Javascript DHTML Drop Down Menu Powered by Drop Down Menu
FullyInformed.com - Options and Stock Strategies For Income

SignUp For Updates 

  You are here:


Bookmark and Share
 


 

Terms
Of Use
 
By using this site, you agree to be bound by its terms of use. The full terms of use can be read here. If you do not agree to the terms of use, do not access or use this site.
Nothing presented is financial advice, trading advice or recommendations. Everything presented is the author's ideas only. The author accepts no liability for its use including errors and omissions. You alone are solely responsible for your own investing and trading. There are considerable risks involved in implementing any investment strategies and losses can be large. Trade at your own risk.

 

SITES I
VISIT
Want A Link To Your Site?
 
Troys MoneyTree
MTR Timing Model

Marketwatch
Globe MarketBlog
Seeking Alpha

The Economist
Day Trading Radio
Wired Magazine
Zeal Speculators

Decision Point
TraderFeed

Jan 19  / Stocks - JNJ
Question From A Reader On A "Squeaker" Option Trade On JNJ

Strategy Article

A "Squeaker trade" is one of those trades where you have sold an option (or bought one) and the stock is hovering right at the Option Strike Price by expiry. So what's the best thing to do. Today I received a question from a reader that I thought was worth sharing as it shows why I believe a plan is so important:

 

QUESTION: I was wondering how you approach the upcoming decision on handling Jan ’11 JNJ puts, expiring this Fri. Like you, I have some Jan ‘11 62.50 puts and since the current JNJ price is moving back and forth ITM/OTM around that strike price over the last week or more, in a case like this are you more likely to wait ‘til nearer to Fri to decide whether to BTC and roll them forward or try to allow them to expire worthless? Or do you let the chart tell you what to do in this case? From T.


My Answer: You question and my answer falls right into the category of having a plan. Yesterday on the forum, I posted a comment regarding the importance of a plan: Here is a short summary of that post:

"The importance of putting in place a strategy and knowing why you are applying that strategy is what makes for good investing. I have said so many times the same thing over and over,  I guess I am sounding like a broken record – “treat your investing like a business”. When you run a business every decision you make has consequences. A business plan puts together outcomes and strategies for handling consequences. In this manner the consequences are dealt with long before they may appear. Therefore you should already have the answer before you even place a trade. Markets and stocks can turn on a dime. I urge anyone who invests to take the time to consider paper trading to learn how to invest. You literally can write down on a piece of paper your strategy so you know what you are going to do, as you have already worked it out. There is no emotion involved, because you already have the answer to any problem that could develop."

 

So how does this relate to JNJ and the squeaker at $62.50? If you read through my comments on the JNJ trade by going here and following it along from its beginning, you can see that I have a very long term plan for JNJ. I want to someday own shares but use the earnings I have made to pay for them. I therefore am in for the long haul with JNJ, perhaps 5 to 7 years. If you look at my comments throughout the trade last year, I was selling $65.00 naked puts which were in the money, in order to follow the stock higher. Okay - so we know the plan. Now the answer is simple - by Friday if I am not assigned before close of trade, all those naked puts that are in the money will again be bought back and rolled out. Those out of the money will expire. The stock is hovering around the $62.50. Because of my plan, I really don't care.  Come Friday I will buy the put and roll it out. If the stock is trading at $62.66, I will still buy and close the $62.50 puts and roll. If the stock is at $63.00, then I would let it expire. If it spends the day in and out of the $62.50 strike, I will buy and close it because my plan is firm: keep rolling for income - some day own shares, but not today. So the decision is without emotion. But that's my goal. It may not be yours. If you don't mind owning the shares, then you could wait and see if you get assigned. Then you could either place them up for sale for perhaps .50 cents more and wait to see if you get taken out within a few days and therefore have a capital gain and then go back to selling naked puts, OR you could consider covered calls. My plan doesn't call for that. So unless I am prematurely assigned, I will close and roll out if Friday is a "squeaker". Having a plan makes all the difference.

 
TOP 10
READ
ARTICLES
 

Clorox Call Options Go Through The Roof

Using Moving Averages For Profits In Cisco Systems Stock

Early Warning Tools To Spot A Collapsing Stock

Using The Spy For Hedging During Downturns

Applying The Strategy Of The Cautious Bull

Greek Debt Crisis - Investors Unprepared

Dividend Stocks The Cut Dividends

Microsoft - The Ultimate Utility Stock
Better Than Gold
Read Article

Apr 13 2011  / Opinion Piece
How I Treat My Investing Like A Business
Read Article

Opinion Article
Charities Are An Industry

 

 

 

Disclaimer: There are considerable risks involved in all investment strategies. Trade at your own risk.
Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed or presented are financial advice, trading advice or recommendations. Fullyinformed.com is a private website. Everything presented and discussed are the author's ideas and opinions only.
By using this site, you agree to be bound by its terms of use. The full terms of use can be read here. If you do not agree to the terms of use, do not use this site. The author of fullyinformed.com assumes no liability for topics and ideas discussed, errors and omissions, ads and their content and external links. Any corporate insignia used are registered trademarks of their respective company or corporation and are being used for identification purposes only. All material copyrighted by FullyInformed.com. Reproduction in whole or in part prohibited. Copyright © 2008

 |  site map  |  privacy policy  |  contact me  |  subscribe  |  exchange links  |  the author of fullyinformed  |