using spreads to offset premiums – get free options!

Published on 17 Mar 2009 at 1:58 am. Comments Off on using spreads to offset premiums – get free options!.
Filed under Boating,Investing.

Since October I have been attending a very expensive University. All the classes are self taught, all they provide is the classroom in the form of the stock market.  If you learn your lessons well, eventually you’ll get paid to attend. It’s kinda funny because I went through this same thing with poker. I played for at least a year as a loser, another year as a break even player and then finally one day, almost like flipping on a light switch everything I had read, learned and pondered came together and I was able to beat the game. I made a good living off of poker for a few years before black October when funding via credit cards became illegal and all the recreational money in the game dried up.

I don’t know what it is about me, maybe its just my primal fear of working a 9-5 job, but I am always drawn to these types of ways of making money, which usually involve the possibility of going home after work with less money than you went in with. The stock market has totally killed me the last 6 months. That may not be surprising to anyone with the way the market has gone, but it is my mistakes that have cost me money, not the crash of the market. In fact it was the volatility that got me into the market, seeing a possible oppotunity there.

Slowly I am learning patience, money management, risk reward strategies and ways to limit downside risk. Ironically all lessons I had to learn in poker as well. With the options premiums so high due to the volatility and fear my recent strategies have centered around using the premiums in my favor.

The trade I am most proud of recently is a spread I put on the XLF on 3/9. After the financials had been completely pounded the previous week the XLF had opened up and traded sideways most of the day. With the XLF trading at $6.30 and JPM & GS being the bulk of the index followed by WFC trading under $10 I decided to put on a bullish spread.

I bought the $9 June calls @ .41 and sold the $5 June puts @ .61.  Some might argue an $8 call would be a better bet and at that point $9 on the XLF didn’t look likely, and there’s still a good chance it won’t be there in June, but that’s what I love so much about this trade. I net .20 just for putting this trade on, taking the premium the put buyers are willing to pay out, buying a call with it, AND keeping .20 for myself. So if I buy 10 of this spread I pocket $200 while I wait, buy 20 pocket $400, etc.

A free call and money in my pocket! It sounded too good to be true and being farily new to spreads I actually mapped out my risk/reward and ran it by a friend to make sure there wasn’t anyting I was missing.

Downside Risk: XLF trades below $5 and my options are put to me. Since I got .20 premium up front my actual cost will be $4.80 and I don’t think our economy is going to 0 just yet so I have no problem owning the XLF at $4.80.

Flat: If the XLF is trading between $5 and $9 at expiration both options are worthless and I keep my .20 per contract. Still a profit on the trade.

Upside: UNLIMIMTED

So basically I got paid, yes paid (requires a margin account and naked options approval)  to put on a trade where 2/3 possible outcomes result in me making money, and one of those outcomes has an unlimited upside potential. That’s even better than getting all in on the flop with a set vs a flush draw!

Since I went out all the way to June I also provide myself more chances to get out of one or both legs of the trade. Typically buying options that far out you worry about time decay, but since I sold the put for more than the calls I bought, time decay only works in my favor.  As of today the XLF is trading at $8.12 and the June $5 put is trading at .25, a 54% profit, the June $9 call is trading at .87 a 106% profit. If I feel the recent bounce is over and the financials are in for more selloff I can cover the puts here take a 54% gain, and keep the calls on a total freeroll to see what happens between now and June. Personally I’m willing to gamble the XLF will not be trading below $5 in June so I’m keeping the whole position.

I think options are probably one of the most confusion investment vehicles for most people, I remember first learning about them and I didn’t understand the basic concept the first few times I discussed them, but now as I start to realize what they can really do I’m having a lot of fun.

Removing Files from iTunes Library after a manual delete

Published on 16 Mar 2009 at 10:42 am. Comments Off on Removing Files from iTunes Library after a manual delete.
Filed under itunes.

Removing Songs from iTunes that no longer exist

If you manually delete files for any reason from your iTunes library the library itself will still have the file. This is great if the file is on an external disc that happens to be disconnected, but if you deleted the file permanently, you will also want it out of your library listing.

Yesterday I described an easy method for manually removing duplicate files in an iTunes library on the QNAP 509 or Mac OS. That was only half of the problem. The duplicate files most likely still exist in your iTunes library.  One of the most frustrating thing about the duplicate files is that when viewed inside iTunes they look identical to the originals, even tho on the disk they may end in 1.mp3  2.mp3 and may be found in hidden directories. Of course you want to keep the original file names, without the extra information. By performing the dupe delete linked above you can now easily fish out in iTunes which files are the originals and which were dupes. iTunes will do this for you if you delete the library xml file, or you can do it yourself.

The Quick Way – Delete the iTunes Library xml file

Simply delete the iTunes .xml file, most likely found in ~/Music/iTunes/iTunes Music Library.xml

This will make iTunes re-index your whole library and is the fastest method if you had a lot of dupes.

However you will lose some information about the files that remain so I don’t reccomend this method.

The Slow Way – Pound ‘Next’

If you don’t feel like trusting iTunes to re-index your library, or you only had a few duplicate songs you can fish out which of the duplicate files in your library you deleted and remove them from the library yourself.

1. Open iTunes and select your Music Library

2. While holding down the Option key go to the File menu and select “Show Exact Duplicates”

3. When your list of duplicates loads, highlight the first file in the list hold down Control (or use right click) and click the file, use the context menu to select “Get Info”.  You may get a message about the file being missing, if it asks if you want to find the file yourself select No.

4. There should be a “Next” button in the bottom left corner of the window that appears.

5. Simply keep hitting Next and as you do the duplicate files that are now missing because you deleted them will start getting marked with a ! before the name.

6. command click to select all the files with the ! by them and then control click and select “Delete” It will ask if you are sure you want to remove them from the library, but unlike when the file exists, it will not ask if you want to delete or keep the file.

One thing I noticed in all this is it seems to me when copying your library from one location to another, the duplicates that are created when re-importing are usually the purchased items. Next time I do something like this I am going to skip copying the purchased items and let iTunes re-download them for me.

Remove iTunes Dupes with One Command on QNAP or MacOS

Published on 15 Mar 2009 at 5:01 pm. Comments Off on Remove iTunes Dupes with One Command on QNAP or MacOS.
Filed under Mac,QNAP,Tech.

Edit 2009-03-16: After using this to delete dupes on my QNAP I found while comparing the backup file to my library that there were a few (3 out of over 100) cases where somehow the original file did not exist. For example Kanye’s song “I Wonder” only existed in my library as “I Wonder 2.m4a” Again here it seems most of the problems are with music purchased from iTunes, I suggest not manually moving any purchased music. In any case the information here will work to remove dupes on your QNAP or Mac but a much better solution would be a script that checks to see if an original version of the file exists before deleting. I’ll be out of town for the next few days, but when I get back I’ll whip up a Perl script to do just that.

So I followed the instructions for moving my iTunes library to my QNAP 509. Against my better judgement I did check the box to allow iTunes to organize my music. I think in the long run it will be for the best, but in the short run what I got was a bunch of dupes. Mostly all my bought music that I had already copied over to the QNAP.

Looking closer and after seeing this on a buddy’s Mac once already, I found that all the duplicate files, even ones in their own directories ended in ” 1.mp3″ or ” 1.m4a”. So a quick find command, showed me all my dupes.

Edit 2009-02-16: If you do a library import more than once on the same shared directory the file names may end in 2.mp3 2.m4a or 3.mp3 etc instead of 1. You can alter your find command to include multiple numbers like this: find . -name “* [1-3].m*” -print  However be very careful once you go past 1, because lots of songs end in ‘part 2’  ‘side 2’ etc.   I also added a post on removing the duplicates in iTunes after removing them from the file system.

find . -name “* 1.m*” -print

Now that I knew I could get at them I just had to brush up on my awk and xargs to finish the job. The reason I needed awk and xargs instead of just issuing -exec rm in the find command is because the filenames have spaces in them. The awk and xargs on the QNAP are very stripped down so it took a while to figure that one out but I finally got the job done with this command:

QNAP Find and Delete Dupes

Make sure you paste these commands all on one line!

Please note: Some systems don’t properly copy the double and single quotes when you copy these commands. I suggest you copy them into a plain text document first and replace all the single and double quotes before executing them in a shell. I tried pre tags and different fonts but the problem persisted.

find . -name “* 1.m*” -print | awk ‘{print “\42” $n “\42”}’ | grep -vi “Track 1” | xargs /bin/rm

I really wanted a -i on the end there because I do have some files called “Track 1.mp3” when they couldn’t get CDDB info. However the QNAP xargs doesn’t support the -o option so the -i was being ignored and nothing was happening. To get around that I added the grep -vi “Track 1” to preserve those files and let the /bin/rm run it’s course. Make sure you look at the output without the | xargs /bin/rm on the end before you add it back to delete. And always back up the files before you issue the command. An easy way to backup the files you will be delete is to just use the same find command and send it to tar.

find . -name “* 1.m*” -print | awk ‘{print “\42” $n “\42”}’ | xargs tar -cvf save_before_delete.tar

MacOS Find and Delete Dupes

For MacOS the xargs is better so the solution was much easier.

Get to your iTunes Music folder usually ~/Music/iTunes/iTunes Music

Backup the Files first:

find . -name “* 1.m*” -print | awk ‘{print “\42” $0 “\42”}’ | xargs tar -cvf save_before_delete.tar

Watch what it tars up and you can examine the tar file with:

tar -tvf save_before_delete.tar | more

Hit spacebar to view the list of files page by page.

If you don’t see any files in there that you don’t want to delete you are ready to move on. If there are files in there that you want to save, you can work out grep -v commands to exclude them, or you can just save them and put them back after the mass delete.

Ready for Delete:

find . -name “* 1.m*” -print | awk ‘{print “\42” $0 “\42”}’ | xargs -o /bin/rm -i

The -i on the end is going to make you confirm every file. So if you have a lot, you may want to look at the list and use grep -vi to remove files you don’t want to delete ahead of time, and then you can issue the command without the -i.

Once you have examined your library and made sure nothing was deleted that you didn’t intend you are free to delete the backup tar file.

Transfer Palm Memos To iPhone

Published on 12 Mar 2009 at 2:27 am. Comments Off on Transfer Palm Memos To iPhone.
Filed under iPhone.

Quick Solution:
1. Purchase and Download Memos in iTunes
2. Follow His Excellent Directions

Nearly a year ago when I semi-forced Andrea to switch to an iPhone from her Palm there was no way for her to get her memos from her Palm to her iPhone. Due to this I got into the iPhone dev program and started writing hello world apps in hopes of providing her with a solution that would allow her to carry only her iPhone and have all her memos from her Palm (years worth of memos on various subjects).

Well the app dev stopped pretty much at the “Hello World” app as I wasn’t familiar with cocoa or data structures on the palm or iPhone. One thing I did find was huge demand for such an app, and so I knew one would eventually emerge. Andrea continued to pester me about getting her memos transfered from her Palm and eventually I found a solution in Memos by Blue Marble Software.

There may be better apps by now but this one did exactly what I needed and it was the first of its kind. The app costs $8 but well worth it for people with hundreds of memos stuck on their palm.

The process involves uploading the memos from the Palm to a Google Docs account, and then downloading them to the iPhone. His directions are great and I got it to work on the first try by following them so I won’t redo them and will just point you to his directions.

As with most things I recommend reading all the directions through once or twice before attempting.

mac os x to my liking

Published on 26 Feb 2009 at 1:34 pm. No Comments.
Filed under Mac.

Lately it seems I’ve been setting up or advising on setup of more and more Mac OS X systems. When a new windows user converts and loads up this “vastly superior” operating system their first thought is usually “ok what now”

Here are a few things I do to every Mac OSX install that I help setup. I find these to make working with MacOSX.

Setup Spaces and Expose

Open System Preferences from your Applications folder or Action Bar  –> Select ‘Show All‘ at the top  –>  Click on “Expose and Spaces” –> Click the Spaces tab at the top.

Make sure “Enable Spaces“  and “Show Spaces in Menu Bar” are both checked. Then go to the bottom where it says “To switch between spaces:”

I change this to COMMAND (shamrock looking thing) Arrow Keys.  This allows me to quickly switch to a different space by holding COMMAND and hitting up/down/left/right. This saves a ton of time when using multiple desktops. Now you can run email and IM on one desktop, browse the web on another, code/produce/create on another, etc, etc. Here I also setup certain Applications that run on Every Space.  I have Firefox and Audium (IM) set to run on every space, so no matter where I go they follow me. Of course I have two monitors so I have the room to always have these up.

Next click the “Expose” tab at the top. Under “Active Screen Corners” I set the upper left corner to “Desktop” the upper right corner to “Dashboard” the lower right corner to “Sleep Display” and the lower left corner to “All Windows” (The “All Windows” setting is essential for windows switchers who may be frustrated not having their “task bar”)

These settings save so much time. If I need a file I know is on the desktop I just move my mouse to the upper left corner and he desktop appears. If I want to give a song a thumbs up or thumbs down on my pandora running on my dashboard I just move my mouse to the upper right corner and the dashboard appears. If I am looking for a window and can’t seem to find it, I simply move my mouse to the bottom left corner and every window available will appear, allowing me to select the one I want.  Finally when I am walking away from the computer, I simply put my mouse in the lower right corner and the display goees to sleep.

Setup Trackpad For Laptops

One thing that Windows users really miss is right click, I use it so much that I always use an external mouse on my MBP. One way to get at right click is to hold “Option” while clicking, that’s a pain though. If you open your System Preferences and then go to “Trackpad” enable the option “Tap trackpad using two fingers for secondary click” (this is supported on most newer laptops). Then you can simply tap the trackpad with two fingers and the “right click/option/secondary” menu will appear.

Clean Up The Action Bar

Remove anything on the Action bar that you probably won’t use everyday.  To remove items simply drag them from the Action bar to an empty spot on the desktop. You will see a little cloud appear by your cursor that lets you know it’s ok to drop the item for removal, a little puff of smoke and a swoosh sound confirm it’s removal. You aren’t deleting anything, just removing it from the bar.

The list of items to remove likely includes:

  • Photo Booth
  • iChat
  • Front Row
  • iPhoto (configure it to start when camera connected)
  • Address Book
  • iCal (i actually use this quite a bit because of iPhone integration but i keep it somewhere else, details below)
  • Mail (if you are web based like 90% of the world)
  • iMovie
  • Garage Band
  • Time Machine (if it’s on the bar)
  • Safari (if you are going to use FireFox, Safari 4 looks really nice so far but i live on FireFox addons)

Once you have removed those add some items you will use quite a bit. To add items open up your Applications folder by double clicking your hard drive on the desktop. Applications will be one of the folders listed in the window that appears.  Open this folder and drag items you will use daily to the bar. When you get to the bar, two existing items will get bigger and split to produce a hole where you can drop the new item.

Some Items I Add To The Action Bar Are:

  • FireFox
  • VMWare (if you need to run legacy windows apps on your Mac this is much better than bootcamp. You can run the apps in MacOSX and even drag and drop files between the two operating systems. Will also run many other operating systems. This is a must buy for me.
  • Terminal (geeks only)
  • Spaces (if it’s not already there)
  • System Preferences (if it’s not already there)

Any app you will use on a daily basis, I would put on the bar.

Next I drag the actual Applications folder to the action bar. There is one thing to know about adding folders to the bar and that is that folder shortcuts need to go on to the right of the dotted line on your action bar. To the right of this dotted line is where applications that are minimized will show up. This is also the only place that you can drop folder shortcuts. Drag Applications from your hard drive (make sure you drag the actual folder,  not the shortcut that appears in “Places” on the left side when you open your drive) and drop it on the Action bar to the right of the dotted line. Windows users will likely want to right click the new short cut and under the “View Contents As” select “List“. This Applications folder is now your “Start Menu”

I also create folders with names like “Business”, “Internet”, “Audio/Video” and put relevant items in them and drag those folders to the bar. I will cover creating these folders and the shortcuts they contain in another post. For now just having the Applications folder on your bar is a good start.

Install Useful Applications

IM – Audium http://www.adiumx.com/ + Growl + OTR

System Monitoring – iStats Menu – besides monitoring CPU/Memory/Network one of my favorite things about this App is that it puts a full date in the menubar including the Month and Day, an ability I wasn’t able to coerce out of the default time display.

VMWare – install and run windows on your mac without rebooting. They have a fully functional trial, get it and set it up if you need to run windows apps. Run it till the trial expires and see if you really do need those apps before buying.

VLC – video viewer for WMA files. I like it so much I use it for pretty much all my video viewing.

Cyberduck – FTP/SFTP/WebDAV/Mosso Cloud/Amazon S3  – if you don’t know what those are you don’t need it.

Install X11 from the Apple website, some apps listed below require it.

Gimp – Photo editing – if you aren’t going to buy Photoshop, Gimp is a great (and powerful) alternative. It’s no MS paint so there may be a little learning curve.

Divx – for those movies that VLC won’t play

Rip/Encode DVDs for AppleTV/iPhone/iPod – get and install ffmpegX and then install Handbrake

Browse and install Dashboard Widgets the one I use most is Pandora the rest are personal preference. I would suggest getting a better calculator, as the default dashboard calculator sucks.

Setup Time Machine

This is pretty self explanatory once you plug in an external drive, but I thought I’d list it here as a reminder to do it. Time machine is the way backups should be, make sure you get a drive and set it up.  I have it configured to backup to a network drive, but that was a pretty involved process and I won’t get into it here, but you can read about it yourself on macosxhints.

That’s all I can think of for now, hopefully some of this info will save you time and help you enjoy your new MacOS to the fullest.

MacOS reference guide for Windows switchers

Published on 2 Feb 2009 at 12:12 am. No Comments.
Filed under Mac.

The more people I convert over to MacOS the more IMs I get asking how to do common tasks. I remember going through the same thing as I learned to navigate MacOS.  Here I will start a list of common tasks and how to perform them on MacOS. I will update this page as more things come up, providing all switchers with a quick reference guide. Please note these apply to MacOS 10.5 Leopard.

Definitions:

When I mention the COMMAND Key (i may sometimes call it ‘open apple’) I mean the key with one or more of the following symbols on it:



General Tip for Windows Users:
– Drag your Applications folder to your action bar to provide “start menu” like access to your applications. To do this double click your hard drive, in the finder window that appears highlight your hard drive in the DEVICES section. One of the visible folders should be “Applications” click and drag it to your action bar, and drop it just to the left of the trash can on the bar. The trash can and the icon next to it should slide apart for you to drop it on the bar. The left side of the action bar is reserved for application icons, so dropping it next to the trash can will assure it gets added. I do this with folders like “utilities” as well.

CNTRL-ALT-DELETE

Though it does not happen nearly as often, sometimes apps will just stop responding. You can “force quit” an app that is not responding with COMMAND-ALT-ESCAPE. This will bring up a window allowing you to select which application to force quit.

Copy & Paste
Copy: COMMAND-C
Paste: COMMAND-V
Cut: COMMAND-X
Drag to Copy/Paste: A neat little feature is that you can highlight any text anywhere, and then simply drag and drop it where you want to paste it, saving 2 keystrokes.

Print Screen
When using these you will hear a “shutter click” when the image is taken and the grab will appear on your desktop as a PNG image.

Whole Screen Grab: COMMAND-SHIFT-3

Portion of Screen: COMMAND-SHIFT-4
This brings up a cross hair allowing you to select the area of the screen to capture. Releasing the mouse after dragging takes the grab.

Application Window: COMMAND-SHIFT-4
Same as portion of screen, however when the cross hairs appear hit the SPACE BAR. A camera will appear and as you move it around the screen application windows will become highlighted. When you click on a window a capture of that application window will be saved to the desktop. You do not need to have the window in the foreground, you can click on a partially visible window and it will capture it unobstructed.

You can also use the “Grab” utility found in your Applications/Utilities folder. It is a nice tool that will walk you through the grab, provides screen/app/window grabs and allows you to save the file as a high quality .tiff.

Invert Screen
COMMAND-ALT-CNTRL-8
I don’t think you can even do this in windows, but it’s kinda cool. Comes in handy when trying to use your laptop in a dark room without bothering others.

System Information
This includes everything from processor speed and installed RAM to your IP address. Select the Apple at the very top left corner of your screen, select “About This Mac” then click “More Information”

Access Saved Passwords
MacOS stores all your passwords in your keychain. This includes WEP and WPA keys. So if you lose one of those and need to get it from your keychain, simply open the “Keychain Access” application found in your Applications/Utilities folder. You will be able to browse and retrieve all your saved keychain passwords.


Last updated: 2009.02.01

Straddle Followup

Published on 18 Jan 2009 at 5:01 pm. No Comments.
Filed under Investing.

It’s been a while since I posted anything. Life has it’s ways of smacking you around sometimes. I did play with straddles a little as I talked about in my last post. I did one shortly after that post on GM on 11/12 when it was trading around 3.50. This was going into the hearings on bailing out the Auto industry and I didn’t know which way it would move, I just thought it would move big one way or another. That’s when you want to use a straddle. I bought 10 $3 calls and 10 $3 puts at a combined price of $1.29. One thing about a straddle, specially in this market, is that you can get out of either side whenever you want without changing your risk profile. Your max loss is always the cost of both options combined. As that week proceeded and we neared expiration date the value of my options was decaying and no big news had come out. I sold half the options at a small loss just to get some money back.  I got lucky and was able to unload the rest on the 20th when GM traded in a range of 1.7 to 4. This basically saved the trade and I came out about even after fees. They would have expired basically worthless the next day.

So if you think a stock is going to make a big move but you don’t know which direction, a straddle can help you profit on that movement.

Since then it’s been hit and miss trying to play financials and energy stocks, and a huge miss on a big AAPL options bet going into Macworld when a strategically timed and totally suspect — even tho the info may turn out to be true — blog posts about Steve Job’s health came out driving the stock way down. Luckily I did sell half my position as it ran up into Macworld or it would have been much worse.

So for now I am just sticking to stocks I believe in for the long term and then selling covered calls against them in the interim to take advantage of the volatility and make some money while I wait for a recovery. With the market the way it is, selling options is the safest bet IMO. There’s nothing like selling some calls after a stock has run up from where you bought it, then a few days later covering during the seemingly inevitable pullback.

fumbling through the market – today collars

Published on 8 Nov 2008 at 2:11 am. No Comments.
Filed under Investing.

As previously stated I know very little of the stock market but it has become an interest of mine lately after discovering different plays that are possible. It’s similar to poker in that you try to make the best decision possible with limited information. However there are more ways to hedge your bets. As I learn new things I am sharing them here in hopes to spark some interest in someone else but mostly for the clicks on those ads you see on the right 🙂

On 10/29/08 I made a speculative play on Las Vegas Sands (LVS). I bought 200 shares and got in at an average price of $8.75. As I discussed in my post about Apple I immediately sold a call option to hedge my position. I sold 1 Jan $10 option at $3.40 and then waited to see what happened. On 10/30 the stock started to run on some news and moved through my $10 execute price. I decided I thought the stock was going to go much higher so I bought that option back at $4.30. This was a loss of about $110 after fees. This was fine cause I was up a lot more on the holding at that point. The stock continued to soar and at one point on Halloween I was up nearly 100% on the position. This was where my first mistake occurred. If you are up almost 100% on a position (specially in 2 days) take profits! At the very least put in a trailing stop to ride any additional rush and then taking profits on the next pullback. 100% is very rare. I would suggest considering profits anywhere over 20%, I’m happy with 10+.

So I didn’t take profits and I had no hedge on the down side. News came out that LVS was in big trouble financially and in after hours trading it dropped from $11.75 to $7.94. It continued to sell off and I jumped ship at $7.72, booking a loss of around $220.

Total loss of $330 on what should have been a $1500+ trade.

What did I learn?
1. Don’t be greedy, take profits – use trailing stops to lock in profits while still riding a rush.
2. Consider hedging your bets with things like Collars

Here’s an example:

Over the course of Halloween I bought into 400 shares of YHOO ending up with an average price of $12.98. YHOO is sitting on a lot of cash and was in the works with Google for a search advertising deal and there were always the Microsoft buyout rumors. I was however not sure how the election may or may not affect the market. My guess was that an Obama win was already cooked in and that the relief of it just being over would cause a little run. To hedge my position I sold 2 Jan $15 calls for $1.70. The stock looked really solid Monday so when it pulled back a little around 2pm I bought back the calls for $1.63, not quite covering the fees.

Well the Google deal fell through and Jerry Yang started talking about how Microsoft should buy YHOO. The stock soared to almost $15. I know Microsoft needs a better search in order to compete with Google so I thought the deal might happen. I consulted a good friend who knows much more about these matters as to how I should play a possible Microsoft bid. Should I sell the rumors, sell the announcement or wait for the bid and sell then. He responded that he thought YHOO was done and there was no MS deal. He turned out to be right on with this call, but I didn’t believe him, however I trusted his judgment. So instead of selling the stock on 11/06/08 I sold 2 Jan $15 calls for $2.30 each and 2 Dec $15 calls for $1.70 each. I thought this had me fully hedged on the down side, but I was wrong, it could have been better.

Microsoft comes out and says exactly what my friend had already told me, there is no deal, we offered, they weren’t interested, we moved on. (I still think Microsoft wants the search, they just aren’t in any rush and hold all the cards right now).

I had no stop loss on YHOO and it trades down from the previous close of $13.95 to $12.45 before the market even opens.

It’s looking ugly so immediately dump 200 shares at $12.20 netting a loss of about $160

Having uncovered short call options out there makes me nervous so I immediately buy back the Jan $15 calls for $1.25. I sold those calls for a total of $460 so buying them back for $250 made me about $200, subtract the $160 from sale of the shares and I snuck out about even on a diving stock. I decided to hold my Dec $15 call and the underlying shares to see where YHOO went.

The Collar:

If I had done one other thing on 11/06 this could have gone much better. When I sold those calls for $460 around 11am I could have immediately bought 2 Jan $14 put options for $2.23 each ($446 total). What this would have provided is a collar on YHOO guaranteeing that at expiration in Jan I would have the option to sell YHOO for at least $14 and maybe $15. Why would I do this? Well at that point on 11/6 YHOO was trading at $14.41. I was already up $586 ($572 on the stock and $14 on the difference between the call options and put options). That’s an 11% return and locking that in would have been nice. At this point I could have just stopped watching YHOO till Jan. The worst case would have been that YHOO was trading between $14 and $15 at expiration making both options worthless and my net gain only what I had gained in the stock price from $12.98, which would have still been about 10%

Now lets see how 11/07 would have played out with the collar in place:

When the stock opened at $12.45 I would have been feeling very good about those put options I bought, knowing that come Jan I could always sell my stock for $14. So I wouldn’t have been in a hurry to do anything and could have sat in wait to see how things played out.

Turns out YHOO didn’t dump much past where I sold off, but the options prices did continue to move. By around 3pm the Jan $15 call option had leveled off at 1.05, the Jan $14 put option had leveled off at $3.30 and YHOO was trading at $12.18.

What I could have then done is:
Buy back the call options $460 – $210 = $250 profit
Sell the put options $660 – $446 = $214 profit

At this point I am holding YHOO which I can sell at $12.18 for a loss of $160 making the whole trade on those 200 shares worth about $300 or 11% without waiting till Jan. Or I can hold YHOO and keep the $450 profit I just made on the options. Without the collar I snuck out in a panic and basically covered the fees, with the collar I would have been comfortable watching where the stock went and could have made $450 on the day while holding a stock that seemed to be trading sideways.

Collars are best when:
– You think a stock is going to move big in one direction or another, but you don’t know which (rumors that prove to be false or true, earnings that are vastly different than expected, etc)

– Safest when the put price is above your average per share price. Buy into a position and put in a standard hidden stop loss, if it moves up a little go ahead and collar it and lock in a little profit and possible a big one if the stock moves alot.

– When the premium difference between the call you are selling and the put you are buying is big enough to book a decent immediate profit.

One thing to notice about this collar was that it was basically free to setup as the money I received from selling the calls was larger than what I spent on the puts and the difference covered the fees. This was mostly because the price had already risen and I was collaring the stock to lock in that profit but still have options if it moved big one way or another. This meant I could have locked in a 10%+ guaranteed return, with no possible downside for free, and still have other more profitable outs if it moved a large amount one way or another.. How can you go wrong with that?

I’m going to be looking to collar a lot more stocks in the near future in this volatile market. They provide a known limit to any losses/gains and at the same time still allow you to take advantage of large moves in the market.

There is another play called a straddle where you don’t have to hold the underlying stock and thus requires much less capital to execute. It has its own drawbacks however and I will discuss a straddle play in another post. And buy a boat.

Prop 8 loss is a sad commentary but Hope is alive

Published on 5 Nov 2008 at 11:22 am. No Comments.
Filed under Election 2008.

Though it is sad Californians voted the discriminatory prop 8 into effect there is plenty of hope to hold on to today.

First off in 2000 the nearly identical Prop 22 was voted in by Californian voters by a margin of 61% – 38%. In contrast Prop 8 only passed 52% to 48%

Additionally Prop 22 was ruled to be against the CA constitution by the California Supreme Court, stating that it unfairly discriminated. Prop 8 could face a similar fate.

However even had prop 8 failed gay couples in California still would not have the 1138 federal marriage rights that were denied to them by the Defense of Marriage Act. The real fight is in Washington and Obama is on our side.

So even though small minded bigoted voters may have denied same sex couples in California the right to the title of “Marriage” for a time, what’s important at this point are the rights of those couples.

From 2000 – 2008 we went from 61% against to 52% against. We are getting there, the time will come when these couples are treated equally in title and rights, until that time lets work on the rights! Contact your representatives and tell them to repeal the Defense of Marriage Act.

Some Profitable Risks In This Stock Market

Published on 2 Nov 2008 at 1:05 pm. No Comments.
Filed under Investing,Poker.

First off I don’t claim to be any kind of Investment Guru or have any kind real knowledge on the matter whatsoever. However for those that know me, what you know is that I am is a risk taker, but a calculated risk taker. I don’t think I have to tell anyone that the stock market can be very risky. However I think this market provides some return opportunities that haven’t existed in recent history and will continue to diminish as the market volatility levels off.

When poker was booming and it was still legal and easy for everyone to get money into their poker accounts it was VERY EASY to make money. At the peak I averaged 8-10K profit PER MONTH playing poker. That’s right, I would sit down at the table for 3-6 hours per day and walk away at the end of the month with a nice profit. It wasn’t all good times and took a lot of discipline. Some days I would lose 5K and then the next day I might win 10K, it took a long term perspective but I knew by keeping to my game I would win in the long run. My best month ever was around 12K and during those few years while poker was going strong I NEVER had a losing month in 3 years. THANK YOU MATH! (and self discipline). After 2-3 years of this fun the government outlawed funding of poker accounts in October 2006 (my black October) making it very difficult for “Joe Six pack” to pop down his credit card on a Friday night after having a few drinks and spend $50 on “entertainment”. The bottom of the poker pyramid consisted of a huge amount of people who lost anywhere from $25-$100 per month as a form of entertainment, above them were a huge amount of people who broke even in the long run, then came a small percent who made a living wage, and an even smaller percent who made a lot of money. In this 4 level pyramid I would have placed myself somewhere between the second and third level (yes in the poker world 10K/month is not considered a lot of money) many of the people who played in the same games I played made 500K+ a year).

So what does poker have to do with the stock market? Both are games of information and risk. You try to get your money in based on the information provided to you and it is the risk that provides the opportunity for reward. This current stock market we find ourselves in has provided huge opportunities for people who have both the analytical abilities to search out good bets and the stomach to take a chance on them. This takes some time to research and execute but at the valuation stocks are currently trading and the high value of the vix (volatility index) there are some very simple plays to be made. Let me give you one example.

My favorite stock to trade is AAPL (Apple). This is because not only is it a very solid company, which does high volume, but also because I believe in this company, their products and their long term survivability. I have recently switched from Micro$oft operating systems to Apple, I have an iPhone and I just generally believe their products are better. So find yourself a stock you believe in, that has solid financials and high trading volume (make sure the options volume is good too).

I do the following strategy with a number of different stocks over different time frames so there is always something to do, however you can easily just pick one stock and do this over and over again. I generally have 30-50% of my portfolio in some kind of AAPL play, which is more than most would suggest you should have in one equity, but at the current prices I feel very safe in holding AAPL as I have no problem holding it for the long term.

This play is most profitable in a very volatile market (because the options give higher premiums) like we have now and that is why I am writing about it now. This can be done with options anywhere from 1-3 months out, 3 months give you the best premiums but 1 month plays allow you to realize profits sooner.

Jim Cramer from Mad Money (who I originally found very annoying but has grown on me due to his excellent insights, despite the fact that he keeps telling people to buy stock in the EVIL Wallmart) has said that the days of buying and holding stocks is over. What he means by this is that if you bought stock in the 90’s and held them till now, they would now be worth the same as when you bought them. Not a great 10+ year investment. However ironically I never hear him talk about plays like I am about to describe. He just talks about valuating stocks and dividends, which are both great things to look at when looking for a stock to make these plays on, in case you get stuck holding it longer than you expected.

Let me also preface this by saying that I am not looking to get rich in the stock market. I am always in search of new ways to add to my residual monthly income that keeps me from a 9-5 job. I am very happy averaging a couple hundred dollars per day overall. This is pennies when compared with what most traders are trying to make, which makes it that much easier. It’s easy as long as you aren’t greedy. Also the more capital you have to play with the easier it is to make 3-6K per month without leaving the comfort of your home office chair.

The Trade
This is an example of a trade I made just this last Friday. I am long on both AAPL and Jan AAPL calls.

On top of my long holdings I also made this short term play on AAPL:

On Friday 10/31/08 I bought 200 AAPL at $107 (which was about $2 higher than the day low, but no one is going to buy the exact low or sell the exact high).

Shortly after getting in at $107 I sold two Nov $110 calls for $5.60. For those of you that don’t know how options work a “call” option is a contract that means the person who bought the contract from me has a right to buy 100 shares of AAPL at $110 per share anytime before expiration date, so the price is $5.60×100 = $560. In this case the expiration is November 21st (always the third Friday of the month). When I sell these calls the money is immediately deposited into my account. So on Friday my account was approx $1110 richer (after fees).

This trade can basically go 3 ways for me:

Outcome 1: AAPL is at or under $110 on November 21st
In this case the options I sold are worthless, and thus I keep the $1110 I made when selling the option. I am then left holding 200 shares of AAPL. I love AAPL so holding 200 shares doesn’t bother me one bit, that’s why you choose good long term stocks for this play. Now I am ready to do another 1-3 month play on these shares or just hold them.

Outcome 1 Result: Profit $1110 + Holding 200 shares of AAPL

Outcome 2: AAPL is over $110 on November 21st by enough for someone to execute the option
In this case the buyer of the option will “execute” them. Essentially forcing me to sell them the 200 AAPL I bought at $107 for $110. These were “covered” calls which means I held the underlying stock. So when they execute the option I make $600 ($110×200 – $107×200) on the sale of the stock and I keep the initial $1110 premium I got for the options contract.

Outcome 2 Result: Profit $1110 from contract + $600 from stock sale = $1710 profit

So the cost of this investment was $20,700 and on the low end it made 5.3% return in one month (while still holding the underlying stock) and on the high end it made 8.2%. So both results return more than most CDs. SO IF YOU PICK SOLID STOCKS (this is the key) the WORST CASE outcome in this beat down market is that you are left holding an under valued stock and you have a 5%+ return in your pocket from the sale of the contract. The volatility in this market is what’s setting the time premium on these options. You can find plays like this returning much more than 5%. There was a time around Oct 17, 2008 when you could buy CHK in the $17 range and sell a $22.50 Jan call for nearly $4. On the low end this play returned $23% ($400 profit on $1700 investment) and around 55% if your call was executed! Due to the $400 premium of the call you basically bought the stock at $13. Your upside is limited to $950, but hey that’s fine with me on a $1700 investment.

What if the stock goes to 0??
This is why you pick solid stocks with strong balance sheets, the odds of AAPL going to 0, well I would say are close to 0. Now if you were making these plays on AAPL just a few months ago you could have been in real trouble. But at this point I would guess the floor for AAPL is around $85 and my guess is that within a year it will be in the $150 range. That is why I said these plays work best in this current under-valued market situation.

What if the stock goes to $150??
Well in the scenario I provided you would just have to take your $1710 profit and move on to the next trade. However this is why I have multiple hedged bets going at once. In reality on a stock as strong as AAPL I would only hedge half of my holdings, I would also do it not just for November but also December and Jan. The december $110 calls were selling for $9.65 and Jan for $12.35 giving you much larger time premiums.

Trading As You Go
You may notice I said the trade could go 3 ways but only listed 2 outcomes. This is because most of the time my options never make it to expiration. This is option 3. All stocks have their ups and downs throughout time. You can’t be short and long the same call option but you can be short November calls (when you sell the call option as I state above you are essentially “short” this option) and at the same time be long Jan calls. I generally have a mix of being short and long calls on AAPL with different expiration dates, while always holding the underlying stock at a price that is protected by my shorts. What this does is give me wiggle room in the interim to make profitable trades on a day by day basis without having to wait for expiration.

Let me clarify a bit what I mean by “wiggle room”. If after I short those calls at $107 the stock drops to $103, the cost of that call I sold will go down with the stock price, the amount will vary based on how close we are to the expiration date. As we get closer to the expiration date the option has less and less time premium and only includes the intrinsic value of the option. For example sake lets say the same day that I sold the option for $5.60 the stock dropped to $103 and the option dropped to $3.60. If I feel this is just a temporary dip at this point I can go ahead buy that contract back, make a quick $200 (before fees) and then get ready to re-sell it again when the stock price goes up a bit. This is why I like to have different hedges on the same symbol, allowing me to hopefully make a little bit on moves in both directions. If I feel AAPL is trading in a range and $105 is the low end I might even buy a call option before the next rip.

Now at the poker table I would NEVER bet 10K to make $200, however in the market with these covered calls I think it does make sense for me to make these bets and turn $100-$200 profit per day as long as the underlying stock I’m holding is one I believe in fully. If I can make $100-$200 per day that’s 3k-6k / month without ever putting a shirt on.

If what I have posted here interests you I encourage you to research more some of these plays that can pay off particularly in a volatile market like we have now. I suggest reading about Straddles, Collars, and Covered Calls (what I just described here). All can be used to limit downside and make a little money while (hopefully) limiting the risk.

« Previous Entries Next Page »