Location: Sussex, UK
Well, things are looking up here.. Emergency over, though radiotherapy to come before and after Christmas, which is a shame but it needs to be done.. However, moving forwards, which is a relief..
I thought I'd attach an up to date map for the weeklys as they have changed since the first time I posted it here.. Ebay was added this week, I haven't checked to see if any have been removed though.. Ignore LQMT, that isn't a weekly, just a pennystock that I'm following..
As I'm now trading with real money, my risk tolerance has changed somewhat. Where as I was writing without paying much attention to where the stock was, except for writing in the direction of the general trend, if the trend went against me, the platform still wouldn't assign stock to my paper account. It's a little misleading but I think it is very important to pay attention to it. The last thing I want to happen is to be assigned 10 lots worth of Apple stock on a smallish account. Also, each time you open a spread in an up trend, you're exposing your account at a higher price.. Wouldn't want that when Apple failed to hold $700..
The first trade I made was to, flippantly, write an Apple and Google spread, 5 contracts, which took up a lot of margin. Whilst in hindsight, they would have expired worthless, giving me around £750 for the week, I didn't like the fact that far too much of my account was tied up like that. If they went the other way, I would have been assigned a huge amount of stock which would have caused a problem on an account my size..
I closed out for a loss on the same day but then triggered a 'pattern day trader' things that locked my account, fortunately only for 1 week once I spoke to Interactive Brokers.. Otherwise, it would have been 90 days! Also, it isn't really worth opening just one spread.. A bit of a reality check..!
Sooo, what to do..? I've gone back to looking for long term weekly signals to identify the big up trends. OT and VT are great for identifying the strongest candidates and set up a series of option trades to expose my account to any long term move up whilst capturing short term reversals by writing weekly options against my long term position and protecting the position from a meltdown..
These stocks also have LEAPS, 2 or 3 year options that have a huge amount of time premium on them. Everything I have read about them goes on about buying them to gain long term exposure to the stock. That's all very well but buying them costs money and if the stock stays flat for a couple of years, you don't have much to show for it..
For the past couple of months, I've been experimenting with writing a LEAP Put option that is in the money by one strike or so.. The amount of LEAPS written can be dictated by the amount of stock that would be bought if the LEAP were to be exercised. So for example, if you wanted to use $2k to buy a stock, and the stock was $10 at the time, then you would sell 2 LEAP Puts.
The 2K is then set aside as margin to cover you in the event that you need to buy the stock if assigned. The premium is then paid into the account and can be used to buy shorter term options, in the money, say 6 months out, in order to gain exposure to the stock as it moves up.
The premium paid can be significant, up to 30 or 40% of the value of the stock, so you're getting a huge discount, even if you don't do anything else..
To reduce the risk of loosing too much money in the event that the stock crashes through the LEAP price, short term PUTS can be bought with some of the premium received. To make the risk as small as possible, I buy puts to cover the LEAPS sold, in this case, 2, plus the amount of calls bought. So if 3 calls were bought, 5 puts would be bought to cover in the event of a crash. Sometimes, it's possible to breakeven or make a little money if the stock crashes so much so no money is lost. I've only seen this on the risk profiles in Trademonster, I haven't experienced it for real..
As the stock moves up, which it should if the signal is good, the bought puts would decay but when they expire worthless, they can be rolled over to continue to protect the position in the event of a crash but if the stock is higher, the puts bought would be cheaper. Or puts higher up could be bought and used as a stop loss or something like that.. Still experimenting there..
So while the stock moves up, the LEAP decays, which adds value to the account, and the bought calls increase in value.. Finally, in order to cash in each week, weeklys can be sold each Thursday (when the following weeks options are issued, they're at their most expensive) that would either call the bought calls or expire worthless the following Friday if the stock fails to close above the weekly call strike price, releasing that cash into your account..
I guess the weeklies would be sold according to chart patterns, a pull back, ATR or whatever, still figuring that out. I'd probably use ATR and just write the strike that corresponds to that ART. However, if sold on Thursday when they come out, they decay from that time on, and decay the most over the first weekend..
This is probably obvious to seasoned option traders.. The idea is to get paid a large premium up front on a long term prospect, use some of that premium to gain further exposure to capture the long term move whilst protecting the position from a meltdown, and cash in on a weekly basis in order to pay bills or reinvest..
One of my experiments was on PCLN. I sold 10 LEAPS that paid $107.90 a contract, or $10790 (x 10), and used that to buy 10 in the money calls for $102.50 a contract. I didn't buy protective puts as I had't thought about that at the time.
PCLN jumped about £50 in one day, currently this position is showing a $95200 gain which is an open market gain of 1762.96%!! The PUT LEAPS I sold are now worth $77.85 each and the call options I bought are worth $167.65
With the stock at $664.14, I could sell the current $685 Call for $3.10. This would give it room to move if it continues to go up and if it doesn't close above $685, I bank $3100 in a week..
I can't do this with my real account size buy I think it is possible to do the same thing with $20 or even $30 stocks and build slowly, reinvesting the profits each week.. Once you hold 10 calls, paid for by the sold LEAP and protected by shorter term bought puts, it should be possible to generate a fair amount of money each week..
Anyway, if anyone can think of any improvements, or potential problems, post away..
Attached file : WeeklyOptions.vtp (1480KB - 350 downloads)