The Wizetrade Options Blog

Follow up to “The DEPOT and out of the money options”

TraderChris — Fri, 22 Jan 2010 21:21:00 +0000

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I received an email the other day pertaining to my previous Blog on using OTM options within the DEPOT. I thought they were exellent questions so I thought I would list them for you all.

If you have not read the blog i would encourage you to do so before you read on.

I would like to actively trade AAPL and would prefer using @ a 90 delta since this is a quick 'in & out' play and I want to maximize it quickly. Therefore, using your method, I should try and find a delta around 40-45 and by twice the amount of contracts which I can afford. The aapl 90 delta calls were around $20/contract, but the 45 deltas were $5.

QUESTION:

1. What are the pro's and cons using this method? – Pro – It’s cheaper. Con – if the trade goes against you it will take longer to make up your loss.

2. Do you use it on all trades? – No – It just depends on the price of the higher delta option.

3. What do you do if you want a 'equivailant to a 90 delta' (using 45 delta), BUT the only deltas availabe are 30 and 50 deltas? I would take the .50.

4. If I buy a 55 delta and double the contracts, that would give me the equivalance of a 110 delta. What happens when the two deltas EXCEED 100? Stock always trades at “Par.” If you were using options as insurance policies (as they were originally intended) and you purchased a .90 delta put to protect your one hundred shares of stock you would essentially be protecting 90% of the value of the stock. If you purchase two .55 delta put contacts to insure the same stock you would be insuring it for 110% of the value – that does not make sense. If you are trading options, and not using them for protection, you are really insuring something that you don’t own. So if you have two .55 delta put contracts you are actually getting 10% more return than you would if you were trading 100 shares of the stock.

Hope this helps.

Hot Option Opportunities for the New Year!

angie_c — Tue, 05 Jan 2010 18:40:00 +0000

If you watched Greek Speak yesterday on WizetradeTV-HD or subscribe to Wizetrade Alerts, you know that Jason Ramus brought some great opportunities to the table for the upcoming year & some even for the next couple of years. With the market pulling back today, some of these entries are even better than they were yesterday! So I've decided to share some of them again. Keep in mind, these are yesterday's quotes so use your best judgement if you're considering following along with it.

AA- Buy the Calls - Option Jan 2012 $12.50 Calls for $5.80 per contract = A Debit of $580.00 per contract

This stock was a $45 stock a year ago and hit a low of around $5 in March of 2009. It has bounced to fill the gap and is currently trading at $16.12. This stock has room to move much higher especially if the economy does make a recovery in 2010, also if car sales pick up this will move higher. You can look at the Jan 2012, $12.50 Calls around the $5.80 area. It has a delta of .74 and also $3.68 of intrinsic value and only $2.12 of extrinsic value. Also we are giving this trade 2 years to make us money. Breakeven on this trade is only $18.30 in 2 years.

Jason Ramus 1/4/2010 8:18:00 AM CT

C- Buy the Calls - Option Jan 2012 $2.50 Calls for $1.45 per contract = A Debit of $145.00 per contract

Ok so here is my best speculation trade for the year that we can make some big returns on. If the government can get out of Citi Groups business and they can actually make money and hire people without pay restrictions, then there is a chance this company can be a $10 stock within the next year I believe. The trade is to buy the Option Jan 2012 $2.50 Calls for $1.45 per contract. the stock is currently trading at $3.31 and we have $0.81 of intrinsic value and only $0.65 of extrinsic value or speculation money and have 2 years for the stock to be above $3.95 to breakeven on this trade.

Jason Ramus 1/4/2010 8:21:29 AM

GLW- Bull Call Spread for the Jan 2011 - Buy the Jan 2011 20 Calls and Sell the Jan 2011 25 Calls = a Debit of $155.00

I love this stock going forward because the TV sector is becoming big and the things we will be able to do with our TV's in the future will be, 3-D TV, WIFI on your TV, a computer built into the TV's and the new LED TV's that will be coming out and making LCD's the thing of the past. This company is 1 of only 3 company's that make the glass for LCD and LED TV's. Now this is a slow moving stock that is currently trading at $19.31. The trade is a Bull Call Spread for Jan 2011. I am looknig at the Jan 2011, 20 calls and sell the Jan 2011, 25 calls for a net debit of around $1.55 or $155.00 with a profit potential of $3.45 or $345.00 if this stock is trading above $25.00 by the end of this new year. I love the Risk vs Reward on this trade, the only thing is you will need to be patience for this trade and wait until near the end of the year for this trade to really work out.

Jason Ramus 1/4/2010 8:25:36 AM

Happy Trading!!

Angie C

follow me on twitter: www.twitter.com/WTV_Angie

10 Brands that May Disappear in 2010

angie_c — Thu, 31 Dec 2009 19:45:00 +0000

I found the following article (posted on www.businessinsider.com on Dec. 31, 2009) by way of a tweet posted by @PairsTrades on www.twitter.com. I love reading these stories at the beginning and end of the year. The speculation is quite interesting. For example, Borders Group (NYSE: BGP) is on the list for next year, but it was also on a list of this nature last year. Hmmm....

http://www.businessinsider.com/brands-that-will-disappear-in-2010-2009-12#newsweek-1

Have a Happy New Year & Better Trades in the Year to Come!!!

Angie C.

Follow me on twitter: www.twitter.com/WTV_Angie

Some comments on proposed trader’s tax…

angie_c — Tue, 29 Dec 2009 20:02:00 +0000

Here are a couple of interesting articles concerning Congress's proposed new trader tax. You can also read my thoughts on the issue, read my blog on Dec. 2, 2009 titled "Stop the Trader Tax!!!"

Steven Place, with InvestingwithOptions.com, had some interesting analysis on this topic at http://www.investingwithoptions.com/2009/12/my-comments-on-the-trader-tax/.

Chris Glorioso posted his insight on the Huffington Post online at http://www.huffingtonpost.com/chris-glorioso/the-wall-street-trader-ta_b_400871.html.

To sign a petition against this Tax, click below.

http://www.rallycongress.com/greentradertax-traders-association1/

http://www.rallycongress.com/no2tradertax/1536/tell-congres-to-block-trader-tax/

Follow me on Twitter: www.twitter.com/WTV_Angie

Happy Holidays!

In the land of confusion only the mad think they know reality.

Don Folkerth — Mon, 21 Dec 2009 19:35:00 +0000

Looking at the charts, volume & the RSI charts today the simple truth is sometimes the answer is there isn't one. The things we look for in charts are not lining up like normal which just might mean there isn't a pattern & no reason to trade. One of the greatest value of the programs is to tell us just to leave it alone. Walk away from the computer!!!

Nasdaq Composite ($COMPQ) makes new 52 wk hi

angie_c — Mon, 21 Dec 2009 18:03:00 +0000

Today's rally takes the NASDAQ to a new 52 wk high ($2,242.22). While this is incredibly bullish for today and other Indices also showing aggressive strength, it should be recognized that the Dow ($DJI) and the S&P 500 ($SPX) have not made new highs today. Both Indices on Friday were near the lowest end of the channel that the market has been caught in for over a month. To expect them to cover the full range of that movement back to the resistance levels in one day, while not impossible, is not likely to happen.

So where does this leave us for the rest of the week? As I've already mentioned, the market is in a channel. It's very important to realize this is a low volume time of year. I don't want to predict where the market is going from here, but I can say this- don't get ahead of yourself or the market. Small moves are key right now. Make sure to stick to your plan and do not risk more than you can tolerate. I've personally been sitting on the sidelines waiting for the new year. When volume returns to these markets we will likely see a breakout accompany it so be aware. In the meantime if you're trying to take advantage of the small range between our support and resistance, just remember- always trade your plan.

Angie C

Follow me on twitter: http://www.wizetradetv.com/?cid=07010

Tech stocks leading…

angie_c — Fri, 18 Dec 2009 18:26:00 +0000

Technology is holding onto a reasonable lead in the markets today, with the Nasdaq Composite up about 25 points with all other indices moving back and forth around even on the day.

Some contributing stocks to this positive gain include:

Take Two Interactive Software, Inc (TTWO) is up a little more than 11% today; Research In Motion Limited (RIMM) up over 10%; and Celgene Corporation (CELG) up over 10 %.

Angie C.

Follow me on twitter: http://www.wizetradetv.com/?cid=07010

When is a stagnate market a profitable one?

Don Folkerth — Wed, 16 Dec 2009 21:23:00 +0000

When you can identify three times in a day to trade AMZN for .50 cents per trade. Today we were able to see three possible trades for $.50 per share on AMZN. This in spite of the fact that it is December the week before Christmas & the market has been running between 10,250 & 10,500 on the Dow for several days now. We talk about this style dailey on Channel 2 from 8:30 to 10 AM CST & 2 to 3 PM CST. Come listen & to see what you might be able to pick up to help your trading.

FOMC Market update

angie_c — Wed, 16 Dec 2009 20:34:00 +0000

FOMC decided to leave interest rates unchanged at 0.50% (big surprise). To read the official story, check out htttp://www.federalreserve.gov/newsevents/press/monetary/20091216a.htm.

The market reacted by first running up, then pulling back enough to give up almost all of the day's gains. As of this writing, the DOW is down 18 points, the S& P is only up 1 point. Can anyone else see the evidence of the inability to break hi's?

Angie C.

The DEPOT and Out of the Money options

TraderChris — Tue, 15 Dec 2009 18:12:00 +0000

I have been an In the Money option guy for years but recently I started looking at Out of the Money options in a different way. Lets say I was going to do a crazy thing and trade MA to the downside. That would require that I buy a Put option. If i were to follow the DEPOT method I would be looking for an option with a Delta somewhere between -.70 and -.85. This is typically known as the sweet spot. As I write this blog, one potential option is the MALMW (Jan 260 Put) for $16.60 X $17.00. The option has a delta of -.72 which works out nicely. The only problem is that the spread is $.40. This is a touch too high. Of course you could shave the spread to $.30 but that may even be a touch too high. But what if I took a look at the MALMU (Jan 240 Put) 5.50 X 5.60. This option is OTM since MA is currently trading for $245.80. You might say "I can't trade that, the delta is not between -.70 and -.85, that would be breaking the rules." I appreciate your discipline, but what if you bought two of these options. By doubling the number of contracts you are purchasing, you are essentially doubling the delta strength. For example, if I purchased one contract of the option with a -.72 delta I would expect that for every $1.00 the MA stock dropped, my put option would increase in value by $.72. If I chose instead to purchase two contracts of the -.32 delta option, I would expect to make $.72 for every $1.00 MA drops. It is the same. Here is the cool thing, If I purchase two contacts of the -.32 delta option is will cost me a total of $11.20 if my numbers are correct. That means I will be saving $5.80 per contact. and the spread when added together will be $.20 instead of $.40. It does not always work out that nicely but it may be worth doing some comparison shopping when you are hunting for options.