SPX Butterfly Trade
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Would you like to learn more about Butterflies? Check out Dan’s Butterfly Class 2014 HERE!
The Key to Holiday Trading Risk-Management
Just a quick note today to talk a little bit about Holiday Option Trading Risk Management.
First off let me say, Happy Holidays to all of you everywhere! I hope it brings good times for you and your family.
When option trading during this holiday period, roughly the week before Christmas through the end of the year, you can see a lot of strange moves in the market. Many times traders will be trying to sell for tax loss reasons to offset gains and you will also see mutual funds buying stocks that they want to be in for the fourth quarter, and of course, selling stocks that they don’t want to be in for the new year.
During this time, there is usually lower liquidity in the market. This means that the bid ask will be wider and the market makers will not give in as much on pricing. If you are going to trade, not only do you want to trade smaller, but also stick close to the midpoint between the bid and ask with your fills and don’t give in as much. It’s not worth giving up too much to get into a trade at this time of year. If you don’t get filled there’s always next year, LOL. So step back, make your plan for next year, and enjoy a few days of little or no trading. This is a great time to work on what you did wrong in 2014 and what you want to improve on and 2015 with your options trading. A Mentoring program will help you with setting realistic trading goals and managing your risk. While you are relaxing this Christmas, think about joining the GOLD Mentoring program. Dan is offering the GOLD package at the lowest price of the year, but the offer expires when the ball drops!
Check out Mentoring HERE and sign up for a no-obligation walkthrough!
Happy Holidays to all!
Mark Fenton- Senior Mentor
Directional Butterfly in SPX
Would you like to learn more about Butterflies? Check out Dan’s Free Webinar and Class on all types of Butterfly trades!
Click HERE to view the Webinar!
Understanding Options Trading
When you wish to take up options trading, you must first start with the fundamentals. Understanding the basic components of options and how they work is your first task.
A good place to start is by answering the questions,
What is an option?
What are strikes?
What are contracts and what are contract sizes?
Those are the basic components for learning your pricing and where to start with your training. You also need to understand the standard option quote and how to analyze it and what the different components mean.
Calls and Puts, of course, are the way options are described. You need to know the difference between the two, and what your obligations are if you are selling and what your benefits are if you are buying. The reason that you may want to buy or sell a put or call can only be determined, if you understand what your obligations and benefits would be.
Following that, you need to understand basic terminology, such as, being a “long” or “short” or “in the money” or “out of the money”. You will use those terms every day. Also, you will need to know such terms as “intrinsic value” or “extrinsic” or “time value.” You should understand options exercise and assignment, and the difference between index and equity options.
When you have a good grasp of these concepts, you are ready to begin practicing some option trading and learning some strategies. At Sheridan mentoring, we offer courses that take you from the basics, all the way up to running options as a business. We can help no matter what your starting options trading knowledge is. Please contact us for all of your options trading education needs. Our beginner course called, Option Foundations Class is a great starting point. Click HERE to learn more about the class, and begin your journey as a successful options trader.
-Mark Fenton
Send in any questions to info@SheridanMentoring.com
Option Trading Strategies for a Low Volatility Environment
Today the VIX is hovering around 12 to 13. The VIX of course is the volatility Index for the S&P 500 or SPX. This would generally be considered a low volatility environment with the VIX at that level.
What option strategies work best in this low volatility environment?
Volatility tends to return to the mean. So if we are at a low volatility, chances are that the volatility will rise over the near-term.
Option strategies that are long volatility or very high risk-reward are best at this time. A good long volatility strategy is the calendar spread or time spread.
This involves, of course, selling an option strike near the money, in the near expiration, and buying that same strike in a further out time period.
An example would be, selling an option expiring at the December options expiration and buying one that will expire in the January options expiration at the same strike.
You can also utilize weeklies where you sell an option that will expire in one week and buy one that will expire in another, that is, your time spread or calendar strategy.
Benefits
This, of course, benefits from increased volatility and is also non-directional in its price movement perspective. Calendars have a very high risk-reward, meaning that for what you pay for them, the returns can be large.
Of course, they do have to trade in a range or the trade can get into trouble. The iron butterfly is a short volatility strategy but has a high risk- reward that will work in this environment also.
The iron butterfly involves selling two verticals, a call vertical at the money with a further out long wing, in the same expiration and a put vertical at-the-money with a further out long, in the same expiration.
Falling Volatility
You will benefit from falling volatility and also time decay, as this is a positive “theta” trade as is the calendar also.
Both of these strategies are good choices in this environment of low volatility. At Sheridan Mentoring, we educate traders on how to use these strategies and more every day.
Consider us whenever you want to enhance your option trading ability. Trading options as a business requires discipline and education, and we are happy to help you with that goal.
– Mark Fenton
Senior Options Mentor
*Right now, you can join the GOLD Mentoring Program for a 20% discount! Click Here to learn more!
5 Basic Option Trading Tips
Where to start? This is often the question many beginners of option trading ask. I’ve listed here five tips that will set you on the correct path to profitable option trading.
- Understand how options work and move. There are many free online resources that you can use to learn about options and how they work. It is fundamental that you understand that options are derivatives of another product and that the product price movement affects the movement of the options that you have bought or sold. A solid understanding of the exponential benefits and dangers of trading options is key.
- Volatility. Understanding how volatility works and how it affects the pricing of your options is very important. Volatility is really the main driver of option pricing besides the options in the money premium and time premium. Entering and exiting a trade as well as choosing what strategy to use revolves around your understanding of volatility.
- Know your underlying product. Whether you’re buying or selling options on an index or a stock, it is imperative that you understand the underlying, how it moves, and what news may be coming to affect the price movement. Trading the stock or index for news that you feel will make it move hard, either in a certain direction or non-directionally, requires an understanding of what the drivers of the stocks pricing are.
- Setting reasonable goals. Once you know the options and the underlying that you are trading, it is important to set reasonable trading goals. How much money can I reasonably make? How much risk do I want to take? How does this affect my overall account? These are all questions that you need to answer before you begin trading options strategies.
- Have a plan. Nothing is more important in any kind of trading than having a good plan. When will I enter? When will I exit? What are my profit goals and adjustment plans? How will I manage it whether it goes for or against me? These are all fundamental components of a good plan.
At Sheridan mentoring every day we work with traders to help them develop these skills. Please take all these tips and apply them to your options trading business.
Mark Fenton- Senior Mentor
Ideas or Questions? Email them to info@SheridanMentoring.com
Trading Options Successfully
Over the past seven years, I have been a full-time trader and options trading mentor. I have found, over that time, that becoming a mentor has helped my trading, just as much as or more than any other thing that I’ve ever done to improve my trading.
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 think I can speak with some experience.
How to Be Successful at Trading Options
The most important thing you need to being a successful options trader is to have a plan. The plan requires answers to these questions:
- What will I trade?
- How will I trade it?
- What will my profit goal be?
- What will my max loss be?
A very important part of the plan is that the plan has to be a good one, meaning I have to find a valid option strategy, and I have to understand how stock or indexes that I use, move. The plan must involve:
- Which options I’m going to use?
- Which underlying (and the strategy)?
- When I’m going to enter the trade?
- How will I manage the trade if it works for me/ against me?
- How can I hedge my risk?
- How can I adjust my trade?
Those are all very important things you must know before you ever enter a trade!
Be sure to check out our online options courses.
Have a Plan
Many times I see traders who think they have a plan, but once they enter a trade, they change around what they are going to do. They then become listless and indecisive, which causes problems.
You must have your plan and stick with your plan and adjust it only over time.
Do not follow every emotion and whim that you have, while you are in a trade. I think it’s also important to not only have a strategy and a plan, but also to have trading goals.
You should keep a written record of your trading goals and your trade results over time, so you can see for yourself what works for you and what doesn’t, allowing you make changes along the way.
Risk Management
Risk management is also key along with having a max loss number and adjustment plans. Many times, when you are making a monthly living in options trading, it’s really not how much money you make when you win, it’s how much money you do not lose when you lose.
If you have a 10% profit goal each month and you are successful most months, that will work, if, maybe you only lose 10-15%. However, if you are losing 30% and 40%, that will become a problem.
Accountability
Lastly, you need some accountability. I found for myself and for other traders that, if you have someone to talk to about your trades and to give you a second set of eyes to look at them and give you some guidance, I think that will do great things for your trading and take you to new levels of ability and success.
One-on-One Mentoring
This is why, at Sheridan Mentoring, we feel that One-on-One mentoring is the best process for developing traders. Trading can often be solitary and when you get out on your own, you tend to lose your way.
Having someone checking in with you, who you feel accountable to, will keep you on the right track and make your trading much more successful.
Mark Fenton, Senior Mentor at Sheridan Options Mentoring