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Posted by Martin September 11, 2016
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Saving deep in the money puts, jade lizards, or strangles


If you follow my posts you remember that I advocate that investors should not be predicting the market or stocks. Such behavior has no place in the stock market. If you base your trading on predictions, forecasts, or magic, you are definitely set for losing your money.

Many times I said here in this blog that you do not need to know what the stock or market will do next, but you need to know what you will do next.

If you are prepared before you enter a trade and know what to do in every outcome and every move Mr. Market throws at you then you really do not need to know what will happen in the market next. You do not need to predict the future. And all available crystal balls were sold out anyway.

This is the number #1 problem investors and traders get into. They know perfectly how to put up a trade but have no clue what to do next, how to manage the trade and how or when to get out. And when the trade goes against them and they lose money, they blame the market, Fed, high frequency trading, market makers, bad weather, or improper constellation of the stars.

Here are a few steps how you can fix deep in the money puts, jade lizards or strangles.

 

 · Step 1 – Opening an initial trade

 

Once I had a trader who asked me a question what do I do when I open a trade and the very next day the stock tanks. How do I predict this and prevent myself from entering the trade right before the stock collapses.

I told him: “You can’t”.

You cannot predict future. There is absolutely no way that you can predict what event sends the stock to abyss or shoots it into the sky. All you can do is get ready for all possible outcomes of the trade, have a plan for each event, and if any of that event happens, execute that plan.

So let’s review step by step what you can do when trading naked puts, jade lizards, or strangles and the trade turns sour the very next day. Remember, the steps described below can be used (in a proper modification) for almost any trade. You can use them with spreads, naked puts, naked calls, or jade lizards. In this post I will show it as if we traded a strangle.

A strangle is when you sell a naked put and a naked call at the same time. It is a high probability credit trade (you get paid for this trade). But sometimes it can turn bad.

 
Strangle defense
 

The picture above shows a typical strangle. Let’s say that a stock XYZ is trading at $100 a share. We decided to sell $90 strike put and $110 strike call (both legs with delta 20). For this trade we collected a premium $4.00 dollars, so our break even prices are $114 on call side and $86 on put side.

Remember, with strangle, you will never lose on both sides. Only one side can get into a danger at a time. If your put gets in danger, you calls will make you money. If your calls get into trouble, your puts will make you money.

Let’s say we weren’t much lucky and some usually unknown analyst you have never heard of before issues a warning that he thinks the company will not do well in the next quarter. Sometimes this is enough to send the stock down.

 
Strangle defense
 

Now, our puts are in danger. What would you do?

 

 · Step 2 – Choose the defense based on time

 

Sometimes it is difficult to choose the proper defense. If you have a plenty of time until expiration you may choose to wait and see if the stock recovers or choose to take action and adjust the trade.

Many times in the past I decided to wait and the stock tanked more making things worse. On other occasions I decided not to wait, make adjustment, but the stock recovered and the adjustment turned against me.

Can you prevent such situation? Again, you cannot. If we knew what the future was going to be, we would be billionaires.

Let’s say we no longer feel comfortable with the trade, take the analyst’s warning seriously and decide to take action and adjust the trade.

 
Strangle defense
 

If the stock tanks and the price goes and touches your naked put side or goes even lower but stays above your break even price, then you roll down your call side.

You buy back your almost worthless calls and sell new calls close to the current price or same delta (in our example it was delta 20). For this, you collect additional premium. That premium will further lower your break even price from the original $86 to $85 dollars.

But what if you do this adjustment and the stock recovers and continues higher? Your naked calls will now be in the money.

Many people and novice traders have a panic fear of naked calls in the money. They immediately see it as a huge danger to their portfolio. Many stay away from naked calls because they have no clue where the risk is.

What would you do then when your calls go in the money and your broker is telling you that now your risk is unlimited and you can lose everything and even what you do not have?

You can:

1) roll the calls up
2) buy stocks and make it a covered call
3) convert the calls into puts
4) or use an inverted strangle (see below)

 

 · Step 3 – How rolling calls saves my ITM puts?

 

It doesn’t make the ITM puts to go away. If you do the above described adjustment you still may end up with an ITM put and OTM call. So you may ask, what’s the point of such adjustment?

First of all, you collected more credit which may help you offset the price of the put should you buy it back at a loss. Or, if you are like me and do not want to take a loss, you may decide to roll the put lower into the next month (or week) get more credit and improve the outcome of the trade.

When you roll your put away and down, you collect a new small credit, make the puts OTM again and you may decide to sell a new OTM call against the new rolled puts making your trade a new strangle, collecting even more credit. The new strangle with lower strikes on a stock which went down has now a lot better chance to be bought back for 50% credit than the original one. Or even expire worthless. You will be out of the originally losing trade as a winner.

But if this doesn’t help and the stock continues giving you a hard time you may choose more defensive steps.

 

 · Step 4 – When all is lost invert the strangle

 

Sometimes you end up rolling the trade, making adjustments but it doesn’t help in the end. Sometimes the stock tanks and smashes through your puts side without a mercy and your puts end up in the money.

Now it is a time for an exciting adjustment – inverted strangle.

 
Strangle defense
 

Let’s assume the stock didn’t stop at $90 a share and the very next day after you adjusted your original trade it smashed down below your break even price. You now know that there is a very little chance that the stock would move back up above your original $90 strike put. For example, you only have two weeks to expiration and the stock would have to move a lot to get back up above $90 strike and such move is highly unlikely.

You have again a few steps you can choose:

1) roll the puts down and away in time (but this will need more margin and more time blocking your buying power)
2) accept assignment and buy the stock (this may lock your money in a stock for a very long time)
3) convert the puts into calls (you would have to go near the money, most likely at the money or in the money to make this adjustment)
4) or use an inverted strangle (this will cost you no time and no margin/buying power)

 
Strangle defense
 

How do you invert a strangle? You buy back a worthless $110 call and sell a new in the money (ITM) call at e.g. $78 strike. For this adjustment you collect another large credit. You now have in the money puts and in the money calls.

 

 · Step 5 – What now?

 

Now I can see many investors freaking out. In the money puts and calls? Are you crazy?

No, I am not crazy. It is not an end of the world and there is plenty of ways how you can further work with those options. Let’s review what outcomes can happen and how to deal with them.

First, your inverted strangle must always stay in the money in order to finish this trade as a winner.

 
1) Two days before expiration

Let’s says the stock stopped its selloff but it is staying down low right in between your in the money strikes. If we let it expire we will see the following to happen:

Our puts and calls will be assigned against each other. At expiration, we will buy 100 shares and sell 100 shares at the same time and realize either a loss or gain from the difference.

In our example, we will see this:

$9,000 ($90 strike put assigned) – $7,800 ($78 strike call assigned) = $1,200 loss

We collected the following credits:

1) initial trade = $400
2) first adjustment = $100
3) inversion of the strangle = $300
Total = $800 credit

Then the result will be $1,200 – $800 = $400 loss

This result will vary based on the trade and situation. I had a trade against LULU for example where I ended with $313 loss, but I had a trade against WYNN where I had only $65 dollars loss.

 
2) Roll inverted strangle

Two days before expiration you roll the entire strangle into the next week or month. You must roll the entire in the money strangle. Doing this you will collect another credit, e.g. $2.50 or $250 dollars. That would lower your $400 loss down to $150. You can choose to take the loss and move on or roll again and end the trade with a small gain of $50 for example. Or roll once more and end with a $300 gain (note the numbers are examples only).

You can also choose rolling to a lower put strike to improve a chance of getting a better outcome.

 
3) What if the stock continues falling?

This may of course happen. You make an adjustment two weeks prior to expiration and two days to expiration the stock slides to $68 a share. Now your puts are deep in the money ($90 strike) and your calls ($78 strike) are now OTM. What to do?

In this case we will let our out of the money calls expire worthless and we will roll our deep in the money putsinto the next period and down. At the same time we will sell new in the money calls, e.g. at $60 strike. For this we will collect premium. If the premium is large enough to offset the spread width loss, then in the next expiration we will let both options offset each other. If the spread is too large, we will have to roll again and try to get the options legs closer together and for credit (when rolling into the next month or week we attempt to roll calls higher and puts lower but still keep them in the money.

 
3) What if the stock recovers and goes up?

This is a similar situation as described above. Now our puts will be OTM and our calls deep ITM. You take the same approach as described above but reversed.

 
3) What if I get assigned?

First of all, remember that 90% of all options expire worthless and are used by traders. Only about 10% is used by investors as a hedge when they are actually interested in buying or selling stocks via options. So your chance of getting early assigned is low. But it can happen. We are in the money after all.

What happens if your puts get assigned?

Buy the stock, start collecting dividends, start selling covered calls, and sell a new in the money puts. This is not a big deal as we like selling puts against dividend stocks, so buying the stock is a part of our strategy anyway.

What happens if your calls get assigned?

This would be unfortunate as we end up with a short stock position while the stock is rising in price (when the stock is declining, no one will exercise your calls early). In this situation we have two options to do:

1) immediately buy the stock back with a minor loss and immediately sell new naked put (or strangle) to offset the loss
2) keep your in the money put to assign at expiration (if it is still in the money and you are close to expiration)

 

 · Conclusion

 

This is pretty much all about defending puts (or calls) using inverted strangles. As I mentioned above, you can use this strategy with any option structure.

If you only have naked puts and they get into trouble, add a naked call to your trade and then work with it as a strangle.

If you have a jade lizard (which usually consists of a call spread and naked put) then use your short options only, treat the entire structure as a strangle, and let your long call expire worthless (or buy it back if it still has some value in it). There are ton of possibilities of what you can do with your trade.

Just keep enough money (buying power) in your account, stay calm, evaluate all your options before taking a step. If you are not sure what to do and expiration is approaching, then just roll your trade as is into the next period (month or week) to gain some time to make a decision. It is not difficult to do.

Good luck!




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Posted by Martin September 09, 2016
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Will Yellen raise rates? We do not know but sell everything, just in case

Will Yellen raise rates? We do not know but sell everything, just in case

Friday trading was a carnage. I consider this quite funny.

Since FED’s chairman changed the policy of transparency some time ago now any Mr. Fed Unimportant can talk about FED policy publicly.

But what they do is not expressing the policy or what FED will do or will not, they rather express their opinions. Any Fed’s Governor, President of the Fed’s bank can now open their mouth and say whatever they want.

Unfortunately, their opinions, speculations, and guesses caused more confusion and frustration among investors and the entire world than transparency.

We now have an even bigger mess and noise of what will, should or may happen as far as the Fed’s policy. And so any Fed’s schmuck now-a-days even a Fed’s janitor can express his opinion about Fed’s policy and spook the markets as happened today morning when one Fed official Eric S. Rosengren, who was historically dovish suddenly changed his mind and expressed his opinion on the low rates and a need on raising them.

jackson_hole_cartoon_08-25-2016_large

Yet, they are not united themselves on what they want to do. One says raise the rates and two others oppose it.

And, as is typical, in the today’s stock market, investors without judging and thinking sold off. They do not know whether the rates would go up or not. There is no sign and there is no economical need for it. It will actually hurt the economy. Yet they sold off.

And they sold everything.

There was no instrument which was saved or spared.

2016-0909-spxtrend

They were rushing into bonds which bear even less interest than what you can get in the stocks. And the more they are buying the bonds and pushing them up the lower interest these bonds will carry. And when FED raises rates, what happens to the bonds?

Indexes fell about 2.5% in average.
Gold erased about 3/4 of a per cent.
Silver lost 2.78%.

There is no way Yellen would raise rates before election in November and disrupt the whole world and the markets.

We know that Yellen wants to keep the market going so the Obama Administration can boast about it.

We know that Democrats want to make Clinton’s chance great pointing to Obama’s policy continuation.

We know that economy isn’t as rosy as they try to tell us. Until today, higher interest rates were always used as a breaker for overheating the economy.

Today, low rates are supposedly overheating the economy. Yellen was dovish, hawkish, dovish, hawkish, dovish… always saying that she was data dependent. If data is what matters, then apparently only data which matter to her are a bogus unemployment rate and stock market at all time high.

Last time when Yellen raised rates into slowing economy, the dollar got stronger (which hurts our already minuscule export) and the stock market plummeted. She wouldn’t risk upsetting the market again before election!

And investors apparently freak about it.

At least we can see an action on Wall Street, finally.

Many are taking gains of the table prior to election. I think if Trump wins, Democrats let the bubble burst so they can point finger on him telling the nation “see we told you so, he can’t manage the economy”. And there will be plenty of people who will believe it.

As of now the market dropped more than 2.40% in an uninterrupted downtrend. There was no single buying attempt to stop this selloff.

2016-0909-spxtrend2

It is significant because the Bollinger Bands were quite tight until today for a period of a month. That always signals a calm before a storm. It only won’t tell you which direction the storm is heading. Today, we know. It is downside.

Now, we need to wait and see if it spills over into the next week (and I think this will) and how big the damage will be.

However, I think that due to a political demand on keeping the economy look rosy this downtrend will not last for long (maybe a few days or next week) and we will see a quick recovery again when bargain hunters and algos step in and buy the dip. Ultimately, this may be good for the markets as it refreshes the standing waters of our Wall Street pond.

Now the goal is to survive it and if it doesn’t reverse be ready to reverse your trading direction from bullish to bearish. I do not think this will be necessary though.
 




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August 2016 trading, investing, and dividends results


August was a bit slow and my investments stalled. Many of my trades turned against me and I had to wait longer for them to end or expire than expected.

However, I expected August to be slow due to consolidating my trading. In July I made an all time high revenue when I pocketed $5,734.00 dollars in premiums. But such trading was a stretch as my account was not yet big enough to achieve such level of collected premiums. I was taking riskier trades, more trades than my money management allowed, and at several times during July I didn’t feel comfortable with my extended trading. The collected premium was nice but I didn’t like the way I did go for it.

In August I didn’t want to trade that way and I wanted to have my trades easy. I wanted to trade and feel comfortable with my trading. I think, I was successful with that plan in August although I had a few trades which made me uncomfortable. I still have too many trades open, in the money, and unable to get rid of them. I need to find a strategy how to prevent this situation and how to end my trades faster without taking a loss. So, in September, I will be working on consolidating my account, lowering the amount of trades open and improve my money and trade management.

In August, I made $2,528.00 in premiums trading options. It is however well below my original expectations as I planned on reaching at least $3,000 premiums this month. For September I am thus adjusting my expectations down and plan on making $3,000 in premiums.

August is a weak month in my dividend portfolio. My dividend income this month was lower than in July. But it was bigger than other weak months such as May and February. The dividend income this month was $59.16 vs. $86.21 last month.
 

Options Income = $2,528.00 (account value = $10,270.17 +304.38%)
Dividend Income = $59.16 (account value = $19,997.26 +32.08%)
 

If you wish to see details about each account, continue reading below.


 


 
You may be interested in:

 
Options Trade – Sold a Put in VOD By ADY with Average Dividend Yield

 
Dividend Update Preview – August 2016 Infographic By PIP with Passive Income Pursuit

 
The Next Big Rush – Getting Properly Educated in Mining Stocks By FI FIGHTER with FI FIGHTER

 
Cash Secured Put – Valero Energy By Will with Investment Hunting

 
Rolled Sept TLT Covered Puts By Alex with My Trader’s Journal

 
OAP 059: Short Strangle Case Study – Adjustment Strategy That Slashed Our Loss By 87% By Kirk Du Plessis with Option Alpha

 


 

Read More




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Posted by Barney Whistance August 31, 2016
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Why an economic revolution is appealing to the US


To a lot of mainstream media, Bernie’s victory is just what it might appear to be: a one off without too much significance. But the ones propagating that message are the ones refusing to recognize a deeper reality of American politics that Bernie is effectively trying to counter. As a few sources say, though, Bernie’s appeal does not lie in upheaving politics but the way the US society works as a whole. Even now a lot of us have trouble understanding the rhetoric that Bernie is employing and it might help if we take a basic look down at a few things.

First of all, there is little doubt surrounding the fact that the US is in one of its worst financial eras and while there are plenty of ways in which the reasons for that can be discussed, it validation is without question. Despite Obama’s efforts, the college fees keep going up and loan figures keep increasing. Employment still is a question mark for many enterprising graduates whilst healthcare is still a contesting point. Bernie’s rhetoric for removing wealth from the “1%” seems idle at times but it’s important to note that it is not without its reasons.

 

 · Tax returns

 

One thing that many Americans misunderstand is the impact of the tax. Economically, it makes sense that your welfare and other government duties are pretty much carried out through effective tax collections. The current debate is whether those tax figures should go up or not. An effective plan would detail how that tax allocation is supposed to help and we will discuss that length a bit further. The problem is being unanimous about increased taxes. Though Americans agree that the government needs to be more active in healthcare and education, they are unwilling to give further taxes to have that.

The argument is not entirely without reason. If the government is supposed to give basic needs such as healthcare and education on taxes then it should do so without charging taxes that are astronomical. Unfortunately what many fail to realize is that tax collection becomes correspondent to the income of the people within the country. Without getting into the complicated economics of it, when the wealth concentrates amongst too few a number of people, the tax collection becomes steeper if it’s uniform. Even with a constant rate for income, it becomes impractical to keep collecting taxes and expecting the same level of return by the government.

 

 · Education and healthcare

 

This is the critical aspect of the US society currently. You know why there is an anti-immigration sentiment in the US because the narrative of “they’re out to steal your jobs” is running rampant. Interesting to note that this narrative would not exist if unemployment was not as high as it has become so you cannot ignore the problem. The issue is that the singular narrative fixates the problem on the wrong root. It is a no brainer that as education becomes more expensive in the US, the employment rate within the locals is steadily declining. Remember how we talk about the need for the middle class to exist otherwise, the country slides down the developing country’s line of growth.  That is the danger that modern America faces.

The effect is easy to see: tuition becomes more expensive so the unemployment rises and debt figures subsequently rise for those who are trying to get themselves a college degree. A new policy that seeks to make education more affordable is obviously a welcome gesture but for it to succeed, the people must also understand the narrative of why higher skilled workforce requires better education.

Similarly, with healthcare, there is this void that needs to be filled due to the polarizing views surrounding Obamacare. Even though figure wise the policy has done well around the country, there is the need to invest further in healthcare around the US.

 

 · In simple terms

 

A lot of factors surrounding the US can be boiled down and linked to its economic conditions. The whole need of redistributing wealth around the middle class has become a rallying cry amongst political activists and yet the pragmatic agree that a policy that includes more Americans in the educational process is vital for the US’s economy to become healthy again. Unfortunately, such efforts will always be in vain unless an active effort on rehabilitating student loans and decreasing the tuition fees is made.




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Posted by Barney Whistance August 23, 2016
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ESOPs Create Wealth and Encourage Job Dedication for Millions of U.S. Employees

ESOPs Create Wealth and Encourage Job Dedication for Millions of U.S. Employees

ESOPs Create Wealth and Encourage Job Dedication for Millions of U.S. Employees

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In the U.S. there are an estimated 10,000+ Employee Stock Ownership Plans, or ESOPs, making business owners out of some 11 million employees. Not only do these companies tend to outperform other comparable companies that aren’t employee-owned, but their workers are able to build up retirement savings at rates far surpassing the national averages.

 

 · Just ask Aaron King

King is a 60-year-old truck driver for Lowell, Arkansas-based Central States Manufacturing Company. In the 23 years he’s been driving for the Central States he’s seen the company steadily weather the recession, grow rapidly, and become solidly profitable for its employees. Additionally, King’s been able to save up about $1.25 million in his company retirement account.

Because of the ESOP model, and desire to maximize profits, King, known as the millionaire truck driver, has observed that much of the common wasteful and dangerous behavior is minimized by employee self-policing. “We hold one another accountable,” he says. “Somebody leaving a bundle of metal where it could be run over – a $3,000 bundle – we go and get the guy and talk to him. It’s going to come out of all our paychecks.”

Another employee at the Central States, 33-year-old production supervisor Marcus Hedrick, has worked with the company since he was 17. He’s already amassed $250,000 and is well on his way to an Aron King-like early retirement. Hedrick says of his friends doing similar work, “most of them don’t have anything for retirement.”

Central States’ open-book management approach does more than just turn workers into owners, “We teach people to be business people – what capitalism is,” says Rick Carpenter, chairman and former majority owner of Central States.

Business models like these and employee-owner stories like King and Hedrick prove that the so-called “retirement crisis” in America is manageable – if companies are willing to profit-share with their employees. However, what it will also take is a collective interest in making businesses benefit everyone long-term – including the employees.

Lakeland, Florida-based Publix Super Markets, a well-known grocery store chain and the largest employee-owned company in the world is far surpassing their competitors by creating a corporate culture of respect and advancement from within. With an annual voluntary turnover rate of only 5% – they are certainly doing something right.

ESOPs are the answer to our country’s retirement woes and can help fight high turnover in industries known for their quickly burnt out employees. The trucking firms are good candidates because employee turnover at some firms is as high as 100% – well above the national average of 16.4 percent across industries.

When employee-owners have a say in important company decisions, like whether to open a new store or close an underperforming branch, or even whether to purchase used trucks or new for their transportation needs, they feel more engaged and connected to the day-to-day workings of the business and more dedicated to their jobs and missions.




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Posted by Martin August 21, 2016
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What is a rationale behind trading Jade Lizards and trade management?


Jade LizardJade lizard is a popular strategy yet not so very known among traders. I myself learned about this strategy just about a month ago although Tasty Trade performed studies on this strategy in 2013. But after I studied the strategy, I immediately fell in love with the strategy for benefits it provided.

If you have never heard about Jade lizard strategy, here is a quick review:

A Jade lizard consists of a short, naked OTM put and an OTM bear call spread. Let’s say, you want to trade this strategy against WYNN, then it would look like this:

 
Jade Lizard trade
 

In the example above I am selling 95 strike naked put and at the same time, selling 98/98.5 bear call spread.

 · When do you put on this trade?

  • This trade works best with high Implied volatility.
  • The stock was beaten down recently

  • It’s OK to trade this strategy during low IV if the premium is high enough to justify the trade.

 · Why to trade Jade Lizards?

There are a few benefits for trading Jade lizards compared to naked put trade only:

  • You collect higher premium
    Collecting higher premium does twofold service to you – it lowers your breakeven price on your put side, more than a naked put, and you get more money if the trade ends as a winner.
    If you take a look at the option chain above, you can see that opening a naked put only I would collect $4.10 premium while with the Jade Lizard I can collect $4.45 premium (+8.54% better result).

 · How to trade Jade Lizards?

When placing Jade Lizard on you must make sure that your collected premium is larger than the entire call spread width. If for example, you trade a lizard, your call spread is $1.00 wide and you collect $0.95 premium only, then such trade is bad and will not work.

If your call spread is 1 dollar wide, it means that you can realize 1 dollar loss on your call side (or $100 total loss). You want to collect at least 1.00 dollar premium or more to cover your upside.

In the example above I can collect 4.45 premium. My call side is only 0.50 wide. The call side is literally risk free. Even if the bear call spread gets in the money, I still will end up profitable.

 

 

 · How to manage Jade Lizards?

When I open a Jade Lizard trade I usually place a closing order right after the trade fill for 50% credit. So ideally, we want the trade to end as soon as possible for 50% of collected premium. It would look like this compared to a naked put only:

WYNN naked put trade opening for 4.10 credit, closing for 2.05 debit, 2.05 credit left
WYNN Jade lizard trade opening for 4.45 credit, closing for 2.225 debit, 2.225 credit left (+8.54% better result)

Let’s take a look at different situations which may occur:

 
 

Stock trades in between short put and short call

 
JL
 

50% credit management: You do not have to do anything as both your puts and calls will be losing value and you will be able to close the trade for 50% credit (+8.54% better result).

At expiration: You do not have to do anything. All your options legs will expire worthless and you will collect full credit profit (+8.54% better result).

Assignment risk: There is no early assignment risk in this situation.

 
 

Stock trades in between short call and long call

 
JL
 

50% credit management: You do not have to do anything. Your puts will be losing value and although your call spread short leg will be in the money, you will be able to close the trade for 50% credit (+8.54% better result).

At expiration: You let your puts expire worthless. Close your bear call spread. You will realize loss on your calls which will equal to the amount of how much the spread is in the money. If the stock ends at $98.30 for example, it is 0.30 in the money and you will see $30 dollars loss. Your overall trade will be $4.15 profit (4.45 – 0.30 = 4.15) or 1.21% better than naked puts only. You want to close the spread manually to avoid assignment fees which are usually high.

Assignment risk: There is no early assignment risk in this situation. No one would ever early assign an at the money option. A risk of assignment at expiration is avoided by closing the spread.

 
 

Stock trades above your call spread

 
JL
 

50% credit management: You do not have to do anything. Your puts will be losing value and although your call spread will be in the money, you will be able to close the trade for 50% credit (+8.54% better result).

At expiration: You let your puts expire worthless. Close your bear call spread. You will realize loss on your calls which will equal to the amount of the spread width. In our example, it is 0.50 or $50 dollars loss (98.5 – 98 = 0.50). Your overall trade will be $3.95 profit (4.45 – 0.50 = 3.95) or -3.66% worse than naked puts only. You want to close the spread manually to avoid assignment fees which are usually high.

Assignment risk: There is no early assignment risk in this situation if the stock is trading fairly close to your spread. If however early assignment happens, then exercise your long call to cover your short stock. Your overall loss will still equal to the width of the spread. A risk of assignment at expiration is avoided by closing the spread.

 
 

Stock trades below your puts

 
JL
 

50% credit management: You still may be able to get out of this trade for a profit by closing it early before gamma kicks in. Generally, however, you won’t be able to do much and the trade will stay open until expiration.

At expiration: You let your call spread expire worthless. Roll your in the money put into the next month and at the same time sell a new call spread against it creating a new jade lizard. Based on where the stock is if at the money but still in the money then roll into the same strike, if deep in the money then roll to a lower strike.

Assignment risk: There is no early assignment risk in this situation if the stock is trading fairly close to your naked put. Again no one would ever exercise at the money put. If the stock sinks too deep and an early assignment happens, then keep the stock and start selling covered calls. A risk of assignment at expiration is avoided by rolling the put away in time.
 

 · Conclusion

If you follow my blog and read regularly you may know that I do not predict the market or stock move. I believe it is a futile work to try predicting the market. Instead of predicting what your stock will do next, make a plan what you will do next.

Above, I tried to show you what everything can happen with a trade once you put it on and my plan what I would do with it. It is all you need to know. You need to know answers to all those situations before you place a trade.

Once you place a trade and know all the steps you would do, you will be trading with ease and in a comfort zone. You will no longer be worried what would happen with the stock. You will no longer be worried if you open a trade and you will be wrong and the stock tanks.

It is because no matter what happens you have a trading plan for that situation and you know what to do to make that trade still a winning trade.

And then it all comes to your money management instead. You do all these trades and trade adjustments without over-trading your account. If you keep enough cash reserve in your account then you do not have to worry about your margin, early assignment, or anything what jumps on you.

If you over-trade, however, you will not be allowed to do anything with your trade, you will see a margin call, and you will be forced closing your positions at a loss. And you do not want that.
 




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Posted by Martin August 21, 2016
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Option Trader Interview


About a month ago I participated on a series of traders interviews on Amber Tree Leaves blog. I read all of them so far and I was pleased to see other investors and traders involved in options trading. I consider options as a great investing vehicle and excellent tool to supercharge your results. But it must be done right. If you do not trade options properly they can hurt you a lot.

Amber Tree Leaves

Speculation is not what you want to be involved, but consistent step by step trading, small at first, larger later, is what you want. If you start speculating, predicting, betting, then you start gambling and lose money.

I have seen people, my friends – traders, spending hours drawing charts, predicting the next move and convincing themselves that the stock or market was overbought or oversold and then “next week it definitely must reverse” and placing their bets against the market/stock. They lost money.

Trading is not about speculating and predicting the market. Trading is about being aware of what’s going on and being able to adjust and manage your trade accordingly.

Since no one can ever predict the future how do you deal with a trade? That is your goal to make a trading plan which answers this question for you.

I advocate on this blog, that you shouldn’t be predicting and trying to know what the stock or market will do next, but what YOU will do next.

This took me a long time to finally understand. But once you get it, your trading becomes easy, smooth, and consistent. This was my “aha” moment. Since then, I trade with an incredible ease knowing that I do not have to be always right to have winning consistent trades.

Continue reading the interview on Amber Tree Leaves >>>




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July 2016 trading, investing, and dividends results


When I finished June with $2,331.00 income I thought “that was it!” It was a great income and I haven’t expected that I could ever exceed it. I hoped, I could beat it by a thousand and finish July 2016 month at around $3,000 dollar income.

But by July 10 my account was making $2 dollars. Yes, I was making just two dollars and I was thinking what would I do when I start trading for a living and make only two dollars? Will two bucks pay my bills? So I was comforting myself saying that it would be OK to make less in July. That’s why I do not withdraw all I make but only 20% until I reach 1$0,000 monthly income when I start withdrawing 50%. So, if I make less in one month I still will be ahead.

But then it all started coming together and I made even more than in June. I made $5,734.00 in July in premiums trading options!

My dividend income this month was also higher than in June. It was actually the highest month I ever had. The dividend income was $86.21 vs. $81.68 last month.
 

Options Income = $5,734.00 (account value = $10,124.81 +293.04%)
Dividend Income = $86.21 (account value = $20,596.08 +36.04%)
 

If you wish to see details about each account, continue reading below.


 


 
You may be interested in:

 
August 2016 Stock Considerations By Keith with DivHut

 
Promising Canadian Aristocrats Companies By Mike with The Div Guy

 
8 Inexpensive Marketing Tools To Transform to a Business Owner By OCT with One Cent at a Time

 
Let your winners ride and your losers wither By Integrator with Get Financially Integrated

 


 

Read More




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Development of Digital Technologies to Transform Trade and Investments

Development of Digital Technologies to Transform Trade and Investments

With the spread of digital technologies and innovation, it is transforming and changing the traditional dynamics of the stock exchange market as well as the flow of goods, services, investments, money and people. Digital trade is now on the verge to become an essential component in the global flow between international markets. As such technologies give a boost to digital trade as it grows at a fast pace and is asserting new forms to facilitate ways to measure through the development of new customized apps and online platforms for the purposes of production, exchange flow and consumption.

Development of Digital Technologies to Transform Trade and Investments

Image Source

 

More and more large and small companies, as well as entrepreneurs, retailers and consumers are largely affected by such fast-paced developments and constitute opportunities as well as challenges. The rapid transformation of the traditional methods to digital platforms enhances businesses, trade and investment and means of communication which could leverage data security, measurement, and growth.

This blog further explains the use of digital technologies and online platforms to give businesses a global reach to enable digital flows of online money transfers, trade flows, and cross-border e-commerce.

 

The Dynamism of Digital Platforms

Though the transformation towards more digital savvy forms of communication is in its earliest stages, more people are becoming more instantaneous to globally engage with one another. For example, more industrial development is being done on the basis on 3D printing for certain manufacturing parts and equipment in the form of physical objects. As the internet expands, the traditional and outdated forms to conduct businesses across border begin to fade away.

 

The Dynamism of Digital Platforms

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There is no doubt that digitization has lowered the prices in marginal production and distribution costs and given accessibility to global commerce. The cost reductions have occurred in trade, not just for large companies but for small entrepreneurial projects as well. Spurring financial innovations have taken place in light of newly developed apps, social media accessibility, and micro-multinationals and micro supply chains are now able to tap into global opportunities.

 

The Ability to Monitor, Forecast and Manage Objects Digitally

Digitalization has greatly influenced and transformed logistics, retailer management, and supply chain networks. Companies can now collect and track information about a transaction, product, place or time. With operating efficiency increasing in contrast with cost spending, many other industries in the stock market like oil and gas companies, automobile, telecommunication, IT sectors etc. are now seeing the payoff in their operations with the help of digitally savvy platforms. With digitally monitoring machines in the office, business owners or supervisors can track the progress of their shipment order, parcels, and containers as digital technologies help companies to get further ahead out of their physical confinements.

 

The Ability to Monitor, Forecast and Manage Objects Digitally

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The External Factors

There are further implications for the future of trade and investment in order to survive in the emerging markets. Soon, governments too would be forced to adapt to new innovations and deal with the upsurge in digitalization of trade and investments. Policymakers would address and be able to forecast sensitive issues beforehand. Trade agreements would be on the basis of the cross-border flow of data and communication. People, retailers, stock market intelligence would use digital and mobile connections to share ideas, communicate and collaborate to make business to business relations and social connections. An entrepreneur would easily make a product and use a patented idea to sell it globally thus digital platforms would enable a whole new array of revenue streamlines. This would also mean the more people would get the opportunity to outsource online platforms and businesses would start up with less up-front investment and scale up much quickly. Thus the development of digital platforms would strengthen global trade and investment opportunities and generate strategic analysis and recommendations for the stock market as well.




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Posted by Martin July 29, 2016
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$WYNN beat estimates yet gave me a headache


Today, I feel bitter about my WYNN trade.

Last week I decided to take a few trades against WYNN and stretch my account a bit because I was confident that I would be out of those trades before earnings. It was a great opportunity trade!

Brokers were listing that WYNN was going to report earnings on August 3rd. Put premiums were juicy and all set to expire this Friday. I would collect nice premium before earnings.

So I opened three trades and sold 3 put contracts per each trade (total 9 contracts):

-3 WYNN Sep2 87 put
-3 WYNN Jul29 96 put
-3 WYNN Jul29 97.5 put

Suddenly the company announced that they would report on July 28 end of the trading day. Ouch! Suddenly I was holding trades thru earnings!

 
Spooked Trader
 

I knew (expected) that WYNN would report great results but I wasn’t sure how would market react. Today, the market is driven by a crowd of morons. Crowd is stupid and primitive. It can get spooked by falling leaves from the tree in autumn and stampede for exit.

And sure enough. WYNN sold off after hours. It fell from 104 a share to 96 a share. I had a problem.

I had to manage those trades, but since I expected them to expire without being jeopardized by earnings I stretched my account and I was running low on cash. My account ran out of buying power at some point and that meant I couldn’t roll the trades. All I could do was close trades. And closing trades meant closing at a loss!

I had to day-trade and use market fluctuations to adjust the trades. I was successful doing it and I could close majority of the trades and roll two contracts into next week.

Although I closed those trades with profits, moved the last two contracts away in time into the next week I still have a “bad taste in my mouth”.

Below is my journal indicating all trades I made this week and today with WYNN to maneuver it out of a problem:

 
WYNN trading journal
Click to enlarge
 

This month, I was able to exceed all my expectation about my trading revenue.

Last month, I made $2,331.00 in collected premiums. I haven’t expected exceeding this number. I hoped for $3,000 revenue at best or at least matching June, mainly when for the first 10 days of July all I made was $2 dollars. Yes, two dollars.

I was thinking that this could be a blow to my plans trading for a living one day. I can’t live off of 2 bucks!

Yet, in July 2016, I made $5,734.00 dollars in collected premiums. This is more that what I make at my 9-5 job working 45 hours a week and having to deal with my boss and unreasonable clients!

But if WYNN ended as planned before they announced earnings reporting in July instead of August 3rd, I would end with premiums way over $6,000 dollars for the month. Maybe this is why I feel horrible.

And that’s wrong. This is emotions. Greed. Emotionally greedy. The best way to lose it all. I think I need to slow down. Yes the revenue for this month is gorgeous, but I stretched my account beyond all my rules. I acted like an idiot. Preach water, drink wine.

Now I will focus more on managing open trades and slow down in opening new trades to only one or two trades per week and considering all rolls as a new trade for that week. I also need someone to slap my hands when I get itchy trying to open a new trade because of an “irresistible one time opportunity right now” feeling. No way grasshopper, there will always be opportunities in Wall Street, no need to rush to all of them.

And the lesson? Even if a trade looks to be the safest trade on the planet, it doesn’t warrant breaking the rules.

Good luck guys and have an excellent weekend!




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