Options Animal / Trade Monster Event Notes 2011

Jon Najarian
Never lose big, the risk side is the big issue, if you don't lose big you can trade
forever.
volatility creates opportunity as well as risk.
high frequency trading (HFT) - flash crash 5/6/10 - you werne't seeing the real
thing as data throughput was limited by the servers so it backs up and you are
seeing it seconds or minutes later.
HFT has pushed out all the market makers because you can't compete with them
unless you have their systems and join them. no one has affirmative obligation.
we should eliminate the thousanth of a cent increment and require affirmative
obligation then HFT would not be picking our pockets. the liquidity they offer is a
farce, it's only for millionths of a second.
spreads to protect against volatility crushes
when the market has been down big how to trade
faves - MMR (offshore drilling), PXP (onshore drilling)
eg PXP you were long stock and it's gone down. how to double down with no
additional risk
own 1000 shares of stock mark 27.59
buy ATM call equvialtbe to your share (27) for 3.20
sell 2x as much (30 strike) 3.60
you end up with a covered cal and a bull spread; cost is same as buying stock
outright(?) but turboed as if you had 2000 shares
you get 2x the bang for the buck til it goes to your short strike.
then you can do it again, anything you can get a credit for (so no more money
out)
you don't ahve all your money at risk and make multiple trades
in an expensive stock like AAPL you'd do it with LEAP calls instead of underlying

stock
SLIDES WILL BE EMAILED TO US
trades on bid, seller is more aggressive; trades in between, it's neutral; trades on
offer, buyer is more aggressive.
follow institutional money
Adjusting with Options
Charan Singh
1. this is a great trade in this market where options are very expensive
buy MA at 180.70, sell oct160 call for 25.10, BE is 155.60
loss on stock 20.70; option profit 25.10; net profit 4.40 or 3% in 17 days
he will make 3% whether it goes up, stays the same or goes down $20; only
losed if it goes down more than $20, which it did so he adjusted as foillows. when
it went down and came back up a bit then he added nov 170 put (NOT when it
was down but after it had come back a bit; it would ahve been 3x more expensive
at bottom. when it came back down to support, he closed some of his put for a
profit. then second adjustment was to roll his short call to nov 160 for a new
credit that lowered his risk to 134. later rolled short call to nov 145 wehn it went
down and lowered risk to 129.50. then rolled short again to dec 125 and now risk
on underliying is 114.60. at no point is he spending money to fix his trade. his
underlying is a solid stock that won't go bankrupt. in dec he go called out but he
ended up with 7% profit.
3 trades critical to stock owners
1. collar trades
2. covered calls
3. married puts
2. fixing an IC
he has sold X 120/115 puts as lower band. it went down to 110. he didn't adjust
right away, as stock had a pattern of going down 2 days, then up. needed to
make sure something had changed. his fix was to adjust bull put into a ratio
backspread, 2 long puts for 1 short put.
IC blows up more trades than any other; you have to plan ahead of time so you
know how to fix it. practice on a bad IC trade in a paper money account.

3. credit spread
sold 40/42.5 put when stock at 55, needs stock to stay above 42.5
rim dropped more than 50% in 2 mos but he did same ratio back spread
adjustment and other bearish trades and closed for a profit. again he did not
adjust til he had confirmed turn of direction.
4. fixing a leap
his 95 LEAP call not going up. he got small insurance by selling 95 call making it
a calendar and then buying short back cheap. then as earnings were coming up
he sold 110 calls and used htat money to buy puts - synthetic collar trade.
(choosing strikes that are pretty delta neutral because he didn't want a bias.) that
way he has room for it to go up and insurance if it goes down.
medium and low risk trades you can usually rescue by thinking ahead how
you will adjust the trade. high risk trades are hard to save.