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Success With Options - Monthly Review, Issue #53 -- May 2014 Edition
May 03, 2014

Welcome to the May 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.

Two Months Flat - May Newsletter

What an interesting month! There were lots of ups and downs this month but at the end of the day, we didn't end much differently than when we started. What excitement is in store for May?

In this month's newsletter, I have answers to your questions, Options Strategy Focus where we'll examine the Diagonal 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: Diagonal 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.

Diagonal Spread Overview
There is a lot of information available in a both web and video formats on the basics of the Diagonal Spread. Interesting thing about the diagonal spread is that it's really just a combination of a calendar spread and a vertical spread. Once you master those two strategies, the diagonal spread strategy is only a little more complex.  I'd recommend starting here if you are newer to the strategy.

Diagonal 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 several videos available for those who like learning this way.

I hope you find this summary valuable in mastering the diagonal 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.

Next month we'll be returning to more general options trading topics.

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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'm wondering if you knew where I could find a list of top ETF options by volume? I can only find equity top average volume on the CBOE website.

A: This is a great question, especially if you are looking for new underlying instruments to trade options strategies on. Let me give you a brief overview here but this intrigued me enough that I will create a short video to host on YouTube.

I've only found this feature available on the thinkorswim platform. There may be others that offer this kind of search but I haven't found it. So I want to quickly go over how I do this. In order to set up this kind of search filter you must have an active thinkorswim account. While you can do some filtered searches on the paper trading platform, specifying options filters isn't supported unless you are on the real trading platform.

To begin, you need to go to the 'scan' tab on the platform. Most likely stock hacker will be the default and initial view but if not, select it. You may want to issue a reset to clear any existing searches. The reset button can be found on the top right area of the stock hacker screen.

To begin, locate the pull-down menu labeled Scan in. Expand this pull-down and look for the Public item and from there the All ETFs item and select it. Next locate the pull-down menu labeled Intersect with. Expand this pull-down and look for the Categories item and All Optionable and select it. You're half way there.

Clear any existing filters using the red X on the far right side. There will likely be 3 of them if you performed the reset recommended at the beginning. Now, add an option filter by clicking that Add Option Filter button. Use the pull-down menu in the second field of the filter to select Volume as the filter type (that's option volume). In the min field (next field over), enter a value such as 500. This will eliminate ETFs having options daily volume of less than 500 contracts.

You've now completed the setup. Hit the Scan button to see the results. What you'll see are all the ETFs that have options with options daily volume greater than or equal to 500 contracts. From here, you'll likely want to do two things. The first is add the items to a watch list and the second is save the search.

Save the search by locating the Scan Query menu (top right next to a button that looks like a flame). Select that menu and from there Save scan query. Give the query a name and now you can call it up any time you want using that same menu (next item down is Load scan query).

Finally, you'll want to save the results of the scan into a watch list perhaps. You can do this one of two ways. First, you can add them individually by locating the blue ball next to each ETF symbol. Right-mouse click and locate the Add to watchlist item about midway down the rather lengthy menu. The second way is to save the entire set of results to a watchlist. To do this, locate the small button with a disk symbol on it on the far right side right above the list of results (next to the text displaying the number of results). Click this button and give the name of a new list to create from the results.

That's it. Now, you may find it easier to follow this with a video so I've created a short YouTube video to demonstrate all the steps but saving the search (I forgot to include that). You can find this video here on on the links on the website.

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.

Looks like another sideways month. Will May be more of the same?

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

"...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.

Here's how the April played out.

You can see the SPX tried a couple of times to breach the $1900 level and failed. We're knocking on the door of $1900 again. Notice, however that with the churn we experienced last month that we ended almost where we started the month. If you had any iron condor trades going, you probably did fairly well. I know I did. Interestingly we had breaches of overhead resistance and the $1850 support, which appear to just be fake outs.

With another month of sideways movement, the market's likely winding up for something. For the moment, earnings haven't been impressive enough to bring out the buyers and multiple factors seem to be putting a damper on additional bullishness. It's hard to say at the moment what's going to happen except I'd encourage you to consider some of these additional factors. The VIX (SPX volatility index) is at the lower end of it's range, which could signal potential near term selling. The Russell 2000 and Nasdaq 100 indices are both relatively weak compared to the Dow and the SPX. That makes me a little worried that something is brewing.

For now, my plan is to let the market indicate a direction and follow. Be sure to keep trades short term as things could change quickly. In the mean time, I'll be looking at some bearish trades as well as some bullish trades to have ready. With low volatility and a possibility of selling, what's a good options strategy? Any thoughts? Stay tuned, maybe I'll do a trade tutorial on it here shortly if the market cooperates.

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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