1/26/09 Bought ERX @ 38.22
1/26/09 Sold Feb 35 call @ 6.40 (expired)
2/23/09 Sold Mar 30 call @ 2.10
So far this has proven to be a weak trade. I was getting too comfortable with ERX and the market in general when it was placed. Fortunately the premiums are high enough that it's possible to manage my way out of it. This is not the path to high returns.
This trade was done in my wife's Roth IRA. Incidentally she couldn't care less about her account, trading or even money. She's a great balance to have in my life. The total freedom to do whatever I want in her account may be why I was comfortable taking a chance and buying ERX at what turned out to be near it's top.
Anyway, the return if this is called away is a whopping .94% for 51 days or 6.73% annual. Actually, when you look at what the S&P has returned the last 10 years this return looks stellar. We'll see what happens. I'm happy if it gets called away and I'm happy to write on it again so long as it doesn't take the gas pipe..
"Adjusted for Inflation, Dow's Gains Are Puny" WSJ
11 minutes ago
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7 comments:
Hi,
I've read what I could find on your blog about 'trade management' but I still don't really understand what that really *means*. Maybe a more detailed post on that? I'd really appreciate it.
And can you recommend a book that explains managing greeks on a portfolio basis? Thanks
NaLing
NaLing - I call trade management what others might call trade adjustment. That is that the initial trade needs some further action. In this post you'll see that I sold a Mar 30 call which was the additional action I took or how I managed the trade.
Hi PC,
I think a stop loss strategy is also a good one. Although I also love ERX, I still think it is "very" vulnerable to a crash. My understanding is:
1) It has time decay when we have volatility which makes the price closer to the put option strike.
2) We saw all that with a bit of continuous panic it sank 45% in only a few days! Now that the market has recovered a little bit, its base price has changed to about $23-$24 area. Another panic selling could easily drag this to $12, where we may still not even be at the bottom. I was actually thinking that purchasing ERX puts can be a better hedge than SPY puts in case of a crash. That's why I am staying away from it. Very dangerous market!
Smart - I agree with you on all counts. Hope you're doing well...
PC,
I am actually no doing well. Lost a lot of money with my heavy CC's last month. Lesson learned again not to try something new heavily until I measure all the risks. I am almost out of ideas at this stage and thinking of cashing out most of my investment. I was also thinking of turning everything into gold whenever it becomes cheap...
Also thinking of option ideas on volatile stocks. Maybe selling way out of the money calls and puts at the same time on a conservative stock or ETF like WMT and using all the premium to try a straddle of a volatile stock with new coming ... Need some help :)
By the way,
1) I am looking to buy some infrastructure stocks as I have heard with Obama's plans, they could be very good investments. Do you know of any?
2) What happened to all these famous health stocks JNJ and AMGN? Do you think it is for real or a good opportunity to buy?
3) Look at the volume on DOW. It was 667M twice the average volume. I interpret it as a very bearish sign. Am I right?
Correction: I meant: straddle of a volatile stock with "news" coming
Smart - check out ASTE and NWPX. They are recommendations from a pay site I'm subscribed to. These are infrastructure plays.
It looks like the health stocks are being hurt by the Obama plan.
Things do look bearish to say the least.
Some very strong traders are making money with straddles.
Take care and good luck.
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