TSLA Pre-Earnings Calendar

Today on Sheridan Mentoring TV, I put on a Live TSLA Pre-Earnings Calendar. Sheridan Mentoring TV airs Tuesday’s and Thursday’s at 1 pm central and I usually will put on a live trade every class and also explain and track every trade for educational purposes. TSLA at time of the trade was $228.46. Today’s trade I bought the Feb 10 expiration 230 Calls and sold the Jan 20 Expiration 230 calls for a debit of $5.60. The idea here is that Calendars have 2 risks, price and the Implied Volatility decreasing, and we are trying to eliminate Volatility risk. I do that by buying the expiration that will be affected by earnings and sell an expiration that will not be affected by earnings. I am looking to make around 10% for every 1 Calendar I buy, about $55 0r $60 (10% of $560). If TSLA breaks under 224 or 237 in next few days, I will instruct what to do in the blog. My short options expire in 10 days and my longs in 20 days. I will be out of this trade in 7 days, avoiding the price risk of earnings.

Tomorrow we launch our 1st online class of the year, How to manage a 10K Weekly’s Portfolio. This interactive class spans 4 weeks and meets twice per week. All classes are recorded. Sign up on the front page of Sheridan Mentoring and we will see you at 1 pm central tomorrow.

 

Thanks

Dan Sheridan  dan@sheridanmentoring.com

1st Trade of the New Year- Iron Condor in SPX

Can you do an Iron Condor when VIX is 13.5 and the SPX is 30 points away from the  all time highs? Yes, it depends on how you structure and manage the trade. This is the trade I just put on for SOM TV with SPX around $2247. Sell 1 Feb 3  2315 Call and Buy 1  Feb 3   2325 Call. Sell 1 Feb 3  2150 Put and Buy 1 Feb 3  2140 Put. Total Credit  $2.20 credit. The deltas of the short options were around 15. The goal on the trade is to make 10% and not lose more than 12% of the risk or margin of the trade, $780. If the delta of the short call or put gets to 23 this week. I will look to either buy a call on the upside or put on the downside to cut my position deltas 1/2 or 2/3. I sold the Credit Spread for $2.20 credit, if it goes to around $1.40, I would buy back the Iron Condor for $1.40 debit, making around 10% on my capital.

Join us tomorrow, January 4, for a free webinar at 1 pm central titled: How to Manage a $10K Weekly Portfolio. Sign up on the Sheridan Mentoring home page.

SPX Put Broken Wing Butterfly

Loss of mobility and degenerative health loss concept and losing freedom from mobiliy due to injury ormedical disease represented by a monarch butterfly with broken and fading wings on a white background.

Tuesday on SOM TV, I put on a live BWB and am talking about the trade today after big move in SPX yesterday.The trade is in Jan 6 expiration and was done with SPX around 2209. Buy 1 Jan 2200 put  Sell 2 Jan 2170 puts  and Buy 1 Jan 2130 put. The debit was 2.05 and the margin or risk for this 1 unit trade is $1205 dollars, which is the risk on the downside. The risk on the upside is about $205 .I started the trade 1.75 deltas short on this $1200 trade.  During SOM TV Tuesday, I mentioned if SPX hit 2223 yesterday, I would look at the trade and probably sell a put credit spread to narrow the upside of the Broken Wing Butterfly. The original Butterfly width was 30 on the upside and 40 on the downside. By adjusting with a put credit spread, selling the 2190-2200 put credit spread in January, we would be decreasing the upside width to 20 and reducing the short delta exposure on the upside. If you didn’t do anything to the trade, the price is now around $1.35 with SPX at 2243 as of 10:09 am central today Dec 8. If somebody did nothing, they would be down $70 right now divided by $1205 of capital or about 5 1/2% today after huge move yesterday. Not bad but the key is risk management. If someone dealt with this yesterday at 2223 which I mentioned as adjustment point, you’d be singing  in the rain like Fred Astaire. Key point: when you adjust is more important than actual adjustment. 

Thanks,

Dan Sheridan  dan@sheridanmentoring.com

Why Income Trades did fine with SPX down 62.

Most of the live Income Trades (delta neutral, positive theta, selling strategies) that students in our community and myself had on today did much better than expected, and in some cases did great. lets discuss at least 2 of the trades I had on as examples.

Trade #1 did absolutely great today, and it was a basic non-Directional trade that made 20% today with the market going drastically against us. The trade was a balanced Butterfly trade in SPX in the August 19 expiration, and the width of the Butterfly was 40.The trade was put on yesterday when SPX was around 2105.The trade was put on using all Calls.  Here is the trade using a 1 contract example. Buy 1 2065  and sell 2  2105’s and Buy 1  2145. I bought some units at $5.40, $5.30, and $5.20. A unit could be 1-2-1 or 2-4-2 or 3-6-3, whatever size you are trading at. In this trade, we want the price of SPX to be near the short strike of 2105. Today at around 9:45 am central time, SPX was around $2059 and I got out of my entire trade that I bought around $5.30 and sold it for a $6.40 Credit, a return of about 20%. How did that happen with SPX moving about 50-60 points from the short strike, which is bad for this trade? Did theta get us the high return in 1 day?  No. VIX was up  about 3 points at 8:45 am central, this is a short Vega trade, shouldn’t an increase in Implied Volatility hurt an Short Vega at-the- money Butterfly trade? It should, but this was a bit of an unusual situation. Usually when SPX closes around $2110 which it did yesterday, the VIX would be between 11-15 because if SPX is 30-35 points from its all time high, VIX would be in the lower end of the range. But yesterday the VIX was around 18 because of the UK vote, sort of an Earnings situation for the market, an Event that could trigger a big Gap move. With VIX up about 3 at 8:45 am central, we still made money from the implied Volatility because the Volatility increases in the individual strikes of our Butterfly worked in our favor. Just because the VIX went up doesn’t mean we had to lose on a short Vega trade. The key is what happened with the volatility of each of the  strikes of the Butterfly combined.

Trade #2 was a Heart stopper. It was a 1 Day Iron Butterfly in SPX that I put on Wednesday and took off today for about a scratch, but was thrilled. A scratch means I basically broke even on the trade but covered my commissions. The Trade was in in SPX and I entered it Wednesday with the Index at $2090. It was a 2 Day trade and I used the June 24 expiration which expires today. I bought the 2100 call and sold 2090 Call. In the Puts, I bought the 2080 Put and sold the 2090 Put. The Iron Butterfly was put on Wednesday for a credit of $9.40 with SPX at $2090. Today I bought the spread back for a debit  of $9.35. How could I have made any money on this trade since the SPX moved over 50 points away from my sweet spot which is the short strike? Part of the answer is that when SPX was at $2059 and I bought the spread back, we still had almost 6 hours left of Trading and the market was pricing in the fact that a big rally back was possible. The other part of the answer is the fact that although the VIX was up, this short Vega trade made money from the Volatility because each of the strikes of the Butterfly didn’t all move up the same. The takeaway is that Greeks like Vega and Theta are Theoretical numbers and in real life like today, don’t always move like they say they should. The answer is to really understand the Greeks and become a good Option Craftsmen.

Go to Sheridanmentoring.com and check out, fresh off the press,  the archives of last weeks 2 day Chicago Seminar we put on.

Options Trading Seminar June 16-17 – Live Streaming

At Sheridan Options Mentoring, we’re proud to offer informational resources for people who are interested in learning more about options trading, options strategies, and more. We’re pleased to announce our annual options seminar, hosted by our very own Dan Sheridan in Chicago. This year’s seminary will take place on June 16th and 17th and will be streamed live.

Learn Options Trading Secrets from Industry Experts

The live stream of the options seminar will feature presentations from Dan Sheridan, founder of Sheridan Options Mentoring as well as the following speakers:

  • Brian Overby, Senior Options Analyst at TradeKing and author of The Options Playbook
  • Russell Rhoads, Senior Instructor at CBOE’s Options Institute
  • Tom Sosnoff, Co-Founder of ThinkorSwim and founder of TastyTrade
  • Steve Basigo, Veteran Retail Trader
  • Karen Bruton, AKA “Karen the Super Trader”
  • Mark Fenton, Senior Mentor at Sheridan Mentoring and Veteran Retail Trader
  • Jimm Bittman, speaking about credit spreads
  • Dino Karahalios, Veteran Retail Trader

Live Stream Our Options Trading Seminar

The live stream seminar will get you full access to each session, both days, streamed live in real time.

You’ll be able to ask any questions you may have to a moderator on our live chat box, and you’ll have access to HD recordings of each session in case you miss one or want to rewatch it.

Downloadable copies of all the presenters’ materials will also be offered, and you’ll have access to all of the material for at least six months.

Seminar Time, Dates and Details

This year’s event will be at the University of Chicago’s Gleacher Center at 450 N. Cityfront Plaza in Chicago. The seminar is from 7:30 a.m. to 4:30 p.m. on Thursday, June 16, and from 8 a.m. to 4:30 p.m. Details for each speaker will be announced shortly, but space is limited for the seminar, so you’ll want to book your spot soon!

You’ll learn about different options trading strategies as well as trade options, including Iron Condor methodologies, Butterfly strategies, and much more.

Tickets for the streamed seminar are $437 per person.

billboard

To learn more about our summertime options trading seminar, contact us today. We want you to succeed at trading!

3 Steps to successful Option Trading

Three steps words and numbers on arrows in a circle to illustrate a process, system, directions or instructions

#1 Learn the Craft

This stage takes a while and possibly much longer depending on how you learn the craft. Most folk pick a directional approach to finding trades, and that is a very difficult proposition.

We pick trades based on 3 Things: Probabilities, Time decay, and a good plan for each trade. As you learn the craft, a good understanding of the Greeks and the ins and outs of the different strategies is essential.

options trading courses

#2 Practice the Craft

This stage in my opinion means trading a plan and 30-50 live trades proving and practicing the plan under the tutelage of someone very experienced at Risk Management. That is what we do here at Sheridan Mentoring.

I don’t know another mentoring company or coaching service in the Options Trading business that teaches you the business in this manner. This is crucial. Most folks who do 30-50 live trades on their own will usually end up in a heap of trouble!

#3 Discipline in the Craft

This is where most people “bite the dust”. Our mentors have there hands full with students who come in with many bad habits, including being directional on every trade and not used to following a plan.

Our coaching on a trading plan and 30-40 live trades usually takes 6-12 months. Our aim is to develop good risk management habits in the students so when they are done, they can be capable of some independence on their own and know how to run an Option Trading Business.

Good luck Trading!

Dan Sheridan

Dan@SheridanMentoring.com

What is Your Trading “Intention”?

Each time I go to my yoga class the instructor has a word of the day, and I wanted to apply that to options education. The word of the day is intention. The dictionary defines “intention” as an aim, a plan or a purpose.

While naturally many people would think, well my intention is to make money. I think through lack of planning many people lose sight of their trading intention. Let’s take a look at what should go into our trading intention.

options trading courses

Trading Goals

Besides learning different strategies to utilize, the first thing we need to do is determine a long-term trading goal.

Where do we want our trading success to take us, is our goal to have a monthly income stream? Or a nest egg to retire with?

Of course these goals could be simultaneous. Whichever goal you choose it’s important to keep a record of your trading results and where you are at on your path to your intention.

Trading records should be looked at daily, monthly, quarterly and yearly to give us an overall view of whether or not our current plan is working. This will give us a chance to make adjustments in our trading plan in a timely manner if need be.

Setting Realistic Goals

When we set our original trading goals it is important to be realistic. If your goal for instance is to make $2000 per month and you are trading with $10,000 we must look at how realistic that is. In my experience if you can follow a good trading plan, you should be able to generate 3 to 7% a month on average with your option trading.

A more realistic goal might be $500 per month on a $10,000 account. The lower the percentage of return on your capital that you need the easier it will be to reach your goals, But having realistic goals of your capital is key.

Allocating Assets

Lastly, you have to allocate your assets properly with your trading goal and intention in mind. What strategies am I going to trade and when? What role will volatility in the markets and in the trading vehicles I utilize play in my planning and success?

All of the above must be in focus and on your mind and constantly reevaluated for you to achieve your trading goals.

Mark Fenton

mark@sheridanmentoring.com

Are you a market bear? Here is a trade for you.

Recently I wrote an article about the “time bomb butterfly” that was published in the March issue of Modern Trader Magazine. The butterfly option trading strategy has many different structures and uses.

The time bomb butterfly involves buying an out of the money all call or all put butterfly in the direction you think an underlying asset is going to trade.

Currently in the market there is a lot of uncertainty among traders as to which direction the market will now head.

options trading courses

Time Bomb Butterfly

This can be a good set up for the time bomb butterfly in the SPX. One example would be an all put butterfly placed in the April expiration 37 days from now, that is centered at 1940. While the width of the fly is up to the individual trader, using a 20-point wide wing could be structured as follows:

 

Buy 1 APR 16 1960 put

Sell 2 APR 16 1940 puts

Buy 1 APR 16 1920 put

 

This butterfly is currently trading at approximately 1.25 per contract, costing $125 for each 1/2/1 fly structure that is entered plus commission.

Profit

If this butterfly at expiration is trading near 1940 this trade would net more than a 10 fold profit. It also has profitability from around 1925 to 1955. If you have a bearish sentiment over the next month for the SPX this is an interesting trade to consider.

You could of course, using an all call time bomb butterfly, structure something similar above where the SPX is currently trading.

Consider the Time Bomb Butterfly

I like using the time bomb butterfly strategy more than vertical strategies because of the low cost and possible exponential reward. Consider the time bomb butterfly the next time you want to trade predicting market direction.

Strategy for the current market: Cash Secured Put

Over the course of this week, I will be going over several different strategies for SPX in this Volatile Market, and a cash secured put is the first that I will discuss in this post.

Even with the rally Friday (Jan 23), the markets are still down considerably in the last 4 weeks. SPX closed Friday at around 1907, up around 37 points for the day! Dec 29, SPX closed at 2078.

We are still 171 points away from the Dec 29 close. That’s about 8 ½ % from those lofty levels. With that as perspective, I think cash secured puts might be attractive here in certain stocks.

options trading courses

Cash secured puts are the same strategy as covered writes, but not as popular. SPY closed Friday at $190.52 up an amazing $3.83 or 2% for the day. I will use the February expiration in my example.

SPY

I will sell 1 Feb 180 put for $1.50. If SPY closes above $180 by February expiration, Feb 19, I collect the entire premium of $180.

If SPY closes under $180 by February expiration, I obligate myself to buy the SPY ETF at the short strike of $180 minus the premium of $1.50 or $188 ½.

That’s about 6% lower than the current SPY price. As of Friday’s close, we are already down about 8 ½% in SPY since Dec 29.

This Strategy Accomplishes 2 Objectives

Income and accumulation of ETF’s and Stocks at discounted prices. This strategy is for those who like the market or certain stocks over the next 6 months to 1 year.

The way I chose the strike for this example was to sell a strike with a 20 delta.

What does that mean?

It means that there is only a 20% probability that SPY will be under $180 by February Expiration, which is Feb 19. That also means there is an 80% probability I will collect the premium of $1.50 I sold.

Many stocks have been down 8-20% in the last 4 weeks. Make a shopping list of stocks and ETF’s that you like at the current levels.

Then go and look at an approximately 30 day option expiration and evaluate a 20 delta put for a possible cash secured put.

What does the term cash secured put mean? It simply means you have enough capital in your account to buy the stock if you get assigned on the short put.

Cash Secured Puts

What’s the downside to cash secured puts? If the stocks or ETF’s immediately soar, the premium on the short put won’t equate with the appreciation you could have had by just buying the ETF or Stock.

I like this an long term Income and stock accumulation strategy and would recommend selling cash secured puts in stocks on a regular monthly basis.

Is it scary to sell puts after a correction? Absolutely, but that is when some of the best opportunities arise.

 

Market Outlook by Dan Sheridan

Confused business man seeks a solution to the big labyrinthMarket Outlook: The market closed Friday at 1880, down 200 points or 8-9% in about 2 ½ weeks. The first 2 weeks of 2016 has seen quite a bit of volatility.

In SPX, we have had 5 of last 10 trading days with moves of 1 ½ % or more, unprecedented!

Translated into net price changes at the end of the day, that’s 5 days out of last 10 where SPX has net moved 31 to 48 points in one day!

Total Daily Move

The moves are actually bigger if you look at the total daily move taking into account the high and low of the day. Try to keep weekly trades delta neutral in that environment!

We basically have had 2 corrections in the last 6 months, first time since Al Capone came to Chicago!

options trading courses

Where will the market go next week?

Should I stay in my bunker till the market quiets? I don’t think so. If you read enough business articles, this is where names are made.

Where fear is rampant, like now, rampant predictions come out from the would be and even the current Gurus .”

The market will drop 10% more” or “This is the best buying opportunity of the year”. You usually will go with whatever prediction matches your opinion.

That’s my lesson in psychology!

Figure Out Risk Management

The way traders should look at the recent move is to put down the blogs and newspapers and figure out what trades and what risk management you can live with in this environment.

In other words, what tweaks do you need to make if any to your current trades to make them more winterized for this type of market. This environment is where you really grow as a trader.

The last 3-4 years have been mostly up with lower Volatilities and people get complacent and confident that they can trade well in any environment.

Make Tweaks

Many Californians can drive convertibles with bald tires all year and have no problems. If they come to Chicago in a February Blizzard and don’t make tweaks like buying snow tires, they will end up in a ditch somewhere dreaming of their surfboard!

I think SPX will continue 1- 2% plus moves next week then the percent moves might slow down a bit.

With IV levels high, Butterflies have half the dollar risk for a comparable trade than when IV’s were cheap in June, pretty good deal.

Iron Condors

As far as Iron Condors, you are probably getting about twice the distance with your short options and a bigger credit also than you did with your Iron Condors in June.

I think if you keep your trade duration out 40-60 days, have good adjustment points or exit points, and utilize long options at adjustment points, you should avoid drowning.

Don’t write off long options as adjustments, your bringing in a lot more credit on your short options! The big thing I would be concerned with in this environment is Execution.

We can’t use the excuse of the market moving to fast as to why we lost 2 times our maximum loss.

What Do We Do?

If we need to adjust or get out of a spread and are having no success even after caving in .20-.25 cents in SPX or RUT, would just grab a single option like a call or put and cut your position deltas maybe 2/3 and put the band aid on till we get a day more peaceful that you can do spreads.

Cut your size a bit if you need to, but this is a good time to grow as a trader.

If you are a newer trader or not comfortable with execution in a volatile market, then I would wait on the sidelines. We are officially trading now at Pac Man level 4, strap on the seat belt!

Holiday

Have a great Weekend, enjoy and recoup with the Trading day holiday on Monday, see you Tuesday! If I can be a help to you in your trading during this volatile environment , just e-mail me.

Dan Sheridan dan@sheridanmentoring.com