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
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
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
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
feedback page and let your voice be heard. This can be done
anonymously so please consider how you can help make the newsletter
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.
|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)
Seats limited to 25 so don't wait to sign
Session cost: $18
|| 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
| Stay tuned
In addition, the following have already been recorded and you can get
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.
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
I've probably discussed this in a past newsletter but I think
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.
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.
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
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
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
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.
the table of contents.
Answers to Your Questions
|I frequently receive email from visitors to the site with
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
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.
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.
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.
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
Back to the
table of contents
|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
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.
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.
on technical analysis.
Options strategies I use
Be sure to take time to
feedback on the newsletter.
Back to the
table of contents
|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
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.
more information or to purchase the video.
Short Vertical Spreads
The focus of the video is on one specific strategy, including all
aspects of of the process. This includes:
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.
- Understanding the construction and the trade progresses
- Selecting the long & short strikes
- Planning entry & exits
- Managing the trade once entered
- Back testing
- Creating a trading system with the strategy
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
Back to the
table of contents