Trade Updates And Friday Q&A
Trade Updates Hello Smart Option Sellers! Southwest Airlines (LUV) We tried to enter a new put-sell trade on LUV yesterday, and just like the Kellogg trade from two weeks ago, we had the same issue with not getting filled. I'm a little tired of this nonsense. Clearly, with the stock down over $2 per share yesterday, the put options should not be backing off in price. They should be going up in price. Is everyone afraid to trade with us? It's insane. Instead of the market coming to us to buy our put options, we have to resort to going down in price if we want to get filled. Let me show you the Time & Sales Report from both the Interactive Brokers feed and eSignal's (one of my data providers). The Time & Sales will show you all the bids, offers, trades, size & time for each option contract.
I began to write up the trade alert yesterday between 9:45 - 9:50 am ET when I saw the trade unfolding. In the Time & Sales screen above, you can see the bid/ask market was $.25 bid/$.35 ask, just as I explained it in the alert. You can see the $.25 bids on multiple option exchanges. The time showing was 9:50 - 9:51 am ET. The last column shows the size of how many option contracts are on the bid & ask at each exchange. In this second screenshot, you can see the same $.25 bid/$.35 ask market with a consolidated contract size in the last column. With over 400 contracts bidding $.25, I felt completely confident that many Smart Option Seller members would be able to sell for a minimum of $.25 if need be. With the stock down over $2 per share, I thought we might be able to sell for $.30 per contract easily. It only took me 10-15 minutes from start to finish in terms of writing up the alert and blasting it out to everyone (which was sent at 10:01 am ET). Surely in that short of a time frame, the market would cooperate with us. No such luck! I mean as soon as the alert hit most of your email inboxes, the bid price on the put option started backing off. I couldn't believe it. Once someone (probably some Smart Option Sellers) decided to move their offer price down to $.25 per contract, it was game over. For the rest of the day, the stock moved up and down, and none of our $.25 offer prices got filled. Very frustrating. I'm sure LUV is going to move back up in price in the very near future, but I'm not ready to change the order yet. Let's see what happens today. Maybe the stock will drop and the put options will pop. If not, I may tweak the trade early next week. Here's the order again: Sell (sell-to-open) the LUV June 2018 $42.50 put options for a limit sell price of $.25 per contract or higher, GTC, as an opening transaction (sell-to-open). Unofficial Trade Results - Ford (F) For those of you who bought the straddle on Wednesday, you were most likely able to exit the trade yesterday for at least breakeven. The straddle traded in a range of $.30 - $.50 per contract yesterday, while most of you bought around $.32 - $.33 the day before. Ford stock moved down most of the day yesterday which allowed the straddle to move up in price. As you probably saw, the $12 put option had all the value while the $12 call option had no value. This is how I described the trade on Wednesday - as long as the profit on one side (put option) outweighed the loss on the other (call option), you could make an overall profit on the whole straddle. If you're still holding it, make sure you get out of it by end of day today. This would most likely entail selling out of the put option. Since the stock should stay under $12 (I'm assuming), the $12 call option will have no value and you could let it expire worthless and save yourself a commission. If the stock does jump above $12 during the day, maybe you can squeak a few pennies out of the call too. It was worth taking the shot, and maybe you made a little money on it. At worst, you broke even. Friday Q&A Q: One question I have regarding time decay: 1) When I look at the option tables it tells me how many days are left to expiration for each option. The number of days to expiration actually includes the weekends (Saturday & Sunday) in the number. Do options actually decay over weekends (non-trading days)? In other words, from the close of trading on Friday to the beginning of trading on Monday, does each option actually add 2 days of decay or does decay just happen over actual trading days? A: Great question. Options decay every day, even on weekends. But what you'll find on the shorter-term options, is that the weekend decay will mostly be reflected in the price come late Thursday and Friday. You'll see the option prices moving lower throughout those two days as the traders incorporate Saturday & Sunday decay into the price. Even though this happens, you may still see the option price lower on Monday than where it closed on Friday (all else being equal). With longer-term options, the weekend decay is much more subtle and it's not as noticeable until you start to get down to a few months before expiration. Q: Lee, For put options that we are holding (FIVE, HACK, BIG etc)... is it advisable to have GTC buy orders set at 0,05 as soon as you get in the trade? If not, can you please explain why? A: I'm not a big fan of putting GTC orders in ahead of time on our buy-back trades. This is because I don't want the market-makers to see our standing order there. If they do, they know we'll be there waiting and they can toy with us for a longer than we'd like. In my opinion, it's better to wait until you see a $.05 offer price show up, and then you can quickly buy it back without waiting. So why do we use GTC orders on the initial sell trade? We do this because I need everyone to get in right away, and this GTC order will allow everyone to move on with their day and not have to fuss with the order. On the buy-back, it's not imperative that we show our hand early and put in a GTC order months in advance. Make sense? Q: Lee, Is there any website or platform where a Put seller can see the number of options being offered at a certain price? So, for instance, if I enter an order to buy or sell an option, how can I determine how many other options are being offered at the same price? On most platforms, such as Schwab's Street Smart Edge, the user can see the volume bought/sold that day and the total open interest, but knowing the depth of interest would also be valuable. A: Yes, it's called "market depth", and is available at most brokers. Some market depth screens are free and I believe some may cost money. Here's the market depth screen from Interactive Brokers (IB) for the Apple June 2018 $130 put options:
It will show all the bids/offers and size for each option exchange. That's all for today. Have a great weekend! Continue to contact me here Regards,
Lee Let's Grab That Cash!
Current Portfolio Continue to work all other trades as instructed and continue to hold all other open positions as-is. See the Current Portfolio below for current prices & instructions. Note on the Current Portfolio - if you are a new subscriber and don't have a position yet on any of our trades, make sure you enter your order at the original recommended sell prices. Do no enter any order unless the current option price is at, or higher, than the official recommendation. If you are unsure or have any questions, please ask us!