Yong-Long Lai

Got bored yesterday and decided to do the basic stock options trading strategy (it doesn’t get any safer/easier than this)

Decided to not quote dollars on my diary so everything will be normalised to one contract… the most important thing is % return not $ return. If you don’t understand this concept you better think twice about investing.

The Trade – 25/9/2007
AMD
Options/Contract = 100
Buy 100 AMD @ $13.50
Sell 1 AMD $13.00 Call @ $0.91
Time Value: $0.41
Intrinsic Value: $0.50

Breakeven Point: $12.59
Assigned Return: 3.15% ($0.41/$13.00)
Unassigned Return: 7% ($0.91/$13.00)

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NVDA
Options/Contract = 100
Buy 100 NVDA @ $35.85
Sell 1 NVDA $35.00 Call @ $2.24
Time Value: $1.39
Intrinsic Value: $0.85

Breakeven Point: $33.61
Assigned Return: 3.97% ($1.39/$35.00)
Unassigned Return: 6.4% ($2.24/$35.00)

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GM
Options/Contract = 100
Buy 100 GM @ $35.06
Sell 1 GM $32.50 Call @ $3.87
Time Value: $1.31
Intrinsic Value: $2.56

Breakeven Point: $31.19
Assigned Return: 4.03% ($1.31/$32.50)
Unassigned Return: 11.91% ($3.87/$32.50)

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NOK
Options/Contract = 100
Buy 100 NOK @ $36.74
Sell 1 NOK $35.00 Call @ $2.66
Time Value: $0.92
Intrinsic Value: $1.74

Breakeven Point: $34.08
Assigned Return: 2.63% ($0.92/$35.00)
Unassigned Return: 7.6% ($2.66/$35.00)

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Some of you must be thinking why why why? and here is my reason.

AMD has been hammered over the past year very badly and it has created a rebound and plenty of support levels. I don’t think AMD will fall anymore…
NVDA this is one of the best performing stock on the NASDAQ, didn’t even feel credit crunch!
GM… yes there are strikes, I’m buffered for such a big drop and I have so much confidence they will sort out the strike and return to normal business (if they don’t… I doubt it will fall that much in the next 30 days)
NOK everybody loves mobile phones… I figured I might as well get some of these shares and rent them out
Been a bit lazy this month to look for trades property. Will be going to EBS tomorrow afternoon so wanted to pay for the trip before I leave… (We will find out in 30days…)

Thats all the Stock Options Trading from me for tonight! have a great month!

Lucky I did the maths before I had a big night… Everything worked out as I planned, must have had a bit to drink yesterday night/this morning.  Anyways, I rolled my APPL aka Apple call options forward one month and also one strike up. In English, I leased my my stocks for one more month at a higher price. The reason why I did this is because I didn’t want to pay the brokerage of selling the stock then having to buy it back and rent them out (ie. I am comfortable with APPL and I think it will perform relatively good over the next few months) This is all part of Stock Options Trading.

Anyways, here is the numbers. You can see the related trade by Clicking Here

Buy AAPL @ $130.45 (Buy Stock)
Sell  AAPL Sep $125.00 Call @ $5.30 (Rent Stock Out – Stock Options Trading)

This morning I did the following trade
Buy AAPL Sep $125.00 Call @ $18.7
Sell  AAPL Oct $130.00 Call @ $15.4

What does this mean?
My effective  buy price is now $143.85 (130.45 + 18.7 – 5.3)
Somebody paid me 1.55 premium (143.85 – 130) today for a right to buy my APPL stock for 130 from me some time in the next 30 days.
My breakeven price is now $128.45 (130 – 1.55)

Why did I do this?
Learning experience of rolling calls forward and up
Learning the calculation behind doing the able transaction

Learnings
Having done the able calculation, this is effectively closing out my previous trade and opening this separate transaction except I save brokerage for being exercised on the stocks and buying them back. This meant that if I had better trades on the radar, I should have let this trade naturally close and open the better trade and get a much better return…  Lesson Learnt. Welcome to the world of Stock Options Trading. I hope this was a helpful experience for you