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Would you like to learn more about Butterflies? Check out Dan’s Butterfly Class 2014 HERE!
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
Would you like to learn more about Butterflies? Check out Dan’s Free Webinar and Class on all types of Butterfly trades!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
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.
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.
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!
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.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
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.
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.
That is, of course, you are placing speculative options strategies on the event.
Those events can all cause larger movement in the stock price. One last word of advice; be careful not to be short in the money calls, whenever a stock is paying a dividend.
That will often be an event that will get you exercised early and you will be forced to pay the dividend.
Some good stocks for options trading that I and my mentoring students regularly employ include: GOOG, IBM, AAPL, NFLX and PCLN, to name a few.
The best stocks to use will be the higher-priced stocked, generally over $100 and many times many hundreds of dollars, because those stocks generate larger option premiums due to their size.
These stocks can all be used for both directional and non-directional option trading strategies.
-Mark Fenton, Senior Options Mentor
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.
The most important thing you need to being a successful options trader is to have a plan. The plan requires answers to these questions:
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:
Those are all very important things you must know before you ever enter a trade!
Be sure to check out our online options courses.
Many times I see traders who think they have a plan, but once they enter a trade, they change around what they are going to do. They then become listless and indecisive, which causes problems.
You must have your plan and stick with your plan and adjust it only over time.
Do not follow every emotion and whim that you have, while you are in a trade. I think it’s also important to not only have a strategy and a plan, but also to have trading goals.
You should keep a written record of your trading goals and your trade results over time, so you can see for yourself what works for you and what doesn’t, allowing you make changes along the way.
Risk management is also key along with having a max loss number and adjustment plans. Many times, when you are making a monthly living in options trading, it’s really not how much money you make when you win, it’s how much money you do not lose when you lose.
If you have a 10% profit goal each month and you are successful most months, that will work, if, maybe you only lose 10-15%. However, if you are losing 30% and 40%, that will become a problem.
Lastly, you need some accountability. I found for myself and for other traders that, if you have someone to talk to about your trades and to give you a second set of eyes to look at them and give you some guidance, I think that will do great things for your trading and take you to new levels of ability and success.
This is why, at Sheridan Mentoring, we feel that One-on-One mentoring is the best process for developing traders. Trading can often be solitary and when you get out on your own, you tend to lose your way.
Having someone checking in with you, who you feel accountable to, will keep you on the right track and make your trading much more successful.
Mark Fenton, Senior Mentor at Sheridan Options Mentoring