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Archive for May 20th, 2011

Deep OTM NP Strategy – May 2011 Results

Posted by mounddweller on May 20, 2011

Fellow Traders,

Well, another month of options have expired.  This trading month had 5 weeks in it and produced 49 selections.  42 of the 49 (85.7%) trades finished OTM.  Before we look more closely at the 7 losers let’s look some more at the overall results.  To have traded all 49 of the selections would have required $373,750.00 in capital.  This would have produced premiums totalling $6,680.45 (net of commissions).  This results in a ROIC of 1.79%.

However, this month our premiums would have been gobbled up by losses.  We had a couple of positions that finished deep ITM.   Our biggest loser by far was Toreador Resources (TRGL).  At the time it showed up on our screen, 4 weeks before expiration, it was trading at $8.85.   The $7.50 strike price on the put offered a seemingly ample 18.08% of DSP.  However, the stock closed today at $5.15.  A person actively managing a position such as this clearly would not have waited until expiration to exit the position.

Coming in second on our list of the biggest losers was Biomimetic Therapeutic (BMTI).  It showed up on our Week 5 list with a price of $13.28.  The $10 strike price on the put offered 29.97% of DSP.   The stock closed today at $8.10.   Again, a trader actively managing this position clearly would have cut and run long before now.

Our remaining 5 losers (IO, LFT, RMBS, LPHI, and MBI) were relatively small.

Again, I want to highly recommend you do significant DD on any selection you choose to trade.  As you can see from the above results, while the overall ‘win’ percentage was high, a few losers can quickly eat up all your profits.

I’ll be back later this weekend with the first round of picks for JUN expiration.



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