I love options! This strategy cannot be enjoyed with long stock positions.
I had an event that provided me an opportunity to take advantage of IV Crush. I had surgery at the beginning of the summer of 2013 and was asked by my
husband to move my portfolio to “cash.” When I began to shake off the effects of surgery I saw that I had cash and things to do with it. By studying the
market I noticed that many of the Can Slim leadership equities were due to give their quarterly earnings reports and that their IV was especially high. I
remembered that “when IV is high, you should consider selling options.”
I noticed that JAZZ had high index IV in early August, just before the EPS event. Jazz was at $78.18 on Monday, August 5th. The
August 80 short puts (SP) were carrying an IV of 52%, in the High IV band of the past year. I entered the SP for a credit of $3.70 per share.
TSLA
was at $133.00 on August 7th with high IV in the puts. I sold the $110 short puts for $2.20 each.
I saw that Z was at approximately $86.00 and that the short puts were at a high IV for August expiration. (61.17%) I sold the strike 85
short puts for $4.10 each.
I could go on listing more ticker symbols that were appealing to me during early August. What I want to do it explain HOW this was a good strategy in the
current market environment.
I track the general market through IBD’s Big Picture daily. To follow the price and volume action of the Nasdaq as the primary technical indicators I
believed that the index needed a correction. I didn’t look for it to be a significant correction with a large, fearful volume. And, from my investigation
of past markets and market leaders, I’ve become convinced that the market leaders break out before the index restores its uptrend.
I also track the Can Slim Leaders through IBD. I keep them on an excel sheet from the date of Leadership admission to the date of movement to the Cut List,
due to high volume drop in price. I screen the leaders for average daily volume, EPS quarterly and annually, ROE, debt, and base formation. I would prefer
to own shares of the strongest of the strong, during their rise in price. Plus, I don’t mind selling them when they show significant sell signals.
As a Can Slim follower, I know that those equities that advance more than 20% in the first two to three weeks from a break out fall into the “hold for 8
weeks” category. (Page 258 of How To Make Money In Stocks, orange cover) TSLA and Z had triggered this rule and were still in the 8-week-hold time
TSLA
had dropped in price on August 7th by $7.92 (down 5.6%) on volume 77% above the average daily volume. ($134.23) This led me to chose OTM strike
of $110.00 for August, where I received $2.20 per share for selling the short put. The IV was at 125.64% and dropped to 80.47% the next day. The price
gapped UP and closed at $153.48 on volume that was +164% above average daily volume. These short puts simply expired worthless, allowing me to hold all the
credit given to me.
Z
was at $83.73 on August 7th. The 85 short put (August) was paying $4.10 per share and the IV was at 61.17%. I held Zillow Inc. throughout the
rest of the August month until it expired out-of-the-money on Saturday, August 17th. The IV had dropped to the low 50s, more than 10%, while the
price was raised to the nineties.
JAZZ
was expecting to report their EPS after the market closed on August 5th. I sold short puts with high IV of 52%. The IV dropped significantly in
the next week to 33.58%. This allowed me to close the short puts at $0.55 each, having given me a nice profit of over 4% (215% plus for an annual gain.)
This was an excellent way to get back into the stock market. I don’t mind owning the long equities who are the strongest of the strong! They might beg for
Dynamic Collars on them. Hmmmmm……. OPTIONS are GOOD!
Emilu Bailes
OptionsANIMAL Instructor
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