MCD Long Diagonal

Options Safari: MCD Long Diagonal and AAPL Broken Wing Butterfly

Dan’s two shows for CBOE TV Options Safari this week are:

MCD Long Diagonal

AAPL Broken Wing Butterfly

AAPL Broken Wing Butterfly

free resources, free options education, free options help, options education,



IBM Calendar spread risk chart

Options Safari: AAPL Earnings Butterfly and an IBM Calendar

Dan’s two shows for CBOE TV Options Safari this week are:

AAPL Butterfly Spread for Earnings on Thursday, Oct 25th.

IBM Calendar Spread

AAPL butterfly risk chart

free resources, free options education, free options help, options education,








What earnings plays are YOU doing for GOOG or AMZN?

Options Safari: AAPL Butterfly and GOOG Calendar

Dan’s two shows for CBOE TV Options Safari this week are:

AAPL Butterfly Spread

GOOG Calendar Spread using Weekly Options

 

free resources, free options education, free options help, options education,






 

AAPL Iron Butterfly Case Study Matrix

CBOE Webcast- Weeklys(SM) Strategies for Income Generation

Dan is presenting Covered Writes today (Tuesday, Sep 11, 2012) at 3:30 PM Central (Chicago) Time. Today’s webcast is titled:

Weeklys(SM) Strategies for Income Generation

Dan will go through several Weekly Trade ideas and adjustments and explain why you should be trading weeklys in this presentation.

The presentation is today at 3:30 PM Central at CBOE.com.
Register for this webcast here.

 

RUT Iron Condor Case Study Iron Condor



free resources, free options education, free options help, options education,




AAPL Bullish Butterfly for Earning on Jul 24

Options Safari: AMZN Bullish Butterfly, AAPL Iron Condor and FB Look Back

Dan’s three shows for CBOE TV Options Safari this week and next week are:

**NOTE** CBOE had a technical glitch so Dan had to re-record these shows on 7/25. AAPL’s earnings came out last night so Dan added an IBM trade.

AAPL Iron Condor for Earnings (Today!)

AMZN Bullish Butterfly for Earnings (In 2 Days!)

IBM Double Diagonal

FB Short Put from June – Look Back Show

AMZN Iron Condor for Earnings on Jul 26

FB Short Put look back show

free resources, free options education, free options help, options education,

And please see our options trading strategies for beginners page.

Pre-earnings Calendar idea in AAPL

AAPL Price Chart

This strategy can be employed in many vehicles, will use AAPL as an example today. AAPL is at $604 as I write this.

Here is my idea

Buy 1 August 605 call and sell 1 July 605 call (about 9 days from option expiration). The spread is going for around $15.60 ($1560 for 1 spread, expensive because of high price of AAPL). This idea can be used in cheaper stocks. It’s the same principle. The option volatility is around 33 for August option and 26 for July option.

Why the disparity? 

Earnings will be reported in AAPL after expiration of July options so July options won’t be affected and consequently will trade lower. August options will be front and center when earnings arrive and so the option volatility is higher and will continue to climb because AAPL can really move during earnings.

What does this mean to me as a retail options trader? 

It means one of the two foes you face as a calendar trader, price and implied volatility, will probably not be a foe during the length of the trade. Option Volatility risk (also call implied volatility) will be minimal at best, in my opinion, because August option volatility will stay pumped and July option volatility will stay low?

Does this mean I will make money? 

Not necessarily. You still have one more foe to deal with: price movement. AAPL doesn’t usually make big moves before earnings, but it can! If a stock is channeling and on relatively good behavior for one to two weeks before earnings, then this AAPL trade makes sense to me.

What would my plan be? 

Put the trade on now and keep it on until the latest, next Thursday July 19, the day before expiration. If the trade is still on, take off the entire trade.

What is the risk management plan while trade is on? 

If I paid around $1560 for the trade, I would be looking for around 10% profit, or $156 on 1 contract.

What would I do if the trade went against me? 

If I didn’t want to fiddle with adjustments, I would simply take off the spread if the price moved outside the expiration breakeven points of around $590 and $620. This would give me almost 15 points either way before I would have to exit the trade.

What adjustment might I use if I was contemplating adjustments? 

I might move the entire calendar I initiated at the 605 strike to the 620 calendar in the calls on the upside if AAPL reached $620. On the downside would take off the original $605 calendar and move it to the 590 strike in the puts if AAPL reached $590. There are other calendar adjustments, but this was merely one example of what I might to.

How long am I looking to stay in this trade? 

About 1 week. I would take the trade off at latest on July expiration Thursday.

Keep working on the craft! Put this on as a paper trade for next week to see how this trade works and e-mail me your feedback or questions, that’s how you get better!

Thanks!

Dan Sheridan
dan@sheridanmentoring.com

free resources, free options education, free options help, options education,

And please see our options trading strategies for beginners page.

AAPL Diagonal

Options Safari: AAPL Diagonal and GE Guerilla Calendar

Dan’s two shows for CBOE TV Options Safari this week are:

AAPL Diagonal

GE Guerilla Calendar

 

GE Guerrilla Calendar

free resources, free options education, free options help, options education,

And please see our options trading for beginners page.

Options Safari: AAPL Long Diagonal and SPY Back Spread

Dan’s two shows for CBOE TV Options Safari this week are:

AAPL Long Diagonal

SPY Back Spread

 

free resources, free options education, free options help, options education,

And please see our options trading for beginners page.

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 the upside was really picking up. From November 25 to February 3, AAPL went from 363 to 459, 26% in a little over 2 months. Everybody wanted in! On February 10th, AAPL hit 493 and March  at-the-money implied volatility in the calls spiked to 27. What’s the big deal? Option volatility usually decreases on the upside as prices go up and fear of the downside isn’t usually there. And remember, this is AAPL, this is America! But the last week, the personality disorder got much worse. As AAPL climbed a bit higher to 500, the March at-the-money option volatility climbed higher to 32 in the calls. That is an increase in 2 weeks from 19 implied volatility to 32 , an increase of 68% with the stock rising. Why are the option volatilities going up and what does it mean?  First of all why are the option volatilities going up?   SPEED!! Look at a pivotal day, Wednesday Feb 15, AAPL traded intra-day to 526 and closed at 497. That’s a decrease of 5% from the daily high to the close. The stocks rate of speed up and down intraday is really picking up in both directions. Sellers are coming in a bit!  The last time I really saw this kind of speed to the upside was the internet debacle many years ago when stocks were screaming to the upside, do you remember what happened after they went up very fast? What does increasing option volatility mean to the retail trader? It means the green light on the stock may possibly be turning to yellow and you should exercise a bit of caution. Does this volatility news mean I can’t stay bullish on my beloved AAPL?  No, it just means HOW you get long may need to change. This leads me to the strategy for today if I want to be long AAPL but be cautious!

Strategy idea: With this disturbingly changed personality in AAPL the last 2 weeks, I would approach any bullish trade very cautiously and make sure the risk/reward looks acceptable to me. In other words, if AAPL nosedives, I’m very comfortable with my total downside risk. I would initiate the below strategy after 1-2 down days.

Strategy example:  Stock at 502.5  Buy 1 March 500 call and sell 1 March  505 call for a debit of around $2.40 ( $240). This strategy called a vertical debit spread, allows you to play a high priced stock for a very reasonable cost. We are actually selling an option with more time premium than we are paying for with our long. This is good considering option volatilities called implied volatility have skyrocketed the last few weeks. The risk/ reward is about 1 :1 meaning we can make $250 profit potential with maximum risk of $250. If the stock is 505 or higher at expiration ( 2 ½ dollars higher than the current 502 level), I can make 100%. This again is a cheap way with limited downside risk ( $250) to play a very expensive and volatile stock.

Be careful and have a greatweek!  Dan Sheridan  dan@sheridanmentoring.com

free resources, free options education, free options help, options education,

And please see our options trading for beginners page.

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 trading here around $447, you can “buy to open” 1 April 430 Put (which would cost you about $12) and, at the same time, “sell to open” 1 April 410 Put (for which you would collect $7).

To enter this trade, which is a put debit spread (or a bear-put spread), your total cash outlay would be $5 per share, or $500 per option contract ($12 – $7 x 100).

You could simply buy the April 430 Put on its own, but by selling the $410 put against it, you instantly reduce the amount of money you would otherwise have at risk in the trade.

The spread is costing me $500 and the most I can make is $15 (the difference between the option strikes, or $430 – $410) if the stock is trading at $410 or lower at April expiration.

My total risk in a put debit (or bear-put) spread is the same as being long an option. Whatever I pay, which is $500 in this example, that’s the total risk. The cost of the spread at current prices is closer to $5.30, but I am going to be patient and let it come to me a bit. If the stock goes up a couple bucks from here, I should get filled.

Last week when I told you that it’s time to get a bit short, I also mentioned that you should enter your options trades by “nibbling,” or scaling in by buying your position in thirds.

Here, too, I am initiating this spread with 1/3 of my total intended position size. I am starting with one contract here and will work up to my total of three contracts as the stock increases.

Will I wait till April options expiration to get out of this? No way! Once we get a little pullback and the put spread gains some profits, I’ll head for the exits.

I’d like to make a minimum of $2 on this spread. By getting in at a good price, by scaling into the spread at less than my maximum size, and by using options with an April expiration date, I have lots of time to wait for a small pullback. That’s my plan and I’m sticking to it!

If, after I get up to three contracts and there is no pullback, I plan to show you in a future article how you can cut your total risk in half. (Hopefully, I won’t have to show you this adjustment as anything other than a strategy that’s good to know for future trades.)

Whatever happens, I will follow this trade to completion with you. Stay tuned to see if AAPL is really human. I’m betting it is!

And please see our options trading for beginners page.