The Options Thread

Covering here for .87 debit, so basically a scratch ... . Just wanted to free up buying power for something I'm more "keen" on ... . Besides, I have more than enough "sketchy" on (SRPT short strangles) ... . Lol.

Besides covering the VRX position today, I figured I'd do a touch of housekeeping where I could:

With 7 DTE in this RUT iron condor I put on shortly after Brexit, I bought to cover the Aug 12th 1170/1180 short put vertical side for a .13 debit, and then proceeded to roll the call side from 1170/1180 up and out another week to the Aug 19th expiry to the 1215/1230 for a .26 credit. I then sold a short put side against in the same expiry (the 1190/1200 short put vert) for another 1.05 credit. So, it's now an Aug 19th 1190/1200/1215/1230 iron condor. It's fine and dandy that I collected additional credit here on the roll, but I'll still need a bearish move in RUT to get out of the trade for scratch or better ... .

Rolled NDX Sept 16th 4345 to the Sept 16th 4350 for a .26 credit. This is the short put element of the short put vertical side of another post-Brexit iron condor that I'm massaging to get back to scratch or better. With this roll, I'm capturing a little additional credit, as well as locking in the profit experienced by the decrease in price in the short put experienced by the post-NFP upmove (which amounted to about 3.25 ($325)/contract). Ordinarily, I look to roll the entire spread toward current price if it has decreased in value; here, I intentionally made the put spread narrower than that on the troubled call side so that I could roll the short put in toward current price and or the long put away from current price to lock in profit without using additional margin (so long as the put side isn't widened to > the call side; in an iron condor, your margin is governed by the width of the widest spread in the setup).

Currently, there are three earnings announcements next week that meet my >70% implied volatility rank, >50% implied volatility standards: YELP, KORS, and NVDA and that offer up at least 1.00 ($100)/contract in credit for my troubles.

Preliminarily:

YELP Aug 19th 26.5/38 short strangle goes for 1.09 ($109)/contract at the mid (announces Tuesday, after market close).
KORS Aug 19th 44/56.5 short strangle goes for 1.15 ($115)/contract at the mid (Wednesday, before open).
NVDA Aug 19th 50.5/60.5 short strangles for for 1.11 ($111)/contract at the mid (Thursday, after close).

Covered Call Candidates:

AMRN at 3.33/share; sell Sept 16th 3.5 call; 2.75 db; max profit $75 (21.4% ROC).
FOLD at 7.00/share; sell Sept 16th 7 call; 6.20 debit; max profit $80 (12.9% ROC).
ARRY at 4.54/share; sell Sept 16th 5 call; 4.19 db; max profit $81 (19.3% ROC).

Notes: Preliminary/off hours. These are also all biotech/biopharma. I consider them candidates because I haven't done squat to look at their pipeline, etc.

Covered the remainder of my VIX "Super Bull" for a 2.10 debit to avoid max loss (ouch, that's gonna leave a mark). Playing long vol (VIX, VXX, and UVXY) is all about timing, timing, timing, and my timing was off here (as was my patience for a sub-12 entry).

Covering HTZ Sept 16th 40/57.5 short strangle for a 1.35 debit, about a $48/contract profit, excluding fees/comms. The thing is fairly illiquid, so figured I'd take my money and run ... .

Sold YELP Sept 16th 26/38 strangle for a 1.15 ($115)/contract credit. Will look to take off at 50% max ... . Ordinarily, I look to go closer in time with these earnings plays, but going out a little farther to a monthly expiry can give you greater liquidity, a little more credit, and a bit more slop to play with ... .

She's ripppppping ... . Lol. Rolled up the 26 put to the 32 for an additional .45 ($45 credit).

Bought to cover SRPT Sept 16th 8/40 short strangle for a 4.60 debit. I legged into each side and the whole burrito was worth a 5.85 credit. Getting out of this "wicked illiquid" while I can here for a net profit of 1.22/contract ($122).

Oh, sure, I take off my bullish assumption short put for scratch, and then VRX goes ripping 25% to the up side. Never ... look .. back ... . Lol.

Covering this little fella put on 25 days ago for a 4.86 credit here on this pop, leaving me flat for August covered call setups.

I paid a 4.20 debit to open, so closing here for 4.86 results in a net profit of $66/contract (excluding fees, etc.) (15.7% ROC).

My choices were either to (a) wait until expiry of the short call on Aug 19th, naturally taking the risk that price would drop back below 5 (if called away, the max profit would've been $80/contract); (b) roll the 5 short call out another month for a whopping .25 ($25)/contract credit (or even further out for more); (c) roll the call up and out to the 6 call in, for example, the Oct expiry, which is the earliest expiry for which I could've gotten both a credit and strike improvement; or (d) money, take, run ... . I opted for (d) ... .

May need to do some shopping for a couple more Sept setups ... .

Bought to close SRPT Aug 26th 10/35 short strangle. In for a 4.15 cr, out for a 3.13 db, so net profit $99/contract.

Looking to shop around for more liquid, high IV underlyings than this little fella, although it's been very good to me.

As an alternative to doing straight up covered calls in some of these larger dollar underlyings, I may look at putting on a few Poor Man's Covered Calls instead. They take up less buying power than buying shares outright and you get to "pick" the strike price of your "synthetic long" ... . I'll post a couple if I find something worthwhile to do here. Liquid, high IV underlyings continue to be in short supply here ... .

Example: (covered call vs. call spread)

Google (GOOG): current price=785

1-Covered Call: 100 shares>> $78,500 minus $725 (Sept. 800C)= $77,775 investment
Stock closes @ 800 on expiration date = $2,225 profit (2.86% ROI)
Stock crashes & closes @ 700 on expiration date= $7,775 loss

2-Call Spread: $3,925 (Sept. 750C) minus $725 (Sept. 800C)= $3,200 investment
Stock closes @ 800 on expiration date = $1,800 profit (56% ROI)
Stock crashes & closes @ 700 on expiration date = $3,200 loss

***Call spreads require much less capital & provide more protection from large losses. Those biotechs have juicy premiums but scary downside if things go wrong :-)

***VRX (high IV but pretty "news" sensitive recently) (Sept. 20P/30C=$1.13 credit)

Good comparison and contrast. I generally reserve those covered calls for sub $15 stuff that I play for engagement (I'll go up to $20 if I'm just plain ass bored and the premium is uber rich), that won't kill me if they dump, and where doing something like a standard premium selling play won't cut it (i.e., iron condor doesn't pay; short strangle doesn't pay, credit spread don't pay, etc.).

And, for example, if you have a smaller account like $10k, your per trade guideline is like 5% of that ($500), well, the universe of covered calls with fairly liquid options that will go for $500 or less is almost so small as to make choosing a covered call play over other strategies a "rare occurrence."

In contrast, the "old school" covered call basically looks at any and all underlyings with certain ROC metrics (mine is 10% or more if called away; otherwise, I don't play) where you could really find yourself digging out for several months if the thing takes a major dump and then all the IV bleeds out of the thing so that you can't sell a call for squat ... A GPRO covered call I initiated at $18.22 comes to mind (the original cost basis was $17.18/share); GPRO now goes for $14.30, but dumped all the way to sub $10. After selling the 75% OTM short call against my stock over several months, I think my cost basis is slightly below the current price of the stock -- needless to say, a long "rough ride" for a kid with a small account.*

That's all fine and dandy if you just love the company, want that juicy divvy (if one's offered), are in it for the long hall, and are capitalized/mentally prepared well enough to endure some dips. That being said, I do have an IRA that is, in fact, all covered call, but that's a retirement account with multiple year time frames. Obviously, not the kind of thing the vast majority of traders are thinking about (although they should probably should be).

And you're right about the biopharma; it's either to the moon or into the pooper with the companies focused on R&D (as distinguished from a company like BMY or VRX, who really just buy rights to product and don't do the legwork themselves). With R&D biopharma, it's extremely important to "know what you're talking about" in terms of what the company's into, what's in their pipeline, etc. Just playing those because their IV is high or their chart "looks good" or whatever doesn't cut it with me for biopharma plays (although I know many of StockTwit who doesn't know what the hell they're talking about, gets sucks into the hype, or is willing to take a risk on a one drug success/failure (e.g., SRPT) on the off chance it succeeds). Naturally, this is never a risk-free game, but I'm a big proponent of not playing these at all if you're not of a scientific bent, can't understand the various filings, and don't know some basics about FDA procedure so that you can distinguish pure pump and dump hype and real, distinguishable promise in a therapy, drug, etc.

* -- Frankly, one of the dumber covered calls I ever initiated. Basically, a "toy company" with various characteristics that smack of "fad."

Bought to cover GLD Aug 19th 119/124 short put vert for .04 ($4)/contract debit. With 7 DTE to go and the put side of this setup nearing worthless, I'm closing it here, rolling out the 121/126 short call side to the Sept 2nd expiry for a small debit and for a (woo-hoo!) one strike improvement, and selling a short put vert against for a credit, so that I'm net credit on the roll. This was the last GLD setup I had on pre-Brexit (a short call spread that bet on a Bremain vote), and I'm working the short call side up little by little over time ... . Not fun, but nature of the beast ... .

My YELP Sept 16th 32/38 short strangle ain't lookin' so sexy here with price breaking my short call by .50 today. It naturally has plenty of time to work out, but I'll probably roll the short call up and out for a credit if and when the short put gets to .05 ($5). No sense in going all cray with four weeks to go ... .

Trade Ideas for this Week:

Premium Selling

TEVA Sept 16th 47.5/60 short strangle current goes for 1.58 ($158)/contract at the mid. Defined risk alternative: 42.5/47.5/60/65 iron condor (which will bring in 1.13 in credit).

Covered Calls

WLL buy shares at 7.66; sell Sept 16th 8 call; 7.10 db; $90 max profit (12.7% ROC)
CC buy shares at 11.45; sell Sept 16th 12 call; 10.78 db; $122 max profit (10.6% ROC)
LC buy shares at 5.40; sell Oct 21st 5.5 call; 4.85 db; $65 max profit (13.4% ROC)
ZIOP buy shares at 5.46; sell Oct 21st 6 call; 4.65 db; $135 max profit (29.0% ROC)
NVAX buy shares at 7.04; sell Oct 21st 8 call; 5.42 db.; $258 max profit (47.6% ROC)
FCX buy shares at 11.92; sell Sept 30 12 call; $102 max profit (9.3% ROC)
JCP buy shares at 10.55; sell Sept 30th 11 call; $96 max profit (9.6% ROC)

Notes: (1) WLL's a petro play. Because so many small petro companies are in trouble of one kind or another (i.e., shale and/or offshore oil exploration exposure), I generally prefer playing something with a little less "single company exposure" (e.g., XOP). (2) CC is a basic materials/chemical play. It spun off from DuPont and has quite an uprun here in spite of a recent punitive damages judgment for chemical dumping. (3) LC's been in a downtrend since IPO. At best, a money, take, run play. (4) I still like ZIOP. It's biopharma and has a fairly diverse pipeline such that if one drug fails, they still have more in the hopper. And that 29% ROC, well ... drop dead gorgeous if it can get to $6. (5) I'm also in NVAX (biopharm). In comparison to ZIOP, their pipeline is quite narrow and currently devoted to a single vaccine (RSV). https://sg.finance.yahoo.com/news/no...201014739.html (vaccine "could be breakthrough," but not time to "break out the champagne" (code for "it could suck ... or not")). (6) FCX (mining). I covered called this in late 2015, early 2016 which commodities were at a cyclical low and then bailed out when I thought it was starting to look toppy. Looking back, it kind of looks pricey here in comparison to where it was earlier in the year (the low was sub-$4 (yikes), and I'm not so hot on the ROC. However, it's highly liquid, and it has some room to pop to 14.00 resistance. (7) JCP. Well, it's JCP. Plus, it's had a bit of a run up here, and if past performance is indicative of future results, well, it could zombie trade back to sub-$9 and with the ROC, well, not at the top of my list.

Yesterday:

This little fella popped up my radar late yesterday -- AGEN. Bought shares at 6.26 and sold the Sept 16th 7 call for a 5.77 debit; max profit is $123 (ROC 21.3% if called away at 7). I hastily did it from my phone based solely on IV/IVR metrics. Looking at the chart afterwards, I may have "Cramered" it, entering at the top of the key, but I'm somewhat okay with that given the fact that my cost basis is 5.77/share ... .

Plain Jane premium selling: Sold GDXJ Sept 16th 45 put for .67 ($67)/contract credit. GDXJ, along with GDX, has some of the highest background IV out there for an ETF, but since this is a naked put, I'll have to watch it somewhat, since there's huge air below $45, and I don't think I want to be put the stock at $45 ... .

Today:

I closed out one of the SPX, the RUT, and NDX troubled iron condors here at a loss, basically giving up gains made in other areas in July and August, leaving me with one broken SPX play that I can work with the degree of patience required. It's a bummer, but I figure it's best to take the loss and move on, rather than tie up the buying power (particularly for that NDX) trying to massage those back to scratch over potentially weeks and/or months when the IV is abysmally low here ... .

My boat is fairly fully loaded into Sept expiry with a variety of covered calls (mostly weenie engagement trades), some short strangle action in stuff that popped around earnings, and some naked put-age, so I'm basically on "cruise control" while I wait for some buying power to free up ... . I have some sidelined, but I'm not hugely enthusiastic about what I see popping up on the Dough grid or as potential high vol plays that show up in Barcharts.com, although something surfaces every so often (e.g., that TEVA short strangle) ... .