LVS has just been absolutely murdered this year, down about 96%!  However, some are starting to call a bottom here and it could be due for at least a brief snapback.

While looking at this stock I see a couple of interesting options opportunities.

1) 5.00/7.50 vertical spread.  At this price the spread would cost you, at market prices, $0.90 (buy the 5.00 strke for $1.10, sell the 7.50 strike for $0.20), but the 5.00 strike is already $0.58 ITM so the extrinsic cost of the spread is just $0.32 as long as the stock stays above $5!  The max profit is $1.60 (7.50-5.00-0.90).  However, since the 5.00 strike is ITM and has $0.58 of instrinsic value, you’re only risking $0.32 of time value.  Therefore, it’s possible that the spread could be worth $2.50 at or near expiration, when you only put $0.32 at risk, an almost 8:1 reward ratio.

2) Going synthetically long (buying the 5.00 call, selling the 5.00 put) would cost you $0.70 (1.10 - 0.40) and, near expiration, for every dollar the stock rises, the value of the synthetic stock rises.  Synthetic stock is very risky since if the stock goes down you can lose money very quickly as well.  But if you’re very certain it’s bottomonig out here, a synthetic long gets you in the stock at $.070 instead of $5.58, risking much less money up-front to get long the stock.  If the stock goes to $8, for example, the $0.70 position would be worth $3.00 since the 5.00 call would be $3.00 ITM and the 5.00 put would be worthless.  That would be a 329% gain!  However, if you bought the stock and it went to $8, that would be just a 43% gain.

However, there are 6 trading days left before expiration so these moves would have to happen soon, but with this market so volatile it’s certainly within the realm of possibilities.  Again, as a warning, synthetic stock is very risky.  If you trade these do so with very little capital that you’re OK with completely losing, because it could easily happen.

I’ve been reading The Options Bible lately, which I didn’t think I’d get much out of other than mechanics of different options strategies, which I feel pretty comfortable with already.  However, while reading the section on selling naked puts, it discusses on how you can sell PUTs as a way to mark an entry point to when you want to buy a stock, while collecting premium.  Lately, I’ve been looking at AAPL when it was in the high 90s and I was wanting to get back in if it was going to go back to 90 again, so I realized I could sell PUTs, collect the premium, and then if it does go back to 90, and if I was assigned, I would be obligated to buy the shares for $90, a price I wanted to pay for anyways.  If it never got down to 90 then the PUTs would expire worthless and I’d keep the premium I collected.

Now, when it actually gets back close to 90, I may chicken out and want to change my mind based on a different market outlook, so the only way to get out of the obligation would be to buy back the PUTs but by then they would have increased in value if the move down was quick, probably causing a net loss.  However, if I was still convinced 90 was a good price target for me then it’s a good way to commit yourself to buying at that level and collecting some premium on the way down.  Pretty cool!

With Google’s growth slowing down it looks like the rapid growth days of Google are over.  Google has been fairly range-bound lately and it appears to be right in the middle of a range here.  Looking at the chart below, a safe bet would be to sell an iron condor on GOOG around the 600 and 425 strikes (purple lines).  A riskier but potentially quicker-profit play would be the 550 and 460 range (orange lines).

Looking at September strikes for the orange range the 550/580 call spread sells for $2.95 and the 460/430 put spread sells for $4.35.  Stops would be at or near 460 or 550.  You maximum loss would be $22.70 if you don’t stop out.  Potential return on risk is 32%.  I chose $30 spreads somewhat arbitrarily: I try to have spread between 5-10% of the stock price for nice income without exposing too much risk of loss as well as limiting margin requirements so I don’t tie up so much cash for so long to hold these positions.

For the purple range we have to go farther out because those September spreads weren’t worth that much that far out of the money in the front month.  For some reason I couldn’t get pricing on October options so we’ll go out to December.  The 600/630 call spread sells for $4.40 and the 420/390 put spread sells for $4.10 for a total max income of $8.50.  Max risk is $21.5 if we don’t stop out and return on risk is 40%.

Remember that APA 125/135 call spread that I mentioned earlier as having sold for a 100% gain? Well, turns out that same spread expired worth $9. I bought it for $1, sold it for $2. Had I held on, I could have sold it for $9 for a 800% gain! That’s one thing I liked about the trade when I put it on in December: it had a potential 9:1 profit ratio and it fulfilled it’s full potential last week as APA closed over $140.

Now it’s always easy to look back and kick yourself for not holding on longer, but a 100% gain is a pretty juicy gain and one you’re going to want to keep. So, what I’ve heard that other traders do is if they have a position that has doubled in value and they think it may run even higher, they will sell half so at worse they break even if the rest of the position becomes worthless. Meanwhile they’re still in the game with the other half. That would have been nice if I had done that here.

Crazy, but towards the end of the day Friday Google’s April 500 strike call option was up 10,000% from the previous day’s price. That’s what I love about options, you can have incredible leverage in such a short amount of time.

I was wondering if I had held these options and had trouble selling them because it was the day before options expiration and was “stuck” holding onto these my understanding is that my broker would automatically exercise these options for me instead of letting the contracts go worthless. Great. However, if I didn’t have the capital in my account to purchase all of the stock that I had the right to, would that still happen then and they’d just immediately buy then sell them at market price come Monday morning? Or would they just let them expire since I didn’t have the capital to exercise them fully?  I believe the former action is what should take place (they’d exercise and then immediately sell them for me)

Earnings always have great potential to make some quick returns with options, either to sell the volatility preceding the announcements, pick a direction where you think it’s going, or create a straddle/strangle if you think it’s going to move big but not sure which way. Here are some stocks which I feel have a lot of up or downside potential in them during this earnings season.

I sold my Apache April 135/125 call spread yesterday after I had reached a 100% gain on it. I could have probably made more as oil is up even higher today, but I wanted to lock in a rare profit for me.

This trade was very attractive to me at the time when I bought it in December, it had a potential 900% gain if the stock hits 135 by April expiration, but as March options are going to expire soon theta is going to kick in pretty quickly and if I don’t start to get in the money soon then I’d be really hurting. APA has already had a nice run-up lately and in this market things don’t continue going up for very long so I wanted to take the profit I had while I still had it. Looking at it today, I would have been up only 85% so I’m glad I sold when I did.

This was perhaps the longest time period of an option I had ever purchased: 4 months! At the time I bought it APA was over $100 a share, then it swooned downed to 90 then recently rallied with oil and natural gas rallying. It’s been a wild roller coaster ride but buying that extra time allowed me to get into or near a profitable price point through the crazy volatility.

NOTE: after taking a second look at this chart I just noticed a couple of “hammers“. I just read about hammer and hangman reversal signals earlier this week in TASC and this chart has a good example of two hammer trend reversals.

I have yet to understand how an option contract can have such huge volume on such little open interest. At any rate the put action on UBS the other day was an extreme example of this. Looks like a lot of people are betting on UBS going down sometime soon.

P.S. I later learned that open interest is how many contracts had been written and were still open at the open of the market, and when there is a huge volume/open interest disparity it is a combination of those contracts being traded over and over, but, more likely, that many new contracts have been created that day after the market had opened buy new options writers (sellers of new contracts).

The ADX/DMI is a technical indicator growing in popularity. The more I read about it the more I like it and more people seem to be liking it as well. Here’s a primier on the ADX/DMI. In today’s market it’s pretty hard to find stocks in a strong positive trend, except for gold (GLD) or oil (USO) but there are plenty in strong negative trends that might provide for some good short opportunities. Does anybody know of any good ADX/DMI cross-over screeners online?

I’ve been pretty inactive with the market lately. I put on some long-term call spreads back in December and the January sell off really killed them. They are spread out to April so I still have time but they’ve got a long hill to climb and I may get out of them soon while they’re still worth something.

The market in general is pretty tough for my “take profits when you’re +100%, cut losses when you’re -50%” criteria as volatility is very high, making options pricy, and the market is not trading in any real long-term trend as it is trading in a large range with massive intraday swings, so it’s hard to make directional picks unless you can pick a top or bottom and are actively trading these things, looking for smaller but more nimble gains.

My day job has kept me pretty busy and I don’t have time to day-trade the market now so I’m on the sidelines so far. I’m looking at perhaps just selling some covered calls for some small income plays to sell volatility, or look at buying stock in some beaten down names and just keeping them protected with collars. I’ll let you know what I decide.