DIA Put Diagonal

DIA has been in an overall downtrend over the past 1 year. I bought a deep ITM put and am selling the front month ATM to get the short position to expire worthless. Then each month I will continue to sell ATM to lower my cost basis and increase my ROI.
This puts my breakeven point all the way up to 115.22. Also, since I bought the Dec quarterlys I can get an extra credit for December which further increases my ROI potential.

SOLD -24 DIA 100 SEP 08 110 PUT @ $0.70 credit
BOT +24 DIA 100 (Quarterlys) DEC5 08 120 PUT @ $9.20 debit

ROI potential for this month= 0.70 credit/9.20 cost basis= 7.6%

CLOSE: SHLD Put Diag to Put Cal. -44.2%

On 3/13, I opened this put diagonal:
I Sold Apr 85 put for $3.00
Bought Jun 105 put for $19.55 for a net debit of $ 16.55.
My cost basis was 16.55.

On 3/20, I adjusted my short position by rolling my Apr 85 to 90 put for a credit of $0.82.
Then I rolled up my short leg again from the Apr 90 to 95 put for another credit of $1.17.
Then I rolled down my long leg from the Jun 105 to 95 put to make this a calendar instead of a diagonal for a credit of $5.10.
Adj. cost basis was 16.55-0.82-1.17-5.10= $9.46.

On 3/31, I adjusted my position to lower my cost basis by rolling the April to May:
SOLD MAY 08/APR 08 95 PUT @ $3.37 credit
9.46-3.37= $6.09 adjusted cost basis

Today I closed out of the trade completely:
SOLD JUN 08/MAY 08 95 PUT @ $3.40 credit
6.09-3.40= $2.69 debit (loss)

2.69/6.09= 44.2% loss

This was a nasty trade for sure!

CLOSE: USO Iron Condor -72.2%

On 3/13 I bought the (call diagonal) Apr 91 Call for $2.50 and Sold Mar 90 Call for $0.82.
Total debit of -$1.68.

On 3/19, I adjusted by buying back the Mar 90 & selling the Apr 90 call for a total credit of $1.35 now making this a vertical spread.
-1.68+1.35= -$0.33 cost basis

On 3/20, I converted the vertical to an iron condor by:
Sold BRCS Apr 87/90 call for a credit of $0.62.
Sold BLPS Apr 77/73 put for a credit of $1.12.
-0.33 cost + 0.62 credit + 1.12 credit= $1.41 total credit
New Risk= 4.00 spread-1.41 credit= $2.59

On 3/27, I added on the May 70 long calls to be delta neutral again, this was for a debit of $16.75.
16.75-1.41= $15.34 cost basis

On 3/28, I closed out the long call by selling the MAY 70 CALL for $14.75 credit.
15.34-14.75 = $0.59 cost basis

Today, on 3/31, I closed out the entire trade:
Bought APR 08 87/91 CALL @0.58 debit
Bought APR 08 77/73 PUT @0.70 debit

1.87/2.59 risk= 72.2% loss

So here's an example of how an iron condor can sneak up on you and take a bite out of your "you know what!"

OPEN: LVS Put Cal.,USO Time Diag., TGT Dbl.Put Cal., POT Put Cal., SHLD Put Diag.

Today I opened several trades along with my trading partners:

Also, I am now doing trades within 2% of my total portfolio size. I moved up from 1% from last month since I had several winnings trades. This is a great discipline strategy to employ when you've had some losers and/or you are starting to get emotional about your trading. If you are experiencing any one or two of these issues, then minimize your risk by sizing small 1% or less of your total portfolio until you have a string of winners and are less emotional about your trades.

LVS Put Calendar:
Sold April 85 for $11.75 and bought the Jun 85 put for $14.45. My total debit on this trade was $2.70.
This gives me a yield of 11.75/14.45= 81% in 1 month
I will roll the short leg to May once the stock gets close again to the middle of the trading range at 85.


TGT Double Put Calendar:
The chart is neutral to bearish currently with consolidation around 52.50. I put on a double calendar at 47.5 to hedge myself in case this breaks downward out of my trading range on the 52.50 calendar. Looking at the probabilities, this allows me to make my money within the first few days instead of having to wait about a week to start profiting. This is my first double calendar so we'll see how it all works out.

Bought Jul 47.5 put for $4.10
Sold Apr 47.5 put for $1.80 for a net debit of $2.30
Bought Jul 52.5 put for $6.50
Sold Apr 52.5 put for $4.15 for a net debit of $2.35

So this gives me a yield of: credit (1.80+4.15)/debit (4.10+6.50)= 5.95/10.60= 56% in 1 month


POT BLPS:
With a perfect bullish engulfing candle and a bounce up off the 30 day moving average today, I got filled on a bull put spread. Next earnings announcement isn't until 4/21/08 so I have time to get out before that volatility craziness.

Sold April 135 put for $4.00
Bought Apr 130 put for $2.93 for a net credit of $1.07
Risk is 5.00-1.07=3.93 (position sized according to risk)
Net yield is 1.07/3.93= 27.2% in a few weeks

As long as the stock stays above 135, I'm good to stay in and let this one expire, or choose to close out whenever I want.

USO Time Diagonal:
So the time diagonal is kind of like a vulture but with a little more time on the long side.
Oil companies have been kicking a lot of butt lately as is evident with the cost at the pump!
USO ranks as one of the top companies in the oil industry with a nice break through resistance recently around $77.50. Now it's at it's 2 year high.

What we are doing is actually a counter-trend trade. WARNING: not for beginners or for those risking a huge pot!
Despite the trend of the stock (bullish), we looked at the MACD on this one (although it is a momentum indicator, we normally don't use this indicator because it's slow), and noticed that the MACD has a bearish trend right now-signaling to us that this baby may run out of steam. (look at the trend lines I drew on MACD). Also, volatility is jumping up which means there is a sense of fear here among investors (what goes up must come down).

So we Bought the Apr 91 Call for $2.50
and Sold Mar 90 Call for $0.82 giving a total debit of $1.68.

0.82/2.50= 32.8% yield in 1 week. We will roll the Mar to Apr to close out or possibly convert this to a calendar by rolling the long further out in time and rolling the short to April if this starts creating a channel. Or if it still trends, but downward, then we will convert this to another BRCS.
This trade is sized for maxed loss.

SHLD Put Diagonal:

Sold Apr 85 put for $3.00
Bought Jun 105 put for $19.55 for a net debit of $ 16.55.
3.00/19.55= 15.3% yield in 1 month

Adjust: ZMH Call Calendar- Mar 80 to Mar 75

Seeing that the chart started heading down slightly but tested the moving average today, I adjusted my March 80 call to March 75 call for a total credit of $1.95. My last cost basis when I opened this trade was $12.75 so my adjusted cost basis is now $10.80.

OPEN: ZMH Bull Diag., WMT Put Cal., & GOOG BRCS Vulture

ZMH Bull Diagonal:
Saw support near 65 and resistance since August at around 80.
Bought Jun 65 Call for $14.75 and Sold Mar 80 Call for $2.00 for a total debit of $12.75.
If not called out I make, 2.00/14.75= 13.5% yield in 1 month
If called out I make, 15-12.75/12.75= 17.6% ROI in 1 month
Stop loss set at 20%= $10.19

WMT Put Calendar:
I did this exact trade yesterday but sized my trade accidentally at 1 contract instead of 80. So I placed a limit order to fill at the exact debit of $1.20 that I had yesterday. Luckily, since the option value had not changed much at all today, I got filled as soon as I placed the order so now I have 80 contracts total of the Jun/Mar 47.5 puts for $1.20 debit.
1.50/2.70=55.5% yield in 1 month
No stop loss set since 50% would be set below $1.00. If it were set there would be too much risk of getting stopped out at the slightest move of the option.

GOOG BRCS Vulture:
A vulture is a vertical spread that is done very close to expiration, typically within the last week.
The risk with vultures is that because this is a directional trade and you have limited time, this must either be neutral or in your direction within that time for you to keep your credit. If not the risk is the difference between the strikes minus the credit. Do not trade this as a beginner. If you do, PLEASE trade this on paper only.
My friend OptionsMonkey brought this trade up so I thought I would try it out and size this trade for max loss with only using 1% of my portfolio.
Therefore we did a BRCS: I sold Feb 540 Call for $2.30 and bought the Feb 550 Call for $1.00 giving me a total credit of $1.30.
Max Profit= $1.30
Max Risk/Loss= $10-$1.30= $8.70
1.30/8.70= 14.9% in 1 week
No stop set on verticals.

OPEN: MER Call Calendar, AMZN Put Diag, GDX Put Cal., DRYS Bear Call Vert

So I placed 4 GTC trades last night that all got filled this morning within the first 1/2 hour.

MER- Call Calendar
Nice neutral channel between 50 and 60 for the past 3 months...
Call Calendar Sold Feb 55/Bought Apr 55 Call for debit of $2.48
Yield= $2.72 credit from selling Feb 55/ $5.20 debit from buying Apr 55= 52% in 3 weeks
Stop Loss @ $1.24 (50% loss for calendars)

GDX-Put Calendar
Neutral channel between 45.00 & 52.50 on stock
BOT +42 CALENDAR GDX JUN 08/Sold MAR 08 51 PUT @ $2.15 debit
GDX MARK 49.94
Yield= $4.00/$6.15= 65% in 6 weeks
Stop set for $1.07 (50% loss on calendars)

DRYS- Bear Call Spread
SOLD -21 VERTICAL DRYS FEB 08 80/Bought 85 CALL @ $0.49 credit
DRYS MARK 67.44
Profit= $0.49
Risk= $5.00-0.49=$4.51
ROI= 10.9% in 3 weeks
No stop loss on Verticals needed- sized for max loss

AMZN- Put Diagonal
Open: Bought +1 DIAGONAL AMZN APR 80 Put/Sold FEB 08 60 PUT @ $12.02 debit, AMZN MARK 69.34
Stop set for $9.62 (20%)
Stopped out at 12:48 pm: SOLD -1 DIAGONAL AMZN APR 80/Bought FEB 60 PUT @9.60, AMZN MARK 74.80
$2.42 loss= 20% loss

STOP: AAPL Bull Diag. -21%

This trade was silly. First of all-I miscalculated and purchased too many contracts (3 instead of 1). Secondly, I ignored my trade rules about trend as AAPL had been consistently under the 30 & 50 day moving averages (MA) for over a week!

So, needless to say, when you're wrong-you should get out. I didn't so i got stopped out at a credit of $34.11 at ~ 3:10pm.

Trade Totals:

Adj. Cost Basis= $42.85
Stop= $34.11

1/2 BOT= -$17,100.00
1/7 Roll= +$1,323.00
1/8 Roll= +$1,275.00
1/11 Roll= +$1,650.00
1/15 Stop= +$10,233.00

Total Loss= $2,619.00
34.11/42.85= 21 % loss

ROLL: DRYS Jun 100/Jan 70 to Feb 60 put diagonal

Stock ~ 60.20

Here is another trade where I experienced delta inversion. Notice how the stock gapped down (in my direction) on 1/10.

I bought back the Jan 70 puts for $10.00 and sold the Feb 60 puts for $6.40 giving me a total debit of $3.60. Still not a bad deal-I get to control $10.00 extra of the stock (difference between the Jan 70 & Feb 60) only for $3.60!

Total cost= $365.90 w/ commissions
Adj. Cost Basis= 27.65 (from Jan) - $3.60= $31.25
New Stop Loss set to $25.00= $3,684.10 stop credit

Had I done this trade on 1/11 instead, I would have only paid $3.20. Next time, I need to roll quicker.

ROLL: BG Bull Diag Jan 120 to Feb 135/Apr 100 Call

Rolled on 1/14/08 at 3:53pm

Stock ~ 133.05

Today is approximately 1 week prior to options expiration day, so it is time to roll into Feb. I don't wait until the last week so I can a) get a good fill & b) get better pricing on my roll. The absolute last day you should ever roll for a diagonal is the Tuesday the week of expiration, but I wouldn't recommend waiting that long.

I bought back the Jan 120 & sold the Feb 135 for a debit of $6.05. The Feb 135 had the most extrinsic value (EV). Notice how I get a debit and not a credit on this roll. This is a phenomena called "Delta Inversion." This happens when the stock moves dramatically in Your favor, but the short leg is gaining in value faster than the long leg. My mentor and I are still trying to figure out how this could happen since the stock is going in your direction! I will follow up in the future when we crack this case!

So what happens is you end up with a debit instead of a credit to roll to the next month. This may seem as unusual since you are "paying more" to get to the next month, but what this allows you to do is control more of the stock at a discount. So for $6.05 I get to control an extra $15.00 of the stock (difference of strikes from my Jan 120 to the Feb 135). So I got a discount of 40%on the stock!

I actually wanted to roll on Thursday or Friday of last week, but work got too crazy so I missed the boat. I did notice that I would have only had to pay $4.60 instead of $6.05 had I rolled on Friday instead of Monday of exp. week...interesting example on how crazy pricing can get on the last week of expiration.

So now, my new adjusted cost basis is $19.25 (from Jan) + $6.05 debit= $25.30

My new stop is set to $20.24 (20% loss) = $2,889.10 stop credit

ROLL: AAPL Bull Diag. Jan 170 to Feb 175/Jan '09 150

Traded at 2:30pm Stock at 173.12

Seems that AAPL is retesting the lower channel line (in white) therefore I am rolling into Feb by buying back my Jan 170 for $8.20 debit and selling the Feb 175 for $13.60 credit, giving me a total credit of $5.50.

I chose the Feb 175 because it had the highest EV (extrinsic value) at $13.60 (full credit from selling the Feb 175).

My total credit is $5.50= $1,632.30 credit

New adjusted cost basis= $48.35-5.50= $42.85

Max Profit:
5.50/42.85=12.8% ROI in 35 days

Max Loss:
New stop set to $34.28 (20% loss)= $10,654.80 stop credit

OPEN: WYNN Bear Diag. Feb 105/Jun 130 Put

Traded at 3:57pm

Notice the downward channel lines in white....the stock was currently in the lower half of that channel. Also, the stock was below the 30, 50 & 200 day moving averages...very nice bearish signals.

I chose the Feb 105 because it had the highest time value ($6.40 extrinsic value + $2.05 intrinsic value= $8.45 credit for Feb).

Cost Basis:
I bought the Jun 130 put for $32.45 and sold the Feb 105 put for $8.45.
This gave me a total debit of $24.00= 5 contracts= $12,024.95 debit


Max Profit:
If not called out:
8.45/32.45= 26% in 35 days (to expiration)

If called out:
25-24.00/24.00= 4.2% ROI


Max Loss:
I set my stop for $19.20 (20% loss=$2,424.95)= $11,975.05 stop credit

STOP: HRS Bull Diag. Feb 50/Jan 60 -29%

Stopped at 3:59pm

Seeing that HRS broke through support line at 60 yesterday, I did not get out of this trade on time. So I got stopped out at $6.95 credit although I set my stop for $7.20

My last cost basis was $9.45, therefore my overall loss was $280.00= -29% loss

ADJUST: AAPL Jan 180 to Jan 170

At 3:58pm, I got filled to adjust my position by buying back my Jan 180 for $4.43 and selling the Jan 170 for $8.68. This gives me a total credit of $4.25 ($1,257.30 w/ commissions).

Looking at the lower channel line in white, I see that AAPL used this as a support and tested the line and shot back up today on high volume in my direction. Also, the ATR (is

This reduces my cost basis again from $ 52.60 to $48.35.

My new stop loss is set to $38.68 ($12,049.80 w/ commissions).

If not called out:
4.25/48.35=8.8%

ADJUST: AAPL Jan '09 150/Jan'08 195 to Jan 180

I adjusted my position down today by buying back the Jan '08 195 for $2.59 debit and selling the Jan '08 180 for $6.99 credit.

I see on the chart that the stock dropped below the 30 & 50 day moving average, however looking at the past times this happened (Aug & Nov), the stock pulled back up within a week.

Max Profit:
This gives me a net credit of $4.40 (=$1,302.30 w/ commissions).

Max Loss:
This brings my cost basis down from $57.00 to $52.60.
Therefore my new stop loss was set to $42.08 (credit of $13,542.30 w/ commissions)

OPEN: AAPL Bull Diag. Jan'09 150/Jan'08 195

AAPL has been the "baby" for many people who have wanted to jump on the bandwagon and profit from AAPL's wonderful business moves (i.e. IPOD, iphone, and now the future competitor of MS Vista).

Looking at the chart, I saw that AAPL broke resistance at 190 and used the 30 day moving average (blue line on chart) as a support line. Also, I drew the white channel lines that the stock has also been following. Today when I got in, there wasn't a perfectly bullish entry signal....instead, I see that there was a down day today on higher than average volume. This trade is riskier but worth the risk if I can adjust my position correctly and ride out the waves.

However, what I considered is that it's 30% about entry and 70% about the exit of any trade. This is the case especially for diagonals, since you are buying several months of time and selling against it for profit.

Stock at $194.90
I bought the Jan '09 150s for $65.85 and sold the Jan '08 195 for $8.85 for a total debit of $57.00= ($17,117.70 debit after commission)

Time Value Calculation:
In order to pick the best strike price to sell, you need to find out how much time value you are selling. This is otherwise known as extrinsic value or "fluff" in the trading world. Here's how to get that figure...

1st: figure out if you are ITM (in-the-money), ATM (at...), or OTM (out...).
If you are OTM, the entire credit amount becomes E.V. because there is no intrinsic value in that option.
If you are ATM or ITM, you take (Credit from sale of short front month option- Difference of 2 strikes).

In this case for AAPL,
-It cost me $65.85 to buy the Jan 09 150s so I subtracted the difference between the strike I bought and the stock (65.85-45) & divided that by 380 (dys to expiration of Jan 09)= $0.05 a day EV (amount I am spending per day)
-I made $8.85 to sell the Jan 08 195s. You take the stock price (194.90)- strike you sold (195)= $0.10, then I subtracted the $0.10 by the credit of $8.85 and divided it by 16 (days to expiration of Jan 08s)= $0.55 (amount I am making per day)
So in summary, it is costing me $0.05/day to make $0.55/day! AWESOME!

Max Profit:
If not called out: 8.85/65.85= 13.4%
If called out: 45- $57.00/57.00= -21%

Max Loss:
$11.41 max loss (20% loss of total)
Stop Loss set to $45.59= (credit of $17,007.30 after commission)

Exit:
Will roll into the Febs 1 week prior to expiration. Adjust my position as the month moves forward only if the stock is still in my direction (i.e. I have no signals of a trend reversal).

ROLL: DRYS Bear Diag. Dec 75/Jan 70

Rolled 12/21/07

Today I saw that the stock was approaching support at 70. Notice the descending triangle that is still forming where the stock has a flat bottom at 70 and lower highs starting at 130 in late October and heading down to now. Therefore, I had confirmation of my bearish trend, so I rolled my bearish diagonal trade by buying back my December 75 put and sold the Jan 70.

Bought back Dec 75 for $2.63 debit & sold Jan 7o put for $6.10 giving me a total credit of $3.47.
New adjusted cost basis= $31.10-3.47= $27.65

Max Profit:
3.47/27.65=12.5% ROI in 28 days (to Feb expiration)


Max Loss:
$5.53 max loss= (20% of adj cost basis of 27.65)
New stop set to $22.12

Exit Strategy:
If not called out, I will exit and roll into Feb 1 week prior to expiration.

OPEN: DRYS Bear Diag. Jun 100/Dec 75 (Paper)

Traded on 12/20/07 at 2:48 pm

Being 1 day away from expiration, I decided to paper trade this bearish diagonal. This is the first time I have opened a trade 1 day before expiration, so I needed to test it out before trading it in my client’s account. If you are new to trading, I highly recommend you paper trade for at least 3 months successfully before you go to real money. Although it is paper trading, treat it as though it is real money. This makes a crucial difference in the way you will trade in this account.

During a trading session with my trading partners, we saw a price pattern called a descending triangle (see chart) on DRYS. This is where the stock creates a defined support line and then and lowering line of lower highs. They both eventually meet at a point and this technical signal usually indicates a bearish move, it’s just unsure of exactly when that will happen.

I bought 1 contract of the Jun 100 put for $34.90 and sold the Dec 75 put for $3.80 giving me a total debit of $31.10.

Max Profit:
If not called out: $3.80/34.90= $380.00 = 10.9% in 2 days

Max Loss:
Stop loss set at $ 24.88 (20% loss)

Exit:
I will roll the Dec into the Jan tomorrow on expiration day.

ROLL: HRS Bull Diag. Feb 50/Jan 60

Rolled on 12/13/07

Since it's a week away from expiration, I am rolling to the next month by buying back my Dec 65 and selling Jan 60 call. The stock is still maintaining a bullish to neutral trend overall and it appears that it tested the 50 day moving average (green on chart). I am still keeping the Feb 50 as it is deep ITM. Rolling a week prior to expiration allows you to capture the most extrinsic value when selling options. It is deceiving to think that waiting to the last day gives you the most fluff to sell, but market makers know this so they start squeezing it out well before the last day. Also, I don't get exposed to the risk of getting called out on exp. day.

My original cost basis was $12.40
I bought back the Dec 65 for $0.12 and sold the Jan 60 for $3.07

New credit= $2.95
New adjusted cost basis= $12.40- $2.95= $9.45

Max Profit:
If not called out: 2.95/12.40 (orig. cost basis) = 23.8% ROI
If called out: (10 (diff. between strikes)-9.45 (adj. cost basis))/9.45= 5.8% ROI

Max Loss:
New stop loss set to $7.20 per share on 12/13/07 (20% of adj. cost basis)

ROLL: BG Apr 100/Jan 120

Rolled on 12/13/07

I am also rolling BG as well as HRS today (see my notes on my roll on HRS for Jan)....I switched to keeping just a paper journal for a few weeks to see if it was easier than online. I have realized that it is much more organized online and great for accountability. This is why I have several older trades from the end of Dec and early Jan that I am posting today on 1/8/08.

Since it's a week away from expiration, I am rolling to the next month by buying back my Dec 125 and selling Jan 120 call. The stock is still maintaining a bullish to neutral trend overall and it appears that it tested the 50 day moving average (green on chart). I am still keeping the Apr 100 as it is deep ITM.

My original cost basis was $23.40
I bought back the Dec 125 for $0.40 and sold the Jan 60 for $4.55

New credit= $4.15
New adjusted cost basis= $23.40- $4.15= $19.25

Max Profit:
If not called out: 4.15/23.40 (orig. cost basis) = 17.7% ROI
If called out: (20 (diff. between strikes)- 19.25(adj. cost basis))/19.25= 3.9% ROI

Max Loss:
New stop loss set to $15.40 per share on 12/13/07 (20% of adj. cost basis)