Stephen Cooper

SpreadScreener

nicholasbellono said: "Dan, I joined Optionexpress to try the screener you show on your site. I followed it through and brought up 5 pages of credit spread possibilities. I don't understand how to weed through them and pick out a good one. Could you give me an example of a good one off of the screener so I can find it too and figure out why it is a good trade. Thanks Dan, you have been a big help for me with learning this stuff."

Handy Chandra said: "Dear Dr. Dan, I'm a big fan of your credit spread option blog, which is very useful to me as a new investor. Thank you in advance. I've tried some paper trading based on credit spread as you taught in you blog. Using RIMM as underlying, the bear call trading has been set as follow: Sell 1 call 130 RIMM Dec 07 Buy 1 call 135 RIMM Dec 07 After a week before expiration, RIMM come into the money at 137. I've thought that I've made a wrong decision when open the trade, then as usual exit procedure I bought back the 130 call and sell the 135 call to reduce my debit cost. But at the expiration date, RIMM is going thru 135 barrier and sit at 135.55. I was thought that the 135 call will be exercised at expiration date, but after checked the position of the trade I've forced to sell the stock at 130 instead of the 135. Maybe you could explain, what is the process of such kind of trading. Thank you in advance. FYI, I'm using OX for paper trading. Congratulations for your new baby and Merry Christmas & New Year for you and family. With the best regards,"

holzie said: "[QUOTE=Handy Chandra] Using RIMM as underlying, the bear call trading has been set as follow: Sell 1 call 130 RIMM Dec 07 Buy 1 call 135 RIMM Dec 07 After a week before expiration, RIMM come into the money at 137. I've thought that I've made a wrong decision when open the trade, then as usual exit procedure I bought back the 130 call and sell the 135 call to reduce my debit cost. But at the expiration date, RIMM is going thru 135 barrier and sit at 135.55. I was thought that the 135 call will be exercised at expiration date, but after checked the position of the trade I've forced to sell the stock at 130 instead of the 135. [/QUOTE] Hi, I will try to answer you now and the Doc can fill in the rest later as I am sure he will. Let me translate what your position means at $135.55 or any other level: Sell 1 call 130 RIMM Dec 07 = [B]The obligation to sell 100 shares of RIMM for $130.00 per share. So if I bought this option from you 3 weeks ago and you got my premium and the stock advanced to $135.55 and I would like to own RIMM long term, I will exercise this option on you and you (your broker actually) will sell me 100 shares of RIMM for $130 a share. But you will buy it on the open market for $135.55 though[/B] Buy 1 call 135 RIMM Dec 07 = [B]The right to buy 100 shares of RIMM for $135. This is a call that just acts as an insurance policy for you as an option seller so that you don't sell the option NAKED. This way, you are only loosing the difference between strikes = $5.00 * 100 = $500 + commision for exercise[/B]. Ok, so now that you know what these 2 really mean, we can advance to what you need to watch out for. You have to only watch the option you SELL. So you watch RIMM not to come too close to $130 per share, ok? Now, in order for Dr.Dan to teach you his way of trading vertical spreads, he will need to know when you bought the spread (date) and also, what price was RIMM at that time. This way we can analyze where you went wrong. It was either your analysis when you entered the trade, or you didn't react when the trade turned against you -- and the trade definitively turned against you :) Hope I helped a little. Holzie."

Handy Chandra said: "Dear Holzie, Thanks for your effort. The mock trading has been set up as follow: Opening date : 4/11/06 Trading position : Sell 1 call RIMM DEC 130 @ 1.5 Buy 1 call RIMM DEC 135 @ 0.8 Net credit = 0.7 I have closed the position a day before expiration (15/12/06) with bought back the sold call (DEC 130 CALL) and sold the purchased call (DEC 135 CALL), resulting a loss. After checked the final position, I've found that the broker has exercised the DEC 130 CALL and forced to sell the underlying stock at $130 (with debit my account). In my opinion, the broker should exercised the DEC 135 call, because I've bought back the DEC 130 call and sold the DEC 135 call. Is this confusing result only happened in paper trading ? Please explain the process behind such trading for actual/real trading !!! Also I need your advice (or DR. DAN) for a new "alien" investor like me. I just set up a new options trading using online broker. I'm Indonesian. Thank you in advance and have a nice weekend and warm Christmas. Kind regards,"

toyshop said: "Handy, I will try to add more to Holzie's response. Trading is as following 4 Nov, Dec RIMM 130/135 Bear Call Spread Sell to Open DEC 130 @ 1.50 Buy to Open DEC 135 @ 0.80 Net Credit = 0.70 14 Dec - You close both position at a loss Buy to Close DEC 130 Call @ $x Sell to Close DEC 135 Call @ $y The result on your action on 14 Dec resulted in a loss. If both trades are done correctly on 14 Dec, you should not force to deliver the RIMM share at $130 at all. Your obligation to do so had been cancelled by buying back the 130 Call on the 14 Dec. Try to post your trade detail on 4 Nov and 14 Dec to the board. I have paper traded on OX before and have not encountered such a problem before."

drdan said: "[QUOTE=nicholasbellono]Dan, I joined Optionexpress to try the screener you show on your site. I followed it through and brought up 5 pages of credit spread possibilities. I don't understand how to weed through them and pick out a good one. Could you give me an example of a good one off of the screener so I can find it too and figure out why it is a good trade. Thanks Dan, you have been a big help for me with learning this stuff.[/QUOTE] Nick, if you read the blog further the next post tells you how to weed through the results. I'll PM you the link. Otherwise the quick version is here.. 1. It is a screener to suggest stocks to look at. It is only a beginning with stocks that are likely to be good candidates. It does not mean that all of these are good candidates just likely to be. 2. There are some things I do not like about the OX screener and one of those is that it will put options in there that are n/a - you need to toss all those out. 3. Look for a percentage return of risk of 10- 20%. Any lower it is not worth the risk, any higher most likely the probability of success of the trade will be too low. Hope this helps."

drdan said: "[QUOTE=Handy Chandra]Dear Holzie, Thanks for your effort. The mock trading has been set up as follow: Opening date : 4/11/06 Trading position : Sell 1 call RIMM DEC 130 @ 1.5 Buy 1 call RIMM DEC 135 @ 0.8 Net credit = 0.7 I have closed the position a day before expiration (15/12/06) with bought back the sold call (DEC 130 CALL) and sold the purchased call (DEC 135 CALL), resulting a loss. After checked the final position, I've found that the broker has exercised the DEC 130 CALL and forced to sell the underlying stock at $130 (with debit my account). In my opinion, the broker should exercised the DEC 135 call, because I've bought back the DEC 130 call and sold the DEC 135 call. Is this confusing result only happened in paper trading ? Please explain the process behind such trading for actual/real trading !!! Also I need your advice (or DR. DAN) for a new "alien" investor like me. I just set up a new options trading using online broker. I'm Indonesian. Thank you in advance and have a nice weekend and warm Christmas. Kind regards,[/QUOTE] thanks for the help Holzie and Toyshop. Handy, I, like Toyshop, have not experienced what you have experienced. If you closed the trades there is no way for them to exercise them. If however your trade was exercised prior to expiration prior to your attempts at closing them, which in the US options can be done, the broker should have exercised your bought call option as well. I will need more time to analyze your trade and unfortunately since it is Christmas weekend we have a large group of people coming to my house in the next hour so if I do not get off this computer right now I will no longer be a man because my wife will castrate me! LOL However I will get to it possibly at 1:00 AM my time!"

Handy Chandra said: "Dear all, I'm apologize to disturb your Christmas vacations, especially DR. Dan whose many guests during these days. Thanks for Holzie, Toyshop and Dan for your effort to explain, unfortunately I cannot post the result in 14 Dec because the record in OX was stated as zero (?). However, I will post again if I find another problem for this credit spread strategy. PS for DAN : I'm intentionally using DR. in front of your name as my appreciation for your useful info in your blog.:) I wish for all of you to have a very nice and warm Christmas. Best regards,"

drdan said: "[QUOTE=Handy Chandra]Dear all, I'm apologize to disturb your Christmas vacations, especially DR. Dan whose many guests during these days. Thanks for Holzie, Toyshop and Dan for your effort to explain, unfortunately I cannot post the result in 14 Dec because the record in OX was stated as zero (?). However, I will post again if I find another problem for this credit spread strategy. PS for DAN : I'm intentionally using DR. in front of your name as my appreciation for your useful info in your blog.:) I wish for all of you to have a very nice and warm Christmas. Best regards,[/QUOTE] Can't be a disturbance if we are on hear reading and posting. As for the Dr part all I can say is thanks but it is not necessary. The majority of the time I use it as a forum name because it is available and it goes with my favorite saying of all time (which is in my sig). I am proud of my accomplishment I am the first person ever in my family to go to college and even though I had the intelligence to get into vet school it was a tough road to go because I had to pay for it all myself. So again thanks for the honor. I have more honor in that you read what I have to say and try it out. That just makes my day. I really like teaching people how to do things. So thank you even more for that."

toyshop said: "Not a problem at all.. we are all learning. I am also trying to make use credit spread as my primary option strategy. You can still try to post the OX trading log on 14 Dec. Then the rest of us can see where is that zero quantity. Like Dr Dan said, if the 130 CALL option was assigned before 14 Dec by the exchange, the 135 CALL will be exercised as well. But I really doubt that. I don't think OX play with assignment for paper trading account. Anyone out there can confirm?"