This week we will ignore the looming European debt crisis for a minute and talk a little about one of the “Greeks” – a measure designed to predict how option prices will change when underlying stock prices change or time elapses. It is important to have a basic understanding of some of these measures before embarking on trading options.

I hope you enjoy this short discussion.

A Useful Way to Think About Delta

The first “Greek” that most people learn about when they get involved in options is Delta.  This important measure tells us how much the price of the option will change if the underlying stock or ETF changes by $1.00. 

If you own a call option that carries a delta of 50, that means that if the stock goes up by $1.00, your option will increase in value by $.50 (if the stock falls by $1.00, your option will fall by a little less than $.50). 
The useful way to think about delta is to consider its value to be the probability of that option finishing up (on expiration day) in the money.  If you own a call option at a strike price of 60 and the underlying stock is selling at $60, you have an at-the-money option, and the delta will likely be about 50.  In other words, the market is saying that your option has a 50-50 chance of expiring in the money (i.e., the stock is above $60 so your option would have some intrinsic value).

If your option were at the 55 strike, it would have a much higher delta value because the likelihood of its finishing up in the money (i.e., higher than $55) would be much higher.  The 55 call might have a delta of 80 or 90 (or if the option is about to expire, it will approach 100).  With the stock at $60 and the strike at 55, the stock could fall by $4.99 or go up by any amount and it would end up being in the money, so the delta value would be quite high.

On the other hand, if your call option were at the 65 strike while the stock was selling at $60, it would carry a much lower delta (maybe 10 if expiration is near, or 30 if there are a few months to go until expiration) because there would be a much lower likelihood of the stock going up $5 so that your option would expire in the money.

Of course, the amount of remaining life also has an effect on the delta value of an option.  For in-the-money call options, the closer to expiration you are, the higher the delta value.  For out-of-the-money options, delta values are higher for further-out expirations.  As in many things concerning options, even the most simple measure, delta, is a little confusing.  Fortunately, most brokers (especially thinkorswim) show you the net delta value of your long and short options at all times (or the deltas of any options you are thinking of buying or selling).
In one Terry’s Tips portfolio, we have sold December call options for AAPL which expire on December 16th.  With the stock currently trading about $395, the Dec-11 395 call carries a delta of 50 (meaning the market is betting that there is a 50-50 chance of AAPL trading above $395 in two weeks, at expiration).  We are also short a Dec-11 405 call which carries a delta of 30.  The market figures that there is about a 30% chance that AAPL will be above $405 in two weeks.  And the Dec-11 415 call has a delta of only 14, so the expectation is that 14% of the time, the stock might rally by $20 over those two weeks.

For the last month or so, the European debt crisis has crushed the U.S. stock market.  Will fears of a global melt-down continue to depress our markets, or will we enjoy a Santa Claus rally next month?

The answer is that no one really knows.  We can all wager a bet as to which way the market will go, but it really is no more than a guess.  We all know the market moves both ways, but we never know which way it will move next.

I believe that some of everyone’s investment portfolio should be in a hedge that protects against the market moving down.  Most people are quite eager to buy stocks or mutual funds, but very few set up a hedge in case they are wrong.  Today I would like to discuss exactly how that hedge might be set up.

A Smart Way to Hedge Your Investments (With Options)

Let’s say you have accumulated a nest egg of $25,000 which you have wisely placed most of it in an index fund (I say wise because index funds, over time, consistently outperform every other kind of mutual fund investment).

Now let’s assume that you are super-smart, and have decided to take $5000 (20% of your total investment portfolio) and placed it in an investment which will prosper if the market should fall.  In my opinion, that hedge should be an options portfolio much like an actual portfolio we carry out for Terry’s Tips subscribers.  We call it the 10K Bear.

Four weeks ago, the market (the S&P 500 tracking stock, SPY) was at $128.60.  Last Friday, SPY closed at $116.34, a drop of $12.26, or 9.5%.  Presumably, your index fund lost exactly that amount.  On your $20,000 investment, you have lost $1900 over those 4 weeks.

Now let’s check out how well your 10K Bear portfolio has held up.  Our actual portfolio (which many subscribers mirror on their own or have thinkorswim make the trades for them through their Auto-Trade program) gained 80% after commissions.  If you had invested $5000 (20% of your total investment portfolio) in the 10K Bear, you would have gained $4000 over those 4 weeks while the market tanked.

Bottom line, if you had invested 20% of your money in the 10K Bear and 80% of your money in an index fund, you would have a net gain of over 20% for the period rather than a loss of 9.5%.  In fact, if you had only put 10% of your funds in our bearish options portfolio, you would have broken even for the period rather than losing 9.5%.

Here is how the 10K Bear should perform this week (ending Friday, December 2).  The portfolio is currently worth $6730 but we will withdraw money again next week so that subscribers can mirror the portfolio with close to $5000:

The P/L Day column in the lower right-hand corner shows the expected gain if the stock closes as the Stk Price (left-hand corner column).  You can see that an average gain of about 13% will come if the stock stays flat or falls by as much as $3.  It can go $2 higher and a profit will still be made.  Only if the stock goes up by more than $2 ½ should a loss result (assuming no adjustments are made).

If the stock fluctuates more than $2 in either direction early in the week, we would probably make an adjustment which would shift the above curve in the direction that the stock has moved.  This adjustment would usually reduce the maximum possible gain for the week but would increase the chances that a good gain would result.  Above all, we do our best to avoid a loss of any amount.

How is this portfolio set up?  It consists of owning SPY puts which expire in January or February 2012 and selling Weekly puts (at lower strike prices) that expire this Friday, December 2nd.   If the stock holds steady, the decay rate of our Weekly puts is greater than our longer-term long puts, and the portfolio gains from the difference in decay rates.

If the stock falls, since the long puts are at higher strike prices, they increase in value at a greater rate than the short puts do, and even larger gains are possible.  If the stock falls too much, at some point the long and short put positions go up at essentially the same rate (and we would make an adjustment by rolling down some of our short puts to even lower strikes).

This may seem a little complicated to you right now, but it is a very simple strategy once you watch it unfold in the real world for a few weeks.  Many subscribers mirror our portfolio on their own until they have confidence that they understand it sufficiently to carry it out on their own (and we are delighted to have an ex-subscriber who is making big bucks and will say nice things about us).  

For an investment of only $79.95 (subscribe here), you can learn all the details of a hedge that could have turned the losses you incurred over the last month into gains which were twice as great as those losses. (This price includes weekly updates on the 10K Bear and 7 other portfolios for two months.)  Of course, that investment gets you a whole lot more than the details on this bearish hedge.  But even if there were nothing else, it is a huge bargain that you should be able to use for the rest of your life to increase your annual gains year after year (especially in those times when the market falls, as it will).

Last week was the worst week for the market in over two months.  How did your stocks fare?  A week ago, I showed you the risk profile graph for our 10K Bear portfolio.  It spelled out what would happen at the various possible ending prices of SPY on Friday.  This portfolio gained 27.7% (after paying commissions) last week.  It has now gained 47% over the last 3 weeks while the stock has fallen 6%.

Our Boomer’s Revenge portfolio (which takes a neutral position on the market) enjoyed an expiration month where SPY fluctuated all over the place but ended up just about where it started.  That is the ideal thing for us.  This portfolio gained 45% in one month after commissions.

Where, besides options, can you make gains like this when the market is flat (or goes down)?  Most investors would be happy with 40% gains for a two-year period.  We did it in one month.

We take the position that we have no idea which way the market will move in the short run.  However, if we really could guess its direction, we could make extraordinary gains.  Today I want to check out one statistical rule of thumb that some people believe might give us an idea of short-term market direction.

Testing A Statistical Rule of Thumb

We have always held the position that we had no idea which way the stock was headed in the short run (but over time, it has gone up about 10% a year, so we should lean a bit in the upside direction).  This assumption seems to have served us well over the years. 

However, a time-tested rule of thumb in the world of statistics is that for almost any curve of economic activity, the direction of the change in the next period is more than twice as likely to be in the same direction as the direction of the change in the last period.  This rule of thumb supposedly applies to all time periods, whether they are daily, weekly, monthly, or annually.

For sure, if you examined a moving average curve for a stock or index, every subsequent change is almost always in the same direction as the last change.  Very rarely does the curve hit a bottom or top and reverse direction.

I wondered if we could use this rule of thumb to predict the direction the market might be headed based on what it did in the previous month.  If more than twice the time, the change was in the same direction, we could benefit considerably by setting up risk profile graphs which had more room for the stock to move in that particular direction.  If this statistical rule of thumb held true, maybe we should change our basic assumptions and the strategy as well.

To check out the idea with SPY, I checked the monthly changes in SPY over the last 10 years.  In exactly 60 of the months, the stock moved in the same direction that it had in the previous month.  In exactly 60 of the months, it moved in the opposite direction that it had in the previous month.   A perfect tie.

 The only conclusion that we could make from these numbers is that our original assumption that we just don’t know is probably about as good as we are likely to get.  The statisticians are not always right when it comes to the real world, at least when it comes to monthly fluctuations of SPY.

Last week I discussed our 10K Bear portfolio, the one that is designed to do best when the market falls.  Today I would like to expand that discussion and report on how well the portfolio did last week when there was extreme volatility (SPY fell over 4% on Wednesday but managed a gain of about 1% for the week).

Once again, I hope you will spend a few minutes studying the graph below.  If you can see what will happen in the next few days (ending Friday, November 18th), you will have a much better understanding of why I believe that options offer more potential than just about any other investment you can make.

I hope you will make a 5-minute investment in yourself and study the graph carefully.

Follow-Up on Last Week’s 10K Bear Portfolio: 

Most people own stocks or mutual funds that do best when the market moves higher.  How do they make out when the market moves lower?  Presumably, their portfolio value goes down.  Maybe they don’t feel so badly because all of their friends have also suffered a loss as well.

But if you’re anything like me, you hate to lose money, even if all my friends are losing at the same time.

Doesn’t it make sense that some of your money should be invested in something that does best when the market moves lower?  It’s called hedging.  Hedge funds do it all the time.  They even have named themselves after the idea.

We have set up a portfolio that is designed to do to just that.  We call it the 10K Bear portfolio.  Many Terry’s Tips subscribers (myself included) duplicate the trades made in this portfolio in their own account through the Auto-Trade program at TD Ameritrade’s thinkorswim.  Others copy the trades on their own in their account.

The neat thing about this portfolio is that it can make gains even if the stock goes up.  How many investments make gains when the stock moves in the opposite direction that you are betting on?  Therein lies the magic of options trading.

Two weeks ago, the S&P 500 (“the market”), SPY, fell 2.4%.  Our 10K Bear portfolio gained a whopping 24% for the week.  Last week, SPY rose $1.18, about 1%, and our portfolio gained 5.8%.  I call that having your cake and eating it too. 

Obviously, this portfolio does not make money every single week, regardless of what the market does.  But it almost always makes gains if the market stays flat or falls moderately, and also can make smaller gains if the market moves just slightly higher.  At the beginning of each week, we create a risk profile graph like the one below so we know exactly how the portfolio will perform at the various stock prices where it might end up on Friday.

The 10K Bear is a portfolio currently worth about $4200.  We own puts at several different strike prices (between $124 and $128).  These puts will expire on the third Friday in January of 2012.  Against these long puts we have sold Weekly puts which will expire on November 18, 2011.  These Weekly puts are at lower strike prices (from $122 to $126).

The Weekly puts that we have sold have higher decay rates than the January puts that we own (all options fall in value, or decay, every day the underlying stock remains flat).  This means that every day that the market does not fluctuate, our portfolio value grows larger.   That is the neat thing about a properly-designed options portfolio.  You can make gains even if you are wrong.  When you buy stock, the only way you make money is if the stock moves higher.  With options, you can make substantial gains even if the market stays absolutely flat (or moves moderately either up or down).

Here is the risk profile graph for our 10K Bear portfolio.  It shows how much the portfolio will gain or lose at the possible ending stock prices this Friday.

The second column from the right (under P/L Day) gives the dollar loss or gain at the three selected prices in the first column (Stk Price), and you can estimate the losses or gains from the graph curve at other possible stock prices.  At last Friday’s close, SPY was trading at $126.66.

You can see that if the stock is absolutely the same at the close next Friday, the portfolio will gain $470, or just over 10%.  If the stock falls moderately, by $2, and ends up at $124.66, the gain should be $970, or about 20%.  (Both these numbers will be reduced slightly from commissions and trading costs when the Weeklys are bought back next Friday and replaced with Weeklys that expire on November 25th.)

The stock can go up as high as $128 before a loss should result.  In other words, the portfolio makes excellent money if the stock stays flat, even more money if the market falls moderately, and it also can gain if the market goes up (as long as the rise is not too great).

Where else can you invest your money and expect these kinds of returns?  If you know of anything that can offer even remotely as great as these gains, please send the details along to me.  If you like, I would share them with my subscribers so we all could benefit.

Why are you waiting any longer before you learn the details of how you can start making money using the 10K Strategy that is the basis of the 8 actual portfolios that we carry out (and you can easily duplicate in your own account, either on your own or through the Auto-Trade program at thinkorswim)?

Give yourself (and your loved ones) an early Christmas gift, and increase your earning potential exponentially by subscribing today.  Do it right here.

Where should you place your investment dollars in this time of uncertainty?  There are no easy answers. 

The stock market is not an comfortable place to be.  Through the first ten months of 2011 (in what many have considered to be a good year for the market), it has gained about 2%.  It is lower today than it was three years ago.  Bonds do not yield enough to make much of a difference, and CD rates are pathetic.  Foreign stocks have not done appreciably better than domestic stocks.  And real estate has been a great way to lose money big time.

I believe that our SPY portfolios offer greater potential for monetary returns than any investment alternative out there.  (SPY is the tracking stock for the S&P 500 stock index, so you are trading on the entire market rather than an individual stock.)

Today I would like to share with you the risk profile graph of one of our SPY portfolios – this one is called the 10K Bear.  It is positioned to do best if the market falls.  It can serve as a hedge against your other investments which presumably do best if the market moves higher.

I hope you will spend a few minutes studying the graph below.  If you can see what will happen in the next few days (ending Friday, November 11th), you will have a much better understanding of why I believe that options offer more potential than just about any other investment you can make.

I hope you will make a 5-minute investment in yourself and study the graph carefully.

A Bearish Option Portfolio That Can Gain Even if the Market Doesn’t Fall:

 
The 10K Bear is a portfolio currently worth about $4000.  We own puts at several different strike prices (between $124 and $128).  These puts will expire on the third Friday in January of 2012.  Against these long puts we have sold Weekly puts which will expire on November 11, 2011.  These Weekly puts are at lower strike prices (from $121 to $125).

The Weekly puts that we have sold have higher decay rates than the January puts that we own (all options fall in value, or decay, every day the underlying stock remains flat).  This means that every day that the market does not fluctuate, our portfolio value grows larger.   That is the neat thing about a properly-designed options portfolio.  You can make gains even if you are wrong.  When you buy stock, the only way you make money is if the stock moves higher.  With options, you can make substantial gains even if the market stays absolutely flat (or moves moderately either up or down).

Here is the risk profile graph for our 10K Bear portfolio.  It shows how much the portfolio will gain or lose at the possible ending stock prices this Friday.

The second column from the right (under P/L Day) gives the dollar loss or gain at the three selected prices in the first column (Stk Price), and you can estimate the losses or gains from the graph curve at other possible stock prices.  At last Friday’s close, SPY was trading at $125.75.

You can see that if the stock is absolutely the same at the close next Friday, the portfolio will gain $901, or about 22% on the $4000 portfolio value.  If the stock falls moderately, by $2, and ends up at $123.75, the gain should be $1,337, or about 33%.  (Both these numbers will be reduced slightly from commissions and trading costs when the Weeklys are bought back next Friday and replaced with Weeklys that expire on November 18th.)

The stock can go up as high as $129 before a loss should result.  In other words, the portfolio makes excellent money if the stock stays flat, even more money if the market falls moderately, and it also can gain if the market goes up (as long as the rise is not too great).

Where else can you invest your money and expect these kinds of returns?  If you know of anything that can offer even remotely as great as these gains, please send the details along to me.  If you like, I would share them with my subscribers so we all could benefit.

Last week, the market was weak.  SPY fell $3.12.  Our 10K Bear portfolio gained 24% (after commissions and roll-over costs).  That is more than most stock investments make in several years.  We did it in a single week.

Why are you waiting any longer before you learn the details of how you can start making money using the 10K Strategy that is the basis of the 8 actual portfolios that we carry out (and you can easily duplicate in your own account, either on your own or through the Auto-Trade program at thinkorswim)?

Give yourself (and your loved ones) an early Christmas gift, and increase your earning potential exponentially by subscribing today.  Do it right here.

It is important to differentiate between the implied volatility of option prices and the actual volatility of the underlying stock or ETF.  It is not an easy task to recognize when the two measures deviate from one another, but if you can identify a difference, huge gains can be made with the proper option strategy.

Today we will discuss how you can capitalize on any differences that you might be able to find.

Choose an Option Strategy Based on Actual vs. Implied Volatility: 

 
Last week the European debt crisis was apparently averted, at least in the eyes of option investors.  VIX, the so-called “fear index”, the average implied volatility of option prices on the S&P 500 tracking stock (SPY) fell dramatically to just below 25 (still above its mean average of about 20 but well below the 40+ it has sometimes been at during the previous month).

When option prices are high (i.e., implied volatility, VIX) is high, there are huge gains possible by writing call options (not our favorite ploy) or buying calendar spreads (our favorite most of the time).  However, when actual market volatility is greater than the expected volatility (i.e., implied volatility of the option prices), writing calls or buying calendar spreads is generally unprofitable.

Over the last three months, we have had great difficulty making gains with our calendar spreads because actual market volatility was too great.  On the other hand, we have had some luck with buying straddles (or strangles), a strategy of buying both a put and a call on the same underlying and hoping that there is a big fluctuation in either direction.

Last Wednesday, after following VXX (a “stock” that is based on the futures of VIX), we noticed that actual volatility was huge – it had fluctuated $2 or more almost every single day for several weeks.  On Wednesday in one of our portfolios we made a small ($1400) buy of 5 VXX 43 puts and calls which would expire two days later.  We paid $279 per straddle.  When the market for VXX opened up sharply lower on Thursday, we sold the straddle for $596, netting 117% after commissions.

In another portfolio where we owned calendar spreads on VXX, we lost money.  Our results in these two portfolios clearly demonstrated that when high actual volatility occurs, you do best by buying short-term options, either puts or calls depending on which way you believe the market is headed, or both puts and calls if you admit you really don’t know which way it will go (as we usually do).  On the other hand, when actual volatility is low, calendar spreads deliver higher returns.
Now that much of the uncertainty facing the market has subsided a bit, we believe it is time for the calendar spreads to prosper once again as they have for most of the past few years (since late 2008 extending up to August of this year).

This week we will talk a little about one of the “Greeks” – the variables designed to predict how option prices will change when underlying stock prices change or time elapses. It is important to have a basic understanding of some of these measures before embarking on trading options.

I hope you enjoy this short discussion.

A Useful Way to Think About Delta 

The first “Greek” that most people learn about when they get involved in options is Delta.  This important measure tells us how much the price of the option will change if the underlying stock or ETF changes by $1.00. 

If you own a call option that carries a delta of 50, that means that if the stock goes up by $1.00, your option will increase in value by $.50 (if the stock falls by $1.00, your option will fall by a little less than $.50).
The useful way to think about delta is to consider it the probability of that option finishing up (on expiration day) in the money.  If you own a call option at a strike price of 60 and the underlying stock is selling at $60, you have an at-the-money option, and the delta will likely be about 50.  In other words, the market is saying that your option has a 50-50 chance of expiring in the money (i.e., the stock is above $60 so your option would have some intrinsic value).

If your option were at the 55 strike, it would have a much higher delta value because the likelihood of its finishing up in the money (i.e., higher than $55) would be much higher.  The stock could fall by $4.90 or go up by any amount and it would end up being in the money, so the delta value would be quite high, maybe 70 or 75.  The market would be saying that there is a 70% or 75% chance of the stock ending up above $55 at expiration.

On the other hand, if your call option were at the 65 strike while the stock was selling at $60, it would carry a much lower delta because there would be a much lower likelihood of the stock going up $5 so that your option would expire in the money.

Of course, the amount of remaining life also has an effect on the delta value of an option.  We will talk about that phenomenon next week.

A final note on the SPY calendar spread I placed two weeks ago.  With the stock running up to over $122, it got quite far from the 115 strike I had selected.  As you may recall, I sold over half my positions and recovered all of my original investment and was waiting to see how much extra I would earn from selling the balance last Friday.  I picked up only $.40 ($200 on my original investment of $1800, so it wasn’t entirely a bad day).

This week I would like to share some humorous market definitions.

If the market knocks you down, try laughing instead of crying –

New Market Definitions: 
CEO –Chief Embezzlement Officer.

CFO— Corporate Fraud Officer.

BULL MARKET — A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET — A 6 to 18 month period when the kids get no allowance, the wife gets no jewellery, and the husband gets no sex.

VALUE INVESTING — The art of buying low and selling lower.

P/E RATIO — The percentage of investors wetting their pants as the market keeps crashing.

STANDARD & POOR — Your life in a nutshell.

STOCK ANALYST — Idiot who just downgraded your stock.

STOCK SPLIT — When your ex-wife and her lawyer split your assets equally between themselves.

FINANCIAL PLANNER — A guy whose phone has been disconnected.

MARKET CORRECTION — The day after you buy stocks.

OUT OF THE MONEY —   When your checking account’s overdraft hits bottom.

CASH FLOW— The movement your money makes as it disappears down the toilet.

YAHOO — What you yell after selling it to some poor sucker for $240 per share.

WINDOWS — What you jump out of when you’re the sucker who bought Yahoo @ $240 per share.

INSTITUTIONAL INVESTOR — Past year investor who’s now locked up in a nuthouse.

PROFIT — An archaic word no longer in use.

Last week I told you about a simple calendar spread that might double your money in a week or two.  Today I would like to follow up on that idea, and tell you exactly how it worked out in my account.

Even though the iPhone 5 was not introduced as we had expected last Tuesday, we are holding the special Terry’s Tips discount offer open until October 11 – see details below.

Follow-Up on Low Cost SPY Calendar Spread    

On Monday, October 3, just after I sent out the Idea of the Week to you, I bought the exact spread that I spelled out in that report:

BTO (buy to open) 1 SPY Oct-11 115 call (SPY111022C115)
STO (sell to open) 1 SPY Oct1-11 115 call (SPY111007C115) for $1.80 (buying a calendar spread)

I bought 11 of these spreads, paying only $163 per spread ($165.50 including commissions at thinkorswim).  My total investment was $1820.50.  As I said in last week’s report, I expected that the spread would cost less on Monday than it did on Friday, and that was the case.

I chose the 115 strike because that was about half-way between the $112 and $120 that SPY had been fluctuating between for the past several weeks.  It started out the week on the downside, falling below $108 at one point on Tuesday.  I was a little concerned because when you buy a calendar spread, the maximum gain comes when the stock closes at exactly the strike price you select on the day that the short options are due to expire.

On Friday morning, October 7th, the day that the Oct1-11 116 calls were due to expire, SPY had shot up to over $116.  I made two trades in the morning.  I sold 6 of the original calendar spreads, collecting $2.19 ($219 less commissions of $2.50, or $216.50 per spread, or $1299.00 total).

If I had sold all 11 spreads at this price, I would have collected $2318.50 for a net profit after commissions of $561.00, or 31% on my investment for one week.

In the second trade, I rolled over the Oct-1 11 116 calls to the next week, buying back the calls expiring that day and selling the Oct2-11 116 calls.  I collected $1.30 per spread ($130 less commissions of $2.50, or $127.50 x 5 spreads, or $637.50 total).

I had collected a total of $1936.55 after paying all commissions.  This was greater than my total investment of $1820.50 by $116, and I am guaranteed a much greater profit a week from now when I close out the remaining 5 calendar spreads I now own.  I could collect as much as $200 per spread if the stock manages to close very close to $115 on Friday.

While I am delighted with these results so far, I could have done much better if I had waited until near the end of the day on Friday.  At that time, I could have rolled over the Oct1-11 calls to Oct2-11 calls and collected my entire $1.63 investment back rather than the $1.30 I collected early in the day.  (I was afraid that SPY was going up fast and I would gain less if it moved further away from $115 – instead, it fell back closer to the 115 strike at the end of the day.)

Several subscribers have written in to say they tried this spread in their own accounts, many of them picking different strike prices.  Happily, some of them who made money on the trades have decided to use $59.95 of their winnings to subscribe to Terry’s Tips where they might learn how to make some really big returns in future months and years.

Here is the special Terry’s Tips offer:

iPhone 5 Introduction Offer: Apple was expected to introduce IPhone 5 on October 4.  For the first time, Sprint will be able to sell an IPhone.  It could be a big deal for Apple, and all of us who are betting on their stock.
On April 29, 2010, Terry’s Tips set up an actual portfolio to show how an options portfolio could outperform a stock portfolio using the same stock.  We chose Apple (AAPL) as a stock that we thought would go up.  On the day we set up the portfolio, AAPL was trading at $277.

In the next nine months, AAPL rose 25% and our $5000 starting portfolio value had soared to $10,087 (after all commissions, of course), a gain of over 100%.  

Our options portfolio had outperformed the purchase of stock by a huge margin – gaining 4 times as much as the stock gained.  Of course, the stock has now gone even higher, and our $5000 portfolio recently surpassed the $12,000 level.
 
We have written up a special report which shows exactly how we gained over 100% with an options portfolio while the stock rose only 25%.  You could easily use this same strategy on any stock of your own choosing, and presumably do as well (assuming that you picked a stock that went higher).
 
This report is worth many times the price of the entire subscription by itself. Together with my White Paper, this report is a short and complete explanation of how you can use an options strategy to double your money if the stock goes up only 25%

If you sign up by October 11, one week after the iPhone 5 was supposed to hit the shelves, we will discount our introductory package all the way down to $59.95, a full $20 lower than thousands of subscribers have paid. 

This is what you get:
 
1)   My 70+ page White Paper which explains my favorite option strategies in detail, including my 10 Trading Rules, and 20 companies to use with the ‘Lazy Way” Strategy, (which guarantees a 100% gain in 2 years if the  stock stays flat or goes up).
 
2)   2 FREE months of the Options Tutorial Program (a $49.90 value), which includes:
 
 – A 14-lesson tutorial on trading stock options which will give you a thorough understanding of trading stock options.
 – A weekly update of 8 actual portfolios so that you can follow their progress over time.
 – Specific trades for each portfolio emailed to you so you may mirror them in your own account.
 – Access to historical analytic reports and portfolio updates posted in the Insiders section of Terry’s Tips.
  – If you choose to continue after the 2 free months, do nothing, and you’ll be billed at a discounted rate of $19.95 per month.  
 
3)    A FREE special report – “How We Made 100% with Apple in 2010-11 While the Stock Rose only 25%.”

 
With this one-time offer, you will receive everything for only $59.95, less than the value of the White Paper alone. But you must order by October 11, 2011.   Click here – http://www.terrystips.com/order.php and enter Special Code iPhone5.  
 
Why wait?  Do it today!  You will learn a strategy that could pay you back many times over, and do it every year for the rest of your investing life.  

Terry

P.S. Receive the special free report entitled “How We Made 100% on Apple in 2010-11 While AAPL Rose Only 25%”  in addition to all the other benefits of a Terry’s Tips subscription for the discounted special price of only $59.95,  go to http://www.terrystips.com/order.php, and use Special Code iPhone5

Option prices are higher than they have been in several years.  Today I would like to suggest a way to capitalize on these high prices be selling some short-term premium.  You might double your money in a week.  

Maybe you would be unlucky and it would take two weeks to double your money (of course, there are no guarantees in the investment world, but this one looks pretty good to us). 

What I am hoping is that you try this little investment, and if you are successful, you use some of your gain to join Terry’s Tips where you can get a complete education on how to generate consistent gains which could far exceed conventional investments.

Timing is everything – you act soon, you can become a Terry’s Tips Insider for a special low price (see below).

Low Cost ($180) SPY Calendar Spread Which Might Double in One Week

For the past several weeks, SPY has fluctuated in a range between $112 and $120.  Right now it is resting very close to the lower end of that range.  To place the spread that I am suggesting, you first need to make your best bet as to where the stock will be trading at the close of business on Friday.

Your chances of picking the right strike price are about as good as picking the right horse in a horse race, but the good thing about the calendar spread is that if your horse comes close to winning (i.e., the stock closes not too far away from your strike price choice), you can also be a winner.

When you buy a calendar spread, the maximum gain comes when the stock ends up at precisely the same price as the strike price of your spread.  At that price, the short position expires worthless (or very near to it) and the long side will have more time premium than any other option in that expiration series.

Once you have made your best bet as to where the price of SPY will be next Friday, you would put this spread on placing this trade:

BTO (buy to open) 1 SPY Oct-11 115 call (SPY111022C115)
STO (sell to open) 1 SPY Oct1-11 115 call (SPY111007C115) for $1.80 (buying a calendar spread)

This sample is for the 115 strike (you might select a higher or lower strike).  If you select a strike of 112 or higher, we would recommend using calls, or if lower than 112, using puts, although mathematically it makes no difference.  At thinkorswim, Terry’s Tips subscribers would pay a $2.50 commission to place this spread.

The $1.80 price is what you would have had to pay last Friday.  It will probably be less than this if you place the trade today or tomorrow.

You will have two opportunities to get your investment back (and hopefully, more).  The first will come on Friday (October 7).  You will buy back the call you sold short and sell the next-week call at the same strike.  This is the trade you would make then:

BTC (buy to close) 1 SPY Oct1-11 115 call (SPY111007C115)
STO (sell to open) 1 SPY Oct2-11 115 call (SPY111014C115) for $  (selling a calendar spread)

At last Friday’s closing option prices, if the stock is trading between $113 and $116, you would be able to sell this spread for a minimum of $180.  You would have all your money back, and when you made this same trade a week later (on October 21), anything you received from the sale would be pure profit.

An alternative move would be to close out the original calendar spread on October 7 rather than rolling over for another week.  If the strike you selected was within $3 or $4 of the stock price on that day, you should be able to sell the spread at a profit.

This little option spread might be a way to get your feet wet in the options world, and you would learn a little about how calendar spreads work without having to wait very long to see the results.  The closer your selected strike price is to the stock price when the short options expire, the greater your return. 

We hope you will re-invest some of the gain you might make by taking advantage of our discounted price for new subscribers who come on board by October 11, 2011.  Here is that special offer:

iPhone 5 Introduction Offer: Apple will introduce iPhone 5 on October 4.  For the first time, Sprint will be able to sell an iPhone.  It could be a big deal for Apple, and all of us who are betting on their stock.

On April 29, 2010, Terry’s Tips set up an actual portfolio to show how an options portfolio could outperform a stock portfolio using the same stock.  We chose Apple (AAPL) as a stock that we thought would go up.  On the day we set up the portfolio, AAPL was trading at $277.

In the next nine months, AAPL rose 25% and our $5000 starting portfolio value had soared to $10,087 (after all commissions, of course), a gain of over 100%.  

Our options portfolio had outperformed the purchase of stock by a huge margin – gaining 4 times as much as the stock gained.  Of course, the stock has now gone even higher, and our $5000 portfolio recently surpassed the $12,000 level.
 
We have written up a special report which shows exactly how we gained over 100% with an options portfolio while the stock rose only 25%.  You could easily use this same strategy on any stock of your own choosing, and presumably do as well (assuming that you picked a stock that went higher).
 
This report is worth many times the price of the entire subscription by itself. Together with my White Paper, this report is a short and complete explanation of how you can use an options strategy to double your money if the stock goes up only 25%

If you sign up by October 11, one week after the iPhone 5 hits the shelves, we will discount our introductory package all the way down to $59.95, a full $20 lower than thousands of subscribers have paid. 

This is what you get:
 
1)   My 70+ page White Paper which explains my favorite option strategies in detail, including my 10 Trading Rules, and 20 companies to use with the ‘Lazy Way” Strategy, (which guarantees a 100% gain in 2 years if the  stock stays flat or goes up).
 
2)   2 FREE months of the Options Tutorial Program (a $49.90 value), which includes:
 
 – A 14-lesson tutorial on trading stock options which will give you a thorough understanding of trading stock options.
 – A weekly update of 8 actual portfolios so that you can follow their progress over time.
 – Specific trades for each portfolio emailed to you so you may mirror them in your own account.
 – Access to historical analytic reports and portfolio updates posted in the Insiders section of Terry’s Tips.
  – If you choose to continue after the 2 free months, do nothing, and you’ll be billed at a discounted rate of $19.95 per month.  
 
3)    A FREE special report – “How We Made 100% with Apple in 2010-11 While the Stock Rose only 25%.”

 
With this one-time offer, you will receive everything for only $59.95, less than the value of the White Paper alone. But you must order by October 11, 2011.   Click here – http://www.terrystips.com/order.php and enter Special Code iPhone5.  
 
Why wait?  Do it today!  You will learn a strategy that could pay you back many times over, and do it every year for the rest of your investing life.  

Terry

P.S. Receive the special free report entitled “How We Made 100% on Apple in 2010-11 While AAPL Rose Only 25%”  in addition to all the other benefits of a Terry’s Tips subscription for the discounted special price of only $59.95,  go to http://www.terrystips.com/order.php, and use Special Code iPhone5.