Use access key #2 to skip to page content.

Tech Put Play

Recs

7

October 10, 2013 – Comments (20) | RELATED TICKERS: INTC , CSCO

Sorry I should have posted this yesterday but with the market down I felt compelled to make a play.  So yesterday I sold 10 January 2016 22.50 puts in INTC for $2.75 and 10 January 2016 22.50 puts in CSCO for $2.90.  Something for you Fools to consider even with today's action.

20 Comments – Post Your Own

#1) On October 10, 2013 at 12:16 PM, awallejr (83.82) wrote:

And as a follow up, what you can then do is take the cash and buy 100 shares in each company.  Come January 2016 odds are both trading above 22.50 and you in essence would then have 200 "free" shares.  If stock is under 22.50 you could then sell January 2017 22.50 puts and close out the 2016 ones with the proceeds with cash to spare.

Report this comment
#2) On October 10, 2013 at 7:51 PM, VExplorer (29.63) wrote:

All of this is nice and understandable. I'm doing somethink like this as well. I sold ten days ago TEVA Oct 19 2013 37.50 Puts. Just yesterday GLW Oct 11 2013 14.00 Puts. My question is: why January 2016? what is a reason for so far away expiration? What I do not see?

Report this comment
#3) On October 10, 2013 at 9:51 PM, awallejr (83.82) wrote:

I tend to sell puts in January of each year available.  I have 2014, 2015 and now 2016 plays in various stocks.  The main reason is you get a higher premium as you go further out.  I don't expect to get put these stocks. In essence it becomes a way of making additional income. 

I also like to sell puts near or under the current price of a stock. Since if I am put the stock I essence got it at a discount.  Of all the puts I have sold over the years only once was I put the stock (IPXL).  However I was quickly able to sell the stock at a profit.

I sold CSCO for 2.90 and expect to close it out for .05 in January 2016.  So basically I bought for .05 and sold for 2.90.  Heck of a profit if I am right.Assuming no black swans do you see CSCO selling for 19.60 then?

One thing to be careful is selling puts in heavily indebted companies.  They go BK and that is the end for stringing out options.  Learned that lesson with ATPG which will be a total loss for me but I covered it with other put sales in other stocks.

Report this comment
#4) On October 11, 2013 at 12:24 AM, VExplorer (29.63) wrote:

OK. Lets take CSCO Jan 15 2016 20.00 Puts as example:

Why you referencing 0.05 to 2.90? You are freezing money to keep this position. From my point of view, you should reference at least 0.3*20.00=6.00 to 2.90 as brocker will require ~30% as collateral for your position. Not bad as it is~40% annual return. But, actually, you highly leveraged! ~400%! So, adjusted to risk annual return is about 10%. I'm doing the same for closest expiration date. Annual return (calculated the same way) is in range 12-24% and I sleep better when I have had flexibility to review my portfolio once a month.

Report this comment
#5) On October 11, 2013 at 12:40 AM, awallejr (83.82) wrote:

Yes you are right shorter duration is less risk because who the heck knows what may happen 2 years from now.  But I assume the sky will still be blue and the sun will still rise as the years go by.  And since my investing time range is until the day I die I don't mind the risk.  So in the end should my thesis hold true I turned .05 into 2.90 in 2 years and a few months.

As for freezing money not if I am using margin. Margin is there whether I use it or not. And I don't pay any fee as opposed to if I bought the shares outright.  I do caution not to exceed more than 50%.

Risk versus reward in the end.

Report this comment
#6) On October 11, 2013 at 12:50 AM, VExplorer (29.63) wrote:

"As for freezing money not if I am using margin." (C) What? Something wrong here. Let say you have $100K cash at your margin account. Brocker will use it as collateral for your puts up to execution amount of ~$350K. When you will reach this point your next order will be rejected. You will do nothing with those mone (money market funds in best case) = money are frozen (used as collateral). You should expect for marging call the same way like you are doing when using marging in different ways.

Report this comment
#7) On October 11, 2013 at 10:08 AM, awallejr (83.82) wrote:

My whole portfolio including stocks is marginable.  Cash part is not frozen at all.  I said don't max your margin over 50% tops. Fidelity tracks my margin availability.  I usually try to stay fully invested but I have been raising  cash to about 15% of my portfolio.  I basically treat it as a personal CEF. 

I haven't added to it since 2008 when I was getting margin calls.  So I have learned a lesson.  Since my low point in 2008 I have increased from that point over 600%.  I could have done better but I did take a hit in 2011 thanks to the Tea Party playing around with the debt ceiling and I made a mistake on ATPG.  Otherwise I am pleased  with my portfolio.  It yields about 10% too.  And selling puts over the years helped grow my portfolio to a large extent as well as the income generated.

I don't know why I make these suggestions here anymore since no one reads them as per recs.  But at least in time I can come back and say if I was right or not.

Report this comment
#8) On October 11, 2013 at 12:25 PM, Mega (99.95) wrote:

"Since my low point in 2008 I have increased from that point over 600%."

Very impressive. Over a 40% annualized return if you haven't added to your portfolio.

But as VExplorer suggests I don't really understand how selling cash secured puts on INTC, CSCO, GLW and TEVA helps you get to 40% annualized returns. If you execute that strategy very well, it's maybe 15% intrinsic return, multiplied by 1.5x portfolio leverage to get 22.5%.

Report this comment
#9) On October 11, 2013 at 3:51 PM, awallejr (83.82) wrote:

My biggest regret in life was in March 2008.  I almost put my cash into a 1 year cd.  But it was "only" paying 4% and I felt perhaps I could do better in the market.  So instead of my entry point being in March of 2009, it was March 2008.  Alas I learned that I suck at timing.

But then you have to remember that come March 2009 You could buy pretty much anything and double, triple even do 1000 times your money.  It really was a generational buying opportunity (something I said here before Cramer did;p) ACAS, for example, was selling for 70 cents.  They had to pay I think $1.20ish in distributions. For new money that was a tremendous buy.  It now sells in the $13 range.

You had MLPS, BDCS, REITS selling with yields over 20-30% plus.  I mentioned many for others' consideration here.  So I had stock appreciation and income which I aggressively reinvested. And then I sold puts with the expectation of not being put the stock but just keeping the premiums.  And in a rising market I never was except this summer with IXPL.

They aren't just cash secured puts.  The stocks I own secure the margin as well.  In fact I very rarely had cash since I reinvested.  Only recently have I raised cash (through selling puts and doing a little profit taking) because I will need to settle up on my ATPG mistake and I don't trust the House.

As for my put calls well reverse it, you turned a future .05 payment per put for being given $2.90 today. That is a heck of a return. Also since you aren't borrowing the money yet you do not pay any margin interest.  You are forced to keep a certain balance of stocks and/or cash to cover which I do and as said I never exceed 50% margin availability because I don't want that margin call anymore.

I also maintain an exit strategy should the market ever plunge again on me like 2008-2009.  Right now I have 20 put plays. I blogged about quite a few this year for others to consider, all profitable at the moment. But sadly I don't think many ever took my suggestions over the years.  Pity.

Anyway thanks for the reply.

 

Report this comment
#10) On October 11, 2013 at 4:27 PM, VExplorer (29.63) wrote:

The return without normalization to risk has no rational meaning. It is like to say somebody who win national lottery jackpot with buying one ticket a genius. People are calculating their risk in very strange ways (usually underestimating it). Here is a good example: using your long position as collateral for short option position is a RISK. It should be taken in account and it doesn’t matter how you are sure in your opinion. It is just opinion.

My return in 2008-2013 is not huge. Mostly because of big mistakes I did under stress in 2008-2009. My portfolio never rebound after crash. Without new money added to account I have no chance to recover. No I’m in +/- the same shape as I was before crash (adjusted to inflation). I hope I learned the lesson (but I’m worrying what I didn’t yet). It isn’t my greatest achievement (as I see it). Biggest one: last 4 years I have been TOTALLY wrong! I’ve been netto SHORT and I’m netto short right now. Not all my positions are going well (even long positions). For example, today MYGN Oct 19 2013 24.00 Puts took a hit. I sold MYGN Oct 19 2013 23.00 Puts and MYGN Oct 19 2013 22.00 Puts to increase the position (and RISK). We will see how it will be finalized.

Report this comment
#11) On October 11, 2013 at 5:47 PM, awallejr (83.82) wrote:

I know it is a risk, that is why I said risk versus reward.  Here are the put plays I suggested to people this year:

1) http://caps.fool.com/Blogs/acas-lots-of-room-to-grow/796917

2) http://caps.fool.com/Blogs/a-blackstone-option-play/802600

3) http://caps.fool.com/Blogs/xerox-yet-again/839603

4) http://caps.fool.com/Blogs/potash-play/852909

5) http://caps.fool.com/Blogs/mlps-buy-buy-buy/844557

6) http://caps.fool.com/Blogs/sdrl-put-play/862604

7) http://caps.fool.com/Blogs/kkr/859365

8) http://caps.fool.com/Blogs/questcor-advice/870365

Performance:

1) Sold ACAS Jan 2015 $15 puts for $3.02. Currently 2.62/2.71.

2) Sold BX January 2015 $17 puts for $3.  Currently .76/.78.

3) Sold XRX January 2015 $10 puts for about $1.90ish.  Currently 1.20/1.23.

4) Sold POT Jan 28 2015 puts for $3.85.  Currently 2.64/2.70.

5) Sold BBEP December 15 2013 $15 puts for $2 and Sold  Mar 2014 17.50  for 1.9.  Currently .10/.20 and 1.15/1.30.

6)  Sold SDRL Jan 2015 $38 SDRL puts  $9. Currently 3.10/3.40.

7)  Sold KKR Jan 2015 $22 put for $5.20.  Currently 4.10/4.30.

8)  Sold QCOR April 2014 $40 puts for 6.45 and Sold January 37 2014  puts for $3.46.  Currently 4.40/5.10 and 2.30/2.55.

And per this thread:

9)  Sold INTC January 2016 20 puts for $2.75.  Currently 2.52/2.56 and CSCO January 2016 puts for $2.90.  Currently  2.51/2.58.  NOTE I mistakenly said 22.50 puts but mean $20 puts.  First there are no 22.50 ones and 2nd the price action showed for the $20 ones.

Of all those puts I honestly don't expect to get put the stocks  So that premium deterioration comes to me. And if for whatever reason I get put those stocks, assuming no black swan event, I don't mind owning them.  And I do as well for most.

 

Report this comment
#12) On October 18, 2013 at 10:10 PM, awallejr (83.82) wrote:

Closed out BBEP December 15 2013 puts for .10.  So basically turned .10 into $2.

Report this comment
#13) On October 19, 2013 at 9:50 AM, VExplorer (29.63) wrote:

MYGN Oct 19 2013 22.00 Puts

MYGN Oct 19 2013 23.00 Puts

MYGN Oct 19 2013 24.00 Puts

All expired out of market. Using your accounting rules: turned $0.00 to $0.60,  $1.00 and $1.00. Would you help me to calculate percentage gain? lol

Report this comment
#14) On October 19, 2013 at 9:51 AM, VExplorer (29.63) wrote:

out of market = out of money

Report this comment
#15) On October 19, 2013 at 1:53 PM, awallejr (83.82) wrote:

Grats on the MYGN plays.  I always like to close out positions at .05 because I never want to chance some manipulation on expiration day.  I expect those BBEP ones will expire worthless but I wanted to free up margin since I have been playing with QCOR lately and the extra .05 was meaningless to me.

Report this comment
#16) On October 21, 2013 at 9:40 AM, awallejr (83.82) wrote:

Sold 30 XRX January 2014 $10 puts for 3.10, closed at .22.

Sold 30 XRX 2016 $12 puts for $2.62.

Report this comment
#17) On October 21, 2013 at 12:57 PM, VExplorer (29.63) wrote:

again sold MYGN Nov 16 2013 23.00 Puts for $1.30

Report this comment
#18) On October 24, 2013 at 11:38 AM, awallejr (83.82) wrote:

Sold 20 XRX 2016 $12 puts for 3.35.  Earnings were within expectation as well as year end guidance.  The stock buyback plan is still in place.  Guess market expected much more.  Full year eps of 1.08-1.10 and yet stock is now selling for under 10 PE. 

Report this comment
#19) On November 01, 2013 at 10:51 AM, jiltin (25.45) wrote:

Great awallejr & Vexplorer, great thread for me to learn a lot.

Report this comment
#20) On November 09, 2013 at 12:48 PM, jiltin (25.45) wrote:

I read it over and over, excellent awallejr! It gives me clean strategy....Kudos

Report this comment

Featured Broker Partners


Advertisement