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Posts Tagged ‘profits’

Comparing Calendar and Diagonal Spreads in an Earnings Play

Monday, December 5th, 2016

Last week, in one of our Terry’s Tips portfolios, we placed calendar spreads with strikes about $5 above and below the stock price of ULTA which announced earnings after the close on Thursday. We closed out our spreads on Friday and celebrated a gain of 86% after commissions for the 4-day investment. It was a happy day.

This week, this portfolio will be making a similar investment in Broadcom (AVGO) which announces earnings on Thursday, December 8. I would like to tell you a little about these spreads and also answer the question of whether calendar or diagonal spreads might be better investments.

Terry

Comparing Calendar and Diagonal Spreads in an Earnings Play

Using last Friday’s closing option prices, below are the risk profile graphs for Broadcom (AVGO) for options that will expire Friday, December 9, the day after earnings are announced. Implied volatility for the 9Dec16 series is 68 compared to 35 for the 13Jan17 series (we selected the 13Jan17 series because IV was 3 less than it was for the 20Jan17 series). The graphs assume that IV for the 13Jan17 series will fall from 35 to 30 after the announcement. We believe that this is a reasonable expectation.

The first graph shows the expected profit and loss at the various prices where the stock might end up after the announcement. Note that the maximum expected gain in both graphs is almost identical and it occurs at any ending price between $160 and $170. The first graph has calendar spreads at the 160 strike (using puts) and the 170 strike (using calls). The cost of placing those spreads would be $2375 at the mid-point of the spread quotes (your actual cost would probably be slightly higher than this, plus commissions). The maximum gain occurs if the stock ends up between $160 and $170 on Friday (it closed at $164.22 last Friday), and if our assumptions about IV are correct, the gain would exceed 50% for the week if it does end up in that range.

AVGO Calendar Spreads December 2016

AVGO Calendar Spreads December 2016

This second graph shows the expected results from placing diagonal spreads in the same two series, buying both puts and calls which are $5 out of the money (i.e., $5 lower than the strike being sold for puts and $5 higher than the strike being sold for calls). These spreads cost far less ($650) but would involve a maintenance requirement of $2500, making the total amount tied up $3150.

We also checked what the situation might be if you bought diagonal spreads where the long side was $5 in the money. Once again, the profit curve was essentially identical, but the cost of the spreads was significantly greater, $4650. Since the profit curve is essentially identical for both the calendar spreads and the diagonal spreads, and the total investment of the calendar spreads is less than it would be for the diagonal spreads, the calendar spreads are clearly the better choice.

AVGO Diagonal Spreads December 2016

AVGO Diagonal Spreads December 2016

AVGO has a long record of exceeding estimates. In fact, it has bested expectations every quarter for the last three years. The stock does not always go higher after the announcement, however, and the average recent change has been 6.5%, or about $7.40. If it moves higher or lower than $7.40 on Friday than where it closed last Friday, the risk profile graph shows that we should make a gain of some sort (if IV of the 13Jan17 options does not fall more than 5).

You can’t lose your entire investment with calendar spreads because your long options have more weeks or months of remaining life, and will always be worth more than the options you sold to someone else. But you can surely lose money if the stock fluctuates too much. Options involve risk and are leveraged investments, and you should only invest money that you can truly afford to lose.

Happy trading.

Terry

Update on Oil Trade (USO) Suggestion

Friday, December 2nd, 2016

On Monday, I reported on an oil options trade I had made in advance of OPEC’s meeting on Wednesday when they were hoping to reach an agreement to restrict production.  The meeting took place and an agreement was apparently reached.  The price of oil shot higher by as much as 8% and this trade ended up losing money.  This is an update of what I expect to do going forward.

Terry

Update on Oil Trade (USO) Suggestion

Several subscribers have written in and asked what my plans might be with the oil spreads (USO) I made on Monday this week.  When OPEC announced a deal to limit production, USO soared over a dollar and made the spreads at least temporarily unprofitable (the risk profile graph showed that a loss would result if USO moved higher than $11.10, and it is $11.40 before the open today).  I believe these trades will ultimately prove to be most profitable, however.

First, let’s look at the option prices situation.  There continues to be a huge implied volatility (IV) advantage between the two option series.  The long 19Jan18 options (IV=36) are considerably cheaper than the short 02Dec16 and 09Dec16 options (IV=50).  The long options have a time premium of about $1.20 which means they will decay at an average of $.02 per week over their 60-week life.  On the other hand, you can sell an at-the-money (11.5 strike) put or call with one week of remaining life for a time premium of over $.20, or ten times as much.  If you sell both a put and a call, you collect over $.40 time premium for the week and one of those sales will expire worthless (you can’t lose money on both of them).

 

At some point, the stock will remain essentially flat for a week, and these positions would return a 20%+ “dividend” for the week.  If these option prices hold as they are now, this could happen several times over the next 60 weeks.

 

I intend to roll over my short options in the 02Dec16 series that expires today and sell puts and calls at the 11.5 and 11 strikes for the 09Dec16 series.  I will sell one-quarter of my put positions at the 10.5 strike, going out to the 16Dec16 series instead.  I have also rolled up (bought a vertical spread) with the 19Jan18 puts, buying at the 12 strike and selling the original puts at the 10 strike.  This will allow me to sell new short-term puts at prices below $12 without incurring a maintenance requirement.

 

Second, let’s look at the oil situation.  The OPEC companies supposedly agreed to restrict production by a total of 1.2 million barrels a day.  That is less than a third of the new oil that Iran has recently added to the supply when restrictions were relaxed on the country.  The third largest oil producer (the U.S.) hasn’t participated in the agreement, and has recently added new wells as well as announcing two major oil discoveries.  Russia, the second largest producer, is using its recent highest-ever production level as the base for its share of the lowered output.  In other words, it is an essentially meaningless offer.

 

Bottom line, I do not expect the price of oil will move higher because of this OPEC action.  It is highly likely that these companies may not follow through on their promises as well (after all, many of them have hated each other for centuries, and there are no penalties for not complying).   Oil demand in the U.S. has fallen over the past 5 years as more electric cars and hybrids have come on the market, and supply has continued to grow as fracking finds oil in formerly unproductive places.  I suspect that USO will fluctuate between $10 and $11 for much of the next few months, and that selling new weekly puts and calls against our 19Jan18 options will prove to be a profitable trading strategy.  You can do this yourself or participate in the Boomer’s Revenge portfolio which Terry’s Tips subscribers can follow through Auto-Trade at thinkorswim which is essentially doing the same thing.

Happy trading.

Terry

Benefiting From the Current Uncertainty of Oil Supply

Tuesday, November 29th, 2016

The price of oil is fluctuating all over the place because of the uncertainty of OPEC’s current effort to get a widespread agreement to restrict supply. This has resulted in unusually high short-term option prices for USO (the stock that mirrors the price of oil). I would like to share with you an options spread I made in my personal account today which I believe has an extremely high likelihood of success.

Terry

Benefiting From the Current Uncertainty of Oil Supply

I personally believe that the long-run price of oil is destined to be lower. The world is just making too much of it and electric cars are soon to be here (Tesla is gearing up to make 500,000 next year and nearly a million in two years). But in the short run, anything can happen.

Meanwhile, OPEC is trying to coax producers to limit supply in an effort to boost oil prices. Every time they boast of a little success, the price of oil bounces higher until more evidence comes out that not every country is on board. Iran and Yemen won’t even show up to the meeting. Many oil-producing companies have hated one another for centuries, and the idea of cooperating with each other seems a little preposterous to me.

The good old U.S.A. is one of the major producers of oil these days, and it is not one of the participants in OPEC’s discussion of limiting supply. Two significant new domestic oil discoveries have been announced in the last couple of months, and the total number of operating rigs has moved steadily higher in spite of the currently low oil prices.

Bottom line, option prices on USO are higher than we have seen them in quite a while, especially the shortest-term options. Implied volatility (IV) of the long-term options I would like to buy is only 36 compared to 64 for the shortest-term weekly options I will be selling to someone else.

Given my inclination to expect lower rather than higher prices in the future, I am buying both puts and calls which expire a little over a year from now and selling puts and calls which expire on Friday. Here are the trades I made today when USO was trading at $10.47:

Buy To Open 20 USO 19Jan18 10 puts (USO180119P10)
Sell To Open 20 USO 02Dec16 10 puts (USO161202P10) for a debit of $1.20 (buying a calendar)

Buy To Open 20 USO 19Jan18 10 calls (USO180119C10)
Sell To Open 20 USO 02Dec16 10.5 calls (USO161202C10.5) for a debit of $1.58 (buying a diagonal)

Of course, you can buy just one of each of these spreads if you wish, but I decided to pick up 20 of them. For the puts, I paid $1.43 ($143) for an option that has 60 weeks of remaining life. That means it will decay in value by an average of $2.38 every week of its life. On the other hand, I collected $.23 ($23) from selling the 02Dec16 out-of-the-money 10 put, or almost 10 times what the long-term put will fall by. If I could sell that put 60 times, I would collect $1380 of over the next 60 weeks, more than 10 times what I paid for the original spread.

Here is the risk profile graph which shows what my spreads should be worth when the short options expire on Friday:

USO Risk Profile Graph December 2016

USO Risk Profile Graph December 2016

My total investment in these spreads was about $5600 after commissions, and I could conceivably make a double-digit return in my very first week. If these short-term option prices hold up for a few more weeks, I might be able to duplicate these possible returns many more times before the market settles down.

As usual, I must add the caveat that you should not invest any money in options that you cannot truly afford to lose. Options are leveraged investments and can lose money, just as most investments. I like my chances with the above investment, however, and look forward to selling new calls and puts each week for a little over a year against my long options which have over a year of remaining life.

Black Friday: How A VIX Spread Gained 70% in 3 Weeks

Saturday, November 26th, 2016

On Wednesday of this week, a VIX spread I recommended for paying subscribers expired after only 3 weeks of existence.  It gained 70% on the investment, and it is the kind of spread you might consider in the future whenever VIX soars (usually temporarily) out of its usual range because of some upcoming uncertain event (this time it was the election that caused VIX to spike).

In addition to telling you about this spread so you can put it in your book of future possibilities, we are offering a Black Friday -  Cyber Monday special offer to encourage you to come on board at a big discount price.

Terry

How A VIX Spread Gained 70% in 3 Weeks

VIX is the average implied volatility (IV) of options which are traded on the S&P 500 tracking stock (SPY).  It is called the “fear index” because when market fears arise because of some future uncertain event, option prices move higher and push VIX up.  Most of the time, VIX fluctuates between 12 and 14, but every once in a while, it spikes much higher.

Just before the election that took place on November 8, VIX soared to 22.  I recommended to my paying subscribers to place a bet that VIX would fall back below 15 when the option series that expired on November 23 came around.  Here are the exact words I wrote in my November 5 Saturday Report:

“When VIX soared to above 22 this week, we sent out a special note describing a bearish vertical call credit spread which would make very large gains if VIX retreated toward its recent average of hanging out in the 12-14 range.  As you surely know, you can’t actually buy (or sell short) VIX, as it is the average implied volatility (IV) of SPY options (excluding the weeklies).  However, you can buy and sell puts and calls on VIX, and execute spreads just as long as both long and short sides of the spread are in the same expiration series.

You are not allowed to buy calendar or diagonal spreads with VIX options since each expiration series is a distinct series not connected to other series.  If you could buy calendars, the prices would look exceptional.  There are times when you could actually buy a calendar spread at a credit, but unfortunately, they don’t allow such trades.

Vertical spreads are fair game, however, and make interesting plays if you have a feel for which way you think volatility is headed.  Right now, we have a time when VIX is higher than it has been for some time, pushed up by election uncertainties, the Fed’s next interest rate increase, and the recent 9-day consecutive drop in market prices.  This week, when VIX was over 22, we sent out a special trade idea based on the likelihood that once the election is over, VIX might retreat to the lower 12-14 range where it has hung out most of the time recently.  This is the trade we suggested:

BTO 1 VIX 23Nov16 21 call (VIX161123C21)

STO 1 VIX 23Nov16 15 call (VIX161123C15) for a credit of $2.60 (selling a vertical)”

This spread caused a maintenance requirement of $600 against which we received $260 for selling the spread.  That made our net investment $340 (and maximum loss if VIX ended up above 17.60 on November 23rd.

It worked out exactly as we expected.  VIX fell to below 13 and both puts expired worthless on Wednesday.  We pocketed the full $260 per contract (less $2.50 commission) for the 3 weeks.  How sweet it is.  We also placed the identical spread at this $2.60 price for the series that closes on December 28 (after the Fed interest rate decision has been made public).  With VIX so much lower, we could close out the spread right now for $75, netting us a 51%  profit.  Many subscribers have reported to us that they have done just that.

And now for the special Black Friday – Cyber Monday special offer.

Black Friday/Cyber Monday Special Offer:  As a post Thanksgiving special, we are offering one of the lowest subscription prices that we have ever offered – our full package, including several valuable case study 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 three months of our Saturday Reports full of tradable option ideas.  All this for a one-time fee of $69.95, normally $139.80 (not including bonus reports).

For this low-price Black Friday/Cyber Monday $69.95 offer, click here, enter Special Code BFCM16 (or BFCM16P for Premium Service – $199.95).

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 of our 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 which are available for Auto-Trade.  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 midnight Monday , November 28th, 2016.  That’s when the Black Friday/Cyber Monday 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 Holiday Season treat that is designed to deliver higher financial returns for the rest of your investing life.

I look forward to helping you survive the Holidays by sharing this valuable investment information with you for our first ever Black Friday/ Cyber Monday Sale. It may take you a little homework, but I am sure you will end up thinking it was well worth the investment.

Happy trading.

Terry

P.S.  If you would have any questions about this offer or Terry’s Tips, please email Seth Allen, our Senior Vice President at seth@terrystips.com.  Or make this investment in yourself at the Black Friday/Cyber Monday sale price – the first time this has been offered in our 15 years of publication – only $69.95 for our entire package.  Get it here using Special Code BFCM16 (or BFCM16P for Premium Service – $199.95).   Do it today, before you forget and lose out.  This offer expires at midnight November 28th, 2016.

A Short Summary of the Greeks

Tuesday, November 15th, 2016

Academics have developed a number of mathematical measures to get a better handle on stock option prices.  They call them the Greeks, even though some of the measures really don’t exist as Greek words, but sound they should.

Several subscribers have written to say that the Greeks totally befuddle them.  This little report is my attempt to summarize them in 100 words or less (for each Greek, that is).  I hope it might make them a little less confusing to you.

Terry

 A Short Summary of the Greeks

Delta is the number of cents an option will go up if the stock goes up by $1.00.  If you multiply the delta of an option by the number of options you own, you get a figure that represents the equivalent number of shares of stock you own.  If you own 10 options that carry a delta of 60, you own the equivalent of 600 shares of stock.  (If the stock goes up by $1, your positions will increase by $600 in value, just as if you owned 600 shares of the stock).

Your Net Delta Position is the sum total of all the delta values of the options you own, less the delta values of the options you are short (i.e., sold to someone else).  The closer that your Net Delta Position is to zero, the less you will be affected by changes in the price of the stock.  Generally, your goal is to remain delta neutral (i.e., as close to zero as possible).  However, if the market is rising quickly, you want to maintain a reasonably positive net delta value rather than zero.

What is reasonable?  How far is up?  Why is a mouse when it spins? Imponderable questions, all.  (I put this paragraph here to let you know that if you think the Greeks are confusing, it could be worse.  You could really go crazy if you tried to understand some questions).

Gamma is a number that tells you how much your delta will change if the stock goes up by $1.00.  So if you have a net delta position of 600 (meaning you will be $600 richer if the stock goes up $1), and your net gamma is –800, you know that once the stock has gone up that dollar, you will be short the equivalent of 200 shares of stock, and wishing that the stock would fall.  Gamma helps you know the extent, if any, of the upside protection you possess.

Theta is the amount that an option will fall in value in a single day.  If the price of the stock remains flat, all options decay in value every day.  Theta tells you how much. The heart of the 10K Strategy is that we own long-term calls which carry a low theta value, and we sell to someone else short-term calls which carry a higher theta value.  Our profit comes in the difference between these two decay rates.

The ultimate goal of the 10K Strategy is to maximize the position Theta value while maintaining a low net Delta value and a low net Gamma value to protect against adverse stock price changes.  

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

Wednesday, November 9th, 2016

Every once in a while, market volatility soars. The most popular measure of volatility is VIX, the so-called “fear index’ which is the average volatility of options on SPY (the S&P 500 tracking stock). By the way, SPY weekly options are not included in the calculation of VIX, something which tends to understate the value when something specific like today’s election is an important reason affecting the current level of volatility.

Today I would like to share with you a trade I recommended to paying subscribers to Terry’s Tips last week. We could close it out today for a 27% profit after commissions in one week, but most of us are hanging onto our positions for another couple of weeks because we still believe the spread will result in 75% gain for three weeks when the market settles down after today’s election.

I hope you can learn something from this latest way to benefit from an elevated volatility level in the market.

Terry

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

As much as you might like, you can’t actually buy (or sell short) VIX, so there is no direct way to bet whether volatility will go up or down with this popular measure. However, you can buy and sell puts and calls on VIX, and execute spreads just as long as both long and short sides of the spread are in the same expiration series.

You are not allowed to buy calendar or diagonal spreads with VIX options since each expiration series is a distinct series not connected to other series. If you could buy calendars, the prices would look exceptional. There are times when you could actually buy a calendar spread at a credit, but unfortunately, they don’t allow such trades.

Vertical spreads are fair game, however, and make interesting plays if you have a feel for which way you think volatility is headed. Last week, we had a time when VIX was higher than it has been for some time, pushed up by election uncertainties, the Fed’s next interest rate increase, and the recent 9-day consecutive drop in market prices. When VIX was over 22, we sent out a special trade idea based on the likelihood that once the election is over, VIX might retreat. For the last few years, the most popular range for VIX to hang out has been in the 12-14 area. Obviously, this is a lot lower than last’s week’s 22-23 range.

If you look at a chart of VIX, you will see that it has moved above 20 on only 7 occasions over the past three years, and the great majority of time, it quickly retreated to a much lower level. Only once did it remain over 20 for more than a couple of weeks or so. Back in 2008, VIX moved up to astronomical levels and stayed there for several months, but if you recall those days, with the implosion of Lehman Bros., Long Term Capital, and bank bailouts all around, there was serious fears that our entire financial system might soon collapse. This time around, it seemed like the most fearful consideration was the American election, and specifically that Donald Trump might win and market uncertainty would surely soar even further. This does not feel like the cataclysmic possibilities that we were facing in 2008.

This is the trade we suggested, based on our assumption that Donald Trump would probably not prevail and not much different would happen out of Washington going forward:

BTO 1 VIX 23Nov16 21 call (VIX161123C21)
STO 1 VIX 23Nov16 15 call (VIX161123C15) for a credit of $2.60 (selling a vertical)

This spread involves an investment (and maximum risk) of $342.50. There is a $600 maintenance requirement (the difference between the strike prices) from which the $260 received less $2.50 commission or $257.50 must be deducted. If VIX closes at any number below 15 on November 23, both calls would expire worthless and this spread would make $257.50 on the maximum risk of $342.50, or 75%.

Maybe 3 weeks was not a long enough time to expect VIX to plummet back to 15. An argument could be made that it would be better to wait until after the Fed’s December rate decision has been made, and place this same spread in the 20Jan17 series. The price (and potential gain) would be about the same (I have sold this same spread in that series in my personal account as well). Of course, you have to wait 2 ½ months for it to come about, but 75% is a sweet number to dream about collecting in such a short time.

Since we placed the above spreads a week ago, VIX has fallen from 23 to a little over 18 today (apparently when the FBI exonerated Hillary, it looked less likely that Trump would win). It only needs to fall a little over 3 more points after the election today to deliver 75% to us on November 23rd. We like our chances here. Some subscribers are taking their gains today, just in case Mr. Trump gets elected. They can buy the spread back today for $1.65, well below the $2.60 they collected from selling it. I am personally holding out for the bigger potential gain.

Halloween Special Expires at Midnight Tonight

Monday, October 31st, 2016

Halloween Special Expires at Midnight Tonight

I want to send you a copy of the October 29, 2016 Saturday Report, the weekly email sent to paying subscribers to Terry’s Tips.  This report details how our 13 actual portfolios perform each week.    Last week was a down one for the market (SPY lost 0.7%), and many of our portfolios experienced a similar loss.  Others did considerably better.

The portfolio based on Johnson and Johnson (JNJ) gained 25% while the stock rose 1.7%.  The portfolio based on Facebook (FB) gained 8.7% even though FB fell by 0.6% last week.  This portfolio was started with $6000 one year and three weeks ago, and is now worth $13,449, a gain of 124%.

One of our portfolios invests in companies which are about to announce earnings, and closes out the positions on the Friday after the announcement.  Last week, we closed out our spreads in Mastercard (MA) which had been put on only a week and a half earlier.  We enjoyed a gain of 34.3% (after commissions, as is the case for all of these portfolios).

Finally, we have a portfolio that is designed as protection against a market crash or correction.  While SPY fell only 0.6%, this bearish portfolio picked up 13.6% (admittedly, this was an unusually positive result which rarely occurs to this extent, but sometimes we are a little lucky).

Watching how these portfolios unfold over time in the Saturday Report is a wonderful (and easy) way to learn the intricacies of option trading.  You can get started today by coming on board at our half-off Halloween Special which expires at midnight tonight. I will personally send you the October 29th Saturday Report so you can start immediately.

Most of these portfolios employ 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.

Lowest Subscription Price Ever

As a Halloween special, we are offering the lowest subscription price than we have ever offered – our full package, including several valuable case study 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 Saturday Reports 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 of our 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 which are available for Auto-Trade.  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 midnight tonight, 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 survive Halloween 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.

Terry

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 at midnight tonight, October 31, 2016.

 

 

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.

Terry

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.

 

Calendar Spreads Tweak #4

Wednesday, September 21st, 2016

Today I would like to discuss how you can use calendar spreads for a short-term strategy based around the date when a stock goes ex-dividend. I will tell you exactly how I used this strategy a week ago when SPY paid its quarterly dividend.

Terry

Calendar Spreads Tweak #4

Four times a year, SPY pays a dividend to owners of record on the third Friday of March, June, September, and December. The current dividend is about $1.09. Each of these events presents a unique opportunity to make some money by buying calendar spreads using puts to take advantage of the huge time premium in the puts in the days leading up to the dividend day.

Since the stock goes down by the amount of the dividend on the ex-dividend day, the option market prices the amount of the dividend into the option prices. Check out the situation for SPY on Wednesday, September 14, 2016, two days before an expected $1.09 dividend would be payable. At the time of these prices, SPY was trading just about $213.70.

Facebook Bid Ask Puts Calls Sept 2016

Facebook Bid Ask Puts Calls Sept 2016

Note that the close-to-the-money options at the 213.5 strike show a bid of $1.11 for calls and $1.84 for puts. The slightly out-of-the-money put options are trading for nearly double the prices for those same distance-out calls. The market has priced in the fact that the stock will fall by the amount of the dividend on the ex-dividend day. In this case, that day is Friday.

SPY closed at $215.28 on Thursday. Friday’s closing price was $213.37, which is $1.91 lower. However, the change for the day was indicated as -$.82. The difference ($1.09) was the size of the dividend.

On Wednesday and Thursday, I decided to sell some of those puts that had such large premiums in them to see if there might be some opportunity there. While SPY was trading in the $213 to $216 range, I bought put calendar spreads at the 214.5, 214, 213.5, and 213 strikes, buying 21Oct16 puts at the even-strike numbers and 19Oct16 puts for the strikes ending in .5 (only even-number strikes are offered in the regular Friday 21Oct16 options). Obviously, I sold the 16Sep16 puts in each calendar spread.

Note: On August 30th, the CBOE offered a new series of SPY options that expire on Wednesday rather than Friday. The obvious reason for this offering involves the dividend situation. Investors who write calls against their SPY stock are in a real bind when they sell calls that expire on an ex-dividend Friday. First, there is very little time premium in those calls. Second, there is a serious risk that the call will be exercised by the holder to take the stock and capture the dividend. If the owner of SPY sold the series that expired on Wednesday rather than Friday, the potential problem would be avoided.

I paid an average of $2.49 including commissions for the four calendar spreads and sold them on Friday for an average of $2.88 after commissions. I sold every spread for more money that it cost (including commissions). My net gain for the two days of trading was just over 15% after commissions.

The stock fell $.82 (after accounting for the $1.09 dividend). If it had gone up by that amount, I expect that my 15% gain would also have been there. It is unclear if the gains would have been there if SPY had made a big move, say $2 or more in either direction on Friday. My rough calculations showed that there would still be a profit, but it would be less than 15%. Single-day moves of more than $2 are a little unusual, however, so it might not be much to be concerned about.

Bottom line, I am delighted with the 15% gain, and will probably try it again in three months (at the December expiration). In this world of near-zero interest rates, many investors would be happy with 15% for an entire year. I collected mine in just two days.

Trading SPY options is particularly easy because of the extreme liquidity of those options. In most cases, I was able to get an execution at the mid-point price of the calendar spread bid-ask range. I never paid $.01 more or received more than $.01 less than the mid-point price when trading these calendar spreads.

While liquidity is not as great in most options markets, it might be interesting to try this same strategy with other dividend-payers such as JNJ where the dividend is also over $1.00. I regularly share these kinds of trading opportunities with Terry’s Tips Insiders so that they can follow along in their own accounts if they wish.

Happy trading.

Calendar Spreads Tweak #1

Thursday, September 1st, 2016

This week we will continue our discussion of a popular option spread – the calendar spread which is also called a time spread or horizontal spread. We will check out the feasibility of buying spreads at different strike prices in an effort to reduce risk.

Terry

Calendar Spreads Tweak #1

First, let’s look at a typical calendar spread on Facebook (FB). Last Friday, when FB was trading about $124.20, we bought 5-month-out 20Jan17 calls and sold one-month-out 30Sep16 calls. The spread would cost $5.43 ($543), and this is what the risk profile graph looked like:

Face book Risk Profile May 2016

Face book Risk Profile May 2016

Note that the break-even range extends from about $3 on the downside to $5 on the upside, a range of $8. (The loss or gain when the short calls expire on September 30 is indicated in the column on the right titled “P/L Day.”) The maximum gain is precisely at the $125 price, and it is about $150 which would result in a nice 27% gain for the month.

Next, I tested whether I could expand the break-even range by adding the same calendar spread at the 120 and 130 strike prices (the 20Jan17 series only offers strikes at $5 increments, unlike the weekly series). The 120 spread would cost $464 and the 130 spread would be $483, so buying all three spreads would involve an investment of about $1500. Here is what the risk profile graph looks like for the three spreads:

Face Book Risk Profile 2 September 2016

Face Book Risk Profile 2 September 2016

Note that the break-even range is almost exactly the same with the three spreads. The maximum gain is also about $150, but with three spreads, it would mean a 10% gain rather than a 27% one because you would have about $1500 invested rather than $543. Clearly, adding calendar spreads at strikes $5 above and below the current stock price is not the way to go – about triple the investment, the same expected maximum gain, and about the same break-even range.

Presumably, you are trading calendars on a stock you believe is headed higher. You might choose to buy an at-the-money calendar and a second one at a higher strike. If you do this, your investment is about $1000 and this is the risk profile graph:

Face Book Risk Profile 3 September 2016

Face Book Risk Profile 3 September 2016

The break-even range is once again about $8 from the lowest point to the highest, but it extends just over a dollar on the downside and $7 on the upside. If you are bullish on the stock, this seems to be a better way to go. The maximum gain is about $150 once again, and this results in a 15% gain for the month. The best thing about this choice of two spreads is that the maximum gain can be achieved across a 5-point range rather than being available at only one precise price point.

Another strategy might be to buy the 125 calendar spread, and then wait to see which way the stock moves, and then buy another calendar in that direction. As we have seen, the cost of an at-the-money calendar is not much greater than the same calendar which is $5 away from the money. The big risk with this strategy is that the stock might whipsaw. For example, it might fall $3 which might prompt you to buy a 120 calendar, and then shoot higher, going up to $128 which might cause you to add a new spread at the 130 strike.

As usual, there are no easy ways to make sure gains in this world. The best bet seems to be to take a position that the stock is headed in one particular direction (usually up unless you are trading on some ETP that is destined to go down, like VXX), and combine an at-the-money spread with one at a higher strike price. Most months you should be making a significant gain if your stock behaves as you expect, and that gain can materialize over a nice range of possible prices.

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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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