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Can’t ever complain about a profit! Congratulations. I should have the write-up posted this weekend
TeddiI like to add a few leaps at prices I would own them at each fall. I rarely hold them to expiry so if by spring the trade has gained 60% of the value I buy them and close them off. It’s a nice weay to use margin and if the stock really pulled back I often will wait and then roll them deeper still for more capital. These are very small trades but some of them end up being diamonds! I love my Coca Cola trades for this and sell leaps every year on Coca Cola Stock.
I am working on a larger article on GLD for another investor who wrote me. Meanwhile yes the correct response is to roll-down as each strike is reached. I don’t wait with commodities. I roll whether I believe it could bounce back or not. If it bounces back and I have rolled lower it just means I will have a better chance of the trade ending profitably since I rolled down and then GLD, for example, moved up.
I have articles on BMY that I have to post first. Then GLD. Thanks for your patience.
TeddiHi Amy
Not sure on your wondering on Wells Fargo. These are naked calls that I will turn into covered calls should the stock recover to the levels I have sold.
Is there something else you were wondering?
TeddiI am working on a couple of other repair ideas as well but I won’t have them finished this evening. I will try to get them posted for Tuesday. My apologies.
TeddiHi David. In the article from Aug 8 I indicated “The goal of all trades at this point are to reduce the number of puts at the $70 put strike. These puts will be reduced over the next several weeks and I still expect to see the stock rebound to $64 to $65 before drifting back to the $60 valuation. A break below the $50 support level is not expected.”
So the goal of the trades since the collapse has been to keep reducing the number of puts that were in the money at the $70 put strike. On August 8 I still was holding almost all of the $70 put strikes having reduced by just a few the puts at $70 by adding in puts at $67.50.
If you read all the articles so far on the repair of my trades you can see that I keep bringing in income which is being used to close the deepest in the money naked puts and reduce the number that were deepest in the money. This link will show all the articles to date in reverse chronological order https://www.fullyinformed.com/members/?x=0&y=0&s=Bristol-Myers+Squibb+Stock+Comfort is extremely important. If you are nervous then you can always move all or part of a position. The hardest part in any trade is when a stock collapses. If losses are easy to recover elsewhere then moving is probably the better choice. I trade in stocks I would own and have been in big cap stocks that have at times seen huge losses like all stocks can at some point in their history. For that reason I don’t have any problem continuing to trade the stock. Nervous investors tend to make mistakes when investing. For that reason staying within your comfort zone is always key to successfully trading a stock. Look at BMY and then look at another stock, you do like. If that stock was falling just like BMY would you be nervous? If so then your strategy has to change to one where you close trades at the first sign of trouble and never try to second guess the decision to close.
I have used this strategy many times. The cost for protection is small as the time frame is short for the long put but it provides protection for the short put strike that is far out especially during periods of uncertainty.
I have done this type of trade often with leap puts.
Sometimes you have to decide whether a repair is worth your added capital. When an investor feels overwhelmed in a downturn I often advise closing some positions, even if they incur a loss and then focus on a stock they consider stronger. By closing some positions they are not as overwhelmed. My mentor always advised me that when I am overwhelmed in a downturn, look to selling naked calls but remembering that if the stock roars back up, which I don’t think BMY will do beyond $55 at most, be prepared to turn naked calls into covered calls. But then since I would want the stock to recover selling naked calls makes sense in a decline.
My mentor’s focus was always on “is the trade still generating income?”. If it then it is still working as it should in my favor. He explained that there was “Very little difference between a dividend stock collapsing but still paying a dividend and a put option caught in the money but which can continue to be rolled for even a small profit”. Most of the time it comes down to the investor and how they “feel” about the position. I trade with little emotion as I have been through many downturns including a horrendous period from 1998 to 2004 when Coca Cola eventually lost more than half of its value.Actually upon reviewing my article I am not saying the capital needed by my broker. I am referencing the capital that is at risk is $0.00 until December options expiry. I think the change in my article to read: “Total income earned on this trade was $530 after commission. This reduced my loss to $1066.00 and reduces the capital at risk from 10 spreads at $3.50 = $3500.00 to 5 spreads at $0.00 until December 16 since the short and long puts are both at $40. I will add more long puts at some point between now and December 16 expiry to keep protecting my June position.” makes my intent clearer. Thanks for pointing it out.
TeddiNo this is not considered by any broker as a legitimate spread. You could buy a further out long put which they will consider as a legitimate spread. I often to short-term long puts against further out naked puts because the cost to protect the trade is cheap as you saw in the article. But your broker will still want to see that you have enough capital or margin to cover the puts at $40. Once December comes and if I decided to buy a June $40 long put, then it will be deemed a spread by my broker and the capital/margin I will have to put up will be basically $o.
However in my article I showed this as a zero need because I know I will buy protective puts along the way and eventually be out to June and beyond.
Right now the $35 put strike for June is 60 cents. That’s not worth buying but in two weeks it may be back to 25 cents which will be worthwhile. I will change this in my article which should assist others better than my original sentence.I will do up another article this evening after the close discussing moving from BMY to another stock like Merck to show the differences and how it can be approached. A lot comes down to comfort level. If this latest drop has you concerned then you need to reassess your trade methods. There is nothing wrong with setting up trades that if they fail, you immediately close, take a loss and move on.
Back on July 28 I sold 10 naked puts at the $70 put strike for Aug 19 expiry 38 cents. The stock on Aug 5 collapsed and I sold the Aug 19 $67.50 and $62 put strikes but bought the Aug 19 expiry $50 put strike for protection. I have used the $50 to $49.00 put strikes ever since to keep protecting the trade and I am using all proceeds from the income earned to keep reducing the in the money naked puts which originally stretched from $70 to $62.50. These in the money naked puts are now down to $57.50 to $60.00. In my article on Aug 5 I wrote about selling naked calls which also work to increase income earned and allow me to reduce the number of in the money naked puts. This keeps freeing up more capital. Here is the link to the Aug 5 article https://www.fullyinformed.com/members/bristol-myers-squibb-stock-bmy-trading-the-plunge-trade-alert-and-updates-aug-5-2016/
Here is the link to the Aug 8 article in which I sold the $56 puts for Aug 19 and stock as well as naked calls on Aug 9. https://www.fullyinformed.com/members/bristol-myers-squibb-stock-bmy-plunge-for-a-second-day-trade-alert-and-updates-aug-8-2016/
The 10 naked puts earned $230.00 and the 10 naked calls earned $440.00. This total of $670.00 allowed me to close one in the money naked put. A repair of a collapse like BMY is experiencing will take time to recover but the goal should be to keep income flowing in and keep reducing the in the money naked puts. This protects the capital at risk.
TeddiSwapping out over to Merck could work if Merck can gain enough ground to recover the losses from BMY. I am continuing my repair strategies with BMY instead but I do understand your thinking on Merck versus BMY. Perhaps splitting up your trade would be better or simply leaving BMY behind. I plan to continue with BMY but I am also selling puts in Merck. Here is the latest repair work in BMY https://www.fullyinformed.com/handling-todays-bristol-myers-squibb-stock-bmy-stock-collapse-trade-alert-as-repair-continues-oct-10-2016/
Thanks Larry… I got a lot of emails but luckily looking at the volume, no one entered the trade. A lot of smart investors out there who checked this one! Thanks for letting me know as well.
Hi Larry;
I got exercised on 1000 shares and not the remaining 500. I will be holding for now and will sell them as soon as I see a move back up in the stock and the calls have lost a bit of their premium.Teddi
Here’s more on handling the Nike Stock trade ahead of earnings for today Sep 29 https://www.fullyinformed.com/nike-stock-nke-decline-continues-trade-ahead-of-earnings-update-sep-29-2016/
Here is my Costco Trade ahead of earnings done today https://www.fullyinformed.com/costco-stock-cost-trade-alert-ahead-of-earnings-sep-29-2016/
Alvin
If you have no interest in owning shares then the answer is always to roll lower. For an investor who is uncomfortable trading around earnings, even closing trades is better choice than worrying about what might happen.Teddi
I replied this evening to your question on the comments with the article. Paper trading is definitely recommended for those who are trying to learn how to manage this type of trade. Never risk capital until the results in paper trading prove the strategy will work for you. Not every strategy will work for all investors. Some investors grasp the concepts of strategies quickly while others can take more time. That’s just the nature of investing but I recommend never using actual capital until a trade strategy has been learned and tested thoroughly through paper trading.