the April 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
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.
Whole Lot of Sideways - April Newsletter
|After one month of selling and one month of buying, this
month has been pretty much sideways. Will we see more of the same? Buying? Selling?
In this month's newsletter, I have answers to your questions, Options
Strategy Focus where we'll examine the Iron Condor strategy. In
addition, we'll close as usual with a Market outlook for you. For more
details, read on...
Also, I know this newsletter is getting out a little late.
for that. Too much travel didn't allow enough time to get the
newsletter together until now.
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
Options Strategy Focus: Iron Condor 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.
Iron Condor Overview
There is a lot of information available in a both web and video formats
on the basics of the Iron Condor. The nice thing about this strategy is
that it really leverages the concepts of a short vertical spread. Once
you master that strategy, the Iron condor strategy is an easy
transition. One other thing I like about this strategy is that you can sell twice
the premium for the same margin requirement as a single vertical spread
(on most broker's platform). I'd recommend starting here if you are newer to the
Iron Condor Tutorials
I hope you find this summary valuable in mastering the iron condor strategy. Please let me know either by
feedback page or the Contact Me
link what you think or if there are improvements you would like to see.
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.
Stay tuned for more strategy quick references in future newsletters.
Next month will be the Diagonal Spread strategy.
Back to 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!
Last month I received a question from a day trader wanting to
transition to options trading that I think would be good to address
Q: I am having difficulty learning how to enter option
trades into thinkorswim with any confidence. As an example I will use
this setup - Buy the GTN May 12.5
Calls at $1 or lower. After entry,
take profits if GTN stock price hits $13.50 or the option price hits
$2.00. Exit if the stock price closes below $10.70 or the option price
closes below 60 cents. I understand how to enter the trade but the
conditional orders are where my problems start
A: This is a great question and allows me the opportunity
to talk about one of the great features of the thinkorswim platform.
Setting aside the fact that this is a long option, which I typically
don't trade, the basic ideas I'll cover below are pretty much the same
for Stocks, long options and spreads.
Start by selecting the position in your position statement, right mouse
clicking on the little blue ball at the left of that position and
choosing 'Create Closing Order'. This will set up your initial closing
order. Notice that your 'Advanced Order' type is probably set to
'Single Order'. Change that to 'OCO', which stands for One
Other. Now, you can create a list of orders such that if one fills the
others are canceled.
Let's say you are thinking of entering 3 separate orders that fit your
requirements (one if GTN exceeds $13.50, one if the option hits $2 and
one if GTN falls below $10.70). The way I like to do it is to start
with the initial order, right mouse click on the little blue ball to
the left of the order and choose 'Create Duplicate Order'. I'll do that
once for every order I want in this list. Then I'll begin modifying
each order per my requirements. Note that you'll usually want these to
be Good Till Canceled orders also. Make sure that the TIF (Time In
Force) column is set to GTC for each order.
Setting an order to close on an option price is pretty easy. For your
upper target price, you would use a limit order. Select the order type
and change to 'Limit' then enter the target price at which you want to
close the trade. For an
order to limit loss on the option, you would
use a stop order. Change the order type to 'Stop' and then set the
lower price threshold. Note that this will turn into a market order
when that prices is triggered so it's not a guaranteed exit price but
more of a trigger.
For exit orders based on the underlying stock price, things get a
little more tricky (but not impossible). For that kind of order, you
would change the order type for the option to 'Market'. Next you'll
need to enter conditional parameters to define when to exit. Select the
little green gear to the far right of the order. This should pop up a
dialog where you can enter your conditions.
There's a lot to take in on this dialog. There are quite a few
items that can be used to set the parameters for exit. In your case,
locate the section titled 'Submit at Specified Market Condition'.
Immediately below it, you'll see several columns. One of these columns
Symbol column. If you click immediately below the Symbol column,
the field will typically be populated with the underlying symbol. The
Method, Trigger and Threshold will also be populated with default
If you look at the 'Method' column values, you can see a lot of
different criteria that could be used. I usually go with 'Mark', which
is kind of a mid price if you will between bid & ask. The next
column allows you to specify the trigger (i.e. what will cause this
order to trigger). I usually go with 'At or Below' or 'At or Above'.
You can imagine how this works. For an order like 'Exit the option if
GTN is above $13.50', you would select Method = 'MARK', Trigger = 'At
or Above' and then enter 13.50 in the threshold field. For your GTN
stop order, you would do something similar but use 'At or Below'.
There are some great tutorials at: http://tlc.thinkorswim.com/center/tutorial.html
where you can see some of the folks at thinkorswim demonstrate these
techniques. In particular, check out the 'Placing Stop Orders' and
'Custom Conditional Orders' tutorials under the trade section. While it
doesn't go into every detail, hopefully they will give you some ideas
of how to use the tool to do OCO and conditional orders.
If you are newer to using these features, I encourage you to practice
on the paper trading platform. Thinkorswim makes it so easy to access
and use the paper trading platform because they want you to be a
proficient before risking your own capital in the real trading platform.
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.
After a down month and an up month, we got a sideways month. After all
that, what can we expect for April?
In March's newsletter, I summarized my outlook as follows.
"...At this point, it's hard to predict what's going to happen. The
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.
Here's how the March played out.
We spent the month of March pretty much bobbing a long in a range
between 1845 at the low and about 1880 at the high. That's a fairly
tight range. If you were in iron condor trades this month (our Options
Strategy Focus topic for this month), you might have done well.
However, this leaves us wondering what will happen for the coming
month. Since this newsletter is getting out a little late, we've
already had a
bit of a peek at the first few days. The SPX popped its head above the
highs only to sell off back into the range. What's in store for the
rest of the month?
We're not seeing the signs
of rampant bullishness that we saw last
year. While the market could still resolve itself in either direction,
the indications are still mostly bullish for now. Notice that we are
sitting at the bottom end of the channel and also at horizontal
support. Until I see those levels breeched, I'm going to remain
cautiously bullish. If we see any kind of significant bounce, it's
likely we'll see new highs up over the $1900 level over the month.
We're heading into earnings season so that may also cause some big
swings up or down.
At the moment, I've got mostly bullish trades on but with some of the
new highs being hit in the last few days, I've been also looking at
some bearish trades. For now, most of my trades will be bullish but
since I'm still cautiously bullish, I'll tend to keep them short term.
Who knows a good short term
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.
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 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
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