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Terry's Tips Stock Options Trading Blog

Comparing Calendar and Diagonal Spreads in an Earnings Play

December 5th, 2016

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

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

Terry

Comparing Calendar and Diagonal Spreads in an Earnings Play

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

Update on Oil Trade (USO) Suggestion

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.

Benefiting From the Current Uncertainty of Oil Supply

November 29th, 2016

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

Terry

Benefiting From the Current Uncertainty of Oil Supply

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

Meanwhile, OPEC is . . .

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

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

A Short Summary of the Greeks

November 15th, 2016

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

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

Terry

A Short Summary of the Greeks

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

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

November 9th, 2016

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

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

I hope you can learn something from . . .

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

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. . . .

Halloween Special Expires at Midnight Tonight

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 . . .

Halloween Special – Lowest Subscription Price Ever

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 . . .

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

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 . . .

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