Archive for May 2010

Limiting Investment Risk with Derivates – Collars   Leave a comment

So the RIMM position didn’t work out, but I’m still holding the stock so the show’s not over.

The ability to buy and sell put contracts in your investment account lets you employ another options strategy called a Collar. A Collar is a position in which you both sell calls against a stock and buy puts on the stock.

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Too long, didn’t read   Leave a comment

It was a nice day to ride today, so that’s what I did.

Today - Brutale 1090

RIMM Position Outcome   Leave a comment

The May options expired on May 22nd. As a call writer, I get to keep the premiums I received initially. Since the stock closed below the strike of $70, I also get to keep the shares. By writing calls against the stock, I was able to reduce the cost of each share to $68.14. Unfortunately, the stock is at $59.23.

When a short call expires, no additional transaction fees are taken from the options premiums received or applied to the cost of the stock held long. If the stock had been called away (“assigned”), I would have incurred an additional transaction fee for the sale of the shares.

Here’s a quick spreadsheet to show the position calcuations:

The reduction in the cost of the positions from the premiums received for writing the calls offset about 23% of the loss, but the position is still in the red pretty badly.

Here is a 3-month chart as of the close today:

New Pics   Leave a comment

Went out for a couple rides today. The morning ride was on the Tiger, afternoon on the MV.  New pics are in the gallery.

Tiger Toolkit   Leave a comment

I like to carry a few basic tools with me on the Tiger for longer trips. Around town and within reasonable tow-truck rates to home, I usually don’t carry much except an air gauge, my cell, a credit card and some Plexus.

When trying to figure out what the best items to carry were, I started just separating tools that I used to work on the bike for regular minor maintenance. Whenever I have added something like the Ohlins shock or luggage racks, I made sure to carry the tools that were appropriate to tightening those parts of the bike up if I needed to for the next few days of riding.

Longer trips also included things like a can of chain lube, an old towel and some honda polish (or whatever it’s called now – “original polish” or whatever).

So here’s what I carry:

In the first picture above – A tube of locktite; open-end wrenches in 15, 13, 12, 11, 10, and 8mm; a set of torx bits; a set of allen bits; a set of 1/4 drive metric sockets; a small ratchet with 3/8 drive on one side and 1/4″ on the other; a couple 3/8″ and 1/4″ extensions; another small 1/4″ ratchet, a plug socket and a few of the common sizes of allen keys.

In the second picture above – a screwdriver with the bits; a cheap leatherman; a retractable razor and a pair of vice-grips.

The items in the top two pictures fit in a small  craftsman tool bag that I picked up as part of a set:

the items above fit into this small bag

In another larger bag that I carry is the secondary set of items including electrical tape; fuses of various sizes; a small can of wd-40; a 1/2″ drive ratchet with socket to fit the axle; some zip-ties; a small Radio-Shack volt-meter; (the screwdriver goes in the big bag); a section of tie-down with buckle and a tire repair kit loaded with extra CO2 cartridges.

The second set of items is more intended for break-downs versus buttoning something up. I also have a 12v Slime air compressor, but it’s bulky and if I can’t fix a tire with a half-dozen or so CO2 cartridges, it’s going to require a tow anyway.

The small craftsman bag goes in with the breakdown kit and they then ride in the right pannier. There’s also plenty of room left for a full-size can of chain lube and bike cleaner along with a rag towel. That’s usually what’s in there if the bags are on the bike.

With the kit above, I can do most things short of dealing with subframe/frame issues or cracking the motor open. I use the kit for most maintenance and it’s pretty convenient because the tools are mostly relevant to the other bikes too.

I usually carry rain gear & spare gloves in the left pannier and whenever there’s a chance of needing it, the electric jacket and/or the insulating liners for my riding gear. Clothes and other items go either in the left pannier or in the top box or tail bag, depending on which is on the bike. With the panniers, top box and tail bag on the bike I can fit way more stuff than I ever need.

The top box I have is a Coocase V36. It’s a decent case and will hold a full-face helmet, which is mostly what goes in there when I’m off the bike. I frequently carry a spare shield in it also. My tailbag is a small MotoFizz Camping Seat Bag and it’s a really nice product that holds a good deal of stuff.

Posted May 22, 2010 by jeffkeith in Maintenance, Motorcycles, Tiger 1050, Triumph

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Real Buy-Write Examples: RIMM update   Leave a comment

The last options post explained the RIMM position I setup on April 22nd. The market has taken quite a dive since then and here’s a one-month chart of RIMM:

one month chart of RIMM

One month chart of RIMM against NASDAQ

The blue line overlaying the stock price is the NASDAQ composite. I’ve changed the red horizontal support line to show my cost on the chart, which you can see is above the recent range for the stock.

As of today, the position is down 5.38% or about $1,100. This is not good and definitely not what I want, so I wanted to cover the potential options I have for the position.

Let’s start with a couple basic “risks and obligations”. Remember that I am long 300 shares of RIMM and I am short 3 May 22 $70 calls. Since I’m using a cash account, while I have an open short call position on RIMM, I must maintain a long stock position to cover the obligation I have entered into by writing the May $70 calls. If I want to sell the stock, I have to close the options by entering a “buy-to-close” order for three May $70 calls on RIMM.

So what are my options with this position? (prices below are as of the close today)

  1. I can leave the position open and hope that the stock rises back above my cost and potentially higher. If the stock gets above my breakeven cost of $68.14 by Friday, I can potentially make a profit. If I let it ride I will get to keep the $958.75 I received in option premiums by selling the calls in the first place. This was my intent when I sold the calls and should always be the intent when you setup a buy-write.
  2. I can close the position and take a loss. Going from today’s prices, I would have to “buy-to-close” three May $70 calls at a cost of around $0.11/call with fees. I can then sell my shares at about $65.39. Here is how that works in actual numbers: sell-and-close calculations(Note that a stock-only position would lose $1,792 (8.4%) under the current conditions if sold.)
  3. I can roll the position forward by closing the May options and writing calls further out on the calendar. However, since the stock is below my original breakeven price of $68.14, I will not get as much protection from the calls because the premiums will be lower.  For example, a June $70 call is now bid at $1.41. I also want to make a certain amount off of the investment each month or my money may be better used elsewhere. I would want to write for June to leverage the time decay as much as possible. However, June is also the end of a quarter, and the option chain has price increments of $2.50. I can write calls at $65, $67.50, $70 and so on. The number one consideration for the next write will be to not write it any lower than my cost, which would include the options written in May and the potential June options. The next consideration would be maintaining some type of profit potential and lastly to ensure a decent level of protection. Here’s a little spreadsheet to rough it out:rolling forward analysis
    • You can see that at $60 and $62.50, I can obligate myself to lose money. This would be a huge mistake, because if the stock advances, it will cost even more to undo the trade.
    • The $65 call gives me very little protection and would cost money after brokerage fees.
    • The $67.50 calls give me some very limited cost offset (I would still be in the red) and doesn’t allow for any better profit than the original position in exchange for holding the stock for another month.
    • The $70 strike gives me a good profit potential for the two months but doesn’t really help much in the way of cost offset – I’m still underwater if I write June $70 calls.
    • The $72.50 and $75 strikes offer good potential profit margins but very limited cost offsets.

So I’m not impressed with any of the June calls, except maybe the June $70, which gives me a good monthly rate of return but is disappointing in terms of offering any additional downward protection.

We’re not talking about buying put protection on this position, but that is another option that I could explore. Long puts increase the net cost of the shares in the position but can limit losses to a fixed known value. Ultimately, If I had expected such a pullback in the market or RIMM stock, I would not have purchased the stock. What pullback I expected has been exceeded and now we’re in a bad position.

So what to do? Part of this game is patience, and I’m going to let it ride. I still like the news I’m hearing about RIMM’s activities in markets and partnerships around the globe, and I’m still positive on the market. Once the May options expire, I’ll re-evaluate the position.

Next time I’ll either say what happened with RIMM or describe a position I have open for May expiry in Intel Corp (INTC). The INTC position is a Collar, which has a fixed max loss and fixed max profit.

Thanks for reading!

Brutale 1090RR Pictures   Leave a comment

I went for a short ride on the Brutale tonight. Down through High Bridge, Rt. 31 to 22 and over to Round Valley for a break.

Picture of MV Agusta Brutale 1090RR at Round Valley Reservoir

Taking a break at Round Valley Reservoir

Then back out to Rt. 22 east and over to Whitehouse Station, up 517 through Oldwick and back to Long Valley for some close-to-sunset pictures of the Brutale at the park on the side of Rt. 513/24.

View of the valley - Long Valley, NJ

View of the Valley

Picture of the Brutale 1090RR - low angle from rear

MV Agusta Brutale 1090 RR

You can see my gallery of 2010 Motorcycle pictures on my smugmug album.