Featured

A Random Walk In The Park On A Monday Morning. A Caution. Monday Mornings Are Often Not An Option Players Best Friend

Let's start with this. It's now 10:26 a.m. A bet on Caterpillar rebounding by the end of the week. There are no takers. Why have to watch the screen for the next four days in agony waiting for a rebound which if happens is just a "break even trade"? But Wait. I made a mistake. The market is actually now down 668 points. What else can we look at? Interactive Brokers. These kind of stocks always do poorly on days with the threat of margin calls. Yet there is something interesting about the printout I am about to show. It is that these options are "one-month-out" Calls. These longer term options trade differently than short term options. (these options trade in one month intervals). If the stock we are following stops it's freefall the value of the options will nudge up ten, fifteen or twenty percent. A seven dollar option Call might creep back up to $8.00 or $9.00 at which time it could be sold. In contrast with a five day option a slight reversal in ...
Post a Comment

Jan 5th Playing Deere and Company and Ford

So John Deere was up sharply this morning and when I checked the news about it I read about Deere at a Vegas trade show and driverless tracters. Who wants to go to trade shows during Covid and Caterpillar is busy working on driverless machinery to put in underground mines? To me it wasn't much of an event. Everyone already knows the driverless tractor story. If you own a piece of equipment that costs like $600,000 wouldn't you feel more comfortable putting a driver in it?
Now look at how the stock traded the previous day and look at where the stock was at this morning. It was up thirty dollars in only two days and the Call options were up a generous amount of money
Ok, as a small time trader wanting to catch some of this action what do you do? Well you could purchase a Put with a striking price over five dollars "out-of-the-money". If the market starts to top out it is inevitable it will give up some of these gains. At 9:53 a.m. after getting out of Ford Puts at good timing (see the one day Ford chart further below) I made this purchase. The above chart shows my timing of this trade. Notice how wide apart the Bid and Ask where. Bid 1.65 Ask 2.33. That's crazy. Option makers get nervous a times like this as no one knows when a stock this powerful is going to stop going up. At 11:15 a.m., twenty minutes later the position was only going slightly against me. The Bid was then 1.35 and the Ask 2.34. That's almost a one dollar spread making it next to impossible to trade out of.
Much to my disliking the stock continued to rise. It went another three dollars upwards after I bought in. I admit fighting a strong stock is a challenge and I know that jumping into a position like this is better to do sometime in the second hour of trading and not the first. That noted I might apply that logic to future trades. Or will I? Instincts are tough to temper.
At 11:46.00 a.m., thirty minutes later the stock sold off $1.50 however the Puts only nudged up slightly. I knew anything could still happen. .
I bailed out at 11:47 a.m. at $2.47 after almost a two hour hold so I made aproximately $30.00 an hour by risking about $200.00. The real drop in the markets happened after 2:00 p.m. in the afternoon. The closing Bid and Ask on this series of Puts at the ended up at Bid $4.70- Ask $6:00 so had I held in I would have made some more serious money. Deere and Company offers endless trading opportunities but the real trick is to learn how to say with it as the day progresses. The DJI dropped 372 points on the day and here is what the one day chart on Deere and Company ended up looking like. (My skill set is more atune to making ten or fifteen minute trades on options on stocks like Ford, not the sleeping giants like Deere and Company). It is sometimes interesting to critique how you trade.
Are you able to see how the chart looked at 11:47 a.m.? It looked like it wanted to go back up. Now that I was out it was still before noon. I decided to go back to Ford Puts. Here is a five day chart and a one day chart. Look at when I got in and out.
I got in at 12:03 p.m. and out at 2:48 p.m.. I missed the real downside action at the very end of the day. They ended as you can see closing the day at $1.00 per contract. What amazing moves in one day. Is all of this a fools game? Yes and no. Some people like to spend their time doing crossword puzzles. Everyone is different. That's what helps to make life interesting.

Comments

Post a Comment

Popular posts from this blog

Living on Kraft Dinner?

Image
What does the word disconnect mean? As a verb it means "to sever or interrupt the connection of or between; detach". Option trading - one day options - is a disconnect from the world. What happens to slightly "out-of-the-money" Call options on Costco when the stock shoot up thirty dollars on the day? I will show you what happened on Friday to Costco Calls and the options on a few other stocks I frequently watch. What a disconnect from the real world. But before that a look at how the indexes traded. 1) Costco. It's five day chart and a look at how three of it's option series moved upwards in one day. You may not know how to read these printouts but try to read the highs and lows on these option pricings. One printout shows an "at-the-money" option which means you are buying a contract on the stock, good for one day only at a locked in price equal to (or very close to) what the stock is currently trading at. The other two contracts shown are ...
Read more

The Little Engine That Could

Image
Walmart again. It's all I seem to blog about. Here is it's five day chart. The stock keeps going up and the option series are set up in one dollar spreads. Even a fifty cent move on the stock moves the needle on these Calls. Look at how this series of Calls was trading yesterday at 3:00 p.m.. Now here is this same series of Calls just before noon today. Thirty days of upward action like this punctuated by the off day of decline. Now notice the higher volume of trading in the series of Calls with the higher striking price. These are the ones's with more leverage. At the same time look at the five day chart on Costco. The two stocks sometimes trade in tandem. Humpty dumpty sat on a wall .... a had a great fall. Someday soon a fall might happen but what a great ride it has been.
Read more

A Fireside Chat - One Year Options and Thirty Day Options. Which is Better?

Image
Some say to think small, not big. Trying to play Disney options is thinking big. It is a stock slighty out of favor. If we start with it's a three year chart, we will see it is down by about 50% over that period of time. Now it's one year chart. If the stock can break 110 in early 2024 the sky is the limit. It does have a lot of moving parts so anything could happen. Look at these Calls options one year out. One year in options buys a lot of time.They look reasonable. If the stock ever inched up to the $105.00 price level in the three or four months these options would jump up in price by about 50%. Even more if they had really good news. Yet it's the "what-if" aspect of the equation that castes such a trade in doubt. "What if" stories just don't cut it. There are to many variables in play. Then again, why are we even thinking of long-term Call options after a December's rally? Let's switch gears. If consumers are out spending for X-mas...
Read more