June 27, 2017

Sell in May and Go Away? Sell Credit Spreads

The seasonal winds are upon us. And as a seller of various options strategies I couldn't be happier. The seasonally-weak period, better known as "Sell in May and Go Away", is the perfect time to use various options selling strategies. My preferred strategies, particularly for smaller accounts, are credit spreads, specifically vertical spreads and iron condors. Trading has been rather slow over the past month so I expect to see significantly more trading opportunities ahead. In fact, I will most likely place a few trades over the coming days. Stay tuned. Right now I'm keeping my eye on Real Estate (IYR) , Utilities (XLU) and Silver (SLV). But it's the S&P 500 (SPY) that I'm most interested in at the moment. Even though SPY hasn't … [Read more...]

Another Good Year for Option Trading

A few random thoughts... There is no doubt that 2013 started off on a difficult note. The fiscal cliff led to a sharp decline in implied volatility (as seen through the VIX) and the low IV environment lasted for several more months. However, we were able to adjust and the rest of the year, while having a few expected bumps in the road, ended on a positive note. So much so, that our option trading strategies once again beat the overall market. I'm not sure many other options sellers can say that this year. As the year progressed I became more and more selective with my trades. Trading in a low IV environment is difficult and hammering out trades just isn't the right protocol especially if you truly want to make a decent return. Of … [Read more...]

Trading Opportunities Ahead

Admittedly I haven't placed many trades over the past several weeks. Some may say that the more you trade the better. Increasing your sample size is the key to success. Trade small, trade often. In some cases, yes, but if you are only trading a limited amount of highly liquid ETFs I'm not so sure it makes sense. Wait for the set-up to come to you...don't force trades. And yes, while no one knows the destiny of the next move, why not allow pot odds to be on your side. But my "cash is a position" complacency is coming to an end this week. In my free weekend report I stated that I would be placing several new trades early this week for the December expiration cycle. Well, the time has come. Tomorrow I will be placing several credit … [Read more...]

Sometimes Good Fortune Pays

Today was one of those days. We had network issues today, so I spent most of my day working offline. I haven't done that in a long, long time. As frustrating as the outage was, it saved me a little bit of cash because I was ready to fire off a few directional trades today. After looking back at the SPY chart I would have most likely entered into a trade around $176.80 so I saved myself roughly $0.40 or about $0.15 to $0.20 per option contract. Hopefully, my good fortune continues tomorrow when I attack this market with a few short-term trades. All of the major benchmarks are in an overbought state with SPY reading the most extreme. My intent is to add a few credit spread trade as well as some short-term aggressively directional … [Read more...]

Still Hovering in a Short-term Overbought State Nears the Highs – Could We See A Double Dip?

Roughly one week ago we exited what would be a profitable directional trade in XOP. XOP had climbed into a short-term overbought state, so I decided to short the ETF using puts. Now typically, I am a seller of options, but the set-up was just too good to pass up for an aggressive style trade so I bought a few puts. The result was a 74% gain over just a few trading days. While I'm not going to anticipate similar results this time around, I am excited about the opportunity ahead. We are greeted with what looks like another opportunity in XOP among other ETFs. I reluctantly did not place any trades today, although I was tempted to place a trade at the closing bell. So, hopefully we see a relatively flat open so I can make a few … [Read more...]

More Downside to Come?

Just a quick post tonight...absolutely exhausted. As a famous man from L.A. once said, "today was a good day". XOP was down over 2.5% today, so I decided to lock in profits on our XOP puts. I hope some of you were able to take advantage. The pullback also helped out our credit spreads in SPY. And best of all, the pullback has given us the opportunity to add a few more positions. I really like FXI, USO, and TBT right now and even XOP still intrigues me. I will short the latter with puts again if it manages to bounce higher over the next few days. But all of these offer good opportunities to sell some premium. Indeed, the risk/reward is very high for those willing to take on bearish strategies. Subscribers stay tuned for … [Read more...]

Building Momentum…Another Good Expiration Cycle

Despite the surprising rally over the past week or so, all of our bear call spreads are going to close out the cycle worthless. And as most of us know, in the world of an options seller worthless is a wonderful thing. We only had a few spreads on during the month of October, but both made 17.6% for the cycle. As I've been saying over the past several days, I want to add a spread or two for the November cycle but I wanted to wait until the BS in Washington passed. And now that the buffoonery has passed, I'm happy to say we've been left with a great opportunity. Just look at the overbought/oversold indicator below. Almost everything is in an overbought state on a short-term basis. And even though volatility has been crushed (as seen in … [Read more...]

Just One More Reason to Use Credit Spreads

The VIX closed above 20, just shy of the year-to-date high. Not even three weeks ago the volatility, known by some as the "fear index", was trading around 12.50...roughly 60% lower. Indeed, fear is back in the markets. How long will it last? Who knows, but while the stalemate in D.C. continues we, as options sellers, are rejoicing. As most investors begin to squirm options sellers become wide-eyed with glee. Because, as volatility increases options prices increase. But I want to keep things simple today, so I'm not going into a full blown post on one of the main components of the options pricing model...implied volatility. Until then I want to go over how I am approaching this market in very simple term. I will have a few … [Read more...]

Is this the Beginning?

Today began like most others during this five year bull phenomenon...bad news equals gap lower open only to be immediately pushed higher by the bulls. But the ending this time was far different than most of the other trading days we've been privy to recently. We saw a nasty sell-off into the close. Yes, the bears reign supreme for at least a few blips on the screen. And strangely enough things feel different this time around. The market feels top heavy and so it should...just look at the performance of the S&P 500 (SPY) market over the past five years. Will the bears continue the charge lower? I'm inclined to say, YES! But, I think we've all been inclined to say yes on numerous occasions only to be fooled by the fed-fueled rally … [Read more...]

Selling Junk to Speculators

I, along with many of you, am in the business of selling out-of-the-money credit spreads with a high-probability of success. Essentially, I sell junk to speculators. Take the following iron condor in Apple. An iron condor strategy is a non-directional options strategy that profits when the option on the underlying stock or ETF of your choice expires within your chosen range at expiration. The basic premise of the strategy is easier to understand in the chart below. But the key part, and the real advantage of this trade… You choose the price range of the trade. Increasing the range will decrease your potential profits, but will increase your likelihood of success. Recently, due to the increase in implied volatility in … [Read more...]