4 Option Expiration Week Alert just went out…
Posted on August 12, 2008 by AJ Monte
This message is for all members of our Option Oracle trade advisory service:
I have just sent you the latest option expiration week alert to your mailbox. One of the things I’ve highlighted is the way I use the Fibonacci retracement numbers to calculate an entry point.
We were able to collect credits on every position we’ve held over the past two weeks. Keep up the good work as we continue to hear about the success stories.
Have a great week.
AJ
4 Responses to “Option Expiration Week Alert just went out…”
Hello Aj,
I have three questions regarding Options Oracle in general:
1. Option position sizing
I know the 1% rule from stocks, but how much money do we put in one option trade so that we go along with your trades? For example: on 24.July 2008 the KMKAH (TRA) premium was $18 = $1800 in this case you would need $180.000 account size…or set stoploss calculated from delta. What method of position sizing do you suggest for average subscriber?
2. I’m subscribed for three weeks now, what do you suggest me to do with all ACTIVE positions that were bougt before my subscription? For example, I got the Oracle last thursday for ETFC - Short Sep 3 Puts (EUSUG) and before my subscription you already bought Long Jan 09 2.5 Calls (EUSUG). Should I get into all these ACTIVE positions?
3. Exelon Corporation
On 31.July 2008 you send: “Sell Aug 80 Puts (Ticker: EXCTP) and if the stock closes below $74 go to cash”
The stock closed below $74 on 4.Aug.2008 but as I can see now, you didn’t go to cash?
Thank you for your answers and keep up the great work.
Hello Borut,
Below I’ve attached my answers to your questions in the order you asked them:
1. The 1% rule applies to the amount you would risk as a percentage of your account value. The best way to monitor the position is to calculate what one percent of your account balance would be then should you lose that amount on the trade you would close out of the position. The $18 you are referring to is not the loss value, it is the amount you are investing in the trade. Don’t confuse the two.
2. The ETFC trade you got into is fine the way it is. Should you decide to buy the Jan 2010 2.50 calls at this time that would be okay too. Just make sure you follow along with the Alerts so you can adjust the position along the way.
3. On July 24th an position adjustment went out on TRA as we enhanced the trade. The new stop alert was set at a lower price as we collect more premium to help lower the cost basis of the long position. The instructions on page two of that alert, last sentence read:
“Should we get the opportunity to enter this position today we will set our stop price on a closing price below $41.”
I’m not sure you got that message but if you didn’t don’t be afraid of getting back into the trade. It’s still looking good.
I hope this was of help to you..
Thanks,
AJ
Hello AJ,
Thank you for your answer. I know that 1% rule is the risk amount, but how do you apply this rule to derivatives, like options?
For example you buy a stock:
buy @ $70, stoploss @ $60, risk amount = $10 = 100 shares ($1000) for a $100.000 account (1%).
Now, if the option premium is $5, how would you calculate your option position size (nr. of contracts) so that when the underlying stock reaches $60 you get out with 1% loss of total account? Do you use equation with DELTA maybe? What if the underlying stock gaps down for 20%?
Hi AJ,
I just received the expiration week Options Oracle and well, Im confused. Here are my specific questions regarding MOS and EXC:
MOS- On June 26th, there was a new position Oracle with instructions to buy MOS Jan 140 2010 Calls. On July 11th, there was a continuation of this trade with a short July 150 Calls and a subsequent roll on July 17th. My question is, in all of these Oracles the risk management notes emphasized to go to cash if MOS closed below 113 ( I sold and went to cash when it closed below 113). The new Options Oracle (Aug. 12th) addresses MOS and it sounds like I should still be with it ( I did read your notes about the volatility of this particular position). Did I miss a change in the risk management part of this trade and get out too early?
EXC- Basically same question. I was not involved in the original Diagonal Calendar Spread on EXC, but did initiate a position on July 31st, from the Oracle, by selling Aug 80 Puts. The RM notes said to exit the postion and go to cash if the stock closed below $74, which it did on Aug 4th and again on Aug 11th. The current Oracles sounds as if I should still be in this position. Did I, once again, blow it and get out too early?
Thanks for all the help.
Todd
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