the August 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.
Still Higher Highs - August Newsletter
|This has been an interesting summer so far. The general expectation is
that the summer months are quieter as many traders head off on vacation.
This year has been a bit different. With this extended bullishness
through the summer, will August finish strong as well?
For the last few months, I've been talking about a new service I'll be
starting soon. That is live web sessions featuring specific topics of
you. I have some announcements in that regard later in the
newsletter. In addition, I have answers to your questions, Options
Strategy Focus where we'll examine the how to trade in the summer months. 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
Announcement: Live Web Sessions
A few months back I began discussing a new service that will be offered
by Success With Options. That is periodic live sessions delivered over
the Web. Last month I made a strong request for input on topics and
schedule. The majority of suggestions so far lead me to offer the first
session after market close. We'll do the first one then and evaluate
time and topics. Here's the schedule as it stands now.
for Options Traders
This hour session will offer tips for technical analysis tools
for improved timing of entry and exit of spreads trades. We'll
introduce different technical analysis concepts and highlight
ones that may be best for options traders. We'll plan about
30-40 minutes of formal presentation with 20 minutes
Seats limited to 25 so don't wait to sign up.
Session cost: $18
Spreads Entries and
This session will focus on different entry and exit strategies
for short vertical spreads. We'll examine strike selection,
position sizing, entry timing, exit rules and more. We'll plan
about 30-40 minutes of formal presentation with 20 minutes of
||Calendar spreads entry
Calendar spreads can be a complex spread to trade. In this
session, we'll cover ways to analyze potential profit, entry
strategies, exit strategies and management.
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 still in the planning phase at the moment so continue to use the
feedback form to make suggestions and requests for future sessions. Use
this feedback form to have your say.
Options Strategy Focus: Tips for Busy Traders
| This section of the newsletter will focus more deeply on the details
of some of the options strategies I use in the tutorials. I had a
request via the newsletter feedback to discuss strategies of trading for
Let's face it. Many of us live busy lives. We have jobs to work, things to
do around the house, we're on vacation, etc. That may not always lend itself to us sitting
in front of our trading platform for the 6 1/2 hours that the market is
open. What if we can't be
around when a critical event occurs such as a
trade going against us? What if we can't be available to place an order
when the market is open?
I want to talk about five tips that can help busy traders enter and
I hope you found these tips helpful.
Some of you who have found a way to trade successfully while working full
time may have tips of your own. If
so, pass them on to me via the contact me
link and I'll pass them on in the next newsletter.
- Accept that you'll miss ideal entries & exits
The fact that you can't be available at critical market events means you
will miss ideal entries. Accept it. That doesn't mean you have to sit on
the sidelines. It just means that your portfolio will grow more slowly
than if you had opportunity to enter and exit at ideal points. The
beauty of most of the premium selling strategies I discuss is that they
can still profit even if entries and exits aren't ideal.
- Allocate a time to do your analysis
To be successful in this approach, you need to have an established daily
routine where you devote 20-30 minutes to assessing the market
positions. At this time, you will be determining the current market bias
and outlook for the next 20-30 days. You will also be assessing your
current positions to determine if exit rules need to be applied based on
outlook. Finally, you will be looking for new trades to consider based
on outlook. You should always have a few trades planned even if you
don't enter right away.
Make sure every trade you enter has an exit plan
When you set up a trade, you need to have a plan for when the trade will
exit under both profitable and loss limiting conditions. This is really
no different than trading in any other conditions. However, you will
need to make use of stop orders primarily or limit orders to lock in
profit. The benefit is that these can fire while your hard at work doing
something else, thus giving you peace of mind. At a minimum, you should
consider a good-til-cancelled (GTC)
order to lock in profit. Depending
on money management strategy, you should also have a stop order in as
- Consider entry limit orders
While there are no guarantees, using entry limit orders allow
you to specify a desired position you want to enter for a price you are
willing to accept. For example, let's say I want to enter a short put
vertical on the next morning and I'm expecting a credit of $.48. I can
enter an opening order (day order) with a limit that allows me to only
enter if I can get $.48 or more for the spread. The benefit is that my
order can be filled any time the next day based on market movement. The
risk is a) the market runs away from me and I never get filled or b) the
market turns and I get filled but now wish I either didn't enter the
position or wish I could have gotten a better price.
- Always, Always use good money management
important to use good money management in general. However, it is
critical to do so with this kind of trading. Not being able to
sit in front of your computer and act as significant market movement is
happening can be expensive on your trading account. The benefit of good
money management is that if the worst possible thing happened, your
absolute maximum loss would be some amount that while painful, wouldn't
be devastating. When I say money management, I really mean your position
size and it's associated max risk.
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!
I am frequently asked questions about my rationale for selecting $2 wide
strikes vs $1 vs $5 and so on. This question came in again recently. While I have answered this question in
the past, I want
to take some time here to answer again.
Q: Why trade $2 wide spreads vs $1 wide spreads vs $5 wide spreads?
What are the advantages and disadvantages of each?
A: At the end of the day, your choice of spread width on your
strike prices will likely be a matter of personal choice. However, there
are a number of factors you need to consider. You'll find there is
probably a fair amount of interdependencies between these but I just
want to call them out.
- Commission rate - Commission rate can have a lot of impact on
your choice of spread width. For example, do you take 1 $2 wide spread or 2
$1 wide spread contracts, which will have the same risk? If your commission
rate is per contract, then you'll pay twice as much for 2 $1 wide spreads as
you will for 1 $2 wide spread and so on. What about flat fees? Many
platforms will charge a flat $12 per trade fee. As a
result, it costs no
more to sell 2 contracts than it does to sell 1 contract.
When analyzing, make sure you are comparing the same risk. Generally, a 2 $1
wide spreads will have the same risk & reward as 1 $2 wide spread. If you're
considering a $5 wide spread, you may have to do a little extra math do do
even comparisons. That would be 5 $1 wide spreads but a $2 wide spread
doesn't divide evenly. You get the idea though...
- Total tolerable risk - You need to also look at your total
tolerable risk. If you have a smaller portfolio, you won't be able to take
on larger risks if you plan to stay within a 2% risk per trade policy for
example. That alone might prevent you from taking even a 1 contract $5 wide
spread as you'll likely have a risk exposure of anywhere from $3-4 (or
$300-400) depending on the credit you receive.
- Adjustment flexibility - This can be an important
if you plan to do adjustments. Some adjustment strategies involve closing
part of your position or buying back part of you short strike positions to
create a back spread. If your choice is to have the widest possible spread
and just 1 contract, you automatically prevent yourself from employing this
kind of adjustment.
Hopefully this helps you better decide how wide your strikes should
be. As you can see, it isn't quite as simple as you might think to come
up with a solution that works for you. In the end, it really is pretty
specific to your situation and objectives.
By the way, I talk a fair amount about spread width, contract size and
adjustment strategies in the
Mastering Short Vertical spreads video.
Help me ensure we have an interesting question or two to
next month. Submit your questions at this
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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.
In the two months since the last outlook, we've seen a lot of action.
It's actually been quite bullish given this is supposed to be a more
quiet time of the year.
In the May newsletter, I summarized my outlook as follows.
"...As we head into June, we have some interesting signals to watch. We need
to watch that overhead resistance that the SPX is currently sitting at.
A further move above that resistance without
some kind of a pullback is
fairly bullish. Also, watch the VIX, which is currently near 2 year
lows. The combination suggests there MIGHT be a pullback in the first
few weeks of June. I believe we're due for a pullback but it's not clear
just how much of a pullback there will be. The SPX could come back down
and test the top side of the box it was in as 'old resistance becoming
Here's how the May played out.
You can see that for the months of June and most of July the SPX had
broken above the midpoint of the channel and just simply rode it up
using that line as support. On the last day of July, we suddenly had a
break of that support level in a very definitive way. At the same time,
the VIX had been bouncing along the low point of around
10.5 or so,
which was a low not seen since 2006/2007. While not shown on the chart,
we now know that Friday (Aug 1) was also a selling day, which takes us
nearly down to the bottom end of the channel. If you had some bearish
trades prepared and you were quick enough, they are now paying off. I
managed to get a couple in early last week and they paid off nicely.
As we head into August, the question is; will we see more selling or is
there some sort of bottom? Let me cover a few possibilities. As of
Friday, the sell-off has only been 3% from the high of $1991. I would
not be surprised to see closer to 5% as we haven't really had that kind
of selling since late January. In addition, 5% would be just about at
the point of the lower end of the range I've drawn above. A break below
that level even would signal a more major sell-off. In addition, the VIX
is high but not as high as it was in other recent sell-offs.
bullish side, we are near (but not at) the bottom of the channel with a
candle on Friday that could be a bullish hammer - but needs to be
confirmed on Monday.
At the moment, I don't see anything actionable. Based on what I see
today, I wouldn't take a bet on either bullish or bearish trades.
Instead, I'd have both kinds ready for when the market reveals its bias.
Look for either 1) Confirmation of the bullish hammer with a definitive
follow through or 2) failure of this candle pattern. If the latter, then
wait for some other support to establish, such as the bottom of the
channel. If we do see definitive confirmation of the bullish hammer,
then this may be a good point to be putting on bullish trades.
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 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.
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
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