May 28 Options Writing Trades Update

The Japan Nikkei lead the declines in Asia today with a 1.32% drop. Don't we just love the volatility? Other Asian indexes are mixed. Light, sweet crude fell $1.94 to $126.91 per barrel in premarket electronic trading on the New York Mercantile Exchange. A decline in oil prices helped stocks finish higher Tuesday. Oil prices were also pressured by the dollar, which gained ground against the yen and euro. Investors who buy commodities such as oil as a hedge against inflation when the dollar falls tend to sell when the greenback strengthens. Also, a rising dollar makes oil more expensive to overseas investors. Looking at the futures, US stocks are headed for a moderately higher open Wednesday as investors awaited a government report on consumer purchases of big-ticket items.

May 27 Options Writing Trades Update

Japan's Nikkei stock average rose 1.5 percent on Tuesday, rebounding sharply from a two-week closing low hit yesterday. Don't we just love the volatility? I wrote the N225 Aug 16500 call options for 20 pts. Futures for the UK & US markets are pointing to a positive start Tuesday coming back from the long weekend.

May 26 Options Writing Trades Update

Asian stocks fell on Monday, with shares in Japan suffering their biggest fall in recent weeks, as investors feared rising inflation and sluggish U.S. economic growth would seriously dent consumer demand in the region's biggest export market. The N225 Aug 16500 Call option is last traded at 15 pts & I might have "missed the boat" on this one. For the Aug call options, I am not planning to go any strike price lower or taking on higher risk. This week has shorter trading days for US & UK markets as they are closed for Holidays Monday.

Writing options as a strategy..A suggested Approach

Recently, I tried to explain to a friend the options writing strategy I employ with an example using crude oil. I asked him where he thinks crude oil price is going. Up..he said. Do we buy it now at $132? Maybe so, but I am more inclined to believe that the potential for significant price weakness is unlikely due to the onset of the high demand period associated with the US and European driving seasons. In other words, we’re not going to predict where prices are going. As option sellers, we don’t have to. In the current environment, it is unlikely that oil prices will fall substantially. As sellers of puts, that is all we need to profit. Rather than buy crude and risk a correction, we can sell the Aug $100 Put options for $320 against a margin of $9788 resulting in a potential gain of 3.2% gain for a 55 days play. If crude prices are anywhere above $100 per barrel at option expiration Jul 17, the seller keeps all premium as profit.

Writing options strategy in a nutshell:
1) Select markets with very clear long term bullish or bearish fundamentals. (Right now, softs, gold, dollar, market indexes to name a few examples)

2) Sell far out of the money options 2-3 months of time value in favour of these fundamentals

3) Set a risk parameter that we will strictly adhere to against every option that we sell, then sit back & wait. (This is by far the most difficult to execute. To me, its mastery over oneself & will make or break the trader)

Why do so many people always go after the home run in trading? I've seen so many over the years who are in a highly profitable position only to see the profits fade and ultimately turn into a loss all the while waiting for the big hit. Though 'thousands % gains' do occasionally occur, why not generate profits in smaller increments as well. I've heard it said that no one can get rich selling options. I disagree. Let's say you could net 1.5% per month selling those unexciting options. That would be an 18% gain in a year. Using the rule of 72 and compounding at 18%, it would take about 4 years to double your money. $10,000 could grow to $160,000 in 12 years or $100,000 to $1.6 million in 16 years. As one instructor told me, one of the great ways to make money in the markets is the same way you eat an elephant -- one bite at a time. Don't get me wrong here, I am not saying that this is the holy grail here. There are many options strategies out there. I am merely suggesting this approach for the fact that it is one that has performed most consistently for me & my clients over the past years.

How to generate Extra Income against your stock positions

Here is an idea for folks who purchased shares & intend to hold them long term for capital appreciation ....how about generating additional monthly income of 1%-2% while doing so at no additional risk given the risk one already assumed with the purchase of the stocks? One can easily do the covered call strategy which involves selling the out of the money call options against one's stocks. I actually have a friend who owns some HPQ shares purchased through the company's share purchase program.....& who does not mind selling his shares & in fact have a good till cancel (GTC) limit sell order at $50 dollars with his broker for several months already. Since HPQ stock price did not hit $50 in the recent months, his sell order did not get filled. He is still "waiting" for the price to be met. Well, instead of doing only that, he could actually sell the $50 call option at $0.5 - $0.8 every month for the past few months to generate additonal income at no additional risk. If HPQ stock price hits $50, he will get his sell order filled in addition to the premiums he had recieved in the months of waiting. In fact, since HPQ stocks has been trading in a range between $40-$49 in the recent 3 months, the additional income gained with selling call options actually lowered his cost price. Most folks I am aware of don't apply this strategy because they simply are not aware of such a strategy or they are aware but could not be bothered with because it appears complex. On the contrary, its actually very easy to set up this trade & the key thing to recognised here is that it is done so at no additional risk to the seller compared to the risk he/she already has assumed with the purchased of the stocks in the first place. As an analogy, its like owning an apartment & not renting it out while waiting for capital appreciation which may or may not happen (the risk). There are more advance strategy which involves buying a long term put option in addition to selling the short term call options as a form of insurance against steep price declines against one's stocks. This strategy which is known as the Married Put but I won't be talking about them to keep things simple. I like things simple. Are you selling call options against your stock positions positions that you intend to hold for long term capital appreciation? If not, I strongly encourage you to do so.

The Week Ahead

The last FOMC minutes revealed some major concerns--inflation estimates were raised for this year, unemployment was revised upward and GDP estimates were lowered. Clearly, we are not out of the woods yet but in spite of potentially roughtimes ahead, the minutes confirmed that the Fed is done easing--a one-two punch that could knock stocks to the canvas. With support broken at 13,800 on the SP-500 we could have some downhill sledding next week. Light holiday trading will increase volatility and there will be a number of economic releases to fuel the fire. Given the recent Fed's comments, those economic numbers are likely to be weak. For example retail sales have been generally light and that is liable to continue. The news will have a negative bias and the only thing that can prop stocks now is a decline in energy prices--but with oil hitting new highs every day this market will have a toughtime. The weak sectors are financials, healthcare, retail and restaurants and there will be some tremendous opportunities to profit on the downside with options trading. Some said that if you don't include options as one of your trading arsenal, its like golfing without a full set of clubs. Have a great weekend!

May 23 Options Writing Trades Update

I wrote the N225 Aug 17000 Call option for 15 pts when the benchmark Nikkei was trading at a high of 14157 before sucumbing to selling pressure & ended with a 0.2% gain Friday. I must say that the Nikkei is holding out very well compared to its Asian counterparts which slid down further.

May 22 Options Writing Trades Update

On Wednesday, Wall Street posted a steep loss for the second straight session. A lowered economic outlook at the Fed and a spike in crude prices weighed on sentiment. Asian markets are not spared either Thursday as most traded in negative territories. The Japan benchmark Nikkei remained rather resillient & is trading around the 13900s levels off its day lows at 13658s as we speak & not much changed from yesterday's session. I wrote additional N225 Aug 9750 Puts for 25 pts. I am looking at the N225 Aug 16500 or 17000 call options next to add to the positions for Aug's income set up.

May 21 Options Writing Trades Update

Wall street's gains in the recent weeks came to a screeching halt Tueday due perhaps to record high oil prices & inflation worries. The Japan Nikkei is down some 270 pts & went back to the sub 13000 levels as we speak. I wrote the N225 Aug 9750 put options for 20 pts.

May 20 Options Writing Trades Update

Wall Street ended mixed Monday after weakness in the technology sector punctured some of the market's enthusiasm over a report that suggested the economy could still be growing. Asian markets are taking a breather on Tuesday from the recent gains perhaps due to profit taking. The Japanese economy has proved remarkably solid recently. Last week, the government said the economy grew at a stronger-than-expected 3.3 percent annual pace in the first quarter, racking up its third consecutive quarter of growth. Still, economists warn that export growth could stumble if overseas economies falter, and domestic spending will probably stay weak if paychecks aren't growing. My medium term view on Japan's economy remains at sluggish to cautiously bullish. With that, I am looking at the Aug N225 17000 call options & the 9750 put options to add to the positions. Of course I can be wrong with the reading or short term fluctuations can prove me wrong & thats why I do what I do...write options.

May 19 Options Writing Trades Update

Asian shares hit a new four-month high on Monday as a relentless rise in oil prices bolstered resource shares, but wariness about inflation and doubts about the U.S. economy kept gains in check. I am looking at the N225 Aug 17000 call options to add to the positions.

May 13 Options Writing Trades Update

Japan's Nikkei stock average climbed 1.5 percent on Tuesday for a second day of gains, this after Wall Street rallied more than 1% on Monday. I wrote the N225 Jul 9750 Puts & 16000 Calls for 20 pts & 25 pts respectively between last Friday & today.

To Borrow or not to Borrow?

I met a friend at a recent seminar event. I found out that he was recently laid off & had a tidy sum of money which he actually used to pay off his home loan. He remarked that "Do you know how much interest they(Banks) are charging"....they'll kill you. Without knowing the specifics, I remarked that actually taking on some debts is not too bad & especially with today's low interest rates & high inflation rate situation. I proceeded to explain further with an example. Lets say you borrow $100,000 from the bank @ 3% annual interest with a duration of 1 year. At the end of the year, you will need to pay off the principal amount which is $100,000 plus $3000 of interest or $103,000 in total. Lets assume that for the year, inflation is at a high of 6% which is true today. With inflation, $1 today is worth more than $1 in the future. $100,000 borrow today is actually worth only $94,000 1 year later at 6% inflation. Even with paying off the $3000 of interest at the end of the year, the future value is only $97,000. So technically, its like you borrow $100,000 today but pay off only $97,000 1 year later. You still stand to make a profit $3000 by being a borrower. This happens because the inflation rate is higher than the interest rate (6% Vs 3%). In fact, for this example, the inflation adjusted interest rate is -2.83% [(1.03/1.06)-1]%. Coming back to my friend, an alternative option for him is to instead of paying of his loan, but perhaps invest the money for higher returns(there are risk of course). He should perhaps stay with the loan & better yet, re-finance it if he hasn't done it for a while since the bank is technically paying him interest for borrowing. There are many investments vehicles to look at such as unit trust, bonds, equities, etc depending on one's risk profile. The worst thing to do of course is to leave his money in the savings account, do nothing & not even paying off his home loan. In that latter case, he is technically paying the bank interest for leaving funds in their care. Please note that I am generalising here. A person's current life cycle, financial objectives, cash flow situation, net worth situation, & financial ratios need to be looked at in totality before we can say whats the best course of action. Its therefore best to seek professional advise regarding one's financial affairs. Example speak with a Certified Financial Planner (CFPTM) for comprehensive financial advise.

Tax Mitigation & Planning YA2008

I just received my Income Tax Notice of Assessment for YA2008. This year, I ensured that I claimed for all the reliefs, deductables, & rebates that I am entitled to. I have claimed for the following new applicable relief items this year:
a) Wife Relief
b) Course Fee Relief
To put in some discipline for retirement planning, I have also made use of the Supplementary Retirement Scheme which also help to provide some tax reliefs (Maximum of $11,475 per year). One thing I did not think of is to make use of the CPF Minimum Sum Top-Up Scheme which can help to minus off another $7,000(maximum per year) from the chargeable income since I have been supporting my parents. I will remind myself to do it for next year. I am also appreciative of the additional one-off 20% Tax rebate from the government this year which definitely helped to lower the overall income tax payable.

May 9 Options Writing Trades Update

Japan's Nikkei stock average fell 2.1 percent on Friday, marking its first weekly decline in eight weeks. Asian markets are generally trading in the negative too on Friday. I am looking at the Jul N225 below 10000 Put Options to add to my options positions. UK markets are trading in negative territories as we speak. US futures are also pointing to a considerable lower start Friday with record high oil prices. It appears that uncertainty lingers on in terms of economic outlook.

May 8 Options Writing Trades Update

Asian markets tracked Wall Street lower Thu. My current options positions are below:

May 2 Options Trades Update

Global markets rallied after last night's strong gains on Wall Street. The Japan's Nikkei stock average rose more than 2 percent on Friday to its highest close in nearly four months. I wrote additional N225 Jul 16500 Call Options for 25 pts.

May 1 Options Trades Update

I just attended 3 days of seminars at the National Achievers Congress 2008 (Singapore). It has been a yearly affair for me since 2003. Friends asked me what do I get out of it. I replied that if we can pick up 1 or 2 gems that could transform our lives or help us to be better at whatever we are trying to be, it would have been all worthwhile. Meanwhile, while I was gone for 3 days, below are my current trades & their status.