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Posts Tagged ‘Credit Spreads’

Halloween Special – Lowest Subscription Price Ever

Tuesday, October 18th, 2016

Halloween Special – Lowest Subscription Price Ever

Why must Halloween be only for the kids? You got them all dressed up in cute little costumes and trekked around the neighborhood in hopes of bringing home a full basket of cavity-inducing treats and smiles all around.

But how about a treat for yourself? You may soon have some big dental bills to pay. What if you wanted to learn how to dramatically improve your investment results? Don’t you deserve a little something to help make that possible?

What better Halloween treat for yourself than a subscription to Terry’s Tips at the lowest price ever? You will learn exactly how we have set up and carried out an options strategy that doubled the starting portfolio value (usually $5000) of five individual investment accounts which traded Costco (COST), Apple (AAPL), Nike (NKE), Starbucks (SBUX), and Johnson & Johnson (JNJ), including all commissions. These portfolios took between 7 and 17 months to double their starting value, and every single portfolio managed to accomplish that goal.

One year and one week ago, we set up another portfolio to trade Facebook (FB) options, this time starting with $6000. It has now gained over 97% in value. We expect that in the next week or two, it will surge above $12,000 and accomplish the same milestone that the other five portfolios did.

Many subscribers to Terry’s Tips have followed along with these portfolios since the beginning, having all their trades made for them through the Auto-Trade program at thinkorswim. Others have followed our trades on their own at another broker. Regardless of where they traded, they are all happy campers right now.

We have made these gains with what we call the 10K Strategy. It involves selling short-term options on individual stocks and using longer-term (or LEAPS) as collateral. It is sort of like writing calls, except that you don’t have to put up all that cash to buy 100 or 1000 shares of the stock. The 10K Strategy is sort of like writing calls on steroids. It is an amazingly simple strategy that really works with the one proviso that you select a stock that stays flat or moves higher over time.

How else in today’s investment world of near-zero dividend yields can you expect to make these kinds of returns? Find out exactly how to do it by buying yourself a Halloween treat for yourself and your family. They will love you for it.

Lowest Subscription Price Ever

As a Halloween special, we are offering the lowest subscription price than we have ever offered – our full package, including all the free reports, my White Paper, which explains my favorite option strategies in detail, and shows you exactly how to carry them out on your own, a 14-day options tutorial program which will give you a solid background on option trading, and two months of our weekly newsletter full of tradable option ideas. All this for a one-time fee of $39.95, less than half the cost of the White Paper alone ($79.95).

For this lowest-price-ever $39.95 offer, click here, enter Special Code HWN16 (or HWN16P for Premium Service – $79.95).

If you are ready to commit for a longer time period, you can save even more with our half-price offer on our Premium service for an entire year. This special offer includes everything in our basic service, and in addition, real-time trade alerts and full access to all 9 of our current actual portfolios so that you can Auto-Trade or follow any or all of them. We have several levels of our Premium service, but this is the maximum level since it includes full access to all nine portfolios. A year’s subscription to this maximum level would cost $1080. With this half-price offer, the cost for a full year would be only $540. Use the Special Code MAX16P.

This is a time-limited offer. You must order by Monday, October 31, 2016. That’s when the half-price offer expires, and you will have to go back to the same old investment strategy that you have had limited success with for so long (if you are like most investors).

This is the perfect time to give you and your family the perfect Halloween treat that is designed to deliver higher financial returns for the rest of your investing life.

I look forward to helping you get the school year started off right by sharing this valuable investment information with you at the lowest price ever. It may take you a little homework, but I am sure you will end up thinking it was well worth the investment.

Happy trading.


P.S. If you would have any questions about this offer or Terry’s Tips, please call Seth Allen, our Senior Vice President at 800-803-4595. Or make this investment in yourself at the lowest price ever offered in our 15 years of publication – only $39.95 for our entire package. Get it here using Special Code HWN16 (or HWN16P for Premium Service – $79.95). Do it today, before you forget and lose out. This offer expires on Monday, October 31, 2016.


How to Make 40% With a Single Options Trade on a Blue Chip Stock

Tuesday, October 11th, 2016

Bernie Madoff got billions of dollars from investors by offering 12% a year. Today I would like to share an investment which should deliver more than triple that return. I doubt if it gets Madoff-like money flowing into it, but maybe some of you will try it along with me. Nothing is 100% guaranteed, but the historical price action for this conservative stock shows that this options spread would make over 40% a whopping 98% of the time.


How to Make 40% With a Single Options Trade on a Blue Chip Stock

Johnson & Johnson (JNJ) is a $70 billion multinational medical devices, pharmaceutical and consumer packaged goods manufacturer founded in 1886. It is truly a “blue chip” stock which pays a 2.7% dividend and raises it almost every year.

JNJ has been a favorite underlying stock for us at Terry’s Tips. Early in November 2015 we started what we call the JNJ Jamboree portfolio with $5000 to trade our 10K Strategy using JNJ as the underlying. JNJ was trading at $102. Nine months later, the stock had climbed to $125, a 22.5% gain. Our JNJ Jamboree portfolio did more than four times better, making 100%. We declared a 2-for-1 portfolio split and removed $5000 from the portfolio so subscribers who were following it could either be fully playing with profits or have double the number of units that they started with.

Terry’s Tips subscribers can either follow our actual portfolios on their own or have trades executed automatically for them through the Auto-Trade service offered by thinkorswim.

This week, with JNJ trading just over $120, we made a trade using JNJ options that would expire on January 19, 2018, a full 15 months from now. This trade would make a guaranteed profit of over 40% if JNJ closed at any price higher than $115 on that date. In order to check what history might tell us about this stock, we took a look at the 10-year graph of JNJ to see how many times the stock fell by more than $5 per share in any 15-month period. Here is that graph:

JNJ Historical Pricing Chart Oct 2016

JNJ Historical Pricing Chart Oct 2016

You can see that that there is one spot on the graph where the stock was lower 15 months later than it was at the beginning, and that was the time period starting just before the crash in August 2008. Over the ten years, you would have theoretically had 120 opportunities to make a similar 15-month bet to the one we are suggesting, and you would have only lost money in 3 of those months. You would have had a winner with 98% of these hypothetical trades.

This week, with JNJ trading at just over $120, we bought the following spread:

Buy to Open 10 JNJ 19Jan18 115 puts (JNJ180119P115)
Sell to Open 10 JNJ 19Jan18 120 puts (JNJ180119P120) for a credit of $1.80 (selling a vertical)

This spread put $1800 in our account ($1775 after commissions) and a maintenance requirement of $5000 would be established (no interest payable on this amount, but it would be cash set aside that could not be used for buying other equities). After deducting the $1775 we received from the $5000, we ended up with a net investment of $3225. This is the maximum loss that would result if the stock ended up below $115 in 15 months.

If the stock were at any price above $120 on January 19, 2018, both options would expire worthless and we would keep the entire $1775, making a 55% profit on our original investment. Annualized, that works out to be 44% a year after commissions, and the historical information says you would earn this 98% of the time. If you make this amount 98 times and lose 100% twice, your average annualized gain would be 41%.

Admittedly, this is a pretty unexciting investment because you have to sit and wait for more than a year for it to be over with. But where else in this world of near-zero interest rates are you going to find something that has a 98% chance of making 44% a year? It seems to me that at least some of your investment portfolio should contain at least a little money that might secure such an extraordinary high return.

We should take a look at the magnitude of these possible gains and compare them with expectations of a traditional investment. To think that you could make 41% a year on your money is truly bizarre. It really sounds too good to be true. But that is what the spread would have earned if you had been able to place it every month for the past 120 months.

We made a similar investment in a Terry’s Tips portfolio early this year. We placed the following trade on JNJ on January 4, 2016. JNJ was trading just over $102 at the time:

Buy to Open 10 JNJ Jan-17 95 puts (JNJ170120P95)
Sell to Open 10 JNJ Jan-17 100 puts (JNJ170120P100) for a credit of $2.13 (selling a vertical)

With this trade we were betting that in one year. JNJ would be trading at some price over $100. If this happened, both put options would expire worthless on January 20, 2017 and we could keep the $2130 we collected from the spread ($2105 after commissions). This trade involved a maintenance requirement of $2895 which if the maximum loss that could result (if JNJ closed below $95 on that date) and also the amount of the money invested. This works out to a 73% gain for the year. With three months to go before these options expire, JNJ is now trading around $120. Our bet looks awfully good right now. We could buy back the spread for $170 which would result in a gain of $1935 after commissions, or 66%.

This spread was quite similar to the one we are suggesting today, but it was a little more risky because it did not allow for the stock to drop at all to make the maximum gain. Taking that extra risk allowed for the maximum profit to be much higher.

Options trading involves risk, just like all investments, and should be only undertaken with money you can truly afford to lose. But sometimes, options investments can offer superior potential gains while involving a lower degree of risk. In the spread we outlined today, the stock can fall by as much as $5 over a 15-month time span, and a 55% gain will still materialize. If you had just bought the stock instead and it went down, you would lose money. Sometimes, option trading gets a bad reputation for being too risky. Hopefully, you can see why it doesn’t necessarily work out that way all of the time.

The Difference Between Buying Stock and Trading Options

Monday, August 15th, 2016

This week I would like discuss a little about the differences between buying stock and trading options. I would also like to tell you a little about a specific recommendation I made to paying Terry’s Tips subscribers this weekend in my weekly Saturday Report.


The Difference Between Buying Stock and Trading Options

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 you probably will 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 those professionals. Those smart guys with all the resources are the ones who are selling the stock while you are 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 at 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.

Last week I told you about three stock-based Terry’s Tips option portfolios which had doubled in value and a fourth portfolio that was almost there (and it is only 10 months old). I didn’t tell you about two other portfolios that we also carry out which are not available for Auto-Trade at thinkorswim but which are quite easy to trade on your own because they only involve one trade for an entire year (and with luck, options on both side of the spread will expire worthless so no closing trade is necessary).

We have two of these portfolios, and they are set up each January. So far in 2016, while the market (SPY) has gained 4.6%, these two option portfolios have gained 43.9%, and 56.2% without a single adjusting trade having been made. We could close either portfolio right now and take those gains off the table after paying a small commission on one or two spreads. If you buy stock rather than trading options, you will probably never see gains like this, even if you are lucky enough to pick one of the best stocks in the entire market.

This weekend, I recommended another similar spread trade that we are setting up in a new portfolio so we can watch it evolve over time. Like the above two portfolios, it cannot be Auto-Traded but is easy to set up yourself (you can call it in to your broker if you are not familiar with placing option spread trades). This spread will expire on January 20, 2017, about six months from now.

The underlying is a sort of weird derivative of a derivative of a derivative that doesn’t make much sense to anyone (even the Nobel Prize winning managers of Long Term Capital didn’t fully understand the implications of this kind of instrument). The long-term price action of this equity can be measured, however, and it showed that if this spread had been placed every month for the last 50 months, the spread would have made a profit 44 times and it would have lost money 6 times. The average gain for all the trades worked out to 38% for six months (including all the losses in those 6 losing instances). The annualized gain would rise to 90% if you re-invested your money and the average profit at the end of the first six months. Of course, historical price action doesn’t always repeat itself in future months, but if you see how this instrument is engineered, you can see that the pattern should be expected to continue.

This spread idea is so good that I feel I must restrict sharing it with only paying subscribers to the Terry’s Tips newsletter. If you come on board, you can see the full report where I show the profit from this trade for each of the last 50 months and the exact spread that should be placed. I bought more of the exact same spread in my personal account today at the same price I indicated it could be bought in the last Saturday Report.

Historical Performance of 10K Strategy Stock-Based Portfolios

Monday, August 8th, 2016

This week I would like to outline the basic stock option strategy we use at Terry’s Tips where we have created eight portfolios each of which is traded in an actual separate account and is available for Auto-Trade at TDAmeritrade/thinkorswim. Terry’s Tips subscribers can have every trade in these portfolios placed automatically for them in their own thinkorswim accounts through their free Auto-Trade service.

Enjoy the full report.


Historical Performance of 10K Strategy Stock-Based Portfolios: At Terry’s Tips, we call our options strategy the 10K Strategy. We like to think of it as shorter than a marathon but longer than a sprint. Most people who trade options seem to prefer sprints, i.e., short-term speedy wins (or losses). The basic underlying idea of our 10K Strategy is to do the opposite of what most options traders do. Instead of buying short-term calls in hopes of a quick windfall gain, we primarily sell those calls to option speculators. Since something like 80% of all options expire worthless, we like our odds of selling those options rather than buying them. We like to think that we are sort of in the business of selling lottery tickets.

We buy longer-term options to use as collateral for selling short-term options. All options go down in value every day that the underlying stock remains unchanged. This daily decay in value is called theta in options parlance. Theta for short-term options is much greater than theta for longer-term options at the same strike price, and this difference in decay rates is what makes our strategy a successful one (most of the time).

At Terry’s Tips, we currently have 4 stock-based portfolios. Other portfolios are based on Exchange Traded Products (ETPs). ETPs include Exchange Trade Funds (ETFs) such as the S&P 500 tracking stock (SPY or the Dow Jones Industrial Average tracking stock (DIA), and Exchange Traded Notes (ETNs) such as volatility-based XIV, SVXY, VXX, and UVXY. We also have a portfolio based on options of USO where we are betting that the long term price of oil will be higher than it is today.

Three out of 4 of our stock-based portfolios have doubled in value at some point in their lifetime, and the 4th, Foxy Facebook is up 71% since we started it 10 months ago. The prospects look excellent for it to double before its first year has been completed. The record:

2016 HIstorical 10K Portfolios

2016 HIstorical 10K Portfolios

In a world of record low interest rates and anemic investment returns for most equities (even hedge funds lost money in 2015), these results offer a strong vindication of the 10K Strategy. Admittedly, NKE has tumbled steadily over the past 8 months and much of the gains have been eroded away, but a basic assumption of the strategy is that you select underlying stocks which you think will remain flat or rise over time. If you are wrong and the stock doesn’t do one of those things, you should expect to lose money on that investment. So far, we have been fortunate enough to pick winners.

I invite you to become a subscriber to Terry’s Tips so that you can learn the important details of carrying out the 10K Strategy on your favorite stock (assuming that options are available for it). If you are lucky enough to pick a winner, you would have an excellent chance to make many times as much as you would make just buying the stock. It doesn’t have to go up to be a winner – just remaining flat is almost always profitable with this strategy.

Many years ago, someone wrote a book that I bought – it was entitled “Happiness is a Stock That Doubles in a Year.” If you can find a stock that will stay flat or move higher, you might very well enjoy this kind of happiness once you learn how to execute the 10K Strategy.

As with all investments, you should only use money that you can truly afford to lose. Options are leveraged investments, and unless you totally understand the risks, you can easily and quickly lose more money than you could with the equivalent investment in the purchase of stock. I think it is worth a little work to educate yourself about the risks (and potential rewards) of trading options.

Update on Facebook Earnings Announcement Play

Monday, August 1st, 2016

Last week, Facebook (FB) announced earnings which were triple the year-earlier results and were 88% higher than analyst expectations, but the stock barely budged from where it was the day before the announcement. Option players could celebrate, however. The actual portfolio at Terry’s Tips where we trade FB options gained 45.8% for the week. We have a lot of happy subscribers who follow this portfolio either on their own or through the Auto-Trade service at thinkorswim.

As good as 45% for a single week might be, you could have done even better if you had followed a trade I told you about 2 ½ months ago. That is the story I would like to share with you today.

Happy trading.


Update on Facebook Earnings Announcement Play

On May 11, 2016, I told you about two trades I was making in my personal account. You can see the entire blog which explains my thinking on our blog page. Here they are:

Today, I bought these calendar spreads on FB when the stock was trading just about $120:

Buy To Open 2 FB 16Sep16 120 calls (FB160916C120)
Sell To Open 2 FB 15Jul16 120 calls (FB160715C120) for a debit of $3.26 (buying a calendar)

Buy To Open 2 FB 16Sep16 125 calls (FB160916C125)
Sell To Open 2 FB 15Jul16 125 calls (FB160715C125) for a debit of $3.11 (buying a calendar)

My total investment for these two spreads was $1274 plus $10 commission (at the rate charged to Terry’s Tips subscribers at thinkorswim), for a total of $1284.

When these short calls expired on July 15th, FB was trading at about $122.50, just about the perfect place for me since it was right in the middle of the two strike prices of my spreads. On that day, I bought back the expiring 120 calls and sold 29Jul16 120 calls and collected $2.50 (selling a calendar spread). I sold this series because it would expire just after the July 27 earnings announcement.

I also sold the same calendar spread at the 125 strike price and collected $2.35. The net effect of these two trades (I collected $960 after commissions) reduced my net investment from $1284 to $324.

After Wednesday’s announcement, FB soared to $130 in after-hours trading, but opened at $127.52, and by late Friday when my short options were about to expire, it had fallen to about $124. I then closed out my positions by buying back the 29Jul16 calls and selling the 16Sep16 calls I still owned, collecting $2.10 per contract for the 120 strike calls and $3.10 for the 125 strike calls. After commissions, this worked out to a total of $1030, so I netted a profit of $706 on an original investment of $1284. Bottom line, I made 55% on my original investment for the 10 weeks I traded FB options.

Over this same time period, investors who owned FB stock made $4 per share on their money. If they invested $1284 like I did, they could have bought only 10 shares for $120 per share. Their gains for the 10 weeks would have been $40. My option trading made 17 times more money than the stock buyers would have made. Once again, I don’t understand why people would waste their money buying stock when they could spend a little time studying how to trade options, and make a multiple of what they could make by the simple buying of stock.

As with all investments, you should only use money that you can truly afford to lose. Options are leveraged investments, and unless you totally understand the risks, you can easily and quickly lose more money than you could with the equivalent investment in the purchase of stock. I think it is worth a little work to educate yourself about the risks (and potential rewards) of trading options.

How to Trade Out of an Earnings-Related Options Play

Thursday, July 7th, 2016

A little over a week ago, I told you about trades I was making in advance of Nike’s earnings announcement. Lots of things didn’t quite work out the way I had expected they would, but I still managed to make over 50% for the week on my trades. There were some good learning experiences concerning how to trade out of calendar spreads once the announcement has been made. You need to tread water until the short options you sold expire and you can close out the spreads, and that can present some challenges.

Today I would like to share those learning experiences with you in case you make similar trades prior to a company’s earnings announcement.

Happy trading.


How to Trade Out of an Earnings-Related Options Play

According to Openfolio, a site where about 70,000 users share information on their investments, three out of four investors lost money in June, with an average return of -0.10%. This compares to the results of the Terry’s Tips’ Auto-Traded portfolios where 7 of 8 portfolios gained, and the average gain was 15.1%. Our only losing portfolio was a special bet that the short-term price of oil would fall. It didn’t, and we lost a little, but that was nothing compared to 4 of the portfolios which gained over 20% for the month.

One of our portfolios trades options on Nike (NKE) which announced earnings after the close last Tuesday, June 28. We had spreads in place similar to those that I told you about last week (and several others as well). The portfolio managed to gain 29% in June, something that often happens during the month when an earnings announcement takes place.

On the Monday before the earnings announcement, with the stock trading at about $52, I placed these trades (at higher quantities):

Buy to Open 1 NKE 29Jul16 52.5 put (NKE160729P52.5)
Sell to Open 1 NKE 1Jul16 52.5 put (NKE160701P52.5) for a debit of $.50 (buying a calendar)

Buy to Open 1 NKE 29Jul16 55 call (NKE160729C55)
Sell to Open 1 NKE 1Jul16 55 call (NKE160701C55) for a debit of $.50 (buying a calendar)

In my note to you, I said I thought you could buy these spreads for $.43 ($43) each, but that was based on the prior Friday’s prices. I was disappointed to have to pay so much more, but I still believed it was a pretty good bet.

When the stock fell closer to $51, I bought half as many spreads as the above two at the 50 strike just in case the stock continued to trade lower. When you buy calendar spreads, you select strike prices where you hope the stock will end up when the short options expire, as the at-the-money strike spread will be the most profitable. Buying spreads at several strikes gives you more places where you can end up being happy, but your maximum gain is reduced a bit when you buy the increased protection that owning several strikes provides.

After I made the above trades on Monday, I suffered my second disappointment. As I had seen so many times before, in the last day before the announcement (Tuesday), the stock rallied $1.10 and closed at $53.09. If I had anticipated this better, I would not have bought the spreads at the 50 strike. In after-hours trading after the announcement (earnings were a penny above estimates but sales disappointed a little and outlook was about what was expected), the stock tanked to about $50. As we have often seen, this initial move was quickly reversed. When the market opened on Wednesday, it had moved up to $54.50.

While my positions were showing a nice paper profit at the open on Wednesday, I had to wait to near Friday’s close to get the full amount I was hoping for. I was in a bad position, however, because most of my spreads were at strike prices which were below the stock price. In option terms, my positions were negative net delta – this means that if the stock went up another dollar, I would lose money. I aggressively changed to a neutral net delta condition by closing out the lowest-strike put calendars (at the 50 strike) and changing some 52.5 calendars to diagonals, buying back in-the-money 52.5 short calls and replacing them with at-the-money 55 calls and slightly out-of-the-money 56 calls in the same 01Jul16 series.

Then I encountered my third disappointment. I had expected implied volatility (IV) of the long 29Jul16 series to be 27 after the announcement based on recent history, but it ended up being 24 which dampened my expected results. That meant the option prices would not be as high as I expected when I went to sell them. I had figured an at-the-money spread could be sold for $1.40, and the closest spread I had (the 55 strike) only yielded $.97 (however, this was almost double what I paid for it). By Friday, the stock moved above the top strike price I held (55) and closed at $55.61. Since I managed to stay neutral net delta and actually pick up some extra premium in the last three days from the new at-the-money calls I sold, I ended up making over 50% on my total investment for the week. It was a lot of work but surely worth the effort.

I had set out to make 100% in a single week, and experienced disappointments in three different areas, but at the end of the day, I was pleased to take in half that amount for the week.

What could be taken away from this play was; 1) that the stock often rises in the last day before the announcement (probably legging into the calendars would have been more profitable, but more risky), 2) the initial move after the announcement is usually reversed, and 3) it is important to make adjustments to create a neutral net delta condition for all your spreads until the short options expire.

100% Gain in One Week Possible With Nike Options Trade?

Monday, June 27th, 2016

The Brexit vote on Friday crushed markets throughout the world, but it was a great day for Terry’s Tips subscribers who follow the eight actual portfolios we carry out for them to follow if they wish.  Our composite gain for the day was greater than 10%, and that was on a day when the Dow fell over 600 points and the market as a whole (SPY) dropped even more.

One of the portfolios we carry out is designed to protect against a market crash or correction.  We call it the Better Bear.  It gained 34% Friday when the markets tumbled.  Friday, like many days, was one when many of us are happy that we trade options rather than simply buy or sell shares of stock.

Today, I would like to share two trades I will be placing on Monday or Tuesday.  I think that there is an excellent chance that these trades could double my money in a single week.

Happy trading.


100% Gain in One Week Possible With Nike Options Trade? 

Nike (NKE) has fallen on hard times of late, falling from $68 in early December to $52.59 at the close on Friday.  Earnings will be announced after the close on Tuesday, the 28th. Whisper numbers are about 10% higher than public estimates, and options are priced for a higher price after the announcement.

I am an options trader and rarely ever buy stock.  I really don’t know if Nike will go up or down after the announcement, but there are some interesting features of the option prices that have caused me to take an interest in the company this week.  As I often repeat in this newsletter, implied volatility (IV) of the option prices is the major reason that option prices are “high” or “low” compared to other option prices.

Most of the time, our basic strategy involves buying calendar spreads at a variety of strike prices. A calendar spread (also called a time spread) consists of coincidentally buying and selling either put or call options at the same strike price.  The option you buy always has a longer time life than the option you sell.  Our gains come from the higher decay rate of the short-term options that we have sold compared to the lower decay rate of the longer-term options that we have bought.

Most of the time, when we buy these calendar spreads, the IV for the options we buy is greater than it is for the options we sell.  This means we are buying relatively more expensive options and selling relatively cheap options.  We don’t particularly like this, of course, but it is usually the nature of option prices.  Most of the time, we manage to make money on our calendar spreads in spite of this reality (which we call an IV disadvantage).

When a company is about to announce earnings, the IV disadvantage often turns into an IV advantage.  When a company announces, there is often a big move in the stock in one direction or the other immediately after the announcement.  The likelihood of this big move causes a surge in the option prices for the series which expires directly after the announcement.  In other words, IV soars for that series and almost always becomes greater than the longer-term series that follow.

The NKE option series which expires directly after the June 28 post-market announcement is the 1Jul16 series which expires on the following Friday.  IV for this series has surged to 53.  This compares to an IV of 30 for the 29Jul16 series which expires 28 days later than the 1Jul16 series.  This is a humungous IV advantage.  It enables you to buy relatively cheap options and sell relatively expensive options which have a long way to fall to get to their intrinsic value on expiration Friday.

When you buy calendar spreads, you choose a strike price which is closest to where you think the stock price will end up.  Since I really have no idea where that price might be for NKE, I take my best guess and select strike prices accordingly.  My best guess is that NKE has fallen so far already that the chances are better that it might move higher after tomorrow’s announcement.  After all, it is a good company, and they are still celebrating LeBron James’ victory in Cleveland (and he is a big spokesman for Nike).  With the stock closing at $52.59 on Friday, I will pick the 52.5 and 55 strike prices.  If I wanted to guess that the stock would fall after the announcement, I would pick the 50 strike as well.

Here are the trades I will make Monday or Tuesday (although the quantities will be greater):

Buy to Open 1 NKE 29Jul16 52.5 put (NKE160729P52.5)

Sell to Open 1 NKE 1Jul16 52.5 put (NKE160701P52.5) for a debit of $.43  (buying a calendar)

Buy to Open 1 NKE 29Jul16 55 call (NKE160729C55)

Sell to Open 1 NKE 1Jul16 55 call (NKE160701C55) for a debit of $.43 (buying a calendar)

I may have to adjust these prices a bit to get an execution, but at Friday’s close, these prices were possible.  Each spread will cost me $43 plus a $2.50 commission (the rate paid by Terry’s Tips’ subscribers at thinkorswim – many people become subscribers primarily to get this low rate which applies to all their trades – the normal commission rate at thinkorswim  for a single option spread trade is $7.80).

So I will be shelling out a total of $86 plus $5, or $91 for each pair of spreads I buy.  I am planning to close out (sell) both spreads near the end of the day on Friday, July 1st.  I have selected puts for the 52.5 strike and calls for the 55 strike because I am hoping that the stock ends up at some price between $52.50 and $55 on Friday.  If it does, then both the puts and calls I sold that will expire that day will be out of the money.  I should be able to buy them back for $.05 or less near the end of the day. Thinkorswim does not charge a commission if you buy back expiring options for $.05 or less.

The big question will be what value the 29Jul16 options will have next Friday.  To get an idea, I need to check back and see what the likely IV will be of those options at a time when there is no earnings announcement on the horizon.  I found that a typical IV for the series with 28 days of remaining life was 27.  That is 3 less than the current IV of those options.  This means that those option prices will fall, but not a whole lot.

If you go to the CBOE option calculator and enter in a price of either $52.50 or $55 and the same strike, select 28 days for the time period, and 27 as the IV, and hit Calculate, you will find that the option will be trading about $1.56 for the 52.5 strike or $1.64 for the 55 strike.  That means that if the stock ends up at either of the strike prices I selected, I will collect almost twice as much for a single sale as I paid for both spreads.  The other spread will also have some value.  If the stock is $2.50 away from one of the strikes, the CBOE calculator says the remaining long option will have a value of about $.65 which is still greater than what I paid for either spread, even after paying $.05 to buy back the expiring option.

If these option prices prevail next Friday and the stock ends up at any price between $52.50 and $55, I should be able to collect a total of about $225 (less $10 to buy back the expiring options less $2.50 for commissions, for a net of $212.50).  This amount is well more than double my total $91 investment for the pair of spreads.

What could go wrong?  First, IV might not be as high as 27.  If the stock stays flat, option prices might fall because they are based on the expected volatility of the stock – a flat stock suggests low future volatility.  Second, the stock might fluctuate so much that it moves well beyond the two strike prices I have picked.  That is the greatest fear.  But if that happens, volatility might even get greater than 27 for the options I will be selling, and that might result in a higher than expected price when I sell.

I feel highly confident about these spreads.  If the market tanks early in the week, I would buy spreads at the 50 strike as well.  As usual, I would like to remind everyone that options involve risk, and you should only invest money that you can truly afford to lose.

Lowest Subscription Price Ever

Tuesday, June 7th, 2016

This month marks the 15th year in business for Terry’s Tips. We are celebrating this event by offering you our lowest subscription price ever. Read on.

Today I would also like to share with you a small bet I made today on Nike. It should make 60% in 8 months even if the stock does not go up a penny. It can actually fall a little and you would still make 60%. But the big news today is our 15th birthday celebration offer.

Lowest Subscription Price Ever

As our birthday present to you, we are offering the lowest subscription price than we have ever offered – our full package, including all the free reports, my White Paper, which explains my favorite option strategies in detail, and shows you exactly how to carry them out on your own, a 14-day options tutorial program which will give you a solid background on option trading, and two months of our weekly newsletter full of tradable option ideas. All this for a one-time fee of $39.95, less than half the cost of the White Paper alone ($79.95).

For this lowest-price-ever $39.95 offer, click here, enter Special Code 15Year (or 15YearP for Premium Service – $79.95). The premium service offers you real-time trade alerts so you can follow along with our trades if you wish, or participate in Auto-Trade at thinkorswim.

This is a time-limited offer. You must order by Wednesday, June 15, 2016. That’s when the half-price offer expires, and you will have to go back to the same old investment strategy that you have had limited success with for so long (if you are like most investors).

This is the perfect time to our 15th birthday with us, and give yourself and your family the perfect birthday gift that is designed to deliver higher financial returns for the rest of your investing life. It may take you a little homework on your part, but I am sure you will end up thinking it was well worth the investment.

A Conservative Nike Trade Which Should Gain 60% in 8 Months

Timing is everything. The price of Nike (NKE) was beaten down last week, apparently on the news that one of their largest retailers, Sports Authority, had declared bankruptcy and was conducting a going-out-of-business sale. I believe that this news has unfairly impacted the price of NKE. After all, people will continue to buy NKE shoes. It just won’t be at Sports Authority.

NKE has been doing very well lately. It has had 4 consecutive spectacular quarters, exceeding estimated earnings by a wide margin each time, yet it is trading very near the low for the year, down 20% from its high reached in December. In that month, there was a 2-for-1 stock split, and this often results in a lower stock price over the subsequent few months (apparently, a fair number of people sell off half their stock so they retain the same number of shares they had before the split, with most or all of their original investment back in their pocket). The same thing happened to Google when it split its stock a few years ago – it was lower at the end of the year than it was at the beginning, the only time in its first 9 years of existence that that happened.

NKE is trading about $54 today. If you believed that this was about as low as it might go, you might make a 5-month bet that it won’t be trading below $52.50 when the 21Oct16 options expire. You would make 50% on your money (after commissions) if you bought 21Oct16 50 puts and sold 21Oct16 52.5 puts, collecting $.86 and risking $1.64 if the stock falls below $50 by that time (using the commission rate charged to Terry’s Tips subscribers at thinkorswim – $1.25 per contract).

This trade, executed as a vertical put credit spread, would put $83.50 in your account. Your broker would assess a maintenance requirement of $250. Subtracting out the $83.50 you received, the net amount the trade would cost you would be $166.50. This is also the maximum loss you could possibly incur. It would come along only if NKE fell below $50 on October 16th. If NKE is at any price above $52.50 on that date, both put options would expire worthless and you would not have to make another trade to close out your positions (saving you commissions on that end of the trade).

An even safer bet could be made by trading those same strikes for the 20Jan17 series where you could collect $.96, risk $1.54, and make 60% on your investment (and maximum loss) if NKE closes above $52.50 in January. Not only is the gain greater, but you have an extra quarter (including the Christmas selling season) to watch NKE grow (or at least not fall).

I consider this to be a conservative investment because I believe NKE has had its price unfairly pushed lower because of the Sports Authority bankruptcy and is selling near the low for the year in spite of exceeding earnings estimates every quarter for the last year. The stock does not have to go up a penny to make 60% on this trade. All it has to do is not fall by more than $1.50 by January 20, 2017. I think it is highly likely to be trading safely higher than $52.50 at the time.

As always, you should only invest money in stock options if you can truly afford to lose it. Options are risky, and while potential gains can be far greater than conventional investments, they usually incur a greater degree of risk (although in the above case, I like the odds when a stock is unfairly downtrodden and doesn’t have to go up a penny to guarantee a gain on the trade).

Happy trading,


P.S. For this lowest-price-ever $39.95 offer for the complete Terry’s Tips package (including my White Paper for which over 10,000 people have paid our regular price $79.95), click here, enter Special Code 15Year (or 15YearP for Premium Service – $79.95). It could be the best investment decision you ever make.

More Legging Into Pre-Announcement Calendar Option Spreads

Tuesday, May 3rd, 2016

Over the past month I have suggested legging into calendar spreads in advance of an earnings announcement for 4 different companies. In every case, you should have been able to duplicate my success in creating a calendar spread at a credit. These spreads are absolutely guaranteed to make a profit since the long side of the spreads has more time remaining and will always be worth more than the short side, regardless of what the stock does after the earnings announcement.

Today I would like to suggest two more companies where I am trying to set up calendar spreads at a credit.


More Legging Into Pre-Announcement Calendar Option Spreads

First, an update on the Facebook (FB) pre-earnings play I suggested last week. Earlier, I showed how you could leg into a calendar spread in FB at the 110 strike, and this proved to be successful. In addition, last week I suggested something different – the outright buying of 17JUN16 – 29APR16 calendar spreads at the 105 strike (using puts and paying $1.58), the 110 strike (using puts and paying $1.52) and the 115 strike (using calls and paying $1.52). I was able to execute all three of these spreads in my account at these prices, and you should have been able to do the same.

As you probably know, FB reported blow-out numbers, and the stock soared, initially to over $121, but then it fell back to $117 near the close on Friday the 29th. We were hoping that the stock could end up inside our range of strikes (105 – 115) but we were not so lucky. At 3:00 on Friday, I sold these three spreads for $.95, $1.82, and $3.40 for a total of $6.17 for all 3. This compared to a cost of $4.62 for the 3 spreads. Deducting out $15 in commissions, I netted $1.40 ($140) for every set of three calendar spreads I had put on. While this was a disappointing result, it worked out to 22% on the investment in only 4 days. I enjoyed the thrill of holding a possible 100% gain (if the stock had ended up at $110 instead of $117) and still managed to make a greater return than most people do in an entire year.

This week, on Monday morning, I looked at Costco (COST), (one of my favorite stocks) which reports earnings on May 25. The options series that expires just after this announcement is the 27MAY16 series. With the stock at about $148.50, I bought 10JUN16 150 calls (which expire two weeks later than the 27MAY16 options), paying $2.90. Implied Volatility (IV) for those options was 21 and the 27MAY16 series was only 22. I expect the difference between these IVs to get much higher over the next couple of weeks (mostly, the 27MAY16 series should move higher).

I immediately placed an order to sell the 27MAY16 150 calls (good-til-cancelled order) for $3.05 which would give me a credit of $.15 ($15 less $2.50 commissions). The stock shot $2 higher and this order executed less than 2 hours after I placed it. I apologize that I didn’t send this out to you in time for you to duplicate what I did.

I still like the company and its prospects, so I placed another order to buy 10JUN16 152.5 calls, paying $2.56 when COST was trading at $150.80. I then placed a good-til-cancelled order to sell 27MAY16 152.5 calls for $2.65. That has not executed yet.

Another company that looked interesting was Target (TGT) which announces earnings before the bell on May 18. IV for the 20MAY16 series was 27, only barely higher than the 3JUN16 series of 24 (this difference should get bigger). When the stock was trading about $79.40, I bought 3JUN16 79.5 calls for $1.88 and immediately placed an order to sell 20MAY16 calls for $1.95. This order executed about 2 hours later when the stock rose about $.60. Once again, I apologize that I did not get his trade possibility out to you in time for you to copy it.

Tomorrow I intend to buy TGT 3JUN16 81 calls and as soon as I get them, I will place an order to sell 20MAY16 81 calls for $.10 more than I paid for them. If the stock rises or IV of the 20MAY16 options gets larger (as it should), another credit calendar guaranteed profit spread should be in place.

In the last few weeks, I have both told you about and used this strategy for SBUX, JNJ, FB, and TWX. Now I have added COST and TGT to the list. In each case, I bought a slightly out-of-the-money call a few weeks out and immediately placed an order to sell the post-announcement same-strike call so that I would create a calendar spread at a credit.

The ultimate gain on these spreads will depend on how close the stock ends up to the strike price of my calendar spread after the announcement. The nearer to the strike, the greater the gain. It is fun owning a spread that you are certain will make a profit, no matter what the stock does.

How to Play the Upcoming Facebook Earnings Announcement

Wednesday, April 20th, 2016

Over the last 3 weeks, I have suggested a way to leg into calendar spreads at a credit in advance of the earnings announcement for Starbucks (SBUX), Facebook (FB), and Abbvie (ABBV). All three calendars ended up being completed, and all three have already delivered a small profit. Once earnings are announced and the short side of the calendar spread expires, all three spreads are guaranteed to produce a much larger profit as well (depending on how close the stock price is to the strike price).

Today I would like to discuss another Facebook play. While this one does not guarantee profits, I believe it is even more exciting in many ways. It is possible that you could double your money in less than two weeks. I also believe it is extremely unlikely to lose money.


How to Play the Upcoming Facebook Earnings Announcement

All sorts of articles have been written over the past few weeks about the prospects for FB, some positive and some negative. We will all learn who was right and who was wrong late next week when FB announces earnings on April 27, and the details of the company’s large assortment of new and wondrous initiatives will be disclosed.

The high degree of uncertainty over the announcement has caused implied volatility (IV) of the options to soar, particularly in the series that expires two days after the announcement. Those Apr5-16 options carry an IV of 52. This compares to only 35 for longer-term option series and 32 for the Apr4-16 series which expires this week.

Buying calendar spreads at this time represents one of the best opportunities I have ever seen to buy cheap options and sell expensive options against them. The FB calendar spreads are exceptionally cheap right now, at least to my way of thinking.

I have written an article which was published by today which describes the actual calendar spreads I have bought yesterday and today (and I have bought a lot of them). The article fully explains my thinking as to which spreads I purchased. Read the full article here.

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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.

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