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 at the strike you sold it, but this is a simple method to reduce the cost/risk whenever you buy a call vertical.
When and how you buy these different option strategies, and how you manage them is what we teach at Sheridan Mentoring every day. With our options education you can learn to take your sentiments, whether bullish or bearish, and know how you can use options and the leverage they afford to your best advantage.
Mark Fenton, Senior Options Mentor
Try our Bullish Strategies Class, and view a Free video where Dan talks about how to generate income in a Bull Market! Click Here!
SPX Butterfly Trade
[youtube id=”VMTkQE5pnZI” custom_id=”” class=”” animation=””]
Would you like to learn more about Butterflies? Check out Dan’s Butterfly Class 2014 HERE!
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 of year. If you don’t get filled there’s always next year, LOL. So step back, make your plan for next year, and enjoy a few days of little or no trading. This is a great time to work on what you did wrong in 2014 and what you want to improve on and 2015 with your options trading. A Mentoring program will help you with setting realistic trading goals and managing your risk. While you are relaxing this Christmas, think about joining the GOLD Mentoring program. Dan is offering the GOLD package at the lowest price of the year, but the offer expires when the ball drops!
Check out Mentoring HERE and sign up for a no-obligation walkthrough!
Happy Holidays to all!
Mark Fenton- Senior Mentor
Directional Butterfly in SPX
Would you like to learn more about Butterflies? Check out Dan’s Free Webinar and Class on all types of Butterfly trades!
Click HERE to view the Webinar!
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” or “time value.” You should understand options exercise and assignment, and the difference between index and equity options.
When you have a good grasp of these concepts, you are ready to begin practicing some option trading and learning some strategies. At Sheridan mentoring, we offer courses that take you from the basics, all the way up to running options as a business. We can help no matter what your starting options trading knowledge is. Please contact us for all of your options trading education needs. Our beginner course called, Option Foundations Class is a great starting point. Click HERE to learn more about the class, and begin your journey as a successful options trader.
-Mark Fenton
Send in any questions to info@SheridanMentoring.com
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 movement perspective. Calendars have a very high risk-reward, meaning that for what you pay for them, the returns can be large.
Of course, they do have to trade in a range or the trade can get into trouble. The iron butterfly is a short volatility strategy but has a high risk- reward that will work in this environment also.
The iron butterfly involves selling two verticals, a call vertical at the money with a further out long wing, in the same expiration and a put vertical at-the-money with a further out long, in the same expiration.
Falling Volatility
You will benefit from falling volatility and also time decay, as this is a positive “theta” trade as is the calendar also.
Both of these strategies are good choices in this environment of low volatility. At Sheridan Mentoring, we educate traders on how to use these strategies and more every day.
Consider us whenever you want to enhance your option trading ability. Trading options as a business requires discipline and education, and we are happy to help you with that goal.
– Mark Fenton
Senior Options Mentor
*Right now, you can join the GOLD Mentoring Program for a 20% discount! Click Here to learn more!
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 that you feel will make it move hard, either in a certain direction or non-directionally, requires an understanding of what the drivers of the stocks pricing are.
- Setting reasonable goals. Once you know the options and the underlying that you are trading, it is important to set reasonable trading goals. How much money can I reasonably make? How much risk do I want to take? How does this affect my overall account? These are all questions that you need to answer before you begin trading options strategies.
- Have a plan. Nothing is more important in any kind of trading than having a good plan. When will I enter? When will I exit? What are my profit goals and adjustment plans? How will I manage it whether it goes for or against me? These are all fundamental components of a good plan.
At Sheridan mentoring every day we work with traders to help them develop these skills. Please take all these tips and apply them to your options trading business.
Mark Fenton- Senior Mentor
Ideas or Questions? Email them to info@SheridanMentoring.com