Get started

Options-strategy

Sell In May and Go Away?You might have heard the saying “Sell in May and go away.” It is an old investing adage that has been around for decades, but does it actually work? In this blog post, we are going to find out what’s best to do. We will discuss: 1. What is the meaning behind “Sell in May and go away?” 2. Does sell in May and go away work? 3. Should you sell in May and go away? 4. Two reasons not to sell in May and what to do instead. Let’s get started: 1. What Is The Meaning Behind “Sell In May And Go Away?” The saying “Sell in May and go away” has been around for a long time. It was first recorded in 1937 by John Hill via The Financial Times of London. The original saying was “Sell in May and come on back on St. Leger’s Day.” This phrase refers to a custom of aristocrats, merchants, and bankers who would leave the city of London and escape to the country during the hot summer months. St. Leger’s Day refers to the St. Leger’s Stakes, a thoroughbred horse race held in mid-September and the last leg of the British Triple Crown. And it seems that American traders have adopted the saying. Americans are more likely to spend more time on vacation between Memorial Day and Labor Day. 2. Does “Sell in May And Go Away” Work? And indeed, for over 50 years, the stock market performance supported the theory behind the strategy. From 1950 to around 2013, the DOW has had an average return of only 0.3% during the six-month period from May to October period. In comparison, the Dow had an average gain of 7.5% during the November to April period. So it seems that “Sell in May and Go away” is a strategy that may have worked for many years. But In recent times, it seems like the strategy has fallen out of favor. Technical analysts at Merrill Lynch looked at historical data and found THIS out: Looking at 3-month seasonal data going back to 1928, the June-August period typically is the second-best of the year, with gains 63% of the time, and an average return of 2.97%! 3. Should You Sell In May And Go Away? With all this conflicting data, does it make sense to sell in May and go away? Is this a good investment strategy? You know me — I always say “Trade What You See And Not What You Think!” Always look at the market data! As an example, last year, between May 4th and August 31st, 2020, the Nasdaq rose 28% (refer to chart). If you would have sold in May and "gone away," you would have missed out on these gains. 4. Two Reasons Not To Sell In May And What To Do Instead Maybe it makes sense to sell in May and go away when you’re an investor. MAYBE... But as a short-term trader like me, May is a GREAT month to trade, and here’s why: I like to trade The Wheel Strategy . With this trading strategy, you are selling option premiums. And there are 2 factors that influence options premiums: - Volatility When volatility is high, option premiums are higher. The Volatility Index VIX for the past few month, has been pretty low in March and April. But now, in May 2021, it's spiking up again. This means that options premiums are higher, which is perfect for a seller like me: I can get more premium! - Down Days Step 1 of The Wheel Strategy is selling puts, and you get more premium for puts on “Down Days” for such strategies. According to the NASDAQ , thus far, in May 2021, we had 7 “down days” and only 4 “up days." On “down days," there are many more trading opportunities. Last week, when the Dow Jones Industrial Average had its worst week since February, I made $3,722 in profits. Here Are Some Of My Trades In May: Let’s take a look at these trades in more detail: - Trade #1: Snapchat SNAP Snapchat recently had some rough weeks. In less than 2 months, it traded from a high of 72.50 to around $50 where it found some support. Most retail investors would stay away from a stock like this but I saw an opportunity to “buy it at a discount” : I sold Puts with a strike price of 47 and an expiration of 4 days. If SNAP closed below $47 on May 14 (the expiration date), I would have gotten assigned and bought SNAP for $47. I would consider that a bargain. If SNAP closed above $47, I would have just kept the premium that I received for selling calls. In this case, that’s $525. SNAP did close above $47 on May 14, and I collected $525 for 4 days of exposure in the stock market. - Trade #2: Square SQ Square looked very similar: Mid-February, the stock made a high of $280, but then it retreated to $200. Most market participants would not trade a stock like this, but looking back over a six-month period, I saw some good support around the $200 — $203 level. I sold 5 Puts with a strike price of 202.50 and an expiration date of May 14th. I received $100 in premium for each put, so I collected $500 in premium. On May 14, SQ closed above $202.50, and I made $500 in only 4 days. That’s a very nice return. - Other Trades I Took I sold 119 Puts on Apple , sold 212.50 Puts on Boeing , And I sold 39.50 Puts on Dave & Busters . All of these stocks have lost in value over the past few months. Investors who follow a ‘buy-and-hold approach” would lose money in this scenario, but as an active investor, I can apply trading strategies that make money even if the stock is going sideways or even moving lower. Summary “Sell in May and go away” is an old Wall Street adage that might be useful for buy-and-hold investors. But active investors like me are always on the lookout for trading opportunities. And with the right trading strategy, the increased volatility combined with markets that are moving lower is a dream come true. You need to have the right trading strategy. I personally like to use the PowerX Strategy for markets that are trending, and I trade The Wheel Strategy in choppy market conditions as we experience right now. With such a strategy, I am able to make money even if the stock is going sideways or lower. I for one will NOT sell in May and go away!
TVC:NDQEducation
by rockwelltrading
2
Option strategy buy Straddle / StrangleIn this post, I will start from the example and then write the definitions. Our example will be on Boeing (BA), a hypothetical analysis might be that BA was trading sideways for more than half a year. Previous to that BA was down in price for more than 50%, also there was a rally of 100% between May and June. The volatility in the markets starting to rise, due to Covid-19, election, lockdowns, blue or red waves, vaccines, other news, etc. The trader expects a large move but doesn’t sure in which direction. Also, the rise in volatility enters into consideration, by our trader. The trader search for a strategy that can be profitable in any direction and a rise in volatility will benefit him. Straddle buying A straddle purchase consists of buying both calls and puts with the same stock, option striking price, and expiration date. The straddle purchase allows the buyer of the options to make large potential profits if the stock moves far enough in either direction. The strategy has a limited loss and theoretically unlimited profit. Buying a straddle should be done on stocks that have the potential to be volatile, this strategy is even more attractive if the options premiums are relatively low, which makes the straddle cost less and if the volatility will rise the buyer will profit much quicker. In general, the probability if held to expiration is near ~40%. Most of the traders don’t wait till expiration. The options are At the money. The example on the chart: Blue lines – profit lines, yellow lines – break-even, red lines – 50% of maximum loss reached. Red zone – in this area the strategy losses money. The options are from 30/10/2020 close in BA. The strategy bought for -> 47.35, meaning a debit is being paid. Stock price-> 144 , Upper strike (call)-> 140, Lower strike (put)-> 140 Days-> 203, Impleid volatility-> 54.4% (0.544), date-> 30/10/2020 The maximum loss is the debit paid for the strategy, in this case, $4735, the chance to lose all of it is less than 1%, the price needs to finish at expiration exactly at the strike price of the options $140, which means all the options will be worthless. If the price will finish exactly at $163.69 a loss of 50% of the debit paid will occur, the puts will be worthless but the calls still have some value, but less value than the debit paid. If the price will finish exactly at $116.33 the trader will also lose 50% from the debit, but now the calls are worthless and the puts have value. If the price will finish between $116.33-$163.69, a loss of 50%-100% from the maximum profit will be realized. The prices of $92.65 and $187.35 represent the prices at which the strategy will break-even. At the lower price, the calls will be worthless and the puts will have value, at the higher price the other way around. Those prices can be calculated: Upper break-even point -> the strike price + the debit paid = 140+47.35=187.35 Lower break-even point -> the strike price - the debit paid = 140-47.35=92.65 The strategy presented on the chart has 147 days, before starting to lose 50% of the maximum loss (Debit paid). If at any point the stock price will reach the dark blue line the strategy will profit $4735 if the light blue line will be reached the profit will be $9470. How implied volatility affects the position? (20% increase and decrease) 20% IV increase -The buyer wants the implied volatility to increase, the strategy will start profit much sooner. The purple zone is the new loss area, the new area is much smaller than the previous one. The break-even lines are much closer to the end date and each other. It will take more time to reach the 50% loss lines 173 days instead of 147 days. 20% IV decrease – If the implied volatility will decrease, the purple loss zone will grow substantially, the break-even lines will go farther from one another and the 50% loss line could be reached much sooner, 63 days instead of 147. Strangle Buying A strangle is a strategy that uses both calls and puts, which have the same expiration date, but different striking prices. The difference between a strangle and a straddle is that the options are now Out of the money, because of that the strangle cost less than the straddle. The example on the new chart: Blue lines – profit lines, yellow lines – break-even, purple lines – 50% of maximum loss reached. Red zone – in this area the strategy losses money. The options are from 30/10/2020 close in BA. The strategy bought for -> 23.95, meaning a debit is being paid. Stock price-> 144 , Upper strike (call)-> 190, Lower strike (put)-> 125 Days-> 203, Impleid volatility-> 54.4% (0.544), date-> 30/10/2020 Those options were chosen because they have a Delta of 0.3 The maximum loss is (-$2395) if the price will be at expiration between the strikes 125-190, the strategy will lose all the debit. (Broken red lines) The other lines are the same concept as the straddle and their outcome is shown on the chart. The break-even point calculation at expiration: Upper break-even point -> the upper strike price + the debit paid = 190+23.95=213.95 Lower break-even point -> the lower strike price - the debit paid = 125-23.95=101.05 The strangle presented on the chart has 101 days, before starting to lose 50% of the maximum loss (Debit paid). The increase and decrease in volatility will have the same effects, thus in the buyer analysis will anticipate an increase in volatility. This post is related to previous posts. You can come back and see what will happen with this particular example. If you have any questions, please ask.
NYSE:BAEducation
by ZoharCho
1
Stock Market Crash May 2021 Today, we’re going to talk about whether or not the stock market going to crash in May 2021, because for the past few weeks, the market has gone down depending on what index you’re looking at. So today we’re going to deep dive into this. Is the market going to crash? What is happening with cryptocurrency? What would happen to your portfolio if the market crashes, and how can you protect yourself from this? What you see looking at the Nasdaq, over the past three days, it has been gone down. Selling seems to have been accelerated so far today. The NDX TVC:NDX is for today, at the time of this writing on May 13th, 2021, still up a little bit, but is the market going to crash? How can you protect yourself, and what will happen to our wheel positions if the market is crashing? That’s what we’re going to talk about today. And I thought in order to do this, it would be fun to bring on another expert. The expert that I want to bring on is my head coach, Mark Hodge. What’s Happening In The Markets? Markus Heitkoetter: So the Dow Jones has been making new all-time highs for quite some time right now, but then two days ago, and yesterday, it plummeted down. It was the worst day since January or something like this? Mark Hodge: I believe so. Markus Heitkoetter: But the Dow is only part of the picture. I think what most people are concerned about are these growth stocks. The Nasdaq had quite a significant drop, and people who are in, for example, invested in TSLA, SQ, or in any of these growth stocks, have seen these growth stocks have taken a beating over the past few weeks. Mark Hodge: Right now, this is what’s known as sector rotation. Sector rotation is when everything is going great, interest rates are low, people are bullish, people are willing to put their money in more aggressive stocks for future growth. Stocks that you would imagine have higher future earnings and have the potential to grow faster, even though they might not be even showing profits right now. So that’s where the money is going. Now, when you talk about inflation concerns and you talk about higher interest rates, that’s when people get more cautious, and that’s where the blue chips, or the value stocks, become more attractive because people are worried about future profits getting eaten up by higher costs and higher interest rates with these growth stocks. That’s why the Nasdaq stocks and tech stocks are taking a bit of a hit, but as you mentioned, the Dow was sitting at record highs just last week. Markus Heitkoetter: I just want to put it in perspective a little bit. According to a weekly chart of the Nasdaq, with the drop that we had yesterday, we are down 8.4%. So around eight and a half percent. This is something that we saw also in March. In March the markets went down by 12.5%, and we have almost forgotten this now. First of all, a true correction in the market is defined as 10% or more. So at 8.4%, we’re not even there yet, but let’s take a look at a few other drops that we had earlier this year here. There was another 12% drop, a 14% drop, and then, of course, last year, this is where everybody got super spooked during the Covid drop, right? This is when the Nasdaq actually dropped 30 percent. But I mean, things like this happen in the markets all the time. It is absolutely normal. So will we, right now, see a 30 percent drop? Even if we do, so what? If we were to look even further back we would see these retracements happening all the time. July 2019, we also had a 9% drop in the Nasdaq. Before that going back to April/May in 2019, we had a drop of 12%. Towards the end of 2018, it’s so long ago, we almost don’t remember anymore, but we actually had to drop off almost 24%. We have these healthy drops all the time and they need to happen, right Mark? Mark Hodge: Exactly, and I mean, that’s a good point, Marcus. It’s healthy for the market to pull back, to retrace, and it does create a buying opportunity. So a 10 percent retracement or correction is normal. Now a 20% drop is a bigger deal. The 30% drop that we saw with the pandemic, was a big deal. You know, that’s where people are getting fearful and they’re pulling money out of the market, but right now, people aren’t pulling money out of the market. Money might be going into blue chips and then people might be seeing a buying opportunity in tech, but it’s definitely not the same thing, at least at this point. Where Does The Money Go? Markus Heitkoetter: You know what, Mark? Let’s actually talk about “buy the dip,” what it means and why it exists. First of all, money doesn’t disappear. You see after we see a run-up, or even when the markets are making new all-time highs, traders who bought at this point are eventually going to sell at some point and take profits. Now, what happens when you’re taking profits? Money is being deposited into your account. The key question is, what do you do now with this cash? That’s where we have kind of the Holy Trinity, where we have, on the one hand, money market accounts. This could be like CDs or something like this where we are earning interest rates. So this is one way where you can put money in it. Mark, what is the interest that you are getting, 0.1% or 0.15%? Mark Hodge: Not much, say just say zero. Markus Heitkoetter: Then, of course, you have the stock market that you can invest in. So the stock market is another way where you can put money in, and then finally, you also have real estate. So this is where we have this holy trinity. So money is not just sitting in cash because I mean, cash is trash, right? You might have heard about this, and since right now in the money market accounts, you’re not getting any interest, this is why a lot of money is right now flowing into the stock market. But then at some point, you are taking profits. When you’re taking profits, what do you do now? The real estate market is super hot. I mean, Mark, we talked about it the other day. I mean, houses are going on the market, and within a day or two, they’re being snapped up. So it is clearly right now a seller’s market, and in a seller’s market, you don’t want to be a buyer. I invest in real estate, and right now I don’t want to be a buyer. Mark, you had an example of something that happened in your neighborhood, right? Mark Hodge: Yeah, in Sacramento. It was, I think about a month ago, I believe it was 122 offers on just the normal three-bedroom, two-bathroom house in one weekend with multiple offers over the asking price. I want to say they haven’t turned down a $500,000 offer because they wanted to extend the whole process. But anyway, real estate, it’s crazy right now. Marcus, I mean, you were looking at even buying a resort. Markus Heitkoetter: You can’t buy a resort right now if you wanted to. I mean, I’m trying to buy an apartment complex, and you can’t, I mean, it’s crazy the prices they’re asking for them. The other thing that is interesting is that the stock market and the real estate market, both historically just go one way, and that’s up. Now, what about interest rates? Interest rates, on the other hand, fluctuate and they stay in a range. Remember the time when we had 10% interest rates? Nine% was this in the 90s? Mark, do you remember? Mark Hodge: I believe it was before the 90s. I think it was more the 80s. It’s been a while. Markus Heitkoetter: So it has been quite a while, and right now there’s not much money in cash. So it is fluctuating between the stock market and the real estate market, and it is not really that interesting right now. If you were to look at a monthly chart of the Nasdaq, one thing that you see in the stock market is it is constantly going up. Now, in between, there are a lot of little dips, and those are absolutely healthy. Those are happening when there’s profit-taking. What Causes The Market To Crash? This is why in the long run it has paid off to invest in stocks long term. So why, besides the profit-taking, do we have these dips? Why could the market crash and why could we possibly see a market crash now in May? Right. So the two reasons why markets go down. Number one, there is just simply some profit-taking. If a market is getting too hot, then profit needs to be taken out of the market. Now, number two is uncertainty. Traders don’t like uncertainty, and right now, we do have some uncertainty going on. Let’s talk about the economic calendar. I want to bring up last week first. Last week, we had pretty bad news from the stock market. The unemployment rate actually jumped up from 5.8% to 6.1%. That’s not good for the economy because when people talk about how is the economy doing, the one key indicator, Mark, is jobs. Right? When you say in an economy that is doing good, unemployment is low. Last year when we had the pandemic starting, it was just going out like crazy, the unemployment rate and it was going down, down, down, but now it is going up. So one thing that traders are concerned about when it comes to the market is unemployment. The other thing, Mark, and this is what has been spooking the investors this week is inflation. So inflation is the next spooky thing. And inflation, the Fed has a target of 2%. What does it mean a year over year? We are OK with prices going up by 2%. Now Mark, let me ask you, how does the Fed control inflation? Mark Hodge: With interest rates. Markus Heitkoetter: Right, Interest rates. So what the Fed does is if inflation gets high, are they start raising interest rates and therefore inflation usually goes down again. This is the tricky part because we need interest rates low because low-interest rates are leading to jobs. How do low-interest rates lead to more jobs? You see, this is why we are talking about this today. I think it is super important that you understand a little bit of what’s behind the market so that you don’t panic when you see the market going down for two days in a row, and dropping maybe 8% in a week or two. How do low-interest rates create more jobs? Well, first of all, lower interest rates allow companies to borrow money cheaply for expansion. So today, everything is pretty much in the green. Growth stocks are usually in the Nasdaq, while value stocks are more in the Dow. So especially these growth stocks, how do you grow a company? By borrowing money. And as long as interest rates are low, it is easy to borrow money and to grow to have healthy profit margins. Now, if interest rates start rising, this is increasing your costs, and when the costs are increasing, it means that profits are decreasing. This is the point and this is what it all boils down to. So it’s Interesting for you to see how this all ties together. What Do We Do When The Market Goes Down? Now the question is “what do we do when the market is going down like this?” I mean, Mark, we have several trading strategies, and one of the trading strategies that we would really like to trade is The Wheel strategy. So what do you do when it is going down? Mark Hodge: One of the benefits to the market falling is that when the market is dropping or there’s uncertainty in the market, then that means that options are getting more expensive. So options are derivative and they are based on stock prices, and when the market is just kind of going up, things are complacent. Nobody’s worrying about options. Prices are cheaper, but when there’s uncertainty, they expand, they get bigger, which means that we get to collect more premium. So, I mean, that’s what we are doing this week. We are selling options on some stocks that we liked and that took advantage of the opportunity, took advantage of the drop. Markus Heitkoetter: Absolutely. So a few puts that we sold is, for example, AAPL. We sold the 119 put, and this was just perfect. We got a lot of premium for it on the way down. So this is one of the trades that we did. Another trade that we took was Boeing, (BA). So Boeing here also really a good trade as Boeing comes down, and especially over the past few days as we had the dip. This is when we can make a lot of money selling options. We sold the strike price of 217.5. So if Boeing stays above $217.50, we just keep the premium. Otherwise, we are getting assigned. So then we have of course LVS. (LVS) is actually one of the stocks where we were assigned, so we bought it at $58. Right now it is trading at $56.17, and we were able here now to sell calls. So this is what we did earlier this week. We sold a call with the strike price of 59, and we were able to buy this back today. So if you know how to play the markets, it is actually a good thing when the markets are going down because this is when you can pick up some really nice stocks. We also picked up (SNAP) and again, Snapchat was going down. So therefore we picked up the put. We sold this with the strike price of 47 expiring tomorrow (March 14th, 2021). Right now, it is trading at $51. So this is great. And then we also had (SQ) is pretty interesting because it really seems to be bound to bitcoin here and BTC right now is tanking. Mark Hodge: Yeah, this one does some exposure to Bitcoin. I think it was like one hundred and fifty million or something like that, I mean not the one point five billion that Tesla bought, but they have some bitcoin exposure. So the lows today that were established with SQ were lockstep, the same move that Bitcoin saw. Markus Heitkoetter: Yeah, absolutely. So this is where trading The Wheel strategy when the market is going down, as it is right now when others are taking profits and selling. This is when we go on a shopping spree. This is what we have been doing this week. We just sold puts this week. Then based on what the stock price does, you might or might not get assigned. If you do get assigned then you are selling calls. Summary Markus Heitkoetter: I mean, this is just a strategy that we like to trade. It’s not for everybody. Because while you have these stocks, you can experience a drawdown in your account so you can have a huge unrealized loss. For example. (RIDE) is a stock that I was wrong about. So I sold the 21.50 and this is where I got assigned. RIDE keeps going down. So right now (March 13th) it is trading at a little bit less than $7. Now I was able to lower my cost basis to $15.23. I actually was able to collect premium of more than $9,000, which is lowering my cost basis to a break-even of around $14.30, but as you can see I’m still underwater water. So what you need during these times, it’s of course nicer when you have the index because the index is bouncing back fairly quick. Again, you see how many weeks does it take after a drawdown before it bounces? One, two, three, four? When we had this huge, massive drop because of Covid, it took us 11 to 12 weeks. That’s only three months here. Often see this also in stocks. So the question is, should we be concerned about a crash? First of all, having a retracement here? This is not even a correction. Having a retracement of 8% is nothing. I mean, unless we start seeing something like we had 10 or 15 percent or 12 percent or 12 percent, or if you are going back in time, if you are going before the covid drop where we had, what, 24%? This is when we are selling puts and by doing so we are getting paid for selling points and as the market bounces back up, we are buying it back. And if we are in a stock, we start selling calls. So having a down market mark, for me that’s not scary. It’s a matter of can you deal with it? And yes, as a trader, you need to have a stomach for this. I mean, it is not for everybody, right? I mean, this is where we are going back to the Holy Trinity. If this is not for you, these fluctuations, then consider money market accounts. I mean, right now, you’re not making a lot of money there, but this is where you can’t lose money. Well, you kind of do because of inflation.
TVC:NDQ
by rockwelltrading
57
JETS ETF Bullish inclined naked Puts - 16 Apr ExpiryThis Month I will only be entering a primary trade. As the Primary trade, this is aligned to the larger market direction and is deemed less risky. I'm bullish inclined for JETS as it is considered one of the COVID19 recovery sectors. The strike is also at a resistance point of the range. Entering at 0.3 would have been my preference but I was too late to get that price as I was wrapped in the previous JETS trade. I need another JETS as I'm over-reliant on this for the past 1 year. Sold 365 Puts @ 0.23 Strike 24 BP Block: 94K Max Gain: Est $8,395 Touch Probability: 29% % Distance to Strike: 14% Wish me luck!
AMEX:JETSLong
by Ronin_trader
2
XRT ETF Bullish inclined Naked Puts 14 May ExpiryI am diversifying beyond selling puts on JETS as it seems to have had a significant bullish run. XRT is an ETF reflecting the US retail industry, specifically the Consumer Discretionary segment. I selected them because with the pandemic optimism and the decreasing unemployment, I expect the customers to be less tight on their retail habits especially on everyday items. etfdb.com Sold 50 Puts @ 0.78 Strike 83 BP Block: 51K Max Gain: Est $3,900 Touch Probability: 62% % Distance to Strike: 8%
AMEX:XRTLong
by Ronin_trader
VXX Calls - 14 May ExpiryThis is the second part of my May trade and I attempt to break up my holdings. VXX is based on the volatility index and is an inverse reflection of the S&P500. Currently, the market is pretty bullish and I expect it to continue at least for the next month. My strategy is to not go for the high-risk, high-reward trades. But steady high probably trades that I can compound on. My 20k loss in Feb, showed me that for my strategy, its better to cut my losses fast and small if I get a hint that things are not panning out. As a small loss is easier and faster to gain back especially since I structure my trades monthly. A huge loss just means more months required to paying back... My strike is also pretty far away and should be well padded. Sold 130 Calls @ 0.25 Strike 17 BP Block: 37K Max Gain: Est $3,250 % Distance to Strike: 74% ATR is also low which means volatility is pretty passive
CBOE:VXX
by Ronin_trader
5
VXX Sold Calls - 11 June & 18 June ExpiryVXX is based on the volatility index and is an inverse reflection of the S&P500 . Currently, the market has returned to it's bullish move especially after the bearish spike from inflation. The US economy also seems to be strengthening. My big worry is if the IN variant hits the US and if it will have an impact on the market. There are also good S/R lines to resist potential upside movement Sold 50 Calls @ 1.4 Strike 65 - Expiry 11 June Sold 50 Calls @ 1.25 Strike 67 - Expiry 18 June BP Block: 50K Max Gain: Est $5285.76 % Distance to Strike 65: 65% % Distance to Strike 67: 70%
CBOE:VXXShort
by Ronin_trader
Japanese Yen futures short call verticalPure TA. Oversold territory, so take care of the trendline. Max profit: $213 Probability of Profit: 72% Profit Target relative to my Buying Power: 20% Max loss with my risk management: ~$250 Req. Buy Power: $1038 (max loss without management at expiry, no way to let this happen!) Tasty IVR: 34 (average at futures) Expiry: 36 days Sell 2 !6JM1 Jun4' 0.0093 Call Buy 2 !6JM1 Jun4' 0.00935 Call Credit Call spread for 0.90cr each Stop/my risk management : Closing immediately if daily candle is closing BELOW the box, max loss in my calculations in this case could be 250$. Probability of loss in this way: ~20% . Take profit strategy: 50% of max.profit in this case with auto sell order at 0.45db. Probability of profit this way: ~80%. Of course I'll not wait until expiry in any case! If you liked this article, check my other ideas. Anyway: HIT THE LIKE BUTTON BELOW , and for fresh option ideas FOLLOW ME( @mrAnonymCrypto ) on tradingview !
CME:6J1!Short
by TanukiTrade
Options vs Stocks: Which Is Better?If you are wondering whether to trade options vs stocks, then this article is for you. There’s no simple answer to that question because it depends on how much money you have and your risk tolerance level. This blog post will cover the 7 topics that you need to know to answer the question “Is Options Trading Better Than Stocks?” 1. What Is The Difference Between Buying Stocks and Buying Options? Let’s keep it simple: When you buy a stock, then you own a share of the company and get paid dividends. Buying options, on the other hand, means that you only have the right to buy or sell a stock at a specific price before the option expires. But you don’t own the stock (yet). As you will see in a few moments, options trading requires much less capital than buying a stock, and therefore it’s very attractive. But it can also very confusing. My goal is to make it simple for you. Let’s start with an example: 2. Which Is Better: To Buy A Call Option On A Stock Or To Buy A Stock? Let’s use Apple (AAPL) as an example. Right now, the market price (at the time of this writing on May 6th, 2021) of AAPL is 128.70. Let’s assume, you are bullish on Apple and expect AAPL to go higher. So you could buy 100 shares of AAPL, but this would come with a high price: 100 shares * 128.70 per share = $12,870 If you have a small account, this might be too high of an investment. The good news: You can trade options instead. When you buy a CALL option, you have the right to buy 100 shares of AAPL at a set price (the strike price) on or before the expiration date of the option. You could buy a call option that expires on June 18th. Today is May 6th, so you have 43 days before this option expires worthless The price of the option is $3.75. Options come in “100 packs”, so your investment to buy this call option is only $3.75 * 100 = $375 Why Buy Options Instead Of Stocks? First of all, it’s much cheaper: Compared to the investment of 12,807 to buy 100 shares, that’s only 3% of the money that’s required. And because of that, options more profitable than stocks. Let me explain: 3. Are Options More Profitable Than Stocks? Since you are bullish on AAPL, you expect the stock to go up. Let’s say that over the next few weeks, the stock goes to 140: Let’s take a look at the profits from your stocks first: You bought 100 shares of AAPL at a price of $128.70 per share. Now each share is worth $140. So your profit is 140–128.70 = 11.30 per share * 100 shares = 1,130. Based on your investment of $12,870, that’s 8.8% Return on Investment (ROI). That’s not bad, but let’s take a look at the call option: How Are Options More Profitable Than Stocks? The call option that you bought gives you the right to BUY 100 shares of AAPL for $130 before June 18th. So if AAPL shares move up to $140, you can buy 100 shares of AAPL at $130 and sell them immediately at $140. This means that your profit per share is 140–130 = 10. And since you are trading 100 shares, your profit would be $1,000. But keep in mind: You paid $375 for the right to do this, so you need to subtract this from your profits: 1000–375 = 625. Your total profit is $625. Doesn’t sound much, but based on your $375 investment, that’s 167% return on investment (ROI). In summary: You made more money in terms of absolute dollars on the stock ($1,130 vs. $625), but the money you needed to make this profit was much less: $375 vs. $12,870. And that’s why your ROI is 167% when trading the option vs 8.8% when trading the stock — even though the stock price is exactly the same. Pretty cool, huh? 4. How Much Money Do You Need For Options Trading? As you can see from the previous example, you need MUCH less money when trading options vs trading stocks. When trading options, you can get started with as little as $2,000. Check with your broker about the minimum requirements to open an options trading account. So if you have a smaller account, trading options might be much better for you than stock trading. 5. Can You Lose Money Trading Options? Let’s talk about the risks of options trading, specifically the question “Can you lose money trading options?” The answer: YES, of course! In the example above, you could lose the premium you paid for the option, i.e. $375, if the stock price does not move above the strike price of $130. If AAPL remains below $130 until the expiration date of June 18th, your option expires worthless. And here’s why: With a call option, you have the right to BUY 100 shares of AAPL for $130. If AAPL is trading below $130, let’s say at $128, you don’t want to exercise your right to buy AAPL at $130. Because then you would pay MORE for the stock than you would if you bought it right away. Making sense? So if AAPL stays below $130 until expiration, your option expires worthless and you lose the premium you paid for the right to buy the stock. Can You Lose More Than You Invest In Options? When you are BUYING options, you can not lose more than the premium that you pay when buying options. So that’s good. However, when you are SELLING options, that’s a different story, and we will cover that later. So in summary: When BUYING options, the maximum amount that you could lose is the premium you pay when buying the option. 6. What Are The Risks Of Options Trading? YES, there are risks when trading options: a) Selling Options Can Be Dangerous. As you have seen, when BUYING options your risk is limited to the premium you pay when buying the option. However, as a seller, there’s a lot more risk. In some cases, you can have UNLIMITED risk. We will cover this in detail in a later article. b) Buying Out Of The Money Options. Risky before the probabilities are low. c) Know What You’re Doing When trading options, there are a few more things to consider: Call options vs put options Strike Prices Expiration Dates … and then there are also these pesky “Greeks” like delta, gamma, theta, rho, etc. And when you have more things to consider, there are more possibilities to make mistakes. So make sure that you understand all these factors before you start trading options. We will talk about “The Greeks” later. Are Options Riskier Than Stocks? YES. Because it’s easier to lose ALL of your investment. Let’s continue our example from above: Trading Stocks You bought AAPL at $128.70 per share. If AAPL drops to $125, then you would lose $3.70 per share, or $370 for 100 shares. Based on your initial investment, that’s only 2.9% Trading Options You bought the 130 Call Option for $3.75. If AAPL doesn’t move above 130, you lose ALL of your investment, i.e. 100%. Yes, the investment is much lower, but instead of losing 2.9% as you would when trading stocks, you would lose 100%. Selling Options And when selling options, you can lose A LOT of money. Selling options can be very profitable. In fact, I made more than $75,000 in less than 5 months selling options… … BUT it’s also very risky. Compare options vs stocks like riding a bicycle and riding a motorcycle: Riding a motorcycle gets you to your destination quicker. And it can be more fun. But it’s also much riskier than riding a bicycle. 7. Can You Really Make Money Trading Options? Absolutely! There are many advantages to trading options, and it is possible to make money with options. Is there a safe way to trade options? You need to know what you are doing, and you need to have a solid trading strategy. Find a strategy that you understand and then practice it on a simulator. And when you are ready, start making money with it. Can Option Trading make you rich? When trading options, you will often see returns of 167%, 200% or even 300%. Therefore, it’s easy to believe that options trading can make you rich. But keep in mind: With these high returns, comes high risk. Yes, you can make 200% or 300% when trading options. And you can lose ALL your investment, as you have seen above. Don’t think of options trading as a “get-rich-quick-scheme”. But when used correctly, options trading is perfect to grow a small account into a bigger one. Summary: Should I Trade Options YES! Should I trade stocks or options? Why not do both? Best of both worlds! Is options trading worth it? YES! It can be very rewarding! As we just covered with trading options, there are many, many advantages. If you are not trading options yet, I highly recommend that you start looking into them.
NASDAQ:AAPLEducation
by rockwelltrading
1
CLOV SHORT PUT VERTICALStrike below 0.618 FIB, and oversold divergence. Max profit: $135 Probability of Profit: 68% Profit Target relative to my Buying Power: 29% Max loss with my risk management: ~$130 Req. Buy Power: $465 (max loss without management at expiry, no way to let this happen!) Tasty IVR: 66 Expiry: 50 days Sell 3 CLOV Jun18' 8 Put Buy 3 CLOV Jun18' 6 Put Credit Put spread for 0.45cr each, because IVR is relative high. Stop/my risk management : Closing immediately if daily candle is closing BELOW the box, max loss in my calculations in this case could be 130$. Probability of loss in this way: ~20% . Take profit strategy: 50% of max.profit in this case with auto sell order at 0.23db. Probability of profit this way: ~80%. Of course I'll not wait until expiry in any case! If you liked this article, check my other ideas. Anyway: HIT THE LIKE BUTTON BELOW , and for fresh option ideas FOLLOW ME( @mrAnonymCrypto ) on tradingview !
NASDAQ:CLOVLong
by TanukiTrade
When To Sit On Your Hands When TradingNow, as you know, I like to use the PowerX Optimizer to find the best trades according to the PowerX strategy, along with The Wheel Strategy. So here’s my morning routine. Usually, I’m in front of the computer at 8 a.m. Central Time. That is 30 minutes before the US markets open. I run the scanner on PowerX Optimizer, and it finds possible trades based on my criteria. My Criteria For Finding Stocks My criteria, for starters, is I like to look for long and short signals because I like to play the markets both ways. I want to see at least a 60% return on my investment. I also want to see stocks that have a closing price between $5 and $250, because I don’t like to trade stocks that are below $5. I want to see a profit factor that is higher than 3. This means that for every dollar that I would have lost trading the strategy, I would have made $3. I also want a risk-reward ratio of at least 2%. Usually, there are anywhere between 4 & 8 stocks that come up on my scanner every day. I use three criteria to find A-plus trades. So here’s what I’m looking for. Number one, I’m looking for gappiness. I look back to see if the stock had a lot of gaps over the past year. I look back over the past 13 months. Number two, I’m looking for is trendability. What does trendability mean? It means that I want to see nice trends to the upside and the downside. And the last thing, number three, is I’m looking at the P&L chart. What does the P&L chart mean? Now, this is one of the strengths of the PowerX Optimizer software, and this is why I use it every single day. The P&L chart basically shows you what would have happened if I had traded this stock according to the rules of the PowerX strategy over the past year. So I can take a look at the trading report where I see for the past few trades, what I would have made in profits & losses. When To Sit On Your Hands Anyhow, this morning (at the time of this writing) I just saw EVRI on my scanner and it passed MOST of my criteria. First of all, it did pass all my scanner criteria, otherwise, it wouldn’t have come up here. Also, it did pass 2 out of my 3 criteria in terms of gappiness and trendability. But when it came to the P&L chart, it didn’t meet my criteria. So this is where this morning I did the most difficult thing for a trader. I was sitting on my hands. You see, at the beginning of my trading career, I had this little voice in my head and this little voice in my head said, “If you don’t trade, you don’t make any money.” Well after I forced some trades, I realized, well, if you don’t trade, you also don’t lose any money. This is why it’s so important. In the beginning when I got a new tool, or when I had a new trading strategy, I wanted to trade it. All I wanted to do was trade. However, when there’s nothing to trade, DON’T TRADE. This is why I use the PowerX Optimizer. It a fantastic job of keeping you out of trouble. So now, as you know, I am trading two strategies. In addition to trading the PowerX strategy, I’m also trading the Wheel. So also for the Wheel, I started looking for trades. Let me show you what I was looking for this morning. One of the trades that I thought, ahh you know what, this might actually be a decent trade was Marriott, (MAR), but when I looked, however, there wasn’t enough premium in there to sell according to the Wheel. I looked at another stock that came up on my radar this morning, which was (PENN). There was some great premium in there but PENN sounded rather risky. You see, for me, it is very, very important that I have a great track record. Now at the beginning of my trading career, I would have forced these trades. I would have said, “Oh my gosh, I cannot be done working after one hour,” because this is what happens sometimes in the morning. I sit down in front of the computer at 8 o’clock, which is half an hour before the open, and I run through the PowerX Optimizer, and don’t find anything. Now, one of the things that of course, I do every single day, is that I check my open positions, and in the PowerX Optimizer, I have my watch list. So first I look for new trades, and secondly, manage my existing trades. I don’t, however, need to overmanage my account when there are days where there is nothing to trade. What I used to do way back when I was still new to trading, and nothing would come up, I would adjust my criteria. I said, yeah, you know what? Instead of getting a 60% return on my investment, why don’t I lower it to 50%, or why don’t I lower the winning percentage to 35%. Maybe lower the volume to 200,000. I had to learn the hard way early in my career not to do this. Summary So anyhow, in summary, there will be days when you’re all excited, but you see, in order to make money with trading, two conditions have to be met. Number one, you have to be ready, and number two, the markets have to be ready. You may be ready but if the markets are not ready, you got to sit on your hands. The beautiful thing as traders, it’s not that today is the trading opportunity of a century. No, tomorrow there will be more trades, on Wednesday will be more trades, on Thursday. Every single day I’m running the scanner according to PowerX Optimizer and I will find more opportunities to trade. So today, one of the hardest lessons, and this is why I wanted to share it with you, sit on your hands. Anyhow, if you enjoyed this video, do me a favor and click on like so that more people will see it.
TVC:SPXEducation
by rockwelltrading
Long call vertical spread for Twitter 55% PoPFib 0.78 hit after event, trendline kissed 4 times: 4hr / 1hr TF in oversold territory Max profit: $500 Probability of Profit: 55% Profit Target relative to my Buying Power: 56% Max loss with my risk management: ~$200 Req. Buy Power: $882 (max loss without management at expiry, no way to let this happen!) Tasty IVR: 5.5 (relative low) Expiry: 46 days Buy 2 TWTR Jun18' 48 Call Sell 2 TWTR Jun18' 55 Call Debit Call spread for 4.41db each, because IVR is relative low. Stop/my risk management : Closing immediately if daily candle is closing BELOW the 52.5$ breakeven line, max loss in my calculations in this case could be 200$. Probability of loss in this way: ~25% . Take profit strategy: 60% of max.profit in this case with auto sell order at 6.1cr each. Probability of profit this way: ~75%. Of course I'll not wait until expiry in any case! If you liked this article, check my other ideas. Anyway: HIT THE LIKE BUTTON BELOW , and for fresh option ideas FOLLOW ME( @mrAnonymCrypto ) on tradingview !
NYSE:TWTRLong
by TanukiTrade
6
How Earnings Season Affects OptionsAs most of you are aware, it is earnings season. So today we’re going to talk about how earnings season can impact options trading, because, as you know, I trade options. Now, just a brief intro. Earnings season happens quarterly, meaning four times a year, and this is when corporations reveal their financial results for the previous quarter. Now, the results of a company’s earnings report can have a major impact on the stock price, and options will often price in the expectations for a big post-earnings move before the event. This is why it is likely that options premium are more expensive during this time. Implied Volatility One thing to know about this and how it can impact your trading is implied volatility. See, there several things that make up an options price, including the market’s expectation for future volatility, and that is called implied volatility. So why is this important? Well, as the buyer of an option, higher implied volatility means that you are paying more for your contract. So if you buy an option before earnings and hold through earnings, you put yourself at risk for a so-called volatility crash. Now, part of the reason implied volatility goes up so much ahead of earnings is because traders don’t know which way the stock is going to go or by how much. I mean, remember Netflix at the beginning of March? Who would have known that Netflix would soar 17%? But you see, once a company reports earnings, there is no more uncertainty, and this is when implied volatility drops, and in some cases, so does the options price. So if you bought an expensive option, there’s a chance that you have to sell it to close at a lower price even if a stock moves in the direction you want it to. And let me show you a very, very specific example of a volatility crash and why it is so important that you understand the concept of volatility and how it can impact your options trading. So I want to show you right here we see Seagate. Seagate reported earnings last week. And so here is the pre-earnings options data. The day before Seagate, STX, was trading at $61.45, and an At-The-Money call with a 61.50 strike price was going for the last traded price of $1.74, and the implied volatility was 128%. On the other hand, the put was going for $1.82 and the implied volatility was also 128%. Now, this was the day before earnings. Now let’s talk of what happened the day after earnings. So again, here Seagate was trading at $61.45 before earnings, but then the next day, Seagate dropped to $59.33. So it fell dramatically and therefore, and the price of the 61.50 call is only a penny. So it’s not surprising that the call is not worth anything, but here’s the key. Even though the stock fell quite substantially, the put only went from $1.82 to $2.51 so it went up because puts go up as the stock goes down. So this means that the put only went up to $0.70, $0.69 to be exact. You see this is how the volatility crash affects the option price, because even though the put is worth more now, and is now in the money, but it also lost a lot of value due to the decline in implied volatility. See, the previous day, it was 128%, this implied volatility, and the day after only 96%. So you have to factor this in when trading options into earnings. How Is Implied Volatility Measured? So let’s talk about this implied volatility thing and how is this measured, right? You know me, I’m all about practical stuff, so I don’t want to bore you with the math behind it and I don’t have to. The good news is that there are plenty of places online that calculate the implied volatility for you, and I want to show you exactly how you can see if the implied volatility, is high, low, or average. Here is the easiest way to do it. You compare the implied volatility to the stock’s historical volatility for exactly the same time frame. The implied volatility measures the market expectation for future price action. Now, the historical volatility measures the volatility for a stock that already occurred over a specific time frame. All you have to do to see if the implied volatility is high, low, or average compare it to the historical volatility. We can use the implied volatility of AAPL Apple’s Q1 earnings season. Apple was trading at 142. For an at-the-money call, expiring in four days, the implied volatility was 71%, and for the put was 70%. The historical volatility of Apple. And this is something that you’re charting software can show you, it makes sense to look at it in 10, 20, 30, 40 days increments. So if we were to look at the past 10 days, the historical volatility was 37%. But the call was trading at 71%. So what does it tell us? It tells us that the premium on this call, and also on the put, was running more expensive than usual. So now we can see, how this is affected by earnings. Now, let’s take a look at the implied volatility of an at-the-money Apple call from the same time that expired later out at, let’s say March 19th. So for calls expiring March 19th, you see right now the implied volatility is much, much, much lower at 43% for the call, and 43% as well for the put. The historical volatility over the past 60 days was 40.69%. Now compare this to the 43% and we see that it is pretty much in line here. So this means that the premium that was on these calls and puts on options that had 53 days until expiration was pretty much average. Why You Shouldn’t Sell Options Into Earnings Options traders are always talking about implied volatility and historical volatility, and now you know what it is. Now I want to tell you why I don’t sell options into earnings. I mean, even though the stock moves in the direction that you want to, your option premium is getting sucked out of there because of the volatility crash. You see, and this where, as an option seller, you might say, “don’t I want the premium to be as high as possible?” and yes, of course, you do. But let me make you very clear why I don’t sell options into earnings. If you have been following me for a while, you know that I love trading the Wheel, and as part of this strategy, we are selling options. Well you see, earnings plays are hit-and-miss. Sure, everybody can get lucky and most people who start trading expect their account to explode from one or two big trades. This is where we have some stocks that are jumping just dramatically. Looking at Intel, INTC over the last three earnings. Huge gap down right when we had earnings, then there was another earnings play, and Intel really crashed down hard again. Then also here during the last earnings season, initially, Intel went up but then started crashing down. You see, some people like these earnings plays because they believe the hype that they can make a lot of money with very little work involved, but see, trading just doesn’t work this way because, in reality, the key to becoming successful in trading is consistency and growing your account systematically. That’s what I mean when I talk about generating SRC profits, right? SRC is an acronym that stands for Systematic because I like to trade what I see and not what I think. This is why I use indicators and have a trading strategy that tells me when to trade, what to trade, when to enter and when to exit. The R stands for repeatable and by trading my plan, I’m able to find repeatable profit-making opportunities. The C in SRC profit stands for consistency. You see, I’d rather make slightly less money more often than biting off all my nails waiting for a big winner. As you know, part of my systematic approach to trading is to use The Wheel Strategy and the PowerX strategy. Now, especially with The Wheel strategy that, where I’m trading right now with you here, the idea is to get paid while you wait to buy the stock, and because I’m collecting premiums on the puts that I sell, I’m looking for stocks with higher volatility, right? This means making more money, and as a rule of thumb, I look for stocks with an IV, implied volatility, of at least 40%. The Wheel strategy can relatively safely produce profits, but I don’t recommend you to trade into earnings, at least that’s not what I do. So I will not target options with an expiration date that includes the company earnings report. I am trading options before we are running into earnings. So this is why I think it is very important that you know when trading options, whether it is buying or selling, that you don’t trade into earnings. At least that’s what I do because earnings are a wildcard and there’s just too much uncertainty. Remember, I’m not looking for fireworks here, I’m looking to systematically grow my account through consistent and repeatable strategies. Where To Check For Earnings Now, I want to give you two more resources, if you want to see for yourself who is reporting and when. These are two websites that are pretty cool that I personally use. So the first one here is “stock earnings.” If you go to stockearnings.com or they even have stocksearning.com, they will show you see the notable earnings that are coming up this week. Now, another one that many people like to use is earningswhispers.com. So that’s another great source for finding out when companies will report earnings because this way you can make sure that you’re not trading right into earnings. It’s always good to know when they report earnings if you have any open positions, whether you’re buying stocks or selling stocks so that you’re not caught off guard. So I hope that this helped you to see how earnings impact option prices and why I never sell options into earnings.
NASDAQ:INTCEducation
by rockwelltrading