Lohmann b supported conventional regulation, green taxes, and energy policies that are "justicebased" and "communitydriven. In a bear market you can profit buying puts, bear put spreads and selling bear call spreads. Premiums Earlier I mentioned that to get an option there is a premium involved. An increase of interest rates will cause a downturn in the economy, while a decrease will fuel an expansion. We have a very unique approach in our intraday trading strategies. Often the greater the risk, the greater the potential gain, and that is true with our approach. Stay tuned for Part 2 where we discuss how to easily and efficiently identify attractive weekly options trade candidates every day….
Simple Steps to Option Trading Success B Y J IM G RAHAM AND S TEVE L ENTZ F OREWORD BY J ON “DR J” NAJARIAN, PTI SECURITIES M ARKETPLACE B OOKS C OLUMBIA, MARYLAND.
Remember that a calendar spread is a two-legged spread constructed by selling a shorter dated option and buying a longer dated option. The profit engine is the relatively faster decay of time premium in the shorter dated option. Calendar spreads reliably achieve their maximum profitability at the expiration Friday afternoon of the short leg when price of the underlying is at the strike price.
Prior to the recent availability of these weekly options, calendar spreads were typically constructed with around 30 days to expiration in the short leg. Hit and run calendars differ in risk somewhat. Volatility moves rarely occur at anywhere close to the rapid pace of price movement. Because of this characteristic, the primary risk in these short duration calendars is price of the underlying.
The occasional occurrence of spiked volatility in the short option significantly increases the probability of profitability as the elevated volatility decays to zero at expiration. One of the very liquid underlyings that has actively traded options is AMZN. A quick look at the options board showed the weekly strike option, having 4 days of life left and consisting entirely of time extrinsic premium, was trading at a volatility of This situation is called a positive volatility skew and increases the probability of a successful trade.
I continued to monitor the price, knowing that movement beyond the bounds of my range of profitability would necessitate action.
By mid day on August 31, 48 hours into the trade, the upper limit of profitability was being approached as shown below:. Because price action remained strong and the upper breakeven point was threatened, I chose to add an additional calendar spread to form a double calendar. This action required commitment of additional capital and resulted in raising the upper BE point from to a little over as shown below.
Hit and run calendars must be aggressively managed; there is no time to recover from unexpected price movement. Shortly after adding the additional calendar spread, AMZN retraced some of its recent run up and neither BE point of the calendar was threatened.
I closed the trade late Friday afternoon. The indication to exit the trade was the erosion of the time premium of the options I was short to minimal levels. The results of the trade were a return of A reading above 80 means the asset is overbought, below 20 means the asset is oversold.
Just like my other high-probability strategies I will only make trades that make sense. As always, I allow trades to come to me and not force a trade just for the sake of making a trade. I know this may sound obvious, but other services offer trades because they promise a specific number of trades on a weekly or monthly basis.
In our case, we would use a bear call spread. A bear call spread works best when the market moves lower, but also works in a flat to slightly higher market. Remember, most of the traders using weeklys are speculators aiming for the fences. They want to take a small investment and make exponential returns. If I lower my probability of success I can bring in even more premium, thereby increasing my return. It truly depends on how much risk you are willing to take.
Take the Apr14 strike. It has a probability of success Prob. And easily within the reach of regular investors. You can learn all about this safe, simple strategy — and the next three trades shaping up right now — by clicking this link here. Slay your own dragon — Go here now. So how do I use weekly options? Once an extreme reading hits I make a trade.
How I Successfully Trade Weekly Options for Income
below the exercise price. A put option is in-the-money if the current market value of the underlying stock is below the exercise price and out-of-the-money if it is above it. If an option is not in-the-money at expiration, the option is assumed to be worthless. An option’s premium has two parts: an intrinsic value and a time value. • Like stocks, options trade with buyers making bids and sellers making offers. In stocks, those bids and offers are for shares of stock. In options, the bids and offers are for the right to buy or sell shares (per option contract) of the underlying stock at a given price per share for a given period of time. Options Trading w/ IRA Accounts A blueprint to the top strategies and tips for trading in a retirement account including some of the easiest ways to reduce margin requirements and trade synthetic strategies.