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Shortput

OPENING: SPY OCTOBER 16TH 276 SHORT PUT... for a 5.52 credit. Notes: A delta under hedge in the first expiry in which the at the money short straddle pays more than 10% of the share price (currently in October). Scratch at 81.99 versus current setup value of 88.02; delta~21; theta 22; extrinsic of 44.89. I'm approaching the max that I want to devote to working my way out of this trade, so will potentially look at delta adjustments using existing units as opposed to additive ones going forward.
AMEX:SPY
by NaughtyPines
OPENING ("THE KID"): HYG DEC 20TH 87 SHORT PUT... for a .95 ($95) credit. Notes: She's gone quite aggressive here, selling the first out-of-the-money strike with a break even at 86.05. She'll look to roll for duration on extrinsic approaching zero to the first out-of-the-money short put for a credit or, at the very least, toward current price for a credit, looking to emulate HYG's annualized dividend (currently 4.56) without actually being in the stock. She said she's fine with taking assignment at 86.05, but would prefer reducing cost basis "as much as possible" before taking on shares. She liked my "not a penny more" idea (See Post Below), called it "nice" but "not aggressive enough." Kids nowadays ... . We'll see how her "aggressive" goes.
AMEX:HYGLong
by NaughtyPines
4
TRADE IDEA: APA JAN 17TH 20 MONIED CC or JAN 17TH 20 SHORT PUTWith broad market and exchange-traded funds being temporarily unproductive from a premium-selling standpoint, I've been scouring the earth for high rank/high implied underlyings. APA (100/74) is one of them with earnings in the rear view. Pictured here is a monied covered call with the short call at the 20 strike in the January cycle. Markets are showing wide here (16.05/17.70/19.34), most of which is due to after hours pricing of the stock, which ended the regular session at 23.22, with the short call at 4.17 at the mid, implying a possible fill of 19.05 with .95 max for the monied covered call (5% ROC); the same strike short put pays .91 at the mid with a cost basis of 19.09 if assigned, so it's six of one, half dozen of the other in a cash secured environment, but greater buying power efficiency on margin by going short put over the covered call. Go less monied with the call -- at the 22.5 strike, and you're looking at potential 20.65 fill and 1.85 max (9% ROC); the 22.5 short put pays 1.76 with a cost basis of 20.74 if assigned.
A
by NaughtyPines
OPENING (IRA): XLP JAN 17TH 52 SHORT PUT... for a .40 credit. Notes: Another "not a penny more" short put with a resulting cost basis of 51.60/share if assigned. As with my XLU and HYG not a penny mores (See Posts Below), will look to roll "as is" for a credit on at least a quarterly basis until assigned or that's no longer productive. Current yield of 2.99%; $178 annualized on a one lot ... . This trade kind of rounds out what was on the remainder of my IRA shopping list which has focused on dividend yielders like IYR, HYG, XLU, and XLP. I'm already in IYR covered calls and in HYG and XLU short put plays.
AMEX:XLPLong
by NaughtyPines
EDUCATION: EMULATING YIELD VIA SHORT PUTOver time, my basic approach to my IRA has been to acquire shares at substantial discounts over time and to take advantage of "the three legs": (1) short call premium; (2) dividends; and (3) growth, with the eventual goal to be able to solely or predominantly rely on dividends post-retirement, since "growth" can periodically be elusive and short call premium collection on covered calls can vary widely, depending on movement of the underlying, implied volatility, and one's degree of "aggression."* Typically, this has involved selling puts as an "acquire lower" strategy, followed by share assignment, and then covering. However, as we all know, getting into stock at a particular price results in a less than agile setup. After all -- and regardless of whether you buy stocks outright or are assigned them -- once you're in stock, you're in at the price you bought or were assigned, and there's no amount of magic wand waving that will change the price at which you acquired, even if you shed tears and get buyer's remorse later. In comparison, staying in options as long as possible affords you greater flexibility as to potential acquisition price since you can roll for credit and therefore cost basis reduction before your getting full on into the shares. Relatedly, you can essentially "manipulate" the potential share price at which you're assigned by rolling the short puts down and out if you become unhappy with the strike at which you sold originally. All that having been said, what if I want to emulate dividend yield in the shares while I wait to get assigned at a discount? Well, there's a way to do that -- with short puts. Pictured here is an EEM June 19th '20 36 short put, paying .97 at the mid, with delta/theta metrics of 18/.36. 328 days out in time, it's the expiry nearest 365 days 'til expiry, and the delta'd strike (~18) that will pay something approximating the annualized dividend of $90.** In other words, this isn't the actual trade you'd put on to emulate dividend yield (although absolutely nothing prevents you from doing that), but rather a guide to tell you what delta and/or theta you'd need to sell in shorter duration to emulate the amount of annualized dividend. In this particular case, selling the September 20th 40 short put*** would potentially fit that bill. Paying a .30 credit, it has delta/theta metrics of 17.29/.69 with a theta burn nearly twice that of the longer-dated 36, with the downside being that the strike is obviously much closer to current price than the 18 delta sold out in time. However, the theta metric makes it conceivable that you could collect what amounts to the annual premium of .90 in three to four expiry cycles as compared to 12, assuming that the underlying goes sideways, up, or even down to a certain degree during your credit collection/divvy generation emulation process. Post fill, look to roll at extrinsic approaching worthless from the ~18 delta to an ~18 delta strike in an expiry that will pay a credit, aiming to collect at least .25 with any given roll. If you're not able to get at least .25 on a roll to a similarly delta'd strike without going out an absurd amount of time, consider rolling down and out more incrementally. Naturally, this begs the question of whether and under what circumstances it's worth being in stock versus short puts since you can emulate not only dividends, but also growth with short puts ... . But I'll leave that discussion for another day. * -- By "aggression," I mean what delta you're willing to sell as cover (i.e., 20 versus 30 versus 40 versus at-the-monied or even monied). ** -- The annual yield in EEM isn't great -- 2.08%, so I'm primarily using it as an example due to its excellent liquidity and market tightness in the off hours. *** -- Naturally, this is best done on weakness or in a higher implied volatility environment. EEM's at 7/16 here, so you're consequently not getting a ton of juice out of the 18 delta.
AMEX:EEMEducation
by NaughtyPines
"THE KID": OPENING (IRA) IWM SEPT 20TH 125 SHORT PUT... for a 1.10/contract credit. Metrics: Max Loss/Buying Power Effect: Full notional Max Profit: $110/contract Break Even on Setup: 123.90 (18.4% discount over where the underlying is currently trading if assigned) Delta: 10.93 (Current) Theta: 1.36 (Current) Notes: While I'm sitting on my hands a bit here, I figured I post one of my kid's "Not A Penny More" IRA trades (See HYG Post Below). She doesn't do a ton, doesn't want to look at stuff a lot (maybe once a month), and is totally unwilling to buy into the ridiculousness of acquiring shares at near all-time-highs. This particular trade was put on some time last week, and she'll look to roll out for a credit once a month post-opex for cost basis reduction until that's no longer productive or until she gets assigned, at which time she'll proceed to sell calls against her shares.
AMEX:IWMLong
by NaughtyPines
OPENING (IRA): SPY MARCH '20 215 SHORT PUT... for a 2.57/contract credit (cost basis of 212.43/share). Notes: Here, I'm looking to acquire additional SPY shares, but only at a potential 25% discount from current price. Otherwise, I want to get paid to wait and/or reduce cost basis in the meantime. Because expiries are skip month (March, June, September, December, etc.), will look to roll out for additional cost basis reduction every other month, so this is likely to be a slow trade ... .
AMEX:SPYLong
by NaughtyPines
OPENING: X MAY 17TH 19 SHORT PUT... for a .49/contract credit. Metrics: Max Profit: $49 Buying Power Effect: ~$202/contract Break Even/Cost Basis If Assigned: $18.51/share Delta: 15.96 Theta: .74 Notes: Here, I'm just looking to deploy some buying power in one of the few underlyings with fairly decent implied volatility (42.4%) at a high probability of profit strike (the 16). I'm fine with taking on shares, but only want to do that at a discount over current price -- the 18.51/share cost basis represents a 20.4% discount over where it's currently trading. Will look to roll out as is at 50% max as long as that remains productive.
NYSE:XLong
by NaughtyPines
1
THE WEEK AHEAD: NIO EARNINGS; XOP, EWZ PREMIUM SELLINGMy screeners aren't showing me a ton of things for either earnings-related volatility contraction plays and/or just Plain Jane premium selling, so I'm largely looking just to work what I have on, do any adjustments that are necessary, and wait for a higher volatility environment (VIX is at sub-15 here) to deploy capital back into premium selling. The Chinese "Tesla killer" NIO (82/136) announces in two days and with a background implied clocking in at 136, who can resist putting something on. Pictured here is a fairly delta neutral 11 Short Straddle in the April expiry that is paying a whopping 4.18 at the mid (1.04 at 25% max) with break evens that encompass most of the underlying's whole data set -- 6.82 to 15.18. Even skewed to the call side, the net delta is -2.59 with a theta metric of 4.08. Obvious alternative plays: April 18th 7/11/11/15 iron fly: 3.10 at the mid, max loss of .90 versus max profit of 3.10 (.78 at 25% max), delta -.97, theta 1.43. I would note the rarity of the substantially better than risk one to make one metrics of this setup. April 18th 7 short put, .72 at the mid with a downside break even of 6.28. On the exchange-traded fund front, the vast majority of underlyings are at the very low end of their 52-week ranges, with the highest implied underlyings in XOP (16/30) and EWZ (10/30), which again militates in favor of not putting on a ton of nondirectional premium selling stuff here. I did look at ASHR, which did stick out at 75/34, but the options chains in April, May, and July have wanky strikes (i.e., the April 28th 27.71 (WTF?) short straddle), and I don't like having to roll from "wanky" to an even Steven strike if I have to. If I'm going to play China, it's going to be in the more liquid FXI (16/21), which doesn't suffer from similar oddities that make trading it potentially harder than it has to be.
NYSE:NIO
by NaughtyPines
TRADE IDEA (IRA): HYG SEPT 20TH 82 SHORT PUTMetrics: Max Profit: $173/contract Buying Power Effect (Cash Secured): $8026 Break Even: 80.26/share Delta: 31.71 Theta: .67 Notes/Comments: Up to this point, I haven't posted many of my IRA trade ideas, primarily because they are way longer-dated setups than people are generally interested in, and I've also been an infrequent buyer of the underlyings that make up my portfolio -- a fairly mundane mix primarily made up of SPY, EFA, TLT, and IYR covered calls where setup management consists of looking at the short calls from time to time and rolling them out for duration, credit, and further cost basis reduction. It isn't very exciting, and I may not have to do much for weeks, if not months, in certain cases. Naturally, this trade is not going to be attractive to everyone; you are, after all, going to be tying up $8k of buying power for a very long time with a return on capital of about 2.16% if you do nothing and the short put expires worthless. For me personally, I have idle cash sitting in the IRA earning virtually nothing, and I don't anticipate adding to my core positions in short order given my cost basis, where these underlyings are in the grand arc of time, and my proximity to retirement. Moreover, one of my basic IRA rules is not to undertake single name risk, so my basic options are (a) do nothing; or (b) stick something out there and get paid to wait for the price at which I want to acquire. Here, I'm interested in acquiring HYG with its attractive 5.46% yield, but at a price discounted substantially over where it's currently trading; otherwise, I simply don't want the shares. I can either wait until price gets there or sell puts that will result in a cost basis at or below what I'd like to get in at if I'm assigned. Here, I'm opting for the latter ... . Post fill, I'll periodically look to roll for duration and credit to reduce cost basis further.
AMEX:HYGLong
by NaughtyPines