The Options Thread

AG, a "frisky" silver miner at ZigZag indicated horizontal support (avec major wick-through):



Pondering setups, given the underlying's fairly high IV (75.6) ... .

I may have mentioned here at one point or another that I have an IRA that I've had since "the dawn of time." It basically consists of SPY shares that I've bought strategically over time and that I've been selling calls against since the beginning of time. Okay, I know, I know, it's "old school," but that's the way it was set up, and I've just kind of "gone with it." My basic choices now are (1) begin to allow the SPY shares to be called away, which will ultimately result in the shares being reduced to cash (blech, the money market interest rate I would get for that is basically "nothing" percent); (2) continue to do what I've been doing (selling calls against and "strategically acquiring" SPY from time to time, usually by selling puts on weakness and getting assigned the shares or, alternatively, keeping the premium); or (3) continue to sell calls against the SPY shares, but move on to strategically acquire a different, broad market instrument. I've looked at the various US equities broad market ETF's (IWM, QQQ, and DIA), but they all look a little over extended here, so I don't think it's really a good place to acquire any of them as part of a long-term strategy.

Enter EFA -- the "everything but" ETF which includes Australia, Japan, the Eurozone, etc. -- everything but the U.S. and (for some reason) Canadian markets. Unlike SPY, there's room for up in this little fella, it's fairly cheap, but -- like SPY -- it pays a dividend (1.17 every quarter; in other words $117 for every 100 shares owned).

So I'm going to start strategically acquiring this little guy by selling the monthly 30 delta short put. Currently, for example, the strike closest to being 30 delta is the Oct 21st 58 put (.64 cr at the mid), so that is what I would sell. After opening the position, my options are to (1) allow assignment if price is below 58 at expiry; (2) keep the $64 credit received if it doesn't; or (3) roll the short put down and out if I'm not happy with taking assignment at $58/share for whatever reason (usually, it's my thinking that, given price action, I can get in at a better price). If I do get assigned, I will proceed to sell calls against in the same fashion as I do with the SPY shares. I'll do this small, since I don't want to "shoot my wad" all at once and acquire all my shares in this one spot ... .

And that's how we roll "old school." It's slow going; it's boring; but it beats just sitting in cash or buying SPY way way way out here ... .

Went with the covered call, which I got filled for 7.00, so max profit is $100 if called away at $8 (14.3% ROC) ... .

Covering XME Oct 7th 23.5 short put for a .35 db. In for a .60 cr, out for .35; $24 net profit/contract. Small winner, but wanted to reduce a little exposure to miners, as I've got a few individual names on ... .

Most of the usual suspects, but a couple of new ones in the Top IV List:

NVAX 209.2 (biotech)
RTRX 135.0 (biotech)
SDRL 93.7 (petro)
GNW 85.7 (financial)
WLL 83.6 (petro)
AG 74.1 (silver miner)
GERN 74.1 (biotech)
EGO 70.5 (gold miner)
CHK 69.8 (petro)
AUY 64.8 (gold miner)
GPRO 64.7 ("fad gadget" sector)
AMD 62.2 (semicon)
TCK 60.2 (miner; nonferrous)

GDX 43.5 (gold miners ETF)
XME 39.1 (miners ETF)

Notes: I try to cull out ones that will be a pain in the ass liquidity wise, so there may be some plays with higher IV, but that have wide bid/ask (e.g., SRPT).

I'm in NVAX, GNW, WLL, CHK, AUY, and AMD already, so the list presents "slim pickings" for me. I also don't want to pile into more "commodity based" plays, since if we do get a rate hike, the Greenback will strengthen, and all these Greenback-denominated things will tank (gold, silver, copper, oil), along with related companies (miners in that stuff; petro, particularly with exposure to shale with breakevens below spot, etc.). Biotech R&D's a total crap shoot, particularly with those companies that have severely limited pipelines like SRPT, who only have one scraggly hat hanging on a single, bent hook ... .

With the ETF's, basically my "line in the sand" is 35% IV. Get below that and selling even the 30 delta put, for example, usually isn't worth it ... .

Of course, right after I put it on, it proceeds to tank a little bit ... . Naturally, if I would have gone "monied," it would have risen.

Opening: AG Covered Call: Bought Shares at 13.25; sold Oct 21st 14 call; filled for a 12.30 db; $170 max profit if called away at 14 (ROC 13.8%). Said I wasn't going to put on another miner, but couldn't help myself.

Opening: GPRO Oct 21st short put; filled for .64 ($64)/contract. Just looking to sell a little premium here, but will watch to see if I want to take assignment at 13 or roll down at out for a lower price.

Covering: CHK covered call. I opened this for a 5.35 debit and closed it here on this pop for a 5.88 credit; a net profit of $46 per 100 shares/contract (8.6% ROC).

Covering: WLL covered call. Opened for a 6.93 debit; closed here for a 7.61 credit for a net profit of $60 per 100 shares/contract (8.7% ROC).

Trade Idea: Sell DDD Oct 21st 14 short put. Probability of Profit: 74%; P50: 84%; Max Profit: $59/contract; Break Even: 13.41. Here, I'm looking to either (a) keep the premium; or (b) get put the stock at a lower price, after which I'll proceed to sell calls against. My general rule is to roll the option down and out for duration and additional credit if price of the option = twice what I paid for it (because I want to shoot for getting put at the lowest price possible).

AMD has caved somewhat dramatically after I put my covered call on (the short call of which is at the 8 strike). What I'm looking for is the 8 short call to approach worthless, after which I'll close it out and then proceed to sell the 7 strike calls against my stock (7.00 even is my cost basis in the stock).

Today's High IV Stock List:

NVAX 220.1 (biotech)
TDW 100.0 (petro) (it's basically unworkable; 2 1/2 wide strikes)
RIGL 97.9 (biotech) (like TDW, unworkable)
CLVX 97.6 (biotech)
AMD 83.1 (semicon)
CHK 80.1 (petro)
WLL 77.8 (petro)
AKS 74.9 (steel)
EGO 68.5 (gold miner)
GPRO 68.4 (GoPro)
VRX 66.6 (biotech)
RTRX 65.8 (biotech)

ETF's

GDX 42.7 (gold miners)
XME 39.0 (miners)
XBI 32.8 (small cap biotech)
EWZ 31.4 (Brazil)
XOP 31.2 (petro)

Notes: I'm in NVAX, AMD, AKS, AUY (gold miner), and a couple of other speculative biotech plays (ZIOP, AGEN), so still slim pickings for me in this list.

I just bailed out of CHK and WLL, but don't want to get back into CHK after this run up and WLL, well, I think it stinks as a company, but so do a lot of other shale oil/offshore exposed companies; naturally, this is probably why they're so volatile and appear in the high IV list so often. WLL, CHK, RIG, SDRL, WFT all appear in the high IV list because they're exposed to shale or things like offshore exploration support ... .

This is why I am shooting for a fill on something like DDD. The IV is a little lower than I'd like (63; >65 is swell), but it's enough such that I can sell a 30 delta shortie for something fairly decent, and it's not in gold, sketchy petro, or biotech ... .

Yikes. Quite the dip today. The market was virtually red across the board, http://finviz.com/map.ashx , so I'm not surprised that my portfolio is down a bit today as well. The good thing: the short call side of the covered calls are doing great; the bad thing, the stock side of those, eh, not so much ... . Having the short call side there helps mitigate some of this downturn, however ... .

Opening: DDD Oct 21st 14 short put, filled for a .59 ($59) credit/contract. Unfortunately, this was done right at open, so it lost a little ground from the git-go.

Rolling: GPRO Oct 21st 13 short put to Oct 28th 12.5 short put for a .05 debit. I frankly didn't get that much "extra room" for my $5/contract, but it's better to be put at a price close to your short strike, rather than farther away, as you'll have less ground to travel in terms of your cost basis once you get put and start selling calls against ... .

Top High IV Stock Options as of Friday Close

NVAX 234.4
WATT 87.3
CHK 85.3
CLF 81.9
WLL 78.8
GPRO 73.7
VRX 72.7
EGO 72.3
S 65.1

ETF's

GDX 47.2
XME 41.5
XBI 37.0
XOP 36.3

Notes: WATT dipped significantly on news that the iPhone would not be including a wireless charger in the 7. Even assuming that Apple had included a wireless charger, it probably would not have been WATT's product anyhow. GPRO experienced a dip, supposedly on the basis of the 7's new camera ... . The rest of the names in the list have been "porpoising" into the top IV list for week's, so largely no surprises there, beyond perhaps S (Sprint). There doesn't appear to be any real news with S beyond the fact they had a couple of downgrades in late August. Friday's dip probably just gave it a little extra push ... . I may get back into CHF, WLL next week (I dumped those in profit on Thursday, thank goodness) given the double whammy they received from broad market weakness plus oil weakness ... .

The ETF's are basically ordered in the same fashion top to bottom volatility wise, although they're now even "friskier" ... .

what up zeebs? ya think we might see a real winter this year? Are the wooly bears extra wooly in Ioway? Fall rains seem like they might try to line up early here. Well maybe that means colder in the East, idk.....Long natgas almost as big a boondoggle as long vol lately. Although, it has come up pretty well (~50%) since last Spring's low. You know a real cold spell that settles in for months could run it up. I bot the Jan '17 $10/14 UNG call vert months ago for 20c, worth 30c now.....a spike to $11 by T'giving would net a buck. Also shown there is a Jan $12/13 vert for 4c, there are some Jan/Apr call calendars that still look good. CHK maybe as good or better?

NOAA says normal to higher temps for Nov-Jan....I haven's seen a blue long-range NOAA map in quite some time....

I've been riding that CHK off and on, taking profit and then getting back in on dips, but have been waiting for the "supposed" peak injection (which I'll start watching for around the beginning of October) to do something with UNG. Thought that El Nino thang was ancient history, and we'd have more of "normal winter" starting this year, but not a wooly bear to be found ... . But I'm not sure what a "normal winter" is any more ... . Think I was out in shorts in December last year on one of those oddball 50+ degree days ... .

Speaking of which ... . Here's the UNG chart:



It's been tooling around between 7.50 and 8.50 for a bit here. Last year, I tried to call a bottom, and well, that didn't work out so hot because as the winter dragged on, it became apparent that it was going to be extremely mild and that demand would not be as projected. The actual low didn't come at peak injection, it came in March as supply built and built and built ... . I did covered call it at some point, but got impatient with holding on to the thing.

Opening: CHK Covered Call: Bought shares at 7.76; sold the Oct 21st 8 call; whole package 7.14 db; $86 max profit (12.0% ROC). Filled it at NY open, but it was higher "straight out of the box," and is actually ITM now.

Covering: CLF Sept 30th 7 call for a .05 debit and Opening: Oct 28th 6.5 short call for a .28 credit. This is part of a covered call; just reducing my cost basis a little further here.

Covering: NVAX Sept 16th 5 short put for a .13 db. Opened for a .67 ($67)/contract credit. Closing here results in a $52 net profit/contract. I could have waited a bit longer to close it out for near worthless or let it expire, since I don't think this stock will see $5 by Friday opex (it's dawdling around $8 now). Figured I'd take profit here, so that I have one less thing on my plate ... .

Opening: WLL covered call. Bought shares at 7.48; sold Oct 21st 8 call; 6.94 debit; $106 max profit (15.3% ROC).

Covering: NE Sept 30th 6.5 call for a .10 db and Opening Oct 28th 6 call for a .29 credit. Just further reducing my cost basis in my NE stock here while keeping the short call strike above my cost basis.

Covering: AGEN covered call for a 6.41 credit. I originally put this on for a 5.77 debit, so bailing here nets me $57/contract net profit (9.9% ROC).

* * *

NVAX trade: I currently have a covered call on in NVAX. Price has broken my 8 short call, and I've got 2 DTE. If price stays above $8 running into expiry, the shares will be called away and that will be that for the trade. Naturally, if price dips back below $8 at expiry, the $8 short call will expire worthless, and I will keep the premium represented by the short call, and I can continue to sell calls against my shares going forward. However, I can also roll the short call out for duration and credit, which I may want to do on this bounce. Currently, I can roll out to the $9 strike and bring in an additional 1.23 in credit ... . That just seems too good to pass up on an $8 stock, so that is what I'm going to do here. Naturally, there is some risk to this. This, after all, is biotech, and there is news due out sometime in the fourth quarter which could either cause the stock to skyrocket or implode ... . I'm fine with the skyrocket; with the implosion, eh, not so much .... .