Saturday, January 13, 2007

Do You Like Option Education Programs?

Has anyone had an experience with an option education program where you've had to pay a lot of money for 3o minutes or 1 hour sessions over the phone or in person?

If so, feel free to share your negative or positive experiences with these programs.

Stay tuned because soon I'll be offering what you pay $5,000-10,000 for free on the OJ blog.

Grab a vine.

Friday, January 12, 2007

OJ Portfolio Update

Click HERE to View latest OJ Portfolio.

Thursday, January 11, 2007

MSFT Update

Our JUL 27.50 Calls that we bought for 1.96/contract closed today at 2.50 (+28%). We'll see if the tech rally continues with MSFT leading the way for the Nasdaq.


Since I'm still waiting for NYX to pullback a little bit more for a long call entry, I thought that I might add another exchange play.

That's right, the New York Mercantile Holdings, Inc. (NYSE: NMX). Why another exchange you say?

Just because I think it has been neglected and forgotten about by investors who have been involved in NYX, CME, ICE and BOT.

Just because the stock has been beaten down since it's IPO and just because analysts have downgraded I think its time to rise will be imminent.

So here's what I have done to show my bullish bias on NMX. I bought the JUN 07 120 Calls for $13.41/contract near the close yesterday.

There is no theoretical option pricing model on any of these options because they have no history due to recent availability of options on the IPO.

The JUN 120 Call IV level is around 30% which is 52 wk lows. The ATM option IV has recently started rising which can be good for the call options especially if the underlying continues to rise.

Having said that, I like the recent support at 115 and 118 and have seen a recent runup the last two trading days. The trick will be if it can break the 133 level.

The only fundamentals that have been at the forefront of this company's earning growth potential is that its trading volume of both futures and options contracts have recently hit records especially those contracts tied to oil and precious metals.

I intend on grabbing more contracts as it breaks out of recent highs or if it retreats back to support levels, nothing in between.

Grab a vine and tell me what you think about this NMX long term call play.

Wednesday, January 10, 2007

Stay Tuned For My Next Posts

Look for my latest trades concerning DELL, NMX, and CSCO. Can you say tech and finance heavy?

Stay tuned for more.

Yahoo for YHOO?

Do you for YHOO or do you YAWN?

What do you get when you start losing market share to GOOGLE? Could it be a beaten up internet giant that is undervalued or a beaten up internet giant that will remain beaten up?

According to my research, YHOO is fairly valued at around $34.00. It has found support recently at $25 and hit a 52 wk low at $23. I like this sleeping value play and here are the options that I like.

I legged into some JUL 07 27.50 Calls at 3.81/contract. Why? Because their theoretical value is at $4.20 with a .65 delta.

Those options are trading at a 33% IV level which is about the lower middle of the extremes of 25/50% levels. They look like they have been rising which coupled with a rising underlying is double whammy on the positive side.

Fundamentally, YHOO still has a large user base, still remains to be the most popular web destination on the web, still has a far-reaching global popularity, has plenty of cash for stock buybacks and potential headliner acquisitions, and with its reorganization plans unfolding there is a positive aroma in the air.

The downside is that YHOO's revenue primarily comes from search which has fallen behind Google and could see hard times in an economic recession. It has also executed poorly in launching its newest advertising platform and has lacked in acquisitions behind Google and NewsCorp's. The competition is stronger than ever from AOL, Google, Microsoft, and traditional media companies.

Having said all that, why Yahoo now? Mainly because I think that it has been awakened by the stiff competition and that it looks attractive at these prices given that it's in a bullish sector so far. Besides, I like Yahoo Finance.

Grab a vine and let me know if you are Yahooing for Yahoo or not.

MSFT Update

Alright fellow "junglers" (please help me on a name I can call all readers). I entered my first scaling in position in MSFT.

I bought the JUL 07 30 Calls at $1.96/contract. I'll continue to scale in more as we go here. I'd still prefer a pullback in the overall markets which have been resilient at key support levels.

I liked the little pullback in MSFT today as it trades sideways here at the $29.50 level.

I'll keep all posted. I intend on posting a portfolio link soon as more positions start coming in for all to view at your leisure.

Feel free to grab a vine.

APPL 90/85 PUT Credit Spread Update

The 90/85 put spread trade that I entered yesterday is now worth $0.50 putting our position up by $1.70/contract (+77%). Remember, that our net credit basis was $2.20/contract.

IV on those puts has not really moved that much. This has been more of an underlying move up that has sucked the life out the put premiums (remember, that's a good thing for a net credit play).

Well I exited the trade earlier today (too early I might add) for a net debit of $1.00. I just thought that with so much movement from yesterday and still a higher open today that it might make sense taking my profits now and if the stock loses momentum into earnings that there might be another entry point yet.

I'll keep all in the jungle posted.

Anyone Interested In Mr. Softy (MSFT)?

Believe it or not, I am. Who likes paying a toll, so to speak, everytime you use a computer? Probably no one I know does. Who likes investing or trading a company who controls the toll and that toll bascially goes to its bottomline? Probably anyone I know does.
Well, whether you like it or not, Mr. Softy (no, not Mr. Softee) might be for you.

I noticed a blog called 24/7 Wall St posted their opinion on MSFT and I agree with their analysis.

Here's why I also think Microsoft (Nasdaq: MSFT) might be a solid longer term bullish call play:









8. LOTS OF CASH ($43 Billion even after paying out a $32 billion special dividend in 2004)













OK. So those are the fundamental pros and cons. What about the technicals and option pricing factors to be considered.

For one, the stock price has clustered around this 29-30 level for quite some time after making a nice move up from the low 20s in Aug 06. Having said that suggests that there is a possible breakout above the 30 level which would provide some nice premium increases in bullish call options.

Now, which options should I choose? Since I want time on my side, I'm looking at the JUL 07 27.50 Calls. These are slightly ITM and therefore cost a little more than the 1 strike OTM's; the 30 calls.

The JUL 07 27.50 Calls are currently trading for $3.40 and the 30 Calls are $1.85. The 30 calls are trading about $0.20 under fair value according the theoretical option pricing model I use and the 27.50's are about $0.10 below fair value.

That's good either way. Which ones would I choose? I like having a little intrinsic value-meaning the amount difference between the actual stock price and the strike price-to have in reserve. But if you prefer to be a little more aggressive than the 30's would not be bad either.

Both have deltas currently of .75/.55 respectively.

Now, let's talk about Implied Volatility (IV). Both call options have IV of 19.4 and 19.9% respectively. These have been rising the past month from lows of 14% but look like they have up to about 32% levels to go before getting too high.

Let's run a scenario on both 27.50/30 calls: The assumptions are that the stock price runs to $34.00 by April 10, 2007, the IV levels rise to 25% and includes a dividend payout of $0.10 per share paid in 2/13/07 and current interest rate of 5.25%.

Current stock price (1/10/07) = $29.53
Current IV = 19.4/19.99%
Current Jul 07 27.50/30 Call Premium = $3.40/$1.85

Upside scenario results:
Premium would be theoretically priced at $7.00 (+105%) /$4.75 (+156%)

Downside scenario results:
If the stock drops to 27.50 and IV drops a couple of percentage points, the premium would drop to about $0.50 (-73%) for the 30 calls and down to about $1.35 (-60%) for the 27.50's.

I'd prefer if MSFT would pullback to about $29.00 before I engage my longer term call play and I'd prefer to see the overall markets pullback some more before so that we can potentially see some new highs again (pull before you push).

Keep in mind that it's earning season again and we might see continued sideways to slightly upside movement in the short term.

If Mr. Softy breaks out above 30 the markets will most likely follow suit or vice a versa.

Any thoughts, comments, dislikes on my strategy, you know what to do. Grab a vine.

Tuesday, January 9, 2007

AAPL Update

Well the announcement made headline news and it's official Apple Unveils Long-Awaited Phone, TV Box.

The iPhone and Apple TV products will be available soon.

What does mean for the credit spread. Well I tried to enter my 90/85 Put Spread at $3.00 but did not get filled after I modified the order to $3.10 when the stock dropped quickly before the news. So instead I waited and got filled at $2.20. Not at all a great entry price and does not provide a great risk/reward but nonetheless I'm in and the current net debit is 1.65 (up .55 +25%).

Now the stock is above 90 and IV has moved to 58/55 respectively.

I'll keep everyone updated about the management of the trade and any other thoughts.

Monday, January 8, 2007

More AAPL To Bite?

Just by way of information. I have to add that one caveat to the explosive implied volatility levels for AAPL is that the Q1 2007 earnings report is scheduled to be released 1/17 which is two days before January expiration.

If most investors are betting that Q1 earnings will be great then IV will continue to rise up to that date most likely. So that still bodes well for our credit play which should see some premium degradation with the expected rise in the stock price up to earnings even with a contiuned rise in IV.

Additionally, if one does not want to play the earnings and there is sufficient profits in the position then it would make sense to close that position prior to 1/17. If you hold and the earnings report is better than expected then one could get an incredible IV drop immediately after that report regardless of the outcome.

Just more food-I mean-apple for thought.

Follow Up On NYX

What can I say about NYX? The stock closed above 105 today (+10 from 1/4's closing stock price).

Those JUN 07 95 Calls that I posted about on 1/4/07 closed today at 18.70 (up 66% from 1/4's closing price). Now ask me if I got in? No. I now have to wait patiently for a pullback to get in which most likely will be tomorrow or the next.

So stay tuned because I now have to look at the 100's or even 105 strikes which are all under theoretical value so far.

Anyone else get in before I did? Grab a vine and let me know.

Sunday, January 7, 2007

Is There Another Way to Buy AAPL?

With the Consumer Electronic Show (CES) going on this week in Lost Wages-I mean-Las Vegas, all attention is being paid to Apple (Nasdaq: AAPL). All gadget geeks are awaiting the much anticipated iTV and iPhone (see Apple Expected to Launch New Product).

What does this mean to directional bullish option traders? To some it may mean be a buyer of call options or a seller of put options. Now which one should we choose.

Well here's what I'm considering (doesn't mean that you should): Being a bullish credit seller. What the heck does that mean? It means that you can either be a naked seller of puts or you can be a credit spread put seller. They are both bullish plays. But which one is better or less risky?

Here's the skinny: If you are long term bullish on AAPL then, yes, you could indeed buy call options either ITM, ATM, or OTM. It's your choice. But (here comes the big "but" not "butt") the problem is the current Implied Volatility levels of AAPL options especially on the front month Jan 07 calls and puts.

If you like just receiving premium and possibly owning the stock (assuming you have sufficient buying power), then you probably don't and won't mind getting assigned the stock by a put buyer who exercises his/her right to sell AAPL stock if the put option remains ITM (I hope that makes sense to some out there).

Right now, the JAN 07 85s and 80 puts have IV levels in the low 60% levels. So what? Well these are at 52 wk high levels which means that the anticipation of new product intros at the CES have been factored into the option premiums.

I'm still lost, you say. What I'm saying is that once any major announcement concerning Apple's new products or any non-announcement (not likely but probable) will most likely cause a sudden drop in IV which, correspondingly, will or could cause a drop in premium values.

The only way to offset this drop in IV in the premiums is if the underlying stock price moves higher quickly. So if you want to be a longer term call buyer of AAPL then it might make sense to wait until the IV levels regress to the "mean" of annual IV levels.

You might say, "well is there anything we can do to take advantage of this possible IV drop?". And I respond, "yes, indeed. Sell option premium, specifically put premium."

Here's what I'm looking at: Enter a ATM/Slightly ITM Bull Put Credit Spread position. That entails selling the JAN 07 90 puts currently selling for $6.80 (as of 1/5/07 closing price) and simultaneously buying the JAN 07 85 puts currently asking $3.90.

That would give you a net credit of $2.90. That basically means that if AAPL's stock price trades above 90 by January's expiration Friday which is in 12 days from today 1/19/07, one will get to retain the full net credit of $2.90/contract.

The maximum risk of this trade is the difference between the strikes (90/85) and the net credit (2.90) which would be $2.10 in this example (5-2.90). It's not the greatest reward-to-risk ratio but it nevertheless is better than most credit spread r/r ratios (take it from me, I've seen a lot of them).

Now does one have to wait until expiration to achieve full profit? Absolutely not. At any point if the stock makes a move higher say up to $90 by this coming Friday or sooner (AAPL certainly does have fast moving potential), and the IV levels drop, you can buy back the JAN 07 90 Puts at a much lower price than the original sales price and leave the JAN 07 85 Puts alone to either expire worthless (saves you a commission), or, you could close both positions at any point with a smaller net debit amount than your original net credit amount (that's good by the way-sell high and buy low in reverse).

Then at any point after IV has considerably dropped and/or stabilized you can research possible longer term call options to buy.

Alright, I realize for some that might be a lot to swallow so feel free to get further clarification or make any comments by grabbing a vine on the Option Jungle.

The Greeks of Options

Here's a link to another option blogger who has basically done most of the legwork for us about the "moving parts" of options; namely, the greeks (thanks to ODA125 at optionsmadeeasy). I think that anyone who wants to venture into options or who has or is trading options ought to understand the variables that must be factored into option premiums.

This should take some time to review so factor that into your schedule.

Grab a vine and make some comments about any of this if you want.