Closed AAPL

I bought my AAPL 330/325 bull put credit spread about five hours after opening the spread.  Why?  Because I had roughly 2/3 of my maximum profit in that time, so why take the risk holding onto the trade for three more days for only another 1/3 profit.  I'll take 8% profit in 5 hours any day.

AAPL 3 day bull put credit spread

With the U.S. stock marketing selling off sharply at the open, following Japan's Nikkei Index dropping off 11%, I started watching the chart on AAPL.  AAPL opened $11 lower than where it closed the previous day and I believe AAPL will stay about where it is now or rally between now and expiration Friday, which is in three days.  So I sold the March 2011 330/325 puts for a $.60 credit.  While I'm hoping to enjoy over a 13% return in three days, I realize this is a high-risk trade.  Although there are a few adjustments I could make if this trade goes against me, I am not willing to take ownership of AAPL stock at $330 so I'll  be monitoring this trade closely and if AAPL breaks below $335, I'll close this trade out.

Welcome New Members From Sacramento MAP Group (and Guests)

On Saturday the 26th of February I had the privilege of sharing some our methodology and strategies with an investment group in Sacramento called the MAP Group.  I had a wonderful time and received some very nice compliments from the group members.  I wanted to thank them for the opportunity and for the wonderful hospitality.  I also want to welcome those who have now joined the SOS community.  We look forward to your comments and input in our trading community and also look forward to your continued trading success.

Jeffry Dunyon
President
Safe Option Strategies

BIDU ITM Bull Call

BIDU recently had a 10:1 stock split and has had several days in bullish territory since. The trade I'm doing is high risk in that there is no real easy adjustment to it. I am planning at tomorrow's opening to buy to open May $70 strike calls at $4.00 per share and sell to open May $72 strike calls at $2.40 per share. This would give me a net debit of $1.60 per share and a difference in strike prices of $2.00. If BIDU finishes the week above $72.00 per share I will have a net ROI of 25% on a four day trade. I will get called out on ITM short calls but have long calls to cover them at $2.00 per share less. Like I said, there is no easy adjustment to this trade so it is high risk compared to many trades I do. BIDU dropping fast could cost me my entire debit in the trade so I will be watching it closely the next few days. One other note is that I will use a limit debit order of $1.75 per share to open this trade because if I have to pay any more than $1.75 per share the trade is no longer worth the risk. I'll keep you posted on where it fills and what I do with it for the rest of the week.

Roller Coaster Survival: 101

I feel compelled to make a quick observation about the market's movements yesterday and today. There are still some different rumors surrounding what exactly caused yesterday's crazy drop and at the end of the day it really doesn't matter. The reason it really doesn't matter is the exit strategies we set up. The bottom line is this: if you stay true to your primary, and in the case of yesterday's drop, your secondary exit strategy you will be fine. I wrote an article called "The 5 Hard Questions of Trading" that had a lot to do with how to set and stick with exit strategies (the article is being expanded into an e-book that will be out soon). Two of the five questions were "Do I have a well defined exit strategy?" and "Can I adjust the trade if I'm wrong?". If you have set up your trade correctly to begin with and can answer these questions correctly you simply will not stress when something crazy happens like it did yesterday.

As far as today is concerned, the market has already been up, down, and everything in between. People are scared and uncertain about what to expect and are panicking. Day traders and fund managers who have no business being in the business are being pushed around by every little change in the wind. The answer to how to survive this is the same. Have your exits defined, and stick with them. It's really that simple.

We could well be at the beginning of a pretty good sized correction, but we could also see a reversal of this recent bearish run. Who knows? The important thing is to not get caught up in the panic and instead focus on staying disciplined.

Jeffry Dunyon
CEO, Safe Option Strategies