Monday, October 27, 2014

Sometimes less is more

In an options world, where the lingua franca includes such esoteric terms as condors, butterflies, calendars, split-strike butterflies, double diagonals, etc., a simple stock-with-put seems hopelessly elementary.

Yet it can be an effective strategy, perhaps more so than others that are much more complicated.

Take AAPL, for example.  In the past two+ months, it has gone from the low 90s to the low 100s to the low 90s and back again to the mid 100s.  Those acquirers who included mid-dated puts (say January 2015 or beyond) in early August were provided with the financial stamina to weather the usual Sept-Oct stock market roller coaster ride, not upchuck the stock, and best of all, stand in with a profit (as of late October).

Using round numbers:  On 200 shares of AAPL, bought around 95 in early August, the Jan. 2015 ATM (at-the-money) put was selling for 6.5.  Funds at risk then came to about 6.5 vs. 95.  The return since then, after several round trips from the 90s to the 100s?  The stock advanced to 105.22, so a 10 point gain.  The put declined to 1.11, so a 5+ point loss.  Net gain, 5 points, risking 6.5 or so. 

Something like 75% return on funds at risk.  Derived from +10% or so on AAPL itself.  From a simple strategy that many in options education find too simple to even mention.....

Thursday, September 25, 2014

Consider the Big Picture

Staggering statistic:  U.S. has saved less gold since founding in 1776 than we pay out in interest --- per year.   Read:

How Much Gold Is Really Out There? ...Not Enough!

Friday, August 22, 2014

Puts are very underrated

Puts are very underrated.  The rap on them:  "they're so expensive."

They are.  But like a lot of things in life (not all), the dictum applies:  "you get what you pay for."

If you're persuaded, like some, that the Fed will pave the way to SP 2500, no sweat, you won't feel the need for any costly insurance.  But if the chorus of cautious voices has soaked through your hair, scalp and skull, and is now resident inside your gray matter, and you're like to be able to sleep soundly at night:  consider puts.

Let's take mighty Apple for example.  This past month, with the stock at 95 and change, the Jan. ATM (at-the-money) puts were going for something like 6.50.  (I am doing this, more or less, from memory.)  So, worst case, if Apple went to 0 (how could that happen?), or 50, or 80, max loss is capped at 6.50 (and change).

Let's head north.  Say the stock goes to 200 (how could that happen?).  You're out the insurance tab, and pocket 105.  Not bad.

For your 6.50 put tab, you get a 50something delta, quantified loss level.

What happened next?  Apple went to 100.  The strategist made 5 or so on the stock, lost 2.70 or so on the put, net gain, 2.30 on 6.50 risk, or 35%.   (And if AAPL reaches that magical 125 some pundits talk up, there's still another 25 points to go.....)

Without the put, the risk was 95 on the stock, made 5 on the stock, so 5/95, or 5.2%.

Additionally, will some profit under the belt, there are some adjustment options available, but that's beyond the scope of today's musing.

Leverage.  ROI.  Peace of mind.

Not to mention dividend capture, ability to sell calls (or puts) against, and countless other options machinations.

There's a bit more to this, our method, e.g. fundamentals, timing. options analysis.  For more, give a look to our book, Option Wizard® Trading Method.

In today's world of Putin, Ukraine, ISIS, Ebola --- and the unknown unknown that's coming down the pike next to hit us all on the blind side, puts are very underrated.

I'm just sayin'.........