Waiting for BIDU to trade under $85 and pay $1.50 or more next week, for the May $75 put. Looking for an annualized % return over 12%. Looks like a reasonable trade, both technically and fundamentally. The main risk is, earnings are released before the May contract expires, and Chinese sector has been weak lately. I'll analyze over the weekend.
I had some GTC orders in on a number of Chinese stocks recently, including BIDU above. Unfortunately the sector just had a run up and I missed them all. RATS! However, given the current state of the market, there is no way I am chasing anything. The only thing worse than being in cash, is not being in cash when the correction eventually comes. I've got over 1,000 stocks on my watch list, and when nothing is setting off alarms.... that is alarming!
Decided to close this 3 month, $35 IACI trade, in just under one month. Closed it for a credit of $0.25 Thus keeping 72% of the initial $0.90 credit, with 8 weeks remaining on the contract. Thus turning this 12% annualized trade, into a considerably higher one. (around 24%.) No point in taking a chance of a sig market or sector correction over the next 2 months, if I can lock in 72% of the credit now.
Sold puts on $29 NTGR for June. Credit $0.90 Annualized % return...... 13% BE price $28.10 Reasonable tech support in the 29 - 30 area, per the 2 year chart below: http://finance.yahoo.com/q/bc?t=2y&l=on&z=l&q=b&p=&a=&c=&s=ntgr&ql=1 With the stock trading at $33, I'm initiating the trade with a 12% otm safety cushion, hoping to earn 13% annualized. By most metrics the company is financially healthy and reasonably priced at my strike of $29. The main risk to this trade is, that earnings are released in late April. BE price $28.10 = otm safety cushion of 15%
29 Naked short put for $90......Yield = 90/2810 = 3.2% in 88 days or 3.2(365/88) = 13.3% annualized vs 2 29/25 bull put spreads for $110...Yield = 110/890 = 12.4% in 88 days or 12.4(365/88) = 51.4% annualized ...(using 2/3 reserve in treasuries annualized yield = .33(51.4) + .66(2.72) = 16.9 + 1.79 = 18.69%) ..........................................P/L............................... Price..............Short Put......................Spread...............Prob 10.....................(1890).........................(690)................99% 15.....................(1390).........................(690)................99% 20......................(890)..........................(690)................99% 25......................(310)..........................(690)................96% 30........................90............................110..................71% 35........................90............................110..................32% is less more??
What is your treasury contract commitment to earn your 19%? 890 + x = 2790 x= 2790 - 890 = 1900 TLT is at 117 so that's 1900/117 = 16-17 shares per You can do much much better if you use DIM TLT spreads to hold the money instead. More like .33(.51) + .66(.10) = .165 + .07 = 23.5%
I have no idea what you are talking about. Can someone who understands what I am missing, please explain the above to me? It has something to do with TLT, which has been in fairly steady decline for the past 7 months (15 points), generating a 19% annualized return, using the remaining 2/3 of his funds oldnemesis would not have used, on a $29/25 NTGR June spread.
he risks 1/3 of his money in a 25 29 putspread. he puts the other 2/3 in a treasury. he makes 19% annualized if he expires out of the money. if stock goes to zero, he only loses 33% real loss. If stock goes to 25 (17% drop) he'll lose 33% real loss. he makes more money than you, but he risks more money than you as well. but he can't lose everything on this trade just like it is extremely unlikely you will lose everything on yours.
His 2.72 yield is based on holding the stock for a year. It's only a 3 month contract. Why can't he lose everything he invested in the spread? If the stock drops below his $25 strike, it's all gone.... unless he choses to buy the stock. He may only lose 1/3 of what I would, but for me to lose the same 1/3 of my invested cash, the stock would need to drop closer to $20 vs $25 for him to lose a similar dollar amount. In addition, he is investing in a treasury bond that has been dropping in value (15 points) over the past 7 months. For the tiny yield he is earning, seems to me he is better off keeping the money in cash. He only earns that 19% combined yield "IF" his treasury does not continue to drop in value. If it does, he may actually lose money. (Again, down 15 points in 7 months). The only real potential benefit I see to his spread vs my naked put is,.... if there is a sig % drop in stock value below our $29 strike. For example, a loss of 31% of it's value, would drop the stock to $20. But a loss of less than 30% is still manageable, via covered calls with potential stock recovery,.... as it is a company with no debt and plenty of cash. Again, I am NOT against spreads. I just think they should be used for volatile and/or high risk stocks. That being, there should be a reason you may not want to potentially own the stock.