Buyers In Control - December 2, 2011

[ernsttanaka]

I got the entry to the cent 73.14

Sold last weeks 74 calls for 59ct credit
rolled to this weeks 74 for $1 credit

Today I bought the 74-72 put vertical for 62ct.

So what can happen this Friday;

a. We are above $74 -- I get assign on 74 -- making 74- 73.14 = 86ct+59ct+100ct-62 = 183ct or 2.5% for 8 days
b. We are below $74 but above 72 -- I use the 74 put and sell the IWM for 74 and I will have the same result as under a.
c. We are below 72 -- same result as under b. but I rebuy the IWM for 72 with the profit from b. I effectively own for 72-1.83 (I am getting close to break even considering the current Robot stop)

Alternatively for B; I can sell the 74put, expire the 72 put and roll the short call to next week. This depending the DMF20 and my market "feel".

Ernst

[ernsttanaka]

I got the entry to the cent 73.14

Sold last weeks 74 calls for 59ct credit
rolled to this weeks 74 for $1 credit

Today I bought the 74-72 put vertical for 62ct.

So what can happen this Friday;

a. We are above $74 -- I get assign on 74 -- making 74- 73.14 = 86ct+59ct+100ct-62 = 183ct or 2.5% for 8 days
b. We are below $74 but above 72 -- I use the 74 put and sell the IWM for 74 and I will have the same result as under a.
c. We are below 72 -- same result as under b. but I rebuy the IWM for 72 with the profit from b. I effectively own for 72-1.83 (I am getting close to break even considering the current Robot stop)

Alternatively for B; I can sell the 74put, expire the 72 put and roll the short call to next week. This depending the DMF20 and my market "feel".

Ernst

I ended up closing the vertical put 72/74 for 23ct credit and rolling the 74call for this week to next week for 1.18ct. So my new max profit if we stay above 74 is 183ct+23ct+118ct=324ct. Initial entry was per Robot 73.14+3.24 equals 76.38 and my current break even is 74-3.24 = 70.76

The put vertical served its purpose - yesterday during the sell off - my IWM position was more or less flat for the day. So my 2yr old and I could spent some time in the Natural History Museum ;)

BTW I still wish we had a TLT robot -- I "predict" the next significant trade-able trend will be short TLT.

[Wei]

TLT's chart looks promising for a second leg down, but the MF chart looks very bullish though.

I ended up closing the vertical put 72/74 for 23ct credit and rolling the 74call for this week to next week for 1.18ct. So my new max profit if we stay above 74 is 183ct+23ct+118ct=324ct. Initial entry was per Robot 73.14+3.24 equals 76.38 and my current break even is 74-3.24 = 70.76

The put vertical served its purpose - yesterday during the sell off - my IWM position was more or less flat for the day. So my 2yr old and I could spent some time in the Natural History Museum ;)

BTW I still wish we had a TLT robot -- I "predict" the next significant trade-able trend will be short TLT.

[ernsttanaka]

TLT's chart looks promising for a second leg down, but the MF chart looks very bullish though.

When it comes to tlt and the other bond ETF's I don't think ETF volume is a tell-tale for what actually is happening. The bond futures and their derivatives are (I think) more products to watch. Let's not forget we are talking about a market with a couple of trillion in size and players like Bill Gross and Jeffery Gundlach - to name two biggies.

I am very novice when it comes to interest rate trading - (read extreme novice), but I suspect that the EU will have kicked the can fare enough down the road that it has become invisible for some time. With the political system in the US in disarray till Jan 2013, I presume we will get an attack on the US bonds. Which other sandbox is available for our bond-vigilantes to play in.

If my theory plays out -- then I see interest rate going up, USD going up!!!, SPX coming down.

[ernsttanaka]

To finish up with my posts on the last Robot Long call -- I will need to update you on what I did last week.

As we all did - I got stop out on the IWM stock @ 71.02, the short call 74 Dec were trading 7ct when I closed those.

All in all $2.12 loss on the stock.
and $2.31 profit on the options.

I was of course not looking for 19ct profit - as we all I was looking for the start of the xmas rally. But overall a little profit for a trade that did not work out is great.

For me this is one of the reason why I like to trade options when I engage in a direction trade.
It allows me to express myself in a more diversified way then just long or short.

To me it is important to always sell options or (kind of) never sell options on long stock. If you do it once in awhile you run the risk of have asymmetric results. You sold options when the stock really runs upwards and you limited your upside potential and you did not sell options when the trade falls apart giving you an outsize loss.

Ernst