the October 2013 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
it to your options trading friends.
To access previous issues of the newsletter, click here.
Back From Break! - October Newsletter
to the October newsletter.
Looking back on the Summer, it has turned out to be fairly unexciting.
We've had some modest gains but not a lot of excitement. As we head
into Fall, what does October hold in store? Will we see more buying?
Selling? Flat? Read on...
There will be a few minor changes to the newsletter this month and
maybe going into the future. Of course I will still be packing the
newsletter with good stuff so don't be alarmed. For more details on
that, read on...
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.
Trade Tutorial Summary
|As you may have noticed, I have not been posting any trade
tutorials. I have continued to place my own trades that pretty much
follow the guidelines I outline on the website and have been teaching
in the videos
I've recently announced. These have been producing consistent gains
over the last few months despite the ups and downs of the market.
Unfortunately, capturing the trading details and producing the tutorial
pages has taken more time than I have at the moment. I've written quite
a few tutorials on all of the strategies I promote and are worth going
back and reading if you want to understand my thought process on
evaluating, placing and managing these trades.
Do you have thoughts about the value of the
tutorials or ways to improve them?
Let me know.
In the mean time, expect periodic tutorials but only when I find
opportunities that are interesting enough to write a tutorial on..
For more information on all of the trades I've posted as
tutorials, click here
Back to the
table of contents
Options Strategy Focus: Trade Entry Timing
| This section of the newsletter will focus more deeply on the
details of some of the options strategies I use in the tutorials.
This month I wanted to talk about trade entries.
I want to focus on specifically is whether to enter a that perfect
moment technically speaking or whether to enter a trade when you have
an opportunity. I know many of you are busy individuals who don't have
time to constantly monitor markets and trading instruments. As a
result, waiting around for the perfect setup isn't always practical.
of the strategies I promote on the web site can be entered virtually at
any point in time. All you need to do is identify your outlook
(bullish, bearish or neutral) and your timeframe (short term or longer
term) to come up with a strategy. Then, with a little work reviewing
your watchlist you can quickly set up a trade and enter it. I've done
that a fair amount for various trade tutorials I've presented.
That said, using technical analysis to time an entry almost always
results in more profitable trades and trades that are more consistently
right. Why do I say that? With technical analysis, there are better
opportunities to take slightly more aggressive positions. That isn't
always the case, but many times the breaking of resistance or bouncing
off support can allow you to take positions that are a little tighter
many times. That's half the equation anyway.
other half is that those same indications (support, resistance, etc)
can give you early exit signals. That results in minimized trade
losses. More trades placed using this technique can mean successful
trades are slightly more profitable and losing trades lose less. The
total effect is that your overall trading is more profitable.
That said, if your busy schedule doesn't allow for constant
monitoring and analysis, there's still good news. Most positive theta
trades such as the ones I like to employ don't absolutely require
perfect technical analysis as long as you are willing to watch your
portfolio grow a little more slowly.
If all this sounds a little bit wishy-washy, let me just summarize this
way. If you are looking to maximize your profits, by all means consider
using more technical entries and exits. If you are time constrained and
can live with slower portfolio growth, then entering nearly any time
will work. It's far more important to correctly identify the direction
than timing the perfect entry.
That's easier to say than do. Some amount of technical analysis is
necessary to even determine the direction. Getting this right is even
more important when you don't have the edge of more profitable trades
and early exit signals.
I cover the entry timing in more detail in the new Mastering
Short Vertical Spreads video. In addition, you can find more
information about using technical analysis on the website.
Stay tuned for the next options strategy focus as we return to more
strategy related topics. I'm always looking for additional topics that
are helpful to readers. Send them in via
the newsletter feedback page or the Contact Me
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!
Q: Have you developed any courses for Diagonal Spreads? It
seems these would be very effective with weekly options (short weekly
and buy monthly).
A: There are really two questions there I want to address.
The first is related to additional course material on Diagonal Spreads.
The answer is... not yet. At the moment, the only two official courses
(besides what's on YouTube) are the
Introduction to Spreads and
Mastering Short Vertical Spreads videos. Beyond that, my plan is to
first to a video on calendar spreads because the calendar spread and
vertical spread are building blocks to understanding how a diagonal
spread works. Stay tuned for the calendar spread course next year.
In terms of trading using weekly options in a diagonal spread trade, I haven't
specifically covered that before (on the website). However, let me take
a little bit of time to discuss this here. For those that aren't aware,
weekly options are options that have many of the same characteristics
as the traditional monthly options except that they expire in weeks
other than the typical 3rd Friday.
Weekly Options initially only traded for a very short timeframe (8
days). These days, multiple weeklys options chains exist. The rules
were amended to allow up to 5 consecutive Weekly Option cycles. Weekly
cycles are created only for weeks that don't have either standard
options expiration or quarterly options expiration.
How does that help the diagonal spread trader? One of the main ways to
recoup the cost of entering a long diagonal spread is through rolling
the short strike from a close in month to a month farther out in time.
This roll will typically reduce the cost of the trade by up to half.
That will make the final long vertical spread fairly profitable. As a
result, if you can squeeze in additional rolls even in a typical 1
month diagonal, you have the chance to squeeze out a little more
profit. That's one benefit.
Another benefit is that having weekly options available means that you
aren't forced to go way out in time to set up a diagonal spread just so
you have a short strike with 20 or so trading days left in it. The
catch to this whole thing is that 1) weekly options are only offered on
a fairly limited number of instruments... mostly index ETFs and 2) you
need to do your due diligence to make sure that using weekly options is
indeed beneficial to your trading strategy. That means back testing
then paper trading and finally tracking trades in a trade log.
If some of the concepts I've covered here don't make sense, be sure to
review the Diagonal
Spread strategy pages on the website.
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.
We started to see the hints of selling back in May. This month we saw
more follow through. While we did see our first official negative
month, we're still up nearly 10% on the S&P for the year.
Last month I didn't do an outlook so no quick recap here...
Here's how the last two months played out.
you can see in the chart above, there have been some fairly wild swings
up and down over the last few months. However, notice that the longer
term dominant trend is still up.
At this point, it's not entirely clear how the market will work itself
out. It looks like there is still some room for the S&P to move
down to the $1675 level without breaking any kind of serious support.
On the other hand, there is the convergence of the 50 day and 30 day
moving averages in the same approximate area. I'm still bullish overall
but we may still see some churn in the near term.
In terms of my trading plans, I'm looking for any dips down to the
$1675 level and even the current level as opportunities to enter
bullish trades. I will be closely watching this same level thought to
make sure it holds as a support level. I'd expect to see a nice bounce
from here as confirmation that the trend has resumed. In the mean time,
I've got some call spreads that are currently doing quite well with
this sell-off. These were entered with the S&P near the highs
around $1700. A bounce at this point could put them at risk.
A lot could happen at this point with the market returning to being
very news driven. As we enter into the October timeframe, the market
should return to being earnings driven. Also, keep in mind we're going
to be entering in the the holiday season that is often a bullish time.
Stay tuned to see how this turns out.
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 sales type 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
Back to the
table of contents