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.

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

SPX Flat Fly credit spread

blue butterfly isolated on white backgroundHow would you like a theta positive, non-directional trade, with risk on only one side? The SPX “Flat” butterfly is a good candidate. With this trade set up, you will have very little risk to the up side, which leaves you with only having to defend a downside move.

The trade is entered as follows.

With the SPX trading at around 2100, use the September option that expires 30 days from now. Sell one 2100 call, buy one 2130 call and sell one 2100 put, and buy one 2050 put.

Asymmetrical Iron Butterfly

This constructs an “asymmetrical” iron butterfly as the call long wing is closer to the call short strike than the put long wing is to the put short strike.

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If this trade is entered at present for a credit of $30.10, no matter how high the SPX goes you would make $10 if the price left the body of your fly.

Adjust or Close the Trade

Of course if the price stays near the 2075 to 2120 area you will also be profitable. Only if the price goes below 2070 do you need to adjust or close the trade.

This makes for an interesting trade that leaves you with fewer possibilities for trouble. You can see more about this trade by watching our latest episode of SheridanTV herehttps://youtu.be/zuWmnb3al7Q

CMG bearish butterfly trade idea

monarch butterfly isolated on white backgroundI am looking at a speculative option trading opportunity in CMG (Chipotle Mexican Grill). The stock has been selling off a bit since releasing its 2nd quarter earnings release and following a 23% rise in July. The strategy I am looking to use is a bearish “put” butterfly. A butterfly spread with this structure looks to gain value as the stock goes lower. Using the put options that expire in 10 days, on August 21st. I like buying one 760 put, selling two 740 puts and buying one 720 put. Currently with CMG trading at the $741 area, this spread is trading at a mid price of $6.75 per spread. I look to close the trade when it reaches a 15% profit based on the cost of the trade. I will also close it if it reaches a 15% loss. This is a speculative play so I will keep trade costs low.
Mark Fenton

Setting Trading Goals

Goals
First, we want to determine our long-term goal. Two examples would be as follows.

Perhaps you either want to generate a certain monthly income or build a certain dollar value in your account.

Set a Monthly Goal

Whichever of these you choose it is important to set a monthly goal to track how you are doing in reaching your goal.

That way if things are getting off track you can address any problems before you get too far off your success path.

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Secondly, setting realistic goals is key. Let’s say for instance that you want to generate a monthly income of $5000.

If you are trying to reach that amount using a $100k account size it will be easier than to reach it with $20k account size.

A simple idea to understand is, the lower the percentage of your return on capital you require the easier it will be to succeed.

Be Realistic

So be realistic in what goals you set for yourself in order for them to have a more realistic chance of attainment.

 

Finally, what trading strategies and portfolio allocation of will I use each month? With option trading you can utilize both monthly and weekly option expiration chains in your plan.

You may for instance want to do a weekly calendar or butterfly as well as a monthly calendar or butterfly and also employ iron condors, etc. as part of your overall strategy.

Mix Strategies

Try to have a mixture of these strategies each month to take advantage or hedge the changing volatilities in the marketplace.

To properly understand and have good risk management as well as deployment of a plan you will find that proper education from an experienced mentor and trading education program can help reduce your learning curve and give you better accountably in your trading business.

Trial and Error

Taking advantage of the trial and error that another experienced trader has been through helps you avoid many of the pitfalls traders often fall prey to.

Putting all of this together is what separates the successful trading business from the failed one.

Mark Fenton – Sheridan Options Mentoring

AAPL Long Diagonal Trade

AAPL is currently at around $115.47 at around 12:30 central today. The stock is down about 10% in the last week if you count the lows today of around $112.

About 2 months ago AAPL hit $132-133 area. AAPL hit $112 today and could go a bit lower short term, but I think it will be over 114 in the next few months.

I am looking at a strategy called a Long Diagonal or Fig Leaf (name given to this type of strategy by Brian Overby at Trade King).

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Trade: I just put this trade on live and will follow up on this.  Buy 1 November 110 call and Sell 1 September 115 call for total debit of $5.45 debit. The Breakeven point at expiration on the downside is around $110.70.

My short September is around 44 days from expiration and my long November call is 107 days from expiration. On the downside for this week, if we hit $113, I would probably look for an adjustment and would probably come on the blog and discuss one.

My profit goal on this trade is to make around 15% of the cost of the trade. This is a debit transaction. Please see our options mentoring page.

What strategy for AAPL earnings?

AAPL earnings come out Tuesday after the close of trading. The last 4-5 quarters since the stock split, AAPL has seen dismal small moves between  2-5%.

This has favored Iron Condor strategies, credit spreads, short strangles, calendars, and most other range bound strategies. This earnings may be different and might be more volatile.

Why?

2 Reasons

1)  Stock is up over 10% from $120 to $132 in about 10 days. 2) NFLX , GOOGL, and other tech stocks have made bigger than normal moves. The range in AAPL over the last three months is also about $120 to a little over $134.

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Here are 2 potential trading ideas with AAPL at $132.

Sell

#1  Sell the August 121-125 put credit spread in the August 7 expiration for $70. I don’t think the stock will go back down under $125 over the next 2 weeks. This strategy will yield about 20 percent if held till expiration.

The credit is $70 and the capital or risk capital would be $330. I would determine my size by how much I would be willing to lose if we had a huge move down. If I only wanted to risk about $300, I would do 1 contract.

If I was willing to risk $1000, I would do 3 contracts. If I was bearish and thought AAPL would drop below $125, I wouldn’t do this strategy.

Buy

#2  Buy the August Call Butterfly with expiration of August 7. Buy 1 August 131 call. Sell 2 August 135 calls. Buy 1 August 139 call. Total Debit $65 . I think the volatility in the August 7 expiration will drop about 10 points.

On Wednesday’s date with the implied volatility down 10 points, if AAPL is between 129 1/2 and 140 1/2 this strategy can potentially make between 10 and almost 60%. If I thought the stock Wednesday , after earnings would be between $129 1/2 and $140 1/2, I would consider this strategy.

Weeklys Options

The ATM straddle in the Weeklys options is currently around $6 1/2, which means the Market Makers are projecting the anticipated earnings move to be around 5% up or down. That would translate into a move of around $6 1/2.

Dan Sheridan  dan@sheridanmentoring.com

VXX Bearish Put Butterfly Trade

It looks like the problems with Greece and “Grexit” may be behind us. Volatility of the market is still overall a little bit high.

An interesting play here would be for a further pullback in the VIX. Already, after comments coming from Greek leaders, it appears they will be willing to except their creditors terms or most of them.

With the holiday weekend coming and of course summer normally having a lower volume, volatility could see a short-term pullback.

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The ETF, VXX is a very liquid an easy way to play options in market volatility. The strategy I like here is the bearish put butterfly in the VXX.

While a trader could structure the trade in different ways, one way would be to use the July 17th expiration for all the legs of the trade. Buy one July 21 put, sell two of the July 18 puts and buy one of the July 15 puts.

Trade Profit

With the VXX trading currently just above the $119 level, the trade would profit either from the VXX staying here in price or a further drop in price.

The butterfly currently would cost around $1.40 per contract. This would give you a range the VXX could trade in that you could be profitable with between now and the July 17 expiration.

Paper Trade

As always, paper trade this if you don’t fully understand the risk involved.

Contact us about options mentoring.

Don’t try to catch falling knives in Twitter!

There was a saying in the pits, “Don’t try to catch a falling knife”. What does it mean?

It means we have a tendency as contrarian traders at times to buy a stock when it’s been down and dropped a bit, looking for a pullback.

This saying is suggesting to wait a bit till a stock actually settles and goes up a bit, not just one day, before we jump in. Twitter Implied Volatility has been low lately, except last 2-3 days, and it seemed an easy decision to buy cheap calls with the stock  down looking for an pullback.

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Nothing wrong with that thinking other than trying to wait till the stock, in this case TWTR, actually goes up for a few days and shows some life.

At this point I may scale in.

 What Does That Mean?

It means I might buy 1/3 or 1/2 of my position now and if the stock drops more, I would add to the position till I get to my comfortable size.

If I have totally written TWTR off over the next year as having no upside potential, then I would avoid any long position.

Trade Idea

With Stock at $33.65, I might wait till the stock settles  and stops going down before I buy calls or a call vertical. Or I might start scaling today with 1/3 or 1/2 of my intended position.

Implied Volatility has jumped a bit over last few days with continued down moves, so I might buy vertical spreads.

An idea might be to buy the September 35-38 Call Spread for around $95 with TWTR at around $33.65. My risk is $95 and my max reward is the strike difference of 3 minus the .95 debit or $2.05 ($ 205).

I chose September versus July because TWTR doesn’t look like it really wants to go up and September gives us almost 100 days for some movement up.

Why I wouldn’t trade Covered Writes now?

I want to start decreasing my capital commitment to long delta positions with SPX at record levels. I will use AAPL as an example. AAPL currently is at $130.

Here is an potential covered write. Buy 100 shares at $130 and sell 1 June 132 call at $2. In a retirement account, the margin or capital  to put up for this trade would be about $12,800.

This number was calculated taking the full cost of buying 100 shares of stock  minus the $200 premium.

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An alternative that would require much less capital would be an Long Diagonal. Buy 1 August 110  Call at $21  and Sell 1 June 132 call for $2.

The total capital outlay would be $21  minus $2 or $1900. This is over 6 times less capital than a conventional covered write. The long position deltas starting out with the Long Diagonal would be about 50.

Covered Write

That means for the first $1 up from $130 to $131 in the stock , we would make about $50 on capital of $1900. With the Covered Write, the long position deltas starting out would be about 59 deltas.

That means if AAPL went from $130 to $131 today, we would make about $59 on capital of $12,800. Would you rather make $59 on $12,800 of capital or $50 on capital of $1900?

Long Diagonals

This is the reason I like Long Diagonals. With the market at very high levels, the long Diagonal almost duplicates the profit results of a conventional covered write on the upside, BUT I’m putting a lot less of my capital at risk with the market looking pretty frothy!!

And the yield potential on the capital I am committing with the Long Diagonal is much higher than the yield potential on the capital committed to the covered write.

Check out Sheridan Mentoring website for details of our annual 2 day Option Trading Seminar at the Gleacher  Center in Chicago featuring 13 different Speakers.

Quiz Question on Credit Spreads in SPX!

Will you get a  bigger credit for an OTM call or put credit spread in SPX?

I asked this question today in a teaching session at Sheridan Mentoring.

Most thought the answer was puts because OTM puts are always higher implied volatility than OTM calls, which is true. But,  the answer was that you get bigger credits for OTM call spreads than put spreads in SPX.

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Let’s look at an example. SPX is currently around $2121. On the call side, I sell the 2185-2175 June credit spread for $1.62 credit. The delta of the short call is 15. On the put side, the 2010-2020 put credit spread is around $1.10.

Credit

The delta of the short put is 15 also. Why did the call credit spread get more credit when the short delta of the call and put spread were both the same at 15? Couple things going on here.

First, the implied volatility of the put your buying on the put credit spread is always higher than the implied volatility of the  put you are selling.

Call Credit Spread

Versus the call credit spread, the call you are buying is usually lower implied volatility level than the call you are selling, that makes a difference.

Second, notice that though we are selling the same delta for the short call and put, the short put is 100 points out of the money while the call is only about 54 points out of the money. Most stocks don’t have the same volatility structure in out of the money options as do SPX and RUT.