Buy call option – at the money / in the money / out of the moneyDefinitions
Buy call option – a stock option is the right to buy a stock (but not the obligation) at a certain price for a limited period of time. The price at which the stock may be bought is called the striking price.
Three terms describe the relationship between the stock price and the options striking price: At the money / In the money / Out of the money
For example; stock XYZ trade at $100
At the money – the strike price of the option is $100
In the money - the strike price of the option is $90
Out of the money – the strike price of the option is $110
The strike price is one of the 6 factors that determine the price of the option.
Those factors are:
1. The price of the stock
2. The strike price of the option
3. The time until the option expires
4. The volatility of the stock also called “implied volatility”
5. The risk-free interest rate (usually the 90-day treasury bills)
6. The dividend rate of the stock.
The last two have less influence on the option price.
The option pricing has two elements, “time premium” and “intrinsic value”.
In this post, I’m not going to elaborate on those two. (But they are important to understand).
The Delta
The delta of an option is the amount by which the call option will increase or decrease in price if the stock moves by 1 point. The values of the delta are between zero to one, if the call option is in the money the delta is closer to 1 if the call option is out of the money the delta is closer to 0.
For example; if the stock option has a delta value of 0.8, this means that if the stock increases or decreases in price by $1 per share, the option price will rise or fall by $0.8.
The option pricing is based on a partial differential equation because of that the behaver of the option pricing is not linear, as we can see from the charts.
In the right chart, we see In the money option with a delta of 0.92, meaning the option price is behaving very similar to the stock price, we see that the lines are nearly flat.
In the left chart, we see Out of the money option with a delta of 0.12, meaning the option price does not move like the stock price, for every $1 the stock will move the option price will move $0.12.
Also, note the difference between the profit lines, to make 3 points with In the money option the stock needs to move to above $190, but the Out of the money option needs only to move above $145.
This was the profit side, the losing side as you can see if the stock will remain at the same place the In the money options will break-even while the Out of the money options will expire worthless and will lose 1 point.
The options that were used (input):
Right chart: Option price -> $25.9, Stock price -> $115 , Strike price -> 90$ , Interest rate -> 0 , Days to expire -> 56 , Implied volatility -> 40.8%
Left chart: Option price -> $1.17, Stock price -> $115 , Strike price -> $140 , Interest rate -> 0 , Days to expire -> 56 , Implied volatility -> 40.8%
One option contract is the right to buy 100 shares so the cost for the options would be: $2590 and $117 respectively, not include commissions.
For clarification: If you hold it to expiration and it is not worthless, that means you need to buy 100 shares at the strike price, $9000 in the right chart, $14,000 in the left chart. (not include what you already paid)
Option
Visualize $TSLA CALL pricing skew due to the upcoming earningsLet’s take a look at our new tradingview options screener indicator to see what we observe, as the options chain data has recently been updated.
When we look at the screener, we can immediately see that NASDAQ:TSLA has an exceptional Implied Volatility Rank value of over 100, which is extremely high. This is clearly due to the upcoming earnings report on July 23rd.
As we proceed, we notice that Tesla's Implied Volatility Index is also high, over 70. This means that not only the relative but also the absolute implied volatility of Tesla is high. Because the IVX value is above 30, Tesla’s IV Rank is displayed with a distinguishable black background. This favors credit strategies such as iron condors, broken wing butterflies, strangles, or simple short options.
Next, let’s examine how this IV index value has changed over the past five days. We can see it has increased by more than 6%, indicating an upward trend as we approach the earnings report.
In the next cell, we see a significant vertical price skew. Specifically, at 39 days to expiration, call options are 84% more expensive than put options at the same distance. This indicates that market participants are pricing in a significant upward movement in the options chain.
The call skew is so pronounced that at 39 days to expiration, the 16 delta call value exits the expected range. This signifies a substantial delta skew twist, which I will show you visually.
We see a horizontal IV index skew between the third and fourth weeks in the options chain. This means the front weekly IVX is lower than the IVX for the following week, which may favor calendar or diagonal strategies. Hovering over this with the mouse reveals it’s around the third and fourth week.
In the last cell, we observe that there’s a horizontal IVX skew not just in weekly expirations but also between the second and third monthly expirations.
Now, let’s see how these values appear visually on Tesla’s chart using our Options Overlay Indicator. On the right panel, the previously mentioned values are displayed in more detail when you hover over them with the mouse. The really exciting part is setting the 16 delta curve and seeing the extent of the upward shift in options pricing. This significant skew is also visible at closer delta values.
When we enable the expected move and standard deviation curves, it immediately becomes clear what this severe vertical pricing skew in favor of call options means. Practically, market participants are significantly pricing in upward movement right after the earnings report.
Hovering over the colored labels associated with the expirations displays all data precisely, showing the number of days until expiration and the high implied volatility index value for that expiration. Additionally, a green curve indicating overpricing due to extra interest is displayed. Weekly expiration horizontal IVX skew values appear in purple, and those affected by monthly skew are shown in turquoise blue.
The 'Lite' version of our indicators is available for free to everyone, where you can also view Tesla as demonstrated. Pro indicators are available more than 150 US market symbols like SPY, S&P500, Nvidia, bonds, etfs and many others.
Trade options like a pro with TanukiTrade Option Indicators for TradingView.
Thank you for your attention.
How to use call option buy or sell indicatorHello Traders,
Exciting news! We've just released a detailed video guide on how to harness the full potential of Chobotaru Brothers Option Indicators. In this short tutorial, we cover everything you need to know to use the indicator, specifically focusing on out-of-the-money call options.
Here's what you'll discover in the video:
1. Adding the Indicator to Your Chart:
Learn the simple steps to seamlessly integrate Chobotaru Brothers Option Indicator into your trading view for a clear and concise analysis.
2. Finding Option Parameters:
Navigate through your broker's option chain on platforms such as Interactive Brokers to locate all the essential parameters needed for effective trading decisions.
3. SEE the Lines of Profit:
Gain a deep understanding of the meaning behind each line of profit displayed by the indicator, empowering you to make informed choices based on market movements.
4. Utilizing Lower Timeframes (Example of 5m and 30m):
Explore the versatility of Chobotaru Brothers Option Indicator by discovering how it can be effectively applied to lower timeframes like 5 minutes and 30 minutes.
5. LIVE Example: Out-of-the-Money Call Option:
Follow along with our real-time example using an out-of-the-money call option, providing practical insights into how EASY is the indicator's functionality and application in a live trading scenario.
We've designed this tutorial to be beginner-friendly, ensuring that traders of all levels can seamlessly integrate Chobotaru Brothers Option Indicators into their trading arsenal. Watch the video, enhance your trading skills, and unlock the potential for greater success in the options market.
If you find the video helpful, don't forget to like, follow, and share it with your fellow traders. Happy trading, and may your profits soar!
Best regards,
Chobotaru Brothers
Option TradingOption Trading work based on a contract that gives the buyer the right to buy or sell a certain asset, at a predetermined price (strike price) within a certain time period.
A very simple task, but is there a clear technical analysis method that can provide consecutive wins?
This post is not trading advice, just a statistical hypothesis test. I will try in 100 candles, and stop if the win rate is below 70%
If you are an options trader, or are interested in learning the system I use, please follow this post.
CFD,FUTURES,OPTIONS. WHAT IS THE DIFFERENCE ?🔷CFD Contacts
Contract for Difference is referred to as CFD. It is a type of financial contract that enables traders to make predictions about price changes in a variety of underlying assets, such as indices, equities, and commodities, without actually holding such assets.
A contract for difference (CFD) is an arrangement between two parties, usually a trader and a broker, to exchange the variation in the value of an underlying asset between the opening and closing dates of the contract. The trader will make money if the asset's price rises during that time; if it falls, they will lose money.
Compared to traditional trading methods, CFD trading has a number of benefits, including cheaper transaction costs, the option to trade on leverage, and the opportunity to profit from both rising and falling markets. It does, however, come with dangers, including those related to leverage and market volatility, which, if not effectively managed, can cause large losses.
It is significant to remember that not all nations permit CFD trading, and local restrictions may differ. Before beginning CFD trading, traders should speak with their broker and get professional assistance.
Advantages:
1:High Leverage: CFD trading offers high leverage, which means that traders can control a larger position with a smaller investment. This can potentially result in larger profits.
2:Access to Various Markets: CFD trading provides access to a wide range of markets, such as stocks, indices, commodities, and currencies, allowing traders to diversify their portfolio and take advantage of different trading opportunities.
3:No Ownership of the Underlying Asset: CFD trading allows traders to speculate on the price movements of an underlying asset without actually owning it. This means that traders can benefit from the price movements of an asset without incurring the costs associated with owning it.
4:Short Selling: CFD trading allows traders to profit from falling markets by selling the asset short, which is not possible in traditional trading.
5:Lower Transaction Costs: CFD trading involves lower transaction costs compared to traditional trading methods, such as buying and selling stocks through a broker.
Disadvantages:
1:High Risk: CFD trading is associated with high risk due to the high leverage and market volatility. Traders can potentially lose more than their initial investment.
2:Complexity: CFD trading involves complex financial instruments, which can be difficult for new traders to understand.
3:Limited Regulation: CFD trading is not regulated in all jurisdictions, which can expose traders to unscrupulous brokers and fraudulent activities.
4:Overnight Financing Charges: CFD trading involves overnight financing charges, which can eat into a trader's profits if positions are held for an extended period.
5:Counterparty Risk: CFD trading involves counterparty risk, which means that traders are exposed to the financial stability of their broker. If the broker goes bankrupt, the trader may lose their investment.
🔷Futures Contacts
Financial contracts known as futures contracts allow two parties to buy or sell an underlying asset at a fixed price and later date. A commodity, currency, stock index, or other financial instrument could be the underlying asset.
On regulated markets like the Chicago Mercantile Exchange (CME) or the New York Mercantile Exchange (NYMEX), futures contracts are standardized and exchanged. The exchanges serve as go-betweens between buyers and sellers and offer a clear trading environment for futures contracts.
A futures contract's buyer commits to buying the underlying asset at a predetermined price and later date. On the other side, the seller consents to provide the underlying asset at the agreed-upon cost and time.
Traders and investors utilize futures contracts for hedging or speculative objectives. By fixing a price for future delivery, hedges use futures contracts to guard against changes in the underlying asset's price. Conversely, investors utilize futures contracts to profit from changes in the price of the underlying item without really holding it.
Advantages:
1:Price Discovery: Futures trading provides a transparent and efficient marketplace for discovering the price of the underlying asset, which benefits traders and investors.
2:Liquidity: Futures contracts are highly liquid and traded on organized exchanges, which makes it easier to enter and exit positions at any time.
3:Standardization: Futures contracts are standardized, which means that they have a uniform size, settlement date, and other specifications. This allows traders to easily compare prices and make informed trading decisions.
4:Hedging: Futures contracts are commonly used by producers and consumers of commodities to hedge against price fluctuations. By locking in a price for future delivery, they can reduce their exposure to price risk.
5:Leverage: Futures contracts offer high leverage, which allows traders to control a large position with a relatively small amount of capital. This can potentially result in significant profits.
Disadvantages:
1;High Risk: Futures trading is associated with high risk due to the high leverage and market volatility. Traders can potentially lose more than their initial investment.
2:Complexity: Futures trading involves complex financial instruments, which can be difficult for new traders to understand.
3:Margin Calls: Futures trading requires traders to maintain a certain level of margin in their trading account. If the account falls below this level, traders may receive a margin call and be required to deposit additional funds or close out positions.
4:Counterparty Risk: Futures trading involves counterparty risk, which means that traders are exposed to the financial stability of their broker. If the broker goes bankrupt, the trader may lose their investment.
5:Market Manipulation: Futures markets can be subject to market manipulation, which can distort prices and harm traders and investors. It is important for traders to be aware of this risk and to monitor market conditions closely.
🔷Options Contacts
Financial arrangements known as option contracts between two parties grant the buyer the right, but not the duty, to purchase or sell the underlying asset at a defined price and date in the future. A stock, commodity, money, or other financial instrument could be the underlying asset.
Call options and put options are the two basic categories of option contracts. In contrast to put options, which offer the buyer the right to sell the underlying asset at a predetermined price, calls give the buyer the right to purchase the underlying asset at a predetermined price.
On regulated markets like the Chicago Board Options Exchange (CBOE) or the International Securities Exchange (ISE), option contracts are exchanged. The exchanges serve as go-betweens between buyers and sellers and offer a clear trading environment for option contracts.
Traders and investors utilize option contracts for hedging or speculating objectives. Hedgers use option contracts to hedge against changes in the underlying asset's price, whereas speculators use them to profit from changes in the asset's price without actually holding it.
Option trading is highly risky and necessitates a solid trading plan. Before engaging in option trading, it's critical for traders and investors to understand the dangers involved.
Advantages:
1:Limited Risk: Buying options contracts limits the potential loss to the premium paid for the contract, while selling options contracts can also limit the potential loss to a certain extent.
2:High Potential Returns: Options contracts offer high leverage, which allows traders to control a large position with a relatively small amount of capital. This can potentially result in significant profits.
3:Flexibility: Options contracts provide traders with a high degree of flexibility, as they can be used for a variety of trading strategies, including hedging and speculation.
4:Hedging: Options contracts can be used to hedge against price fluctuations of the underlying asset. By buying put options or selling call options, traders can reduce their exposure to price risk.
5:Variety: Options contracts are available on a wide range of underlying assets, including stocks, commodities, currencies, and indexes. This allows traders to take advantage of different market conditions and diversify their portfolio.
Disadvantages:
1:High Risk: Options trading is associated with high risk due to the high leverage and market volatility. Traders can potentially lose more than their initial investment.
2:Complexity: Options trading involves complex financial instruments, which can be difficult for new traders to understand.
3:Time Decay: Options contracts have an expiration date, after which they become worthless. This means that traders need to be correct about the direction of the underlying asset and the timing of the price movement.
4:Margin Requirements: Options trading requires traders to maintain a certain level of margin in their trading account. If the account falls below this level, traders may receive a margin call and be required to deposit additional funds or close out positions.
5:Illiquid Markets: Options contracts on less popular underlying assets may have low trading volume and liquidity, which can make it difficult to enter or exit positions at desired prices
Trade Secret in Optionin this video we simplify the option trading for short term traders.
in this video we make it simple
How to find the direction of market
How to took a trade
when and why to took a trade
Risk Reward Ratio
Options vs Stocks: Which Is Better?If you are wondering whether to trade options vs stocks, then this article is for you. There’s no simple answer to that question because it depends on how much money you have and your risk tolerance level.
This blog post will cover the 7 topics that you need to know to answer the question “Is Options Trading Better Than Stocks?”
1. What Is The Difference Between Buying Stocks and Buying Options?
Let’s keep it simple:
When you buy a stock, then you own a share of the company and get paid dividends.
Buying options, on the other hand, means that you only have the right to buy or sell a stock at a specific price before the option expires. But you don’t own the stock (yet).
As you will see in a few moments, options trading requires much less capital than buying a stock, and therefore it’s very attractive.
But it can also very confusing. My goal is to make it simple for you.
Let’s start with an example:
2. Which Is Better: To Buy A Call Option On A Stock Or To Buy A Stock?
Let’s use Apple (AAPL) as an example. Right now, the market price (at the time of this writing on May 6th, 2021) of AAPL is 128.70.
Let’s assume, you are bullish on Apple and expect AAPL to go higher.
So you could buy 100 shares of AAPL, but this would come with a high price:
100 shares * 128.70 per share = $12,870
If you have a small account, this might be too high of an investment.
The good news: You can trade options instead.
When you buy a CALL option, you have the right to buy 100 shares of AAPL at a set price (the strike price) on or before the expiration date of the option.
You could buy a call option that expires on June 18th. Today is May 6th, so you have 43 days before this option expires worthless
The price of the option is $3.75.
Options come in “100 packs”, so your investment to buy this call option is only $3.75 * 100 = $375
Why Buy Options Instead Of Stocks?
First of all, it’s much cheaper:
Compared to the investment of 12,807 to buy 100 shares, that’s only 3% of the money that’s required.
And because of that, options more profitable than stocks.
Let me explain:
3. Are Options More Profitable Than Stocks?
Since you are bullish on AAPL, you expect the stock to go up.
Let’s say that over the next few weeks, the stock goes to 140:
Let’s take a look at the profits from your stocks first:
You bought 100 shares of AAPL at a price of $128.70 per share.
Now each share is worth $140.
So your profit is 140–128.70 = 11.30 per share * 100 shares = 1,130.
Based on your investment of $12,870, that’s 8.8% Return on Investment (ROI).
That’s not bad, but let’s take a look at the call option:
How Are Options More Profitable Than Stocks?
The call option that you bought gives you the right to BUY 100 shares of AAPL for $130 before June 18th.
So if AAPL shares move up to $140, you can buy 100 shares of AAPL at $130 and sell them immediately at $140.
This means that your profit per share is 140–130 = 10.
And since you are trading 100 shares, your profit would be $1,000.
But keep in mind: You paid $375 for the right to do this, so you need to subtract this from your profits:
1000–375 = 625.
Your total profit is $625. Doesn’t sound much, but based on your $375 investment, that’s 167% return on investment (ROI).
In summary:
You made more money in terms of absolute dollars on the stock ($1,130 vs. $625), but the money you needed to make this profit was much less: $375 vs. $12,870.
And that’s why your ROI is 167% when trading the option vs 8.8% when trading the stock — even though the stock price is exactly the same.
Pretty cool, huh?
4. How Much Money Do You Need For Options Trading?
As you can see from the previous example, you need MUCH less money when trading options vs trading stocks.
When trading options, you can get started with as little as $2,000.
Check with your broker about the minimum requirements to open an options trading account.
So if you have a smaller account, trading options might be much better for you than stock trading.
5. Can You Lose Money Trading Options?
Let’s talk about the risks of options trading, specifically the question “Can you lose money trading options?”
The answer: YES, of course!
In the example above, you could lose the premium you paid for the option, i.e. $375, if the stock price does not move above the strike price of $130.
If AAPL remains below $130 until the expiration date of June 18th, your option expires worthless.
And here’s why:
With a call option, you have the right to BUY 100 shares of AAPL for $130.
If AAPL is trading below $130, let’s say at $128, you don’t want to exercise your right to buy AAPL at $130. Because then you would pay MORE for the stock than you would if you bought it right away.
Making sense?
So if AAPL stays below $130 until expiration, your option expires worthless and you lose the premium you paid for the right to buy the stock.
Can You Lose More Than You Invest In Options?
When you are BUYING options, you can not lose more than the premium that you pay when buying options. So that’s good.
However, when you are SELLING options, that’s a different story, and we will cover that later.
So in summary: When BUYING options, the maximum amount that you could lose is the premium you pay when buying the option.
6. What Are The Risks Of Options Trading?
YES, there are risks when trading options:
a) Selling Options Can Be Dangerous.
As you have seen, when BUYING options your risk is limited to the premium you pay when buying the option.
However, as a seller, there’s a lot more risk. In some cases, you can have UNLIMITED risk.
We will cover this in detail in a later article.
b) Buying Out Of The Money Options.
Risky before the probabilities are low.
c) Know What You’re Doing
When trading options, there are a few more things to consider:
Call options vs put options
Strike Prices
Expiration Dates
… and then there are also these pesky “Greeks” like delta, gamma, theta, rho, etc.
And when you have more things to consider, there are more possibilities to make mistakes.
So make sure that you understand all these factors before you start trading options. We will talk about “The Greeks” later.
Are Options Riskier Than Stocks?
YES.
Because it’s easier to lose ALL of your investment.
Let’s continue our example from above:
Trading Stocks
You bought AAPL at $128.70 per share.
If AAPL drops to $125, then you would lose $3.70 per share, or $370 for 100 shares. Based on your initial investment, that’s only 2.9%
Trading Options
You bought the 130 Call Option for $3.75.
If AAPL doesn’t move above 130, you lose ALL of your investment, i.e. 100%.
Yes, the investment is much lower, but instead of losing 2.9% as you would when trading stocks, you would lose 100%.
Selling Options
And when selling options, you can lose A LOT of money.
Selling options can be very profitable. In fact, I made more than $75,000 in less than 5 months selling options…
… BUT it’s also very risky.
Compare options vs stocks like riding a bicycle and riding a motorcycle:
Riding a motorcycle gets you to your destination quicker. And it can be more fun. But it’s also much riskier than riding a bicycle.
7. Can You Really Make Money Trading Options?
Absolutely!
There are many advantages to trading options, and it is possible to make money with options.
Is there a safe way to trade options?
You need to know what you are doing, and you need to have a solid trading strategy.
Find a strategy that you understand and then practice it on a simulator. And when you are ready, start making money with it.
Can Option Trading make you rich?
When trading options, you will often see returns of 167%, 200% or even 300%.
Therefore, it’s easy to believe that options trading can make you rich.
But keep in mind: With these high returns, comes high risk.
Yes, you can make 200% or 300% when trading options.
And you can lose ALL your investment, as you have seen above.
Don’t think of options trading as a “get-rich-quick-scheme”.
But when used correctly, options trading is perfect to grow a small account into a bigger one.
Summary: Should I Trade Options
YES!
Should I trade stocks or options?
Why not do both? Best of both worlds!
Is options trading worth it?
YES! It can be very rewarding! As we just covered with trading options, there are many, many advantages. If you are not trading options yet, I highly recommend that you start looking into them.
How Earnings Season Affects OptionsAs most of you are aware, it is earnings season. So today we’re going to talk about how earnings season can impact options trading, because, as you know, I trade options.
Now, just a brief intro. Earnings season happens quarterly, meaning four times a year, and this is when corporations reveal their financial results for the previous quarter.
Now, the results of a company’s earnings report can have a major impact on the stock price, and options will often price in the expectations for a big post-earnings move before the event.
This is why it is likely that options premium are more expensive during this time.
Implied Volatility
One thing to know about this and how it can impact your trading is implied volatility. See, there several things that make up an options price, including the market’s expectation for future volatility, and that is called implied volatility.
So why is this important? Well, as the buyer of an option, higher implied volatility means that you are paying more for your contract.
So if you buy an option before earnings and hold through earnings, you put yourself at risk for a so-called volatility crash.
Now, part of the reason implied volatility goes up so much ahead of earnings is because traders don’t know which way the stock is going to go or by how much.
I mean, remember Netflix at the beginning of March? Who would have known that Netflix would soar 17%?
But you see, once a company reports earnings, there is no more uncertainty, and this is when implied volatility drops, and in some cases, so does the options price.
So if you bought an expensive option, there’s a chance that you have to sell it to close at a lower price even if a stock moves in the direction you want it to.
And let me show you a very, very specific example of a volatility crash and why it is so important that you understand the concept of volatility and how it can impact your options trading.
So I want to show you right here we see Seagate. Seagate reported earnings last week. And so here is the pre-earnings options data.
The day before Seagate, STX, was trading at $61.45, and an At-The-Money call with a 61.50 strike price was going for the last traded price of $1.74, and the implied volatility was 128%.
On the other hand, the put was going for $1.82 and the implied volatility was also 128%.
Now, this was the day before earnings. Now let’s talk of what happened the day after earnings.
So again, here Seagate was trading at $61.45 before earnings, but then the next day, Seagate dropped to $59.33. So it fell dramatically and therefore, and the price of the 61.50 call is only a penny.
So it’s not surprising that the call is not worth anything, but here’s the key. Even though the stock fell quite substantially, the put only went from $1.82 to $2.51 so it went up because puts go up as the stock goes down.
So this means that the put only went up to $0.70, $0.69 to be exact. You see this is how the volatility crash affects the option price, because even though the put is worth more now, and is now in the money, but it also lost a lot of value due to the decline in implied volatility.
See, the previous day, it was 128%, this implied volatility, and the day after only 96%. So you have to factor this in when trading options into earnings.
How Is Implied Volatility Measured?
So let’s talk about this implied volatility thing and how is this measured, right? You know me, I’m all about practical stuff, so I don’t want to bore you with the math behind it and I don’t have to.
The good news is that there are plenty of places online that calculate the implied volatility for you, and I want to show you exactly how you can see if the implied volatility, is high, low, or average. Here is the easiest way to do it.
You compare the implied volatility to the stock’s historical volatility for exactly the same time frame. The implied volatility measures the market expectation for future price action.
Now, the historical volatility measures the volatility for a stock that already occurred over a specific time frame. All you have to do to see if the implied volatility is high, low, or average compare it to the historical volatility.
We can use the implied volatility of AAPL Apple’s Q1 earnings season. Apple was trading at 142. For an at-the-money call, expiring in four days, the implied volatility was 71%, and for the put was 70%.
The historical volatility of Apple. And this is something that you’re charting software can show you, it makes sense to look at it in 10, 20, 30, 40 days increments. So if we were to look at the past 10 days, the historical volatility was 37%.
But the call was trading at 71%. So what does it tell us? It tells us that the premium on this call, and also on the put, was running more expensive than usual. So now we can see, how this is affected by earnings.
Now, let’s take a look at the implied volatility of an at-the-money Apple call from the same time that expired later out at, let’s say March 19th.
So for calls expiring March 19th, you see right now the implied volatility is much, much, much lower at 43% for the call, and 43% as well for the put.
The historical volatility over the past 60 days was 40.69%. Now compare this to the 43% and we see that it is pretty much in line here.
So this means that the premium that was on these calls and puts on options that had 53 days until expiration was pretty much average.
Why You Shouldn’t Sell Options Into Earnings
Options traders are always talking about implied volatility and historical volatility, and now you know what it is. Now I want to tell you why I don’t sell options into earnings.
I mean, even though the stock moves in the direction that you want to, your option premium is getting sucked out of there because of the volatility crash.
You see, and this where, as an option seller, you might say, “don’t I want the premium to be as high as possible?” and yes, of course, you do.
But let me make you very clear why I don’t sell options into earnings.
If you have been following me for a while, you know that I love trading the Wheel, and as part of this strategy, we are selling options.
Well you see, earnings plays are hit-and-miss. Sure, everybody can get lucky and most people who start trading expect their account to explode from one or two big trades.
This is where we have some stocks that are jumping just dramatically. Looking at Intel, INTC over the last three earnings.
Huge gap down right when we had earnings, then there was another earnings play, and Intel really crashed down hard again.
Then also here during the last earnings season, initially, Intel went up but then started crashing down.
You see, some people like these earnings plays because they believe the hype that they can make a lot of money with very little work involved, but see, trading just doesn’t work this way because, in reality, the key to becoming successful in trading is consistency and growing your account systematically.
That’s what I mean when I talk about generating SRC profits, right? SRC is an acronym that stands for Systematic because I like to trade what I see and not what I think.
This is why I use indicators and have a trading strategy that tells me when to trade, what to trade, when to enter and when to exit. The R stands for repeatable and by trading my plan, I’m able to find repeatable profit-making opportunities. The C in SRC profit stands for consistency.
You see, I’d rather make slightly less money more often than biting off all my nails waiting for a big winner. As you know, part of my systematic approach to trading is to use The Wheel Strategy and the PowerX strategy.
Now, especially with The Wheel strategy that, where I’m trading right now with you here, the idea is to get paid while you wait to buy the stock, and because I’m collecting premiums on the puts that I sell, I’m looking for stocks with higher volatility, right?
This means making more money, and as a rule of thumb, I look for stocks with an IV, implied volatility, of at least 40%. The Wheel strategy can relatively safely produce profits, but I don’t recommend you to trade into earnings, at least that’s not what I do.
So I will not target options with an expiration date that includes the company earnings report. I am trading options before we are running into earnings. So this is why I think it is very important that you know when trading options, whether it is buying or selling, that you don’t trade into earnings.
At least that’s what I do because earnings are a wildcard and there’s just too much uncertainty. Remember, I’m not looking for fireworks here, I’m looking to systematically grow my account through consistent and repeatable strategies.
Where To Check For Earnings
Now, I want to give you two more resources, if you want to see for yourself who is reporting and when.
These are two websites that are pretty cool that I personally use. So the first one here is “stock earnings.” If you go to stockearnings.com or they even have stocksearning.com, they will show you see the notable earnings that are coming up this week.
Now, another one that many people like to use is earningswhispers.com. So that’s another great source for finding out when companies will report earnings because this way you can make sure that you’re not trading right into earnings.
It’s always good to know when they report earnings if you have any open positions, whether you’re buying stocks or selling stocks so that you’re not caught off guard.
So I hope that this helped you to see how earnings impact option prices and why I never sell options into earnings.
Emotions In Trading: Biggest Account KillerTrading is fun and every trader is happy when their trades move in the right direction, but when a trade goes against you, you will experience a lot of emotions:
Fear, anxiety, regret, doubt, maybe anger…
… and these emotions in trading can lead to some bad decisions that could kill your account.
In this article, I’ll show you how to control your emotions in trading so that you become a more relaxed trader.
1. Recognize Your Emotions
When trading, you WILL experience emotions. The main emotions are:
Excitement
Greed
Fear
Anger
Frustration
Let’s talk about these emotions and how to deal with them.
Emotion #1: Excitement
When trades are going in your favor, it’s natural for you to be excited. We all love to see “green” in the account, but here’s the problem with that: when trades are going in your favor, you may be too excited and take on more risk.
I have seen this over and over again, especially when trading “The Wheel” options strategy. During the first few trades, traders are usually very careful.
They do a great job in picking the right stocks, then they take a few good trades and their account is up nicely!
All of a sudden, they get overconfident. It seems that the trading system can’t lose, and so they increase risk because “things always turn out for the best,” but that’s when trouble starts.
You’re no longer looking for “the best” trades. You feel invincible and want to make as much money in a short amount of time as possible. You start trading with more & more risk, and start choosing stocks that you shouldn’t choose.
Here are a few examples:
TLRY, SPCE, WKHS, LABU
The premium is attractive, and you thought: “I’ll be fine, and if not, I can fly a rescue mission like Markus usually does,” but then you get stuck in a trade, like some of you are.
So please be careful when you experience excitement because it quickly leads to overconfidence, and the markets like to show overconfident traders who’s boss!
Emotion #2: Greed
Next on the list of emotions in trading is greed. Greed is okay as long as you don’t let it take over your trading.
My P&L so far is $69,205 at the time of this writing: My goal is to make $15,000 per month, and thus far, I have made almost $70,000 in less than 4 months!
I could get greedy now and say, “Why not $20,000 per month? Or $30,000?”
But I am going to keep trading with discipline and make sure that my greed doesn’t get the best of me.
Be humble! Be grateful for what the market gives you because if you are greedy and try to squeeze the last penny out of the markets, the markets WILL put you in your place!
Emotion #3: Fear
The next emotion on the list is fear. Fear is a natural human emotion that we all have. In trading, it’s easy to let fear take over because you can see your profits diminishing in front of your eyes!
Here’s the problem with fear: it’s a very strong and powerful emotion that has the power to paralyze you, and cause you to have a bad day — a VERY bad day: You’re sitting in front of your computer all day staring at the “red” numbers — the unrealized losses.
Your mind goes crazy because you’re already thinking about how bad your trading account will be when you realize all these losses.
But what a difference a day can make. Have you ever realized how one day it looks bad, and the next day everything is green again?
Here is what you should do when FEAR takes over:
– Step away from the computer. Shut it down! Go outside. Do something else.
– Take some deep breaths and relax.
– Do not panic, this will cause you more harm than anything else! The market is always changing, it’s just out of our control; so instead of panicking, think about what we can control.
Emotion #4: Anger
Next on the list of emotions in trading is anger.
It’s easy to get angry at the markets because it’s so unpredictable!
You can never tell what is going on and when it will change.
And why are there always losers?
Dang, I should have bought 30 minutes ago… but now the price has gone up again?!
Happened to me yesterday: Every single trade that I entered was timed wrong. I could have gotten a much better fill 30 min later!
But: anger does not get us anywhere. Anger leads to revenge trading, which can lead to catastrophic losses.
Keep in mind:
Markets don’t know who you are.
Markets don’t care who you are.
Markets don’t know if you are in a winning or losing trade.
Markets don’t care if you try to push them around.
If you try to fight the markets, you’ll lose. It’s important not to let anger dictate your trades!
Emotion #5: Frustration
The last emotion on our list is frustration.
It’s easy to get frustrated with trading for the same reasons that I just mentioned:
You can never tell what is going on and when it will change.
And why are there always losers?
Dang, I should have bought 30 minutes ago… but now the price has gone up again?!
Some people react to these events with anger, others with frustration.
Frustration can lead to impulsive trading, and that’s not a good thing.
The best way to deal with frustration is to take some time out from the markets for a few hours or even days until your head clears up.
2. Understand The Effect of Emotions While Trading
In a moment, I’ll share a technique with you on how to control these emotions but let’s first talk about the effect of emotions on your trading.
It’s ok to have feelings. It’s ok to feel these emotions — these are HUMAN emotions. The problems start when you ACT on these emotions while trading.
As you have seen, each of these emotions is causing a reaction, and none of them is good. Emotions cause irrational behavior…
… which leads to impulsive decisions,
… which leads to and bad trades,
… that often leads to losses or drawdowns.
Emotions in trading can be the number one account killer, so you MUST be able to control them.
3. Control Your Emotions By using THIS technique
I have been trading for 20 years, and I still feel these emotions. They say you shouldn’t have any emotions while trading, and based on my experience, that’s not possible! The important thing is to make sure that you don’t ACT on your emotions.
So how can you control your emotions?
Stephen Covey said it best in his book “The 7 Habits of Highly Effective People”:
Focus on what you CAN control, and don’t worry about what you can’t control.
And if you think about it, there are only 2 things you CAN control:
Your Thoughts
Your Actions
You can’t control what the markets are doing, you can’t control whether Hindenburg Research is releasing a report on a company you’re in, you can’t control when a big hedge fund gets in trouble and has to dump a bunch of positions, but you can choose how you react.
Let me give you a personal example:
As you know, I am in RIDE .
And the position is MASSIVELY going against me.
I could be angry at short-sellers, especially Hindenburg Research.
I could be frustrated with Lordstowns PR efforts, which suck.
I could look at my unrealized loss every day and fear “What will happen it Lordstown doesn’t recover?”
I could have a lot of negative emotions around it, and NOTHING would change — other than me getting bitter, and maybe even depressed.
So I keep following my plan, which is selling more premium.
This week, I will make $1,050 on RIDE , no matter what the price is doing. If it goes up, good. If it goes down… oh well, I can’t change that.
I just know THIS:
I won’t let emotions dictate my day, and I won’t let emotions dictate my trading.
I believe the Serenity Prayer says it best:
“God, grant me the serenity to accept the things I cannot change, courage to change the things I can, and wisdom to know the difference.“
How I Find The Best Trades Every Time: My 3 Step SystemOn my $500,000 margin account thus far, I’ve realized more than $65,000. Now, I put $250,000 in cash into this, and since it is a margin account I got $500,000 in buying power.
Today I want to show you my three-step process of how exactly I find these trades, and I want to show you two very specific examples of trades that I took today (At the time of this writing on April 15th, 2021). So let’s take a look at how I found and executed these trades with this three-step approach.
Step Number One: Find The Right Stocks
So step number one is where I use the tool, the PowerX Optimizer, and the Wheel Scanner.
I want to show you exactly what this does because the strategy that I use is called The Wheel Strategy. This strategy means that you are first selling puts to collect premium.
The second part of this strategy is, you may or may not get assigned the stock. If you do get assigned, you move on to the third step where you sell covered calls.
So here is exactly what I do, and what I did this morning. The scanner within the PowerX Software updates every two minutes and shows me a list of stocks that meet my criteria.
What criteria am I’m looking for? I want to make at least 30 percent annualized in premium that I would collect. So here’s what I do. First of all, I know that the stocks the scanner pulls up already meet my criteria.
Then I look at the charts to identify support and resistance, mainly support, which is actually step number two.
Step Number Two: Look For Support
I look to see if there is any support. This helps me figure out if I want to own the stock at the strike price that comes up on the scanner.
So for example, American Airlines came up with a strike price, as you can see, of 20 or 20.5. So the key question here is, “Do I want to own (AA) at the price of $20.5?”
Well, looking back at American Airlines to pre-pandemic levels in 2019. I see that American Airlines has been trading very solidly between $26 and $38.
So it seems to be a good company to buy at $20.50. Again, this is my main criteria here, deciding if I want to own the stock at the strike price. However, in the short run, I believe with all of the uncertainty that is going on with the pandemic right now, that the airlines might be hurt.
I mean, you might have heard a few days ago that Johnson and Johnson’s vaccine got labeled as potentially dangerous, and therefore it is paused right now.
It also seems that around the world, the outbreaks are flaring up here in the United States. It seems to be under control, but worldwide there’s a problem. So do I really want to own American Airlines?
They dropped down as low as $8. So is this a good price to own them? This is where I can flag them as saying yes, no, or maybe.
Now let’s talk about the two stocks that came up this morning that I liked (April 15th, 2021). The first one was (PLAY). So PLAY, Dave and Busters, came up with a strike price of 41.50. This is where I thought, “do I want to own PLAY at $41.50?”
I looked back and zoomed out a little bit to pre-pandemic times before the coronavirus hit. They have traded solidly around $38. They’ve been trading as high as $64. I thought about if I’d be OK owning PLAY, at $41.50.
So this is where I sold puts that expire next Friday. So the idea here is that we are staying above $41.50 by next Friday. So here is what happens if I’m right. I sold 24 contracts and I sold them at 50 cents each. Since options come in hundred packs, that’s $50. So the premium collected for 24 contracts, times $50, is $1,200.
$1,200 for a little bit over a week, with today being April the 15th. It expires on April 23rd. So in 8 days, this is not bad at all. Right? This means that I’m making $150 a day.
Now, if it closes below $41.50 I get assigned, and I am okay with this because this is where I decided I want to own the stock at $41.50.
The other one that popped up this morning was Schwab (SCHW). Schwab reported earnings and as a result of this. They plummeted down and there was some really good premium in there, so I sold the 63.50. I sold 16 contracts for 14 cents. Now, this is expiring tomorrow, so this is a different play, right?
The premium I collected here was $224. So obviously way less than the premium that I collected here for PLAY, but this is a play that expires tomorrow. So we want to make sure that tomorrow, April 16th, if Schwab closes above $63.50 I just collect the premium and have nothing else to do. If Schwab goes below 63.50 by tomorrow this is when I get assigned.
So the important criteria here is, for the Wheel Scanner, is the so-called premium per day, or PPD. So in order for my account size to make the 30 percent annualized in premium I want to see at least $100 per day.
So with PLAY, I’ll collect $1,200 in 8 days, when it expires next Friday. This means that we are looking at $150 per day. Then we had Schwab, and we collected $224. If we count today, this makes 2 days, so this brings our PPD to $112.
So my goal is to collect $100 per day, and I want to be in 5 positions at any given time. So if we can do this, this would be $500 per day. $500 per day (this includes weekends), for 365 days, comes to over $180,000 per year, and I’m doing this on a $250,000 cash account, which is a $500,000 margin account.
So, and as you can see, this is a little bit more than the 30 percent annualized, as you can see here.
If we divide $180,000 by $500,000, then we see it is 36 percent. So there we go. You know what, sometimes I achieve the goal, sometimes I don’t. Well so far, this year, I’ve realized $65,000 in profits. So this is REALIZED profits. Now I do have unrealized profits and losses, and we’ll see how this turns out.
And this is in 4 and a half months. So I’m basically on track to make a little bit more than the 36 percent here that I have as a goal. I’m on track to make probably around $200,000 for the year.
Step Number 3: Any Negative News?
This step involves checking to see if there is any negative news. Here’s how I do this. I just Google the stock and click on “News.” When you click on “news,” it shows you the Google searched for news articles, and you can scan these for any negative news.
What I’m mainly concerned about here are lawsuits, and clinical trials. When they have a clinical trial, they can either go very well or very badly. Possible bankruptcies, bankruptcy. So these are the key things that I’m looking for when I look for negative news.
Summary
So how do I find the best trades to trade? My three-step process is I like to make my life simple and easy by using the PowerX Optimizer and running the Wheel Scanner, because I want to make, on a $250,000 cash account, around $180,000 per year.
That would be $15,000 dollars per month. For me, this is trading for a living. I can cover my living expenses with $15,000 per month.
Step number one is where I get the technical criteria. Next is where you look for support and decide if you want to own the stock at the strike price. This is where you simply go through the scanner and say, “yes, no, or maybe.”
Finally, is there any negative news? Because if it is too good to be true it is. You should definitely look up stocks on Google, click on “news.” So you can just read through this fairly quickly and make an informed decision.
So that’s basically it. This is my three-step approach to finding the best trades.
Why Most Traders Lose Money — Here Are The Top 3 ReasonsI’m Markus Heitkoetter and I’ve been an active trader for over 20 years.
I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails.
They start trading and realize it doesn’t work this way.
The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically.
Real money…real trades.
Anyone that has been around the markets and trading for any period of time has probably heard that most traders lose money.
In fact, there’s actually an old trading adage that says:
90% of new traders will lose 90% of their account within 90 days.
So after reading that, before you reach for your broker’s phone number to wire out all of your money… how about I let you in on a little secret:
If you follow some simple rules and avoid these 3 mistakes, you can be in that minority of traders that actually make money consistently in the markets.
And if you are currently making one or all of the mistakes, I’ll also show you exactly how to fix it.
So let’s dive in!
1) Most Traders Enter A Trade Too Late
The first thing on my top 3 reasons why traders lose money is: Most traders get into trades WAY too late!
There are a lot of reasons this happens, but most commonly it’s because new traders are basically gambling.
They’re buying stocks or options based on news, or a hot stock tip, which really isn’t what I would consider a strategy.
So let me give you a great example with a company I’m sure you’ve heard of: Uber Technologies (Yes, enemy #1 for taxi drivers worldwide.)
Last year UBER , known for its popular ride-sharing and food delivery services, IPO’d in May (2019).
With the disruption this company caused, their IPO had a lot of hype surrounding it, bringing a lot of investors to the table.
On the day of their IPO, UBER opened at $42/share and people poured into the stock.
For a few weeks, the stock had a turbulent, roller coaster of a ride all the way to as high as $47.08/share, a little over a 13% increase since its IPO.
And around this new high, more and more inexperienced retail traders piled in thinking that it would continue its bullish run with dollar signs in their eyes.
The mainstream media was continuing to hype it and more and more and investors and traders gobbled up more of the stock.
Looking at the image below, you’ll see after that high of $47 things got UGLY fast, with UBER falling day-after-day, week-after-week.
It wasn’t until November of 2019, about 7 months after their IPO that UBER found a temporary bottom at $25.58, down more than 45% from its high of $47.08… and I would bet there were a LOT of people who bought near or at the highs and were still holding at that point.
So what did retailer traders do when UBER made a bottom?
Yes, once again most (losing) retail traders didn’t get in at, or even around the bottom… once again, they piled as UBER neared its previous highs.
And as you’ll see yet again, UBER rolled over on its way to making another new all-time low this past March 2020 going all the way down to $13.71/share.
That’s more than a 70% decrease from its ATH and yes, I’m sure some investors rode it all the way to the bottom.
Now I want to share a second example with you, so let’s take a look at Amazon AMZN .
So as you know, AMZN is a HOT STOCK and last year it has a crazy move where it crossed $2000/share…. and yes, just like our example with UBER , inexperienced retail traders piled in at the very top.
Once again, in the weeks that followed, AMZN’s stock tanked leaving those who’d piled in dazed and confused, now holding onto sizable losses.
So as you can see, the first of my top 3 reasons most traders are losing money is simply because they’re piling in way too late in a stock’s move, generally near a high.
Now on to reason number 2:
2) Most Traders EXIT Too Late
Yes, as you can imagine if people are getting in too late, well, they’re also typically getting out too late as well.
So let’s talk about why this happens.
Why do retail traders tend to hold onto trades way too long, either turning a small loss into a BIG loss or sometimes even more painful, turning a winner into a loser?
Let’s take a look at another example with an UBER competitor, LYFT .
Like UBER, LYFT also had its IPO in 2019, opening up at $87.24/share… but that didn’t last long.
In less than two months, LYFT went as low as $47.17… and what do you think those who bought during the IPO are saying right about now:
“Oh, I’m holding it because IT WILL TURN AROUND!”
This is generally where I see traders get religious
Instead of ‘taking their medicine’ and getting out when the trade moved against them, they held on and are now pleading and praying the stock will turn around.
I hate to be the one to break it to you, but ‘hope’ is not a strategy… at least not one with a winning trading record.
Now on to number three in our list of top reasons why most traders lose money:
3) They Don’t Have A Trading Strategy
As you’ll see, I’ve saved the best for last as this one alone can help fix or eliminate the other two we just discussed.
So first, let’s answer this question: What Is A Trading Strategy?
Well, a trading strategy gives you three key pieces of information you need before ever entering a trade:
1) It tells you WHAT you are trading. Is it stocks, options, futures, cryptocurrencies? This is answered in your trading strategy.
2) It answers when you ENTER a trade.
3) It answers when you EXIT a trade and that’s exiting with a profit or loss.
Now, let’s take a look at an example here using TSLA on how I make trading decisions.
I like to look at three different indicators, that when in alignment, give me a clear signal to go long or short a stock or ETF.
As you can see on the charts, back in December of last year (2019) my indicators gave us a long signal on TSLA at around $370/share.
And the indicators told me we were good to go until around $850/share.
All I had to do is let the indicators tell me when to get in and when to get out… no guessing, hoping or praying.
Summary
So as you can see, there’s actually no big secret to why most traders are losing money.
It’s actually pretty simple to see and correct, but it takes a plan and a little bit of discipline.
If you’re brand new and not sure where to get started, I’ve written The PowerX Strategy, a book that outlines my EXACT trading strategy for trading stocks and options.
Trading The Wheel Options Strategy — 3 Reasons Why You’d Lose MoI’m Markus Heitkoetter and I’ve been an active trader for over 20 years.
I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails.
They start trading and realize it doesn’t work this way.
The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically.
Real money…real trades.
So, as you know, I love trading the wheel options trading strategy, and this past week was a roller coaster for this strategy.
Friday morning I woke up and my account was down $25,000. Now I’ve been trading a larger account.
It’s two hundred fifty thousand dollars in cash, five hundred thousand dollars in margin, so $25,000 is not that much, but still.
So in this article, we are going to talk about the Wheel Options Strategy.
We will talk about the three reasons why you would possibly lose money with this strategy and also how to avoid these mistakes.
So here we'll talk about my account.
As you know, this show is about real money and real trades, and at the time of this writing, I am still down about eighteen thousand dollars.
So it has gotten a little bit better since this morning, but down eighteen thousand dollars. So we’ll take a look at these trades in detail.
But first of all, let’s talk about the three reasons why you would lose money with this strategy and then also how to avoid them.
3 Reasons You Would Lose Money
So there are three big mistakes that you can make when trading The Wheel strategy.
So the first is panicking. If you are somehow trapped in a position and you say, what the heck do I do now?
I often see traders who say, “What do I do now?”
So solution number one is don’t panic. Easier said than done, right?
But not panicking is so important.
This is what one of our members posted in our community. “It’s not a loss if you don’t sell.” so the worst thing that you can do going back to this is panicking and closing your positions at a loss.
Don’t do this. Don’t close your positions, & evaluate what’s happening.
The second mistake is not having a plan.
Mistake number three is not having the right trading tools.
So, now I will go through my positions that I had and then I will show you how I handled them with my plan.
Then we will also talk about the third mistake in more detail, and then some more solutions.
My Positions
So five positions that I had in my account were (On February 26, 2021):
AAPL
AMD
DBX
GDXJ
RIDE
So let’s start with AMD first.
If AMD were to stay above 83.50 until the remainder of the trading session (at the close that day), I’d make money.
Everything that happens with my positions, I write this down, and I recommend you do the same thing so that you know of what’s happening to your positions.
You will know which ones are actually in trouble and which ones are good to go.
So if AMD closed above 83.50 nothing would happen, and I would keep the whole premium.
For this trade, this was $576 in premium for the week. Not bad at all.
The second position is DBX which is Dropbox.
So Dropbox needs to stay above 21.50 and it was trading at 22.85. So it seemed that we were pretty good there.
You might be wondering why I am talking about the positions that are OK?
You see, in order to stay calm and to make sure that you’re not panicking, focus on the positive first.
I know if you’re taking a hammer and you smack one of your fingers, what do you focus on? The finger that hurts. Right?
But you have four other fingers that are absolutely fine.
So it’s important to focus on what’s going right for us.
So if DBX stays above 21.50, which is very likely. So I sold 47 of these options for $13 totaling $611 in premium, so not bad at all.
So what’s happening with GDXJ?
So the week prior I got assigned because it expired below my strike price.
So I got assigned 2,100 shares at $48.
Now, here’s what I did with this. So let’s forget these shares for just a moment and let’s again focus on the positive of what’s working well for it.
I sold covered calls at the 49 strike price, and I collected premium.
So how much premium did I collect for these calls? I sold 21 contracts for $75 each.
So I collected for this trade, $1,575 in premium.
So we are OK there, and I still have the shares, because they expired worthless.
So the next position is RIDE.
So if it stays above 21.50 I just collect the premium and nothing else happened, but the price stayed below.
I got assigned 4,700 shares at $21.50 so this position is in trouble, we will deal with that at some point, but here’s the good news.
I still collected $1,974 in premium.
So the last position here is AAPL, and I did get assigned these shares a week prior.
So I have 800 shares and I’ve not been able to sell any calls against it.
So here I have 800 shares at 133, and also these shares are in trouble because Apple right now is trading at $124.
So I got assigned and now AAPL is down. Not good.
I still collected all this premium and it all added up.
So because overall, it was a pretty darn good week, collecting $4,736 overall.
I don’t know about you, but this is not bad at all.
And I know you might be saying, “oh my gosh, you’re talking about making some money here, but what about all of these red positions?”
Why You Shouldn’t Worry About Being Assigned
We’ll take a look at these starting with RIDE
This is where it goes back to what is the worst thing that you can do? Panicking.
Like if I were to sell for example.
If I would sell these shares instead of collecting the premium that I have here, I wouldn’t have made any money on RIDE, I would have lost $8,272 instead.
I don’t know about you, but I would rather keep the premium of $1,974 instead of losing $8,272.
For me personally, I will not worry about it.
So here is where it goes back to. What do we do? Follow your plan.
So you got to follow your plan, and this point I’m about to make is very important.
I’m actually excited to get assigned, and in a moment you will see why.
Your reaction should be, “Yes! I am assigned because I want to own the stock.”
I’m really, really happy about this. I’m happy about having stocks.
Or your reaction might be this where you say, “oh my gosh, what have I done?”
If this is your reaction, then you violated the number one rule of “The Wheel Club,” and here’s the number one rule of the wheel club:
"Don’t sell puts on stocks that you don’t want to own".
OK, wrong movie, but you get the idea right? So let’s take another look at my positions.
Am I happy to own AAPL stocks? Yes, I am. Am I happy to own GDXJ and RIDE? Yes! Would I have been happy to own AMD stocks if I was assigned? Of course! Absolutely!
OK, so let’s take a look here at the stocks that I’ve traded thus far year to date.
And as you can see, my profits year to date, around $43,000.
Take a look at all the stocks.
These are the stocks that I would not mind owning at all, and this is really the number one rule of The Whale Club. So Apple, AMD, DBX, GDXJ, HAS, IBM, LL, WYNN, ect. All of these are good, solid stocks that I wouldn’t mind owning.
So let’s talk about what do we do with RIDE.
Why am I so excited to own it? This is where it goes back to having a plan.
So my plan is just to follow The Wheel strategy, and this means that after assignment, I will sell covered calls and collect premium. Very, very easy.
This is where we go back to mistake number three, not having the right tools. I use the PowerX Optimizer and I will show you right now how to use it and why it is so important.
So PowerX Optimizer supports two separate strategies.
The PowerX strategy as well as The Wheel strategy and part of the PowerX Optimizer is the real income calculator.
I set my buying power to $500,000 because that is the buying power that I have in the account.
So the stock I want to use as an example is RIDE.
Let’s plug in some numbers and see what our premium is on this one for if I get assigned these shares, and start selling calls.
So getting assigned 4,700 shares at 21.50.
Now, the option strike price that I’d try to sell would have to be at the price that I bought at or above.
The last traded price was $0.43, so let’s assume we’re selling the shares at that same price.
So I’m using the strike price here of 21.50 and I’m selling calls for $0.43.
If I did this I would get $2,021 in premium! Wholly Cannoli, are you getting excited about this? I’m excited about this. Now you see why I’m excited to get assigned.
If you add this with the premium I’ve already collected on RIDE from selling puts, which was $1,974, that’s almost $4,000.
You get the idea right? So I would not make any money on the stock but that is OK. So is this stock really in trouble if I make 4000 dollars in two weeks? I don’t think so.
So one trade that I had last week that wasn’t doing so well was AAPL.
I got a signed AAPL at 133, so I need to see if I would get enough premium to sell calls.
This is why it is so important & I can’t even stress this enough, how important it is to have the right tools.
Having the right tools help you make the best decisions instead of panicking.
Back to AAPL, I was assigned 800 shares at $133.
How much premium could we get for selling calls?
So right now, if we sell calls with expiration for the end of this week, at the 133 strike price, we would only get about $0.13, and I would only make about $104 which is nothing.
So out of all these positions, Apple is the only one that right now is kind of in trouble because I not yet able to get enough premium when trying to sell calls, but that is OK.
All I need to do is just be patient and wait until AAPL goes up.
Summary
In the meantime, I do believe that Apple is a solid company, and I don’t mind owning the shares.
This is where we go back to rule number one of The Wheel Club.
“Don’t sell puts on stocks you don’t want to own”
because if you do this, then you probably sitting there today, like, what have I done?
But I hope this helps you see how to deal with being assigned and that you also see, how to handle things when a trade is in “trouble.”
Just sell covered calls, and collect premium. If there isn’t enough premium available to sell calls, just wait until it bounces back, it’s really not a big deal.
I am absolutely OK making $4,736 last week with the potential to make another $3,000 this week.
Not bad at all, as you know.
My goal is to make $15,000 per month. If I can make $7,000-$8,000 in two weeks. I’m well on my way.
Day trading and Scalping Example NIFTY July 8I use multi time frame analysis very heavily. I always establish context for trading before I start the day. For context and levels, please check the following posts prior to July 8 *** Links Below
I am always fascinated by day trading - not because of the lure of quick money. But I think it is extremely hard for me. At least it is hard for my personality. It is always said there are two kind of traders
1. Traders who can think very fast
2. Traders who can think very deep
I always see myself comfortable in category two - deep thinker. But to put myself out of my own opinion's prison - I day trade.
Though day trading is hard, it teaches many things to me as a trader.
1. Emotional Control and Money Management - I don't have time to adjust , reflect back and somehow prove to myself that I am on the right side. I better quickly exit of my positions with great emotional control.
2. Relentless Planning - Since I don't have lot of time, I have to plan insanely - thinking of all possibilities and my actions.
3. NO to laziness - I cant afford to relax during the day session. I need to have extreme clarity of thought throughout the trading session.
Now, one may think that all these learning can be from any time frame trading. That's true. But when you have a ticking clock next to you and market presenting you 1 of n possibilities every single candle, that changes you for good. It makes you fast. Then you can adjust to larger trading styles easily.
Below is my example live thought log for the day. I escaped the day with approx Rs 34 / lot profit. Not a bad hunt after crazy price movement!
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NIFTY chart is extremely positive. Market looks prime for 11000, but global clues soft. Typically, such setups if bullish do not give chance to enter, starts with gap up. If there is no gap up it may be contra indication for sideways movement for the day. Since it is Wednesday , 1 day prior to weekly expiry, it is better to sell options and scalp premium.
Risk : large volatile movement. Stop Loss, opening ranges of 1 st hr. Close positions starting from 1:30 PM.
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1. Expectation was rally. But flat opening. Global markets are soft. Hence I sold 9300 CALL. Idea is to cash in Theta loss for the day in case of sideways movement. It is a risky trade.
2. Candle at 9.30 starts confirming this movement. Let this movement complete.
3. Any close below Previous day High, position can be added to.
4. As yesterdays high shows support around 10800, 10700 PUT is sold as well. Again Idea is to get benefitted by sideways movement and theta decay.
5. Overall position entry is now 33+30.30 = 63.30 Rs.
6. Since breakout failed, now NIFTY likely to stay in the range. So 10800 CALL sold 68.05 Rs.
7. So far trade is going ok. definitely signs of consolidation. BANK NIFTY broken out, NIFTY lagging.
8. Position 10700/10900 Strangle : 66 Rs (3Rs loss)
Position 10800 Call : 74 Rs (6 Rs loss)
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9 Rs Loss
9. Position 10700/10900 Strangle : 65 Rs (2Rs loss)
Position 10800 Call : 56 Rs (12 Rs Profit)
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10 Rs Profit
Going as expected. On breakout of the opening range Another short added 10800 CALL 56
10. Opening range breakout failed. 10750 PUT sold, Now look for opportunity to reduce position on 10800 CALL as breakout failed.
11. Usually NIFTY may jump around after 1.30. VIX did not decrease so far. So NIFTY players sense uncertainity at these levels.
Closed 10800 1/2 position.
Position 10700/10900 Strangle : 56 Rs (10Rs Profit)
Position 10800 Call *: 62 (6 Rs Loss)
Position 10750 Put : 46 (3 Rs Profit)
* Position 10800 CALL : (68-61) (7 Rs Profit)
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7 Rs Profit / 7 Rs Booked Profit = 14 Rs
12. The price range is getting tighter. NIFTY advance decline is 25 to 24 Neutral.
13. As Expected move started. How strong the move to be seen. 10800 PUT sold as initial direction of the move crossing the range. VIX started cooling off
14. Break above range is not showing strong follow through so expansion attempt is not rapid. That is a good sign for my trades.
Position 10700/10900 Strangle : 50 Rs (13Rs Profit)
Position 10800 Call : 74 (18 Rs Loss)
Position 10750 Put : 31 (18 Rs Profit)
Position 10800 Put : 50 (4 Rs Profit)
* Position 10800 CALL : (68-61) (7 Rs Profit)
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17 Rs Profit / 7 Rs Booked Profit = 24 Rs
15. NIFTY is showing many indecisive moves. It is above previous day high. Essentially, the morning down move can be negated and fresh up move possible tomorrow.
It is 2.20 PM so 1 hr to go in trading. Priority will be to close short positions first. Then Long ones.
Closed 10800 Put : It was latest and more prone to loss.
* Position 10800 Put : 49 (5 Rs Profit)
16. NIFTY dipped below Previous day Low. Now NIFTY can again go to 10800
17. Actually large moevement at 2.30 PM. Closed the positions. Final tally is
Position 10700/10900 Strangle : (63 - 45)(18 Rs Profit)
Position 10800 CALL : (68-61) ( 7 Rs Profit)
Position 10800 CALL : (56-55) ( 1 Rs Profit)
Position 10750 PUT : (49-46) ( 3 Rs Profit)
Position 10800 PUT : (54-49) ( 5 Rs Profit)
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34 Rs Profit
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Retrospection :
-ve's
1. Position of 10800 PUT sell was not a good position to take, it was more like a balancing previous position.
Better option would be to just square off 10800 CALL position for loss.
2. Entry for 2nd position on 10800 CALL could have been better. Also it was not correct with original sideways assumption.
+ve's
1. Traded as per the plan.
2. I was able to close everything fast enough before the volatile move.
Reference
Monthly Analysis
Weekly Analysis
July 7 Log
