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

The Trade – 20/8/2007
AAPL
Options/Contract = 100
Buy 100 AAPL @ $130.45 ($13,045.00)
Sell 1 AAPL $125.00 Call @ $5.30 ($530.00)
Time Value: -$0.15
Intrinsic Value: $5.45

Breakeven Point: $125.15
Assigned Return: -0.12% (-$0.15/$125.00)
Unassigned Return: 4.24% ($5.30/$125.00)

The reason why this looks strange is because this is the Apple share I had from last month, I rented the share out again and received $5.3 which will go towards protecting my capital from last month. I don’t have apositive outlook for the market and will be stay defensive where possible. Pretty cool heys, getting paid while your stocks goes down, somebody is paying you money for your unrealised donations. If I get assigned/exercised for this, I will come out with a very small donation. If I don’t get assigned/exercised then it means the stock has stayed below $125 and depending how low it went I will be rolling my position within the next few days.

On a brighter side, renting share is about the safest thing you can do even with crazy market volatility!

The Trade – 18/8/2007
AMZN
Options/Contract = 100
Trade Opened – 23/7/2007
Buy 100 AMZN @ $71.48 ($7,148.00)
Sell 1 AMZN $70.00 Call @ $5.10 ($510.00)

I was exercised/assigned (18/8/2007)
Sell 100 AMZN @ $70.00 ($7,000.00)
Net Profit: $362.00

The Trade – 18/8/2007
AAPL
Options/Contract = 100
Trade Opened – 25/7/2007
Buy 100 AAPL @ $138.85 ($13,885.00)
Sell 1 AAPL $135.00 Call @ $8.40 ($840.00)

I was not exercised/assigned (18/8/2007)

Premium Received: $840.00
Unrealised Profit/Loss: -$1,294.00

I’ll be writing another call option on the Apple Shares and should expect to receive about $5-8 per share which will protect my initial capital.

This is an interesting one, i’ve heard about this in seminar but never thought I would have an opportunity to try it.

AAPL – Traded 23rd July 2007
Options/Contract = 100
Buy 100 AAPL @ $141.90 ($14,190)
Sell 1 AAPL 145 Calls @ $7.30 ($730)
Time Value: $7.30
Intrinsic Value: $0

Net Cost/Breakeven Point: $134.6
Premium: 5.03% ($7.30/$145)

The Trade – 25th July 2007
Buy 1 AAPL 145 Call @ $4.25 (425)
Sell 1 AAPL 135 Call @ $8.4 ($840)

This effectively moves my breakeven point to 130.45

Buy Price: $141.90
Original Call Premium: $7.3
Original Breakeven: $134.6
Profit From Buying Back Original Call: $3.05 ($7.3 – $4.25)
Adjusted Buy Price: $138.85
New Call Premium: $8.4
Adjusted Breakeven Price: $130.45

I reduced the risk by $4.15 (Lowered breakeven point from $134.6 to $130.45) at the cost of $2.75 ($7.3 – $4.55) of Call Premium. I also get $3.05 worth of profit today and the other $1.5 in a months time.

My adjusted return is 3.21% ($4.55/$141.90)

These are one of the two highest yielding stock in terms for rental return for August (25 days to expiry) AMZN I wrote in the money to be more defensive, AAPL I wrote an out of the money option and if I get exercise then I will make an extra 1.48%

The Trade – 23rd July 2007
AMZN
Options/Contract = 100
Buy 100 AMZN @ $71.48 ($7,148)
Sell 1 AMZN 70 Calls @ $5.10 ($510)
Time Value: $3.62
Intrinsic Value: $1.48

Net Cost/Breakeven Point: $66.38
Premium: 5.17% ($3.62/$70)

AAPL
Options/Contract = 100
Buy 100 AAPL @ $141.90 ($14,190)
Sell 1 AAPL 145 Calls @ $7.30 ($730)
Time Value: $7.30
Intrinsic Value: $0

Net Cost/Breakeven Point: $134.6
Premium: 5.03% ($7.30/$145)

Closed my OSH today. The reason for this was to reduce my exposure to the market because I opened a spread for WPL.

The Trade (OSH) – Traded on 4th July 2007
Sell Jul $4.22 Puts @ $0.145
Stock closed at 4.15 today, so there is 7c intrinsic value & 7.5ctime value

Buy Jul $4.22 Puts @ $0.02 – Traded on 23rd July 2007

Expiry = 26/07/2007
Share/Contract = 1007

I opened 13 contract:
Profit = (0.145 – 0.02) x 13 x 1007 = $1,636.375
Fees = $108.06 x 2 = $216.12

Value At Risk $54,262.195
Return = $1,636.375/$54,262.195 = 3.02%

Got assigned on my NVDA – Everything here is in US dollars

The Trade (18th June 2007)
Shares/Contract = 100
Buy 500 NVDA @ $39.91 (-$19,955)
Sell 5 NVDA 40 Calls @ $1.76 (+$880)
NVDA closed @ 39.57 on this day

I was exercised/assigned (20th July 2007)
Sell 500 NVDA @ $40 (+$20,000)
NVDA closed @ 45.10 on this day

Net Transactions: -$19,955+$880+$20,000= $925
Brokerage = $14.95 * 3 + $0.31 + $0.02 = $45.18

Net Profit = $879.82

Money in trade: $9,977.5
ROI: $925/$9,977.5 = 9.27% (before brokerage & fees)

Again, some people may be thinking I got ripped off because the stock is worth $45.10 when I only sold it for $40 and that I could have made an extra $2,550 (45.1-45)*500. In this strategy I am giving away for future profits that MAY or MAY NOT be there… I’m not a fortune teller and I don’t know what’s going to happen in 1 months time. All I know is that somebody will pay me real money today so that they have an opportunity to borrow my shares for ~1 month. I never wanted the shares, I just wanted something I can lease out to those guys so I bought some of these shares.

Not bad for for less than 1 hrs work. Thats like $925 per hour!

wrote some naked puts (ie, insure somebody for their precious stocks) on OSH because I am happy to buy OSH at these prices. Lots of consolidation at $4.20 with plenty of support at $4 and $3.7 and there is plenty of room to move to $4.6

I wrote down on my note pad I kept 5-10 years ago when I was looking at stocks “when in doubt, buy oil and gold” These are defensive stocks and hopefully will hold out if anything crazy happens to the stock market.

The Trade (OSH) – Traded on 4th July 2007
Sell Jul $4.22 Puts @ $0.145
Stock closed at 4.15 today, so there is 7c intrinsic value & 7.5ctime value

Expiry = 26/07/2007
Share/Contract = 1007
Max Profit = 0.145
Max Risk = 4.145 [4.22 – 0.075)

Return on Risk (not exercised/assigned) = 3.44%
Return on Risk (exercised/assigned) = 1.78%

Breakeven = $4.145

I opened 13 contract:
Reward for trade (excluding fees) $1,898.195
Reward for trade (including fees) $TBA

Value At Risk $54,262.195