OPEN: AAPL LEAP Jan 09 150 Call -69.15

We’ve been watching Apple (AAPL) for quite a while and we’re looking to purchase a Jan 09 leap. We’ll probably purchase the Jan 09 150 call for a debit of -69.50. With the stock being at 199.83 that means the -69.50 is made up of 49.83 of intrinsic value and 19.67 of extrinsic or time value. There are 383 days until expiration so that means our daily time decay will cost us $0.051 a day.

Now you know me, I never hold a long call or put by itself so we’ll likely roll this into a call diagonal by selling the ATM Jan’s. Currently the at-the-money (ATM) call is the 200s selling for +8.95. Since this is slightly out-of-the-money this is all extrinsic or time value. With 19 days left to expiration that will give us a positive time decay of $0.471. So, we’re spending $0.051 a day to bring in $0.471 a day! Sweet!!

We will update you once we’ve move to sell the short side.

Mojo

PS - OK, we got filled at a debit of -69.15. We think with the potential of a near term split, people moving their cash holdings from closing losing trades, and the relative strength of Apple today, we are going to hold our long position and see what happens on Wednesday.

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ADJUST: Roll SPY 145 put calendar +24%

With today’s downward draft in the SPY and the fact that we only have one more day before the Dec quarterlies expire we are going to roll the Dec quarterlies 145 puts into the Jan 145 puts for a credit of +1.34.

Our cost basis before the roll was -4.51. If we keep the entire new credit of +1.34 over a risk of -4.51 we will get a potential ROI of +30% in four weeks.

Adding the credit of +1.34 onto our old risk gives us a new cost basis of -3.17.

This allowed us to book our profit of +1.44 over an unadjusted risk of -5.95. Generating a profit of +1.44 over -5.95 gives us an ROI of +24% in two weeks!

Mojo

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CLOSE: SPY BRCS Dec +26%

On November 30th we opened a bear call spread on SPY. We weren’t sold on the rally and felt like we were getting a good credit with good probabilities. We received a credit of +.37 a share on a risk of -1.43 with a probability of 79% success.

On December 10th, with the market rally threatening our position we received an email looking for us to exit (which is always good to check). Using our Think or Swim software, we rechecked our probabilities (still at 66%) and decided to hold. The market turned down again and our position gained in strength.

On Friday (Dec expiry), our spread expired out-of-the-money achieving our maximum potential profit of +26% in three weeks.

Mojo

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ADJUST: Roll UAUA +15%, Roll DRYS +14%, Hold on KFT

We rolled UAUA from Dec 35 puts into Jan 35 puts earning a credit of +3.61. This gives us a new adjusted cost basis of -2.19.  We had originally sold our Dec 35s for a credit of +1.03 over a risk of -6.83. This gives us an ROI of +15% in two weeks.

We rolled DRYS from Dec 75 puts into Jan 75 puts earning a credit of +6.00. This gives us a new adjusted cost basis of -24.70.  We originally sold out Dec 75s for a credit of +5.11 over a risk of -35.81. This gives us an ROI of 14% in two days!!

I’m holding on adjusting Kraft (KFT). Our short 35 calls aren’t anywhere close to being exercised and I would rather wait until Monday instead of spending .05 to close them. Hopefully this won’t come back and bite me in the ass.

Have a great weekend and get your Christmas Shopping done!

Mojo

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OPEN: SPY Put Calendar at 145

While talking with the fine folks at Investools we were discussing a put calendar on the SPY.  I like the trade and took it.

We are buying the March 08 Quarterlies 145 puts for a debit of -5.95 and selling the Dec 07 quarterlies 145 puts for a credit of +1.44.  This gives us a cost basis of -4.51.

We are generating an income of +1.44 over a risk of -5.95 for a potential ROI 24% in two weeks.

Keep you sizing conservative and use a stop loss at 50%.

Off to see my arriving relatives!  Look for a post tomorrow to adjust the DRYS put diagonal.

Mojo

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OPEN: DRYS Put Diagonal

Last night while trading with a bunch of friends (I know, I know… I’m a complete options dork!) we took a look at Dry Ships (DRYS). What we saw was a pretty neat (and recently rare) price pattern called a descending triangle:

See how support is holding at 70 and its making lower highs? That creates a “coiling” effect where the price is more likely (67% if my memory serves) to break down than up. When will that happen? Nobody knows… which is why we are entering this trade with a put diagonal to earn some time decay while we wait. Even though it hard to see also note that the stock price is using the 30 day moving average as overhead resistance with the 30 under the 50 and both trending down. (This snapshot was taken just after market open so ignore the low volume for today.)

Looking at the option chain here’s what we are going to do:

Notice that we are following our rules of buying what’s cheap (relatively) and selling what’s expensive. We are buying the Jun 100 puts for a debit of -33.80 and selling the Dec 75 puts for a credit +2.20. Add a little price shaving since the bid / ask spreads are so big and we get a total debit of -30.70. Here’s the order entry:

If we are NOT called out we will make 2.20 credit over a risk of 33.80 for an ROI of +7% in 2 days.

If it looks like we are going to get called out we will roll the Dec 75s in Jan 75s on Friday.

Looking at the option chain for January we should earn about 7.50 of time premium for the Jan 75 put so this will be a HUGE reduction in our cost basis and bring in some good income. I will update this trade again on Friday afternoon.

Mojo

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OPEN: UAUA Put Calendar

We’re opening a put calendar on United Airlines (UAUA). Earnings are coming up on the 21st of January and the chart is definitely not bullish. Take a look:

This was taken at 2:05 today.

There are several things we like about this trade. One, holiday travel is upon us and we can’t imagine anyone flying commercially is enjoying themselves. Two, this is a bearish chart (albeit sitting on support at ~35). Three, the underlying cost of oil is the same or rising. Four, the economy continues to down turn which we think will put more pressure on non-discount carriers. (OK, that’s about as fundamental as we get!)

We love the IV (implied volatility) on this trade. Remember we want to sell what’s expensive and buy what’s cheap (in terms of IV). Take a look at this option chain:

We’re selling the front month of Dec (with only 4 days) for +.95 credit. This IV is an incredible 108%!! We’re buying the Jun 08s for a debit of -6.85 with a more reasonable IV of 63%. Just in trading that difference in IV we’re all but setting ourselves up to make money.

Our total debit for the trade is -5.80. If we make it through expiration without a huge upturn we will roll into the Jan for credit of +3.50. This credit will cut our cost basis by more than 60% in just one month and we have 5 more months to sell. SWEET!

Mojo

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