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Tuesday, August 19, 2008
Matt's Trade Log - 8/19/08
Four trades today:
The RIMM trade was in anticipation of increasing volatility as RIMM's earnings approach in late September. Given the historical performance of RIMM compared to recent performance, their history of strong earnings, a new threat from AAPL and the iPhone 3G, and uncertainty surrounding their general viability as well as the Blackberry Bold, it seems likely that volatility will increase in this position as earnings nears. The plan is to try to sell this strangle back with just a few days before earnings and try to reap a profit from the increased volatility. This trade cost $19.93.
One potential problem with this RIMM strategy, I just realized, is that the options are near-term enough that time decay may eat into the increase in volatility considerably. The next time I try this strategy, I should buy options that are much further out, so time decay doesn't erode so much of the gain I might get from increased volatility.
With UA, I saw a downturn signal that would have been cause to sell if I was long UA. I sold this vertical call spread to try to profit from the downturn. I wanted a breakeven of at least 35, but the 35/40 call spread was too inexpensive to be worthwhile, and the 30/35 too risky. The 30/40 seemed to give a good balance between risk and reward for me. I sold it for $3, which essentially amounts to a 70% probability of success.
One risk here is that $32 was in fact the new support for UA. If so, it is just pulling back a bit before a big run-up. I'll need to watch it to see if it gathers steam and heads upward from $32. If not, we're likely to see it fall back down to $25 again, at which point it would probably be time to buy in again.
AAPL seemed to have hit a resistance line at about $180 for the past several days, so I took the opportunity to sell another call spread at that level, basically doubling down a position I took some time ago. I sold this spread for $1.40, which is a little low for a 5-wide spread, but not too bad.
- Buy 50 SLV
- Buy 2 RIMM OCT08 125/130 strangle
- Sell 2 UA SEP08 30/40 vertical call spread
- Sell 3 AAPL SEP08 185/190 vertical call spread
The RIMM trade was in anticipation of increasing volatility as RIMM's earnings approach in late September. Given the historical performance of RIMM compared to recent performance, their history of strong earnings, a new threat from AAPL and the iPhone 3G, and uncertainty surrounding their general viability as well as the Blackberry Bold, it seems likely that volatility will increase in this position as earnings nears. The plan is to try to sell this strangle back with just a few days before earnings and try to reap a profit from the increased volatility. This trade cost $19.93.
One potential problem with this RIMM strategy, I just realized, is that the options are near-term enough that time decay may eat into the increase in volatility considerably. The next time I try this strategy, I should buy options that are much further out, so time decay doesn't erode so much of the gain I might get from increased volatility.
With UA, I saw a downturn signal that would have been cause to sell if I was long UA. I sold this vertical call spread to try to profit from the downturn. I wanted a breakeven of at least 35, but the 35/40 call spread was too inexpensive to be worthwhile, and the 30/35 too risky. The 30/40 seemed to give a good balance between risk and reward for me. I sold it for $3, which essentially amounts to a 70% probability of success.
One risk here is that $32 was in fact the new support for UA. If so, it is just pulling back a bit before a big run-up. I'll need to watch it to see if it gathers steam and heads upward from $32. If not, we're likely to see it fall back down to $25 again, at which point it would probably be time to buy in again.
AAPL seemed to have hit a resistance line at about $180 for the past several days, so I took the opportunity to sell another call spread at that level, basically doubling down a position I took some time ago. I sold this spread for $1.40, which is a little low for a 5-wide spread, but not too bad.
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