Trajan's options journal

I've got a longer post to sum up today and answer some of the questions but right now I'm working on an excel worksheet. Here is a link to a tutorial I found to walk you through setting up option pricing in excel:

http://ecampus.bentley.edu/dept/hcfs/tradingroom/tutorials/optionpricing.pdf

 

I was finished with the basics of what I wanted and then accidently closed it somehow. Go figure.

 

Trajan.....

How are you planning on playing this going ahead of this weeks earnings day? Is your outlook and mindset for your position/strategy the same?

Would you concur with the last few days of action on CSCO as more of an opportunity to play momentum -- post-earnings announcement. In other words, we have seen some nice pre-earnings runs in the past, but this has simply not been the case with CSCO this time around.

It seems as if this is a case of selling b4 the announcement and buying on the actual news, reaffirming that is. I know that EPS forecasts have been raised as much as .04 per share. (The week after the Jan expiration, there was huge huge action and volume in the Feb 15 calls.) This week will truly be intersting. Good luck.

 

It appears to me that after the close yesterday there was some retracement to the up side. The flurry upwards just prior to the close may have been some short covering on the day. I look for some degree of increase in price going into tuesday's close but perhaps not as much as in the past. I said on an earlier post that when looking at JNPR's results I think it's dangerous to bet against CSCO at this point. Some of the recent slip is due to market conditions, and AMAT yesterday although I fail to see the connection there.

CSCO is destined to gain from increased federal spending on homeland security eventually IMHO. I'm long, but hedged.

 

Being a little biased because I'm short(longer post will follow and is already saved in word so it can't be lost), a little sell off before the announcement is preferable to me because it will probably cause IVs to pop a little more and a relief rally to ensue. Relief for the option vols will come in.

I was actually a little bullish earlier in the week on tech, the charts looked pretty decent on a lot them. My feeling is that people will step back and to see if there are more like amat. I agree it shouldn't impact the rest of tech. In fact, it should be somewhat bullish.

Got to go, I promise to finnisj tonite.

 

I needed to get some non-trading activity after the close to maintain my sanity.

In the last hour, I managed a reverse scalp, buy high/sell low. I need to be more disciplined in this regard. It wouldn't have been a loss if the stock didn't pop in the last 30 seconds. It is also true that you shouldn't wait until the last second to exit a trade. A lot of people must have been short and all of us rushed to the exit at once. It did look doggy in early part of the last hour but held 13.16, so no fill on that order. Looks like this drop brought it down below a support line, which I figure should allow for some volatility as it searches for a new value area.

The big fuckup was being more concerned with my lousy attempt to scalp and forgot my put bid. I was filled on 40 of these. What I was doing was an attempt to leg into the feb/march calendar spread. March IVs are cheaper. I would rather pay an extra .30 for an extra four weeks of use and sell the febs on Monday and tues. I did enter an order for the spread to pay .30 for it but figured it would never fill. Owning these seams to be a good risk/reward scenario. What will this be worth on the Monday after Feb expiration if the stock is around these levels? My guess would be at worst .25-.30 market(assuming the IVs go back to the forties). I bought the feb 12s at .25 when the stock was .80 cents higher yesterday. The market on the call calendar was .30-.40 the puts were .25-.35. It looked like it was fair value at the time including .02 cost of carry. A jelly roll is long one month synthetic and short another. Here the short synthetic was the March and the long is the Feb. After the Feb expiration, long stock comes into the account from the exercise of either the long calls or the short puts. At this point interest is paid on the cash needed to purchase the stock at 12.50. When the call spread is purchased, it would be the same as buying the put spread for .29(assuming a credit rate of .01). To lock in the box, one would need to sell the put spread above this amount(excluding commissions). Buying the put calendar for .30, one would incur the .02 cost of carry, making it synthetically paying .32 for the calls spread.

Another reason for the March puts is that I need something to sell the feb 12s against. These will be the ones with time premium in them to capture after the release.

 

Theoretically, The position could be better. This where I would have posted an excel worksheet if it didn't get lost.

-1000 csco
-26 feb15p
40 feb12p
40 march12p

For Esignal and my own excel worksheet, puts me at short 1500 deltas. Ivolatility.com has it around –1300. My own feeling is that it is closer to –1000 for all intents and purposes. In other words, to make it neutral, I need to buy back the 1000 shares of stock. The reason for this is that one should lean towards long premium(I’ll try to explain false deltas another time). In this case, that would be the 12 line. For gamma, it is long 900. This would make the extra short deltas not as important, but, the position changes quite bit as it approaches the 15 line. In other words, the gamma won’t make me flat at that point even though a quick look may imply it does. Normally, two directional deltas against 1 long gamma is an acceptable level of risk and I’m bearish right now, so, it’s fine. As for theta, it looks like it is roughly –66, the position should cost about 200 dollars to hold over the weekend. Vega has me roughly at 90, this number should be negative by the close on Tuesday.

The account value is $29,560(The actual starting account equity was exactly 29k). The marks were in my favor but some it is real. Thursday, I felt that the initial position was put on for edge. Friday’s trades didn’t offer much benefit and just basically added more risk to the position. I did mention in a earlier post I sold 10 of the 15 puts for 1.85. This capture some of the edge from Thursday.

I’ll post this and work on my game plan for next week.

 

Its kind of interesting that you were ahead of this short curve on CSCO. It was flirting not to long ago with a key resistance level of $15.80ish. The volume and buying interest on CSCO as we began this year was enormous. I can not recall a time when CSCO would be steadily increasing on a daily basis so consistently, even bucking down day trends on the Nasdaq.

But as we approached the Jan options expiration, those CSCO 15 calls which had gone up 10 fold, were now worthless and the 15 puts were juiced up overnight as CSCO failed to break the high $15ish ceiling. Granted at this time, the overall market was overbought, VIX levels were screaming to sell, etc.

However I was a bit surprised to see how quickly CSCO broke down from these levels and from here is experiencing a bit of retracement. Clearly your perspective was the way to go. I am still reluctant to jump in here b4 earnings. What if they announce a dividend?? What if they did indeed have a good quarter, but bring down the year, or revenues are a bit weaker than expected?? Since you obviously got in ahead of this initial breakdown, you are in a good spot to maybe split your position and ride the rest down, or go flat if in fact CSCO does rally.

 

I hope they are smart enough to have seen what happened to MSFT when they tried to juice up their earnings report by announcing a dividend and a split. Chambers has a rep for being a straight shooter and consistent. I don't expect anything flashy one way or the other. But on a fundamental outlook basis I still have to say that JNPR's results warrant looking at, and what that MIGHT say about CSCO. Either way it's dangerous waters holding through the earnings report.

 

I thought the rally in the first part of the year was built more on hope than reality. Many companies reported pretty strong quarters, but, this was more seasonal than anything else. I talked to somebody at a private equity firm about the prospects for 2003. He said that all their companies are budgeting below 2002 levels and these aren't public companies trying to lowball the analyst expectations. Things are going slow in the economy right now. People have too often been burned in the last couple of years by promises of a pickup next quarter. My expectation for now and the next couple of years is that market multiples will continue to contract to a more sustainable level where risk/reward is in the investors favor. I don't think we are there yet. Something like IBM is still way too expensive(BTW, I own a couple puts). I wouldn't expect to see any big improvement until the war is settled. This coupled with an announcement by amat on Friday will probably squash a rally which was brewing early in Jan.

Wow, jnpr did have a pretty good quarter. Still seems somewhat expensive though. I wouldn't neccessarily say it is a short. Many tech stocks still have decent charts.

Made a call today to get some more research on csco, actually, it was to get logons to research sites, but this looks unlikely. Unfortunately, some of my sources have moved or gone to business school. I found another report on amat and semis(PM me and I'll email it to you), looks like the next couple of months will be slow in that area.