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Success With Options - Monthly Review, Issue #62 -- February 2015 Edition
January 31, 2015

Welcome to the February 2015 edition of this newsletter!

This is a monthly newsletter packed full of tidbits not found on the website. This is my attempt to stay connected with those who find value on the the website and want more.

Since this newsletter is published (nearly) every month, you are always up to date and empowered to be a better trader. That's because I'll be sharing lessons I've learned over the prior month, answering questions from other viewers and providing a spotlight on useful websites and trading tips. If you find this newsletter valuable, pay it forward and send it to your options trading friends.

To access previous issues of the newsletter, click here.

Same Song, Second Verse - February Newsletter

Last year about this time, we had a rough January. I posed the question as to whether January was an indicator of the year. Last year, it wasn't the case. We had a really nice year overall. This year, we face the same question.

I've recently been delivering a series of Webinars focused on various topics of interest. I'll have an update on these sessions as well as providing access to past sessions.

In addition, I have answers to your questions and Options Strategy Focus and more.

Finally, we'll close as usual with a Market outlook for you. For more details, read on...

I'm always interested in receiving feedback on the newsletter. If you haven't done so recently, please consider taking a few minutes to visit the newsletter feedback page and let your voice be heard. This can be done anonymously so please consider how you can help make the newsletter better.

In This Issue

1) Options Strategy Focus

2) Exciting Announcement

3) Answers to your questions

4) Options Outlook

5) Featured Products

Live Web Sessions Schedule

Recently, we launched a new service in the form of periodic live Web sessions. These sessions have been quite successful as we had a number of attendees join and participate in the discussion. However, they've turned out to be popular with people who couldn't attend the session as well.  See below for more details.

I'm going to schedule another session this month. I'll be sending out a reminder notice but don't wait. Sign up now so you won't forget and then add it to your calendar. I'll be using these sessions as well as feedback using this survey to help me determine if there is sufficient interest.

Date/Time Topic Registration
Calendar spreads entry & management
Calendar spreads can be a complex spread to trade. In this session, we'll cover the following important topics:
  • When they make sense - key characteristics
  • Ways to analyze potential profit
  • Entry & exit strategies
  • Management (rolls and adjustments)

Level: Intermediate

Seats limited to 25 so don't wait to sign up.
Session cost: $18

Add to Cart
More Info

TBD thinkorswim Analysis Tools
This session will provide a look at a section of the thinkorswim platform that often intimidates even experienced traders. The goal will be to demystify many of the features so you can unlock the potential for better trade and portfolio analysis. Here are some things we'll explore:
  • Analyzing potential P&L of a trade
  • Analyzing current trade with potential 'what if' adjustments
  • Determining probabilities of market move
  • Analyzing entire portfolio and potential adjustment
Level: Advanced
Stay tuned

In addition, the following have already been recorded and you can get access today.

Date/Time Topic Registration
Technical Analysis for Options Traders
This hour session offers tips for technical analysis tools for improved timing of entry and exit of spreads trades. We introduce different technical analysis concepts and highlight ones that may be best for options traders.

Level: Beginner - Intermediate
Purchase Recorded session (MP4).

Recording cost: $12

Add to Cart
More Info
Short Vertical Spreads Entries and Exits
This hour and a half session focuses on different entry and exit strategies for short vertical spreads. We'll examine strike selection, position sizing, entry timing, exit rules and more.

Level: Intermediate
Purchase Recorded session (MP4)

Recording cost: $12

Add to Cart
More Info
Portfolio Management
This session focuses on a number of topics related to portfolio management including:
  • how many trades to have open
  • balancing the portfolio for market bias,
  • using portfolio greeks to make additional trade decisions 
  • using the Analyze tab to assess possible adjustment strategies

  • This recording is offered in MP4 video format for simplicity of viewing

    Level: Advanced
    Purchase Recorded Session (MP4)
    Cost: $12

    Add to Cart
    More Info


    Each session will be recorded and made available to attendees. If you can't attend a session, don't worry. Once the session has completed, the recording will be made available for a very reasonable price. They'll be announced and listed on the Options Trading Videos page as well as in future newsletters so stay tuned.

    We are planning additional sessions so continue to use the feedback form to make suggestions and requests for future sessions. Use this survey to have your say.

    Stay tuned!!

    Options Strategy Focus: Year End/Beginning Assessment

    This section of the newsletter will focus more deeply on the details of some of the options strategies I use in the tutorials. I'd like to start the year's newsletters with a discussion of doing annual assessments.

    I've probably discussed this in a past newsletter but I think it bears repeating. It's good to take time at least once a year to analyze your trades for the past year. If you are going to be trading for the long term, it's important to continue to evaluate your performance over your various strategies, what works, what doesn't, where your weak spots are and so forth.

    If you haven't done so before, you can use the following information to help you prepare to be able to do a more thorough review next year - or even 6 months from now.

    Tools for assessment
    This assessment is not some random unstructured activity you perform once in a while. If you use that approach, you won't get much value from the process. I want to list several tools should already be using and how they can help you in your overall assessment process.
    • Trade Journal - You should be keeping a trade journal as a way to document your thoughts on each trade. This can later provide a fairly fine grained view of the trade, thoughts at the time and more. It can be quite helpful in going back to any failed trades - or even successful ones to  draw insights that can be applied to future trades.

      To be useful, you should start the journal when entering the trade, documenting any indicators the lead you to enter the trade, even thoughts and emotions. They may seem silly or useless but can be invaluable later. Also, you should be documenting your thoughts and emotions as you evaluate the trade, why you decide to enter, exit, stand firm or adjust.
    • Trade Log - A trade log is a little more coarse grained. It focuses on individual trade details like entry date, credit/debit, # contracts, profit/loss and so on. The idea is to see how each trade is doing, how many winners and losers you have on a monthly basis and so on. There are many benefits of using a trade log. First of all, it can give you an idea of how you are doing in your trading. Second of all, you can line it up with charting tools to determine if certain market actions work better with your strategies than others. Additionally, you can determine what strategies might be working better and which ones you need to improve.
    • Annual charts - The charts can help give perspective to the trade journal or trade log. You'll want to be able to look at various trends against the trades you've made to determine which trades work in which market cycles. It's also good to look at the longer perspective, not just one year charts but 5 years and longer. This can give you better overall perspective of the markets and trends. Sometimes you can get so focused on the day to day that you lose sight of the bigger picture.

    Questions you should be asking
    Which strategies are more successful? You know what they say about focusing on your strengths. It's good to know what works and why. Doing more of this can help improve your overall results. Understanding why can help you be sure to keep doing more of the same. That way your results remain constant from month to month and year to year.

    Which strategies should I work on improving? There will always be strategies you are less successful at. There are two possible actions you can take from here. In some cases, it may make sense to drop a strategy - especially if you are consistently struggling to make it work. On the other hand, recognizing where you have opportunities to improve means you can improve your overall effectiveness in trading as more of your strategies are successful.

    What weak spots do I have? Maybe you find after looking at trade journals and trade logs, that you are perpetually optimistic when a sell-off occurs and this causes you to enter a trade an the wrong time. Maybe you find you trade more effectively in a bullish market as opposed to a bearish market. The goal of this kind of assessment is to identify and begin to work on specific areas of your trading behavior. Shoring up these weak spots can help you achieve more consistent results.

    As you take time to step back and reflect, you may think of additional assessment questions to ask yourself. In addition, you can make an action plan to work on your improvement opportunities. Make this a routine part of your trading year. In fact, make it a ritual. Do the assessment over a cup of coffee or a nice glass of wine.
    Back to the table of contents.

    Answers to Your Questions

    I frequently receive email from visitors to the site with questions that aren't answered directly from content on the site. Many of these are great questions and I think the answers would be valuable to all readers. Each month I'll be posting one or two questions, so stay tuned!

    This question is related to choice of strategy. I'm going to paraphrase the question.

    Q: I've attempted to trade various spread strategies and lost money. I've had some success with long calls and puts. What suggestions would you make about the best strategy for me to use?

    A: This question comes up from time to time. I hope my response doesn't sound like I'm avoiding a direct answer but it really depends on you, your preferences, personality, etc. In addition, I NEVER want to tell someone what strategies they should trade. Just because some work for me doesn't mean they'll work for someone else.

    In my Introduction to Spreads video, I do show why I feel long calls and puts are less desirable as a trade strategy. However, that is simply my opinion. I know traders who have been quite successful with this strategy so I don't want to discard this approach just because it's not my preferred strategy. What I do want to offer here are some considerations in determining what works best for you.

    Tip #1: Paper trade consistently for enough time to get a proper sense of viability. It's hard to know for sure what strategy works best over the longer term without some historical perspective. You may have tried a few trades and been successful, but will it remain so over months and years of trading? So, paper trade and keep a record of wins & losses to get an accurate perspective.

    Tip #2: Look at your own personality. Your personality can help you determine a preferred strategy. How do you handle day to day fluctuations in the market? Are you comfortable with making an investment in a trade with a reward paid down the road if you're correct in your trade assessment? Can you tolerate lots of little losses for the larger payoff when you have a successful trade? How accurate are you in using technical analysis to asses potential market moves and stock/ETF moves? Answers to these questions can help you better understand what trading style best works for you.

    Tip #3: Be sure you understand the nature of options and time erosion. Of course, if you have traded enough of a strategy, you will likely become familiar with this. However, it is critical to understand the option behavior, interaction of the greeks and how they affect the option price, how two options behave together (for example in a spread) to change the greek characteristics. I guess overall, my message here is to be sure you thoroughly understand options and the strategy you are using before giving yourself fully to it.

    Help me ensure we have an interesting question or two to respond to next month. Submit your questions at this page.

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    Options Outlook

    In concluding this newsletter, I want to provide a brief outlook for what I'm expecting for the next 20-40 days. Before I do, I need to insert the following disclaimer.

    This is not a recommendation to buy or sell stock, ETFs or options. It is simply my opinion of what I expect and how I plan to trade. As such, expectations may change if the charts indicate something different during the month.

    We've seen a bit of turmoil in January. The last news letter was the December one, so there have been two months that have gone by.

    In the December  newsletter, I summarized my outlook as follows.

    "... There are several things I notice at this point that are worth pointing out. First, we are very near the midline of the bullish channel the SPX has been in since the beginning of the year. I see that as the next level of resistance and would expect a pause and even some selling when we get there. Second, the SPX has pulled quite a ways away from the 30 day moving average. There is a gap of about 70 points or so between the two. I'd guess that there has to be some sort of reverting back to that support level. However, we're also caught in the midst of a 'Santa Clause rally' that offers opposing tension to this outlook. That said, I think the odds favor some sort of a pullback before resuming the bullish trend.. ..."

    Here's how the January played out.

    As you can see from the reference point, the market did indeed treat that upper trend line as a resistance level and sold off. In fact, it sold off much more strongly than I'd anticipated - all the way to the lower trend line. Notice when we rallied back, it was nearly straight up to the top of the channel again. January has been much more choppy. I drew a Fibonacci retracement from the recent lows in October to the recent highs in December. For now, it appears that the 61.8% level has held as support through January.

    We are now at a crossroads. If we see this support continue to hold and the market begin to rally, I believe we'll likely see more bullishness into February. However, we may see this support break, in that case we could see selling down to $1950 or even $1925, which are approximately the 50% and 38.2% retracement levels. That in turn could set the tone for the first half of the year anyway.

    I'd approach trading in the early days of this month with caution. There is still a lot of volatility in the market and we may well see a different kind of market in 2015 than we did in 2013 and 2014. I'm planning both bullish and bearish trades in preparation for either kind of move. If you have bullish trades in place right now, watch that lower support level. If you have bearish trades in place, be prepared for quick changes as the market churns.

    As always, do your own analysis and whatever trades you enter, use good money management and have exit strategies in place in case you are wrong in your analysis. It's a good practice to be prepared with trades in either direction but not to act without confirmation.

    Remember to stay nimble and alert. Make a point of doing market analysis every day, especially if you have open trades. If you choose to enter any trades, be sure to do your own analysis and follow your rules for entry and exit.

    More on technical analysis.

    Options strategies I use

    Be sure to take time to provide feedback on the newsletter.

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    Featured Products

    I'm adding a new section to the newsletter. Feel free to disregard if you aren't interested in product information.

    As I announced earlier,  I just released the second for sale' video last week. The title of this video is "Mastering Short Vertical Spreads". I now have at total of two videos for sale. Here is a quick summary of each.

    An Introduction to Options Spreads
    This video provides a good coverage of the basics of options spreads, including why they are preferable to other options strategies like buying options and selling naked positions. What I believe makes this video valuable is that it combines presentation with interaction. Once you have the basics down, you will be well prepared to start digging deeper into some of the options strategies employed on this website.

    For a relatively small cost of $29, you can own this video, which offers over 40 minutes of material. This package is very easy to install and use.

    For more information or to purchase the video.

    Mastering Short Vertical Spreads
    The focus of the video is on one specific strategy, including all aspects of of the process. This includes:
    • Understanding the construction and the trade progresses over time
    • Selecting the long & short strikes
    • Planning entry & exits
    • Managing the trade once entered
    • Back testing
    • Creating a trading system with the strategy
    I'm excited about this project. While a long time coming, it's been a labor of love. Many know this is my go-to strategy for options trading. After watching the video, I'm certain you will understand why.

    For more information or to purchase this video

    Special Discount offer:
    If you'd like to own both videos, you can do so for a bulk discount. Simply add both videos to your shopping cart and then enter the discount code 'combo10' to receive $10 off your shopping cart total.

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