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Actually my trade is a modified strangle and not a straddle. A straddle is at the same strike price for both calls and puts. A strangle is not. Normally both a straddle and strangle have the same number of call and put contracts. In my modified strangle I chose to hold more puts than call options.
The calls were not an after thought but if you followed the trade outline last weekend, the calls were the first part of the trade to be set up and were integral to both the strangle and protecting my capital. A strangle set at range points which I outlined in the trade outline on the weekend, is a better form of protection in my opinion as normally one side or the other will assist in defraying the cost.
A debit put spread offers only limited protection due to the short put sold. A strangle provides protection against a steep decline, but if wrong and the market rallies, the put cost can often be covered or partly covered by the calls bought.
Hedges can basically be protection as the portfolio is “hedged” against losses so a hedge is a logical term to describe the trade. It is however important to understand that the calls were not an after thought at all. They were there from the very beginning and were outlined in the article when I first discussed how I would be setting up my trade for this week.
For when to end your protection you need to see new higher highs and very few new lows. You need the market to rise above strong support levels and then fall back but fail to break those support levels and then climb again. Those are the periods to consider dropping protection. Hope that helps.
Teddi
Nucor stock is hanging tough and I have no concerns with my present trades in the stock. First trade was August 31 as outlined in Tomorrow’s Trade and second was Sept 11 which again was from Tomorrow’s Trade.I think a break to as low as $34 is highly unlikely unless the economy should contract which I am not expecting at this time.
Hi Amy;
Yes it is a long way to Sep 25 and almost anything can happen. I think my comments above summarize the trade and why the design often works.
TeddiHi Tom;
My Fed trade is for protection in case the market falls between now and Sep 25. It could be a total loss or a partial one. I bought more puts than calls as I felt the downside was more likely than the upside. This is purely for protection. In your earlier post you mentioned adding to your position and turning them into debit put spreads which would reduce your cost basis. That is more a method of trading and I see nothing wrong with it but if the market does drop your protection is limited by the short puts you have sold. For protection I usually do long calls and puts as I have earlier this week. I have no words of wisdom on your in the money put options. Mine are also in the money but not my calls which are well up. This is why I did both sides of the trade, puts and calls. Usually one side fares well and the other poorly and often the trade ends profitably or breaks even or there is a loss. I am protection against a big drop in the market which may or may not happen and the call side is to balance out in the event that I am wrong. This replaces my need for debit put spreads or iron condors, butterflies, etc. I want basic protection and if wrong on the downside, then a chance to cover some losses with the calls.In Reference to Tom’s comment:
Bought 20 SPY Sept 25th $190 puts at $2.25. If we continue to see the market move up today, I will add another 10 contracts, in 5 contract increments at or below $2.00.
When we get a pull back, I will sell the Sept 25th $173 puts to create a debit spread.
Tom
Hi Tom
Just to clarify.
You have to decide what type of protection you are buying. This sounds more like a trade. The debit put spread idea is fine but usually this is for trading and not protection. The trade I put in place for the Fed’s announcement on Thursday is designed to protect and profit from possible swings in the market but primarily to proptect against a major move lower. The cost of the insurance was small considering how large my portfolio is so I understand I may lose on one side of the trade or I could also lose on both sides depending on what the market does. If you want to trade through the spy put then you want to design your positions for trading only which it would appear you are setting up to do.
TeddiI will update the BMY chart. I rolled down and added more. Now I want to add in the $54.50 put strikes.
It is hard when it comes to fees and commissions. I tend to balance out the fees against what is being provided to me in the way of trading materials and support. I don’t pay the least amount but I think my fees are reasonable. It really comes down to what tools they give you, the speed and accuracy of execution, how quickly you can reach someone by phone, how helpful they are and if they are willing to discuss fees as you trade more often. If you are getting quality for $6.95 a trade plus 50 cents an option and you love the platform and tools they provide, then the fees are fine. If you don’t or you think there are better tools elsewhere, search and try out the tools. Then approach your possible new discount broker to see what they can do for you with regards to commissions.
Thanks for your Captain analogy. I appreciate the vote of confidence. We will see if you feel the same way in the next bear market…LOL.
I really wouldn’t get too hung up on commissions. If you are trading a lot then they should be willing to negotiate the $6.95 down to $5.00 at least. Personally on options I prefer a smaller amount and no “per trade” charge. I would rather pay $1.50 per contract than a per trade charge as I like to scale into positions which means lots of small trades. A per trade charge is problematic for that type of scaling in.Hi Amy
Particularly in corrections I like to scale into positions. With just a week to expiry I like the look of this trade and added to my position to take advantage of a very short-term trade.Thanks Valerie for updating all of us on your trades and your positions. Next time MDBX soars tell your advisor to use stops! At least you might get something out of the trade. Take care
I know what your saying. It would be a great trade for sure.
TeddiDepends on your criteria and how bearish you are and what level of protection you want as well as what kind of drop you are protecting your portfolio against. Do you want to protect just part of your portfolio or all of it? You need to lay out the criteria and then decide what put to be buying.
The SDOW rises IF the Dow falls. The SDOW falls if the DOW Rises. It is a short ETF. You are short the market when you hold the SDOW. Therefore when the market rises your SDOW shares lose value.
Very nice trades indeed! There are always opportunities for those willing to look and set up their trades to protect capital when risking it. These were nice entry points.
You’ll probably get your chance shortly!
Nothing wrong with a bit more Telecom. Nice idea Bill
Not sure what this would have been. Can you email me the link you received and I possibly could figure it out.
You are welcome. I like FEZ here and think it is a good trade even with the weakness today. If anything it makes me want to sell more next week if it moves lower.
Okay Amy. Here is a lengthy look at your trades and some ideas which I hope will help. I understand your primary concern is further declines so I hope these answers will help. Many of the trades are back in better positions. The DIS trade and Facebook trades particularly as in good shape. You could close the Disney one if you wanted to but the Facebook trade should end out of the money. I know mine certainly look like they will. https://www.fullyinformed.com/members/dealing-with-a-market-collapse-and-rebound-when-selling-stock-options-investor-questions/
Sorry Amy I didn’t get to this last night. I’ll get to this Friday morning but I think all positions certainly look good. Again I am not concerned. Even BMY got to $60.88 Thursday.
Have you thought about adding a handful at much lower prices to average your actual position lower?
TeddiHi Amy;
The 500 shares of UDOW I bought were stopped out per the article and notice I posted. https://www.fullyinformed.com/members/august-2015-market-direction-portfolio-positions-and-trades/I indicated that if there was a dip in the morning on Thursday I would be buying the UDOW again. I am not sure on the “sell-off into the close”. I don’t recall writing that and I did not see a sell-off into the close. I saw a market that closed at the high for the day.
Here is what I wrote at the close:Outlook For Thursday
1) Market Direction PortfolioI will be buying UDOW shares near the open tomorrow if the market dips a bit.
2) Stock TradesI will be looking through my stocks to see which ones I will be putting some of my capital to work in. I want to stay short-term so most of my trades will be either Aug 28 (this Friday) or Sept 4 to protect against a further pullback in stocks which I believe we could see happen. These will include:
Archer Daniels Midland Stock which was hit hard in the correction and today moved back to $44. I will be selling puts tomorrow on this stock at the $42.50 level for Sept 4 expiry.
Coca Cola Stock which fell below $37 on Aug 24. I will be selling the $37.50 and $38 put strikes for Sept 4 expiry.
Microsoft stock I will be picking up some shares and selling the $40.50 put strike for Sept 4 expiry.
Cisco Stock – I will be picking up some shares and selling the $25.00 and or $25.50 put strike for Sept 11 expiry.
You can review the whole article here: https://www.fullyinformed.com/members/third-biggest-rally-in-history-getting-cash-working-again-after-the-close-for-aug-26-2015/I am sure there will be more selling but whether it comes tomorrow is doubtful on the back of today’s rally. I think tomorrow will be negative in the morning when I will be buying the UDOW but I am expecting a more positive close. I will then unload the UDOW shares as I indicated I think Friday we will see selling as investors will not want to hold over the weekend.
This UDOW trade will be speculative and is for a quick trade only.
Teddi
Amy
Could you give me the number of naked puts for each of the trades you indicated you entered above. Thanks.Teddi