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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.

 

An Options Play on Facebook Which Should Make 50% in 60 Days

Wednesday, May 11th, 2016

Today I would like to suggest an options trade on Facebook (FB). It will involve waiting 6 weeks to close out. Many option players have short attention spans and don’t like to wait that long. On the other hand, I think this trade has a very high likelihood of making a profit of at least 50%, even if the stock fluctuates more than we might like. To my way of thinking, it should be worth the wait, especially since I think that there is a very small likelihood that this play would end up losing money.

Terry

An Options Play on Facebook Which Should Make 50% in 60 Days

Over the past month I have suggested legging into calendar spreads in advance of an earnings announcement for 7 different companies (FB, COST, TWX, TGT, SBUX, and JNJ, and ABBV). In every case, I was personally successful at creating a calendar spread at a credit and guaranteeing myself a profit no matter where the stock price ended up after the announcement. You should have been able to duplicate every one of these successes as well. I got a kick out of having 7 consecutive winning trades, some of which made me more than 100% on my amount at risk.

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.

Today’s idea is a little different. We will not be guaranteed a profit, but it looks quite likely to happen if our assumptions hold up. In each of the last two quarters when FB announced earnings, they were better than the market expected, and the stock rallied nicely. Who knows what will happen next time around when they announce once again on July 27?

If history is any indication, the stock price for FB doesn’t fluctuate very much between announcement dates. It tends to be fairly flat, or edges up a bit in the lulls between announcements, and often moves a little higher in the week or two before the announcement day.

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.

Here is the risk profile graph which shows the profit or loss from those trades when the short options expire on July 15th:

 

Face book Risk Profile May 2016

Face book Risk Profile May 2016

You can see that if the stock ends up somewhere between $120 and $125 in two months, these spreads will make a gain somewhere near $550, or about 42% on the original investment. I think the stock is quite likely to end up inside this range. If I am wrong, and it falls by $5 or goes up by over $10, I will lose some money at that time, but in each case, the loss would be less than half my expected gain if it ends up where I expect it will.

As encouraging as this graph looks, I think it considerably understates how profitable the trades will be, and that has to do with what option prices do around earnings announcement dates. Since stock prices tend to have large fluctuations (both up and down) after the results are made public, option prices skyrocket in anticipation of those fluctuations.

When the 15Jul16 options expire on July 15, there will be a weekly options series available for trading that expires just after the July 27th announcement. It will not become available for trading until 5 weeks before that time, but it will be the 29Jul16 series.

Implied Volatility (IV) of the 15Jul16 series is currently 26 and the 16Sep16 series has an IV of 30. When the 29Jul16 series becomes available, IV will be much higher than either of these numbers, and should soar to near 60 when the announcement date nears (it grew even higher than that a few weeks ago before the last announcement). An IV that high means that an at-the-money call with two weeks of remaining life (which the 29Jul16 series would have when the 15Jul16 series expires), would be worth about $5, or almost double what the above calendar spreads cost us. If this were true, and if the stock is trading between $120 and $125, you could buy back the expiring 15Jul16 calls and sell the 29Jul16 calls at both strike prices for a credit which is greater than what you paid for the original calendar spread, and when those short calls expired, your long calls would still have 6 weeks of remaining life.

In other words, the strategy I have set up today by buying the above two calendar spreads is an admittedly complicated way to leg into two calendar spreads at a large credit, and guaranteeing an additional profit as well. The risk profile graph doesn’t reflect the fact that IV will soar for the 29Jul16 series that doesn’t exist yet, and the indicated gains are drastically understated.

I will update these trades as we move forward, and let you know if I make any adjustments. If the stock moves up to $125 in the next few weeks, I would probably add a third calendar spread at the 130 strke. That is about the only likely adjustment I can think of at this point, unless the stock falls to $115 when I would probably buy the same calendar spread at the 115 strike.

If you make this investment, as is true with all options investments, you should do it only with money that you can truly afford to lose. If you do choose to make it, I wish both of us luck over the next two months.

 

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.

Terry

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.

Terry

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 TheStreet.com 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.

Earnings Season Has Arrived – How to Capitalize on it With Options

Tuesday, April 12th, 2016

For each of the last two Mondays I have told you about an earnings-related trade I made. Today I would like to review my thinking on those trades, update how they are going, and offer you a new idea of a third trade I made his morning.

Terry

Earnings Season Has Arrived – How to Capitalize on it With Options

In the last few weeks leading up to a quarterly earnings announcement, two things usually happen. First of all, the stock often moves higher as the announcement day approaches as some investors start hoping that the company might beat expectations. The second thing is even more likely (and essentially always happens). Implied Volatility (IV) of the option prices moves much high. This means that the prices for options temporarily rise in value across the board. The greatest upward move in IV takes place in the options series which expires just after the announcement date.

The reason that IV becomes greater at this time is that once earnings are announced, the stock is likely to move either up or down by a much larger amount than it does most trading days. When volatility is expected to be high, option prices rise in anticipation of that higher level of anticipated price changes.

One of my favorite option plays is based on these two tendencies to occur as the announcement day approaches. I like to leg into a calendar spread at a strike price which is slightly higher than the stock price. I do this by buying a call option at that strike in the option series that expires two weeks after the series which expires just after the announcement is made. Once I have made my purchase, I place a good-til-cancelled order to sell a call at the same strike in the series that expires just after the announcement date (the series which will carry the highest IV and therefore the highest option prices). I set a limit price which is sufficiently greater than what I paid for the two-week-longer call to cover the commissions and leave a small profit as well.

This limit price should be met if either or both of the tendencies end up happening (the stock moves higher or IV increases). Most of the time, I have been able to complete the trade and end up with a calendar spread at a credit.

If I am successful in setting up a calendar spread at a credit, I am guaranteed to make a nice profit on the spread. I can’t lose because the call I own has two weeks more of life than the same-strike call I have sold to someone else, so it can be sold at a credit, no matter what the stock price does after the announcement. My greatest gain will come if the stock ends up very close to the strike price which I selected.

The Starbucks (SBUX) Play: SBUX announces on April 21. Two weeks ago, with SBUX trading about $58.60, I placed an order to buy SBUX May1-16 calls. I paid $1.12 ($112 per contract) plus $1.25 commission at the rate paid by Terry’s Tips subscribers at thinkorswim (if you are paying more than this as commission rate, you might consider opening an account at this brokerage – see the offer below).

I immediately placed an order to sell Apr4-16 60 calls at a limit price of $1.20. The Apr4-16 series expires on April 22, the day after the announcement on the 21st. This trade executed the very next day. After commissions, I had gained $5.50 for each spread, and was guaranteed to make an additional gain once the Apr4-16 calls expired. Since the May1-16 calls have two weeks more of remaining life than the Apr4-16 calls, the spread will always have at least some value. The closer the stock is to $60, the greater the value of the spread. If I am lucky enough to see it end up at $60 on April 22, I could expect to collect about $80 for each spread (on top of the $5.50 I already have collected).

The Facebook (FB) Play: One week ago today, knowing that FB would announce earnings on April 27, when the stock was trading at $112 (it had fallen $4 at the open from Friday’s close because an analyst forecast that their earnings would disappoint). I bought May2-16 114 calls for $4.40 ($440 plus $1.25 per contract, or $441.25). I then placed a good-til-cancelled order to sell Apr5-16 114 calls for $4.50. These calls would expire on April 29, two days after the announcement on the 27th.

Both the stock and IV of the Apr5-16 options rose on Tuesday, and my trade executed. IV for the Apr4-16 series was 40 when I reported this trade to you two weeks ago, and it is now 48. Now I am guaranteed a profit in FB as well, and I am rooting for the company to exceed expectations and a $114 price come along after the announcement. (As I write this, FB has fallen further, to about $110). There is something nice about holding an options investment that is guaranteed to make a gain no matter what the stock price does. Most of the time, I would be anguishing when my stock is dropping in price.

Closing Out the Trades: On the Friday when the short calls in these calendar spreads expire, you will have to make a decision. If the stock price is trading at a lower price than the strike price, you don’t really need to do anything as the short calls will expire worthless. However, you might want to buy them back at a nominal price (if that price is $.05 or lower, thinkorswim does not charge any commission, by the way). You would only buy them back if you also planned to make a sell trade as well. You could either sell the call you own which has two weeks of remaining life (essentially closing out the calendar spread), or you might sell the same-strike call which has one week of remaining life (this sale can almost always be made at more than 50% of what you could sell the two-week-out call).

A third alternative would be let the short call expire worthless and just hang on to your long calls (remember, they did not cost you anything at the beginning), and hope for a windfall gain if the stock manages to soar. Most of the time, I resist buying puts or calls outright, preferring instead to be a seller of short-term options. But every once in a while, it is fun to hang on to an option and see what might happen, especially when it didn’t cost me anything. It is sort of like getting a free lottery ticket (with better odds but a smaller pay-off than the lottery offers).

If the Sell Trade Doesn’t Execute: Some of the time, the stock will fall after you have made your call purchase and IV doesn’t rise enough to force an execution on your sell order. In those cases, I wait until the end of the day just before the announcement and sell the same call in my good-til-cancelled order at whatever price I can get. I have found that the stock often ticks up in the final hour of that day, and I can get a better price than earlier.

The calendar spread that you have created will not be made at a credit, but it still might be cheap compared to usual standards because of the elevated IV of the call you are selling.

Another alternative might be to sell your long call. It might be sold at a small profit, or more likely, a small loss. Even if the stock has fallen, IV might have moved high enough to make the option worth more than you paid for it.

This Week’s Trade, Abbvie (ABBV): ABBV is a drug company that pays a high dividend and doesn’t fluctuate very much. For these reasons, IV and option prices are quite low, but that doesn’t mean you can’t make gains with this same strategy. ABBV announces earnings before the market opens on April 28th.

With the stock trading about $58.50 this morning, I bought ABBV May2-16 58.5 calls for $1.87. This series closes two weeks later than the Apr5-16 series which expires on April 29, just after the April 28 announcement date. I have placed a good-til-cancelled order to sell Apr5-16 58.5 calls at a limit price of $1.95. IV for this series is currently 34 and can be expected to rise over the next week or two.

I selected the 58.5 strike instead of a higher strike because there is a $.57 dividend payable on April 13 (tomorrow) which may depress the stock by about that much. In fact, you might want to wait until tomorrow to buy the Apr5-16 call because it might be cheaper then.

I will report back to you on how these trades end up.

How to Play the Facebook (FB) Earnings Announcement

Monday, April 4th, 2016

Facebook (FB) will announce earnings on April 27, and this presents an opportunity to make an investment similar to the one I suggested last week regarding Starbucks (SBUX). One of the SBUX trades has already resulted in a small profit and has a guaranteed additional profit which could be significant in two weeks when the post-announcement options expire. I hope you enjoy reading about the trades I made in FB this morning (and my reasoning behind them).

Terry

How to Play the Facebook (FB) Earnings Announcement

First of all, a quick update on the suggestion I made one week ago concerning the upcoming SBUX announcement on April 21st. At that time, with SBUX trading about $58.60, I suggested 3 different ways to play this announcement, all of which were based on the stock moving a bit higher in anticipation of that big day (a good deal of the time, stocks do move higher in advance of the earnings announcement day). All three trades have increased in value since last week because SBUX has indeed moved higher, and now trades about $60.50.

One of the suggestions involved legging into a May1-16 – Apr4-16 60 call calendar spread. This involved buying May1-16 60 calls outright with a plan to sell Apr4-16 60 calls if the stock moved higher or implied volatility (IV) of the Apr4-16 options rose (two things that frequently happen as the announcement date approaches).

I bought SBUX May1-16 calls for $1.12 ($112 per contract) plus $1.25 commission at the rate paid by Terry’s Tips subscribers at thinkorswim (if you are paying more than this as commission rate, you might consider opening an account at this brokerage – see the offer below).

I didn’t have to wait very long for the stock to move enough higher so that I could sell the Apr4-16 60 calls for more than I had paid for the May1-16 calls. On Tuesday, I completed the calendar spread at the 60 strike by selling Apr4-16 60 calls for $1.20 ($120 per contract less $1.25 commission). After commissions, I had gained $5.50 for each spread, and was guaranteed to make an additional gain once the Apr4-16 calls expired and I would presumably sell the calendar spread. Since the May1-16 calls have two weeks more of remaining life than the Apr4-16 calls, the spread will always have at least some value. The closer the stock is to $60, the greater the value of the spread. If I am lucky enough to see it end up at $60 on April 22, I could expect to collect about $80 for each spread (on top of the $5.50 I already have collected).

While there is something nice about holding something that already has a small gain locked in, and there is still hope for a decent gain in two weeks, in retrospect, I wish I had completed the calendar on only half my positions. The stock rose to $61 and at the end of the week I could have sold the Apr4 calls for $.20 more than I did. I expected the stock to move higher in the week going into the announcement but it moved higher earlier than that. It probably still has room to climb over the next two weeks, but now I am locked in to a smaller gain than I could have made by waiting.

We are faced with a similar situation with Facebook which announces on the 27th. The May2-16 options series which expires two weeks after this date carries an IV of 37 which compares to 40 for the Apr4 series which expires just after the announcement (it is always nice to sell options with a higher IV than those that you buy). As the 27th approaches, IV for the Apr5-16, May1-16, and May2-16 series may move even higher (i.e., the option prices will increase even if the stock price remains flat).

I like to buy calendar spreads at a strike which is a couple of dollars higher than the current stock price in anticipation of the stock moving higher in the weeks or days leading up to the announcement. Today, FB fell about $4 because Deutsche Bank analyst Ross Sandler cautioned that its Q1 numbers may come in shy of high expectations, allowing investors to add to positions below current levels. There was also some disquieting news about the company’s Oculus Rift virtual reality headset. Initial product reviews were tepid and there will be some delivery problems at first (possibly due to too many sets being ordered?). In any event, the stock traded down to about $112.25 when I placed the following orders this morning.

First, I bought May2-16 114 calls for $4.40 ($440 plus $1.25 per contract, or $441.25). I then placed a good-til-cancelled order to sell Apr5-16 114 calls for $4.50. If this order is executed sometime in the next couple of weeks, I will have all my money back plus a little (including commissions) and will wait until April 29 to see how big my profit will be (the closer to $114 that FB is, the greater will be my gain). It could be as high as $200 per contract (the expected value of a FB at-the-money call with two weeks of remaining life (and an IV of 27).

In addition to buying May2-16 calls with the intention of legging into a calendar spread, I made the following two trades this morning:

Buy To Open 10 FB May2-16 114 calls (FB160513C114)
Sell To Open 10 FB Apr5-16 114 calls (FN160429C114) for a debit of $.60 (buying a calendar)

Buy To Open 10 FB May2-16 114 puts (FB160513P114)
Sell To Open 10 FB Apr5-16 114 puts (FN160429P114) for a debit of $.55 (buying a calendar)

You might notice that these are identical calendar spreads except that one is with calls and the others with puts. One thing we have learned is that the strike price is what is important with calendar spreads, not whether puts or calls are used. The risk profile is identical with either puts or calls (even though this does not make much intuitive sense).

These calendar spreads have sold the options which expire just after the announcement and these options carry the highest IV of any option series (i.e., they are the most expensive of all option series). I like these spreads because they are so cheap, and you can’t lose the entire investment no matter what. The value of your long options will always be higher than the value of the options you have sold because they have two weeks of additional remaining life.

Assuming IV of the May2-16 options will fall to about 27 (from the current 37), an at-the-money two-week option would carry a premium of at least $2.00 (the CBOE option calculator comes up with a $2.40 price). This would about triple your money if you sold the spread at this price. There is a good chance that IV might not fall that far. It is 31 for the Apr4-16 series that expires just before announcement week, for example. So it might be possible to sell the at-the-money spread for more than $2.00.

My best guess is that the call calendar spread could be sold at a profit on April 29th if FB is at any price within $4 of $114, and the put calendar spread could be sold at a profit if FB is at any price within $5 of $114.

If there is a big move in the price of FB in the next couple of weeks, I would probably buy more of these same calendar spreads at different strike prices. This would increase my chances of having at least some spreads at a strike which is close to the stock price and where the greatest profit potential lies. If FB moves up to $116, for example, I might buy some calendars at the 118 strike to expand the range of possible stock prices that would give me a net profit. I figure if I triple my money on one spread I could lose everything (an impossibility) on the other spread and still come out ahead.

I will report back to you on how these trades end up, or if I add any more spreads at different strike prices. Most companies report earnings each quarter, and there will be lots of opportunities to use these trading ideas on other companies you might like.

Some Ways to Play the SBUX Earnings Announcement

Monday, March 28th, 2016

In the few weeks before a company makes its quarterly earnings announcement, option prices make some predictable changes and the stock usually edges up in advance of the announcement. There are several ways you can take advantage of these changes to pick up some nice trading profits using stock options. Today I would like to share some trades I placed today on Starbucks (SBUX).

Terry

Some Ways to Play the SBUX Earnings Announcement

SBUX is slated to announce earnings on April 21st. Implied Volatility (IV) for pre-announcement weeks is 20 and it pops up to 25 for the Apr4-15 series which expires just after the announcement. The next two weekly series also have an IV of 25 which is likely to fall to 20 after the announcement.

SBUX has a record of coming very close to meeting earnings expectations. For the four quarters, there has never been a difference of more than a penny between what the market expected from the announcement and the actual earnings figure. Consequently, the stock has not fluctuated very much after the announcement.

Many times, in the weeks or days leading up to the announcement, hope for a better-than-expected announcement often causes the stock to tick a little higher.

SBUX closed last week at $58.36. I think there is a good chance that it might drift up to the $60 as we head into the announcement week. There are several ways you could play the tendency for the stock to move higher just before that time. One way would be to leg into a calendar spread by buying a further-out 60 call and wait for the stock to move up before completing the short side. If it does move up, you would get the calendar spread at a very attractive price (possible even at a credit which means you would be assured of a gain no matter what happens to the stock after the announcement). The downside is the possibility that it does not move higher, and time starts eating away at your long call before you can complete the spread.

Today, with SBUX trading about $58.60, I placed an order to buy SBUX May1-16 calls. I paid $1.12 ($112 per contract) plus $1.25 commission at the rate paid by Terry’s Tips subscribers at thinkorswim (if you are paying more than this as commission rate, you might consider opening an account at this brokerage – see the offer below).

A second way to play it would be to buy a May1-16 – Apr-16 60 call calendar spread. This is the trade I made today:

Buy to Open 5 SBUX May1-16 60 calls (SBUX160506C69)
Sell to Open 5 SBUX Apr-16 60 calls (SBUX160415C60) for a debit of $.68 (buying a calendar)
The Apr-16 series expires in the week before the announcement, so you could roll into the higher-IV Apr4-16 series when it expires on April 15. An at-the-money call with a week of remaining life when IV is 25 is about $.80, so if you are lucky and the stock is trading near $60, you could sell the Apr4-16 60 calls for more than you paid for the original calendar, and you would still own a calendar with two weeks of remaining life.

A third way to play the expectation rise would be to buy a May1-16 – Apr4-16 60 calendar spread. This way you would be selling the high-IV series now rather than waiting. Here is the spread I placed today:

Buy to Open 10 SBUX May1-16 60 calls (SBUX160506C69)
Sell to Open 10 SBUX Apr4-16 60 calls (SBUX160422C60) for a debit of $.24 (buying a calendar)

If the stock ends up at $60 after the announcement, a two-week at-the-money call at an IV of 20 would be worth about $.60 so you could about double your money after commissions. Of course, you are betting that the stock does not make a big move after the announcement. Such a move is always possible even though SBUX does not have a history of big moves after announcing (average change 2.6%, or about $1.50). The attractive thing about this spread is that it costs so little that risk is quite limited. There will always be some value to a call with two weeks of remaining life, and $.24 isn’t much to have to cover.

I will report back to you on how these three trades ended up. Hopefully, we might find out which of the three choices works out. Most companies report earnings each quarter, and there will be lots of opportunities to use these trading ideas on other companies you might like.

 

First Saturday Report with October 2015 Results

Monday, November 2nd, 2015

This week I would like to share with you (for the first time ever) every option position we hold in every stock-based actual portfolio we carry out at Terry’s Tips.  You can access this report here.If you missed it last week, be sure to check out the short videos which explains why I like calendar spreads, and  How to Make Adjustments to Calendar and Diagonal Spreads.

There is a lot of material to cover in the report and videos, but I hope you will be willing to make the effort to learn a little about a non-traditional way to make greater investment returns than just about anything out there.

Terry

First Saturday Report with October 2015 Results

Here is a summary of how well our 5 stock-based portfolios using our 10K Strategy performed last month as well as for their entire lifetime:

First Saturday Report October Results 2015

First Saturday Report October Results 2015

 

While it was a good month for the market, the best in 4 years, our 5 portfolios outperformed the market by 166% in October.

Enjoy the full report here.

Why I Like Calendar Spreads

Wednesday, October 21st, 2015

I have created a short video which explains why I like calendar spreads.  It also shows the exact positions we hold in 3 Terry’s Tips actual portfolios so you can get a better idea of how we use calendar spreads.

 

I hope you will enjoy the video, and I welcome your comments.

 

Terry

 

Why I Like Calendar Spreads

 

The basic reason I like calendar spreads (aka time spreads) is that they allow you to make extraordinary gains compared to owning the stock if you are lucky enough to trade in a stock that stays flat or moves moderately higher.

 

I get a real kick out of making serious gains when the stock just sits there and doesn’t do anything.  Calendar spreads almost always do extremely well when nothing much happens in the market.

 

While I call them calendar spreads, if you look at the actual positions that we hold in our portfolios, you will see that the long calls we own are not always at the same strike prices as the short calls we have sold to someone else.  That makes them diagonal spreads rather than calendar spreads, but they operate exactly the same as calendar spreads.

 

With both calendar and diagonal spreads, the long calls you own decay at a slower rate than the short calls that you have sold to someone else, and you benefit from the differences in decay rates.  Both spreads do best when the stock ends up precisely at the strike price of an expiring option.  At that point, the short options expire worthless and new options can be sold at a further-out time series at the maximum time premium of any option in that series.

 

If you have sold short options at a variety of strike prices you can make gains over a wider range of possible stock prices.  We use the analyze tab on the free thinkorswim software to select calendar and diagonal spreads which create a risk profile graph which provides a break-even range that lets us sleep at night and will yield a profit if the stock ends up within that range.  I encourage you to try that software and create your own risk profile for your favorite stock, and create a break-even range which you are comfortable with.

Two 2015 Case Studies of Options Portfolios

Wednesday, October 14th, 2015

Got an extra five minutes of time to change your thinking about investing forever?  I invite you to read the following report and see why.  You could get a clear understanding of how an options strategy can be used to dramatically improve your investment results for any stock you feel good about (good enough to buy shares in that company).   For two companies we picked at the beginning of 2015, we have made over 100% on our money in the first nine months, and you could have done it as well, even if you knew absolutely nothing about options (read on and see how).

 

These case studies were actual portfolios carried out during the first nine months of 2015 in separate brokerage accounts at thinkorswim for Terry’s Tips subscribers (many of whom mirrored these trades in their own accounts or had trades executed automatically in their accounts by the (free) Auto-Trade service at that brokerage firm.  The results include commissions on all the trades.

 

The first nine months of 2015 were not good ones for the market.  The S&P 500 fell 6.7%, from 2059 to 1920. 

 

The two individual stocks covered in this report, Costco (COST) and Starbucks (SBUX) outperformed the overall market during this time period.  COST rose from $141.87 to $144.57, a gain of $2.70, or 1.9%.  SBUX soared from $82.05 to $113.68 (pre 2-for-1 split), or 38.5%.

 

As you will soon see, while the gains in COST and SBUX were most impressive compared to the overall market, they did not do nearly as well as our two actual portfolios which traded options on these underlyings.

 

The strategy used in these portfolios is a lot like buying stock and writing calls against the stock.  However, there is a big difference in the options portfolios.  Instead of buying stock, longer-term call options (and sometimes, LEAPS) are used as collateral against which to sell short-term call options.  The return on investment from writing calls against longer-term options that might cost one-tenth the value of the stock is why the options portfolio comes out well ahead of buying stock and writing calls against those shares. 

 

Extreme leverage can be your friend if the stock holds steady or moves higher.  On the other hand, if the underlying stock falls more than moderately, the options portfolio might lose more than you would lose you had bought stock instead.  So it’s important to select a stock you feel comfortable about.  The stock doesn’t have to move higher for this options strategy to prosper, but it can’t fall a lot and still expect to produce extraordinary gains.

 

Case Study #1 – Costco Options Portfolio

 

Costco (COST) started out 2015 trading at $141.87 while the Terry’s Tips portfolio which uses COST as the underlying was worth $6223.  With this amount invested, you could have purchased 43.8 shares of the stock (we’ll round it off and say you could have bought 44 shares).

 

Here is how the price of COST fluctuated during the first nine months of 2015:

 2015 Stock Price Of COST

2015 Stock Price Of COST

 

 

 

 

 

 

The stock rose steadily early in the year, but fell from a high of about $153  to as low as $135 in the first week of September. At the end of September, it was trading about $3 higher than where it started out the year. Let’s compare the prices for 44 shares of COST with the value of the actual Terry’s Tips portfolio trading COST options during this same time period:

COST Stock vs Portfolio 2015 

COST Stock vs Portfolio 2015

 

 

 

In late January when the stock fell a bit, the portfolio value fell by a greater amount, but when the stock recovered, the portfolio outperformed on the upside as well.  Two other times during the year, the stock took a sudden drop and the portfolio value fell below the equivalent investment in the stock, but when the stock moved higher in July, the portfolio shot by a considerably higher percentage.

 

Over the nine months, an investment in the stock would have gained $1.20 per share from dividends you would have received on 44 shares, or $52.80.  The stock gained $2.70 over these months, so the 44 shares were worth $118.80 more than they were at the beginning, for a net gain of $171.60 including the dividends. This total works out to a 1.2% gain on the stock purchase for the nine months.

 

Over this same period, the actual COST options portfolio (we call it the Rising Tide portfolio) rose from $6223 to $12,900, for a gain of $6667, or 107%.

 

Let’s check the actual positions in this portfolio at the beginning of the year (from our January 3, 2015 Terry’s Tips Saturday Report):

 

  

Rising Tide

     Price:

$141.61

     

 

 

 Option

Strike

Symbol

Price

    Total

Delta

Gamma

 Theta

-3

Jan-15

C

140

COST150117C140

$2.92

($876)

-3

Jan-15

C

143

COST150117C143

$1.23

($368)

-2

Jan-15

C

145

COST150117C145

$0.57

($113)

6

Apr-15

C

135

COST150417C135

$9.25

$5,550

1

Apr-15

C

145

COST150417C145

$3.43

$343

2

Jul-15

C

140

COST150717C140

$7.68

$1,535

 

Cash

$152

218

-37

$26

    Total Account Value

$6,223

3.5%

1

Annualized ROI at today’s net Theta:

152%

 

We owned 7 calls which expired in April and 2 which would extend until July, and we had sold a total of 8 Jan-15 calls, 3 of which were at a strike just below the stock price and 5 which were slightly out of the money.  We had one long uncovered call which we could have sold a short-term call against, but we wanted to maintain a higher net delta.  The option positions were the equivalent of owning 218 shares of stock (the net delta figure).  That explains why the portfolio value gains or loses at almost 5 times the rate of owning 44 shares of stock.

 

Now let’s fast forward to what the portfolio looked like at the close of business on September 25, 2015.  Here are the positions that we held:

 Rising Tide Positions Oct 2015

 Rising Tide Positions Oct 2015

 

You can see many differences between these positions and what we held back in January.  First, the long calls are all the way out to 2016 (Jan-16 and Apr-16).  Second, there are some put positions.  In May, when COST was trading about $144, we sold a bullish credit put spread (buying Oct-15 135 puts and selling Oct-15 140 puts).  If COST is at any price above $140 when those puts expire on October 16th, both puts will expire worthless, and we will have made 51% on the amount we risked when we sold the spread in May. Third, the short calls are in several weekly series rather than in a single (monthly) options series. 

 

About half-way through 2015, we changed the way we trade this portfolio. We are now short weekly options in several different series.  Each week, some calls expire, and we buy them back (usually on Friday) and sell new ones which expire about 4 weeks later.  We select strikes which will balance out the risk profile for the portfolio.  This allows us to tweak the profile each week rather than making wholesale adjustments at the end of the expiration month.  We believe that the superior performance we have enjoyed over the past few months in all of our stock-based portfolios has been due to this new way of trading which was not possible before the advent of weekly options.

 

Every Friday, we create a risk profile graph to help us decide which strike prices to use when we buy back the expiring weekly options and replace them with further-out new short calls.  Here is the graph we created on October 2, 2015 which shows the expected gain or loss in portfolio value when the short options expire on the next Friday, October 9th:

Rising Tide Risk Profile Graph Oct 2015 

Rising Tide Risk Profile Graph Oct 2015

 

This graph shows that if the stock is absolutely flat ($143.21) a week from now, the portfolio will gain $735, about 5% of the portfolio value.  If It moves about $3 higher, the portfolio would gain about double that amount.  A gain should result even if the stock falls by about a dollar during the next week.  It can move higher by about $6 before a loss would occur on the upside.  You can see how most weeks, this collection of long and short calls will result in a gain as long as the stock moves only moderately.  (Actually, in most weeks, we end up with positions that allow for the stock to fall by $2 before a loss would be incurred – this week was unusually bullish for us.)

 

To sum it up, over the 9 months of trading, our portfolio gained $6376.  This works out to be 107% of the starting value of $6223.  Someone who had spent the same amount of money buying shares of COST would have picked up about $172, or 1.2%..  Our portfolio outperformed by more than 30 times what the owners of the stock gained.

 

We believe that this experience establishes beyond all doubt that a properly-executed options strategy can out-perform the outright purchase of the shares many times over.  Of course, it is a lot easier just to buy the stock.  Trading options takes time and attention, but surely, isn’t it worth it when you might do about 30 times better?

 

If you don’t want to bother with all the trading, you could open an account at thinkorswim and sign up for their free Auto-Trade service, and not only enjoy their $1.25 (normally $3.90) commission rate for a single option purchase or sale, but all the trades will be automatically made for you in your account.  By the way, this lower commission rate made available to Terry’s Tips subscribers will apply to all your trades, not just those you make through Auto-Trade.  Many subscribers cover their entire subscription cost by their commission cost savings.

 

We recommend setting up a self-directed IRA account for trading options (especially a Roth IRA if you are eligible for one).  Gains from option trading are short-term capital gains taxed pretty much like ordinary income, and you don’t have to itemize individual trades when you file your tax return for an IRA account.

 

By the way, you may wonder about my options-trading experience.  Way back in 1980, I had a seat on the C.B.O.E. and traded as a market maker on the floor.  Ever since then, for 35 years, I have traded options essentially every day the market has been open.  I graduated from the Harvard Business School and earned a Doctorate in Business Administration from the University of Virginia, but my most valuable credentials came from trading options nearly every day for all those years.  My options trading has enabled me to give away over $2 million to charities in my home state of Vermont.  I was especially proud to build a large swimming pool for the Burlington Boys and Girls Club, and give dozens of college  scholarships to single-parent and first-in-family-to-attend-college Vermonters.

 

Case Study #2 – Starbucks (SBUX) Options Portfolio

 

The first nine months of 2015 were pretty good months for owners of Starbucks (SBUX).  The stock started out the year trading at $81.44 and steadily rose to a high of about $98, and then in early April, they had a 2-for-1 stock split.  By the end of September, the stock traded at $57.99 which works out to a pre-split price of $115.98.  There were 3 dividends of $.16 paid, adding another $.48 to the total, making it a total gain of $35.02, or 43% for the 9 months.

 

Our Java Jive  portfolio started out the year with $6032 invested in SBUX.  At $81.44 per share, you could have purchased 74 shares of stock.  Over the nine months, the portfolio gained $11,768 in value, making 195%.

 

Here is a graphic comparison of how a $6032 investment in the options portfolio compared to the purchase of 74 shares of stock:

 SBUX Stock vs Portfolio 2015

SBUX Stock vs Portfolio 2015

 

 

 

Unfortunately, the actual portfolio did not gain that much because we also had about half the money invested in Keurig Green Mountain (GMCR), a different kind of coffee company.  The GMCR portion of the portfolio lost $8905 over the period as the stock fell from over $130 to the low $50’s.  In August, GMCR was dropped and FB added to the portfolio, and FB about broke even for the next six weeks (we are now trading both SBUX and FB in separate portfolios).  The portfolio started out the year being worth $10,604 and at the end of September, was worth $12.786, up $2182, or 20.5%.  Not a bad gain over a period when the market fell 6.7%, but not quite the 195% it would have made if only SBUX had been traded.

 

We believe that the above two case studies establish beyond all doubt that a properly-executed options strategy can out-perform the outright purchase of the shares many times over.  Of course, it is a lot easier just to buy the stock.  Trading options takes time and attention, but surely, isn’t it worth it when you can make 107% with options rather than 1.2% owning the same stock, (as we did with COST), or 195% with options instead of 43% owning the same stock (as we did with SBUX)?

 

If you don’t want to bother with all the trading, you could open an account at thinkorswim and sign up for their free Auto-Trade service, and not only enjoy their $1.25 commission rate for a single option purchase or sale, but all the trades will be automatically made for you in your account (this same lower Terry’s Tips commission will apply to all your trades, not just those in Auto-Trade).

Making 36%

Making 36% — A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

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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