AAPL Put Spread
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Entries by Mark Fenton
Bullish Options Trading Strategies
[fa_icon icon=”arrow-circle-o-right” size=”medium” circle=”yes” background_color=”” color=”” id=”” inline=”” class=”” animation=””]When you are “bullish” a stock, that means 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. Translation: Get more potential reward with spending less money using options than you can by simply buying the stock. There are many options strategies to apply when you have a bullish sentiment. One option strategy you can use, is to simply 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. A 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 […]
The Key to Holiday Trading Risk-Management
Just a quick note today to talk a little bit about Holiday Option Trading Risk Management. First off let me say, Happy Holidays to all of you everywhere! I hope it brings good times for you and your family. When option trading during this holiday period, roughly the week before Christmas through the end of the year, you can see a lot of strange moves in the market. Many times traders will be trying to sell for tax loss reasons to offset gains and you will also see mutual funds buying stocks that they want to be in for the fourth quarter, and of course, selling stocks that they don’t want to be in for the new year. During this time, there is usually lower liquidity in the market. This means that the bid ask will be wider and the market makers will not give in as much on pricing. If you are going to trade, not only do you want to trade smaller, but also stick close to the midpoint between the bid and ask with your fills and don’t give in as much. It’s not worth giving up too much to get into a trade at this time […]
Understanding Options Trading
When you wish to take up options trading, you must first start with the fundamentals. Understanding the basic components of options and how they work is your first task. A good place to start is by answering the questions, What is an option? What are strikes? What are contracts and what are contract sizes? Those are the basic components for learning your pricing and where to start with your training. You also need to understand the standard option quote and how to analyze it and what the different components mean. Calls and Puts, of course, are the way options are described. You need to know the difference between the two, and what your obligations are if you are selling and what your benefits are if you are buying. The reason that you may want to buy or sell a put or call can only be determined, if you understand what your obligations and benefits would be. Following that, you need to understand basic terminology, such as, being a “long” or “short” or “in the money” or “out of the money”. You will use those terms every day. Also, you will need to know such terms as “intrinsic value” or “extrinsic” […]
Option Trading Strategies for a Low Volatility Environment
Today the VIX is hovering around 12 to 13. The VIX of course is the volatility Index for the S&P 500 or SPX. This would generally be considered a low volatility environment with the VIX at that level. What option strategies work best in this low volatility environment? Volatility tends to return to the mean. So if we are at a low volatility, chances are that the volatility will rise over the near-term. Option strategies that are long volatility or very high risk-reward are best at this time. A good long volatility strategy is the calendar spread or time spread. This involves, of course, selling an option strike near the money, in the near expiration, and buying that same strike in a further out time period. An example would be, selling an option expiring at the December options expiration and buying one that will expire in the January options expiration at the same strike. You can also utilize weeklies where you sell an option that will expire in one week and buy one that will expire in another, that is, your time spread or calendar strategy. Benefits This, of course, benefits from increased volatility and is also non-directional in its price […]
5 Basic Option Trading Tips
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. 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 that options are derivatives of another product and that the product price movement affects the movement of the options that you have bought or sold. A solid understanding of the exponential benefits and dangers of trading options is key. 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 revolves around your understanding of volatility. 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 the price movement. Trading the stock or index for news […]
The Best Stocks for Options Trading
Often I am asked, “What stocks are the best for options trading?” Many people like to trade the indices for their tax-favored status whenever they trade options. Indices such as SPX and RUT get the 60/40 tax favored status. Also there are many traders who like to trade stocks. Whenever you begin to look for a stock to trade with options strategies, you need to look for a stock that is relatively peaceful, perhaps in a trend or maybe post earnings release. The stock needs to have good option liquidity. Best Liquidity Number What is a good liquidity number? I like to use a rule of thumb, that for any strike that I’m going to use in my options trading strategy, there is 20 to 40 times the size of my position minimum in open interest in that strike. The more open interest that you have in a strike, the better your fills will be, as there are more people buying and selling at that level. Be careful to avoid stocks that are soon to gain media attention, such as a big product announcement, company take-over offers, or earnings reports. Speculative Options Strategies That is, of course, you are placing […]
Trading Options Successfully
Over the past seven years, I have been a full-time trader and options trading mentor. I have found, over that time, that becoming a mentor has helped my trading, just as much as or more than any other thing that I’ve ever done to improve my trading. 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 think I can speak with some experience. How to Be Successful at Trading Options The most important thing you need to being a successful options trader is to have a plan. The plan requires answers to these questions: What will I trade? How will I trade it? What will my profit goal be? What will my max loss be? A very important part of the plan is that the plan has to be a good one, meaning I have to find a valid option strategy, and I have to understand how stock or indexes that I use, move. The plan must involve: Which options I’m going to use? Which underlying (and the strategy)? When I’m going to enter the trade? How will I manage the trade if […]
Credit Spread Option Strategy
One of the most basic option trading strategies is to sell a credit spread. This is usually done whenever the trader has an opinion on a stock or other underlying issue that it is going to go up or down in price, in a certain period. For instance, let’s suppose APPL was trading at $106 per share and you thought that APPL would stay above 100 for the next few months, you might sell the December APPL 100 Put and then buy the December 90 Put; thereby creating a credit spread, because the 100 Put you sold would be more valuable than the one that you bought at 90. As long as APPL stays above 100, the duration of the trade, that is until December expiration, you will be profitable . You have time decay on your side in this trade, that is, it’s positive theta. Each day that passes by, the short you sold is worth a little bit less in time value. This is how you make your profit over time. Often the difficult part of this type of strategy is the management plan. What do I do if APPL does drop in price towards our below $100? […]