closing the Mastercard $MA position

6Dec - closed out this position, felt like I had it on for longer but after entering all the trades into my spreadsheet today I see it was only about 10 days. to recap:

- I sold a 282.50 put and an upside call credit spread for added premium... I was calling this a defined risk strangle, the Tastytrade crew calls this a Jade Lizard. I will not be calling this a Jade Lizard,. im going to go with a Poor Mans Strangle (copyright pending... not.)
- I took some profits on the call spread and resold another call spread at lower strikes to bring in some more premium.
- closed the entire position on 6 dec with stock near 290... let me quote what I wrote below:

 "profit target will be between 25-50% of max profit. I've been tooting the horn of the Tastytrade videos I've come across recently that have greatly improved my entries and exits, so here is a good video on when to exit Tastytrade video "

-so after doing the spreadsheet entries im at a .96 profit on this which is near 50% ish of max profit. in hindsight the call spread adjustment down was not needed to salvage the win. to emphasize...objective is not to tie up buying power by taking the trade to expiration but instead to book profits in the 25-50% range and do that repeatedly with that same buying power. im staying small lot quantity until my comfort level is higher since this is new methodology for me so granted its not a large dollar winner but as comfort level increased so does lot size.

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3Dec - as posted on Twitter I closed out the call credit spread portion of this position at .16 as stock was selling off with rest of market, even went below the put spread. still had some time before opex so didn't need to adjust the short put. later on in afternoon I resold a call credit spread at lower strikes bringing in additional premium, sold the dec13 295/300 call credit spread for .85 credit, 23delta of the 295 call. the 295 level would be a new high for the stock, of course after hours Mastercard announces the buyback approval and dividend raise and stock pops 4-5bucks. taking in more premium via the credit spread lowers my downside breakeven to near 280. see where we are at next week to either exit position or roll the short call if needed

.

going to keep using the Defined Risk Strangle name for this 3leg trade. selling a strangle benefits from 2 things, time decay and a drop in the volatility of the stock. so putting this on with high volitivity gives you a very high probability of profit. a legit strangle for this would have been sell the 282.50 and sell the 300 call. that would have brought in about $2.79 in premium for a one lot. the part of a strangle I'm not comfortable with is the undefined upside risk. I'm ok with downside risk since its essentially a cash secured put sale and I'm ok owning the stock if necessary. so to mitigate the upside risk sell a call credit spread, the 300/302.50. yes it reduces my credit but caps the upside loss.

total credit received was $2.06. without adjustment if stock moves higher than 302.50 at opex my max loss is just 44 cents (300/302.50 is $2.50 wide. the $2.50 minus the $2.06 received is 44cents)

receiving the $2.06 lowers the downside breakeven as well to 280.44 at opex without adjustments. 14days till opex and best case stock moves sideways, volatility comes down and position loses value (profits as in buy back cheaper to close). profit target will be between 25-50% of max profit. I've been tooting the horn of the Tastytrade videos I've come across recently that have greatly improved my entries and exits, so here is a good video on when to exit Tastytrade video


new Mastercard entry $MA (defined risk strangle). sold Dec14 282.50 put near 1.65ish, sold 300/302.50 call credit spread at .45ish. total credit 2.06. puts delta 22, calls delta 21. breakevens at 280.44 / 302.06 at opex

Stock replacement trade for $AAPL

got to thinking about my Deep in the Money (DITM) diagonal spread strategy and will throw out a suggestion after seeing a twitter post from @kgirljohnson. she has been making some good cash selling covered calls a few months out and selling puts. first off kudos to your bank account for having 700shares of AAPL. here is a possible alternative to boost the cash flow if you are in a similar situation. using pricing as I type now and making some educated guesses:

so having 700 shares of AAPL, sold 5lot of the Jan 275 call at $5 for nice $2500. now what to do with the other 200 shares... 200 shares is about $53200. instead of selling 2 additional covered calls..

Sell the 200 shares and replace that block with deep in the money Jan2022 calls specifically the Jan2022 210 calls going for $76ish ($7600 per contract) and .80delta. with a limit order might be able to get a 7 lot.

now you have 500 shares of the common and 7 call contracts. Now sell the Jan2020 275 calls against the 2022 calls turning it into a diagonal spread. 7 short calls at $5 gives you $3500 in additional premium in addition to the already collected $2500 from the covered calls for $6000 total. the .8 delta on the 2022 calls means the option move 80% of the stock movement. stock goes up (or down) 10 bucks the option moves 8bucks. and then repeat the upside option selling in future months. earnings are at end of Jan so premiums will increase. yes there is a likely tax hit on selling the 200 shares.

I personally own no stock instead I own the deep in the money calls from 2021 or 2022 since I don't have the bank roll to own 100's of shares of these high dollar stocks. can buy multiple calls and increase my premium stream and I participate in upside moves.

Just a thought, a couple months of $6000 premium gets you that new Cybertruck.

Kayla Johnson

@Kgirljohnson

Got the $5 right at the end of the day!

STO 5 Jan $275 strike calls against stock. $AAPL. $2500 dividend!
Looking to sell another 2 lots of 5 if we continue higher. Will wait till Fri. to enter order, maybe the Turkey high pops Apple up some more.

Enjoy time with your family!

$BIDU entry today. Defined risk strangle ?

9dec update - today with stock at 115:

the short 110 put delta is at 31ish
the call credit spread 130/135 had .35 remaining in premium and the 130delta was at 12ish

I closed the call credit spread at .35 and resold a lower set of strikes 125/130. selling the 125 strike at 23ish delta gets me back to the delta I was targeting initially from the first call spread. the 125/130 spread sold at .76 so I gained an additional .41 in premium. again the profit goal is 25-50% of max profit like I noted below, will exit closer to 25% im thinking to free up the buying power for something else. lines on the chart show the breakevens at opex in January. note the lower breakeven would be below the 50day moving average.

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There might be a cool name for this trade but I sure don't know it. was either the Defined Risk Strangle or a Kind of Iron Condor.

my last blog post was the TSLA iron condor using the methodology of the Tastytrade guys. had a few minutes today to stream one of their live videos during market hours and the dude was mentioning BIDU and selling a strangle. In general I don't sell the naked strangle preferring to have a long DITM LEAP call already, so a Cash Secured Diagonal Spread Strangle I guess, like my AAPL position...long 2021/2022 DITM calls, sell upside calls (the diagonal spread part) and then also sell downside puts that are cash secured.

anyway,  the guy online is selling a strangle, Jan opex 52days out, the short put(110) and call(130) at about 20delta each. instead, using his strikes I was looking to make this an iron condor (105/110/130/135). the target premium for a $5 wide is 1/3 the width.. $1.67... was not getting it with the condor. remember my rule of only selling short puts on stocks I'm ok owning if I have to buy at opex… got me thinking what if I don't buy the 105 put. as in don't sell the credit put spread of the condor. still sell the call credit spread as usual to have the defined risk to the upside. by not buying the 105 call I save a lot of premium. so going off memory from this afternoon the 3 leg trade with stock at 119ish...

Sell the Jan2020 110 put at about 2.02 credit (delta 23)
Sell the Jan2020 130/135 call spread for .80 credit (130 delta 24)
stock IV of 52
Total credit received $2.82 for a one lot.

at expiration:
close at 135 or higher - max loss $2.18
close 110-130 - max profit the $2.82 I collected today
downside breakeven is - 107.18 (the 110 short put minus the $2.82 collected) and I have to buy the stock at 110.

note the Implied Volatility is at 52 which is high. Again, per the Tastytrade videos I've watched recently the objective is enter trades at / near 45 days out and take profits between 25%-50% of max profit, so $.70-$1.40 and/or with about 21days remaining. this is to take advantage of a decrease in the IV which means premiums go down which the position decreases in value (you buy back cheaper for a gain)

I'm more concerned with an upside move hence not selling a legit strangle with an upside short call with unlimited risk. the 135 call caps that risk. a down move below 110 is easier to manage IMO since I can roll out the short put for flat for more time or for time and a credit. going to keep lot size low until I can see proof of concept with my own experience first. so if things work as statistically expected that $2.82 amount should decrease a bit every day barring a significant move in either direction.

lines on the chart show the edges of the short put and call credit spread but will be looking to cash out prior to opex.

update to the $TSLA iron condor

31 dec -  one advantage to an iron condor is you know what your potential max loss would be, so reading from the bottom you will see I initially collected 1.75 credit so max loss would be 3.25 . its that 3.25 you can shoot against to chip away at it to get closer to breakeven or reduce your loss at opex. since my 21dec update, on 23dec I added ANOTHER call credit spread way out of the money and one week later in the expiration to be the last cycle prior to earnings. I sold the 480/490 call spread for $1.20 credit... $1.20 to chip away at that 3.25 max loss number plus the credits from the put sale adjustments.

today I closed the put spread portion (the 3rd set of puts for this condor) at .46 which is .44 profit.

strategy is if stock sells off again in early Jan I will resell credit put spread to further chip away at that max loss number or possibly a cash secured put. ive had two orders in to sell cash secured puts at 365 but didn't fill. still holding the underwater credit call spreads of 385/390

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21dec update- serious movement with this stock, up 70bucks since I entered this iron condor, since entry I have adjusted the put spreads 2 times for total $1.27 profit which knocks down the potential loss at opex. since entry I:

closed the 290/295 put spread
sold and closed the 320/325 put spread
and this week sold the 360/365 put spread (.90 credit for this spread)

gives me a "new" iron condor 360/365/385/390 for $1.85 basis

stock is 405ish now with 27days to go to opex and clearly has blown thru my call strikes. the stock can go down just as fast (remember the Mandalorian truck broken window day) but im looking for a down move to get a mark to market gain and best case can exit the "new" condor in the green. would be unexpected that the stock closes between 365-385 to realize the max gain but with all this movement would be happy to just exit with a green board. holding for now

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have to give credit where credit is due.. I stumbled across an options video on youtube a few weeks ago from the guys at TastyTrade, after doing some searching ive discovered numerous options educational videos from them that are really eye opening. ive always thought ive been smarter than the average bear with options trading but some of their videos have made me do things differently. videos where their team shows backtests to reinforce the probability of profits on options trade. emphasizes when to take profits and scenarios to enter premium selling trades. I have added 20+ of their videos to my watch later list and try to watch one every night. visited their site for the first time today at www.tastytrade.com and they have live streaming shows with actual trading vs the Fast Money options trades that have the pump and dump feel to them or the superstar paper traders on twitter. I encourage you to watch a few of their videos. should learn a few things. disclaimer-I am not a contributor , subscriber, member, account holder in anything from tastytrade. im just passing on some excellent videos for you to add more info for your toolbox of knowledge.

I added this paragraph since my strategy for this Tesla iron condor refers to their methodology. per several of their videos the sweet spot to enter an iron condor is about 45 days till expiration and on stocks with high volatility AND not holding till expiration. but instead taking profits between 25-50% of max profit. letting the volatility come in lowers the IC premium and taking profits at the 25-50% range statistically gives you 80-95% winners. point being to make a lot of the 80-95% small to medium winners instead of going all the way to expiration for that last penny. not really too different than what ive been doing but their backtesting puts some statistics to the method that gives me a better entry and exit point, or reinforces a No-Trade(my gut).

one of the guys, Tom, at tastytrade developed the Think or Swim platform which is popular. Im on etrade via Trademonster platform

here is a good video to watch on this.. iron condor video at Tastytrade

so the trade today was entering the Jan2020 (53days out) 290/295 385/390 iron condor, collecting 1.75 credit per lot. their videos suggest selecting strikes that are about a standard deviation out of the money and collect at least 1/3 the width of the strikes in premium. standard deviations might show on the TOS platform, I don't see them on the etrademonster platform, but I prefer deltas. one standard deviation is in the low 16ish delta.

the 290/295 credit put spread was a 19delta (the 295strike was 19delta)
the 385/390 credit call spread was a 21delta (the 385strike was 21delta)

I entered all 4 legs same time and made my limit order in the midpoint and got filled in 5seconds.

target exit is when the $1.75 premium has decayed to about 90cents or so.

I don't do iron condors often but the tastytrade guys have some solid numbers to back up the methodology. so for a one lot at EXPIRATION my max risk is $3.25, max profit is $1.75 but again will be exiting sooner based on their research. my go to trades are diagonal spreads( a deep in the money LEAP call and selling weekly/monthly upside calls) and also cash secured put sales. but will incorporate some iron condors and increase lot size with experience. let me know what you think.

$FB calender roll and the unusual options activity

6 Dec - read the comments from the bottom... my final comments on "unusual options activity" type twitter posts and CNBC hits is that if you are following along looking for a 5-10 bagger and / or are expecting a big winner at options expiration you are likely to have a loss like the Dec6 205 Facebook calls from below...INSTEAD if you are going to follow along, take some profits after 25-50% winners but be careful you don't twist your ankle jumping off the bandwagon. at least sell enough of the position to get your money back and let the rest run.  I use the information as another tool in the toolbox for selecting strikes, maybe to chose a different strike, or maybe to not make the trade. I don't follow just because Jon / Pete / or a twitter subscription seller posts it. If I'm in the position I'm more likely to sell the option they are highlighting since the heard that follows along will push up the price.



26nov update- posted that I closed the short 200call at .40 today at 75% of max profit... so that gets me started about the "unusual options activity" comments. now giving everyone the benefit of the doubt that maybe they took profits or didn't tweet an entry or exit... this is prime example of why I don't break my ankle jumping on the unusual options activity bandwagon.. I listed below that Pete noted the options activity, the Dec6 205, want to say at $1.25 or $1.35 going off memory. as I type now after hours those are priced at .55... for shits and grins a day or two ago I looked at their price and high of day was $1.85 so I guess you might have captured a decent percentage gain if you had the discipline to exit. my assumption is that profit targets where started at a 50% winner to start exiting the trade or the CNBC viewer crowd that was piling into the position after the on air mention were expecting a rapid move thru 205 to get the 2-3bagger.. Bang! like Doc J says. so I'm assuming those buyers are showing a loss now. like I've said before I think as many false positives happen if you blindly follow the unusual activity metric. the twitter hero's that also follow this or have their own subscription service will also cling to ANY unusual activity even from months prior to claim the activity foreshadowed the stock move. I'm going to stick to my method of just filing away any usual activity and possibly using the info to help determine a strike vs following along with the activity outright.


22Nov - been working the FB calendar spreads pretty good last few weeks. had the short 197.50 calls, rolled those to next weeks 200s for a small credit. i dont religiously follow unusual activity like Doc J and Pete and several on Twitter if follow. I think the activity gives as many false positives as outright winners plus the heard effect of the CNBC viewers piling into whatever gets mentioned runs the price up a bit. I take the info and put it in the toolbox with everything else.

So Pete mentions unusual activity at the dec205 calls. now the stock doesn't have to blow thru 205 to make money, just heading in that direction causes the option price to increase and will get a nice percentage gain just off that. I was considering rolling my 197.50s to next weeks 197.50s for a larger credit. bring in a bit more than usual expecting the much anticipated correction everyone is looking for.

so in this instance im using Petes info as an assumption that the stock will go up a bit towards 205, thus why fight the heard, I rolled the short call up to try to keep stock from blowing thru my short strike. im ok with this keeping in mind my underlying long DITM 2021 call is gaining in value.

Point being, im using the unusual options activity not by following the crowd but by helping me decide where to roll my short calls. the Najarians seem to have a good thing going so more power to them, im just not fast enough to follow nor will I subscribe to a service. The twitter heros always point out how the large options activity preceded the move but never mention the ones where nothing happened

heres the segment on fastmoney halftime with the unusual activity
https://twitter.com/HalftimeReport/status/1197581270756286464?s=20

$AAPL short put entry

3 dec/4dec - the dec6 265 short call at $3.15 from 22nov... closed that at .44 on 3 dec and resold it at .80 today 2 days till opex. I know its just a few bucks but its some gas money. Sold the dec13 265 short calls at $2.35 for the IRA (35 delta). best case stock moves up a bit and I roll the weekly 265 to next week for credit. (still holding the Dec13 257.50 short puts) to back into a short strangle. so $2.50+ in profit on the short call, lowers the cost basis of the DITM call



nov22 update: on top of the long deep in the money LEAP call and the 257.50 puts I sold below I sold the dec6 265 call, 14days out and 41delta. sold for $3.15. the premium seemed a bit higher than recent. thought process was as such: obviously stock cant be above 265(the short call) and below 257.50 (the short puts) at same time so at least one of them will be a winner. essentially turned this position into a 257.50/265 strangle. I intentionally chose the same opex as the short puts.

at opex the following scenarios:
1- stock is below 257.50(255.40 effective), the short call expires at max profit, and I roll out the short puts. further subtract out the call premium gives me an effective price of 252.25.
2- stock is above 265 (268.15effective), the puts expire at max profit, my LEAP gains in value, and I close out/ roll out the short call
3-stock is between 257-265, both puts and calls expire at max profit for total gain of $5.25(short put and short call premiums added together)

sentiment on CNBC still is leaning cautious expecting the eventual correction, so I picked the first out of the money short call strike of 265 to get more premium if the correction occurs and went to the second week out vs the next weekly. if you have the thesis of "im already long and would like to add to the long position and generate some income while waiting to add" then this works for you. good to use if you start with a half position at some point and are willing to add more later. my "long" position is the existing Jan2021/Jan2022 deep in the money calls. you could do same thing if you were long the stock instead of the LEAPs




Nov 20- sold some cash secured puts today in $AAPL, and of course 4 minutes after fill the news about possible phase 1 trade deal maybe being delayed comes out so could have filled at lower strike of 50%higher premium. IV on the stock is not much so not much premium to be had without going out to longer dated strikes. again rule number one is that I only sell puts in stocks im ok owning if I get forced to buy the stock. so today with stock near 263ish

Sold dec6 257.50 puts at $2.10, delta 29, IV21 (green arrow)

we are all drawing the same lines on the chart and see a possible trend break coming. I have existing diagonal spreads on AAPL as well. 16days till opex on this sale, effective price if put the stock would be $255.40 which is near the trendline support.

if stock pops for some reason next few days and I get to 50% of max profit I will take profits and await the next set up.since I have diagonal spreads as well, im really selling strangles (selling upside short calls, selling downside short puts). having the deep in the money call keeps me from having undefined upside risk.

$TSLA diagonal spread

6 dec - saw the stock up 6bucks Premarket so cancelled GTC order and instead raised the strike and sold the Dec13 345call at $3.20-$3.40 (reg and IRA accounts) with stock at 337ish, 32 delta on the short call. still holding the long DITM Jan2021/2022 calls


4Dec - stock held up as market sold off and with 2days left till opex closed the short call at .95ish today, at 70% of max potential profit. entered a GTC order for the Dec13 342.50 calls at $4.00+, should fill if stock moves up a few bucks. GTC order since ill be away from computer for a bit, this $2.00+ profit reduces cost basis of the DITM call


2Dec - didn't get the recovery for the ratio spread to work out so on to the next week, so on Dec2 sold Sold weekly 340 call at $3.20 to reestablish the diagonal spread $tsla

Going off memory stock was 333 area. trying to bring in couple hundred a week via the short calls.



Nov 22

we all know the story with the tesla truck reveal with the Mandalorian armor. here is how to im trading my position. stock dropped to 333 or so, down 25. of course the short call from below drops to near max profit. closed at .03. With big down moves I look to enter into ratio spreads, also called catch up spreads. you buy one upside call, sell 2 higher calls against your long stock or long DITM option. with stock at 332area

Bought nov29 335 call, sold 2 of the 342.50 calls for .55 credit. 

this trade sets me up for a potential reversal. this trade will be profitable between 335-350 at opex and my underlying DITM call gains as well. so you get upside leverage. max profit would be at opex at 342.50 of $750.

If I can time it I generally prefer to sell upside calls on up days not down. that's why I did not resell a short call to get back into the diagonal spread. this position is just for next week (I get .55 in credit to wait it out the week) , reevaluate after that. best case stock rebounds a bit, close this portion out for profit, resell a short call higher. again my LEAP is 2022 so ive got all 2020 and 2021 to trade around it. volatility is expected. note that the short call from 20nov was 99% max profit, lowering the cost basis of the long call. I chose my ratio strikes based on getting to near zero in cost, credit is ideal but prefer near zero by picking at further out higher strike. a free trade essentially, but don't want to go too wide on the strikes to have to pay more than 25cents. just my principle.




Nov 20-entered into another Tesla diagonal spread today. im sure my entry will be marking the top, but what caught my eye today was the implied volatility (IV) of this weeks options. was in the high 60's. high IV means juicy premiums. usually have high IV right before earnings, dont know if its just the movement of the stock or the upcoming news about the electric truck but its elevated. diagonal spreads are my go to trade, some call it a poor mans covered call. so i entered the following:

bought Jan2022 275call at 133.00 ($13300), delta 74
Sold this weeks (exp in 2days) 360 call for $4.10 ($410), delta 31, IV 66

didn't really have a level to use to select the 275 call, was more looking to get in the mid 70s delta. a 74 delta means if the stock goes up a dollar, the call option goes up 74cents. the stock moves around a lot so with stock around 353 sold the short call for $4.10... 7dollars out of the money. so break even is 364.10 for short call to go out flat but im gaining on the long call same time.

ideally would like to sell weekly upside calls in the 30-35delta range, at least $3-$4 premium is what im looking for. strategy is to collect consistent income, just like owning the stock and selling covered calls. im prepared for a lot of movement up and down of the stock. since the long call is out to 2022 there is no pressure if it drops on a general market selloff. if the stock moves up all the better as I chip away at the cost basis with the steady short sales.

as far as the electric truck and living in Texas and owning two F-150s myself, I see this as a niche market. seems that part of owning a truck in Texas includes getting it lifted, tires, rims (the small penis package), but what is missing is the engine noise you see from the douchebags with the lifted F-250s. but im sure some hipsters will want one trying to score some cool points. not realizing that unless you drive a Ford, Chevy, or Dodge truck there are no cool points to be had. sorry Nisan / Toyota owners but you don't think of Japan when you think of trucks.

I have spoken

forgot to add that Mike Khouw had a segment on Fast money on tesla, same strike I was selling short, here is his hit

TSLA fast money clip

$HD Closing the Home Depot trade

8 Jan- give you the condensed ending to this, as posted:

exited this today. will add to blog this weekend. was 222ish after President speech. adjusted for 2+months from losing put sale. came away total of .40 loss. alot of work but showed that i can significantly reduce a loss if stock overshoots my short strike. $HD

had this "position" since Nov with several adjustments. got to the point where I was near a total breakeven but with several weeks to go until opex. my buying power would be tied up for the rest of month to get a scratch/small win or more likely I would expect a continued up move requiring another adjustment. went ahead and took the small loss to free up the buying power to redeploy somewhere. earnings for multiple stocks im trading will be at end of month so want to have ammo for any put sales there instead of jacking with this one still. all in all im pleased at  how I was able to manage the adjustments vs just taking a loss on the intial short put sale. likely only reenter this stock on a good earnings selloff (like last time).. on to the next one

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3 Jan - as posted on twitter:
with $HD at 217-218 and threatening the Jan24 215put, went ahead and rolled everything to Feb20 to get more credit. rolled to Feb 215put for $1.75 credit, rolled the Jan24 225/230 credit call spread to Feb225/230 for .64 credit. gives me wider profit range up or down

I had resold the Jan24 225/230 call spread at .81 on the up move on 2 Jan so gained another .61 in possible credit. earnings are feb 25 so rolled this 'position" to the regular Feb opex same strikes, taking in $2.39 credit for the roll. widens out the breakevens. looked at going down on the puts and higher on the calls but opted to get the juicer premium. mental math puts the breakeven at 210ish downside and no upside risk since ive taken in more credit over the weeks /months to cover the width of the call spread. would like to be out of this prior to earnings to use the buying power elsewhere. revisit in a couple weeks.

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31 dec - making progress to leave this "position" in the green. had the Jan24 215 short put and Jan24 225/230 call credit spread as of this morning. with stock near 216-217ish took the opportunity to close out the call spread for .20 gain. stock had been 220+ few days ago and was expecting to have to defend a test of the call strikes. quick math need the put to expire near worthless to exit for a profit so will keep holding for the moment. strategy was if stock bounced back to near 220 I would resell the call spread for higher premium further lowering my breakeven. that order did not fill. so just the naked put for the moment. have alert set for 220 breach . im ready to get this one off the books but does make for a good learning point of how you can keep adjusting that short put.

12 dec - did another roll out and down for the short put. from the Jan 3 217.50 to the Jan24 215 for .05 debit

4 dec- alright meow... the Dec13 short put is underwater, stock sold off a bit like most stocks. the Dec6 call spread from below will go out worthless. Stock was 214ish today so took the opportunity to roll the short put down and out to gain some more time and lower the strike. best case you roll down and out for flat or a slight credit so I went out far enough to get close. so rolled to the Jan3 217.50 put.. (buy back the Dec13 220 put / sell the Jan3 217.50 put). this roll was for .45 debit. on top of this I added a call credit spread same opex (225/230) for .66 credit. so the credit spread pays for the roll down in short put strike. playing for a move back up to the 217.50-225 range at Jan03 opex. Point being I want to exit this position with some type of profit to preserve the mental capital of not having a loss. would be small loss without adjustments if stock is above 230 at opex, but will adjust somehow if that occurs

25nov- post on twitter that rolled the short put to Dec13 for credit:

Qu

Rolled this short put out another week to the dec13 220 put for .88credit $hd

I havent entered a risk reversal or call spread risk reversal in ages so here are my thoughts about the Home Depot call spread risk reversal from today. Stock was down at the open and i sold a Dec6 220 put for $1.30 , the spread was wide and bouncing around so i put in the limit order about 25cents above the midpoint and got filled in about 60seconds. should have thrown out a higher price initially looks like. regardless the stock was around 229 at that point(green arrow). IV went up a bit because of the down move, 17days till opex and delta was 23 at time of fill. was initially going to enter this as a standard cash secured put. my strike selection for the put i wanted to be under the 222ish area from early Oct.

after lunch the stock was down a few more bucks. assumption im making is that at some point up until opex of Dec 6 that the stock reverses a bit, pending comments from Lowes earnings on nov20 of course, and there is that gap from todays down move needing to be filled also. so using the mental $1.30 premium from the put sale earlier I bought the same opex Dec6 call spread of 227.50/232.50 for $1.70 debit (red arrow). so all 3 legs of this position was for .40debit.

My max profit will be if at opex the stock is at 232.50 or higher, max loss is the .40 debit. below 220 without any adjustments to the short put I would be forced to buy the stock at 220(being put the stock). its unlikely I will hold this until expiration but mark to market should show gains if the stock starts moving up. but have 17days to see how it plays out only risking the .40debit from 220-227.90.

note: since I am short the put I have to have that buying power to buy the stock at 220. best case will close out the short put if stock moves up to free up that buying power and let the call spread run.

when entering risk reversal type trades I generally start them out as a call spread risk reversal in order to not have to pay out much premium.

If youre going to do all 3 legs of this on the same order which is normal im sure, always use a limit order. the spread will probably be wide so take a shot at the midpoint price, you might get a lucky fill. adjust the limit price 5cents at a time if midpoint doesn't fill. easy to get a crappy price on those wide bid/asks

$MA trade

5 nov:

Mastercard was down 7 bucks or so with it being down 6 or so the day prior, I have MA on my watch list but don't follow it that closely to tell you why it was down. did see an upgrade price target to 320 I believe. good earnings were a few days prior. regardless a good catalyst for a short put entry is the stock moving down rapidly, options prices go up, IV goes up.. that event gets me looking for a support level that I can shoot against with my strike selection and still get decent premium. have some near term support around the 260 area so with the stock at 268.50 or so I went out to the next weeks expiration and sold the 260 put (cash secured put). was near 19delta. which means a 81% probability that stock is above 260 at expiration.

as of nov 8 3days later the stock closed at 274ish and that short put was priced at .25 during the day. closed it for 80%+ of max profit.

Again, my rule is to only sell short puts (naked puts) (cash secured puts) on stocks im ok owning if for some reason I had to be "put" the stock.

also the support level determines which strike I chose, not the premium. im not just selecting random strikes because the premium is a certain amount. in these situation the delta of the option was in the range that I typically target, that being 20-35delta. leaving some money on the table of course by not picking a tighter strike for more premium but ive been more successful if I stick to my targets (support level and delta range)

closed the position with .25 premium left in it but can use that buying power elsewhere for a new position with greater premium vs trying to milk the last 25 cents for another week.

green arrow marks the entry point to this trade on 5 nov