you really need to read the whole entry from the bottom up to make sense of this:
18may - another tweet from brian, A+ for tweeting but again as i said below i think hes assuming that we have been "put the stock" weeks ago or are already long some stock so his comments the last few times have not been helpful..todays tweet:
Time to roll down BAC Aug 9 call to Aug 7 $.60 cred vs long stock. Tweets and 3/23 trade gets out for -$.90 above $7. Beats buy&hold -$2.65
so instead im going to assume we have not been "put the stock" and just buy back the puts for the loss in the spreadsheet. also since there was not information that brian was "put the stock" along the way to warrant his comments. not saying his comments are inaccurate but just based on an assumption i cant confirm
google docs spreadsheet for Brians trades: brians trades
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8may - two tweets from brian today:
Correction: in conjunction to trade #BAC, Aug 9/June10 call spread could be sold for $.26 yesterday. Those strikes correlate to prior tweet
so now the comments are to sell the Aug 9 call/ buy the Jun10 call for .26 .. again i think brian is assuming the we either got put the stock from the risk reversal or are long some stock. not really helpfull since I am assuming we dont own the stock yet..the choice most would be making now is do i do nothing and let broker "put the stock to me", be forced to buy at 9, or do i buy back the put for a big loss. if you followed brian into this trade, consider your tax situation before making decision
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4 may Update #2 kudos to brian for responding to my tweet asking for an update, here is his tweet from 9april that i missed,
an odd step to take, BAC was right near $9 on april 9. remember this trade was a risk reversal (buy call, sell put). the selling of the put requires buying power to be able to buy the stock at 9 at opex in may. his advice to "sell a Jun 10 call" seems odd since as of 9april if you entered this trade after watching the show, you dont own any stock yet. there is still time value left in the may9put. so you would not have been "put the stock" yet. Selling the jun10 call im pretty sure would be considerd by your broker to be selling a naked call(with no underlying stock owned), requiring additional margin/buying power pretty close to what you have to put up for that put sale. which makes me think that most traders will not be able to do this unless they have a big cash position built up ahead of time.
brians response to me on 4may:
ok, again i appreciate the response but i think he proceeding on the assumption that we are long the stock already or have been put the stock already, which we are not and as of april 9tweet we would not have been, selling the aug 9 call would bring in some more income and lower the cost basis. A+ for trying, but D- for usefull info
9apr2012 - heres how they look as of this morning:
- brians may9/10 risk reversal for .15 debit is now a .35 debit..so .20 loss if you wanted to close out
- my call spread risk reversal for .02 debit shows a similar loss if you wanted to close it today
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mar23,2012 Options Action show Brian layed out the following Risk Reversal trade for BAC:
Sell the May 9Put for about .40 (credit)
Buy the May10call for about .55 (debit)
Total for a one lot is a .15 debit ($15)
As usual the comments of "you might be put the stock" get thrown out there. Ive posted this previously, You will be "put the stock" at OPEX, not sooner unless it plummets. so close out the puts portion if it looks like that will happen. Also, they didnt mention that for every one-lot of this you need to have $900 in margin/buying power which is to buy the stock at $9 (because of that put you are selling).. so a 10lot costs will require $9000 in margin for as long as you hold those puts.
Brian emphasized that any moves above $10 is all profit. Mike mentioned that if stock moves up you can buy back the put and then "spread it out" which means to sell a higher strike call like the may 11 or 12.. All true. For this spread to be profitable at opex the stock needs to be at $10.15 or higher.
I like risk reversals since they are a way to commit a low amount of capital to the trade. but here is a suggestion on how i would do it a bit differently. I would initiate this as a "call spread risk reversal".. as in sell that higher strike call now. looking at option prices at closing the:
May 11call is going for about .25
May 12call is going for about .13
I would go with the may12 strike and my trade would look like this:
Sell the May 9Put for about .40 (credit)
Buy the May10call for about .55 (debit)
Sell the May 12call for about .13 (credit)
Total for a one lot is a .02 debit ($2 debit)
so for a 10lot i will pay $20 buck. still have to have the $9000 in buying power set aside. My gain is capped at 12 because of the may12 calls im selling. Max profit is $2000 on the trade, max loss is the 20bucks from entry. If it closes below$9 your (Brians) thesis was they wanted to own it anyway. so you took a shot at $2000 gain for only $20. this is an excellant trade if youve had that buying power set aside waiting to get a position on BAC
CNBC Options Action Trade Spreadsheet
will keep track of this trade to see how it did at opex. click on the right to follow me on twitter @mark_lexus for more free setups and trades.
