Posts Tagged ‘VIX’

How to Use Expectations to Prosper With Earnings Announcements

Monday, April 15th, 2013

This week I will offer a simple spread idea that could make 50% in a couple of days next week. It will cost about $170 per spread to put on.

Also, if you read down further, there is information on how you can become a Terry’s Tips Insider absolutely free!

How to Use Expectations to Prosper With Earnings Announcements

The earnings season started just last week. In my last Idea of the Week I recommended buying a straddle on JPMorgan (JPM), the first big company to announce this time around. We made that trade in an actual portfolio for Terry’s Tips subscribers and closed it out for a 15%+ gain after commissions.

I also suggested an options strategy for JPM in a Seeking Alpha article – How To Play The JPMorgan Earnings Announcement. In another Terry’s Tips portfolio we placed calendar spreads as outlined in this article and closed them out for a gain of 15% after commissions even though the stock fell a little after the announcement while we were betting that it would go higher.

A wonderful thing about options is that you can be wrong and still make profits as we did last week in our JPM trades. Terry’s Tips subscribers who followed both portfolios made over 30% last week, more than most people make in an entire year of stock market investing.

This week I wrote another Seeking Alpha article which checks out seven big companies which announce this week – How To Play The First Week Of The April Earnings Season.

The major message of this article is that the price of the stock after the announcement is more dependent on pre-announcement market expectations than the actual numbers that the company releases. If expectations are too high, the stock will fall no matter how much the company beats the analysts’ projections.

Of the seven companies reviewed, SanDisk (SNDK) seemed to have the highest level of expectations. Whisper numbers were 18.6% higher than analyst projections, the stock had shot up over 10% to a new high over the last week, and had moved 5% higher in the last week alone. We believe that it is highly likely that some investors will “sell on the news” no matter how good it is, and the stock will either stay flat or fall after the announcement.

With the stock trading about $57.70, I am buying May 57.5 puts and selling April 55 puts. Implied volatility (IV) of the May options is 37 while the April options carry an IV of 70, nearly double the May number (this means you are buying “cheap” and selling “expensive” options). Each diagonal spread would cost $163 to place at the natural option prices at the close on Friday.

Here is the risk profile graph for these spreads if you bought 20 of them, investing about $3400 after commissions (of course, you could buy fewer, or more, if you wished):

SNDK Risk Profile Graph

This graph assumes that after the announcement, implied volatility (IV) of the May options will fall from its current 37 to 30 which is more likely in a non-announcement time period. The graph shows that when you close the positions on Friday, April 19^th, a double-digit gain could be made if the stock holds steady, and could nearly double your investment if it fell about $2 ½ after the announcement. A profit would result no matter how far the stock might fall in value.

We think the stock is likely to fall after the announcement because expectations are so unusually high. If it moves higher, however, a loss could very well result. Even in the world of options, there is no free lunch. You need to take a risk. We like our chances here.

Tags: Calendar Spreads, Calls, Credit Spreads, diagonal spreads, Earnings Announcement, Earnings Option Strategy, Earnings Play, Earnings Season, implied volatility, JPM, Monthly Options, Portfolio, Profit, profits, Puts, SNDK, Straddles, Terry's Tips, thinkorswim, VIX, Volatility
Posted in Earnings Announcement Options Strategy, Monthly Options, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios | No Comments »

Buying a Straddle on Oracle

Monday, March 25th, 2013

Last week I told you about a pre-earnings announcement on Nike. With the stock trading around $65, we bought calendar spreads at the 62.5, 65, and 67.5 strikes for an average of $.33 each, guessing that if the stock ended up near any one of these strikes, that spread would be worth over a dollar and cover all three spreads. The stock shot up more than 11% after the announcement, and was closest to the 70 strike. The calendar spread at that strike was worth $1.20, so we were right on that score. But we didn’t have any spreads at that strike, and we lost money for the day. In future calls in companies like Nike which have a history of big moves after announcements, we will add extra out-of-the-money calls and/or puts to provide insurance against huge moves of this size.

If you read down further, there is information on how you can become a Terry’s Tips Insider absolutely free!

Buying a Straddle on Oracle

On Friday, with Oracle (ORCL) trading at $32, I bought an April straddle (both a put and a call) at the 32 strike. The straddle cost me $1.40. The stock will have to move in either direction at least $1.40 for the intrinsic value of my straddle to be at break-even (although it will not have to move that much for the straddle to be able to be sold for a gain as there will always be some extra premium value in the options I own).

Let’s look at how much Oracle has fluctuated each month for the past two years:

Oracle Monthly Price Changes Last Two Years

: Oracle Chart March 25 2013

Only two times in the last two years has Oracle failed to move at least $1.40 in one direction or another in a single month. That means that an at-the-money straddle purchased for $1.40 at the beginning of the month could have been sold for a profit at some point during that month 22 out of 24 times.

Many times, there would have been an opportunity to more than double your money, and while the maximum loss is theoreticlly $1.40 per spread, last week, with a week of remaining life, the 32 at-the-money straddle could have been sold for $.72 which means that if you closed out the spread with a week remaining, the worst you could do would be to recover half your initial investment. (If the stock were at any price higher or lower than $32, the straddle would be worth more than $.72 with a week remaining).

The big challenge with these kinds of spreads is deciding when to sell. One way is to place a limit order when the spread reaches a certain profit level, say 50%, and take that gain whenever it comes. In our example, that would mean placing an order to sell the straddle at $2.10. The above table shows that in more than half the months (13 out of 24), you could have sold the straddle for at least a 50% gain. I like those odds.

The stock does not have to fluctuate the full $2.10 in order for the straddle to be sold at that price. As long as there is time remaining in the options you hold, they will be worth more than the intrinsic value. The $2.10 price might be hit if the stock only fluctuates $1.80 or so if it does it early in month.

Another way of selling the spread is to place limit orders at slightly more than what you paid for the straddle if either the put or call reaches that price. You might place a limit order to sell the puts at $1.43 and another order to sell the calls if they reach $1.43. In either case, you get all your money back (plus the commission) and you have either puts or calls remaining that might be worth a great deal if the stock reverses itself and moves in the opposite direction. The stock might have to move only about $1.20 in either direction for one of these trades to execute.

We typically place orders to sell half of our original spreads if either the puts or calls can be sold for the original cost of the straddle. That way we get half our money back (almost assuming that we will not lose money for the month) and if the stock continues in the direction it has started, a huge gain might be made on those remaining options, and if the stock reverses, you have twice as many of the other options that might grow in value.

Most of our investments at Terry’s Tips involves selling premium and waiting over time for decay to set in, all the time hoping that the stock does not fluctuate too much (as that hurts calendar spreads). It is fun to have at least one investment play that does best if the market does fluctuate, and the more the better. Buying a straddle on Oracle gives us that opportunity, and the history of the stock’s fluctuations shows that it is a pretty good bet.

Tags: Calendar Spreads, Calls, diagonal spreads, Earnings Announcement, Earnings Option Strategy, Earnings Play, implied volatility, Oracle, ORCL, Oversold, Portfolio, Profit, profits, Puts, Straddles, Terry's Tips, thinkorswim, VIX, Volatility, Weekly Options
Posted in Earnings Announcement Options Strategy, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

Using Puts vs. Calls for Calendar Spreads

Tuesday, March 12th, 2013

A lot of our discussion lately has focused on pre-earnings-announcement strategies (we call them PEA Plays). This has been brought about by lower option prices (VIX) than we have seen since 2007, a full six years ago. With option prices this low it has been difficult to depend on collecting premium as our primary source of income with our basic option strategies.

But the earnings season has now quieted down and will not start up again for several weeks, so we will return to discussing more conventional option issues.

Terry

Using Puts vs. Calls for Calendar Spreads

It is important to understand that the risk profile of a calendar spread is identical regardless of whether puts or calls are used. The strike price (rather than the choice of puts or calls) determines whether a spread is bearish or bullish. A calendar spread at a strike price below the stock price is a bearish because the maximum gain is made if the stock falls exactly to the strike price, and a calendar spread at a strike price above the stock price is bullish.

When people are generally optimistic about the market, call calendar spreads tend to cost more than put calendar spreads. For most of 2012 and into 2013, in spite of a consistently rising market, option buyers have been particularly pessimistic. They have traded many more puts than calls, and put calendar prices have been more expensive.

Right now, at-the-money put calendar spreads cost more than at-the-money call calendar spreads. As long as the underlying pessimism continues, they extra cost of the put spreads might be worth the money because when the about-to-expire short options are bought back and rolled over to the next short-term time period, a larger premium can be collected on that sale. This assumes, of course, that the current pessimism will continue into the future.

If you have a portfolio of exclusively calendar spreads (you don’t anticipate moving to diagonal spreads), it is best to use puts at strikes below the stock price and calls for spreads at strikes which are higher than the stock price. If you do the reverse, you will own a bunch of well in-the-money short options, and rolling them over to the next week or month is expensive (in-the-money bid-asked spreads are greater than out-of-the-money bid asked spreads so you can collect more cash when rolling over out-of-the-money short options).

The choice of using puts or calls for a calendar spread is most relevant when considering at-the-money spreads. When buying at-the-money calendar spreads, the least expensive choice (puts or calls) should usually be made. An exception to this rule comes when one of the quarterly SPY dividends is about to come due. On the day the dividend is payable (always on expiration Friday), the stock is expected to fall by the amount of the dividend (usually about $.60). Since the market anticipates this drop in the stock (and knowing the specific day that the stock will fall), put prices are generally bid higher in the weeks before that dividend date.

The bottom line is that put calendar spreads are preferable to call calendar spreads for at-the-money strikes (or even at strikes slightly higher than the stock price) coming into a SPY dividend date. Even though the put spreads cost more, the Weekly options that can be sold for enough extra to cover the higher cost. You do not want to own SPY call calendar spreads which might become in the money on the third Friday of March, June, September, or December because you will have to buy them back on Thursday to avoid paying the dividend, and you may not want to make that purchase to keep your entire portfolio balanced.

Tags: Auto-Trade, Bearish Options Strategies, Bullish Options strategies, Calendar Spreads, Calls, Credit Spreads, diagonal spreads, ETF, Out-Of-The-Money Calls, Out-Of-The-Money Options, Profit, Puts, SPY, Terry's Tips, thinkorswim, VIX, Volatility
Posted in 10K Strategies, Monthly Options, SPY, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | 1 Comment »

OptionsXpress Drops Auto-Trade

Monday, March 4th, 2013

OptionsXpress no longer offers their Auto-Trade service which enabled clients to follow their favorite newsletter’s recommendations without placing each trade themselves.

This is just another reason why thinkorswim is a much better alternative for anyone who wants to trade options, and you can now get over $300 worth of free services from us at the same time.

Use this link to sign up – open thinkorswim account – and once you have funded your account with at least $3500, email Seth@TerrysTips.com and let him know that you have done it, and this is what he will do – sign you for our Premium Service package ($119.95 value plus an extra 4 months of our Premium Service, valued at another $190.80). You get $300.65 worth of services without paying us one penny.

As another benefit, Terry’s Tips subscribers are eligible for lower commission rates that I can’t put in writing until you become a paid subscriber. These rates will apply to all of your option trades at thinkorswim, not just those where you might be following our trade alerts.

Even More Pre-Earnings-Announcement Plays

Case Study of a PEA Play (Salesforce.com): Last week, in two different Terry’s Tips portfolios we gained 24.8% in less than 24 hours with the following trades.

In the week preceding the earnings announcement, several articles were published on Seeking Alpha that panned Salesforce.com (CRM).

A sample, with a quote from each:

What’s The Deal With Salesforce.com?

“When viewed from the fundamentals, the current valuation of Salesforce is absurd.”

Something Is Seriously Wrong With Salesforce

“… at this dilutive speed, the Salesforce.com stock is little more than a Ponzi scheme.”

Salesforce Earnings Preview: 7th Consecutive GAAP Loss Expected

“What has occurred at Salesforce in recent years are efforts to maximize insider shareholder wealth with no regard to and to the exclusion of outside shareholders.”

Other articles mentioned the huge amount of insider selling at the company – in the last six months, over $150 million was sold by company insiders, about 8% of their holdings. (Most of the sales occurred in late December, 2012, however, and I concluded that it was largely due to efforts to avoid the capital gains tax increase that was expected to come about in 2013.)

In opposition to all this negativity about the company, we saw indications that the stock might not fall after earnings (as so many other companies have done). There had not been a big run-up in the stock price leading up to the earnings announcement, whisper numbers were not higher than analysts’ expectations, and most important of all, the company had almost a perfect record of having higher stock prices after earnings, even when they missed expectations. For those reasons, when we placed the positions in place, we allowed for more room on the upside than on the downside.

Here are the trades we placed:

February 28, 2013 Trade Alert – Earnings Eagle Portfolio – LIMIT ORDERS

These trades will get us set up for today’s earnings announcement after the close for Salesforce.com. Our break-even range extends to about 7% on the downside and 10% on the upside and we only have one day of price changes to worry about:

BTO 4 CRM Apr-13 155 puts (CRM130420P155)
STO 4 CRM Mar1-13 155 puts (CRM130301P155) for a debit limit of $2.71 (buying a calendar)

BTO 4 CRM Apr-13 160 puts (CRM130420P160)
STO 4 CRM Mar1-13 160 puts (CRM130301P160) for a debit limit of $2.99 (buying a calendar)

BTO 3 CRM Apr-13 165 puts (CRM130420P165)
STO 3 CRM Mar1-13 165 puts (CRM130301P165) for a debit limit of $3.12 (buying a calendar)

BTO 3 CRM Apr-13 175 calls (CRM130420C175)
STO 3 CRM Mar1-13 175 calls (CRM130301C175) for a debit limit of $3.10 (buying a calendar)

BTO 4 CRM Apr-13 180 calls (CRM130420C180)
STO 4 CRM Mar1-13 180 calls (CRM130301C180) for a debit limit of $2.93 (buying a calendar)

BTO 4 CRM Apr-13 185 calls (CRM130420C185)
STO 4 CRM Mar1-13 185 calls (CRM130301C185) for a debit limit of $2.48 (buying a calendar)

These trades were placed with CRM trading about $169. These spreads cost $6365 to place including commissions ($55). Note that the largest numbers of contracts were placed at the upper and lower extreme strike prices, and no spreads at all were at the at-the-money 170 strike. These choices resulted in a relatively flat risk profile graph curve with a little more coverage on the upside than the downside.

There was a huge implied volatility (IV) advantage to our calendar spreads. IV for the Mar1-13 weekly options was 100 compared to 36 for the Apr-13 options. The big question was how much the April options would fall in value once earnings were announced. We estimated that IV would fall by 5, (to 31) after the announcement. With this assumption, the risk profile graph looked like this:

The graph shows that a $1500 – $2000 gain might be expected if the stock made only a minimal change in value after the earnings announcement. We set out to create positions that would result in a gain if the stock rose less than 10% or fell less than 7% after the announcement, and the graph showed that we had that coverage.

What happened, however, was that IV of the April options fell all the way to 27, reducing the amount that we were able to gain on the trades. The stock opened up about $7 higher, at about $176. Here are the trade alerts that we issued and the prices we got for the spreads:

March 1, 2013 Trade Alert – Earnings Eagle Portfolio – LIMIT ORDERS

With the stock higher we will take these spreads off first:

BTC 4 CRM Mar1-13 155 puts (CRM130301P155) for $.03 (no commission)

STC 4 CRM Apr-13 155 puts (CRM130420P155) for $1.70

BTC 4 CRM Mar1-13 160 puts (CRM130301P160) for $.05 (no commission)

STC 4 CRM Apr-13 160 puts (CRM130420P160) for $2.50

March 1, 2013 Trade Alert #2 – Earnings Eagle Portfolio – LIMIT ORDERS

Now we will take this one off:

BTC 3 CRM Mar1-13 165 puts (CRM130301P165) for $.05 (no commission)

STC 3 CRM Apr-13 165 puts (CRM130420P165) for a limit of $2.20

March 1, 2013 Trade Alert #3 – Earnings Eagle Portfolio – LIMIT ORDERS

BTC 3 CRM Mar1-13 175 calls (CRM130301C175)
STC 3 CRM Apr-13 175 calls (CRM130420C175) for a credit limit of $4.80 (selling a calendar)

BTC 4 CRM Mar1-13 180 calls (CRM130301C180)
STC 4 CRM Apr-13 180 calls (CRM130420C180) for a credit limit of $5.75 (selling a calendar)

BTC 4 CRM Mar1-13 185 calls (CRM130301C185)
STC 4 CRM Apr-13 185 calls (CRM130420C185) for a credit limit of $4.90 (selling a calendar)

During the day, the stock moved higher, trading as high as $183.24 ($14 higher than it was when we placed our trades).

When we bought the calendar spreads on Thursday, February 28^th, our cost was $6365. This entire amount was really not at risk because the long April options would always have a greater value than the Mar1-13 weekly options that we had sold, and we were planning on exiting all the trades on Friday, March 1 (so there would be no further decay in our long options).

We lost money on three of the six spreads we bought but the gain on the other three spreads was much greater than our losses on the losers. We collected $7985 from selling the spreads and paid $41.25 in commissions for a net receipt of $7943.75 and a gain of $1578.75 after commissions, or 24.8%.

We continue to learn. First, we underestimated how much IV falls after the announcement. Second, our idea that stock fundamentals are not as important as expectations in PEA Plays was reinforced (and historical results after earnings is also important). Third, taking off the spreads furthest away from the stock price early is the best way to go (all these spreads ended the day well below what we sold them for).

Tags: Auto-Trade, Calendar Spreads, Calls, Credit Spreads, CRM, diagonal spreads, Earnings Announcement, Earnings Option Strategy, Earnings Play, implied volatility, Profit, profits, Puts, Stocks vs. Stock Options, Terry's Tips, thinkorswim, VIX, Volatility
Posted in Earnings Announcement Options Strategy, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

More Pre-Earnings-Announcement Plays

Tuesday, February 26th, 2013

Last week I gave you an option play on Tesla Motors (TSLA) to be placed just before they announced earnings. Since there were no weekly options available, the March series was sold. By the end of the week, a small gain had been made in the portfolio but the real gains will not come until the March options expire on the 16^th.

Today I would like to tell you about two other pre-earnings-announcement (PEA) plays that Terry’s Tips subscribers carried out last week.

More Pre-Earnings-Announcement Plays

Herbalife (HLF) PEA Play: In the Terry’s Trades portfolio when HLF was trading about $40 we bought 6 Jun-13 – Feb4-13 call calendar spreads at the 39 strike, paying $2.25 per spread. We paid the same for 6 more calendars at the 41 strike. In retrospect, these strikes were too close to the stock price and did not offer a wide break-even range. Since most big moves are to the downside, a better strike would have been 38 or even 37 instead of the 39.

Our total investment was $2700. After the announcement the stock fell 7.5% to $37, putting it outside the range of our strike prices. We bought back the Feb4-13 41 calls for $.05, paying no commission, and sold the Jun-13 41 calls for $2.25, losing a total of $30 on the spread before commissions. On Friday we sold the 39 calendar spread for $2.80, gaining $55 x 6 = $330, or a net of $300 for the two spreads. Commissions amounted to $52.50, so our net gain was $247.50, or 9.2% on our investment.

We felt that this was not a bad gain considering that we didn’t make the ideal choices of strike prices and the stock fell by a relatively large amount. If we had bought the 38 strike rather than the 39 strike, our gain would have been $150 greater, or almost 15% total for the week.

Abercrombie & Fitch (ANF) PEA Play: In the Earnings Eagle portfolio, on Thursday, the day before the pre-market announcement on Friday, with ANF trading about $49 we bought 15 Apr-13 – Feb4-13 call calendar spreads at the 48 strike, paying $1.28 per spread. We paid $1.30 for 15 more calendars (using puts) at the 44 strike and $1.35 for 15 diagonals, buying calls at the 52.5 strike (the 53 strike was not available in April) and selling Feb4-13 calls at the 53 strike.

Our total investment was $5859. After the announcement the stock fell over 7% to $45.50, but remaining within the range of our strike prices. We bought back the Feb4-13 53 calls for $.03 and the Feb4-13 44 puts for $.05, paying no commission, and sold Apr-13 44 puts and 52.5 calls as a straddle, collecting $2.55, losing a total of $270 on the two spreads before commissions. We sold the 48 call calendar spread for $1.97, gaining $69 x 15 = $1035, or a net of $765 for the three spreads. Commissions amounted to $187.50, so our net gain was $577.50, or 9.8% on our investment.

We have developed a set of Trading Rules for PEA Plays for Terry’s Tips paying subscribers. They might be worth many times what a subscription would cost.

Tags: ANF, Calendar Spreads, diagonal spreads, Earnings Announcement, Earnings Option Strategy, Earnings Play, HLF, implied volatility, PEA, Portfolio, Pre-Earnings-Announcement, Profit, profits, Terry's Tips, thinkorswim, TSLA, VIX, Volatility, Weekly Options
Posted in Earnings Announcement Options Strategy, Last Minute Strategy, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | No Comments »

A Post-Earnings Starbucks (SBUX) Play

Monday, January 28th, 2013

In our efforts to find new and different option opportunities in this world of 5-year-low SPY option prices, we have been checking out pre-earnings-announcement strategies.

Just prior to the earnings announcement, implied volatility (IV) of the options which expire just after the announcement escalates due to the uncertainty of what the earnings, sales, margins, or guidance might be.

We have had some success buying calendar spreads at strikes below, near, and above the stock price in advance of an earnings announcement. These spreads have a tremendous IV advantage (the options we sell have a higher IV, making them more “expensive” than the options we buy).

Last week, we used this strategy on Starbucks (SBUX). When we used just the calendar spreads, we managed to make 11% after commissions by selling the spreads the day after the announcement. This was out fourth consecutive week of making pre-earnings announcement gains.

In addition to the calendar spreads, we also bought some extra straddles or strangles (both puts and calls) which were designed to protect the entire portfolio against a loss in case the stock moved big-time after the announcement. This time around, with SBUX edging up about $1.50 after the announcement, the straddle-strangle protection lost money when IV for those options plummeted after the announcement, and the portfolio that used both calendars and strangles broke even for the week.

While studying the past history of SBUX we discovered an interesting pattern which is the subject of this week’s Idea of the Week.

Terry

A Post-Earnings Starbucks (SBUX) Play

Last week SBUX rose $2.00 for the week, spurred higher by a good earnings report and the company re-affirming guidance. We checked back over the last 13 times when SBUX rose by $2.00 or more in a week and learned that in the subsequent weeks, 10 times at some point during the week, SBUX traded at least $1.00 lower.

With SBUX trading at $56.81, I will be buying Mar-13 57.5 puts, hopefully paying about $2.19, Friday’s closing ask price. Immediately after making this purchase I will place an order to sell those puts for $.70 higher than what I paid for them (if the stock falls by $1.00 this put option should move $.70 higher).

If this trade executes, I should make about 30% on my money after commissions.

If the stock starts moving higher instead of lower, I will sell some Feb1-13 57.5 puts to reduce or eliminate possible losses (but I will be careful not to sell quite as many puts as I own long ones so that if the stock does fall, I should still make a gain).

I expect to close out the positions by the end of the week unless the stock has edged up to being very close to $57.50 in which case I might sell the next Weekly series 57,5 puts because the time premium should be quite high (and I have six more weeks over which I can continue to sell puts at this strike so that I can get back my initial $2.19 back, and more).

Tags: Calendar Spreads, Calls, Credit Spreads, Earnings Announcement, Earnings Option Strategy, Earnings Play, ETF, implied volatility, Portfolio, Profit, profits, Puts, Risk, SBUX, Startbucks, Stocks vs. Stock Options, Terry's Tips, thinkorswim, VIX, Volatility
Posted in Earnings Announcement Options Strategy, Last Minute Strategy, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios | No Comments »

A Remarkably Safe Way To Play The Apple Earnings Announcement

Tuesday, January 22nd, 2013

Apple announces earnings Wednesday after the close and I have come up with a strategy that looks like it can make a decent gain for the week (ranging from 5% to 15%) with almost no chance of incurring a loss.

The big downside of the strategy is that it requires an investment of about $16,000. I understand that many subscribers are looking for less costly option investments.

However, if you can afford an investment of this size, check out the Seeking Alpha article I wrote just yesterday.

Terry

Here is the link – A Remarkably Safe Way To Play The Apple Earnings Announcement

This is the third week in a row that I have offered a strategy centering on the unusually-high option prices in the series that expires just after an earnings announcement.

The first play was for Wells Fargo – How to Play the Wells Fargo Earnings Announcement for Tomorrow. This one gained 44% after commissions.

The second play involved eBay – How to Play the EBAY Earnings Announcement. I waited too long to close out my spreads this time around (many subscribers gained 24% or more). But I did manage to make 11.6% after commissions, still not a bad week.

I think this week’s earnings-announcement play is the safest one yet in spite of the high cost requirement. I am also sharing with paid subscribers a most promising play in Starbucks (SBUX).

Tags: AAPL, Calendar Spreads, Credit Spreads, earnings announcements, Earnings Option Strategy, Earnings Play, ebay, implied volatility, intrinsic value, Profit, profits, Risk, Stocks vs. Stock Options, Straddles, Strangles, Terry's Tips, thinkorswim, VIX, Volatility, Weekly Options, Wells Fargo, WFC
Posted in AAPL, Earnings Announcement Options Strategy, Last Minute Strategy, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | 2 Comments »

How the Dog of Dogs Portfolio Made 124% Last Week

Monday, January 7th, 2013

Two messages again today – first, a reminder that in celebration of the New Year, I am making the best offer to come on board that I have ever offered. The offer expires in three days. Don’t miss out.

Second, one of our portfolios gained an astonishing 124% last week. I want to tell you about this portfolio, reveal the exact positions we hold, and show how it should unfold next week (and thereafter).

How the Dog of Dogs Portfolio Made 124% Last Week

This portfolio is based on the expectation that the volatility ETN VXX will continue its downward slope in the future. The following is an excerpt from the weekly newsletter I send to my paying subscribers:

Summary of Dog of Dogs Portfolio

This $5000 portfolio is designed to take advantage of the long-term inevitable price pattern of VXX.. Because of contango, the way it is constructed, and the management fee, the stock is destined to fall over the long term. Twice in the last three years, 1 – 4 reverse splits had to be made so there would be some reasonable price to trade. We use calendar spreads at strikes below the underlying price.
As a reminder why we call this the Dog of Dogs portfolio, here is the 4-year graph of this ETN since it was formed:

The stock never really traded for $2800 as the graph suggests – adjusting for the two reverse splits made it seem that way. This surely is the worst-performing “stock” in the entire universe over the past four years.

Here are the current positions we hold in this portfolio:

			Dog Of Dogs
	Price:		$27.55	Portfolio Gain since 12/04/12 =			+14.5%

	Option		Strike	Symbol	Price	Total	Delta	Gamma	Theta
-3	Jan2-13	P	27	VXX130111P27	$0.42	($126)
-6	Jan2-13	P	28	VXX130111P28	$0.97	($579)
-4	Jan2-13	P	28.5	VXX130111P28.5	$1.32	($528)
-3	Jan-13	P	28	VXX130119P28	$1.46	($437)
6	Feb-13	P	28	VXX130216P28	$2.59	$1,551
6	Feb-13	P	29	VXX130216P29	$3.23	$1,935
7	Feb-13	P	30	VXX130216P30	$4.03	$2,818
3	Mar-13	P	28	VXX130316P28	$3.45	$1,035
					Cash	$57	-303	-167	$9
	Total Account Value					$5,726	-5.3%
6					Annualized ROI at today’s net Theta:				57%

Results for the week: With VXX down $7.88 (22.2%) for the week, the portfolio gained $3,361 or 142.1%. We were patient while VXX headed higher due to fiscal cliff uncertainties, and this week our patience was rewarded as VXX fell big-time. Next week looks potentially great even if VXX does not continue to fall. A flat or lower price for VXX should result in a double-digit gain for the week.

The risk profile graph shows that if the stock is at the same level ($27.55) next Friday, the premium we collect from having sold puts at the 27, 28, and 28.5 strikes will decay sufficiently to return a gain of $740 (about 12%) even if the stock does not fall as history suggests it will. The graph also shows that a double-digit gain for the week can be expected at almost any lower price for the stock as well (this is possible because we hold six extra uncovered long puts).

Note: Most Terry’s Tips paying subscribers mirror this portfolio (and/or others of our 8 total portfolio offerings) through the Auto-Trade program at thinkorswim rather than making the trades on their own. We invite you to join us as a paying subscriber at the lowest price we have ever offered.

Tags: Auto-Trade, Calendar Spreads, Calls, Credit Spreads, ETF, ETN, Monthly Options, Portfolio, Profit, profits, Puts, Risk, Stocks vs. Stock Options, Terry's Tips, thinkorswim, VIX, Volatility, VXX, Weekly Options
Posted in 10K Strategies, Earnings Announcement Options Strategy, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, VXX, Weekly Options | No Comments »

Invest in Yourself in 2013 (at the Lowest Rate Ever)

Monday, December 31st, 2012

To celebrate the coming of the New Year I am making the best offer to come on board that I have ever offered. It is time limited. Don’t miss out.

Invest in Yourself in 2013 (at the Lowest Rate Ever)

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

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

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

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

Don’t you owe it to yourself to learn a system that carries a very low risk and could gain 36% a year as many of our portfolios have done?

So what’s the investment? I’m suggesting that you spend a small amount to get a copy of my 70-page (electronic) White Paper, and devote some serious early-2013 hours studying the material.

And now for the Special Offer – If you make this investment in yourself by midnight, January 9, 2013, this is what happens:

For a one-time fee of only $39.95, you receive the White Paper (which normally costs $79.95 by itself), which explains my two favorite option strategies in detail, 20 “Lazy Way” companies with a minimum 100% gain in 2 years, mathematically guaranteed, if the stock stays flat or goes up, plus the following services :

1) Two free months of the Terry’s Tips Stock Options Tutorial Program, (a $49.90 value). This consists of 14 individual electronic tutorials delivered one each day for two weeks, and weekly Saturday Reports which provide timely Market Reports, discussion of option strategies, updates and commentaries on 8 different actual option portfolios, and much more.

2) Emailed Trade Alerts. I will email you with any trades I make at the end of each trading day, so you can mirror them if you wish (or with our Premium Service, you will receive real-time Trade Alerts as they are made for even faster order placement or Auto-Trading with a broker). These Trade Alerts cover all 8 portfolios we conduct.

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

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

5) A FREE special report “How We Made 100% on Apple in 2010-11 While AAPL Rose Only 25%”. This report is a good example of how our Shoot Strategy works for individual companies that you believe are headed higher.

With this one-time offer, you will receive all of these benefits for only $39.95, less than the price of the White Paper alone. I have never made an offer better than this in the twelve years I have published Terry’s Tips. But you must order by midnight on January 9, 2013. Click here, choose “White Paper with Insider Membership”, and enter Special Code 2013 (or 2013P for Premium Service – $79.95).

Investing in yourself is the most responsible New Year’s Resolution you could make for 2013. I feel confident that this offer could be the best investment you ever make in yourself.

Happy New Year! I hope 2013 is your most prosperous ever. I look forward to helping you get 2013 started right by sharing this valuable investment information with you.
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 8 years of publication – only $39.95 for our entire package - using Special Code 2013 (or 2013P for Premium Service – $79.95).

Tags: Bearish Options Strategies, Bullish Options strategies, Calendar Spreads, Calls, Credit Spreads, diagonal spreads, ETF, LEAPS, Market Crash Protection, Monthly Options, Options Tutorial Program, Portfolio, profits, Puts, shoot strategy, SPY, Stocks vs. Stock Options, Terry's Tips, thinkorswim, VIX, Volatility, VXX, Weekly Options, White Paper
Posted in 10K Strategies, AAPL, Lazy Way Strategy, SPY, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, Weekly Options | 1 Comment »

Black Swan Insurance

Monday, December 3rd, 2012

This week I wrote an article for Seeking Alpha which describes an option portfolio that bets on VIX moving higher as uncertainty grows over the looming fiscal cliff. The best part of the deal is that the options will make about a 50% gain even if VIX doesn’t go up a bit over the next three weeks until the options expire.
Please read this important article as it could show you a way to provide extremely good protection against you other investments should the market take a big dive this month.

Black Swan Insurance
Here’s the link:

Black Swan Insurance That Might Pay Off Even If There Is No Crash

This is a very simple strategy that involvBlack Swan Insurance That Might Pay Off Even If There Is No Crashes buying in-the-money Dec-12 13 calls and selling a smaller number of Dec-12 16 calls. You are setting up a vertical spread for some of the calls and holding several calls uncovered long. The 13 calls have essentially no time premium in them and the 16 calls have a lot of time premium since they are very close to the money.

The only scenario where these positions lose money is if VIX falls much below 15 when the options expire on December 19. For its entire history, VIX has traded below 15 on only a few rare occasions, and it always moved higher shortly thereafter.

If VIX does get down close to 15 as expiration nears, additional calls might be sold against the uncovered long calls you own, maybe at the 15 strike.. This would expand the downside break-even range about a half a dollar.

There are a few things that you should know about trading VIX options. Weekly options are not available. You are restricted to the regular monthly option series. Even more restricting, calendar spreads and diagonal spreads are not allowed in VIX options because the underlying entity is a derivative rather than an actual stock. You are pretty much restricted to vertical or back spreads unless you want to post a large maintenance requirement.

In spite of these limitations, VIX options are a lot better than VXX if you want to buy portfolio insurance. VXX suffers from contango dilution most of the time while VIX fluctuates independent of any such headwinds.

Tags: Bearish Options Strategies, Calls, Credit Spreads, diagonal spreads, ETF, ETN, Market Crash Protection, Monthly Options, Portfolio, Profit, profits, Puts, Risk, Stocks vs. Stock Options, Terry's Tips, thinkorswim, VIX, Volatility, VXX
Posted in Monthly Options, Stock Option Trading Idea Of The Week, Stock Options Strategies, Terry's Tips Portfolios, VXX | No Comments »

Posts Tagged ‘VIX’

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Invest in Yourself in 2013 (at the Lowest Rate Ever)

Black Swan Insurance

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