Options Safari: FXE Bearish Diagonal & MCD Bullish Diagonal
Dan’s two shows for CBOE TV Options Safari this week are: MCD Bullish Diagonal Spread FXE FXE Bearish Diagonal Tom suggested And please see our options trading for beginners page.
Entries by Dan Sheridan
Options Synthetics Quiz Answers
How did you do taking the quiz on Option Synthetics? In case you want a refresher, here’s an article I wrote about them that is a good summary: What everybody ought to know about Option Synthetics. We can use an easy equation to remember the synthetic relationships: C = U + P The relationships can be summarized in this short table: 1. Long Call = Long Stock + Long Put (C = U + P) 2. Short Call = Short Stock + Short Put (-C = -U – P) 3. Long Put = Long Call + Short Stock (P = C – U) 4. Short Put = Short Call + Long Stock (-P = -C + U) 5. Long Stock = Long Call + Short Put (U = C – P) 6. Short Stock = Short Call + Long Put (-U = -C + P) Armed with this information, let’s go through the quiz: 1. How would you create a synthetic SHORT CALL? That’s #2 on our summary: Short Stock + Short Put 2. How would you create synthetic LONG STOCK? That’s #5 on our summary: Long Call + Short Put 3. How would you create a synthetic LONG PUT? […]
Options Synthetics Quiz
A friend was taking an exam to get Customer Portfolio Margin for his option trading account recently. He showed me the exam and I noticed that 20% of the exam were questions about option synthetics! If it’s that important to an option broker, it should be important to us. My two youngest children attend the German school system. There are no multiple-choice exams: they are all essay questions. You have to show your work. Let’s do the same thing. Write down your answers for each question. Explain WHY the answer is what you say it is. Don’t just say, ___ . Show your work…you’ll learn a lot more. This is an open book exam since I can’t watch you, but try to answer the questions without looking anything up. You’ll get more out of it. Here we go 1. How would you create a synthetic SHORT CALL? 2. How would you create synthetic LONG STOCK? 3. How would you create a synthetic LONG PUT? 4. How would you hedge an out-of-the-money SHORT CALL with a synthetic position? 5. If your underlying is near your upside expiration on a butterfly trade, how would you reduce your delta risk with […]
Why is AAPL becoming dangerous, and what to do?
The American past time used to be baseball. But the last couple years that has changed. The new American past time has become get long AAPL any way you can and wait for the profits to accumulate. Over the last 2 years, AAPL has gone from around 190 to 500, you figure the yields, staggering! Since June 20, AAPL has risen from 315 to the current level of 502, 60% in 8 months! Let me say that one more time, 60% in 8 months! So why shouldn’t it continue and why is it becoming dangerous? I’m glad you asked. Over the last 2 weeks, AAPL has shown a changed personality that you should be aware of. This personality is much different than the fun loving, get on my back , and I’ll take you up, up, to always higher stock prices. From a psychological perspective, this personality change started about 2 weeks ago around February 3. AAPL was trading at 460, and the March at-the-money implied volatility was around 19. What does that mean in English, Spanish, and Portuguese? It means everything was OK, and no real fear of the downside was propping up. But was it? The speed to […]
SPY Calendar Trade & Discussion
One way to make money with options is through something called a calendar spread (also called a “time spread”). This is similar to doing a covered call strategy, only in this case you would buy a call with an expiration date that’s somewhere in the future to hold long (just like a stock). In the shorter term, then, you would sell a call with a nearer expiration date. (Or, if you’d bought a long put, you would sell a shorter-dated put against it.) This is what’s known as doing a “long calendar spread.” We’ll touch upon the “short calendar” a little bit later. Today’s trade idea shows you how to establish a long calendar in the SPDR S&P 500(NYSE:SPY) – and not only will you get an options trade today, but also the logic behind setting it up this way. There are a couple of keys to note here: * Both option types must be the same (i.e., buying a put and selling a put in the same strategy, or buying and selling calls). * You may have traded what are called “vertical” spreads in the past – options with the same expiration dates but with different strike prices. With the […]
Is it Treason to Short Apple?
It seems like Apple (NASDAQ:AAPL) has replaced the Dallas Cowboys as “America’s team.” And yes, I know it is a great stock – one that might actually be undervalued. But at the risk of sounding almost un-American, I think it’s time to start getting short AAPL. Sure, the company just announced record – heck, downright mind-blowing – earnings thanks to iPhone 4S, iPad 2 and international sales. Even Wall Street analysts were impressed with the final numbers. Unprecedented sales figures for the company aside, I’m a trader and, therefore, looking ahead to what the stock’s going to do next. With all the good news for the company, the stock has been climbing … but it can’t possibly go straight up without any down days. In other words, even AAPL has to have a few days or weeks to act “human” … and you should get positioned to profit from the pullback when it comes. As a trader, I am not concerned about AAPL long term. But here in the short- to intermediate-term, it’s quite reasonable and even wise to look for a little healthy downside trading action. Here’s a trade idea for the speculative part of my options portfolio. Trade Idea: With AAPL […]
I’m not drinking the Kool Aid: time to start getting a bit short!
I know the title sounds a bit bold, but stay with me. Where is most of your money stashed? I’m not trying to get personal, I promise! But for most of you, I bet it’s in your retirement account. Another question, will the stuff in your retirement account be happy if the market goes up or down? The answer for most of you is up! Your portfolio has a strong bullish bias for the majority. 2008 hurt so much because most of your assets were in the market when everything fell apart between September 2008 and March 2009 ( 8 months of torture). Do I know something you don’t know about the market? Of course not. What I do know is that your portfolio is probably leaning long, the market is in the upper end of the range, and I’d personally like to start having a few puts around. SPY I’m going to focus on the SPY. Currently trading at 131.54. The 1,2 and 3 year high is around 135. You still have to respect the trend, which is up, but I’m starting to get some bearish soldiers ready to help out all my bullish soldiers who are getting a […]