Options Secret Trader

This weeks outlook

Here are some notes i took down, concerning positions i have or wish to look into:

------------------------HSOL-------------------------
Problem:
80% loss on HSOL, with 70 positions, current price 5.217

Strategy to recover HSOL:
-write 5 puts of HSOL for DEC 17 @ .75 (375$), if it is exercised, $2500 of HSOL will be bought, average price of owned HSOL in portfolio will become: 5.02 

-puts might not be bought, might need to write puts for earlier deadline, to ensure that they will be held, but for less premium, however still bringing the price down.

------------------------BIDU------------------------
Outlook: earnings next week and US declaring debt report in 2 weeks, extremely volatile. 

But the outlook for BIDU is nonetheless pretty good, might be a good time to buy some calls @150, and write some puts at/around 140$ (not to keep, these puts must be bought to close if stock goes below 145, currently @ 152.)

Sought put write price: 4.00 (x100) for BIDU 200811 140 P
	Call price:	4.00 (x100) for BIDU 200811 155 C
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My picks for this week

I’ve been holding MOBI for a while now, waiting for it to recover and it’s almost there.

This rally is going to break several resistance levels i think, it’s around 11.10 right now, with extremely high volume, so something is probably  cooking in the kitchen. When news gets out i expect the volatility to raise even higher.

It’s a prime time to negotiate options with MOBI, two days in a row i saw 10$ and 12.50 calls each rise over 500-1000%, with minimal losses on the puts, so good time for hedging these stocks.

Definitely keep an eye on MOBI and one hand in your pocket.

 

Another one i’ve been watching recently is V, VISA, with a huge rally last week. It looks to be profiting from confusion in world wide economy. I’m not sure what to do with it yet. But definitely keep an eye on it, it looks volatile too.

 

SINA is settling at a resistance level around 114. My target for this stock is 140 by the end of summer, it will probably fluctuate before then, we’ll see what it gives.

 

RIMM, is probably a volatile one too, especially in the next week.

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Rumors of a RIM takeover, why RIM-AMZN is bi-winning.

RIM shares dropped to half their 2010 values in a year, and after dismal quarterly results, it decided to lay off an unspecified number of it’s employees world wide. We all want to know what RIM has up their sleeves at the moment, because if it does not pull some magical new technology soon, the outlook will remain grim

The Blackberry and Playbook are having a hard time catching up to the iPad 2, iPhone, and Google products in the competing mobile tech sector. RIM’s competition is constantly upgrading it’s features, and gearing itself towards new technologies such as iCloud for AAPL products.

Cloud computing is the future of software technology, and AMZN with one of the biggest web properties in existence, has become the first large scale and biggest cloud provider in existence.

If RIM was to tap into this cloud for its next gen devices, it would have a major advantage over it’s primary competitors.

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Observations, week of June

Last week i decided to take a step in my journey into options by buying Puts and Calls for SINA, a stock that has been going down since i initially bought some assets of it around $135.

In particular the last two weeks were really horrible as right after a small rebound, it went up to 125, then crashed in a couple of days to 90$ then 80$.

Effectively the “Sellers were in control” at that time. This was clear with options too, where there was an extremely high volume, that brought the average up by more than 3 milllion in a couple of weeks, from 7M to 10M.

In this kind of market where sellers are in control, i realize that it was not a good idea to buy option puts or calls, as neither really went in the money long enough. Sellers were keeping the spikes small until the expiry of my option.

The current market, the week after the expiry of options for june, is one that is marked by a big spike in tech stocks including RIMM and SINA, where sina gains 16% in a single day, RIMM over 6%.

So clearly these are fairly predictable markets and should have been noted.

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RIMM Long straddle for July 16

Following the mixed success of my long straddle, 1 week ahead of time with SINA, i decided i should try it tis time 1 month ahead of time with RIMM.

I placed orders for 100 July 16 calls at $1.1 and 100 Puts at $1.1 too, the volatility of these tech stocks this year allows me to believe both will go through.

Although i have greater confidence this assets value will go down, for the sake of testing the long straddle strategy with a second time i decided to try this again.

I also believe that either way it goes, it will rapidly cover the cost of the opposite contract.

 

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First day

6/8/2011 2:16 PM Option: Sell to Close at Limit SINA1118R105 (SINA 105.00 – Jun 2011) 13 $8.00 $8.10 $52.74 $10,477.26 $101,647.26
6/8/2011 11:09 AM Option: Buy to Open at Market SINA1118R105 (SINA 105.00 – Jun 2011) 13 $6.80 $42.74 $8,882.74 $100,000.00

You can see here i bought a put at 6.80 when SINA was going down. I based myself on gut feeling that panik would continue to push people to sell below the 100 mark, allowing my contract to rise to $8.

There is no strategy or options trading secret here!  This is an example of how much options can amplify your gains.

You can see that i made a total of 13*100*1.3. That is The difference in contract prices, times the amount of contracts (13) times the amount of assets the contracts represent (100).

So in a matter of 3 hours i made 1647.26, after commissions are removed.

 

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Options Basics

Tricks and secrets of options trading have the potential to make you rich, within a day. While minimizing the amount of money you could loose.

If you already understand the basics and how options work you can skip to the strategies section where we discuss several mathematical tools and secrets useful to options trading, and tricks to maximize the profit, while minimizing the risk.

If not, here’s an example that that helped me first make sense of options:

Suppose a local sports team has a game in one month against a city with no supporters (so locals are the only ones who’d buy tickets), and tickets are on sale now for 100$. Lets say you believe ticket prices will soar in one month because the team will perform well, but that you don’t want to pay the full ticket price right now, so your ticket reseller tells you you can put a down payment of 10$ to promise you’ll pay 100$ before the game.

In the time you wait before the game, your local team plays against other teams, and depending on the outcome of each of those games, the prices rise and fall, changing the value of the ticket for the big game. Lets say for example that your team beats the best team in the league! The prices for the final game will soar to 200$, however you still only have to pay the 90$ difference you promised to pay up to your dealer. When you do you can just sell back your ticket to any one who wants to watch the game, for 200$ and still get 100$ profit!

On the other hand, if in the mean time your team performs bad, the price for the ticket will drop, lets say it goes down to 50$, but you promised to pay 90$ to complete the original price of your ticket. You are at loss in this situation, of course you could just let go of the 10$ and not pay up the 90$, that way you’d only lose 10$. That is what i find really wonderful about options.

 

What you should remember from the example above is that buying options comes down to buying a contract. There are several types of options contracts, and we will see each of them in the Learn section.

 

 

 

So what you can win comes down to the actual volatility (variation) of the asset ( stock or commodity). Where as you can only lose as much as it cost you to buy the contract, often times that is much less than the actual strike price, however keep in mind that a contract is leverage of 100 stocks.

An other important aspect of options, is that Selling or buying the asset aforementioned in the contract is Not obligated, you can do it at any time too. And often times contract’s prices fluctuate greatly.

So if you’re still with me here, you’ll understand that this means volatility on top of volatility, and potential for gain once more (loss as well).

Of course, the potential for loss is compounded by the time-value of your option, which is the value it often loses as the deadline to sell your contract approaches. However if by that time there is no real proft to be made by going ahead with the sale of your asset, you can just let it lose it’s value completely (the time value will match the so called intrinsic value, and the premium, the actual value of the options contract, sum of these two, will now be 0)

 

 

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