Entries by Mark Fenton

SPX weekly Calendar Trade

With the volatility once again in a lower range I like the success  possibilities of  an SPX weekly calendar today. I am looking at the trade below: Sell 1 SPX June 2nd 2395 put Buy 1 SPX Jun 16 2395 put Debit for spread is approx. $9.00 with SPX trading at 2395 Total cost per spread at this level would be $900 plus commissions. Looking to close trade at a 10% gain or 10% loss. If you get filled at $9.00 immediately  place good to cancel order to sell at a profit at $10.00. Close trade at a loss if you are down $100 on the spread.

SPX weekly Calendar Trade

With the volatility in a lower range, I like the possibilities of an SPX weekly calendar today. I am looking at the trade below: Sell 1 SPX May 19 2390 put Buy 1 SPX Jun 2 2390 put Debit for spread is approx. $7.25 with SPX trading at 2390 Total cost per spread at this level would be $725 plus commissions. Looking to close trade at a 10% gain or 10% loss. If you get filled at $7.25 immediately  place good to cancel order to sell at a profit at $8.05. Close trade at a loss if you are down $80 on the spread. Mark Fenton mark@sheridanmentoring.com

Trading Options Successfully for the Long Term

Over the past ten years I have been a full-time trader and options trading mentor. I have found that becoming a mentor, and coaching students all day, has helped my own trading  immensely. As a mentor I see  day in and day out what works and what doesn’t, So whenever someone asks me how can I trade options successfully I speak through the experience of the hundreds of students that I have mentored over the years. The most important component to being a successful options trader is to have a plan. The plan is what will I trade , how will I trade it, what will my profit goal be and what will my max loss be. A very important part of the plan is to  find a valid option strategy and having a good understanding of how the chosen vehicle moves. Once I enter a trade how will I manage it if it works for me or if it happens to work against me how can I hedge my risk and how can I adjust my trade. These are all very important things you must know before you ever enter a trade. Many times I see traders who  have a plan, but […]

Protecting a Portfolio Against Downside Moves

Sometimes in a long bull market trend, like what we’ve been experiencing, it is easy to overlook protecting options trades and stock portfolios against downside moves. It is easy to get complacent whenever you see the market shake off any negative news and maybe only with a pause it goes back up, but eventually the market will have a correction.  Of course one of the best ways to protect yourself is to have some protective measures on ahead of time so that you are not  scrambling to protect yourself once the move is in play. In my mind one of the best ways to do this is to consider purchasing long verticals or long calls in the VIX options two to three months out in time. Considering VIX options currently in late May or early June  would be attractive. What I like to do is  wait for a day whenever the VIX pulls back a bit and then look at buying options at  2 to 3 points out of the money and  a few more points out of the money. For example if the VIX is at 11, you may want to consider buying 13 call options and also calls at […]

Getting Started in Options Trading

Where to start? This is often the question many beginners of option trading ask. I’ve listed here five tips that will set you on the correct path to profitable option trading. 1. Understand how options work and move. There are many free online resources that you can use to learn about options and how they work. It is fundamental that you understand they are derivatives of another product and how that underlying  product’s price movement affects the movement of the options you’ve bought or sold. A solid understanding of the exponential benefits and dangers of trading options is key. 2. Volatility. Understanding how volatility works and how it affects the pricing of your options is very important. Volatility is really the main driver of option pricing besides the options in the money premium and time premium. Entering and exiting a trade as well as choosing what strategy to use all revolves around your understanding of volatility. 3. Know your underlying product. Whether you’re buying or selling options on an index or a stock, it is imperative that you understand the underlying, how it moves and what news may be coming to affect its price movement. Study the stock or index […]

Using the Leverage of Options for Bullish Sentiment

When you are “bullish” a stock, it is your opinion that the stock is going to go up in price. While you could simply buy the stock, it is often more expensive than using a bullish options trading strategy. You can have a lot more leverage, meaning  more potential reward with spending less money using options by simply buying the stock. There are many options strategies to employ when you have a bullish sentiment. One option strategy you can use, is to buy a call on the stock above where it is currently trading. If the stock trades higher and goes through the call strike by more than you paid in  premium you will be profitable. You could also use a call vertical. The call vertical is when you buy a call at a lower strike then you sell a call at a strike two or more higher. By doing this you still get the advantage when the price goes through the strike but you decrease your cost by selling a further out call. Of course the further out call will cap your gains at the strike you sold,  but this is a simple method to reduce the cost/risk whenever […]

An Asymmetrical RUT butterfly Trade

With RUT trading around 1360 and volatility up a bit, a trade that looks interesting is an asymmetrical iron butterfly entered below the current trading price as follows: RUT at 1358 Sell one May 19 exp 1330 call Buy one MAY 19 exp 1350 call Sell one MAY 19 exp 1330 put Buy one MAY 19 exp 1280 put This trade gives an upside that is profitable no matter how high RUT trades and put side with the risk well below where RUT is currently trading. Take the trade off at 10% gain or loss. Mark Fenton mark@sheridanmentoring.com

How Do I Calculate My Profit Goal?

One of the most frequent questions I get from my mentoring students is how to calculate where to exit a trade for your profit goal. Some trades have margin while others don’t and some trades are debits and some are credits. This can all lead to confusion as to what a closing order should be. Ignoring commissions for this example, if you have a trade that costs $250 debit and the margin is $1000 what would you want to sell it for to make 10%?- The trade cost you $1250 so you need $125 ($1.25) more than you paid you make 10%. So $2.50 you paid + $1.25 is $3.75. $3.75 is your sell price for 10% profit. If you have a trade that gives you a $250 credit and the margin is $1000, what would you want to sell it for to make 10%?- $1000 in margin minus $250 target = $750 which is the cost of the trade. So you need to buy back this credit spread for $75 or .75 less than you paid for it. So if sold at a $2.50 credit, the closing target is $1.75. You can simply add in your commissions to the cost […]

Trading the Monthly Jobs Report

One monthly report that generally moves the stock market is the NFP or nonfarm payroll report that is issued the first Friday of every month. The report is issued at 8:30 am Eastern time 7:30 am central time before the market opens. When the market opens, often the market will make a hard move one way and then come back the other way over the first hour or so. This can make for an interesting speculative play using options. This is not normal non-directional income style options trading. The way to play these moves with options is to wait for the initial move to move hard in one direction and then sell option verticals above or below that. Then whenever the market moves back the other direction you can close those option verticals that you sold profitably or continue with them if the market stabilizes. Often the market will move one way and then the other and continue that  way the rest of the day. For instance, if the market opens up you could sell call verticals in a broad-based index like SPX once it is moved up about 10 to 15 minutes, then watch for a market reversal to […]

Bullish Crude oil Butterfly

There are reasons fundamentally to be bullish crude oil in the current market. Summer driving season approaches and the oil supply glut has been diminished. If you share that point of view and wish to speculate with /CL, below is a trade you may find interesting. May /CL trading around $50.60 Look to buy a call butterfly structured as below at a debit of around $2.30 ($2300 trade cost). Buy one May 47 call Sell two May 51 calls Buy one May 55 call Consider closing the trade if a profit of $230 is reached(10%). Close the trade if loss reaches $200   Mark Fenton mark@sheridanmentoring.com