Professional Documents
Culture Documents
Roger Manzolini
Roger Manzolini
July 26, 2012
Roger Manzolini
Disclaimer
Roger Manzolini
More Disclaimer
Roger Manzolini
Agenda
Introduction
Covered calls revisited
Credit spreads
Trading Examples
Actual Results
Closing comments
Roger Manzolini
Introduction
High Level Strategic View
Portion of money
to be managed
10% but not more
than $30K
Investment
Portfolio
Savings Portfolio
75-50%
15-40%
Money
Engine
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2
3
4
5
6
7
8
9
10
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14
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23
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25
Consumer
Cyclicals
Consumer
Non-Cyclicals
Energy
Financial
Healthcare
Services
Technology
Transportation
Utilities
102 Industries
14,387
Stocks
Conglomerates
Sectors
Capital
Goods
12
Basic
Materials
Introduction
Market Composition
11
2,032
7
635
1
90
12
479
8
406
4
1,054
10
3,674
4
1,243
25
2,296
11
1,990
6
226
3
262
207
105
26
62
23
23
1,045
48
384
81
92
41
37
84
42
159
197
11
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70
37
57
122
708
78
224
11
164
28
45
44
91
25
43
15
12
83
15
8
49
27
15
175
12
79
12
83
712
202
23
52
22
127
183
2,252
43
649
201
158
33
344
101
369
76
296
38
66
49
75
19
345
57
41
102
65
46
33
26
50
11
119
16
62
57
99
34
38
49
347
28
266
17
129
272
586
43
48
20
38
66
71
27
Introduction
Basic premise
Roger Manzolini
Premium
The cost of the option to the buyer
A credit to the seller
Expiration date
The date the option expires. The last day the option can be
exercised
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Call option
Option buyer
Right to buy
(holder, long in stock at strike
options)
price
Option seller
(writer, short
in options)
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Obligation to
sell stock at
strike price
Put option
Right to sell
stock at strike
price
Obligation to
buy stock at
strike price
10
is in the money
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Covered Calls
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The plan
To improve your profit over just stock ownership by the premium
Characteristics
Limited maximum profit strike price minus the purchase price of
Set up
Own or buy a stock
Sell a call option with a higher strike price than the purchase price
of the stock
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Roger Manzolini
Buy Call
Stock Price
Buy Put
Stock Price
profit (loss)
Stock Price
profit (loss)
profit (loss)
Put Option
Transactions
profit (loss)
Call Option
Transactions
profit (loss)
Stock
Transactions
profit (loss)
Buy Stock
Stock Price
Sell Call
Stock Price
Sell Put
Stock Price
15
12
Own stock
10
Profit (Loss)
Lost
Opportunity
Trade profit
6
4
2
0
-2
-4
-6
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
Stock Price
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Possible Outcomes
Covered Call
WIN
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WIN
WIN
July 26, 2012
17
Credit Spreads
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smaller investors
The opportunity to manage the outcome to still
win if the trade begins to work against you
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The plan
To anticipate and experience an upward move in the underlying
Characteristics
Limited maximum profit net credit received
Set up
Sell a put option
Buy a put option with a lower strike price (and lower cost)
Comments
There is less risk to trade out of the money options
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Roger Manzolini
Buy Call
Stock Price
Buy Put
Stock Price
profit (loss)
Stock Price
profit (loss)
profit (loss)
Put Option
Transactions
profit (loss)
Call Option
Transactions
profit (loss)
Stock
Transactions
profit (loss)
Buy Stock
Stock Price
Sell Call
Stock Price
Sell Put
Stock Price
24
Roger Manzolini
profit (loss)
Profit line
Buy Put
Sell Put
Current
Stock Price
25
Example:
In mid June MRK trading at $40.00
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Profit (Loss)
200
Trade profit
100
0
30
-100
31
32
33
Max loss
34
35
36
37
38
39
40
41
42
43
44
45
$265
-200
-300
-400
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Stock Price
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Possible Outcomes
1.
3.
at $39
Your long option expires worthless
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The plan
To anticipate and experience a downward move in the underlying
Characteristics
Limited maximum profit net credit received
Set up
Sell a call option
Buy a call option with a higher strike price (and lower cost)
Comments
Here too, trade out of the money options to manage risk
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Roger Manzolini
Buy Call
Stock Price
Buy Put
Stock Price
profit (loss)
Stock Price
profit (loss)
profit (loss)
Put Option
Transactions
profit (loss)
Call Option
Transactions
profit (loss)
Stock
Transactions
profit (loss)
Buy Stock
Stock Price
Sell Call
Stock Price
Sell Put
Stock Price
33
Roger Manzolini
profit (loss)
Profit line
Buy Call
Sell Call
Current
Stock Price
34
Example:
Near end of May Stock trading at $100.00
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Profit (Loss)
Sell 1 call
Buy 1 call
Trade profit
Max gain
95
100
$50 (11.1%)
105
110
115
120
125
130
135
140
Max loss
$450
Stock Price
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Possible Outcomes
1.
up
2.
3.
at $120
Your long option expires worthless
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Yes:
As the trade turns against you (i.e. stock begins to rise),
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Cookbook
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What if ?
Good
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What if ?
Time Decay will have reduced the value of your spread, and
the chances of the stock making a big jump in two days is
minimal, so you can squeeze out more profit
Good
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What if ?
your closest option strike price (i.e. the one you sold), it will
still expire worthless - you keep your profit
OK, manageable
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XYZ is at $100
SOLD XYZ June 120/125 Call Spread@ 0.80. Net Credit $80
Step 2. The trend reverses, and the stock hits $120. Trade a
repair as follows
RESULT
Total Credit (from both trades) = $160
Total Debit (from buy back)=$150
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BUY XYZ June 120/125 Call Spread @1.50. Net Debit $150
Sell XYZ June 135/140 Put Spread @0.80 Net Credit $80
RESULT
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Results
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Day
23-May
23-May
23-May
23-May
23-May
30-May
30-May
30-May
30-May
30-May
30-May
5-Jun
5-Jun
5-Jun
5-Jun
10-Jun
10-Jun
11-Jun
11-Jun
17-Jun
17-Jun
18-Jun
18-Jun
18-Jun
18-Jun
20-Jun
20-Jun
20-Jun
20-Jun
0
1
1
1
1
1
8
8
8
8
8
8
14
14
14
14
19
19
20
20
26
26
27
27
27
27
29
29
29
29
Stock
BIDU
ISRG
GOOG
CME
RTP
GOOG
GOOG
CME
CME
RTP
RTP
CME
CME
RTP
RTP
ISRG
ISRG
RTP
RTP
CME
CME
BIDU
BIDU
GOOG
GOOG
BIDU
BIDU
GOOG
GOOG
Price
335.01
274.75
549.46
464.20
524.46
585.80
585.80
430.30
430.30
483.25
483.25
402.54
402.54
475.17
475.17
275.09
275.09
441.95
441.95
419.41
419.41
332.64
332.64
562.38
562.38
334.81
334.81
546.43
546.43
Action
Sold
Sold
Sold
Sold
Sold
Bought
Sold
Bought
Sold
Bought
Sold
Bought
Sold
Bought
Sold
Bought
Sold
Bought
Sold
Bought
Sold
Bought
Sold
Bought
Sold
Bought
Sold
Bought
Sold
Spread
380/390
310/320
590/600
510/520
570/580
590/600
610/620
510/520
470/480
570/580
520/530
470/480
420/430
520/530
500/510
310/320
290/300
500/510
490/500
420/430
450/460
380/390
350/360
610/620
580/590
350/360
340/350
580/590
570/580
Call / Put
Price
Trade Credit
Net credit
Balance
1365
165
135
190
142
210
-445
270
-28
175
-58
240
-15
132
-43
187
-18
90
27
165
-645
227
0
72
-3
82
-23
80
-8
62
290
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
10
1075
155
125
180
132
200
-455
260
-38
165
-68
230
-25
122
-53
177
-28
80
17
155
-655
217
-10
62
-13
72
-33
70
-18
52
5000
5155
5280
5460
5592
5792
5337
5597
5559
5724
5656
5886
5861
5983
5930
6107
6079
6159
6176
6331
5676
5893
5883
5945
5932
6004
5971
6041
6023
6075
5000
0
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20
25
30
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BIDU
Started month with $5,000
ISRG
GOOG
Traded 5 different stocks
CME
RTP
Best trade:
$658 65.8%
Worst trade:
-$82 -8.2%
Total trade credit for the month:
Total commission and fees for the month:
Total net credit for the month:
Monthly results %
Roger Manzolini
244
177
78
-82
658
1075
24.4
17.7
7.8
-8.2
65.8
$1365
$ 290
$1075
21.5%
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Conclusion
repair and come out with nothing lost except broker fees
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Tenacity to continue
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The End
Stock Price
profit (loss)
profit (loss)
Buy Call
Sell Put
Stock Price
profit (loss)
profit (loss)
Buy Put
Stock Price
Stock Price
Return
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Value
2 months
1 month
Time
1 week
expiration
Return
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means you have to buy the stock you wanted at the price you
wanted
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obligations
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