Thursday, May 10, 2012

update to the $PCLN Paper trade model

10 aug - as we all saw PCLN got crushed after earnings. the weekly 670 short call i closed at  5 cents. so that profit on the short call took a big chunk out of the cost basis, will look to sell some weekly or monthly short calls on an up day..long time to go till Jan2014 when the Leap expires. trade in a google docs spreadsheet


3 aug - perfect scenario would have been to close under 655 at opex and then i would have looked at either at short call or a put spread collar on the day of earnings.. was looking good on thursday but Priceline has been having up 30 down 30 days for a last week or so.. so with stock at 669 i rolled the short 655 call to the weekly 670 short call for a credit of near $1100.. taking advantage of the high IV for upcoming earnings.. so i gain $15 in strike levels and take in $1100 in cash.. wanted to do something to at least bring in $1000 in cash regardless of what strike i went with.. add the "loss" on the 655 short call back into the cost basis.. will review after the earnings move.. i would guess up move

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25 july - stock had a down 35 day, so the weekly 685 short call i had, i bought back near close at .30 for a $570 notional profit on that..subtracting that from the cost basis of the 2014 leap.. as you can see in the spreadsheet.. have knocked down the cost basis by almost 50bucks so far doing the short calls and ratios..still a long way to go till 2014.. next weeks options come on the board tomorrow..will likely look at a call ratio spread of some kind to set up for a rebound.


20july - the ratio spread worked out well for the remainder of july opex..the july 645/665 ratio was put on for a credit was closed for about $1000 near end of day on opex day.. also as tweeted sold the weekly 685 short call for $6.00 .. take the $1000 from the ratio spread and subtract it from the cost basis of the leap. PCLN position now profitable by about $1000 .. trade in a google docs spreadsheet
Position is now back to a diagonal spread:
Long the Jan2014 600 call
Short the july27 685 call


30 jun - position is up about $800 since inception now..the ratio spread from this week is dead on after getting that +$21 day on on 665 at opex is near $2000 profit on just the ratio..just have to hold it now till then..the 665short calls need to decay to realize that profit. so in wait mode now till opex.


28jun - on 27th, i bought back the short call for .40 . today PCLN down 13ish, so going to go with a ratio call spread to set up for a rebound for the rest of opex vs trying to scalp weekly premium. the ratio was going for a credit but will enter as zero in spreadsheet to keep math easy.
Buy the July 645 / 665 call ratio spread for credit (buy one 645/sell two 665's)
still holding the underlying LEAP. Ratio spread profits from 645-685 range.. max profit at 665pin at opex.

22 jun - stock rebounding about $5 this morning, so will enter another short call to go with the existing LEAPwith stock near 662 now, heres the trade in google docs spreadsheet

Sell to open the Jun29 675 weekly short call at $4.10


21 jun- on todays dip made the following change to the PCLN paper trade position, had the Jun22 weekly 675short call at $6.10, bought that back today for .55 for a profit of $555 on the short call. subtract that profit from the cost basis of the LEAP. That has offset the drop in the stock price and the "position" is still profitable by $300+. holding off on new short call or ratio for the moment. the PCLN trade in google Docs Paper trade Portfolio

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15Jun - read the trade from the bottom. wow is all i can say.. turned chickenshit into chicken salad by tactically adjusting these ratio spreads, made a little along the way doing it, and was fortunate with the strike selections. got almost a near perfect pine. so with 10min to go, i closed the Jun640/660 1x2 call ratio spread for $18.25..thats crazy..entered for zero, out for $1825. now subtracting this from the cost basis of the LEAP and doing the math.. this "PCLN position" is profitable by $300+ for the month eventhough the stock is down $25 points from where the LEAP was entered..not bad eh. almost a perfect use of ratio spreads to capture some gains on an upswing. after closing the ratio spread i also:

Sold the June22 weekly 675 call for $6.10 = $610

This trade in a Google Docs Spreadsheet

31 may- going to roll down the ratio spread again, so will close the 675/700, bid/ask shows -1.30/-.70 credit.. so will give myself a .80credit to close. will now roll down to the Jun 640/660 call ratio spread (buy one 640, sell two 660's) shows
 -1.60 / -.10 credit so i could put this on for a small credit, but will enter zero on spreadsheet to keep it simple.  see what im doing there.. im adjusting these ratio spreads based on what the stock is doing, you dont have to put one on and just watch it decay far out of the can still adjust, because you put it on for no cost you will likely be able to close it for no cost or slight credit..getting some profits to adjust down is just some gravy. this trade in a google docs spreadsheet


23may - with Priceline near 660, im going to close the jun700/735 ratio spread and move it down. bid ask on the ratio shows -3.30/-2.00 so ill give myself -2.25 credit..yep..put this ratio on at zero cost and can now close it out for $225 credit, happens sometimes based on the way the strikes decay in value. now will add the following:

Buy the June 675/700 call ratio spread (buy670 / sell two 700's) - can do it for small credit but will enter zero on spreadsheet to keep math easy.

Again, this ratio spread gives you double upside (with your Leap) up to 700, and just this ratio profits from 675-725.

Paper trade portfolio in Google docs spreadsheet -->> spreadsheet


10 may - going to add a Priceline trade to the paper trade portfolio, since most of us dont have a spare $70k floating around our seat cushions for 100 shares of the stock.

i have several post-it notes on my of them is "wait for a big down day before buying a LEAP" we have that on priceline from earnings which i thought were good..guidance.."under promise over deliver" is the way i look at it.

Ratio spreads (aka back spreads, trade repairs, CPR) are often recommend if you are long a stock or have taken a paper loss with the presumption that stock will rebound and you make additional profits with the ratio portion..further bringing down a cost base or making up for any previous losses. all true. but who says you cant put that trade on when you go long INTITIALLY.. you dont have to wait for a loss to happen first. so using some quotes from today:

Buy the Jan2014 600 strike call for $183 ($18300)
Buy the Jun2012 700 call and sell 2 Jun2012 735 calls for zero cost.

adding this june ratio spread requires no additional margin or buying power, your broker breaks it down into a Jan2014 / jun2012 diagonal spread and an additional June 700/735 call spread.

The ratio spread portion of this 3leg entry profits anywhere from 700-770 at june opex with max profit of $3500 at 735 pin..thats $3500 profit where you paid zero to enter the ratio. with stock at 685ish today, a 735pin is 50points higher.. doing some quick rough math..the jan2014 call has a .70 delta, meaning for every $1 move in stock this option moves .70 times the $50 up move to the 735 pin gets you $35, ie the 2014 call profits by about $3500 if stock pins at 735, add the ratio profit and you get $7000 profit.. you can do the math for any other pin price..use your brokers profit calculator tool..Trademonster its the analyse tab.

after June opex you can do it again for July, either another Ratio spread, or selling a short upside call. since you own a jan2014 Leap you have 2 years to do strategies like this that would usually need 100shares of stock to participate with. will add this trade into the paper trade spreadsheet and adjust month to month along with the previously posted AAPL trade --->>> google docs spreadsheet