I closed my Arena Pharmaceutical Sept 5 PUTS at .10 today. I didn't wait for them to expire worthless just in case, and I think it was a good call considering ARNA closed just over 5 today. Not a bad trading since I sold them at .65 last Friday...
I was going to play a covered call, but the Put premiums were great and I was bullish on the stock to start so it was the right play. No money out and all money in...
Happy Trading...
Friday, September 18, 2009
Monday, September 7, 2009
A Diamond Strategy, Options on DIA
Diamonds Trust is an exchange traded fund (ETF) that track the Dow Industrial composite. Buying calls or puts at the money at market open or before an expected correction is a fairly low-risk strategy to provide recurring income.
The last week of August led the $INDU higher and market history says that we are do for a minor correction in September. With that the Diamonds were trading around 95 on the last Friday of August so I picked October 92 PUTS at 1.90. As I expected the market to make some southern adjustments. As expected the market on average news took profits broadly an ended up with an almost 200-point drop on the 1st of September, quicker than I had anticipated but to lock in profits I was able to sell between 2.50 and 2.90 on2 September. I still believe we are headed a little further south which would provided greater returns on my puts, however, the number one rule in trading is not be emotional—hence greedy.
The idea here is that this is a fairly repeatable trade, whichever side you are on for the week or month you can buy CALLS or PUTS around the money and take profits relatively quickly.
I don’t recommend selling calls or puts, especially in this market environment since you can get yourself into trouble rather quickly. By being a buyer you know what your maximum loss is going into the trade.
Happy Trading
The last week of August led the $INDU higher and market history says that we are do for a minor correction in September. With that the Diamonds were trading around 95 on the last Friday of August so I picked October 92 PUTS at 1.90. As I expected the market to make some southern adjustments. As expected the market on average news took profits broadly an ended up with an almost 200-point drop on the 1st of September, quicker than I had anticipated but to lock in profits I was able to sell between 2.50 and 2.90 on2 September. I still believe we are headed a little further south which would provided greater returns on my puts, however, the number one rule in trading is not be emotional—hence greedy.
The idea here is that this is a fairly repeatable trade, whichever side you are on for the week or month you can buy CALLS or PUTS around the money and take profits relatively quickly.
I don’t recommend selling calls or puts, especially in this market environment since you can get yourself into trouble rather quickly. By being a buyer you know what your maximum loss is going into the trade.
Happy Trading
Overbought Equities, You Have Options...
The latest market rally has left many equities in an overbought state and market madness states that profits will be taken in the near future.
Profit taking is almost certain with any market pullback and history shows a September market correction of about 1% so a correction is almost inevitable. With the state of the economy a severe correction is a possibility and it is now time to protect yourself.
Fortunately you have two options, sell outright and take your profits or buy some PUTS at a month and strike price you are comfortable with to protect against any unforeseen radical market correction. I would recommend December to get through most of the 4th quarter earnings.
With the recent rally a profitable strike price should be available. Many premiums are around 5% of the stock price, inexpensive but don’t forget to factor that in as a deduction of your expected profit return.
Happy Trading
Profit taking is almost certain with any market pullback and history shows a September market correction of about 1% so a correction is almost inevitable. With the state of the economy a severe correction is a possibility and it is now time to protect yourself.
Fortunately you have two options, sell outright and take your profits or buy some PUTS at a month and strike price you are comfortable with to protect against any unforeseen radical market correction. I would recommend December to get through most of the 4th quarter earnings.
With the recent rally a profitable strike price should be available. Many premiums are around 5% of the stock price, inexpensive but don’t forget to factor that in as a deduction of your expected profit return.
Happy Trading
OSIR Cash Secured PUT Trades
Finding high premium options on volatile biopharmaceutical (BP) companies can be very profitable. Of course they are very risky as well. Following a few guidelines can help you mitigate the risk and still receive substantial returns on these types of companies. Recent winners include Dendreon DNDN) Human Genome (HGSI) and if the strategy works again Osiris Therapeutics (OSIR).
BP options premiums are usually at their highest when a clinical study announcement or FDA approval is imminent. In the case of OSIR not only are results imminent but the shares are hard to borrow so the PUT premiums are very high.
When I go into one of these trades I look for the “environmental factors” that can affect the stock while waiting for the announcement. These are earnings release date, mosts BP operate negatively during R&D phases. Available cash or partnership agreements to make sure the company can continue its study and other development activities through clinical trials. I try to find as much information about the product and its current success/failures during prior phases as some indicator to how the current phase may resolve. Phase 3 trials are usually double blind tests so no one really knows until the data is compiled but you can find extenuating conditions, such as severe patient reaction, death or the FDA putting a stop to the trial. I look at volume and steady price increase closer to expected results indicating more analyst expect positive results. I also look at a strike price I am comfortable with buying the stock at which is usually around the 50 or 100-day moving average.
Once I am “risk-satisfied,” Since I am bullish, I start selling PUTS at an acceptable risk/reward premium. For OSIR the Sep 10 PUTS were upwards of $3 when the underlying stock was trading just north of $11. OSIR is now over $14 on increasing volume and result expected any week now. I am break-even if the stock falls to approx $7.
For those more risk averse, as the stock rises the PUT premiums dropped. You can buy-to-close at any time and lock in the profits
Happy Trading...
BP options premiums are usually at their highest when a clinical study announcement or FDA approval is imminent. In the case of OSIR not only are results imminent but the shares are hard to borrow so the PUT premiums are very high.
When I go into one of these trades I look for the “environmental factors” that can affect the stock while waiting for the announcement. These are earnings release date, mosts BP operate negatively during R&D phases. Available cash or partnership agreements to make sure the company can continue its study and other development activities through clinical trials. I try to find as much information about the product and its current success/failures during prior phases as some indicator to how the current phase may resolve. Phase 3 trials are usually double blind tests so no one really knows until the data is compiled but you can find extenuating conditions, such as severe patient reaction, death or the FDA putting a stop to the trial. I look at volume and steady price increase closer to expected results indicating more analyst expect positive results. I also look at a strike price I am comfortable with buying the stock at which is usually around the 50 or 100-day moving average.
Once I am “risk-satisfied,” Since I am bullish, I start selling PUTS at an acceptable risk/reward premium. For OSIR the Sep 10 PUTS were upwards of $3 when the underlying stock was trading just north of $11. OSIR is now over $14 on increasing volume and result expected any week now. I am break-even if the stock falls to approx $7.
For those more risk averse, as the stock rises the PUT premiums dropped. You can buy-to-close at any time and lock in the profits
Happy Trading...
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