CLOSING THE $SPY Options Action trade 4/4/2012 (mike) and comments

15jun -  no updates since for a month on this, given the market action in May, they should have revisited this..take profits, keep holding, dont know... but since no update was given and mike is alergic to giving updates on twitter this trade will be booked as a total loss since the spread on todays opex is worth zero. mikes on air trades google docs spreadsheet


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apr10,2012 - mike revisited this trade and essentially said you can still use this strike but make it a put spread instead of put only, here is the 10apr optionsaction segment 10apr optionsaction segment. recommending:

Buy the Jun133 put for $4.00
Sell the Jun 120 put for $1.40
debit of $2.60 ($260 per onelot)

lets see how his trade from last week looks tonight:

4apr was buy the Jun133 put at $2.15, today worth about $3.45 so about $130 gain per onelot.. so with the SPY down about $400 (100share)..his "hedge" gained $130. The hedge will increase in value the closer it gets to opex which is still a ways away.

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original post
apr4,2012 mike once again came up with a trade i do not agree with, neither did Pete. here is the video clip from fast money tonight Options action segment  .  mike recommended this as a portfolio hedge:

Buy the June 133put on SPY at $2.15..ill use the closing price.

Pete said the same thing i was thinking..its too far away and costs too much and too far out. mike noted that if SPY drops this put will increase in value and would increase in value as volatility increased. true enough. But using Trademonster analyse Tab http://www.trademonster.com/ , i show that as of today, for every $1 drop in SPY this put will increase in value by $26..ie if you have 100 shares of SPY, it drops $1 you lose $100 but make $26 by put increase for every lot. not exactly a good hedge to me.. only 25% of your loss is hedged.

this is likely a trade but at June opex SPY would have to drop to under 131 to break even. long way to go.

When i put on a hedge i want it to start working right away and be as close to dollar for dollar in protection. so instead of paying $2.15 ($215 per lot) i would look at something closer time wise and a put spread to reduce cost. I would go with May opex.. catches the sell in may go away mantra, also catches earnings season if your thesis is that earnings will disappoint. if you have budgeted the $215 from mikes trade i would instead look at the:

Buy the May 141 put for about $3.40
Sell the May 135 put for about $1.40
net cost is $2.00, max gain $4.00 so with SPY at 140ish today, i make $4 if its at 136 or lower at may opex. better hedge i think

if your thesis that we may have a top in, you can make this a put spread collar by also:

Selling the May 143 call for about $1.30 bring the total debit down to .80ish ($80)

i dont trade the SPY, i focus on individual stocks but this is an alternative to mikes trade.

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CLOSING THE $STD trade from Options Action 4/3/2012

15jun - mikes buy call recommendation will be a total loss, but his recommendation to sell the stock turned out to be accurate with it at about 6.10 right now. read my alternative trade at bottom..still not profitable but would have been less of a loss.
mikes on-air trades in a google docs spreadsheet

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3apr - mike khouw briefly covered STD in the options action segment of fast money tonight. here is the clips.. Options Action clip . i dont follow this stock but lets pull up the chart. mike casually said if you own the stock you should sell it and instead:

Buy the June 8 call for .25

This seems to be a proxy for the hubbub going on in spain. pretty low tech, low premium trade. Stock rebounds you can get a quick double. Im going to assume that you own the stock, would like to keep owning it and are considering mikes trade. Instead do a "risk reversal"

Sell the Jun 6 call for .15
Buy the Jun 8 call for .20
you might get a lucky fill and fill for zero if you try.. but assume a .05 debit.

Remember my premise is you would like to still own the stock..so you sell like mike says and with this risk reversal you can own the stock lower at 6 vs where is is now.. if it rebounds then you profit quicker since you are only paying 5 cents for the 8strike call vs the call only for .25.  You have to have the margin/buying power to buy the shares at 6, but that should not be a problem since you just sold the shares like mike said.

with mikes trade you risk only .25 ($25 per lot), with mine you risk only .05 ($5 per lot)

closing Scotts $KMX Options Action trade from 4/2/2012

4-20-2012 - since i did not see scott nations come on air or via his twitter stream mention any closing action i will go to opex on this one.. if held to opex today will be a full profit winner. i still would not have done the trade based on the original post below.

Sell the Apr34/36 call credit spread at 1.00
Expired today at max profit at 0.00

assumed a 10lot in spreadsheet for $1000 profit . spreadsheet

4/5/2012 - trade looks to be profitable by about 30% today. will book a profit in my spreadsheet when i see scott closing it out on-air or via twitter. otherwise will monitor till opex



4/2/2012 on tonights fast money, scott nations recommended selling a call credit spread..."he loves selling credit spreads ahead of earnings" i believe were his exact words. ive got a couple of issues with this. if you have been following me you know that i rarely sell / hold credit spreads into earnings. mainly because you have no clue what will happen. although its a valid strategy, i just dont do it often, i am wrong as much as i am right, but when im wrong i tend to be wrong big time..not just a couple cents. scott recommended:

Selling the Apr 34/36 call credit spread for $1.00 ($100 credit per one-lot)

Max profit if on opex stock closes below 34, max loss if it is above 36..like he said, risking $100 to make $100. As of tonight, the Trademonster analyse tab shows this spread to be at 44% probability of max profit, so that puts it even below a coin toss of 50-50.. with stock currently at $34.50.

Secondly, (i dont follow this stock), looking at IV, its only in 45 range..nothing really huge.. pricing in about 1.50 ish move. there will be some volitilty crush but not alot since its not extremely elevated to begin with. just seems like an odd stock to do this spread with.. if you look at chart there is no "run up into earnings" that you would expect to see if you do this strategy. been sideways for 2 weeks

Third, earnings.com shows earnings to be on thursday. you would assume many (more than 1) viewer will see the show and run right out and put on this spread in the morning.. i dont know why cnbc / scott decided to mention this stock tonight.. 3 days away. if you were going to put on this spread as an earnings play because of a bearish thesis, it would be prudent to wait either to the day prior or day of the earnings report.. the stock might be up by then..crazier shit has happened...so those people that put trade on in the morning would be sucking if stock was at 37 on thursday...already near max paper loss.. point being wait till right before earnings to put on a credit spread in order to base your strikes on where the stock actually is.

you could put this on and stock drops but with a spread showing less than 50-50 chance of max profit i would not do this trade.. there are other low premium strategies you can put on instead of risking $100 if you are bearish... would be a no-trade event for me ... "if you dont have an advantage, dont make the trade"

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