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Strategies & Market Trends : DAYTRADING/SWINGTRADING STOCKS with INTRADAY INVESTMENTS -- Ignore unavailable to you. Want to Upgrade?

To: Dan Duchardt who wrote (10)	5/15/2001 10:07:50 PM
From: -	Read Replies (1) \| Respond to of 565

Hi Dan, Great to hear from you, glad to hear of your interest in our work. Nice job on shorting the JNPR calls... yes that post-Fed rally was a tricky one today, it stopped me out of two shorts that I'd rather still be in;( JNPR is one of my favorite trading vehicles, so I have been trading JNPR options both naked and as spreads recently. Here's an idea for you to think about: (shorting the premium is OK, but as another trick in your toolkit) instead of just going short the premium and worrying about getting stopped out (since you MUST control risk on a naked option position), have you considered trying the Bearish vertical call credit spread? That caps your downside risk to the width of the spread minus the credit. For example, sell the 50 call short for a credit, and use part of the credit to buy a 55 or a 60 call for a net credit of a buck or two (you can also do them 10 points wide). The long call is bought with part of the proceeds from the short call, reducing your max profit slightly... but oh, man the benefits! You essentially are "buying your stop" as you enter the trade, as well as setting yourself up for all sorts of creative/profitable "leg out" scenarios. And spreads are option positions you can absolutely "sleep like a baby" with... they call them the "put it on and walk away" trade, although that's quite the exaggeration. In some cases you can do that though... as long as the short option expires out of the money, there is no need to close the trade - it simply expires with your maximum profit intact (and no close-out commissions paid). Unlike trading the stock overnight with a stop, JNPR could gap up 100 points tomorrow, and you wouldn't care since the hedge will still limit your maximum loss to that amount. The maximum profit is the credit, of course. However, you can often "leg out" and do better. For example, if JNPR started to act strong, you can leg out of (cover) the short call and ride the long call with a trailing contingent stop on the underlying. Although classically they've been treated as longer-term trades (1-3 weeks or longer, typically) I find they work equally well for day-trading or swing-trading purposes... hey, commisions and spreads have improved, and our tools are better now, for starters! Plus, we have much better option analytics so you can avoid getting eaten up by "the Greeks", etc. A nice thing about this spread is you really aren't hurt by the time decay... it's working FOR you (since the short call is decaying along with the long call). Same is true (even moreso) with naked/short calls, too of course. We've been doing these in the room on all kinds of stocks and index trades... there is a decent article about them in the newest "stocks and commodities", and you can read Narajin, Saliba, etc for good insights. We've been posting P&L graphics (Gain/Loss vs. underlying price and time to expiration) in the room as we enter these, to explain them. The other hidden advantage of spreading is that it dramatically cuts your margin requirement (vs. being naked the calls) which gives you back more of your buying power to trade with. Especially on the index options, margin requirements for the naked positions can be onerous. Sometimes it's worth buying an OTM call against a naked call just to reign in the margin requirement! Apparently the powers-that-be consider a huge gap up in the indices to be a high probability... maybe someday (let's hope for that:) but in this market I don't think so! ;) One thing I've noticed about the serious, consistent, long-term successful option traders... virtually ALL of them are trading spreads and other forms of hedging... that's the big advantage of options... incredibly flexible risk control! Along with the leverage, of course. Anyway hope the option trading is coming along well, good to hear from you! -Steve

To: Dan Duchardt who wrote (10)	5/16/2001 8:33:46 AM
From: deronw	Read Replies (1) \| Respond to of 565

Hello Dan, It's great to find a fellow options trader, especially one who likes to sell premium. This is the primary strategy that we teach as well. One concept that we have also had a lot of success with is writing naked options on various market sectors and indexes. One such example was the Banking and Finance sector. On April 2, we saw that the BKX sector was approaching its overhead resistance of the 200 period MA on the daily chart. When combined with the state of the Dow at that time AND the head and shoulders pattern the BKX was forming on the daily chart, we decided it was a low risk/high reward trade to sell naked calls on the BKX. So, we sold the May 900 calls on the BKX. By selling out of the money calls, this also decreased our risk because it gave the sector a lot of "wiggle room." After we initiated that play, the premium quickly started eroding as the BKX started dropping. If I recall correctly, we collected about $11 premium and bought the calls back for around $3 each, only two weeks later. This netted us a profit of about $8 per contract, with minimal risk. Although we could have just held them until expiration and let the premium drop to zero, we like to take the profits, which decreases overall risk. By the way, one other benefit of doing naked options on sectors, rather than individual stocks, is that the risk of takeover or acquisition by another company is much less because you are dealing with an entire sector, not just one specific stock. We often do plays like this in our room as we see the setups that make sense in the various sectors. Hope this helps. Deron Wagner General Partner www.intradayinvestments.com