Archive for June, 2006

Option Purchase to Open UPLGL

Tuesday, June 27th, 2006

This morning we purchased the $60 July call for Ultra Petroleum Corp (UPL) for $2.20. This is probably not the best time to be purchasing or selling straight calls or puts. Market direction is pretty indeterminate right now.


Option Sell to Close LESSK

Thursday, June 15th, 2006

This morning about an hour after the opening bell we sold the LESSK options at $0.40 for a 66% loss. The impulse entrance to this play also had an impulse exit — a gut feeling indicated that the markets were going to rally today. The dow ended up 198 points.

Lessons learned:

  • Stick to the strategy. The purchase of this option was done too far below the 30-day moving average. One of the technicals we look for are crosses through this moving average.
  • We are not day traders. We don’t make snap decisions in the middle of the day to enter trades. We had already planned the limit order ahead of time. Let it exit as it did and call it a success.

Earlier this week, the Dow Jones had nearly reached the lowest point of the year. If this is now the beginning of a general uptrend in the markets, we will be seeing some call option plays soon.

Option Purchase to Open LESSK

Tuesday, June 13th, 2006

Just after our limit order to sell LESSD was automatically filled, we looked again at the LEH technicals. What we see here seems to be heavy institutional selling of this stock. Note the significant increase in volume as the price has dropped since the end of April. It has broken through resistance levels, it is in a down-trending industry during a generally bearish market. The fundamentals are poor/mediocre. We believe this stock still has some ways to go. We purchased the next lower strike price of $55 for $1.20.

Option Purchase and Sell of LESSD

Tuesday, June 13th, 2006

This morning we purchased the July 2006 $57.50 put option on Lehman Brothers Holdings Inc. (LEH) for $1.25. So as to not repeat this incident of buying an inflated market order at market opening, a limit order of $1.10 was submitted just seconds prior to the bell. Due to a network delay, the order timed out, and the ask price rose 13% to $1.25. Perhaps the most costly network delay we have ever encountered. After purchasing the options at $1.25, we set a limit order to sell at $1.85. This limit was hit later in the day, and we cashed out with a 48% profit in 1 day.

The story continues in the next entry (probably above this one.)


Option Sell to Close GLWSD

Monday, June 12th, 2006

This morning we sold our options at $0.65 for an 8% profit. An analyst upgraded the stock believing that it was oversold, sending the stock up on Friday morning. Since this shot our plan, we exited as soon as possible in the black.

We should probably learn spreads soon.


Option Purchase to Open GLWSD

Thursday, June 8th, 2006

This morning we purchased some July 2006 $20 put options on Corning Inc. (GLW) for $0.60. It was an exciting morning with a 50% gain in 3 hours, but the bid price settled back to the purchase price by end of day. We purchased this a day after 3 red arrows (phantom arrow on the stochastics) on more than double the average of volume, in a downtrending industry group with a bearish sentiment on the overall markets. However this trade turns out, these are exactly the types of trades we are looking for, where the short-term momentum according to the technicals is congruent with the trend of the industry group, overall markets, and state of the company fundamentals (medium/poor in this case.)

In selecting this particular option, we learned to use the delta parameter in a linear approximation to how the option price changes with respect to the underlying stock. As such our ROI calculations are more accurate since now they can take into consideration the time value rather than just the intrinsic value of the options. Soon we will break out the pad and paper and use the gamma parameter to calculate option price acceleration.