#SueCollar Here’s a new one…

#SueCollar

Here’s a new one I just added, this one has less than zero risk at the onset–it’s hard to get this design but I really like it, call premium is elevated due to earnings the week before. Notice the tight put, less than $2 away from stock purchase price, at close to 1/3rd the call premium. Good risk control here. The put roll might be tricky though with earnings looming in the new roll cycle, but we’ll deal with that the week of Nov 8, if not sooner.

TGT
Bought 300 shares @ 111.84
Bought 3 Nov 8 110 put @ 1.65
Sold 3 Nov 29 112 Call @ 4.70

Initial max risk is -$363, meaning I make $363 on a crash in the initial timeframe (Nov 8 expiration).
Earnings 11/20, Ex div 11/19
update: one thing though, the delta on this is only 36 on 300 shares, that’s usually lower than I like, I like around 25-30% delta. I can always sell some put spreads to bump up the delta if I want.

#SueCollar Good morning lovlies, TGIF!…

#SueCollar
Good morning lovlies, TGIF! I thought I’d start posting a little again on my collar strategy. Life has been hectic, March 1 I executed on a move to Iowa, regretted the house purchase from the first minute I took possession. Regretted being in Iowa at all. Desperately missed the mountains. Aug 30 executed a move back to Colo, without selling the Iowa house. I’m finally settled back in Colo, though still trying to sell Iowa. I am SO HAPPY to breathe Colorado air again.

So…re trading. I started doing 13-week Tbills over a year ago. The T-bills made me realize that as I’m older, I have less appetite for risk. They also taught me patience. I would make (risk free and state-tax free) as much in 13 weeks as a 1-week Jade Lizard can turn over. But, with a ladder, the risk-free money was rolling in every week. The T-bill rate hit a high last December then started dropping. Once it got close to 2% I realized I needed a new low risk strategy.

So I went back to the #collars . This is a slow, steady, low volatility, limited risk strategy. My goal is to net out about 3-to-6 times the Tbill rate. So 6 to 12% a year. The return-on-risk is much higher, around 50-100% due to risk being so controlled.

I have a very specific process I follow that seems to be working well, that’s why I’ll call it #SueCollars
I use the term “collar” pretty generically. Some would call this “married puts.” I also call it a “rev con” (Reverse Conversion). To me they are all interchangeable. The premise being that there is a stock position, a short call, and a protective put.

My process is 1. Buy stock (I have a tight list of high yielding stocks with good balance sheets—I’m limiting buys right now to PEP, WMT, VZ, CMCSA, CSCO, EBAY, AMD, INTC, BX, MSFT, TGT, UPS, JPM, TGT). I also size every buy for the same amount of stock risk, i.e. all of them around $30K in stock for example. That way capital allocation across tickers is roughly equal.
2. Sell ATM calls around 45 days out. Collect the max you can
3. Buy OTM put 22 days out, targeting 1/3rd of the premium collected on the calls for the buy-price. The thought being that the calls can finance a couple rounds of puts, with enough left over on calls for net profit.

Here is a trade I put on today in CMCSA:
1. Bought 600 shares @ 45.02
2. Sold Nov 22 45 call @1.46 x6
3. Bought Nov 1 43 put @ .46 x 6
Net delta is 145 on 600 shares….so it’s still a bullish trade, but look at all that risk control! Risk is reduced by 75% (obviously any time risk is reduced, profitability is reduced, but remember my benchmark is the 13 week t-bills).

At the outset my max risk on this trade is $612 if there’s a crash. I calculate max risk this way: (600 * 45.02)-(43*600)+(.46*600)-(1.46*600). Basically (stock risk) less (put protection) plus (put cost) less (call premium). Max gain on this trade is $590.88. Roughly with dividends this can yield about 10% a year with pretty good risk control.

There’s a lot of nuance with this trade that I’ll try to capture
–Most people do shorter dated short calls and longer dated puts, I found the opposite works well to finance the puts. On a down swing, the shorter dated puts are a gamma play, they can just explode in value, and longer dated calls very quickly decay, so it’s very nice for collecting realized gains.
–When the protective puts at least double in value (sometimes I can get 7x on them) then I’ll roll everything down. I’ll take profits on the puts and short calls, roll calls to a new 45 DTE ATM and buy new puts. On a big downdraft it’s hard to get new puts at 1/3rd the call value, since these are strong companies I’ll do a very wide put spread to reach the price target. On a bounce it’s easy to buy back the short put and re-establish the full put protection. These rolldowns really do a lot to keep pace with the stock decline.
–A lot of these stocks run up into ex-div and it can be hard to hold the shares. The big thing to always remember with ex div approaching…you CAN be ITM on short calls into ex-div as long as EXTRINSIC IS MORE THAN THE DIV. People tend to freak about ex div and ITM short calls, but it’s an easy rule to remember. I’ve found placing the short calls a couple weeks later than ex div can really help with holding the shares through ex div to collect the dividend. VZ has always been tricky to hold into ex div.
–Once the extrinsic is all gone on short calls I used to self-assign on these to avoid assignment fees….but all that is gone now w/ TDA, no more assignment fees!
–On ITM short calls with no remaining extrinsic, sometimes I’ll roll them up (debit roll) but mostly I take the profits and wait for a down day to re-establish positions.
–I love Fuzzie’s approach of using short puts to re-establish after losing a covered call position but mostly I just re-establish with new stock positions since I’m all about risk control on these.

I’ll keep posting updates on this, and when new positions are established.
Everyone have a safe weekend.

Sue

Buh Bye NFLX #CostBasisReduction Winner…

Buh Bye NFLX #CostBasisReduction Winner

My NFLX saga ends today…with a bottle of champagne after the close. After the last earnings report when NFLX soared, I got the “great” idea to buy 100 shares at $358 and sell DITM calls for a guaranteed win. Within days there was a massive crash. I took inspiration from seeing @fuzzballl accomplish significant cost basis reduction with patience and perseverance. I vowed I would stick with this until it was profitable. Every single week I sold calls, and bought put butterflies (BWB debit flies). Most of the time they brought in nice credits, there were a few weeks that were debit rolls (debit rolls would step back cost basis those weeks), but I steadily took Cost Basis from $358 to $272. Today I was able to close out the full position for a net $1547 gain.

Dodeka-Stupid on NVDA

Here’s a note that Trade Alert put out tonight:

Market Color NVDA – Interesting 12-leg Nvidia put spread minutes before the close totals nearly quarter-billion dollars premium. Over 31K deep puts traded in NVDA at 3:53PM ET today in an odd spread that involved 12 deep-in-the-money puts expiring Jan 18th. Stock was $136.22 at the time, and the package consisted of offer-side blocks in the 200 to 260 strike puts, priced from $64 to $124. Weirdly, size of each block is very near the open-interest of each contract and the price on each block was a whole dollar figure, 22c over parity, with total premium just under $244M. If the package was a buyer of all legs, the delta is nearly 2.4M shares, or 9% the adv of the stock. With negative AAPL headlines out after the close, NVDA shares are down nearly $4 to $132 which could be a gain near $9M if the spread was a dodeka-stupid.

NVDA

Follow up info

Here’s some follow up info to the post I did a couple days ago:

1. Scott Ruble is currently at www.stratagem.com His courses are good, but expensive. His “POT” (Practical Options Tactics) subscription is VERY expensive ($299/mo) and generally not worth it, very frustrating (You can get a 30 day trial of POT for free though). He has moments of brilliance, but you have to weed through a frustrating delivery style. @kathycon and I call it “finding gems in the poo.” Aeromir offers a 10% discount for Scott’s stuff, I think the coupon code is “AEROMIR10” or maybe “AERO10”. Scott is a bit like “Whiz-Lite.”
2. Scott used to be at Random Walk and the Random Walk website has some of Scott’s classes…some are even FREE…so I recommend going to www.randomwalktrading.com before doing anything at Stratagem. The “Layered Spreads” class at RW for $95 (on sale right now) is a must investment I think. Very very good, and taught by Scott. You get a very detailed pdf book with the course. If you buy the course, you get access to many videos immediately, but the PDF takes a couple days to receive while they do the ID encoding. All the doc downloads at RW are encrypted with your personal ID…so you can get in trouble if caught sharing them. Ed T. at Random Walk has the “OIA” subscription for $50/ mo….excellent value for what you’ll learn and his professional delivery.
3. Aeromir www.aeromir.com (Aeromir took over the defunct “Capital Discussions” group) has a free membership that gets you two week access to tons of videos (rolling two weeks)…definitely do the RTT 1 month trial for $25.00. You’ll learn a ton of good stuff. After the first month it’s $155. I think you can learn enough in the first month to go it alone. The trial will inundate you with info though….tons of email updates, risk graph images, texts on every update, videos to watch. They’ve recently launched two new services based on RTT, that give you “light” versions of info for a cheaper monthly expense. Just do the full trial and you’ll be on your way. RTT’s have struggled a bit with us in backwardation right now, so they have needed a lot of management…which is actually good to see the approaches they take for defense (Risk Reversals, Rolling Thunder hedges, Reverse Harveys). Aeromir does a lot of roundtables bringing in various trade experts to talk about their designs. If you search on YouTube for “Aeromir Scott Ruble Roundtable” he recently did a really good session on Rolling Thunder. I’d classify Aeromir as kind of a “bulletin board” type core, surrounded with different trade services. Low tech website, but they do bring in some good roundtable speakers, and “Trading Group 1” in the videos are usually worth listening to.

I think that’s about it, I’ll add more if I think of it.
Below is a snap of an article in Stocks and Commodities magazine about the RTT. I have the pdf if anyone wants it, drop me a line. smasterson@yahoo.com Or you might be able to google it.

SueRTT cover

#fuzzy

Happy New Year!

Hi Everyone! I just couldn’t find a new bread-and-butter trade this year that justified reporting, so I lost track of a lot going on here. I did find some good new approaches though. I found Scott Ruble (Stratagem) to be an excellent teacher on structured courses, but a terrible terrible subscription provider. @kathycon and I have used several of his approaches in the last few months to make money…#AdvancedRiskReversals, #SpikedCollars, #LayeredSpreads, and #RollingThunder. Scott was with Random Walk for awhile before having a falling out. Ed has taken Scott’s place at Random Walk and has a $50/mo subscription service that I quite like. Very reasonable for what you get. Ed’s approach is #PregnantButterflies which layer in spreads in a way to provide wide profit ranges, often risk free. The #RTT (Road Trip Trade) trades at Aeromir are good (BWB), and they manage them very dynamically using a lot of Scott’s teachings. The one month trial of RTT is very worth it. Option Pit is still great….but VERY deep and takes a ton of cerebral work….especially if you think you know it all already (like I did).

The only update I’ll give is on NFLX. I made a solemn vow in @fuzzballl ‘s name that I would stick with this until I was even. I started at $358 a share and am now down to $272….that’s a ton of cost basis reduction! I’m accomplishing this two ways…. 1. using weekly debit wide broken wing put flies (Ed calls them “Venus Flies” for the downside collar, and. 2. using weekly covered calls to finance the flies. As you can see I’m still off the mark on break even….but I’m being mechanical with the income collection and tracking every cent against the cost basis. I’ve only got 100 shares of NFLX so the ride down has been manageable.

Hope we all get what we want from the market next year! This last year is one of those that seriously refines you as a trader. Survive….and you come out a much better trader.

Sue 🙂

#advancedriskreversals

Hi Guys!

It’s been awhile since I posted, thought I’d pop in here and say hi! I’m deep in the weeds at Option Pit. I’m in their pro group now. My trading is changing quite a bit, to a style that is more “book management” than “trade management.” Using low volatility to build a catalog of long puts and calls, then selling around them to pay for the decay, and selling out the longs as the market demands (for example I have a bunch of IWM puts that are getting close to being up 100% now, so I’m metering them out). I’m doing a lot of ratio calendars to acquire the longer dated options at a discount. This would be impossible to do with the old commission structures that had a ticket fee + contract fee. Thank goodness Tasty Trade caused a lot of pricing innovation! It’s less stress knowing a big move in either direction pays out nicely….it’s just managing the middle that’s important. It’s going to be an interesting quarter with everything going on. I’ll try not to be such a stranger!

Sue