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Archive for the ‘Stock Option Trading Idea Of The Week’ Category

Is Arista Networks (ANET) Ready For An Acceleration To The Upside?

Tuesday, June 20th, 2017

This week we are featuring another option trading idea based on a selection from Investor’s Business Daily (IBD) Top 50 List.  I hope that it is of interest to you.

Terry

Is Arista Networks (ANET) Ready For An Acceleration To The Upside?

Arista Networks is up 56.3% YTD and recently published articles indicate the stock is poised for more upside.  Here are two of them – With legal risks fading, Barclays raises Arista Networks target and Needham: 100G upgrade cycle is a boon for Arista Networks.

If you concur with the views expressed by these analysts, consider making this trade which is a bet that ANET will continue to advance (or at least not decline very much) over the next five weeks:

Buy To Open ANET 21Jul17 145 puts (ANET170721P145)

Sell To Open ANET 21Jul17 150 puts (ANET170721P150) for a credit of $1.80 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when ANET was trading slightly above $150.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $2 per contract (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $178 and your broker would charge a $500 maintenance fee, making your investment $322 ($500 – $178).  If ANET closes at any price above $150 on July 17, 2017, both options would expire worthless, and your return on the spread would be 55% (572% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates June 19, 2017

IBD Underlying Updates June 19, 2017

IBD Underlying Updates June 16, 2017

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  The Terry’s Tips portfolio which places spreads like the above one has gained 76% in the first five months of 2017 in spite of incurring some losses on some of the spreads placed.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Will Nvdia (NVDA) Continue Its Upward Momentum?

Monday, June 12th, 2017

This week we are discussing another of Investor’s Business Daily (IBD) Top 50 List companies.  In one of our portfolios, we use this list to find stocks which have displayed a strong upward momentum, and we place spreads which will profit if the upward momentum continues for about six more weeks.  Actually, the stock can even fall a little for the maximum gain to be made on these spreads.

Terry

Will Nvdia (NVDA) Continue Its Upward Momentum?

Several articles have recently been published on the positive outlook for NVDA.  Here are two of them – Nvidia: Citigroup Analyst Thinks The Stock Can Go To $300 and BofAML pushes Nvidia to new price target high; shares up 2.7%.

If you agree with these analysts, you might consider making this trade which is a bet that NVDA will continue its upward momentum (or at least not decline very much) over the next six weeks:

Buy To Open NVDA 21Jul17 140 puts (NVDA170717P140)

Sell To Open NVDA 21Jul17 145 puts (NVDA170717P145) for a credit of $2.30 (selling a vertical)

This price was $.02 less than the mid-point of the option spread when NVDA was trading just below $150.  You should be able to get close to this amount unless the stock moves quickly higher. (In my personal account, I sold this spread on Monday for $2.33).

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $2 per contract (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $228 and your broker would charge a $500 maintenance fee, making your investment $272 ($500 – $228).  If NVDA closes at any price above $145 on July 17, 2017, both options would expire worthless, and your return on the spread would be 83% (586% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates June 12, 2017

IBD Underlying Updates June 12, 2017

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  The Terry’s Tips portfolio which places spreads like the above one has gained 76% in the first five months of 2017 in spite of incurring some losses on some of the spreads placed.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

Actual Positions in One Terry’s Tips Portfolio

Monday, June 5th, 2017

For the first time ever, I will share with you the exact strategy we use in one of the 9 portfolios we carry out at Terry’s Tips.  I will reveal the exact positions we have in this portfolio, their original cost, and our reasoning for putting them on.  This portfolio started out with $3000 at the beginning of 2017, and has gained 83% so far.  It is not our best performing portfolio, but it exceeds the average 2017 gain of 51.7% for all 9 portfolios.

Terry

Actual Positions in One Terry’s Tips Portfolio

Our Honey Badger portfolio is one of our most aggressive (least conservative).  Our strategy is to select companies which rank high on the Investor’s Business Daily Top 50 List, and make the assumption that these high-momentum stocks will continue to be strong for another six or ten weeks.  The stocks don’t actually have to go up at all for us to make the maximum gain on the spreads we place.  We select strike prices which are just below the then-current stock price so we can tolerate a small drop in the price while we hold the positions.

Here are the exact words we published in our June 3, 2017 Saturday Report which reviews performance of all nine portfolios:

Summary of Honey BadgerPortfolio This portfolio started with $3000 in early January 2017.  It will be our most aggressive portfolio. We will select companies from Investor’s Business Daily (IBD) highest-ranked momentum list (The Top 50) and sell vertical put credit spreads betting that the momentum will last at least another 2 months or so.  In 2017, we have had profitable trades with NVDA, HQY, AMAT, ANET, and ULTA, and suffered a big loss on GS which fell by $30 after we placed the trade.

Current positions:

On May 8 when LRCX was trading at $152:
Buy To Open (BTO) 3 LRCX 16Jun17 145 puts (LRCX170616P145)
Sell To Open (STO) 3 LRCX 16Jun17 150 puts (LRCX170616P150) for a credit of $1.90  (selling a vertical)
If LRCX ends up above $150 on June 16, this spread will gain $562.50 after commissions on an investment of $937.50, or 60% (360% annualized)

On May 11 when AVGO was trading at $230:

BTO 4 AVGO 23Jun17 220 puts (AVGO170623P220)

STO 4 AVGO 23Jun17 225 puts (AVGO170623P225) for a credit of $1.62  (selling a vertical)   If ULTA ends up above $225 on June 23, this spread will gain $638 after commissions on an investment of $1362, or 47% (281% annualized)

On May 11 when ULTA was trading at $300:

BTO 4 ULTA 16Jun17 290 puts (ULTA170616P290)

STO 4 ULTA 16Jun17 295 puts (ULTA170616P295) for a credit of $1.90  (selling a vertical)

If ULTA ends up above $295 on June 17, this spread will gain $750 after commissions on an investment of $1250, or 60% (360% annualized)

Honey Badger Portfolio Positions June 2017

Honey Badger Portfolio Positions June 2017

 Results for the week:  With AVGO (at $254.53) up $13.32 (5.5%), LRCX (at $158.74) up $3.62 (2.3%) and ULTA (at $311.47) up $9.07 (3.0%), for the week, the portfolio gained $810 or 17.3%.   The big gain this week came about because of the surge in AVGO which makes the spread almost certain to make the maximum gain when it expires in three weeks.  All three stocks in this portfolio are comfortably above the price then need to be to achieve the maximum gain.  If they remain above the strike of the option we have sold, we will pick up another $180 in 3 weeks.  This will make the gain for the first six months of the year a nice 88% (after commissions, of course).

Since the IBD Top 50 list is such an important source for this portfolio, we keep a careful watch on the stocks which are added on to the list each week and which ones are deleted.  Over time, we hope to determine whether deletions might be good prospects for bearish spreads.  Momentum often works in both directions, and perhaps stocks which had strong upward momentum will have strong downward momentum when IBD determines that the upward trend has ended.

Here are the changes we reported to our subscribers this week:

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates June 2017

IBD Underlying Updates June 2017

We hope you enjoyed this peek at one of our portfolios, and the strategy we use in this portfolio.  While we know that lots of newsletters out there are making all sorts of great promises about how wonderful their performance is, we don’t know of a single one which will reveal all their trades and is doing anywhere near what we have done. Our results include all commissions as well (most newsletters conveniently ignore commissions to make their results look better).  We invite you to come on board and share in our success.

Happy trading,

Terry

Closing Out Last Week’s Facebook Trades

Wednesday, May 10th, 2017

Today I would like to report on the gains I made last Friday on the trades I told you about that I had placed last Monday in advance of Facebook’s (FB) earnings announcement on May 3.  I was fortunate enough for the stock to take a moderate drop after the announcement, and have some thoughts on how I might play the FB  earnings announcement in 3 months.

Terry

Closing Out Last Week’s Facebook Trades

A little over a week ago, I passed on a pre-earnings trade I had made on Facebook in advance of their May 3 after-market announcement.  Essentially, I bought calendar spreads (long side 16Jun17 series and short side 05May17 series) at the 150, 152.5 and 155 strikes when FB was trading just under $152.

I was hoping that the stock would barely budge after the announcement.  I was lucky.  It did just that, falling a bit to close out the week at $150.24, about $1.50 lower than it was when I bought the spreads.

Near the close, I was able to buy back all of the expiring options (puts at the 150 strike, calls at the 152.5 and 155 strikes for $.02 or $.03), and sell every long call for a higher price than I had paid for the original spread.

Here are the spreads I made today when FB was trading just under $152:

Buy to Open 2 FB 16Jun17 150 puts (FB170616P150)

Sell to Open 2 FB 05 May17 150 puts (FB170505P150) for a debit of $1.49 (buying a calendar)   Spread closed for $2.19, gaining $140.

Buy to Open 1 FB 16Jun17 150 calls (FB170616C150)

Sell to Open 1 FB 05 May17 152.5 calls (FB170505C152.5) for a debit of $3.03 (buying a diagonal)  Spread closed for $3.75, gaining $72.

Buy to Open 1 FB 16Jun17 155 calls (FB170616C155)

Sell to Open 1 FB 05 May17 152.5 calls (FB170505C152.5) for a debit of $.55 (buying a diagonal)  Spread closed for $1.55, gaining $100.

Buy to Open 2 FB 16Jun17 155 calls (FB170616C155)

Sell to Open 2 FB 05 May17 155 calls (FB170505C155) for a debit of $1.59 (buying a diagonal) Spread closed for $1.62, gaining $6.

These spreads cost me a total of $974 plus $12 in commissions at tastyworks’ ultra-low rate of $1.00 per contract.  Even better, when I closed out these trades on Friday, I did not incur a commission at all (only paid the $.10 per contract clearing fee).

I made a net profit of $318 on an investment of $986, or 32% on an investment that lasted for 5 days. The Terry’s Tips portfolio that trades FB options gained 22% last week, and now has gained 215% for the year (after commissions).  The stock has gained 30% in 2017, but our portfolio has done 7 times that number.

The risk profile graph I published in the last blog assumed that implied volatility (IV) of the June options would fall from 24% to 16%.  I was a little too conservative.  IV fell to 18%, and the spreads performed a little better than the graph had projected.

While this is certainly a nice gain for the week, it only came about because I was lucky enough for the stock not to fluctuate very much.  In the future, I think I might buy more spreads at strikes below the current stock price of FB because the clear pattern around announcement time has been for the company to exceed expectations by a nice margin and the stock falls a small amount on the news.

Happy trading,

Terry

Interesting Earnings Play on Facebook

Tuesday, May 2nd, 2017

Facebook (FB) has had a great year so far, gaining just over 30%.  Terry’s Tips has an actual portfolio that trades calendar and diagonal spreads on FB.  This portfolio has gained 157% this year, more than 5 times as much as the stock has gone up.  A big part of this gain came just after the January earnings announcement when the stock dropped a small amount on the news.

FB announces earnings after the close on Wednesday (May 3), and I would like to share some trades I made today in my personal account at my favorite broker, tastyworks.  These trades approximate the current risk profile of the Terry’s Tips’ FB portfolio.

Terry

Interesting Earnings Play on Facebook

Terry’s Tips carries out 9 actual portfolios for paying subscribers.  After the first four months of 2017, all 9 portfolios are in the black.  The composite average has gained 34.5% for the year, certainly an outstanding result.  The FB portfolio is by far the greatest gainer.  We know that we cannot expect to continue these extraordinary gains for the entire year, but we are confident that many portfolios will continue producing gains which outperform the market averages.

Implied volatility (IV) of FB options tends to escalate prior to an earnings announcement.  For example, it is about 45% for the 05May17 series that expires this Friday.  This compares to 24% for the 16Jun17 series that expires six weeks later. We will buy the relatively cheap 16Jun17 series and sell the more expensive 05May17 series.

Here are the spreads I made today when FB was trading just under $152:

Buy to Open 2 FB 16Jun17 150 puts (FB170616P150)

Sell to Open 2 FB 05 May17 150 puts (FB170505P150) for a debit of $1.49 (buying a calendar)

Buy to Open 1 FB 16Jun17 150 calls (FB170616C150)

Sell to Open 1 FB 05 May17 152.5 calls (FB170505C152.5) for a debit of $3.03 (buying a diagonal)

Buy to Open 1 FB 16Jun17 155 calls (FB170616C155)

Sell to Open 1 FB 05 May17 152.5 calls (FB170505C152.5) for a debit of $.55 (buying a diagonal)

Buy to Open 2 FB 16Jun17 155 calls (FB170616C155)

Sell to Open 2 FB 05 May17 155 calls (FB170505C155) for a debit of $1.59 (buying a diagonal)

The second and third spreads together essentially create a calendar spread at the 152.5 strike price.  This was necessary because the 16Jun17 series does not offer that strike.

These spreads cost me a total of $974 plus $12 in commissions at tastyworks’ ultra-low rate of $1.00 per contract.  Even better, when I close out these trades, probably on Friday, I will not incur a commission at all (only pay the $.10 per contract clearing fee).

Here is the risk profile graph which shows the expected gains and losses from these trades after the close on Friday, May 5, 2017.  The graph assumes that IV of the June options will fall from 24% to 16%:

FB Risk Profile Graph May 2017

FB Risk Profile Graph May 2017

These spreads will do best if the stock remains flat or moves moderately higher.  If it falls within the range of about $150 to about $155, I should make about 40% for the week.  While we all know that anything can happen after an earnings announcement, if the last announcement is any example, it could be a good week.

One thing I like about these kinds of spreads is that your risk is clearly limited, and you can’t lose your entire investment because the long options will always have a greater value than the options you sold to someone else.

As with all investments, especially with options, you should only use money that you can truly afford to lose.

Happy trading,

Terry

Trading Options Can be a Lifetime Learning Experience

Friday, April 7th, 2017

I have been trading options just about every day the market is open for about 40 years, including some time on the floor of the CBOE.  I have made large sums of money at times, and (sadly) have also lost money along the way.  But the amazing thing about my experience is that I continue to learn things even after all these years.

Today I would like to talk about trading options with an analogy.

Terry

Trading Options Can be a Lifetime Learning Experience

If the truth be known, investing in stocks is pretty much like playing checkers.  Any 12-year-old can do it.  You really don’t need much experience or understanding.  If you can read, you can buy stock (and probably do just about as well as anyone else because it’s basically a roulette wheel choice).  Most people reject that idea, of course.  Like the residents of Lake Wobegone, stock buyers believe that they are all above average – they can reliably pick the right ones just about every time.

Trading options is harder, and many people recognize that they probably aren’t above average in that arena.  Buying and selling options is more like playing chess.  It can be (and is, for anyone who is serious about it) a life-time learning experience.

You don’t see columns in the newspaper about interesting checker strategies, but you see a ton of pundits telling you why you should buy particular stocks.  People with little understanding or experience buy stocks every day, and most of their transactions involve buying from professionals with far more resources and brains. Most stock buyers never figure out that when they make their purchase, about 90% of the time, they are buying from professionals who are selling the stock to them rather than buying it at that price.

Option investing takes study and understanding and discipline that the purchase of stock does not require.  Every investor must decide for himself or herself if they are willing to make the time and study commitment necessary to be successful in option trading.  Most people are too lazy.

It is a whole lot easier to play a decent game of checkers than it is to play a decent game of chess.  But for some of us, options investing is a whole lot more challenging, and ultimately more rewarding.  For example, Facebook (FB) has had a great start for 2017.  It has gained 20.5% in the first ten weeks.  The Terry’s Tips option portfolio that trades FB options (calendar and diagonal spreads) has gained 105.7% over this same period, over 5 times as much.  With actual results like this, why wouldn’t any reasonable adult with enough cash to buy stock want to learn how to multiply his or her earnings by learning a little about the wonderful world of options?

Playing checkers (and buying stock) is boring.  Playing chess (and trading options) is far more challenging.  And rewarding, if you do it right.

44% in 46 Days From a Play on ULTA?

Tuesday, April 4th, 2017

I would like to share a trade that we made in one of our Terry’s Tips portfolios today.  By the way, we have 9 portfolios that we carry out for paying subscribers where they can see every trade (including commissions) as we make them. All of these portfolios have made positive gains so far in 2017, and the composite average has picked up 28.8% at the end of the first quarter.  Not bad compared to conventional investment results.

Enjoy today’s offering.

Terry

44% in 46 Days From a Play on ULTA?

There is a lot to like about Ulta Salon, Cosmetics & Fragrance’s (ULTA).  It has been a darling of Wall Street this year, rising about 50%.  It appears on IBD’s Top 50 list of momentum stocks.  The Motley Fool guys have written over 300 articles on the company and include it in their top three beauty stocks.  The company has a plan to add on 500 new stores, and they have exceeded earnings estimates every quarter for the past year.

The chart for the last year shows a steady climb upward, but there have been some setbacks along the way:

 

ULTA Chart April 2017

ULTA Chart April 2017

If you think the momentum might continue for about six more weeks, you might consider this trade we made on April 3rd when ULTA was trading about $285.

Buy To Open 4 ULTA 19May17 275 puts (ULTA170519P275)

Sell To Open 4 ULTA 19May17 280 puts (ULTA170519P280) for a credit limit of $1.55  (selling a vertical)

We collected $620 from this trade, less commissions of $10 at the rate Terry’s Tips  subscribers pay at thinkorswim.  A maintenance requirement of $2000 will be assessed by the broker, less the $610 net we collected, making it a $1390 investment.  This would be the maximum loss if the stock ended up below $275 on May 19th.  If it is at any price above $280 on that day, it works out to a 44% gain for the 46 days we will have to wait.

The stock can fall about $5 and we will still make the maximum gain. While this might not be much downside protection, it is surely a lot better deal than owning the stock where even a dollar drop in the stock will result in a loss for the period.

If the stock does fall below $280 near the end of the six-week period, we would probably roll out the spread to a future time period, a tactic that will give us a little more time for it to rise above $280.  If that becomes necessary, we will send you a note explaining the action we took.

As with any investment, you should do your own research on the fundamentals of any stock or options you buy, and you should only be risking money that you can truly afford to lose.

Happy trading.

Terry

What Can Be Learned From Successful Option Strategies

Tuesday, March 21st, 2017

Today I would like to share some thoughts I sent out on Saturday to paying subscribers at Terry’s Tips.  These thoughts reflected on the recent successes of the nine actual options portfolios we carry out and comment on each week. By the way, all nine portfolios are profitable for 2017 and the composite average gain is currently 28.9% since the beginning of the year.  Last week while the market (SPY) fell 0.3%, our portfolios gained an average of 3.2% for the week, demonstrating that we don’t have to rely on a rising market to enjoy portfolio gains.

Terry

 What Can Be Learned From Successful Option Strategies

 

If we can identify the strategies that resulted in the extraordinary returns we have enjoyed in the first quarter, maybe we can use those strategies for other underlying stocks or ETPs and time periods.

First, we must admit that we had some good luck.  Anyone who makes these kinds of returns must admit that some of it was based on pure luck.  Anyone who follows the mutual fund industry knows this intimately.  Every year, millions of dollars get plowed into the top-performing funds, and a year or five years later (whichever period the top-rated award covered), those funds almost universally underperform in the subsequent period.  As Burton Malkiel explained in the oft-revised book, A Random Walk Down Wall Street, - ”The past history of stock prices cannot be used to predict the future in any meaningful way.” The top stocks (or mutual funds) end up in that position largely on a random basis.  (Some of us remember way back when the Wall Street Journal had a column where monkeys throwing darts competed against the top picks of top-rated analysts, and the monkeys won about half the time.)

But luck doesn’t account for it all.  Our biggest winner was Wiley Wolf where FB rose 21.6% for the year. Our portfolio is up 117.5%, or 5.4 times greater. This is the only portfolio that uses the 10k Strategy, and we have learned that it will return a multiple of what the stock price does.  Unfortunately, that works in both directions, and if the stock had fallen by that amount, our losses would have been proportionately greater.  So we can conclude that we were lucky to be playing FB for a period when it was rising nicely, but our strategy had something to do with achieving the exceptional returns.

A less dramatic explanation of the power of an options strategy has taken place in our SPY-based Leaping Leopard portfolio.  In this portfolio, we are using the strategy of long-term vertical put credit spreads.  This is our favorite way to play underlyings which we believe will at least remain flat, or are likely to rise.  The market (SPY) has picked up 4.9% for the year to date, a wonderful record.  Our Leaping Leopard portfolio has gained 14.9%, or 3 times the size of the index gain.  Even better, our strategy is set up so that if SPY loses as much as 5% or goes up by any amount over the course of the year, we will enjoy a gain of about 40%.  The huge difference between what the market does and our portfolio performance is clearly caused by the strategy.

Returning to the being lucky theme, the volatility-related portfolios have prospered because contango has remained at an elevated level for the entire first quarter of the year.  With the election of a president whose promises and plans were seen to be unusually volatile and uncertain (which ideas would be proposed, and which might actually become real was a real question), the market expected that in the near future, volatility would be great.  Meanwhile, the market racked up small and steady gains, and VIX fell to historic lows and has pretty much remained there.  When VIX is low and the futures are predicting high uncertainty for SPY, contango rises to the historic highs we have seen pretty much all year.

This contango condition has been the major contributor to our Contango portfolio gaining 44.6% so far this year, and to a lesser degree, the 29% gain in Vista Valley and the 14.7% gain in Capstone Cascade.  In the Capstone Cascade portfolio, SVXY has soared by over 40% for the year, a perfect backdrop for a strategy of selling naked puts on the underlying ETP.  At the present level of theta, this portfolio will gain over 100% for the year. We have been selling at strikes which are seriously out-of-the-money, and we would have done just as well if SVXY had not soared like it did.  Even worse, we tried to protect against the possibility of a falling SVXY (we bought into the fears that uncertainty would be the predominant condition), and we also sold some well out-of-the-money calls on the ETP. These short calls caused our returns to be lower than if we had not been so worried that volatility would heat up.

It is far more difficult to predict the short-term movements of a stock than the longer-term movements.  Short-term fluctuations are often caused by emotionally-driven actions in response to news items such as analysts upgrades or downgrades or quarterly numbers or rumors, while longer-term fluctuations are more likely to be based on the fundamental performance of the underlying company or ETP.  In most of our portfolios, we take a longer-term perspective, such as our Boomer’s Revenge portfolio where the shortest-term spread had six months of remaining life when it was placed.  This portfolio is our most conservative, and is designed to gain 30% for the year.  So far, thanks to the rising market, it is ahead of schedule, picking up 18.2% to date.  We are now in the enviable position of being able to look forward to the full 30% annual gains even if the 5 underlying stocks were to fall by 10% between now and the end of the year.

To summarize, the first 11 weeks of 2017 have been good ones for the market.  SPY has gained 4.9%. The prudent owner of a large-market-based index fund will have gained this much so far this year.  This is about the average 2017 gain initially predicted by the composite of the published analysts we identified at the outset of the year.  So the market has achieved in 11 weeks what the analysts expected for the entire year, making it a remarkable year so far.

The difference between this 4.9% market gain and the composite 28.9% of our portfolios is clearly due to the options strategies that we have employed. Options are leveraged investments, and should be expected to perform exponentially better (or worse) than the percentage gains of their underlyings.  However, in most of our portfolios, we can look forward to unusually large gains when the underlyings remain absolutely flat or even lose a little over the course of the year.  This fact alone is proof that a well-designed and executed options strategy can be expected to outperform the market in general or any mutual fund in particular (where over 80% of the funds have underperformed the market over a multi-decade time period, yet still collect billions of dollars every year in fees for their efforts).  We like to think that the performance of our portfolios so far this year is the result of our doing a decent job in the options arena.

Options Which Trade After Hours (Until 4:15)

Wednesday, March 15th, 2017

First, I would like to report that the 9 actual option portfolios carried out at Terry’s Tips  have gained a composite 24.9% so far in 2017.  It has been a good year so far for the market, but it (i.e., SPY) is up only 5.2%, so we have done 4+ times better.  Maybe it would be a good time for you to take a peek at the exact positions and strategies we are using to ring up these kinds of gains.

I noticed that the value of some of our portfolios was changing after the market for the underlying stock had closed.  Clearly, the value of the options was changing after the 4:00 EST close of trading.  I did a Google search to find a list of options that traded after hours, and came up pretty empty.  But now I have found the list, and will share it with you just in case you want to play for an extra 15 minutes after the close of trading each day.

Terry

Options Which Trade After Hours (Until 4:15)

 Since option values are derived from the price of the underlying stock or ETP (Exchange Traded Product), once the underlying stops trading, there should be no reason for options to continue trading.  However, more and more underlyings are now being traded in after-hours, and for a very few, the options continue trading as well, at least until 4:15 EST.

Options for the following symbols trade an extra 15 minutes after the close of trading – DBA, DBB, DBC, DBO, DIA, EFA, EEM, GAZ, IWM, IWN, IWO, IWV, JJC, KBE, KRE, MDY, MLPN, MOO, NDX, OEF, OIL, QQQ, SLX, SPY, SVXY, UNG, UUP, UVXY, VIIX, VIXY, VXX, VXZ, XHB, XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY, XME, XRT.

Most of these symbols are (often erroneously) called ETFs (Exchange Traded Funds).  While many are ETFs, many are not – the popular volatility-related market-crash-protection vehicle – VXX is actually an ETN (Exchange Traded Note).  A better way of referring to this list is to call them ETPs.

Caution should be used when trading in these options after 4:00.  From my experience, many market makers exit the floor exactly at 4:00 (volume is generally low after that time and not always worth hanging around).  Consequently, the bid-ask ranges of options tend to expand considerably.  This means that you are less likely to be able to get decent prices when you trade after 4:00.  Sometimes it might be necessary, however, if you feel you are more exposed to a gap opening the next day than you would like to be.

How to Make 40% in 45 Days With a Bet on Ford

Monday, March 13th, 2017

Last week I suggested a bearish spread on Tesla that would make 67% in 49 days.  The stock has fallen about $7 since then, and the spread that I placed has already picked up 30% in a single week.  I am tempted to close it out and take the profit, but I think I will wait it out and happily collect the entire 67% in six weeks.

Today I am reporting on a spread I placed on Ford (F) on Friday when the stock was trading at $12.54.

Terry

How to Make 40% in 45 Days With a Bet on Ford

Several articles have been published lately which are bullish on Ford, including Ford and Its 4.8% Dividend Yield, and Ford: Break-Out Ahead

On Friday, when F was trading at $12.54, I made a bet that this high dividend yield would at least keep the stock where it is right now for the near future.

Here is the trade I made:

With F trading at $12.54:

Buy To Open # F 28Apr17 11.5 puts (F170428P11.5)
Sell To Open # F 28Apr17 12.5 puts (F170428P12.5) for a credit of $.30 (selling a vertical)

This spread is called a vertical put credit spread.  I prefer using puts rather than calls if I am bullish on the stock because if you are right, and the stock is trading above the strike price of the puts I sold on expiration day, both put options will expire worthless and no further trades need to be made or commissions payable.

For each contract sold, I would receive $30 less commissions of $1.00 (the rate that TastyWorks.com charges).  By the way, you should check out this new brokerage firm because their commission rates are just about the best you will find anywhere.  Here they are:

TastyWorks commission rates

TastyWorks commission rates

Yes, that’s true.  Absolutely no commissions when you close out a trade.  TastyWorks was started early this year by the same people who started thinkorswim (which was later sold to TD Ameritrade).  They haven’t quite set up everything yet, but the commission rates and great trading platform is bound to attract many new subscribers (tell them we sent you, by the way).

The broker will place a $100 maintenance requirement on the above spread.  Subtracting out the $29 you received, your net investment is $71 per spread ($100 – $29).  This is also the maximum loss you would incur if F closes below $11.50 on April 21, 2017 (unless you rolled the spread over to a future month near the expiration date, something I often do, usually at a credit, if the stock has lost a bit since the original trade was placed).

Making a gain of $29 on an investment of $71 works out to 40% for the 6 weeks you will have to wait it out.  That works out to over 300% annualized.  Who says options can’t be fun?

As with all investments, option trades should only be made with money that you can truly afford to lose.

Happy trading.

Terry

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