CPSL Exploded

The last few trading days, CPSL has absolutely exploded. It is up from around 1.50 to above 2.50. I didn't think I would see those levels this early in the year, but it's happened.

I am short calls on my stock at 2.50 for June and September, so I expect this trend to hold, and get called out on my stock, which is the bulk of my portfolio. All of which is fine with me.

More Covered Calls

I wrote more covered calls on the remainder of my CPSL position. Half my position is short Sept. 2.5 calls, and the other half is June 2.5 calls, which I wrote today for a dime. Very overvalued, especially since CPSL has basically been trading in this range for a week now. I don't expect to see too many large jumps in the price until further on down the road.

CPSL - Covered (some) Calls

After an amazing daily gain, CPSL wobbled. However, there was a buyer interested in purchasing some September 2.5 calls from me, so I sold him 10 very overpriced calls at .20 cents, when theoretical value was under .10. Fine with me, now, I am going to continue waiting for another run up, hopefully to 1.80.

Right now, CPSL is below resistance again, in the 1.15 - 1.20 area. Watch for another break out in the next few weeks.

CPSL - Bullish?

Long time readers will know I am long CPSL--Chinese Precision Steel. Balance sheets look stable enough, but it is an extremely volatile stock. Which, translates in to premium for short positions, ie the covered call.

CPSL established a minor uptrend in the last week. Yesterday we saw a Doji candle, followed today, by a 22.3% increase in price today. Previous candlestick patterns resulted in a significant rally. However, it appears that the 1.45 area is solid resistance and might take some effort to break through.

Today showed great volume. I am looking for CPSL to break resistance and move higher as it has previously. Possibly up to 1.75-1.80 area. At this level theoretical values of Sept 2.5 Calls should be about .25. In other words, a few thousand shares would be worth a decent premium.

CPSL - Call Expiration

CPSL is a beaten down stock, along with everything else. I have been long this stock for some time now, playing the high volatility by selling calls against my stock, which worked great until November, when the stock tanked below 2.50 and left me holding the stock and no value in the higher strikes.

I took a chance and sold a few March 2.50 calls at great risk, but they are now expiring worthless today and I am keeping the premium.

I have since added to my position, and averaged down below 2.50.

I am estimating the historical volatility at 97%. As a result, the back month 2.50 strikes are showing some decent premium. I am hoping to see a move in the next few weeks to the prior resistance level of about 1.45. If it fails to rally above that, I will sell my calls there. However, if it breaks resistance, CPSL has a great chance of heading back to higher resistance at 1.80, where I can squeeze more premium out of those calls.

CPSL

Sold new calls against my CPSL stock. CPSL, like the rest of the market has taken a beating. My long term outlook is still good, financial statements still look intact. My plan is to slowly buy up more shares and lower my cost basis, and continue to sell what calls I can, though their yield has dropped off. To be expected though.

Looking to see what the markets going to do today after yesterdays slump.

Gapping Down

The Q's are gapping down today, after yesterday's gap up (and subsequent sell off). There is generally no good news out there. Earnings are looking bleak for several companies, bailouts around the world don't seem to inspire confidence, except in Germany. The primary trend is still down.

I had mixed signals over multiple time frames yesterday, so I remained out of the market. I am going to wait it out, and see if the Q's will test support from their prior 52 week lows. An important level to watch--if it holds, we will eventually be in for another tradeable rally to the upside. If it fails, another wave of sellers will emerge and things will slide, making for a good short position. I am going to stay disciplined and watch for the signals from the market, and trade them as they hold up.

CPSL also has earning today. They seem to remain in a good financial position. I'd like to see more movement to the upside with them. My covered calls are set to expire this month, and will continue to write them until I get assigned.

CPSL Wedge

CPSL over the last month has been forming a bearish wedge--lower highs and lower lows--trending down to a prior support at 4.05, and closed yesterday at 4.07. Today it gapped down to 4.00 and made a breakout to the downside.

I am looking for support at about 3.50. It's still falling on low volume, so I'm looking for it in the next few weeks. If it makes support at 3.5 or there abouts I might decide to pick up a few hundred more shares.

Or, I might buy an ITM call at 2.5 and wait for a bounce in the stock. I've got my eye on it. (Sorry no charts)

New Calls

With last Friday, I had 7 short calls expire out of the money, which I was happy about because it meant that I could write at least 7 new calls come Monday. And like Jimmy Buffett say, 'come Monday, it'll be alright.'

November options became available on the options calender. And CPSL was hovering right around 4.5 with some dips below. Compared to the October and December calls, November 5.00 calls seemed like the best deal of the bunch with a bid of .45.

I put in a limit order for Nov 5.0 Calls sell to open 7 contracts. It was filled immediately, and I came out with a net credit. That takes my return to ~10% or 5% over the next two months. That is what covered calls are all about.

CPSL Price Test

CPSL made a test of its support at 4.05 today, but only briefly. It then rallied to close at 4.30. I am going to wait to see if it will test again before I go long on the underlying again.

Today's Expiration

CPSL's geometric mean of historical closing prices is 5.04. And covered calls at 5.00 should yield anywhere between 40% and 50%, depending on volatility and its closing price just after expiration. Expiration dates anywhere from 1 to 3 months out seem to be providing the highest returns right now.

This covered call is not overly bullish and remains a fairly neutral market strategy. Anyone looking for a relatively safe trade in the current market, this is not a bad pick. It's expiration Friday and I am watching and hoping my short calls will expire worthless at the close of the bell today, and there is a good chance that will happen.

Let's see how the rest of the market does.

Price Watch

I've got a watch on CPSL. With earnings postponed until October, there was a mild sell off, and prices returned to last week's average. This looks like normal behavior for CPSL. People who normally don't trade the stock, see the news--jump in only to find the water not to their liking, and jump right back out.

My price target is 4.05, which looks like a prior low support. If it breaks below, I am going to wait to buy, but if it tests that low support once, maybe twice I am looking to buy a few hundred more shares. My strategy continues to write covered calls on the stock, and I haven't seen any reason to alter that. Implied volatility remains high, and premiums are still large enough.

CPSL Earnings Watch

With earnings announcements on the horizon, the price of the underlying has shot up from 4.20 and change to over 5.50 and back down to close at 4.96 on Friday. As most of you all know I am long 800 shares at 4.87, and short 7 September 5.00 calls, and 1 March 09 5.00 call.

However, with earnings news, volume has spiked, and so has the implied volatility--from 60% to over 116%. Calls that were were a bid ask spread of .1/.15 cents at the beginning of last week are back up to .40/.45.

I was looking to go long a few hundred more shares this last week. It looked like CPSL might be headed for prior support at 4.00 and change (and probably was) until pre-earnings news came out. And for some reason volume spiked from it's normal 4-6 hundred thousand shares traded to 1.2 million. It seems that every time CPSL is in the news it causes some kind of volume price spike. And then it dies off, and so does the price; everyone who got on, gets right back out.

With expiration at the end of this week, I am curious to see what happens. Watch the earnings, and if you aren't long already, don't try and jump abord this stampeed. You will get trampled.

CPSL

CPSL's implied volatility has shot from 60% to 116%. As some of you know, I am long 800 shares, for 4.87, and short 7 September 5.00 calls, and 1 Mar 09 5.00 call.
This last week, CPSL was seeing some drop off in price on low volume, and I was waiting to see if it would find some support at prior its prior support, right around 4.00. But on earnings announcements, the stock shot back up from 4.20 to 5.50 and back down to close the day out at 4.96.

I've got my eye on September 15th earnings report. Earnings are never a great cause for the stocks movement. The last few days volume has picked up to over two million shares (usually it trades 400k give or take, with an average of 1.2 million).

I am not going to going to pick up any more long shares unless the price goes less than 4.20. However, the high implied volatility would make for some good short options plays. I just hope the stock stays below 5.00, so I can write some new calls with this IV.

Volatility Cones

These volatility cones are useful in determining the implied volatility of an option relative to the historical volatility. They are also useful for determining the future outlook for volatility, but that's like predicting where hurricane Ike is going to go. However, past performance is the best indicator we have to future events.

(CPSL Volatility Cone)

Looking at the Volatility Cone we can see that high low, and standard deviations from the mean of implied volatility. The October 5.00 calls are sitting above the mean just below the 1st deviation line. This tells me that IV is relatively high, and that this would be a slightly overpriced--expensive--option.

Now I am looking to sell the highest price option I can (or buy the lowest). I want to get as much bang for my buck. The Octobers' look like they have just enough time premium, and I have to get close to the money (yes, the IV of the 17.50 calls are off the charts, but they would not be worth my time--they are too far out of the money).

My September calls are close to expiration, and it looks like it's time again to write some new ones. Right now, October looks like the best choice, but we'll see what the November bunch looks like when they get here.

CPSL and the Covered Call

After dumping Exxon on its slide down, I had cash to go around. It needed a place to call home. I had decided on CPSL for several reasons.



1) It was trading at a good price $4.40

2) Its current position had not been overbought

3) It had a high Implied Volatility of 59%

4) It's 200 day moving average ranged between 4 and 6 dollars

All of these things made buying Chinese Precision Steel a solid bet for the covered call strategy. At the market open I placed a limit order at $4.45, and executed taking 700 shares at $4.42. I am now long 800 shares (100 from my previous trade), average value at $4.79. Wiping out any pain from my original long position (see previous posts).

September calls @ 5.00 were trading at .45--just shy of two months out. At 7 contracts, that would net me a 10% return for 2 months, or 5% a month. Excellent deal. If they expired worthless, I would still have 800 shares, and could write more calls, and hopefully make more money (I am selling high--volatility--so the call premium is higher). If CPSL should close above 5.00 and my stock get called away, that's more money in my pocket. And, if previous patterns maintain, buy it back after it dips below 5.00 and write some more calls.

Options Expired

In July I was long 100 shares of CPSL, that was purchased at an overvalued price, and I had rolled through several calls, until June, when I wrote a July 7.5 call. The third Friday in July came rolling around, and CPSL was trading well below my call's strike price (it was OTM), thus making the call worthless.

Rather than buying back the call to close my position(for .05 and commissions), I let it expire, with no fear that the buyer would choose to exercise the call he purchased (a loosing transaction: strike price - current price = big loss). Monday's opening bell came around, and the -1 (indicating: short) in my portfolio in E*Trade showed that my short call was gone, but 100% of my premium received still remained.

I had a decision to make, wait for this big price swing again moving back up to 7 and 8 dollars (only to capture my original purchase value), continue to sell short term calls and hope it doesn't spike in price on me while I am in a call (I would have to buy back my call in order to sell my stock, but as the price goes up so does the call price), or sell a long term call and forget it?

With the short term calls for 5.0, one month out were trading at .25; and, with 1 contract that doesn't net a whole lot of premium. A long term call, in this case 5.0 Mar'09 calls were selling for 1.30. A bit better for one contract.

Selling short terms didn't make a whole lot of sense to me. So, I eventually decided that if I am going to be long with this stock I might as well stick with it, and make my some winning options plays. I wrote a Mar'09 call, and pocketed the premium and in this case the ticking clock was my friend slowly eroding value. Everything else, I'll take in stride.

CPSL

Once I realized that selling deep in the money calls was not going to get me rich, but really just make me a few pennies to pay the broker, I unrolled all of my current calls for CPSL and MEA. For MEA, it wasn't too bad, although the call had gone up in price, so did the stock. It was a painless. I then sold the 100 shares I was long.

CPSL on the other hand, had been deflating like a bad fart. My call, however, was cheap as dirt to buy back. It had dropped in value from 4.2 to 3.3. I bought it back to close my short position. And took a nice profit.

With CPSL though, I did not liquidate. I stayed long. Perhaps I was waiting for another rebound in the future. The big bounce back up and recapture lost stock value; combined with all of the options I had sold and subsequently bought back at a cheaper price, this wouldn't be too bad a show for someone first starting out--profit.

I then wrote a call OTM at 7.5, and decided that if it got called away I would have a profit, and if the call expired worthless, I would have a few extra bucks. In my first month of trading options, I was able to walk away with a profit. My options had resulted in a %22 return on my initial investment, but this was still offset by my long stock position.

Options Come and Gone

After a few days, I realized that the only strategy anyone would let me trade was a covered call. I shrugged my shoulders and said, I might as well figure out what the sweet n low is on this guy. I researched the internet, re-read my book and formulated a strategy.

Come the opening of the market I started hunting for that miracle stock that would net me a nice premium for the covered call and be sure not to go down. I ended up selecting CPSL (100 shares) off of the Nasdaq. I bought it on a gap up, hoping for enough forward sustainability.

Once I figured out the proper way to actually enter a covered call order (my god that was maddening; there was not a thing in any book I read on how to enter an order--I guess this is why they don't let beginners sell naked puts); begin with an open and end with a close, and buy or sell as needed.

By the time I figured out the proper procedure CPSL had risen above the strike price I was trying to sell at, no matter. I went ahead and sold one call slightly In the Money. Seconds later, the net credit appeared in my bank account.

I was pretty damn proud of myself, but we all have to start somewhere.