That’s what you would say if you are Interactive Brokers. Am I abandoning thinkorswim/TDAmeritrade? No. I think I have a legitimate reason to split my brokers between the PTP™/Conservative account, which I am moving to IB, and my Spread account that will remain at TOS.

Now for the why. My plan for this year is to use more Naked Puts and maybe some Covered Calls to supplement the PTP™ strategy. There may be times when I might want to let my short options be exercised. At IB there is no charge for that, but at TOS it would cost me $19.99. That’s very hard to swallow for a small lot trader like me. Plus, IB only charges $0.70/contract, which is almost half the $1.25 I pay now at TOS. (Note to David K. – you had a lot to do with this decisions – Thanks)

Yes, you don’t get the commission free trades for closing a short option that is worth a nickle or less as TOS does, but IB does reduce the commission to $0.25 (for 4 or more contracts). I can live with that. (see the IB commission schedule below)

Interactive Brokers Option Contract Commission Schedule

But Mr. Guru, why not move your Spread account over too? I have a couple of reasons for that.

First, leaving the Spread account there enable me to utilize all the cool tools that the TOS platform has, along with the live streaming data. I’m willing to pay a bit more to have that.

Second, I do other trading besides options spreads. I need a sophisticated charting system in order to do the ‘other’ trading and TOS gives me that with the TDAmeritrade charts.

I don’t like to move open positions from one broker to another, so I will be closing out and not rolling the Naked Puts on KO and YHOO. This makes me very sad since they both have been doing so well (see the tables below). But, on the bright side, I’m quite sure that I can make 2-3% a month with the NP/CC/PTP™ strategy in that account. I will be writing more about that once the account gets settled in at the new broker.

Let’s hope that there is a fattened calf waiting for me.

Happy Trading

◄Jeff ►

For all of us who are wondering where in the world did CallWriter go, all I can say is that the web site and it’s owner seem to be missing.

I have sent emails, left messages and searched the web – nothing, nada! Poof! Gone! It’s enough to make my head explode!

So for now, I have hidden all pages with links to his site – so no one gets confused. When he comes back, I will make them available again.

John Brasher is a friend and a business associate. Since he did not let his friends & associates know that he was closing up shop, it makes me wonder if something terrible happened to him or his family. I must assume at this time that is the case and my thoughts and prayers go out to all of them.

If I hear anything, I will let you know.

Happy Trading

◄Jeff►

Last year I was all over the place – Calendars, Double Calendars, Butterflies, Unbalanced Butterflies and more. I went in so many different directions that I made myself dizzy. Many of my trades made a nice return, and some did not. One thing, though, they were a learning experience.

What did I learn? That I should stick to what works consistently (for me), follow my established rules and do not over trade.

What works? Well, for my Spread Account it’s Verticals (Credit and Debit). For my Conservative Account it’s Naked Puts and for the Profit Tent Portfolio™ it’s Iron Condors with an occasional Calendar for adjustments.

The name of the game for 2012 is D-I-S-C-I-P-L-I-N-E. Holding my right hand over my heart, that is the pledge I am taking. I was thinking that this might make my blog posts sort of boring, but maybe not. Or, it just might end up like going to an AA meeting – talking about my struggles and demons. Heck, it might even be funny, now that I think about it!

Last year turned out really well for my Spread Account, blowing away the S&P 500 return (effectively zero). My PTP™? Not so good. I think I went a bit crazy with adjustments on that account.

Up until now, I never counted commissions either. Maybe I never admitted that, but I’m saying it now. So this year I am including it in all my returns and performance tables.

You may have noticed I made some cosmetic changes to the blog and I removed the In Play tab. It’s a little easier to just track everything by the month – open and closed.

I’ll be writing more this year as well. I sort of let things slide a bit. I might want to just make comments too – I mean this is an election year and there will be plenty of material. No, I really should just stick to options, right? You don’t care what I think about politics – I don’t think much of it at all.

Happy Trading

◄Jeff ►

Last Friday (12/16) I rolled KO for the 4th time. I would like to say that I am incredibly good at picking underlyings for Naked Puts, but the truth is I’ve had a great run on this stock and I’m going to milk it for every drop I can.

The table below details all the monthly rolls beginning with the first roll on 9/14. All have been at the same 67.50 strike, even though the price of the underlying moves above and below during that period.

I’m not in love with Naked Puts, since they require a huge amount of capital to be available, but remember my original intent was to take possession of this stock if necessary – but in the meantime collect the credit offered by selling the Puts. Fortunately, the stock price ends up at just the right place come expiration and I am able to roll to the next month for a very healthy credit. Someday it will be ITM and I will just allow the stock to be put to me.

I made a video on the actual roll this month (again) and it provides a little extra information on my methodology and technique if you watch it.

Please feel free to comment.

◄Jeff►

I rolled both KO and YHOO today for the reasons you will see and hear in the video below. Make sure to select 720p and full screen.

 Happy Trading!

◄Jeff►

The other day I received a comment from a reader (Frank) asking about a SuperPut strategy using Long Calls rather than the stock. If you want, you can check out the comment and reply on my About page, but that question has nothing to do with what I am going to share with you now.

Comments from readers get my juices flowing and I love them for that. So I got to thinking, and I don’t know exactly how I got there, but it has to do with repeating the same trade over and over and over, on the weekly’s, week after week after week. I did have a strategy called the 10 am SPY Weekly and now I have the Weekly QQQ ATM Spread – and it’s easier than the 10 AM SPY because it seems you don’t have to use your brain! The rules are Iron Clad!

Before I go any further, I have not used this strategy in my live trading, but you can bet I plan to!

Initially I looked at trading a Put Debit Spread one strike out of the money. Normally, this is a bearish strategy since you would want the price of QQQ to be at or below the short strike price, but over a period of time it works out well in a consolidating or a bear market – and to some extent in a bull market. The reason? It has to do with the one truth about the market, and that is that price will go up and price will go down. So some weeks you win and some you lose. The secret is limiting risk.

The risk in each trade is the cost of the spread. Each trades comes out to a minimum 2:1 risk reward ratio, meaning your risk is half or less than the reward – very attractive in my mind. So you might have some weeks where you lose $60, but other weeks where you gain up to $120!

Look at the chart below of QQQ (click to enlarge). The time period covers the time that I back tested (3 different times) this strategy (from 6/2 to 9/2). You can see that there are up moves, down moves and some consolidation. (The vertical dotted line represents a weekend)

Price Chart of QQQ Covering Time Period of Back Testing

I used the thinkorswim thinkback capability to test this strategy the first two times. Each Thursday I selected the first Put strike OTM. I bought one lot. In the table below I didn’t include commissions, but my cost is 1.25 per option for a total of 2.50/trade. So for 13 weeks of trades, the cost is 32.50 – about a 10% hit on the results.

The first time I ran this I was shocked! I used my first idea of one strike Out of the Money (OTM) for the long option strike. The results are below. Note that the loses were relatively small and the gains much bigger than the loses. I let the spread expire without closing it each week. This simplifies the strategy and avoids any possible commissions costs for closing the trade, which would be an unnecessary expense.

Hey, an average of $100/month isn’t bad when you consider there was never more than $66 at risk at any one time. Just buying one more lot would double the profit amount.

I hunkered down into my Guru position and thought again. What would happen if I selected a long Put option ATM instead. This gave me a little more profit but also put a little more at risk. I had the same amount of winners vs losers too. The results are below.

The final test was using OnDemand to simulate live trading. I moved the time to about 15:30, hit the pause button and placed the trades using the ATM strategy each Thursday for 13 weeks. According to the Account Info to the right, my account (starting at $100,000) gained $585. Why the difference? I had one trade execute twice, otherwise it would be closer to the $416 result using thinkback.

It’s real and not Memorex. I will be using this in my live account starting this Thursday.

Happy Trading

◄Jeff ►

I currently have two Naked Puts open – one on Coke (KO) and the other on Yahoo (YHOO). Watch the video below to get my thoughts and strategy for rolling them to next month. (This is best viewed as 720p and full screen – almost like IMAX!

◄Jeff►

“Something wonderful.”

“I’m afraid”

“Don’t worry we’ll be together.”

“Where?”

“Where I am now.

And so goes the conversation between the HAL 9000 and Dave Bowman in 2001: A Space Odyssey from 1968. Have I been absent so long that I have gone wacko? Sorry, but I’ve been able to completely rationalize that… I am sane!

But, maybe something wonderful IS going to happen to Yahoo! (YHOO). Seems that all the big boys have suddenly shown interest in this remnant from the early days of the internet – like Mr. Softie and Google (maybe a better name is gobble – as in gobble up the whole world).

My attention was drawn to a different sort of spread play on YHOO by a weekend email from iVolatility.com. They suggested a 17.5/19 Call Debit Spread coupled with a Naked Put at 15 as a takeover play. I liked the idea but didn’t like the cap on the upside with the Debit Spread.

Then I took a peek at CallWriter to see if they had anything. I found 4 possibilities in the SuperPut tables but didn’t want to tie up the capital by buying the stock.

So I made up my own play using a long APR 17 Call and selling 2 NOV 15 Puts naked. You guessed it, I’m hoping something really wonderful will happen. If it doesn’t, then that’s OK too. The Naked Puts pay for almost ½ of the Long Call. If the price remains the same or support at 15 holds (see the price chart below), then I can continue to write more Naked Puts (collect more credit) up to April expiration. If I get Put the stock at 15, I will write Covered Calls against it. If the buyer offers $20/share, then I stand to make a nice big hunk of change from this – around $300.

YHOO Risk Profie for my spread (click to enlarge)

YHOO Price Chart as of the morning of 10/24/11 (click to enlarge)

Conservative Account Update

I haven’t been trading in my Spread Account lately, but I have been doing a few things in the Conservative/Profit Tent Portfolio™ Account.

Coke (KO) is the current money pot. I rolled the Naked Put at 67.50 for the third time last Friday. I have now collected at total of $385 in Naked Put credits so far. I opened a Naked Put on FCX for November and the OCT Naked Put on Intel (INTC) expired OTM last week.

Happy Trading

◄Jeff ►

I believe that sometime, between now and October expiration (10/21), that the Russell 2000 (RUT) will drop to the 620-660 range. Do I have any technical analysis or inside information to support that? No! I don’t know which way this index will move, but that price certainly is within the wiggle range as of this week.

Note on the Risk Profile for RUT, below, that one standard deviation to the bear side is as low as 605 – so there is a certain level of probability that price could move there; as a matter of fact about a 20% probability.

So I decided to make a bet of $115 to open a OCT Put Butterfly on 9/14 (Wednesday). I decided us a spread to 20 points to give a wider base. It also increased the price a bit but gave me a better chance for a profit. You can see the details below.

(click to enlarge)

Note that I have put in price slices of +6% and -8%. Why these percentages? Because that seems to be a normal move to the upside or downside for many underlyings over a 30 day period and Bear moves are generally more violent that Bull moves.

Do I think or expect to make the max of $1,865 on this trade? No, but it sure would be nice. What I do expect is illustrated below:

(click to enlarge)

Let’s fast forward to the Friday before expiration (10/14). Note that I also increased the Implied Volatility by 3%, since if price does pull back, IV will probably increase. This actually eats into the profit picture a bit since it increases the premiums a small amount.

Note that anywhere between 580 and 690 the spread is profitable – even a small profit as high as 704. I will probably close at a profit of $100-200, if it ever comes. As always, only time will tell.

Donja just love this game?

Happy Trading

◄Jeff ►

KO has been very nice to me so far. Remember, back on 8/18 I sold a SEP 67.50 Naked Put for a $1.21 credit. I really didn’t care if I was ‘put’ the stock if it was below 67.50 at expiration because I didn’t mind owning it. It’s a good company, known world-wide, seems to be recession proof and pays a very nice dividend.

Speaking of the dividend, looks like I missed the ExDiv date (9/13) because I didn’t own the stock on that date, so I miss out on the $0.43/share that it will pay. Good news or bad?

Let’s see, I collected $1.21 credit on 8/18 and today I rolled the SEP 67.50 to the OCT 67.50 for another $1.40 credit – for a total credit of $2.61 over two months. That $0.43 dividend is payed every quarter. On an annual basis, the dividend pays $1.72 ($172 based on 100 shares), but selling Naked Puts at an average of $1.30/month comes out to $15.60 ($1,560) per year. Quite a difference.

Of course, depending on your income tax rate, you could be paying 0% to 15% on the dividend; the credits on the Naked Puts would be taxed at your ordinary income rate, but still…

Look at the KO chart below, I have marked the strike price for both Naked Puts, the credit collected for each and the current Cost Basis for the stock. Right now, the current Cost Basis ($64.89) is right around where the price was at the beginning of this year.

KO chart showing previous and current cost basis (click to enlarge)

I could say a lot more about the advantages and disadvantages of this option strategy and I’m sure you can too. Point is, not all trades work out an you can’t expect them to, but these days hanging in there with a good stock is a high probability strategy for a conservative investor.

Happy Trading

◄Jeff ►