Skewed Iron Condor (2) - TOL

The previous trade, in Pictoral form:

This is a 4-leg trade:

The profit & loss picture looks like this:

Skewed Iron Condor - TOL

TOL:
Curve-fitting: goes up by 2/mo

  Long Mar 2013 38 Call Ask: 2.90 x 1

  Short Dec 31-21 Put credit: 0.70 x 3
  Short Dec 32-22 Put credit: 0.90 x 3

  Short Dec 47-42 Call credit: 0.40 x 2
  Short Dec 46-41 Call credit: 0.55 x 2

   Short Dec 42 Call credit: 0.55

2.10 + 0.80 - 2.90 = 0.0
2.10 + 0.55 - 2.90 = - 0.25

  Mar 2013 38 Call / Sell Dec 2012 42 Call debit:  -2.35
39-44 debit: -2.30
38-41 debit:  -2.15
39-42 debit: -1.95


Total position:
  Buy Mar 2013 38 Call / Sell Dec 2012 42 Call:  -2.35  x 2
  Sell Dec 2012 31-21 Put Credit: 0.70 x 3 = 2.10 x 2

  Mar 2013 38 Call Ask: 2.90
  Dec 2012 42 Call Bid: 0.55


Results, By Dec:
=> Below 31 lose money up to 21, max: 6050  --> can roll put spread downwards
=> Between 31 and 38: loss: 50
=> Above 38: gain money up to 42, max: 750  --> can roll short call upwards

Evaluate weekly; if it gets half-way to the short positions, roll those out again.

Short Puts Screening

Selling high-priced near-term OOM Puts, possible short OOM Calls

RAX:

Lower bound 30 (aggr: 35), upper bound 60 (aggr: 55)

Earnings call: May 2

RVBD:

Lower bound 30 (35 ok), upper bound 55

Earnings call: Apr 25

WTW:

Recently gapped up; pass

OPEN:

Lower bound 80 (aggr: 90), upper bound 120

Earnings call: May 4

AMZN:

Lower bound 160

Earnings call Apr-end, Analyst downgrade

Strategy: Short Expensive Near-term OOM Puts

Next plan: sell near-term Puts that are way out of the money, yet expensive.

Filter for finding candidate Puts:

1. Underlying is on a long-term uptrend (or at least steady). Wouldn't mind owning underlying at a fundamental level.
2. Underlying price, between 20-80.
3. Near-term put, 1-2 months out and comfortably out of the money, priced > $1.00
4. Ideally strike price is below significant support level.
5. Check for announcement dates of financial results.
6. Reduce collateral requirements by buying Puts that are further OOM (buy extra).

Results: Long LEAP Calls to anticipate Market turnaround

The experiment to go long on LEAP Calls for good stocks in anticipation of an overall market turnaround, has failed.

Bought 1-yr and 2-yr LEAP Calls at the beginning of 2010, assuming that the overall market was bound to turn around. Only one did really well (SLE), the others (BSX, INTC, MOT, YHOO, C) all lost money.

The case for long LEAP calls

The case for going long on LEAP Calls

• Massive downturn over the past year
• Should lead to a broad rally within the next couple of years
• Lots of company stock prices are sure to rise

• Identify sectors that have been beaten down and are likely to rise due to mega-trends
• Find good names in each that have been beaten down but will be in demand
• Find ones with cheap LEAP Calls
• Go long: 2012 Calls, < $1
• e.g. HomeBuilders, Financial companies, Healthcare (esp. related to epidemics which are likely to rise), autos?

Punished sectors likely to rise again: XLF,ITB
- Find the recovery leaders of each sector

Other sectors, stocks likely to rise:
Technology: MOT (handheld computers), YHOO (new CEO), XRX (new CEO)
Disease mgmt/Epidemics
Energy storage/Battery
Transportation

Trend-Following Strategy

Strategy for capitalizing on a major stock uptrend:

Screening

• Find a serious uptrend starting in the last 3-6 months, supported by high volume
• The increase must be sustained or must be explained by a good reason; preferably new product or service coming in from below
• Stock price between 10 and 50
  

Activity

• Find a good entry and exit point
• Use tight Money Mgmt; Cut short losses and let profits run
• Use contingent orders to sell on downturns

With this activity, it then comes down to a question of good screening approaches for trending stocks.