Priceline Iron Condor

I was researching Priceline PCLN January 2013 Iron Condor. Here is the trade:

Trades to open position No. Price Total
Buy 19th Jan 2013 $510.00 Put 1×100 $14.70 $-1470.00
Sell 19th Jan 2013 $560.00 Put 1×100 $24.20 $ 2420.00
Sell 19th Jan 2013 $840.00 Call 1×100 $21.20 $ 2120.00
Buy 19th Jan 2013 $890.00 Call 1×100 $13.00 $-1300.00
Total $ 1770.00

Initial outlay: $1770 (net credit)
Spread Size: $5000
Maximum risk: $3230 [$5000-$1770]
Maximum return: $1770
Return on Risk: 54.79%
Breakevens at expiry: $857.70, $542.30

Better yet, it would be nice to know my profit (or loss) at various points in time between now and January 19th, 2013 expiration. Take a look at this page. It displays a table (based on this trade) . This table has week by week profit/loss values along X-axis and Stock price in $5 increments along Y-axis.

How to use this table?  Lets fast-forward the time to November 4th, 2012 and on that day price for the PCLN stock is at $715. If I click on the link corresponding to the 715 and November 4th, a window opens up showing a closing trade. If stock is at $715 on November 4th, I can buy back Iron Condor for $780 and make a profit of $990 (1770-780). However, if the stock is at $635, I can buy back Iron Condor for $992 and still make a profit of $778 (1770-992).

Tools of the Trade

For a successful execution of Option trades, one needs a versatile platform that lets you analyse the trade, conduct back testing, play with various options before placing the trade. I use ThinkorSwim platform for my trading.

For crunching numbers, nothing comes close to online Google spreadsheets. I can fetch Stock prices (no option prices). Here is a sample:

For news, I depend on Bloomberg TV and CNBC app on Ipad. Both are free apps on Itunes store.

For interesting articles and contrarian views, I head over to SeekingAlpha.

For reference, I always have The Bible of Option Strategies handy on my desk. I can look up strategies by name, volatility and income using this useful guide by Guy Cohen.

ARNA trade ahead of FDA decision

Stock: ARNA Arena Pharmaceuticals

Trade: Buy Jun Weekly $9 Put and $10 Call.  Sell $8 Put, $11 Call. Net debit of 80 cents. (Long Iron Condor)

Reward: Spread – net debit = ($1 – $0.80) = $0.20

Risk: Net debit = $0.80

Break even Stock Price: $8.20 and 10.20

Return on Risk: 0.20/0.80 = 25.00% in 3 days .

Reason for this trade: Volatility is very high due to pending FDA Approval.Extreme moves are expected on either side depending on approval or rejection.No one is sure of the direction the stock will go. In such a situation, Long Iron Condor seems to be a safe bet.

Exit/Adjustments: With 3 days left, there is not much room for adjustments. I may exit the side that is completely in the money and letting other side expire

Disclaimer: I have done this trade today. However, I am not recommending this trade.

Updates: 1. I was able to exit puts side of the trade for 10 cents earlier. 2. I had to sell Call side of the Iron Condor for 50 cents.

Lessons Learnt : Volatility dropped like a brick once FDA approved the drug. Thursday morning was the best time to get rid of the entire trade. I made a mistake of waiting little longer. My loss was 20 cents + commissions.

Apple Vertical Spread

Stock: AAPL – Apple Inc.

Trade: Buy Jan 2013 Put, Strike $440 and Sell 2013 Put, Strike $450 for a net credit of $1.90

Risk: Spread – net credit received = ($450 – $440) – $1.90 = $8.10

Reward: Net credit received = $1.90

Break even Stock Price: $448.10

Return on Risk: 1.90/8.10 = 23.45% in 207 days or 41.35% annualized.

Reason for this trade: It is a pure probability trade. There is a 85% chance that stock will remain above $450.

Exit/Adjustments: I have sufficient time (207 days) to exit or adjust this trade. If stock continues to fall, I can buy back this spread. To enhance the return for the same amount of the risk, I can sell a similar spread on the call side, thus converting this vertical spread into an Iron Condor.

Disclaimer: I have done this trade today. However, I am not recommending this trade.

Introduction

I am an amateur trader and will be posting my trades on this blog. My trades are not recommendations. I will try to post my reasoning for my trades. I am open to constructive criticism. Feel free to post your comments about my  trades or post your own trade if it makes more sense. My favorite stocks for Options trading are AAPL, AMZN, CMG, GOOG, ISRG, MA and PCLN. I often trade SPY and VXX to hedge my portfolio. My favorite Options strategies are Vertical spreads, Iron Condors, Backratio spreads and occasional short puts.

Besides trading, I have other interests that will unfold as I post them on this blog.