Another strategy that I am trying out, selling 20% at a time.

My portfolio was extremely heavy in AAPL. Today I sold off 20% to rebalance. I sold at 312.89 (it is 317.21 now).

I bought some ETFC @ $46.525. It has a P/E Ratio of 11.2 and a Net Profit Margin of 32.94%. This fits with my overall strategy of low P/E Ratio and high profit margin.

Could someone in the know explain bull call spreads in texags English. Would be much appreciated.

I need to determine where to set a stop loss. I currently do not have any stops put in place and just hold on for dear life. This has worked fine for me so far, but I am considering putting in 10% stops. What rules do you use?

Tumble Weed said:

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I need to determine where to set a stop loss. I currently do not have any stops put in place and just hold on for dear life. This has worked fine for me so far, but I am considering putting in 10% stops. What rules do you use?

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tradestops.com is a great site for this. Everything i read is you don't put stop orders in. Site like trade stops tells you when to get in and out of stocks. It is based on volatility of the stock.

Colt98 said:

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Could someone in the know explain bull call spreads in texags English. Would be much appreciated.

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This is a strategy designed to make money on a stock you think will move but not move a ton. You're buying a Call that's slightly above the current stock price and you're selling another Call that's further above the current stock price. The expectation is that the stock will close on expiration day somewhere between the two strike prices to slightly above the second Call. Your cost is the difference between the two Calls. Your max profit is the difference between the two strike prices less the difference in the cost of the options.

Investopedia has a great example HERE that to me is easy to follow:

Quote:

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An options trader buys 1 Citigroup Inc. (C) June 21 call at the $50 strike price and pays $2 per contract when Citigroup is trading at $49 per share.

At the same time, the trader sells 1 Citi June 21 call at the $60 strike price and receives $1 per contract. Because the trader paid $2 and received $1, the trader's net cost to create the spread is $1.00 per contract or $100. ($2 long call premium minus $1 short call profit = $1 multiplied by 100 contract size = $100 net cost plus, your broker's commission fee)

If the stock falls below $50, both options expire worthlessly, and the trader loses the premium paid of $100 or the net cost of $1 per contract.

Should the stock increase to $61, the value of the $50 call would rise to $10, and the value of the $60 call would remain at $1. However, any further gains in the $50 call are forfeited, and the trader's profit on the two call options would be $9 ($10 gain - $1 net cost). The total profit would be $900 (or $9 x 100 shares).

To put it another way, if the stock fell to $30, the maximum loss would be only $1.00, but if the stock soared to $100, the maximum gain would be $9 for the

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In this trade the trader wants C to move above $50. If it does he's able to exercise his $50 Call to buy the stock at $50 which he then sells for the then current price. His cost is $51 so if C is above $51 the difference is his profit. Now he also has a Call at $60 that, if C rises that far will require him to sell those shares at $60. That's what caps his profit at $9.

Does that make sense?

Yes it makes total since. I use TOS. Will it automatically know I am doing a spread?

Colt98 said:

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Yes it makes total since. I use TOS. Will it automatically know I am doing a spread?

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it doesn't matter owning the call and selling another call at the same expiration date will always offset. You don't have to make the transaction at the same time. Say you buy a call out a month and has run up quite a bit early in the period. You can then sell the higher call to bank the premium to offset the call purchase. Another way to go met free but will cap the profit.

Colt98 said:

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Yes it makes total since. I use TOS. Will it automatically know I am doing a spread?

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What's your goal here? it worries me when someone asks me to explain an option strategy then tells me they're using TOS and they aren't sure how the system will "see" their position. It makes me concerned they aren't 100% certain what they are getting into. We were all rookie traders at some point (not saying that's where you are) in time and the learning curve can be steep and expensive so i just want to make sure you're educated enough to get this right before it gets expensive.

If you're not I'd advise some paper trading first. I'm just now getting back into it after about 6 years off as I built my consulting business. That year I was in it I learned a lot with some of those lessons being very costly. As I contemplated getting back in I did paper trading for most of 2019 and documented all of those trades in Excel along with notes of what went right and wrong, my analysis ahead of the trade, etc. That lead to a pretty well defined set of rules that I am sticking to religiously and that has lead to a good start. This isn't for the feign of heart and you've really, really got to understand the strategy you're using or it'll get away from you in a very costly way.

For example that C trade I copied from Investopedia. You could do that trade every single week with weekly options against C and you could lose $100 every week if C fails to reach the purchased strike price that week. It's a risky strategy. Typically when I purchase an option it's to back one I'm selling at a higher price as a Call or Put Spread so it's really just to cap my exposure and prevent me from having to hold the stock to get the sale. I don't buy options as the feature of my trades. If I want to profit off of a bullish position I'll either sell a Put Spread or I'll do a Buy-Write where I buy the stock then sell a Call. The expiration feature of options makes buying Calls a potentially costly maneuver.

Just be careful, that's the point really. If you're an experience trader in other trades but not that one then ignore all of that and maybe it'll be useful for someone else following this thread!

Tumble Weed said:

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Another strategy that I am trying out, selling 20% at a time.

My portfolio was extremely heavy in AAPL. Today I sold off 20% to rebalance. I sold at 312.89 (it is 317.21 now).

I bought some ETFC @ $46.525. It has a P/E Ratio of 11.2 and a Net Profit Margin of 32.94%. This fits with my overall strategy of low P/E Ratio and high profit margin.

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ETFC up 20.77%.

My strategy is working. So far I have had 3 big hits. TWTR, BIIB, and ETFC all fall into this category of trade. Got caught on a couple as well and sold at a 10% loss, (DFS I am looking at you). My overall strategy right now is to limit my loss to 10% and continue to pick low P/E Ratios with good Net Profit Margin.

Also, I bought back into my AAPL shares during one of the corona virus dips. It was just too cheap.

Bumping this for a new question for options gurus:

Anyone ever do a covered call + long straddle (not a covered straddle) at the same time?

Quick google searches are failing me (getting overwhelmed by info about covered calls and long straddles... but not both at the same time).

Idea would be to sell a covered call, near the money or perhaps slightly ITM to get a fat premium; then use about half of the premium to buy OTM calls and OTM puts.

Thought being that the strangle acts as a volatility hedge for your covered call. If prices soar, your OTM call helps you realize gains that you'd normally miss with the covered call by itself. If prices tank the put acts as a traditional hedge.

Is this a viable strategy?