Entries by Mark Fenton

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 marketmakers 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

The Best Stocks 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. What Stocks Are the Best? Often I am asked what stocks are the best for options trading? Whenever you begin to look for a stock to trade for options strategies  you need to look for a stock that is relatively peaceful, perhaps in a trend or  post earnings release. The stock needs to have good option liquidity. What is a good liquidity  number? Strategy 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. What to Avoid Be careful to avoid stocks that are about to have a big product announcement, take over offers or earnings of course with your options trading unless you’re placing […]

Hedging For a Market Pullback

With the market at all time Highs, wise traders are becoming concerned with developing a plan for the inevitable pull back. While there is no perfect hedge or free hedge without risk, I do think there are some opportunities with VIX calls that are worth considering. All-Time VIX Lows With the VIX trading near all-time lows and the fact that the VIX is a “fear” based product,  it is reasonable to risk buying it to hedge against what many are predicting to be a violent volatility spike. These calls of course can also be bought as a purely speculative trade. The reason that I like to buy out right calls instead of verticals is because of the relatively inexpensive price at which they are trading . While you should not trade any product you do not understand, and of course you have to adapt it to whatever is appropriate for your portfolio and risk tolerance, I like buying the calls 40 to 60 days to expiration for slower time decay. Strike The strike you choose is up to you considering cost and perhaps your opinion on where and when the VIX is headed. I like the 12 calls for SEP […]

SPX weekly Calendar Trade

With the volatility once again in a lower range I like the success possibilities of an SPX weekly calendar today. I am looking at the trade below: Sell 1 SPX June 2nd 2395 put Buy 1 SPX Jun 16 2395 put Debit for spread is approx. $9.00 with SPX trading at 2395 Total cost per spread at this level would be $900 plus commissions. Looking to close trade at a 10% gain or 10% loss. If you get filled at $9.00 immediately place good to cancel order to sell at a profit at $10.00. Close trade at a loss if you are down $100 on the spread.  

SPX weekly Calendar Trade

With the volatility in a lower range, I like the possibilities of an SPX weekly calendar today. I am looking at the trade below: Sell 1 SPX May 19 2390 put Buy 1 SPX Jun 2 2390 put Debit for spread is approx. $7.25 with SPX trading at 2390 Total cost per spread at this level would be $725 plus commissions. Looking to close trade at a 10% gain or 10% loss. If you get filled at $7.25 immediately  place good to cancel order to sell at a profit at $8.05. Close trade at a loss if you are down $80 on the spread. Mark Fenton mark@sheridanmentoring.com

Trading Options Successfully for the Long Term

Over the past ten years I have been a full-time trader and options trading mentor. I have found that becoming a mentor, and coaching students all day, has helped my own trading  immensely. Trading Successfully 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 speak through the experience of the hundreds of students that I have mentored over the years. The most important component to being a successful options trader is to have a plan. The plan is what will I trade, how will I trade it, what will my profit goal be and what will my max loss be. Before Entering a Trade A very important part of the plan is to  find a valid option strategy and having a good understanding of how the chosen vehicle moves. Once I enter a trade how will I manage it if it works for me or if it happens to work against me how can I hedge my risk and how can I adjust my trade. These are all very important things you must know before you ever enter a trade. Unforeseen Conditions Many times I […]

Protecting a Portfolio Against Downside Moves

Sometimes in a long bull market trend, like what we’ve been experiencing, it is easy to overlook protecting options trades and stock portfolios against downside moves. It is easy to get complacent whenever you see the market shake off any negative news and maybe only with a pause it goes back up, but eventually the market will have a correction. Protective Measures Of course one of the best ways to protect yourself is to have some protective measures on ahead of time so that you are not  scrambling to protect yourself once the move is in play. In my mind one of the best ways to do this is to consider purchasing long verticals or long calls in the VIX options two to three months out in time. Considering VIX options currently in late May or early June  would be attractive. What I like to do is  wait for a day whenever the VIX pulls back a bit and then look at buying options at  2 to 3 points out of the money and  a few more points out of the money. For example if the VIX is at 11, you may want to consider buying 13 call options and also […]