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Creative Ways to Profitably Trade Options

For over 11 years, Terry’s Tips has carried out different option strategies in actual brokerage accounts.  Of course, commissions are paid in these accounts so the results are exactly what you would experience if you followed the trades we make.

Paying subscribers can watch these portfolios unfold over time to get a better understanding on what causes the bottom line to grow or shrink (yes, unfortunately, that does happen occasionally).

Today I would like to discuss how three of these portfolios are set up and how they did last week.

Creative Ways to Profitably Trade Options   

Most of our strategies involve buying LEAPS or other longer-term options and selling short-term (higher decaying) against these long positions.  While that is the central idea, there is a multitude of ways it can be carried out.

We use the central idea in an unusual way in a portfolio we call the Last Minute.  It sits in cash until late in the day on Thursday when we make a guess as to whether we think SPY will move more or less than $2 on Friday.  If we think it won’t move by that much (like we did last week in spite of Mr. Bernanke’s upcoming speech), we buy calendar spreads at several different strikes, some above and some below the stock price.

Last week, we might have done better to have guessed in the other direction since SPY moved by more than $2 on the upside and almost that much on the downside.  But during the day, when the stock had moved up about $.45, we sold all our calendar spreads, making a nice 22% gain after commissions for a single day of trading.

The Last Minute portfolio has made gains in 14 of the 17 weeks it has been running, and has made 187% on the average weekly investment.  (One of the losing weeks was only a $39 loss, and in another one, I made an uncharacteristically stupid trading decision and passed up an 8% gain only to lose money by the end of the day.)

Another portfolio which uses the central idea is set up for subscribers who are fearful that the market might move lower.  It is called the 10K Bear.  Two weeks ago, SPY fell by 4.6% in a single week and our 10K Bear portfolio gained 17.5% after commissions.  Last week, SPY did a complete turn-around and rose 4.7%.  Our 10K Bear portfolio managed to gain 1% for the week in spite of being on the wrong side of the trend.  Admittedly, option prices are unusually high right now, and this bearish portfolio could not be expected to make a gain with such a stock price move in normal times, but it is nice to see that in today’s market, we seem to be able to make weekly gains no matter which way the market moves.

A third portfolio uses the central idea in a different way.  We picked an underlying stock (AAPL) which we think is headed higher, and instead of selling as much short-term premium as we can, we sell just enough to cover the decay of our long positions.  If the stock goes higher, we should experience a much greater percentage gain than the stock.  Last week, in spite of Steve Jobs’ resignation, AAPL gained 7.7%.  Our portfolio gained a whopping 31.4%, proving once again that options can consistently outperform stock.

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Success Stories

I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

~ John Collins