the July 2011 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 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.
Summer Blahs or Summer Bounce? - July Newsletter
| Welcome to the July newsletter! June certainly gave all indications of
adhering to the 'Sell in May...' adage. However, the last week nearly recovered
all the losses of the earlier part of the month. Will July be more of the same
or will it spark a new rally? Read on...
In this newsletter, I'll be reviewing the month in more detail and providing my outlook for
July. Also, review some trades, talk options
strategies and more.
Thanks to those who have provided feedback on the newsletter in the past.
However, I'm always open to receiving feedback. Keep in mind I do value and take into consideration feedback on the newsletter
content and on ways I can make it more valuable for the readers.
Please feel free to voice your opinion.
If you haven't done so already (or recently), please consider taking a few minutes to visit the
newsletter feedback page and let your voice be heard. I don't require an
email address to submit the feedback so you can do this anonymously.
new at Success With Options
I entered June with a two active trades and
one still remains. Read on for details of the trades. Last month I announced the
release of the 'Introduction to Options' video. Since then, I haven't done much
this month with new content.
As this month kicks off with a US holiday, I thought I'd offer a special on the
video in honor of July 4th.
You can find more information about the video and purchase on the website at
http://www.success-with-options.com/newsletterVideoPromo.html. Simply enter
the discount code: july04 on checkout to receive
your 20% discount. The discount offer will be available for next week
(through July 8).
As to the trades I opened and closed, see
the trade tutorial summary below for additional details.
|I had a few more trades going this month. The one trade I closed was a
Here's the complete list of trades I was active on this month in a quick summary.
IWM Vertical Spread
is my first losing trade in a while. Unfortunately the June selling got the best
of this trade.
Spy Vertical Spread
Win or lose, I find that I learn something from every trade.
I want to include some key thoughts/lessons learned from the past month's
trade tutorials here. Here are
the nuggets from last month's closed trades.
I could have potentially taken action given the indications of breaking support. I said I might close on a break of $84, which happened not once but twice. In retrospect, the failure to stay above $84 might have been a good indicator of an exit. However, I want to be careful of complicating my basic strategy until we see whether it proves to be a better strategy."
For more information on all of the trades I've posted as option trading
tutorials, click here
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table of contents
Options Strategy Focus
I have modified this section a little bit to focus more deeply on the details of
some of the options strategies I use in the tutorials. In past issues, I've
talked about how to select a strategy and using technical analysis to improve
timing of entries and exits. In recent issues, I've returned to topics more
directly related to the trading systems. In the previous issue I talked about
using a trading journal.
In this issue I want to focus on related topic, which is the use of a trade log.
Like the trade journal, I feel that keeping a trade log is an important part of
any trading system. The trading log is a little different in that it's purpose
is to provide a long term history and summary of the trades. In other words,
goal is to get an idea of the trend of your trades.
There are a number of details that are critical to track and some items that are
more optional and personal preference. Let's start with the required items.
There are a few other parameters that could be captured per trade that I
consider more optional. These would include a trade description, symbol
commission and other comments. You might also want to capture the trade risk
just to track it on a per trade basis.
- Entry date
While it may not seem important, entry date helps identify the trade as well as
a providing a starting point for determining the duration of the trade.
- Entry price (credit or debit)
This represents the starting point in the trade. I typically capture this as the
base trade price for a single contract. I'll usually use the number of contracts
as a multiplier to calculate net gain/loss.
- Number of contracts
This will be used as a multiplier for calculating net gain or loss. I'll
discuss this more later.
- Closing date
As with the entry date, this is used to frame the trade to determine length of
the trade. While somewhat optional, I prefer to have both dates.
- Closing price (credit or debit)
The closing price represents either the credit received for selling & closing
the position (as in calendar spreads and long vertical spreads) or debits to
exit the trade (as in short vertical spreads). This will be used in combination
with the entry price to calculate the net gain or loss.
- Total Gain/Loss
The total loss or gain will be the difference between the opening price and the
closing price. It could be that you choose to not consider the number of
contracts, but to obtain a true profit or loss amount, multiplying by the number
of contracts and then times 100 will give you the actual gain or loss for the
By themselves, the information captured on a per trade basis can provide some
interesting summary data and trend indications. I find keeping a running total
of cumulative gain/loss, winning trades and losing trades, average gain amount
and average loss amount are valuable. From there, I can calculate other useful
statistics like win/loss ratio and expectancy.
There are a number of ways to capture this information. My personal preference
is to use spreadsheet software such as Microsoft Exel. The tabular nature of
this sort of tool makes it easy to set up a table that suits your individual needs.
Furthermore, calculations are easily done with this kind of tool. If you signed
up for this newsletter, you should have received access to a package that
contains a sample of how I like to use a spreadsheet.
log is part of a larger set of topics related to
option trading systems. Feel free to visit the website and dig deeper!
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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!
Here's a question I've
received recently on the use of weekly options.
Q: Do you
utilize your options strategies with weekly options, particularly on index ETFs?
I have not so far traded any option strategies using weekly options. I think
they are interesting but I have preferred to focus on instruments I've had
The fact is that weekly options are a time sensitive instruments just like the
monthly options. They have time value but their life is obviously much shorter.
As a result, I could employ many of the same strategies I use with monthly
options. For example, I could sell a vertical spread on the SPY for next week. I
could use a very similar strategy of selling the short strike having a
probability of expiring (ITM) of 36%. That would be the $133 put, which means I
could buy the $131 put to cover and have a resulting spread worth a total of
On the surface, it seems like this kind of trade doesn't pay
as well. However, you could potentially be placing these kinds of trades every
week. Does it make sense to trade weekly options instead of longer term options?
The advantage is the options are shorter term. The disadvantage is the options
are shorter term...
What I mean by this is that while your trades might play out faster if you are
right, you have less time for the trade to correct itself if you are wrong. My
suggestion is if you are considering a strategy such as vertical spreads on
weekly options is that you paper trade them for several months to get the hang
of their particular characteristics. You may find they are very similar to
monthly options but I have a hunch there may be some particular quirks that are
unique to weekly options.
Before concluding this discussion, I want to point out that I'm not sure longer
term strategies such as calendar spreads or diagonal spreads would make much
sense. Again, it would make sense to spend time studying these strategies
against the shorter term options. You will likely find many similarities but also
perhaps some key differences that would affect how you want to approach trading
If you would like to submit a question, comment or feedback
on the website, please
visit this page.
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|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. As
such, it may change if the charts indicate something different.
Whereas the May selling was fairly controlled, June started with the market
pretty much falling off the cliff only to recover most of that loss in the last
week. The real question is whether July will have
more volatility or show a continued recovery. Last month I summarized my outlook as follows:
What I expect for the next month or so is a lot of volatility. We've already seen the VIX jump up a little bit. I anticipate with some
of the traders going away for the summer, the volume will be lighter and news may cause more churn with larger buying and selling days.
Now that we've broken the $1340 level I mentioned last month, I wouldn't be surprised to see $1300 tested.
Here's how the month played out.
From the first day of the month until the last week of the month it seemed like
the market was in a selling mood, breaking through the $1300 level I mentioned
last month. However, notice that most of the selling took place in the first
week, followed by about two weeks of consolidation. The combination of the
action for the month results in what appears to be a rounded bottom pattern. I
haven't personally discussed this pattern before but it can be a powerful
reversal pattern. If you add to that the consolidation and subsequent bounce
from the 200 day moving average and the break above the 30 and 50 day moving
averages it makes a compelling argument for continued bullishness.
It wouldn't surprise me to see a little pullback after such strong buying over
the last week. This kind of selling could further build what is known as a cup
and handle pattern, which is another pattern that could indicate some
bullishness mid to late July. Of course there is nothing certain looking into
the future. A failure from here would certainly indicate fairly strong
As far as my trades are concerned, I'm going to look for a bullish trade or two.
I may perhaps consider a neutral iron condor trade as well. This would provide
an opportunity to profit from the ups and downs that may develop over the next
month. I'll also be looking for an opportunity to close my existing put vertical
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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