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Options Blueprint Series: Calendar Spreads - Timing the MarketIntroduction to Calendar Spreads Calendar spreads, also known as time spreads or horizontal spreads, are advanced options strategies that involve buying and selling two options contracts on the same underlying asset, such as the S&P 500 Futures, but with different expiration dates. The strategy aims to profit from the differing time decay rates of the short-term and long-term options. Traders often deploy calendar spreads to capitalize on expected stable or sideways market conditions. Why S&P 500 Futures Options for Calendar Spreads? The S&P 500 index, encapsulating the performance of 500 of the largest companies listed on stock exchanges in the United States, serves as a premier gauge of U.S. equities. Its derivative products, notably the S&P 500 Futures Options, present traders with a fertile ground for executing calendar spread strategies. These options inherit the index's broad market exposure and liquidity, making them an ideal candidate for such strategies. Let's delve into the contract specifications and characteristics that make S&P 500 Futures Options and Micro Options particularly suited for calendar spreads. Contract Specifications: S&P 500 Futures Options (Standard): These contracts are based on the E-mini S&P 500 futures. Each contract represents an agreement to buy or sell the futures contract at a set price before the option expires. The standard option contract size typically mirrors the underlying futures contract, which is valued at $50 x S&P 500 Index. Micro S&P 500 Futures Options: Introduced as a more accessible variant, Micro S&P 500 Futures Options are 1/10th the size of their standard counterparts. This smaller contract size reduces the capital requirement, making it more appealing for individual traders and those looking to fine-tune their market exposure. The contract size for Micro Options is $5 x S&P 500 Index, maintaining the leverage and flexibility of the standard options but at a scale more manageable for a wider range of investors. Characteristics Beneficial for Calendar Spreads: Liquidity: Both standard and micro contracts benefit from high liquidity, ensuring tight bid-ask spreads. This liquidity facilitates easier entry and exit from positions, a critical factor when managing calendar spreads that require precision in timing and the ability to adjust positions quickly in response to market movements. Volatility Patterns: Understanding and anticipating volatility patterns is crucial for the success of calendar spreads. The S&P 500's inherent volatility, influenced by economic indicators, corporate earnings, and geopolitical events, can affect options pricing and the optimal structuring of calendar spreads. Strategic Flexibility: The availability of both standard and micro contract sizes provides traders with flexibility in managing their market exposure and tailoring their strategies to match their risk appetite and investment goals. Incorporating S&P 500 Futures Options into calendar spread strategies not only leverages these inherent characteristics but also taps into the dynamic interplay of time decay and market movements. Traders must, however, remain vigilant of the underlying market conditions and adapt their strategies to align with evolving market dynamics. Constructing a Calendar Spread To construct a calendar spread with S&P 500 Futures Options, a trader needs to undertake a series of thoughtful steps. Initially, one must select an appropriate strike price that aligns with their market outlook. Typically, at-the-money (ATM) or slightly out-of-the-money (OTM) options are preferred due to their sensitivity to time decay, which is a pivotal component of this strategy. Example Setup: Buying a Long-term Option: Consider purchasing a long-term put option on the S&P 500 Futures with an expiration date 30 days from now. The selection of a long-term option is strategic, as it retains its time value better compared to shorter-term options. Selling a Short-term Option: Simultaneously, sell a short-term put option on the S&P 500 Futures with the same strike price as the long-term call but with an expiration date 5 days away. This option is expected to lose time value rapidly, which is beneficial for the seller. As seen on the below screenshot, we are using the CME Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts. Underlying Asset: S&P 500 Futures (Symbol: ES1! or MES1!) Strategy Setup: o Buy 1 OTM put option with a strike price of 5260 (Cost: 44.97) o Sell 1 OTM put options with a strike price of 5260 (Credit: 7.78) Net Debit: 37.19 (44.97 – 7.78) Maximum Profit: Achieved if prices are at 5260 at expiration. Maximum Risk: Limited to the net debit of 37.19. The essence of this setup lies in capitalizing on the accelerated time decay of the short-term sold option relative to the slower decay of the long-term bought option. Ideally, the underlying asset's price will be close to the strike price at the short option's expiration, maximizing the profit from its time decay while still benefiting from the long-term option's retained value. Adjustments for Market Movements: f the market moves significantly, the spread can be adjusted by rolling the short-term option forward to the next month, potentially locking in gains or reducing losses. A successful calendar spread hinges on precise timing and a keen understanding of volatility. The trader must monitor the implied volatility of the options, as an increase in volatility can enhance the spread's value, while a decrease can diminish it. Potential Market Scenarios and Responses Optimal Market Condition : The calendar spread thrives in a market exhibiting minimal price movement, particularly around the strike price of the options involved in the spread. This stability allows the trader to exploit the differential time decay effectively. Market Moves Against the Position : In the event of adverse market movements, the trader might need to adjust the strategy. This could involve rolling the short option to a different strike or expiration date, or possibly closing the position early to mitigate losses. Flexibility and proactive risk management are paramount, as market conditions can change rapidly. The construction and management of a calendar spread with S&P 500 Futures Options involve a delicate balance of market prediction, timing, and risk management. By judiciously selecting strike prices, expiration dates, and adjusting in response to market movements, traders can navigate the complexities of calendar spreads to seek profit from the nuances of time decay and implied volatility in the options market. Risk Management Effective risk management is crucial when trading calendar spreads, particularly with S&P 500 Futures Options, due to the potential for rapid changes in market conditions. Identifying and mitigating potential losses involve several strategies: Position Sizing: Keeping each trade to a reasonable proportion of the total portfolio reduces the impact of any single trade's loss. Diversification across different strategies and assets can also help manage systemic risks. Stop-Loss Orders: Implementing stop-loss orders for the position can help limit losses. This is especially important if the market moves sharply in an unexpected direction, affecting the spread unfavorably. Continuous Monitoring and Adjustments: The calendar spread requires regular monitoring and potential adjustments to respond to changes in the underlying asset's price or volatility. This may involve rolling out the short position to a further expiration date or adjusting strike prices to better align with the market conditions. Hedging: In some scenarios, traders might consider using additional options strategies or the underlying futures contracts themselves to hedge against significant market moves. This approach can help protect the portfolio from large, unexpected shifts in the market. Conclusion Calendar spreads offer a sophisticated strategy for traders looking to profit from the nuances of time decay and volatility in the options market, particularly with S&P 500 Futures Options. This strategy suits those with a nuanced understanding of market movements and the patience to monitor and adjust their positions over time. While calendar spreads can offer attractive opportunities for profit, especially in sideways markets, they also require diligent risk management and an active trading approach. Encouraging further education and risk-aware trading practices is essential for success in options trading. Traders should continually seek to expand their knowledge of market conditions, options strategies, and risk management techniques to refine their trading approach and better navigate the complexities of the financial markets. By embracing a disciplined approach to trading calendar spreads, investors can explore the potential of this strategy to enhance their trading arsenal, leveraging the dynamic nature of S&P 500 Futures Options to tap into market opportunities while managing the inherent risks of options trading.   When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
CME_MINI:ES1!Education
by traddictiv
JWN Protective Options StrategyFashion retailer Nordstrom sells brand name clothing, shoes, beauty, home goods, etc in 94 large department stores as well as 240 Nordstrom Rack outlets. It also makes ~50% sales online, via their official websites as well as flash-sales from HauteLook and curator services through Trunk Club. Technically minded investors may see some opportunity in the chart (bottoming, consolidation into a falling wedge) along with optimism in the general stock market with the Fed's lower rate hike this week. The RSI has also been consistently chopping in the almost-oversold region, possibly indicating upward momentum. However, Nordstrom's weak holiday sales earnings may also cause some hesitation -- this opportunity is not without risks. With this bullish options strategy, you can capture up to 21% (22% annualized) of the potential gain with downside protection of 34% -- start to lose only if JWN falls below $12.43 as of 1/19/24 Trade Legs: Buy 1 $17.5 call Sell 1 $22.5 call Sell 2 $12.5 puts All expiring 1/19/24 Capital requirement for this strategy: $2,486
NYSE:JWNLong
by oliveinvest
AMRS Options Strategy with downside protectionMultinational biotech company Amyris manufactures and sells synthetic ingredients to the clean beauty, personal care, health and wellness, flavor and fragrance, nutrition, food and beverage markets in Europe, North America, South America, and Asia. It also offers products under the Biossance, Purecane, Costa Brazil, OLIKA, and JVN brand names. Amyris also collaborated with the Infectious Disease Research Institute to develop a COVID-19 vaccine using their synthetic squalene, otherwise found naturally in sharks. As global demand increases beyond natural supplies, the company believes that synthetic ingredients are the sustainable way to go. TA-minded traders might also see some pretty bullish patterns forming (falling wedge, double bottom, even Elliot Wave on the shorter timeframes). However, with Microsoft earnings leading a drop in the stock market today, how can investors balance fear and fear of missing out? Here's a hedged #options strategy that makes a fixed 10% yield (26% annualized yield) unless $AMRS falls more than 69% to below $0.50. More downside protection: Start to lose only if AMRS falls by more than 71% to below $0.46 as of 6/16/23. Sell 5 $0.50 puts Expiring 6/16/23 Capital required: $229
ALong
by oliveinvest
LUMN Protective Options StrategyLouisiana-based Lumen Technologies Inc (Quantum Fiber and CenturyLink) is one of the largest communications companies internationally. Its business segment offers cloud, IT, co-location, data and content delivery, IP, VPN, security, and other computer application services. Lumen also provides fiber optic infrastructure, data hosting and Ethernet as well as broadband, voice and private line or direct circuit services. At the end of 2021, the company had ~4.5 million broadband subscribers. With major stocks gaining momentum during earnings week and some optimism over next week's Fed announcement, maybe it's time to look at the technology sector again and an telecommunications/internet service provider may prove more stable than semiconductors. Technically minded investors might also see a double bottom and consolidation into a falling wedge, though that last candle might cause some hesitation. Here's a hedged options strategy that could make a fixed 8% yield (21% annualized) unless LUMN falls more than 23% to below $4.02. Further downside protection: LUMN can fall up to 27% (to below $3.81) as of 6/16/23 before you lose any of your investment. Buy 1 $3 put Sell 2 $4 puts Exp 6/16/23 Capital Requirement: $464
NYSE:LUMNLong
by oliveinvest
Hedged Options Strategy on KRNTIsrael-based Kornit Digital produces, markets and distributes high-speed industrial inkjet printers, digital printing systems, ink, software, and related products for the apparel, home decor, and printed textile industry. The company markets itself as a more sustainable alternative to overproduced goods, allowing for on-demand production as well as personalization and customization. Fashion today is also affected by social media and viral marketing. (Interesting Forbes feature.) Technically, optimists may see a falling wedge and double bottom forming. A quick peek at its profile on Yahoo Finance also shows mostly "Buy" recommendations and and "Maintains" on value... but a bearish outlook long-term. The stock market has also been wavering, and with earnings season revving up, there may be more volatility ahead. This simple variable-return options strategy would maintain growth potential of up to 21% (23% annualized) while protecting against a 23% drop (to below $20.72) as of expiration, in ~11 months. Sell 2 $25 puts 12/15/23 expiration Capital required: $4142
NASDAQ:KRNTLong
by oliveinvest
RUN hedged options strategyThere are lots of bullish arguments to make for solar stocks this year, including the Inflation Reduction Act and global demand, especially in Europe. California-based Sunrun designs, installs, sells and maintains residential solar panels directly to customers. Other business areas include battery storage, leasing energy services, and a "virtual power plant" with installed Sunrun panels actually exporting energy back to the grid. Relatively few homes have solar panels installed, but homeowners are increasingly interested in them and associated tax benefits, making growth potential in this area of the clean energy market quite high. Technically-minded traders might also wonder if RUN stock will repeat its falling wedge pattern, and possibly even see a double bottom forming. On the other hand, with over $5 billion in debt (as of March 2021) and Fed interest rate hikes adversely affecting tech and growth stocks, is Sunrun the safest place to park money right now? This hedged options strategy protects from a fall of up to 32% as of 8/18/23 and also makes up to 25% (44% annualized). Buy 1 $20 call Sell 1 $27.50 call Sell 2 $15 put Expiring Aug 18, 2023 Capital requirement: $2994
NASDAQ:RUNLong
by oliveinvest
Hedged Options Strategy on APAOil is one of the few sectors that analysts are still bullish on in 2023. Long arguments include catalysts such as China's re-opening, airlines recovering, and lowered supply leading to higher oil prices. APA Corporation, formerly known as Apache, operates in the US, Egypt and the UK and is one of the largest American explorers for oil and gas properties. It owns entire lines of production from gathering to transport with four pipelines running from the Permian to the Gulf Coast, as well as 2.3 billion barrels of oil reserves. Positive earnings reports exceeded expectations, and with a recent drop in stock price, this could be a good time to enter. Dividend stocks are popular in bearish times, and APA pays a consistent one, though not the highest at ~2.3%. Elliot Wave traders will also note where APA is going in the pattern, though yesterday's doom-and-gloom market might make investors think twice about jumping in. For downside protection, this hedged options strategy could make up to 9% (17% annualized) in ~7 months while cushioning against a fall of up to 31% (to below $29.85) as of 7/21/23. Buy 1 $42.50 call Sell 1 $45 call Sell 1 $30 put 7/21/23 Capital Required: $2985
NASDAQ:APALong
by oliveinvest
BLNK Hedged Options StrategyEVs and infrastructure-related businesses such are "charging" ahead. Blink, having experienced a bit of a downturn with other EV and EV-economy companies, still garnered buy/hold/maintain ratings from analysts. With a market cap of 561M, the company offers residential and commercial EV charging equipment, hardware, and software on its cloud-based Blink Network that enables the remote management of charging stations and gives drivers station information. Blink also has partnered with different destinations such as attractions, airports, transportation hubs, schools and healthcare facilities, hotels, apartment buildings, parks, religious institutions, retailers, stadiums, supermarkets, and office locations. As of 2022, it has ~30,000 charging ports and its revenue of $9.8 million in Q1 was 339% of the same quarter last year -- note that government grants and subsidies are a main source of funding for EV charging companies, while other companies may feel more QT stress. With a one-year target price of $17-$25 and hinting at consolidation, here's a strategy to make up to 20% while allowing room to safely fall up to 78% before losing any money. Buy 2 $13 Calls Sell 2 $15 Calls Sell 7 $3 Puts All expiring 1/19/24 Capital requirement for this strategy: $2078
NASDAQ:BLNKLong
by oliveinvest
SLCA Hedged Options StrategyUS Silica Holdings Inc had a good Q3, as one of the top companies making revenue in a supportive role in the energy sector. Specifically, they supply sand that's used in hydraulic fracturing of oil and gas wells via its extensive network and can deliver on last-mile logistics (directly to the well site). Subsidiaries like EP Minerals also makes diatomaceous earth, perlite, engineered clays and other industrial products. With an increased demand for energy across the globe, this seems like a not-too-risky investment. And cross-referencing -- Analysts have mostly rated it a Strong Buy, Buy, and Hold; Yahoo Finance predicts a bullish performance both short and long term. BUT a neutral pattern is detected (see doji-ish star with a slight push up, and commodity channel index.) With the recent Fed rate hike and uncertainty in SPX and general indices, here's my even safer bet: a hedged trading outcome. Buy 1 $12 Call Sell 1 $17 Call Sell 2 $10 Puts All expiring 1/19/24 Making up to 29% on this options-investing strategy. Betting that $SLCA does NOT fall more than 34% though 1/19/24. Capital Required: $1,943
SLong
by oliveinvest
MAXN Options StrategyYoung Singaporean company Maxeon Solar Technologies makes solar panels and components for an international market that is facing a deepening energy crisis. Maxeon is found everywhere from Sunpower-branded products, developing projects, system integrators, residential and small-scale commercial customers. Trying out Elliott Wave Theory combined with a very conservative hedged strategy just in case things go south in this market. Buying 1 $17.5 CALL Selling 1 $20 CALL Selling 1 $5 PUT Selling 2 $10 PUTS Exp 3/17/23 Should make up to 10% (26% annualized) but also allow room for MAXN price to fall 47% (to $9.99, or the lowest level on my fibs) before losing any money. Capital required for this strategy = $2498.30
NASDAQ:MAXNLong
by oliveinvest
Options Trading For A Living In this article, I’m going to show you how I made $52,138 in 8 weeks by trading options (at the time of writing this article March 12, 2021). The key question that I’m always asked is, “Is trading for a living possible?” For me, this is a resounding YES! I’ll break down all the steps from how to trade like a pro, where and how to find great trades, how patience is extremely important when making money, and more. What Do You Need? You might be thinking, “How the heck does anyone make that much money doing something so risky?” The answer is simple. You need: Number One a solid trading strategy, which we will discuss in this article. We will talk about the trading strategy that I personally used to make more than $50,000 in the past two months, and I’ll show you how to do this step by step. Number Two you need the right tools. You will see why that is so important, and I’ll show you the tools that I’m using. Number Three you need the right mindset. I know that mindset is probably the most boring thing to talk about it, so I will not spend a lot of time on this, but having the right mindset is important if you want to trade for a living. Now, there’s one more thing that you need, and this is money. I hate to break the news to you, but if you don’t have any money you can’t put money into your account, and you won’t be able to make money. And yes, I made more than $52,000. Before we talk about the trading strategy, let me just add a very, very important disclaimer. No, these results are not typical. Yes, I am very good at this, and I’ve been doing it for over 20 years. If you start trading this strategy, do not expect the same results. I will talk about this later, but it is super important that you start paper trading on a simulator first. How Much Money Do You Need To Trade Options? The key question that you might be wondering is, how much money did I need to put into this trading account to make this much? For this account, I deposited $250,000 in cash. This is a margin account, so this gives me $500,000 in buying power. Let’s dive in. The Wheel Strategy If you have been following me for a while, you know that I like to trade using The Wheel Options Trading Strategy. There are three steps to this strategy. Step Number One , what we are trying to do here is sell puts and collect premium. When selling options, I typically like to go with expiration dates 1 to 2 weeks out. The idea here is to collect a “weekly paycheck.” I’m putting this in quotation marks because this is where some people say you can collect weekly paychecks with no risk, and that is simply not true. When trading there IS risk. You want to make sure that you trade only the best stocks. What do I mean by this? Well, currently in my account I have positions with companies like AAPL, AMD, DBX, DKS, GDXJ, HAL, HAS, IBM, and JWN. These are all super solid stocks. These are not fly-by-night stocks. You will not see any GME, AMC, BB, BBBY, or any of these meme stocks in my account. We’re talking about super solid stocks, stocks that you have to be okay with owning if you’re assigned the shares. So let’s look at DKS , which is Dick’s Sporting Goods. They are a solid retailer. The idea here is that we are selling puts at a strike price that is at support. Here I looked at short-term support. You want to see at what price level did prices touch several times and then bounce back. They were at the 66 level, so I sold a 66 strike. If DKS closes above then I keep the premium, if it closes below, we would get assigned. Now, another stock that I am trading right now is SNAP , Snapchat. Here we are looking at a strike price of 49. Again, this is where you want to pick super solid companies. I don’t know about you, but do you have kids? My kids live on Snapchat. They’re not on Facebook, Twitter, or Instagram, but they’re on Snapchat. I believe SNAP it is a super solid company. We see that we had support four, almost five times. So this is where I sold a strike price at 49. You want to make sure that you’re only trading the best stocks and that you always look for support. The support that I like to see is a support level that held at least over the past 8 weeks. So, again, step number one is where we’re selling puts and collecting premium. The basic idea here is that we are buying stocks at a discount, or as many people would say right now, “buying the dip.” This is something that has been working really, really well. It’s a tactic that Warren Buffett has been using for many, many years to scoop up stocks at a discount. Step Number Two is where you may or may not get assigned. This means that if the price at expiration of the stock is below the strike price that you sold, then you have to buy the stock at the strike price you sold it. In this case, if this is happening, then you would go to step number three, which I will share with you in just a moment. Now, if the price is above the strike price at expiration, then you don’t get assigned. You just keep the whole premium and you would go back to step number one. This is why it’s called “The Wheel,” because we keep doing this, right? Step Number Three is when we are assigned, we will sell covered calls and collect more premium. This is the strategy in a nutshell. As you can see, it is not really complicated. The trick is to trade only the best stocks with solid support levels in case you are assigned. Using The Right Tools The second thing that you need is powerful tools. Let’s talk about the tools that I personally use. If you have been following me for a while, you already know that the tool that I use is the PowerX Optimizer. Now, here are the two things for me personally that are super important when we are picking the right tools. First of all, I want to have a scanner built-in. A good scanner not only finds the best stocks to trade, but also tells me what strike price to trade, and at what expiration. When it comes to expiration, I already told you in broad strokes, I’m only trading one to two weeks out. But should I trade this week’s expiration or next week’s expiration? This is super important, and this is where a tool helps me. The second thing, which for me is super important, is that the tool has a calculator. With this calculator, it tells me exactly how much premium I should get, how much risk is involved in this trade, right? These are the important things you need to know. Then, of course, a calculator should tell you how many contracts should I trade based on my account size. When trading options, you know the important things are, that you know what is the underlying stock, what is the strike price, what expiration, what is the minimum premium you want, and of course you want to know the risk. So let me show you exactly how I am finding these stocks. So here we see the PowerX Optimizer. The scanner actually gives us a bunch of symbols that are candidates to consider right now. Now, one of the things that we need to do is we need to make sure that we only pick the strong stocks, and that we only pick those that have a good support level. So one of the examples of a stock that I’ve traded recently is NIO . The scanner actually shows me in the data window what strike prices I should consider right now. It also shows me what premium I can get, and how much this would be annualized. What PowerX Optimizer told me is that right now I could sell at a strike price of 36. And I would get some decent premium for this. Now, we always want to go back over the past few weeks, and if we look over the past 6 to 8 weeks, we see the support see, it touched the level three times. So it looked like there was strong support at 36. Now, the next thing is, and this is where PowerX Optimizer helps you, that you see exactly here how much premium you can get, especially if we are looking at it annualized, right? For me, the minimum option premium that I should get to get at least 30% annualized. For me, that’s what I want to do. This is how I was able to make more than $50,000 thus far this year, and it is only March 12th, and I started on January 11th. Now I also want to know how many options should I trade based on my account. How much in premium would I collect, and what is the premium per day that I would make? So how much money per day do I make when trading this? This is where we go back to why it is so important to have a tool that shows me all this because let me ask you, how else would you find all this out? I mean, if you tried to do this manually, I don’t know, I mean, for me, this is almost impossible to do it. So and believe me, no professional trader does this with only a calculator or a cell phone in his hand. You must know your numbers. Trading is a numbers game, and if you don’t know your numbers, it will be really, really difficult for you to make money. Another key question is, if you don’t have a tool, how else would you find these trades? I mean, every single trade that I did in this account here, that you see over the past eight weeks, that have yielded $52,000, has been taken from this scanner. I mean, if you would force me right now to trade without this tool, I couldn’t do it. This is where I believe that having powerful tools like the PowerX Optimizer is giving you an unfair advantage. Think about it, when trading you are trading against other traders, but you don’t have to be the best trader in the world, you just have to be better than the other trader. You just need to have an edge, and this is where I must say this tool is actually giving me an edge. If you want, you can even say that it is not only an edge, you could call this if you want to, an unfair advantage, but when it comes to trading, you need to play every ace. You don’t want to show up with a knife to a gunfight, you’re trading against the smartest traders in the world. Traders Mindset Now, this brings me to the last point here of how to trade for a living, and this is having the right mindset. This is something that many traders underestimate because they think, “Hh, you know what, that’s fine, I just need a strategy and I need a tool and I will just be fine.” Having the right mindset is important, especially if you want to trade for a living. You must be focused on what I call SRC profits. This stands for systematically, repeatable, and consistent. So this is what SRC stands for, and this is why this so important. You see, as a trader, for me, at the end of the month, I’m wiring money out of my account, out of my trading account into my personal account. I mean, it's great when you have windfall profits. If recently you participated in the GME hype, and you double, triple, quadruple many maybe 10x your account, then good for you. Congratulations, and I really mean this. However, can you do this again this month? What is the next stock that is going crazy like this? Or if you were able to capture the Tesla ride all the way up, good for you, but what happened when Tesla went from 800 to 500? Did you take a hit in your account? See, this where it is super important to have these SRC profits. When it comes to trading for a living it is also important that you have patience, and here’s what I mean. You’ve got to grow your account systematically. So, and how do you grow your accounts systematically? If you don’t have a trading strategy, this is why it’s so important to have a trading strategy that produces these SRC profits, the systematically, repeatable, and consistent profits. So you see how it all comes together. I mean, this is why there’s these three pillars, the trading strategy, the tools that are supporting your trading strategy, and the mindset. Now, the other thing is that when you are trading, patience means that you can’t panic. You see this is where recently, people started talking about these diamond hands, but I think the way how some people talk about diamond hands is just holding on to a losing trade. No, this is not the case. It basically means you let the trade play out. How do you let the trade play out? You follow your plan, but to follow your plan, you must have a plan. So this is where it goes back again to having a trading strategy. Summary To sum things up, first of all, is it, is it possible to trade for a living? The answer for me is yes because that’s what I’m doing. Now, does it mean that you can do it? Again, this is why it’s so important that you practice on a paper trading account first. So you’ve got to have the right trading psychology. For the trading psychology here is that you are aiming for SRC profits and not the YOLO-windfall every now and then profits. To start trading for a living, what are the things that you need? You need to have a strategy, you need to have the right tools, you need to have the right mindset. Now, if you are looking for a strategy, today I presented to you The Wheel Strategy, which I think is a great trading strategy because it’s simple to understand and it gives you an edge, right? You also want to have the right tools, and for the right tools, I might be biased, but I think PowerX Optimizer is the best tool not only for trading this strategy but also for trading the PowerX Strategy here.
TVC:NDQEducation
by rockwelltrading
1
Pattern Day Trader RuleI’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. Now I want to talk to you about the pattern day trader rule because this rule requires that you have at least $25,000 in your trading account if you are day trading. Here’s the tricky part. The tricky part is that you could trigger this rule even if you’re only swing trading, and not day trading, which is why it’s important that you are aware of what the pattern day trader rule is. I will give you examples of what can trigger it, even if it’s accidentally, and I’ll break down what then happens if you trigger it. Most importantly, I want you to be aware of how you can avoid it. What Is The Pattern Day Trader Rule? So what is the pattern day trader rule? According to FINRA, who set the rule, a pattern day trader is a trader if you execute 4 or more day trades in 5 trading days. So if you execute 4 or more day trades in 5 trading days, then you’re being flagged as a pattern day trader. This is not a good thing. So what actually is a day trade? A day trade is a trade that you open and close, during a trading day. So as an example, if you buy a stock at the open, at 9:30 Eastern Time, and then sell it before 4:00 pm Eastern Time, you are placing a day trade. Now, very, very important: this whole rule only applies to stocks and options. It does not apply to futures, forex, or binary options. It only applies to stocks and options. How To Trigger The Pattern Day Trader Rule How can you actually trigger this rule even if you’re swing trading? Well, it actually happened to me very recently. My head coach, Mark Hodge, and I, we were trading with our Mastermind members. I asked Mark to place a trade in my account, but he accidentally placed it in the wrong account. When something like this happens, I have a rule. “When you make a mistake, liquidate.” So I asked Mark to close the position, and when he did that counted as a day trade. So we opened the trade, realized we made a mistake and closed it right away. This lead to me having one strike in this account. And again, if we would get 4 strikes within 5 business days, then we are flagged as pattern day traders. Now, here’s another scenario. Let’s say that we enter a trade tomorrow and it hits the profit target or stop loss on the same day. So this would be another strike because now we are also entering and exiting during a trading day. So as you can see with this, even if you’re not day trading, it is possible that this could happen a few times. If this happens 4 times within 5 trading days, then you’re flagged as a pattern day trader. What Happens When You Trigger The PDT Rule? What happens when you trigger this rule? Well, first of all, if you have more than $25,000 in your account, nothing happens. This is because the pattern day trader rule says, if you are a pattern day trader, then you need to have $25,000 in your account. Now if you don’t have $25,000 in your account, then you will be restricted to trade on a cash basis only for 90 days. What does this mean? Well, see, as a day trader, you actually do need a margin account, and when you trigger the pattern day trader rule and cannot put $25,000 in there, this means that now you are restricted to trading with cash only. So let me give you an example. Let’s say you are trading the Wheel trading strategy, and you put $20,000 in an account. This means if you put it into a margin account, that you get $40,000 in buying power. So when you trigger the day trading pattern rule, you no longer get this buying power here, the 2:1 leverage. You are now basically going back to whatever cash you put in there when you trigger this rule. How To Avoid Triggering The PDT Rule? Now the question is, how can you avoid this? Well, and I want to give you three tips for how to avoid it. Number one, have $25,000 in your account because if you have $25,000 in the account, then triggering the rule won’t matter. What about if you don’t. Number two, you want to make sure that you count the number of day trades. Leave the date you placed a day trade on a sticky note, and count the number of day trades that you do even if it is accidental, so you can keep track of how many strikes you have. Number three, you can avoid it here by trading a cash account. So if you’re not trading a margin account, you don’t have to worry about it. Then, of course, if you are trading futures, forex, bitcoins, so cryptocurrencies, or if you are trading binary options, this is also when the day trading pattern rule does not really matter. Summary Now you know what the pattern day trader rule is, how you can trigger it, even if it is accidentally, what happens when you trigger it, and how you can avoid this. So let me ask you this, at this point, was this helpful at all? If so, feel free to share this video on Facebook, on Twitter, and I’ll see you for the next article.
NASDAQ:NDXEducation
by rockwelltrading
1
Covered Calls For BeginnersI’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. Covered Call For Beginners For good reason, the covered call strategy is one of the first option strategies that new traders start trading. This is an effective strategy that options traders often use to provide income on stocks they already own. Questions to be considered in this article: - What Is A Covered Call? - Should You Trade It? - Specific Example Can You Do It In A Retirement Account, EG, IRA? What Is A Covered Call? A covered call is an options strategy used traders to produce income on stocks on long stocks held in their portfolio. This strategy is used by traders who believe that stock prices are unlikely to rise in the short term. A covered call strategy is defined as holding a long position in stock while simultaneously selling a call option on that same asset. This strategy can provide income to a trader who is long term bullish on stocks but doesn’t believe there will be a significant increase in price immediately. A covered call will limit a trader’s potential upside profit if there is a significant move in the price of the stock upwards. This strategy provides little to no protection if the asset price moves downwards. Covered Call Example For the specific example that we’re going to cover today, we’ll take a look at JP Morgan JPM . The price information reflects the price of JPM back in July at the original time of writing for this guide but is just being used as an example If you were holding JPM stock in your portfolio before the pandemic, chances are that you are currently underwater. DISCLAIMER ***For the purpose of full transparency, I do not own or hold any JPM stocks*** I typically only hold stocks between 5 and 25 days. Stock Price Movement Recap For this example, we’re going to assume that I own 100 shares of JPM . If I were to purchase 100 shares for $96 it would mean that the capital requirement for this position is $9600. You’re probably familiar with the way profits move in relation to stock prices… but just to be safe: - If the stock increased to $106, or $10, I would earn $1000. - If the stock increased to $116, or $20, I would earn $2000. - If the stock decreased to $86, or -$10, I would lose $-1000. How Does A Covered Call Work? Sell one call option contract for every 100 shares of the underlying stock in your portfolio. The contract selected would ideally have a short expiration date of 7 days. You would choose an “out of the money” call at a higher strike than the current price of the stock. When choosing this strike price, you would typically choose a price at least one standard deviation away from the current strike price. In other words, choosing a strike price that you do not believe the current strike price will exceed before the date of expiration. If you’d like to learn more about this options strategy, or options in general, I have an awesome Options 101 Course. What’s the benefit of having a Covered Call for the stocks in my portfolio? It’s simple really. When you sell a call option contract, you will receive a premium. This strategy generates income when you don’t expect to profit from the movement of the underlying stock price. In this example with JPM , I received a premium of $55 for selling a call option contract at the price of $116. Provided that the underlying strike price does not move above $116, the contract will expire worthlessly and I will keep the premium I collected by selling the options contract. Let’s take a look at how a covered call will affect your portfolio with the same stock movements. - If the stock increased to $106, or moves $10, I would earn $1000 plus the $55 - If the stock increased to $116, or moves $20, I would earn $2000 plus the 55 - If the stock decreased to $86, or moves -$10, I would lose $-1000 but keep the $55 for a total loss of -$945 Why does this work? If you take the entire amount of premium you received and divide it by the number of days between no and contract expiration, you come up with a number like this: $55 dollars in 7 = $8(ish) per day. This covered call contract is paying us $8 dollars per day. If you take the $8 dollars, divide that by your total capital investment of $9,600 it equals 0.08%. This may not sound too incredible, but… If we do some basic arithmetic and take 0.08% and multiply that by 360 trading days per year, you end up with a return of over 30%. This is in addition to what you earned from the growth of the stock. On some stocks, it’s possible to earn upwards of $20 per day. This could increase annual returns in excess of 40% to 50% Does this sound a little more exciting? YES! Should you trade it? ABSOLUTELY! BUT…. There is a risk associated with this strategy. If there is a large movement of the underlying stock price that surpasses the strike price of your call option contract, you will be forced to sell your shares at this price. This would limit your upside potential to the difference between the current stock price and the price of the call option contract. Example: If the price of the stock went up to $117 (past the $116 call option) and the options contract expires, your stocks will be sold $117. This means you would earn $1,100 + $55, or $1,155. In other words, you would lose $100 for every $1 the strike priced moved above your call option contract. The silver lining is that you can probably buy your stock back the next day if you wanted to hold them long term. This type of trade can be taken inside of your retirement account such as an IRA, which provides you with another way to grow your account conservatively.
NYSE:JPMEducation
by rockwelltrading
Paper Trading on TradingView: 3 Simple StepsI’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. If you are brand new to trading and haven’t yet used a paper trading simulator, you should. Some people won’t use a paper trading simulator when they are first getting started because they don’t feel like it’s an accurate representation of the real markets. They’re right to an extent. You’re not risking real money, so you’re not going to experience the emotions that come along with it just trading in a simulator. Even with that said, I’m still a huge fan of trading simulators. Think about it, when pilots are training, before they are able to actually fly, they spend hours and hours on the ground training in a simulator. Why Should I Paper Trade? There are two main reasons I want to show you how to use TradingView paper trading as a stock market simulator. 1) You want to test your trading strategy. A solid trading strategy has three elements to it: - Knowing what to trade. Are you trading stocks or options? - Knowing when to enter. - Knowing when to exit, at either a profit or a loss. These are the main elements of any solid trading strategy, and it doesn’t matter what strategy you’re trading. It could be a strategy like the PowerX Strategy or The Wheel, it doesn’t really matter. You want to make sure that the strategy actually works which is why you want to test it to make sure that you understand the rules so that you’re not making any mistakes. If you are making mistakes, it’s better to find out when you’re not risking real money. 2) The second reason why you should trade on a simulator first? To gain confidence. Whenever you have a new strategy, you might be wondering if it actually works right? This is why when you use a simulator to test your strategy and you see that it works, you get more confidence because now you get some actual numbers. So you will know your winning percentage, your average profit, your average loss, and other important numbers. Setting Up TradingView To Paper Trade TradingView is a free tool that you can use as a simulator, and you may already be familiar with it already. I use it a lot. So here is a step by step walk-through for how you can use TradingView as a simulator. 1) Step one. You need to connect paper trading, and in order to do this, you go to the “Trading Panel” tab at the bottom. Once you bring it up, you can choose your broker and log into your brokerage account. On the very left side, you see “Paper Trading.” Click that. 2) Step two. You want to reset your account. You might be wondering, “Why should I reset my account? I haven’t done anything yet.” This is because your account will start you off with $100,000 by default. This may be a fun fantasy, but maybe not exactly your trading account size. It is very important that you mirror the size of your paper trading account with your real trading account. So, therefore, you click on the gear icon that will show on the right-hand side, and then in the dropdown menu, you see “Reset Paper Trading Account.” Once you click that, it will prompt you to input your desired starting balance. So if you are planning to start with $10,000 in your real trading account, start with $10,000 in your paper trading account. If you are starting out with an account of $20,000, enter that instead. You get the idea. Then just hit “Reset.” 3) Step three. You will have to adjust a few settings and before I walk you through an actual order. Right mouse click anywhere on the screen in your charts. In the menu, you will see the fourth item down is “Trade.” Go ahead and click on “Trade” then click on “Create New Order.” When you click on Create New Order, you have an order ticket appearing on the right-hand side of your chart. You will also see a gear icon. Click the icon to change the settings, and these are the settings that I personally use, so I highly recommend these. - Uncheck “Show Order Price In Ticks.” - Check “Show Quantity In US Dollar Risk” - Uncheck “Show Quantity In Percent Risk.” - Check “Show TP/SL Inputs In USD,” (that’s Target Profit & Stop Loss). - Uncheck “Show TP/SL Inputs In %.” OK, so this is the basic settings in order to use the simulator. Now let me show you exactly how to use it in conjunction with the PowerX Optimizer. Using TradingView With The PowerX Optimizer The PowerX Optimizer is a tool that I personally use to scan for stocks to trade. When the stocks come up on the list I quickly go through the list and I’ll look for stocks that have no gaps, good upside/downside trend-ability, and I want to see a nice P&L chart. Let’s pretend the PXO pulled up the stock PLUG as a recommended stock, and use it as an example. Now, remember what I said about how a trading strategy should tell you three things. It should tell you what to trade when to enter, and when to exit. This is exactly what PowerX Optimizer does. Now here is how to use TradingView’s paper trading simulator in conjunction with PowerX Optimizer. The PowerX Optimizer will show you how many stocks to trade based on your account size, when we want to enter, and when we want to exit. What you want to do in TradingView to fill in the quantity and where exactly we want to enter. And according to PowerX Optimizer, we want to buy, but we don’t want to buy it at the market price, we want to buy it when it reaches the “Buy To Open” price in the data window on the upper right. Let’s just use the price of $18.89 as a place holder for this example. Let’s also assume it suggests buying 55 shares based on the account size. And then we can also specify our profit target and our stop loss. Now PowerX Optimizer will give you a the profit target in the “Data Window,” lets say for $26.63. We can then also specify a stop loss, and PowerX Optimizer tells us when to get out of this position with a loss. For this let’s use $15.26. So according to the PowerX Optimizer, with our $10,000 account, we would risk $199, almost $200 trying to make $425. So our risk-reward ratio, as you can see here in PowerX Optimizer is 1:2.13, also seen in the “Data Window.” So then all you need to do is click on “Buy Nasdaq” after you’ve entered all this in TradingView. Remember, this is not being executed as your broker. This is a simulator. So you don’t make and you don’t lose any money. This is for testing your trading strategy and gaining confidence. So let’s just say buy and you see the order is sent right now. Once the order is placed you will now have one position and two orders in the market. Those orders are a sell limit order for our profit target, and a sell stop order for our stop loss. So as you can see, it is super easy to use this simulator here in conjunction with PowerX Optimizer. You can now change the orders that you do have in the market here, so you can change them to a different price by clicking the little edit sign you will see on the right hand side. So you see exactly what you have right now, what you bought, you have the working orders, you have the filled orders here and now, if you would change any working orders, for example, if you want to change your stop loss, you just click on the edit here and change it to any value that you want. By the way, the right way to move your stop loss is always closer to your entry price, never away. Never, ever give a trade more room, it usually ends in disaster. Summary So this is how this trading simulator works. First of all, why do you need a simulator? It is just to first test your trading strategy to see if you understand the rules, and to see if the trading strategy works. Finding all this out will gain your confidence, all with no risk. You can set up your TradingView account for paper trading in three easy steps: 1) You connect the paper trading account. 2) You reset it to the account size that you are planning to trade. 3) You modify the order settings. Very simple. Then you just pick any stock that you want. The best thing is, is it’s free. I highly recommend that you do this. You literally have nothing to lose.
TVC:NDQEducation
by rockwelltrading
16
How To Manage A Trade That's In Trouble - My Options Trade On TQI’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. What Do You Do When You Find Yourself In A Trade That's In Trouble? So you have a trading strategy. You have your trading tools ready to go at your fingertips. You trade with a paper trading account to make sure your trading strategy is solid. You’re finally ready to start making real trades. You start trading and everything goes according to plan until a trade comes along when it doesn’t. Now you find yourself in a trade that is in trouble. How do you handle this? Well, the first thing you need to remember to do is to keep your cool. One of the most important aspects of trading is being in the right mindset. This is important because trades will go against you from time to time. It’s just the nature of the business, and you can’t lose your cool when this happens. If you aren’t in the proper mindset when a trade goes against you, then you will not be properly equipped to manage it, and I have some good news… there IS a way to manage a trade that’s in trouble. I was in such a trade recently, and I will show you how I handled it. How I Managed A Trade In Trouble Step-By-Step I was recently in a trade with TQQQ . I opened up my trading software and say I was at -$3,500 open P&L with this trade. 1) The first thing that I did is I sold a put with 150 strike price and I received $66 in premium . 2) However, what happened is with this particular trade was I got assigned. So I had to buy 100 shares of TQQQ for $150 each. At this time TQQQ was trading at $116 which was not good because I bought it at $150. However, as soon as I was assigned these shares, I starting selling calls against these shares. This is how The Wheel Strategy works. You first sell puts and collect premium. If & when you get assigned, you then sell covered calls against these shares at a higher strike price to try and get “called away” to sell the shares at a profit, and you keep doing this while collecting premium until you do get called away. Now understand, you will get assigned trading The Wheel Strategy, but trust me this is a good thing. 3) So I then sold a call with a strike price of 155 for $2.10 . Now with this call, I could have actually been “called away” on this trade and sold the shares at a profit, but I felt that I could just instead hold onto the shares to possibly sell them for a higher profit. So I just kept the premium of $210 ($2.10 multiplied by 100 shares) I collected on this, and then the next day I bought the call back for $0.37 . So $2.10 I collected in premium minus $0.37 that I paid to buy the call back, comes to $1.73 which means I made $173 in premium. These are realized profits. 4) Next, I sold another call, this time with a strike price of 150 for $0.45 and I also bought it back for $0.05 2 days later to keep from being called away to sell them later at a higher profit, but collected more premium. So this means if you take the $0.45 I collected and subtract the $0.05 I paid to buy the call back this comes to $0.40 which means I made another $40. If you add up all the premium collected so far ($66, $173, &$40) I have made a total realized profit of $279 so far over the last 15 days, which is not too shabby. 5) The price of TQQQ started plummeting, so instead of selling another call, I instead, decided to sell two puts with a strike price of 100 for $1.14 . I chose to sell two, based on what my account size allowed if I were to get assigned again. So with each share yielding me $1.14 in premium a share, this comes to $114 each contract, and since I sold two contracts, I collected $228 in premium total ($507 overall). What Happens If You Get Assigned again? Now you might be thinking selling puts was a bad idea. I mean, what happens if TQQQ is below $100 by expiration, and I have to buy 200 more shares of TQQQ ? It would actually be really, really awesome if this would happen. There are actually two scenarios of what could happen and they are both awesome. In the first possible scenario, TQQQ stays above $100 by expiration, which is in one week. In this case, I keep the $228 and my total profit from this trade goes up to $507. Now scenario two, and this is the one that would make some people nervous, is if TQQQ drops below $100 on expiration. In this case, I have to buy another 200 shares for $100. Here is why this would be a good thing, and why buying more puts was a smart move, but I’ll let you be the judge. If scenario number two happens, I would have bought 100 shares for $150 and I would have bought another 200 shares for $100. So this means that right now my cost basis is lowered when you average the cost of the total price I would have paid for all 300 shares. So I did buy 100 shares times 150, plus 200 times 100, and I’m dividing all of this by 300 so that I get my average price per share. This means $116.60 is the average price I paid per share. So this means as soon as TQQQ moves back up to $116 I break even, and if it moves above $166 I’m making money. So $116.66 is my new magic level instead of $150. Now look at this, is it more likely that over the next few weeks TQQQ goes above $116.66 or $150? $116 right? So by doing this, if scenario one happens, okay, great, I just keep racking up premium, and that’s fine. If scenario two happens even better, I’m lowering my cost basis here. If the new average price per share is $116.66 per share, instead of what it actually was which was $150, it is easier to get back into the green. Summary This is how I managed this trade. At first glance, it simply looked like it was in trouble, but in reality, all you need to do is keep collecting premium, and when you can, lower your average price per share. Both of these things will lower your cost basis, making it easier to get back into the green when a trade is going against you. This is the beauty of The Wheel Strategy, even when a trade is going against you the strategy is still going according to plan.
NASDAQ:TQQQEducation
by rockwelltrading
1