If I sell next week 52.5 I can bring in another 1.04 mid point dropping my cost basis to 57.40. But if it takes off and I am called away I lock in a 5 point loss. However, I could roll it the next week up a strike or same strike and collect more premium. Either way I cap gains.
      
      So the other option is sell the 20 DTE 50 call and buy the 51 call (ccs) with a credit right now of 0.63 or the next week ATM is going for 0.66. I have 1000 shares so that would bring in $630 cash, drop my cost basis to 57.81. Now if it recovers back to 55 or higher I don’t loose on the upside because I am net long 10 extra calls from the call credit spread. Stock gets called away at 50 but I get delivered again at 51.
      
      Here’s the graph. If it keeps dropping the CCS expires worthless and I keep my stock at a loss but can still work with it.
      
      One other option I am looking at is converting it to a #fuzzy. Sell the stock at a loss. Buy 10 leaps either ATM or ITM and gradually work it back that way.
      
      Hope that helps and the graph should explain it. Also keep in mind TOS does not calculate cost basis correctly so make sure you keep track. They are showing my assignment at 59.5 but my real cost basis is 58.44. A difference of over $1000 in this case.