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Success With Options - Monthly Review, Issue #51 -- March 2014 Edition
March 01, 2014
Hello,

Welcome to the March 2014 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.

And... We're Back - March Newsletter

What an interesting month we've seen! As of the last trading day of February, we've seen a complete recovery of the losses seen in late January. The question is, will we see even more bullishness in coming months or is this some sort of double top?

In this month's newsletter, I have answers to your questions, Options Strategy Focus where we'll examine the Calendar Spread strategy. In addition, 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) Answers to your questions

3) Options Outlook

4) Featured Products

Options Strategy Focus: Calendar Spread Quick Reference

This section of the newsletter will focus more deeply on the details of some of the options strategies I use in the tutorials. As I mentioned in the last few newsletters, I will be taking the next few newsletters to review some of the strategies that I use on a regular basis. However, rather than re-printing the content that's already on the website, I want to provide a sort of blueprint on the basic concepts as a kind of quick reference to all the content.

Premium Selling Overview
If you are newer to premium selling strategies, I'd recommend you check out these references. I listed these last month but for new subscribers, I want to continue to list them as they are the foundation for all the trades that I promote and trade myself.

Calendar Spread Overview
There is a lot of information available in a both web and video formats on the basics of the Calendar spread. I'd recommend starting here if you are newer to the strategy. The calendar spread is a little trickier as calculating target profit can be a lot more challenging. The website and videos help by demonstrating some of the techniques for calculating potential profit in the trade.

Calendar Spread Tutorials
This section will provide links to the various tutorials I've put together that demonstrate the strategy and include both text-based website content as well as video content. As it turns out, there are quite a few videos available for those who like learning this way.

Additional Calendar Spread videos
Here are some additional videos that  provide more advanced coverage of calendar spreads.

I hope you find this summary valuable in mastering the calendar spread strategy. Please let me know either by the newsletter feedback page or the Contact Me link what you think or if there are improvements you would like to see.

Stay tuned for more strategy quick references in future newsletters. Next month will be the Iron Condor strategy.

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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!

Last month I received a question from a day trader wanting to transition to options trading that I think would be good to address here.

Q: I've been demo trading iron condors now for 3 months on weeklies & monthlies on SPX, RUT & NDX but what other indexes could I use? If I get in trouble with trade I roll out to next week & month is this a correct way to adjust a bad trade? Are there other ways to adjust?

A: Wow, there are quite a few questions in this email. All are really great questions about trading and managing an iron condor trade. Let me see if I can tackle them one at a time.

First of all, the iron condor strategy is a great strategy for a number of reasons. My favorite is because you can collect twice the premium on  a pair of opposing vertical spreads while using the same amount of margin. For reasons why this is, check out the Iron Condor video on YouTube.

Now, to your first question, there are a number of indices you can trade on with this strategy. I suspect when you say you have traded on SPX, RUT and so forth, you mean the actual index itself. I have traded on these but prefer these days to trade the ETFs that represent these indices. For reasons why, check out the Index Option page on the website as well as the related ETF options page.

In terms of trade management, rolling is one of several management strategies that can be used. I have employed rolling as a strategy. However, you want to make sure that you're not subscribing to the 'refuse to lose' mentality. Rolling may make sense if you think your outlook is right but you need more time for the trade to develop realizing you pay some of your initial credit back for the roll.

There are actually a number of potential adjustments. I recommend you have a look at this Iron Condor management video, which covers most of them. They basically boil down to 1) exiting the trade 2) buy a calendar in the direction of the new bias 3) buy back profitable side to remove risk and re-enter more aggressive position 4) remove some of position in the direction of risk - take a loss but leave some on still.

As you can see, there are a lot of approaches that can be taken. Most will be based on your new bias as you evaluate the current market conditions against the trade you have on. If you have correctly sized the position to sustain maximum loss, you are much more free to stay in the trade and ride it out. I've found many times the up and down swings of the market allow me to close both the call side and put side independently.

As it turns out, I currently have an iron condor trade on where that's the case. My puts are almost ready to close while my calls are being overrun. Because I've sized the position for max loss, I can look at this trade objectively and make decisions according to the market. I may buy a calendar spread to give me a little more up side head room as I'm fairly neutral at the moment in my bias (see outlook below).

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.
 

So January was down, February is up... what's coming for March? At this point, it may be a little hard to tell.

In February's newsletter, I summarized my outlook as follows.

"...The real question now is whether this support level will hold. If you'll pardon a Zen-like statement - it will either hold or it won't. What I mean of course is that technical analysis isn't as much a predictor of behavior as it is an early warning system of what is happening. In this case, I believe the strength of the support level coupled with the fact that this area is also where the bottom end of a 6 month up trending channel can give us a strong indicator of the next medium term move. If support holds, we may be able to see a rally back to $1850 or higher. If it fails, I wouldn't be surprised to see selling all the way down to $1700.


Here's how the February played out.



The first days of February began as a continuation of late January's trend. In fact, when it  broke support I expected to see the SPX sell off down to 1700 as predicted based on the high to low of that channel. As it turned out, selling stopped short of $1725 and then suddenly reversed direction without really looking back. We've seen a brief pause in the last few days but many of the indices have been showing all time highs (SPX, RUT, NDX).

At this point, it's hard to predict what's going to happen. The near term trend is clearly up. Even the longer term trend seems to have resumed as the SPX came back into the channel that was established back in mid 2013. At moment, the SPX appears to have broken above resistance. We may in fact see a little more of a rally before some selling. There have been some confusing signals that may actually just be outliers. However, it's also possible that the trend is changing to more of a sideways trend. We may simply trade in a range for a few months as the market digests some of last year's strong movement.

I did manage to get some bullish trades in as we were near the lows of the period. I also put on a more neutral iron condor trade a week or so back as I am somewhat neutral in my bias right now. With the strong push toward the highs, I am also looking at the possibility of selling bearish trades as well. However if you choose to do this, use caution and good money management as you are somewhat fighting a trend.

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.

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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