Friday, April 18, 2008

Hypothetical Trade IN GOOG April 500 Calls

I have been paper trading options lately. I made a $5000 hypothetical Investment in GOOG April 500 Calls trading thursday at 60 cents right before the close of thursday's session. I would have sold it right at the open and it was trading at over $32. A sweet $200,000 return on a $5,000 outlay overnight. If only it was for real.....

18 comments:

upsidetrader said...

stewie
i went over a few of those goog option scenarios after the move---and almost puked, what the f#&k was i thinking-those shots come around maybe twice a year and i didnt do a thing- back to trading for "halves" lol

Stewie said...

bro. i was the phone with a buddy of mine who does options and we went over everything. the strike prices, the premium, how much to invest and everything! I just didn't trust my options knowledge enough to trust the trade. when i saw the price of the calls this morning, i almost fainted as what could have been...that's why i have been trying to learn more about options trading lately. Lots of people made SERIOUS MONEY on GOOG today. So you think moves like this happen like twice a year? I gotta go, i am feeling sick to my stomach.

Market Monk said...

Nice returns for sure. Have you looked at the options on the QQQQ? 20 to 40% on some of the bigger days, which have been happening a lot lately. Look at QQQ ES May 45 Calls. Trading at 80 cents on Tuesday and closed at 2.33 today! Only 184% return.
MM

Sloof said...

Stewie- I am thrilled you are learning options. Don't you wish you had watched Dan Sheridan's video before Google's earnings? He talks about a number of options strategies here:

http://www.cboe.com/tradtool/webcast.aspx?movieid=36693&channel=1252

Keep in mind that options go DOWN as fast as they go up (ask me how I know). They are like putting rocket fuel into you regular trading - they magnify your results in EITHER direction. Those who bought a crapload of GOOG puts or ISRG calls are at home nursing their wounds this weekend :(

Marvin (HTGR-HopeToGetRich)

Market Monk said...

Ahh, please don't tell me HTGR did that!

Stewie said...

hi monk: only 184%? :-)

Stewie said...

hey marv. thanks for the link. hey i wanted to ask you and monk actually about straddles. i am thinkting about using options only around earings and only using straddles. for example on CROX, ISRG or GOOG, (AAPL, BIDU and FSLR later) i would habe bot a call strategy and a put strategy in hope of the stock exploding either up or down and i'd i theory make money if i understand this strategy right. what do you think???? please enlighten me!

GUNNERS said...

Stewie,

Check out Dpeezy for options strategies. He has articles on straddles and stuff like that. You can find his posts for the month of march on the King of the Peanut Gallery at ibankcoin.com. He also has posts in the actual peanut gallery. He has his own blog as well where you can ask him questions at http://dpeezy.blogspot.com/

he mostly tracks his trades at his blog and then posts strategies at ibankcoin

hope all is well

HPT said...

Hey Stewie,
I feel sick about missing the GOOG move when I was seriously contemplating buying some calls because we all know GOOG never disapoints. Remember tho, it is just as likely we could have lost money on the trade, like another blogger lost on the huge CROX move.
http://gammajammer.blogspot.com/
He's outta business now.

Stewie said...

thanks for the link GUNNERS. will check him out this weekend.

Stewie said...

hi HPT. would you say that straddles are a good strategy to use on very volatile issues on earnings? for example fslr and bidu coming up soon. what are your thoughts on this strategy?

Sloof said...

Hi guys, this is HTGR again.

For the record, I didn't make any huge trading mistakes this week. What I was referring to was holding my DITM AAPL calls in January through Macworld and Earnings, losing 3k in 2 weeks. In hindsight, I should have flipped into puts as AAPL was spiraling down.

Stewie, at one point since then, I did have a long strangle on (by holding a DOTM AAPL call and a put at the same time)--see definition of a strangle at the link below. It felt good to have the "insurance" -- but AAPL traded in a very narrow range and did not break either way, so I lost money (luckily since both the call and the put were deep out of the money--they were really cheap).

I talked with DougSF at one of the meets about straddles (buying a call and a put at the same strike), esp. during earnings. He said yes it can work, but problem is that if it breaks to the upside, you have to get rid of the put immediately, or you will lose as much money on the put as you gain on the call. Same with the reverse.

I think MM is also effectively doing straddles on the q's (he is buying puts and calls at the same time) - this is better on the qqq's since they trade in more narrow range (channel-like) - you can sell the call when it goes up, and sell the put when it goes back down. The nice thing is that you don't have to sell the put as the call is going up, because you know it will trade back down. (At least recently the q's have been like this, who knows about the future).

The strategy I think you should consider is this - since you are great at identifying HG's, put in a conditional order that triggers a market buy order for 5 DITM calls when (only if) the stock breaks out higher. In other words, set the buy order to pick up the calls as the stock shoots up. If the stock fails to break, the order doesn't trigger, and you haven't lost anything.

FYI here is a good TOS link about straddles and strangles:

http://www.thinkorswim.com/tos/displayPage.tos?webpage=lessonStraddle

and some more good options sites:

http://www.optionaddict.net/
http://www.optionsmonster.com/

Optionmonster has a control panel that shows the "hottest" calls and puts right now - what peeople are buying - it can be useful to check -- maybe somebody knows something (eg the BSC puts showed up here at the time).

Good luck!

Market Monk said...

Hi Marvin,

Thanks for the great links. FWIW, I don't have calls and puts on at the same time. My QQQQ timing model generates either a sell or buy signal and not that often. It just did flash an overbought condition (sell signal) so I am now legging into some puts.

Andrew said...

Hey stewie, On thursday I wanted to buy a lotto ticket for the next day had 100 to risk, went with isgr puts way otm. to far unfortunatly and lost $80. Oh well.
Blue said goog could hit 500 on wallstreak and I never even looked at the calls. Ouch, would of been a much better play. Also this is the secound time that I have seen goog options return 10-20X on earnings hard to pick the right direction though.
cheers,
Young Chuck

Trader M.D. said...

Coulda, woulda, shoulda... Don't beat yourself up over it. I usually find that my next trade after a "coulda, woulda, shoulda" situation is usually a bad one.

Speaking of these things happening twice a year, we've already had our 2 this year if you include BSC.

Stewie said...

i love that!! "Coulda Woulda Shoulda". The more i trade the more i realize that in trading, these words are uttered all to often. Hindsight is always 20/20. Why does it always make more sense after the fact?! "Why didn't i think of that?" another very popular phrase among us traders.

Trader MD: indeed BSC was Lotto number 1 in 2008 and GOOG being number 2. What will be number 3???? hindsight will tell us surely. hahahaha! one of these days i'll trade long enough to catch 'trading lotto'. :-) i hope anyway.

Young Chuck: ISRG puts was a great call and i so wish you didn't go so far out of the money.

anybody using common sense would
have gone Puts on GOOg and Calls on ISRG. Go figure.. the market will always manage to fool the masses.
I have a conspiracy theory for you guys to ponder: Do you really think the street/smart money didn't know GOOG was gonna blow out earnings? Come on now, anyone who's been around for a while knows that wall street puppeteers are the masters of illusions. I am confident that GOOG was a 'king trade' orcastrated by the hedge funds. they were selling the stock to make it appear weak, knowing fully well it was heavily shorted and earnings were gonna be killer. They sell the stock creating the optical illusion of an earnings disappointment meanwhile loading up on bullish options plays and banking serious serious coin. it might be my paranoid mind but i am confident this trade was planned ahead of time my friends. welcome to wall street.

Trader M.D. said...

I'd also like to add that situations like the GOOG call & BSC puts should be kept in perspective.

This may help: In John Carter's book, Mastering The Trade, in one section he talks about the distinction between an amateur and a professional. An amateur always thinks about how much money he could have made, where as the professional thinks about how much money he would have lost.

GOOG & BSC definitely make amateurs out of all of us :) It's that feeling of having left money on the table, that can get the best of us.

HPT said...

Agree about the GOOG hedge fund conspiracy theory. Looking at a comparison chart between AAPL and GOOG before earnings, GOOG was lagging pretty far in terms of a pair trade. They always put GOOG earnings the day before OPEX, creating the biggest option plays possible.

As far as upcoming option ideas, if you look at the ISRG trade I put on, you would have made about $300 for every straddle put on (buy Call and Put ATM). but ISRG made a pretty big move, and the options were juiced before earnings.

Next week we got CME earnings on Apr 22. I think this could be a big mover. looks just like GOOG, consolidating before a big move. I imagine CME has been making tons of money with all the volatility we had during the 1st quarter. I would lean towards the long side, I think 540 (40pt up move) is very likely. The ATM options have priced in a 20pt move. I think a reverse calendar spread may be a good trade. I'll try setting up an option idea for CME on monday after I review it further.

PS-
Thanks for adding me to the blogroll.

Checkout this site for option ideas-http://www.theoptionsguide.com/strategy-index.aspx

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