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Archive for August 4th, 2011

CSCO – New Position

Posted by mounddweller on August 4, 2011

Fellow Traders,

Today I traded my very first weekly option.  I took advantage of the huge sell-off by selling 6 CSCO AUG 12th $14 puts at $0.18.  At the time CSCO was trading at $15.02.  However, it closed the day at $14.82.

Net of commissions my ROIC with 7 days to expiration is 1.15%.  Annualized that comes out to a ROIC of 59.87%!  My downside protection (based on the price at trade execution) is 6.79%.

Why did I pick the AUG 12th $14 strike?

(1) CSCO’s low during the last financial crisis in March of 2009 was $14.13 (a tad higher than my chosen strike price)

(2) Lots of flexibility – if CSCO is < $14 next Friday I can roll out to the next Friday (regular AUG expiration) or go all the way out to SEP or OCT.

(3) The regular AUG expiration $14 put was trading at $0.22 vs. the $0.18 I got for the weekly.  Twice as much market risk with only 22% more premium.  I’ll take my chances with the weekly!

 

 

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