Entries by Mark Fenton

Bearish Natural gas spread

UNG, the etf for natural gas is trading near highs not seen since the middle of last winter. A short term bearish butterfly looks interesting  here to take advantage of a pullback that may be coming. As I write this, UNG is trading around $26.60. I am looking to place the trade below at a debit of around $1.30 per contract. Looking to close the trade at either a 10% profit or a 10% loss. Looking for UNG to decline to the $25 to $26 area in the short term. Nov 2nd expiration: Buy one 28 put Sell two 25 puts Buy one 22 put   Mark Fenton mark@sheridanmentoring.com

BIDU Earnings Trade

BIDU has their earnings call tonight and one interesting trade idea if you are bullish  is to put on an out of the money call fly to take advantage of a strong bullish move. Below is an example taking into consideration the market maker expected move of $16: August 3rd expiration Buy one 260 strike call Sell two 270 strike calls Buy one 280 strike call Right now the debit for the trade is around $1.50 per spread. Plan to exit tomorrow or later this week before Friday expiration. If this trade  doesn’t work you will like lose the entire cost of the trade, but if it does work you could make 20% to 50% or more. Mark Fenton mark@sheridanmentoring.com

Trade Idea for today

With the VIX at 17+ today the following trade that is “short” volatility looks interesting to me in the July 6th expiration-   SPX around 2705 to 2110 Buy a call butterfly with these strikes- Buy 1 July 6th 2650 call Sell 2 2700 calls Buy 1 2740 call   I will try to execute trade for a debit around $18.00 per contract. Will close trade if I am up or down 10% based on the cost of the trade.   Mark Fenton mark@sheridanmentoring.com

Iron Condor or Iron Butterfly, Which is better?

I am often asked as an option trading mentor, which is better, the iron condor or the iron butterfly. Both are short Vega trades meaning that they benefit from volatility lowering. However the structure is different and the pros and cons of each are different.   The iron condor, is perhaps the most popular option spread trade. The structure is selling a call vertical and a put vertical, out of the money, usually by several strikes. The benefit to the strategy is that it is short one volatility and also it has a wider range for the price to move around,  up or down, before you get into any trouble with the trade. It is a good trade in higher volatility markets because you paid more premium for what you are selling. However, there is no “free lunch” ,and the increased premium comes with the increased risk of large price movements in a volatile market. Think of it as selling car insurance to a 16 year old.The downside of using an iron condor is that when it goes  against you, it is more difficult to repair, and you can lose more money because you took in less premium by selling […]

Weeklies Asymmetrical FLY

With the slight volatility spike today an interesting trade to enter would be an at the money asymmetrical fly. The trade would benefit from a drop in volatility once entered and also from rapid time decay. Looking at a possible trade entry as below: SPX November 24th expiration Buy 1 2535 put Sell 2 2575 puts Buy 1 2600 put Look to enter around $5.50 to $5.60 debit per spread Cost of trade is debit plus margin. Close at 10% profit or 10% loss based on the cost of the trade. Mark Fenton mark@sheridanmentoring.com

The Time Bomb Butterfly

A few years ago I wrote an article for the Modern Trader Magazine on “The Time Bomb Butterfly“. I reference it again because I think it is a good trade for those looking for an interesting spec trade. You can check out the article below, and hopefully the trade can be of help to you as you try to take advantage of earnings opportunities. http://www.futuresmag.com/2016/02/22/time-bomb-butterfly Mark Fenton mark@sheridanmentoring.com

NFLX Earnings trade

NFLX reports their quarterly earnings on Monday Oct 16th after the market closes. One interesting speculative play is to add a small out of the money call fly that can work if NFLX has an up move after the earnings release. Currently it looks like the expected move by the market-makers is about $16. With NFLX trading around $196,  I would enter the following trade: OCT 20th Expiration Buy 1 200 call Sell 2 210 calls Buy 1 220 call Enter as a butterfly spread for around $1.50 per spread The trade is profitable on expiration from about $201.50 to $218.50. Close at whatever profit you can get on Tuesday Oct 17th. Mark Fenton mark@sheridanmentoring.com

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

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. Uncertain Direction Currently, there is a lot of uncertainty among traders as to which direction the market will head. 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 Oct 6th expiration 31 days from now, that is centered at 2420. Fly 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 Oct 6th  2440 put Sell 2 Oct 6th  2420 puts Buy 1 Oct 6th  2400 put This butterfly is currently trading at approximately 1.00 per contract. costing $100 for each 1/2/1 fly structure that is entered plus commission. If this butterfly at expiration is trading near 2420 this trade would net more than a 10 fold profit. It also has profitability from around 2440 to 2400. If you have a bearish sentiment over the next month for […]

Bearish SPX butterfly

With SPX near key support levels a bearish butterfly looks like an interesting speculative idea. The fly, being short, can increase the speed at which it can work for us if we are correct on the downward direction of SPX. I plan to take it off when I am  up or down 50% on p/l based on the trade cost. With SPX trading around 2425: Buy 2 Aug 25 exp. 2420 puts Sell 4 Aug 25 exp. 2400 puts Buy 2 Aug 25 exp. 2380 puts Debit around 2.60 Max risk is the debit of the trade Mark Fenton mark@sheridanmentoring.com

Looking for an entry to a VIX trade

Recently I blogged about buying VIX calls when the levels were near all time lows. I am looking again for an entry point to go long  VIX. Looking to buy VIX calls if  VIX level drops below 12. Currently with the VIX trading at approximately 12.5 the Oct 18th expiration 14 calls are trading at 2.00. This means on expiration day (if you purchased that call now) if  VIX was above 16 you would be profitable. VIX Spiking If we could enter a little cheaper when the VIX was below 12 that would be even better. The VIX has been spiking to the 14/15 area about every 4 to 6 weeks over the past several months. We are now heading into September and October which are traditionally volatile months so I expect the same should be happening again. If you purchase the call(s) look to sell them on a VIX price spike, which can be short lived, so you have to monitor this trade closely. I have no set profit target, just looking to let the calls be in place to sell at a nice profit when volatility rises. Mark Fenton mark@sheridanmentoring.com