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Posts Tagged ‘Stocks vs. Stock Options’

What Can Be Learned From Successful Option Strategies

Tuesday, March 21st, 2017

Today I would like to share some thoughts I sent out on Saturday to paying subscribers at Terry’s Tips.  These thoughts reflected on the recent successes of the nine actual options portfolios we carry out and comment on each week. By the way, all nine portfolios are profitable for 2017 and the composite average gain is currently 28.9% since the beginning of the year.  Last week while the market (SPY) fell 0.3%, our portfolios gained an average of 3.2% for the week, demonstrating that we don’t have to rely on a rising market to enjoy portfolio gains.

Terry

 What Can Be Learned From Successful Option Strategies

 

If we can identify the strategies that resulted in the extraordinary returns we have enjoyed in the first quarter, maybe we can use those strategies for other underlying stocks or ETPs and time periods.

First, we must admit that we had some good luck.  Anyone who makes these kinds of returns must admit that some of it was based on pure luck.  Anyone who follows the mutual fund industry knows this intimately.  Every year, millions of dollars get plowed into the top-performing funds, and a year or five years later (whichever period the top-rated award covered), those funds almost universally underperform in the subsequent period.  As Burton Malkiel explained in the oft-revised book, A Random Walk Down Wall Street, - ”The past history of stock prices cannot be used to predict the future in any meaningful way.” The top stocks (or mutual funds) end up in that position largely on a random basis.  (Some of us remember way back when the Wall Street Journal had a column where monkeys throwing darts competed against the top picks of top-rated analysts, and the monkeys won about half the time.)

But luck doesn’t account for it all.  Our biggest winner was Wiley Wolf where FB rose 21.6% for the year. Our portfolio is up 117.5%, or 5.4 times greater. This is the only portfolio that uses the 10k Strategy, and we have learned that it will return a multiple of what the stock price does.  Unfortunately, that works in both directions, and if the stock had fallen by that amount, our losses would have been proportionately greater.  So we can conclude that we were lucky to be playing FB for a period when it was rising nicely, but our strategy had something to do with achieving the exceptional returns.

A less dramatic explanation of the power of an options strategy has taken place in our SPY-based Leaping Leopard portfolio.  In this portfolio, we are using the strategy of long-term vertical put credit spreads.  This is our favorite way to play underlyings which we believe will at least remain flat, or are likely to rise.  The market (SPY) has picked up 4.9% for the year to date, a wonderful record.  Our Leaping Leopard portfolio has gained 14.9%, or 3 times the size of the index gain.  Even better, our strategy is set up so that if SPY loses as much as 5% or goes up by any amount over the course of the year, we will enjoy a gain of about 40%.  The huge difference between what the market does and our portfolio performance is clearly caused by the strategy.

Returning to the being lucky theme, the volatility-related portfolios have prospered because contango has remained at an elevated level for the entire first quarter of the year.  With the election of a president whose promises and plans were seen to be unusually volatile and uncertain (which ideas would be proposed, and which might actually become real was a real question), the market expected that in the near future, volatility would be great.  Meanwhile, the market racked up small and steady gains, and VIX fell to historic lows and has pretty much remained there.  When VIX is low and the futures are predicting high uncertainty for SPY, contango rises to the historic highs we have seen pretty much all year.

This contango condition has been the major contributor to our Contango portfolio gaining 44.6% so far this year, and to a lesser degree, the 29% gain in Vista Valley and the 14.7% gain in Capstone Cascade.  In the Capstone Cascade portfolio, SVXY has soared by over 40% for the year, a perfect backdrop for a strategy of selling naked puts on the underlying ETP.  At the present level of theta, this portfolio will gain over 100% for the year. We have been selling at strikes which are seriously out-of-the-money, and we would have done just as well if SVXY had not soared like it did.  Even worse, we tried to protect against the possibility of a falling SVXY (we bought into the fears that uncertainty would be the predominant condition), and we also sold some well out-of-the-money calls on the ETP. These short calls caused our returns to be lower than if we had not been so worried that volatility would heat up.

It is far more difficult to predict the short-term movements of a stock than the longer-term movements.  Short-term fluctuations are often caused by emotionally-driven actions in response to news items such as analysts upgrades or downgrades or quarterly numbers or rumors, while longer-term fluctuations are more likely to be based on the fundamental performance of the underlying company or ETP.  In most of our portfolios, we take a longer-term perspective, such as our Boomer’s Revenge portfolio where the shortest-term spread had six months of remaining life when it was placed.  This portfolio is our most conservative, and is designed to gain 30% for the year.  So far, thanks to the rising market, it is ahead of schedule, picking up 18.2% to date.  We are now in the enviable position of being able to look forward to the full 30% annual gains even if the 5 underlying stocks were to fall by 10% between now and the end of the year.

To summarize, the first 11 weeks of 2017 have been good ones for the market.  SPY has gained 4.9%. The prudent owner of a large-market-based index fund will have gained this much so far this year.  This is about the average 2017 gain initially predicted by the composite of the published analysts we identified at the outset of the year.  So the market has achieved in 11 weeks what the analysts expected for the entire year, making it a remarkable year so far.

The difference between this 4.9% market gain and the composite 28.9% of our portfolios is clearly due to the options strategies that we have employed. Options are leveraged investments, and should be expected to perform exponentially better (or worse) than the percentage gains of their underlyings.  However, in most of our portfolios, we can look forward to unusually large gains when the underlyings remain absolutely flat or even lose a little over the course of the year.  This fact alone is proof that a well-designed and executed options strategy can be expected to outperform the market in general or any mutual fund in particular (where over 80% of the funds have underperformed the market over a multi-decade time period, yet still collect billions of dollars every year in fees for their efforts).  We like to think that the performance of our portfolios so far this year is the result of our doing a decent job in the options arena.

How to Make 40% a Year Betting on the Market, Even if it Doesn’t Go Up

Monday, December 19th, 2016

This is the time of the year when everyone is looking ahead to the New Year. The preponderance of economists and analysts who have published their thoughts about 2017 seem to believe that Trump’s first year in the oval office will be good for the economy and the market, but not great.

Today I would like to share an option trade I have made in my personal account which will earn me a 40% profit next year if these folks are correct in their prognostications.

 

Terry

How to Make 40% a Year Betting on the Market, Even if it Doesn’t Go Up

Since most people are pretty bad at picking stocks that will go higher (even though they almost universally believe otherwise), many advisors recommend the best way to invest your money is to buy the entire market instead of any individual stock.  The easiest way to do that is to buy shares of SPY, the S&P 500 tracking stock.

SPY has had quite a run of going up every year, 7 years in a row.  This year, it has gone up about 9% and last year it gained about 5%.  Since so many “experts” believe the market has at least one more year of going up, what kind of investment could be made at this time?

Since I am an options nut, I will be keeping a lot of my investment money in cash (or cash equivalents) and spend a smaller amount in an option play that could earn spectacular profits if the market (SPY) just manages to be flat or go up by any amount in 2017.

OK, it isn’t quite a calendar year, but it starts now, or whenever you make the trade, and January 19, 2017.  That’s about 13 months of waiting for my 40% to come home.

Here is the trade I made last week when SPY was trading about $225:

Buy to Open 1 SPY 19Jan18 220 put (SPY180119P220)

Sell to Open 1 SPY 19Jan18 225 put (SPY180119P225) for a credit of $1.95  (selling a vertical)

This is called a vertical put (bullish) credit spread.  You collect $195 less $2.50 commissions, or $192.50 and there will be a $500 maintenance requirement by your broker.  You do not pay interest on this amount, but you have to leave that much untouched in your account until the options expire.  The $500 is reduced by $192.50 to calculate your net investment (and maximum loss if SPY closes below $220 on January 19, 2018.  That net investment is $307.50.

If SPY is at any price higher than $225 on that date in January, both options will expire worthless and you will keep your $192.50.  That works out to a profit of 62% on your investment.

If the stock ends up below $225, you will have to buy back the 225 put for whatever it is trading for.  If SPY is below $220, you don’t have to do anything, but the broker will take the $500 you have set aside (less the $192.50 you collected) and you will have suffered a loss.

I know I said 40% in the headline, and this spread makes 62% if SPY is the same or any higher.  An alternative investment would be to lower the strikes of the above spread and do something like this:

Buy to Open 1 SPY 19Jan18 210 put (SPY180119P210)

Sell to Open 1 SPY 19Jan18 215 put (SPY180119P215) for a credit of $1.50  (selling a vertical)

This spread would get you $147.50 after commissions, involve an investment of $352.50, and would earn a profit of 42% if SPY ends up at any price above $215.  It could fall $10 from its present price over the year and you would still earn over 40%.

Many people will not make either of these trades because they could possibly lose their entire investment.  Yet these same people often buy puts or calls with the hope of making a killing, and over 70% of the time, they lose the entire amount.  Contrast that experience to the fact that the spreads I have suggested would have made over 60% every year for the last seven years without a single loss.  I doubt that anyone who buys puts or calls can boast of this kind of record.

Options involve risk, as any investment does, and should only be used with money 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

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.

Option Idea Which Must Be Executed Before Market Closes November 1st

Tuesday, November 1st, 2016

Option Idea Which Must Be Executed Before Market Closes November 1st

I am sorry to send you a second email message today, but I need to hurry because it will disappear tomorrow.  It involves Gilead Sciences (GILD)

Gilead (GILD) announces earnings on Tuesday, November 1st after the close.  The post-announcement options are extremely expensive.  Implied Volatility (IV) for the 04Nov16 series is 60 compared to 34 for the 16Dec16 series which expires six weeks later.  The company has fallen 32% from its 52-week high and pays a dividend of 2.5% and has a p/e of only 6.4 which should provide some level of support. Expectations are for lower sales and earnings.  These facts support the idea that a big drop in stock price is unlikely after the announcement.  This trade will make money if the stock is flat or goes up by any amount (a maintenance requirement of $400 per spread, less the amount of the credit, will result):

Buy To Open 1 GILD 16Dec16 70 put (GILD161216P70)

Sell To Open 1 GILD 04Nov16 74 put (GILD161104P74) for a credit of $.25  (buying a diagonal)

We bought 5 contracts of exact spread today in our portfolio that trades on earnings announcements.  It will make a maximum gain if the stock closes on Friday exactly at $74.  Any price higher than that will also result in a profit.  The stock should be able to fall about $2 before any loss should appear on the downside.

This is the risk profile graph for this spread, assuming that IV for the 16Dec16 series falls by 5 after the announcement:

GILD Risk Profile Graph Oct 31 2016

GILD Risk Profile Graph Oct 31 2016

The theoretical risk of this investment is $375 (the $400 maintenance requirement less the $25 received).  However, since we plan to close the spread on Friday and there will still be 6 weeks of remaining life for the 16Dec16 70 put, the actual risk is far less than $375.  That is the amount that you will tie up in your account for this week, however.

You can see that if the stock is flat or moderately higher on Friday, you will make a profit of about $100 on your $475 investment, or about 25%.  Not bad for a week.

If the stock falls by more than $2, the graph indicates that a loss would result.  Since we believe the low valuation and the high dividend rate both provide a solid support level for the stock, we don’t believe the stock will fall by very much, and we feel good about making this investment.

 Lowest Subscription Price Ever

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

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

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

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

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

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

Happy trading.

Terry

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

 

Halloween Special Expires at Midnight Tonight

Monday, October 31st, 2016

Halloween Special Expires at Midnight Tonight

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

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

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

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

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

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

Lowest Subscription Price Ever

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

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

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

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

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

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

Happy trading.

Terry

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

 

 

Halloween Special – Lowest Subscription Price Ever

Tuesday, October 18th, 2016

Halloween Special – Lowest Subscription Price Ever

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

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

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

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

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

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

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

Lowest Subscription Price Ever

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

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

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

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

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

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

Happy trading.

Terry

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

 

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

Tuesday, October 11th, 2016

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

Terry

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

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

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

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

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

JNJ Historical Pricing Chart Oct 2016

JNJ Historical Pricing Chart Oct 2016

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

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

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

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

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

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

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

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

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

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

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

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

Calendar Spreads Tweak #5 (Like Writing Calls on Steroids)

Thursday, October 6th, 2016

Lots of people like the idea of writing calls. They buy stock and then sell someone else the right to repurchase their shares (usually at a higher price) by selling a call against their shares. If the stock does not go up by the time that the call expires, they keep the proceeds from the sale of the call. It is sort of like a recurring dividend.

If writing calls appeals to you, today’s discussion of an option strategy is right up your alley. This strategy is like writing calls on steroids.

Terry

Calendar Spreads Tweak #5 (Like Writing Calls on Steroids)

When you set up a calendar spread, you buy an option (usually a call) which has a longer life than the same-strike call that you sell to someone else. Your expected profit comes from the well-known fact that the longer-term call decays at a lower rate than the shorter-term call you sell to someone else. As long as the stock does not fluctuate a whole lot, you are guaranteed to make a gain as time unfolds.

If you are dealing with a stock you think is headed higher, you might write an out-of-the-money call (where the strike price is higher than the current price of the stock). If you are right and the stock moves up to that strike price or above, you might lose your stock through exercise of the call, but you would be selling it at that higher price and also keeping the proceeds of your call sale.

With options, you can approximate this risk profile by buying a calendar spread at a strike which is higher than the current price of the stock. If the stock moves up to that strike price as you wait out the time for the call you sold to expire, the value of the call you own will rise and you will also keep the proceeds from the call you sold. Your long call will not go up as much as your stock would have gone up (perhaps only 60% or 70% as much), but this is a small concern considering that you have to put up such a small amount of money to buy the call compared to buying 100 shares of stock. Most of the time, you can expect that your return on investment with the calendar spread to be considerably greater than the return you would enjoy from writing calls against shares of stock.

The tweak we are discussing today concerns what you do when the call you have sold expires. On that (expiration) day, if the call is out of the money (at a strike which is higher than the price of the stock), it will expire worthless and you get to keep the money you originally sold the call for, just like it would be if you owned the stock and wrote a call against it. You would then be in a position where you could sell another call with a further-out expiration date and collect money for it, or sell your original call and no longer own a calendar spread.

If the call on expiration day is in the money (i.e., at a strike price which is lower than the price of the stock), the owner of that call will likely exercise his option and ask for your stock. However, right up until the last few minutes of trading on expiration day, there is usually a small time premium remaining in the call he or she owns, and it would be more profitable for him or her to sell the call on the market rather than exercising it.

As the owner of an in-the-money calendar spread on expiration day, you could merely sell the spread (buying back the call you originally sold and selling the call you bought), making the trade as a sale of a calendar spread. As an alternative, you could buy back the expiring call and sell another call which has a longer lifetime. This would be selling a calendar spread as well, but the date of the call you sold would probably be not as far out in the distance as the call you originally bought. At the end of the day, you would still own that original call and you would be short a call which has some remaining life before it expires.

You can see that this tweak is much like what you could do if you were in the business of writing calls. Another similarity is that you might want to sell a new call which is at a higher (or lower) strike. You could do this with either the call-writing strategy or the calendar-spread (call-writing on steroids) strategy. If you replace an expiring call with a new short call at a different strike price, you would be selling what is called a diagonal spread and you would end up owning a diagonal spread as well. A diagonal spread is exactly the same as a calendar spread except that the strike price of the long call you own is different from the call that you sold to someone else.

One limitation of the options strategy is that if you want to sell a lower-strike call than you originally did, your broker would charge you with a maintenance requirement of $100 for every dollar difference between the strike of your long call and the strike of the call you sold. There is no interest charged on this amount (like a margin loan would involve), but that amount is set aside in your account and can’t be used to buy other shares or options. If you sold a call at a strike which was $2 lower than the strike price of your long call (creating a maintenance requirement of $200), and you were able to sell that call for $2.50 ($250), you would collect more cash than the amount of the maintenance requirement, so you would still end up with more cash than what you started with before selling the new call.

This all may seem a little complicated, but once you do it a few times, it will seem quite simple and easy. And from my experience, profitable most of the time as well, far more profitable than writing calls against stock you own.

Happy trading.

Calendar Spreads Tweak #4

Wednesday, September 21st, 2016

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

Terry

Calendar Spreads Tweak #4

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

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

Facebook Bid Ask Puts Calls Sept 2016

Facebook Bid Ask Puts Calls Sept 2016

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

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

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

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

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

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

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

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

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

Happy trading.

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