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Posts Tagged ‘profits’

Closing Out Last Week’s Facebook Trades

Wednesday, May 10th, 2017

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

Terry

Closing Out Last Week’s Facebook Trades

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Happy trading,

Terry

Interesting Earnings Play on Facebook

Tuesday, May 2nd, 2017

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

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

Terry

Interesting Earnings Play on Facebook

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FB Risk Profile Graph May 2017

FB Risk Profile Graph May 2017

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

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

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

Happy trading,

Terry

40% Possible in 2 Weeks With an Iron Condor?

Monday, April 17th, 2017

Today’s idea involves an esoteric Exchange Traded Product (ETP) called SVXY.  It is one of our favorite underlyings at Terry’s Tips.  Chances are, you don’t know very much about it, and I can’t help you much in this short note.  But I will share a trade I made on this ETP this morning, and my thinking behind this trade.

Terry

40% Possible in 2 Weeks With an Iron Condor?

The best way to explain how SVXY works might be to explain that it is the inverse of VXX, the ETP that some people buy when they fear that the market is about to crash.  Many articles have been published extolling the virtues of VXX as the ideal protection against a setback in the market.  When the market falls, volatility (VIX) most always rises, and when VIX rises, VXX almost always does as well.  It is not uncommon for VXX to double in value in a very short time when the market corrects.

The only problem with VXX is that in the long run, it is just about the worst equity that you could imagine buying.  Over the last 5 years, it has fallen from a split-adjusted several thousand dollar price to today’s $18 level.  About every year and a half, a reverse 1-for-4 reverse split must be engineered on VXX to keep the price high enough to bother with buying.  The last time this happened was in August 2016.  It pushed the price up from just over $9 to about $40, and it has lost over half its value since then.

Clearly, you would only buy VXX if you felt strongly that the market was about to implode.  Most of the time, we prefer to own the inverse of VXX.  That is SVXY.  So far, it has gone from $90 to over $140 in 2017, only to fall back to about $123 last week when geopolitical fears arose and depressed the market a bit, and even more significant for volatility-related ETPs like VXX and SVXY, volatility (VIX) rose from the 11 -13 range where it has hung out most of the time for the past few years to about 16 today.

When VIX rose and SVXY fell last week, something interesting happened. Implied volatility (IV) of the SVXY options skyrocketed to nearly double what it was a month ago.  I think that these high option prices will not exist for too long, and would like to sell some at this time.

Rather than selling either or both puts and calls naked (inviting the possibility of unlimited loss), a good way of selling high-IV options is through an iron condor spread.  I believe that SVXY, trading near the $123 where it opened this morning, is unlikely to be higher than $135 or lower than $95 in 11 days when the 28April17 options expire.

This is the spread I executed this morning:

Buy to Open # 28Apr17 140 calls (SVXY170428C140)
Sell to Open # 28Apr17 135 calls (SVXY170428C135)
Buy to Open # 28Apr17 90 puts (SVXY170428P90)
Sell to Open # 28Apr17 95 puts (SVXY170428P95) for a credit of $1.63 (selling an iron condor)

I received $163 for each contract I sold, less $5 in commissions.  My maximum loss is $500 less the $158 net I received, or $342.  If SVXY ends up at any price between $95 and $135 on April 28, all of these options will expire worthless and I will be able to keep my $158.  This works out to a 46% gain for the 11 days of waiting.

As with any investment, you would only commit money that you can truly afford to lose.  I like my chances here, and I committed an amount that would not change my style of living if I lost it.

How to Make 50% in 5 Months With Options on Celgene

Thursday, March 2nd, 2017

One of my favorite option plays is to pick a company I like (or one that several people I respect like) and place a bet that it will at least stay flat for the next few months. Actually, most of the time, I can find a spread that will make a great gain even if the stock falls by a few dollars while I hold the spread.

Today, I would like to share an investment we placed in a Terry’s Tips portfolio just yesterday. By the way, this portfolio has similar spreads in four other companies we like, and it has gained over 20% in the first two months of 2017. We have already closed out two spreads early and reinvested the cash in new plays. The portfolio is on target to make over 100% for the year (and it is available for Auto-Trade at thinkorswim for anyone not interested in placing the trades themselves).

Terry

How to Make 50% in 5 Months With Options on Celgene

Not only is CELG on many analysts’ “Top Picks for 2017” list, but several recent Seeking Alpha contributors have extolled the company’s business and future. One article said “Few large-cap biotech concerns have a clearer earnings and revenue growth trajectory over the next 3-5 years than Celgene.”

Zacks said, “We are expecting an above average return from the stock in the next few months.” See full article here.

So we like the company’s prospects, and this is the spread we sold yesterday when CELG was trading at $123.65:

Buy To Open # CELG 21Jul17 115 puts (CELG170721P115)
Sell To Open # CELG 21Jul17 120 puts (CELG170721P120) for a credit limit of $1.72 (selling a vertical)

For each contract sold, we received $172 less commissions of $2.50 (the rate Terry’s Tips’ subscribers pay at thinkorswim), or $169.50. The broker will place a $500 maintenance requirement on us per spread. Subtracting out the $169.50 we received, our net investment is $330.50 per spread. This is also the maximum loss we would incur if CELG closes below $115 on July 21, 2017 (unless we rolled the spread over to a future month near the expiration date, something we often do, usually at a credit, if the stock has fallen a bit since we placed the original trade).

Making a gain of $169.50 on an investment of $330.50 works out to a 51% for the five months we will have to wait it out. That works out to over 100% a year, and the stock doesn’t have to go up a penny to make that amount. In fact, it can fall by $3.65 and we will still make 51% on our money after commissions.

If the stock is trading below $120 as we near expiration in July, we might roll the spread out to a future month, hopefully at a credit. If this possibility arises (of course, we hope it won’t), we will send out a blog describing what we did as soon as we can, just in case you want to follow along.

This spread is called a vertical put credit spread. We prefer using puts rather than calls even though we are bullish on the stock because if we are right, and the stock is trading above the strike price of the puts we sold on expiration day, both put options will expire worthless and no further commissions will be due.

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

Happy trading.

Terry

Another Interesting Short-Term Play on Aetna (AET)

Friday, January 20th, 2017

your investment if AET doesn’t move up or down by more than $9 in the next two weeks.

Terry

 Another Interesting Short-Term Play on Aetna (AET)

 This week, once again we are looking at Aetna (AET), a health care benefits company.  If you check out its chart, you can see that it does not historically make big moves in either direction, especially down:

AET Aetna Chart 2 January 2017

AET Aetna Chart 2 January 2017

In spite of this lack of volatility, for some reason, IV of the short-term options is extremely high, 44 for the series that expires in 10 days.  The company is trying to purchase Humana, and the justice department may have some objections, and there seems to be concerns how insurance companies will fare under the Trump administration, two factors which may help explain the high IV. Neither of the possible adverse outcomes are likely to occur in the next 14 days, at least in my opinion.

AET is trading at $122 as I write this.  I think it is highly unlikely that it will fall below $113 in 14 days or above $131 when the 3Feb17 options expire.  Here is a trade I made today:

Buy to Open 10 AET 03Feb17 108 puts (AET170317P108)

Sell to Open 10 AET 03Feb17 113 puts (AET170317P113)
Buy to Open 10 AET 03Feb17 136 calls (AET170317C136)

Sell to Open 10 AET 03Feb17 131 calls (AET170317C131) for a credit of $1.48 (selling an iron condor)

There are 4 commissions involved in this trade ($1.25 each at the rate charged by thinkorswim for Terry’s Tips subscribers), so the $1480 I collected from the above trade, I paid $50 in commisisons and netted $1430.  The spread will create a maintenance requirement of $5000 less the $1430 so that my investment (and maximum loss if AET closes below $109 or above $136) is $3570.

If AET closes in two weeks at any price higher than $113 and lower than $131, all these options will expire worthless and there will be nothing more for me to do that decide how I want to spend my 40% gain.

Of course, you could only do one of these spreads if you did not want to commit the entire $3570.

If AET moves quite close to either of these prices, I will send out another note explaining how I intend to cope with a possible loss.  I hope and expect I will not have to do that.  It is only 14 days to wait.

How to Make 30% on 5 Blue-Chip Companies in 2017 Even if They Fall by 10%

Tuesday, January 3rd, 2017

Today, we set up a new portfolio at Terry’s Tips  that I would like to tell you about.  It is our most conservative of 9 portfolios.  It consists of selecting 5 blue-chip companies which pay a dividend between 2% and 3.6% and which appear on at least two top analysts’ “top 10” lists for 2017.  This portfolio is designed to gain 30% for the year, and we can know in advance exactly what each of the 5 spreads will make in advance.  For most of these companies, they can fall by 10% over the course of the year and we will still make our 30% gain.

We are also repeating our best-ever offer to come on board before January 11 rolls around.

Terry

How to Make 30% on 5 Blue-Chip Companies in 2017 Even if They Fall by 10%

The spreads we are talking about are vertical put credit spreads.  Once you have found a company you like, you select a strike price which is about 10% below the current price of the stock, and you sell long-term puts (we used options expiring on January 19, 2018) at that strike price while buying the same series puts at a lower strike price.

One of the stocks we picked was Cisco (CSCO).   Here is an example of one of the spreads we placed today.  CSCO yields 3.6% which provides a nice base and support level for the stock.  It is trading just over $30, down a little from almost $32 a couple of months ago.  Our spread will make 30% in one year if CSCO manages to be any higher than $27 when the options expire a year from now.

Here is the exact spread we placed today:

Buy To Open 3 CSCO 19Jan18 23 puts (CSCO180119P23)

Sell To Open 3 CSCO 19Jan18 27 puts (CSCO180119P27) for a credit limit of $.96  (selling a vertical)

We received $96 less $2.50 commissions, or $93.50 per spread, or $280.50 placed in our account for the 3 spreads.  There will be a $400 maintenance requirement per spread ($1200 total) less the $280.50 we received, making our investment $919.50.  If CSCO closes at any price higher than $27 a little over a year from now, on January 19, 2018, both options will expire worthless, and we will get to keep our $280.50.  This makes it a 30% return on our investment.

The actual returns on the other 4 companies we placed this kind of a spread on was actually greater than this amount.  Become a Terry’s Tips  subscriber and get to see every one of them, including other spreads which are a little more aggressive but which yield over 50% for the year and the stock does not have to go up a penny to achieve that return.

The New Year is upon us.  Start it out right by doing something really good for yourself, and your loved ones.

The beginning of the year is a traditional time for resolutions and goal-setting.  It is a perfect time to do some serious thinking about your financial future.

I believe that the best investment you can ever make is to invest in yourself, no matter what your financial situation might be.  Learning a stock option investment strategy is a low-cost way to do just that.

As our New Year’s gift to you, we are offering our service at the lowest price in the history of our company.   If you ever considered becoming a Terry’s Tips Insider, this would be the absolutely best time to do it.  Read on…

Don’t you owe it to yourself to learn a system that carries a very low risk and could gain over 100% in one year as our calendar spreads on Nike, Costco, Starbucks, and Johnson & Johnson have done in the last two years?  Or how our volatility-related portfolio gained 80% in 2016 with only two trades.

So what’s the investment?  I’m suggesting that you spend a small amount to get a copy of my 60-page (electronic) White Paper, and devote some serious early-2017 hours studying the material.

Here’s the Special Offer – If you make this investment in yourself by midnight, January 11, 2017, this is what happens:

For a one-time fee of only $39.95, you receive the White Paper (which normally costs $79.95 by itself), which explains my favorite option strategies in detail, and shows you exactly how to carry them out on your own.

1) Two free months of the Terry’s Tips Stock Options Tutorial Program, (a $49.90 value).  This consists of 14 individual electronic tutorials delivered one each day for two weeks, and weekly Saturday Reports which provide timely Market Reports, discussion of option strategies, updates and commentaries on 11 different actual option portfolios, and much more.

2) Emailed Trade Alerts.  I will email you with any trades I make at the end of each trading day, so you can mirror them if you wish (or with our Premium Service, you will receive real-time Trade Alerts as they are made for even faster order placement or Auto-Trading with a broker).  These Trade Alerts cover all 11 portfolios we conduct.

3) If you choose to continue after two free months of the Options Tutorial Program, do nothing, and you’ll be billed at our discounted rate of $19.95 per month (rather than the regular $24.95 rate).

4) Access to the Insider’s Section of Terry’s Tips, where you will find many valuable articles about option trading, and several months of recent Saturday Reports and Trade Alerts.

With this one-time offer, you will receive all of these benefits for only $39.95, less than the price of the White Paper alone. I have never made an offer better than this in the fifteen years I have published Terry’s Tips.  But you must order by midnight on January 11, 2017. Click here, choose “White Paper with Insider Membership”, and enter Special Code 2017 (or 2017P for Premium Service – $79.95).

If you ever considered learning about the wonderful world of options, this is the time to do it.  Early in 2017, we will be raising our subscription fees for the first time in 15 years.  By coming on board now, you can lock in the old rates for as long as you continue as a subscriber.

Investing in yourself is the most responsible New Year’s Resolution you could make for 2017.  I feel confident that this offer could be the best investment you ever make in yourself.  And your family will love you for investing in yourself, and them as well.

Happy New Year!  I hope 2017 is your most prosperous ever.  I look forward to helping you get 2017 started right by sharing this valuable investment information with you.

Terry

If you 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 -here using Special Code 2017 (or 2017P 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 MAX17P.

 

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.

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Success Stories

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

~ John Collins