Monday, August 27, 2012

We hold a tracking position of two September 126 puts with a profit-adjusted cost basis of 0.45. Let's roll this bearish position into November while we are still ahead on the puts.  Accordingly, buy the November 126-September 126 put spread twice for 1.80 or better (see inset). At the same time, sell two additional September 126 puts for 0.50 with six cents' discretion.  We are effectively double-selling the September 126 puts from our position in order to turn a simple long-put position into a calendar spread.  The price your receive for the "extra" puts doesn't matter much, although the spread price of 1.80 should be adhered to.  If you were to receive, say, 0.50 when you close out the September 126 puts, the dime over our cost basis would effectively reduce the price of the new spread by a nickel, to 1.75. ______ UPDATE (September 4, 1:20 a.m.):  The Sep 126 puts traded as high a 0.64, so I'll use a 1.70 basis for the spread unless I hear of a less favorable fill in the chat room. Do nothing further for now. _______ UPDATE (October 2): As a low-cost bear play, we simply held onto the November puts after the Septembers went out  worthless. The Novs are currently trading for around 0.65, implying a paper loss of $210 on the position thus far. For now, offer two November 122 puts against them for 1.05, good till canceled. This order will fill only if DIA gets whacked, but good. _______ UPDATE (October 17, 8:43 p.m. EDT):  We'll drop this one from the sheets by zeroing out the Nov 126 puts for an additional $130 loss. With DIA up by only a couple of points since we acquired them, the puts are actually still worth about $60, but I'll "recall" them

Let's try to leg into some calendar spreads, first by bidding the December 40 calls conservatively:  0.86 for eight of them, day order. This strategy is cheaper and less risky way to leverage options directionally than simply buying call options outright (an all-but-guranteed loser). Obviously, SLW shares will have to soften today to get us filled, but if it doesn't work we can try getting long by buying the calls on pullbacks intraday. Succeeding at this would require a great deal of attention, but we'll try it the easy way first. _______ UPDATE (August 28, 12:45 a.m. EDT):  Since the calls traded down to a low yesterday of 0.86, I'll track eight of them for that price. For now, use a stop-loss at 0.66. _______ UPDATE (August 28): Chat-roomers have told me their 0.86 bids went unfilled, so I am canceling the tracking position. The calls have rallied to 1.00 since, but it is my firm policy never to chase options, even if it means we might miss an opportunity. For now, bid 0.78 for the eight December 40 calls, good-till-canceled. _______ UPDATE (August 31, 12:47 a.m. EDT):  Some chat-roomers have reported fills, so I will begin tracking eight December 40 calls with a 0.78 basis.  Do nothing further for now as we await a bounce from the 32.48 pivot shown (in a chart that has been refreshed). A weak bounce, or perhaps no bounce at all, would presage further weakness next week. _______ UPDATE (September 5, 6:46 a.m.) SLW has continued to move higher. Let me recommend offering eight December 45 calls short for 0.78 against the December 40s that we are long, good-till-canceled.  If successful, we'll have legged on a vertical bull spread that could produce a gain of as much as $4000 with no loss possible.

Our tracking position contains eight (or a multiple thereof) Dec 620-Oct 620 put spreads @ 14.00 and four Sep 615 puts shorted for 6.20.  This strategy will work best if Apple is buoyant in the days ahead, allowing us to cover the short puts for a fraction of what we paid for them.  Accordingly, cancel the spread-legging bid I'd advised for the September 625 puts and instead bid 2.20 to simply cover the Sep 615 puts.  It'll be interesting to see how much mileage DaBoyz can squeeze from Apple's patent victory, but I should think they'll be able to at least panic shorts into taking out the massive supply created by last week's bull-trap high near $675.

As last week ended the Dow was in yet another undeserved rally, recouping fully half of the 300-point loss it suffered earlier in the week. And yet, with exuberance gushing back into the markets, we found ourselves irresistibly drawn to…put options.  Hours earlier, we had missed buying some November out-of-the-money QQQ puts by two cents, and although this left us feeling slightly remorseful at the bell, we were cheered when it was reported after the close that Apple had been awarded $1.1 billion in its patent infringement suit against Samsung.  To be sure, the news itself was bad for consumers, bad for Samsung in particular, and bad for the retail electronics business in general. As how could it not be?  Apple’s victory has redefined patent infringement so broadly that, henceforth, any consumer electronics company with a designn idea is now at least somewhat more likely to find itself blocked or intimidated by a competitor's patents. Or so it would appear. Although we have not pored over the legal minutiae, we trust that a news report we read got it right in characterizing the lawsuit as pivoting significantly on “rectangles” – specifically, the size and shape of icons that can be maneuvered across a smart phone screen with one’s index finger.  Apple’s lawyers had claimed Samsung “stole” the shape of these rectangles, among other things, and now, unfortunately for all of us, the alleged theft has been defined in law so that any firm seeking to enhance the look of a smart phone screen with new shapes, designs or functionality will think twice before making such features commercially available.  And never mind that a fifth grader could have thought up the prosaic "innovations" that Apple has just won more than a billion dollars for patenting. Ripe for Correction So why did