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Trading Options – The Binar...
Tradervic - May 01 2013 10:38 AM
Trading Earnings: A Tale Of...
SteadyOptions - May 01 2013 10:00 AM
Trading Earnings: A Tale Of...
Tradervic - May 01 2013 09:20 AM
November delivered 16.7% RO...
Flashy - Apr 17 2013 04:37 PM
Trading Options – The Binar...
PaulCao - Mar 29 2013 01:48 PM
Performance Reporting: The...
Marco - Jan 20 2013 06:10 PM
A while ago I got an email from one of my Seeking Alpha readers. He told me that he is a big fan of my articles and asked how he can learn more. Then he said that he is new to trading options, he set aside a small amount of money in hopes of doubling it at least yearly.
Did you get it? The guy admits to be new to options, but expects to double his account at least yearly? I told him that for someone who just starts options trading, preserving your capital during your first year of trading would be a great achievement.
April was an excellent month for SteadyOptions. We closed 16 trades in April, 13 winners and 3 losers. Total gain in April was $2,032 based on $1,000 allocation per trade. Assuming maximum of 6 trades open (the average number is lower), that's 33.9% non-compounded gain. Most Fund Managers don't make those returns in a full year.
Despite a healthy beat and dividend hike, shares of Apple (AAPL) are slightly down in after hours trading. They have lost now almost half of their value in the last 6 months.
During 2012, I warned several times that Apple has gone up too far too fast. When the stock was going up almost every day for no visible reason, I asked a simple question: what do we know today that we didn't know a month ago?
I won't go into models, forecasts, P/E ratios, DCF analysis etc. I'm sure there will be enough gurus doing just that. Most of this mumbo jumbo stuff is useless anyway - the markets will do what they have to do and will usually laugh at your analysis. Instead, I would like to offer some analysis how you could see the warning signs and what are the lessons from the American darling's crash.
When a fellow Seeking Alpha contributor Kevin O'Brian promised back in September to write an article "on Kim Klaiman's/Steady Options trading approach and why it doesn't work as advertised.", I was pretty excited. I have over 10 years of experience in the stock market. However, unlike Kevin who claims to "know basically all there is to know about options", I'm still learning. I will be learning as long as I breathe. So despite my 152% ROI in 2012, I really wanted to know why my approach doesn't work. Maybe it was all just a fluke?
I just finished reading Option Strategies for Earnings Announcements book by Ping Zhou and John Shon. It introduces several ways to exploit option trading opportunities around earnings news.
Chapter 8 is especially relevant to what we are doing at SteadyOptions. It examines a strategy of "buying volatility" in the days or weeks prior to the earning announcements by longing straddles/strangles and closing the positions a day before the announcements when implied volatility is at its highest level.
It never stops to amaze me. I'm talking about the creativity of some options "guru" when it comes to presenting their track record. "Maximum profit potential", "Cumulative return", "90% winning ratio", "Annualized return" are just few of the tricks used in the industry to entice you into joining their website.
Happy New Year everyone! Wishing you and your families a lot of health and happiness in 2013.
It's hard to believe that it has been a full year since SteadyOptions (SO) started as a public service. Overall, we had an excellent year. We did 271 trades which produced a $9,149 gain, based on fixed $1,000 allocation per trade (non-compounded). Assuming maximum of 6 trades open (the average number is much lower), that translates to 152.5% ROI. We had only two losing months and the maximum drawdown was around 10%. Check out the Performance page to see the full results. Please note that those results are based on real fills, not hypothetical performance.
I'm glad to present a guest contributor article from Marcus Holland, the editor of FinancialTrading.com – a new but fast growing education resource on all aspects of financial trading
To understand how the expiration date of an option influences the price, one first needs to understand how the price of an option is calculated in the first place. While the standard formula to calculate options prices, the Black-Scholes model, is very complex and requires advanced knowledge of statistics, for most traders it is sufficient to understand the basics involved.
November was a good month for SteadyOptions. We closed 35 options trades in November, 20 winners and 15 losers. Total gain in November was $1,000 based on $1,000 allocation per trade. Assuming maximum of 6 trades open (the average number is much lower), that’s 16.7% non-compounded gain.
There is a lot of confusion and misconception about debit and credit spreads. One of the most common misconceptions:
"One of the many drawbacks of a credit spread is that it will tie up so much capital."
“Selling credit spreads is like picking up pennies in front of a steam roller.”
Options trading is becoming more and more popular every year. The options become more liquid and more traders use them for hedging, speculation, income etc.
Weekly options, first introduced by CBOE in October 2005, are one-week options as opposed to traditional options that have a life of months or years before expiration. Not every stock or index has weekly options. For those that do, it basically means that every Friday is an expiration Friday. That opens tremendous new opportunities but also introduces new risks which can be much higher than "traditional" monthly options.
Google (GOOG) reported earnings on Thursday, July 19, 2012, after the market close. My favorite way to play Google earnings is by placing a reverse iron condor few days before earnings and selling it before the announcement when IV (Implied Volatility) spikes. This cycle the strategy played out especially well for Google.
As we all know, risk and reward are directly related in trading. You must take more risk to get a larger return on the trade. There is a third parameter, which is related to a potential return: probability of success. A higher probability of success translates to lower potential return and vice versa.
There are many ways to play earnings. Some people prefer to play them directionally, buying calls or puts. I think that earnings are unpredictable; hence I prefer to play them non-directionally.
I decided to check how some of the popular high flying stocks performed this earnings cycle.
As a non-directional trader, I'm trying not to be dependent on the market direction. My goal is to make money in any market. To achieve that goal, I need to constantly balance my portfolio in terms of direction and volatility.
When playing the pre-earnings trades, it is very important not to overpay in order to increase our odds. Determining what is a good price is not easy. Lets try to see what are the factors impacting our decision.
Apple (AAPL) closed April 16 at $580.13, down 10% from its all-time high of $644. It is now down for five consecutive days, something that hasn't happened since last October. What is behind the selloff and what does it mean for the stock?
In one of my previous articles, I argued that Apple might have become a speculative stock. Today I must ask the same question I asked a week ago: What do we know today that we didn't know a week ago? What caused the stock to lose $65 billion in market cap in just one week? The obvious answer is: speculation.
Apple (AAPL) reports earnings on Tuesday, April 24, 2012, after the market close. There are many ways to play earnings. Some people would bet on the direction of the stock movement after the announcement and then buy or short the stock. Others will buy call or put options.
My opinion is that predicting the market reaction to earnings is an extremely difficult task. In the case of Apple, the options expiration is just few days after the announcement, so if you are wrong, you are likely to experience a very big loss.
Last week, I presented 5 ways to play Google's (GOOG) earnings non-directionally. The stock moved 4.06% after the announcement, much less than expected. I would like to do some analysis how those trades turned out and what we can learn from them.
Apple (AAPL) will report earnings on Tuesday, April 24, 2012, after the market close. Will it be another blowout quarter? Many people are sure it will.
Looking at the last couple years, the stock has a tendency to run up at least 3-5% during the last couple of weeks before earnings. Simply buying OTM (Out Of The Money) calls two weeks before earnings and selling them before the announcement would work well most of the time.
About six months ago, I came across an excellent book by Jeff Augen, “The Volatility Edge in Options Trading”. One of the strategies described in the book is called “Exploiting Earnings - Associated Rising Volatility”. Here is how it works:
- Find a stock with a history of big post-earnings moves.
- Buy a strangle for this stock about 7-14 days before earnings.
- Sell just before the earnings are announced.
Options can be risky, even very risky, but they don't have to be. Today I'm starting a series of articles about options trading. I will show you how options can be less risky or more risky, depending on your risk tolerance. I will show you that there is more than one way to make money with options. I will expose some of the myths and misconceptions about options trading.
Let me begin by saying this: I think that Apple (AAPL) is one of the greatest companies in history. I love the company and own some of its products. But I wouldn't trade it right now.
In this article, I will try to describe the price action on Apple from an options trader perspective.
I'm asked many times how I choose between Straddle, strangle or RIC for my pre-earnings plays.
It's always a balance between risk/reward. As we know, those trades are supposed to be sold before earnings. They benefit from IV jump and/or price movement. The biggest (and basically the only) enemy is the negative theta.
In one of my previous articles, I described the craziness around Apple (AAPL) options as reflected by the options premiums. At some point, the IV (Implied Volatility) jumped to 41%.
I presented the following butterfly trade as one possible way to take advantage of this inflated IV:
In my article Why I Wouldn't Trade Apple Right Now, I argued that Apple (AAPL) has gone up too far too fast with no visible reason or significant news.
The article provoked a very healthy and long discussion. Unlike many other public forums and discussion boards, the discussion was very civilized and intelligent. This is the power and the beauty of the Seeking Alpha community.
Last week, I came across an SFO Weekly Column by Jeff Augen, a well known private investor, educator and author of several investment books.
Google (GOOG) reports earnings on Thursday, April 12, 2012, after the market close.
There are many ways to play earnings. Some people would bet on the direction of the stock movement after the announcement and buy or short the stock. Others will buy call or put options. My opinion is that predicting the market reaction to earnings is an extremely difficult task. In case of Google, the options expiration is the next day after the announcement, so if you are wrong, you are likely to experience a 100% loss.
The rest of this article is devoted to non-directional strategies to play the event. All trades refer to weekly options expiring on April 14, 2012. The stock is trading around $641.30.
There is no doubt that Apple (AAPL) had a remarkable run in the last three months. It reached another all time high Thursday at $633.
Some people would argue that it's gone up too far too fast. Others say this is only the beginning, based on the fact that the stock is still cheap. Maybe you fall somewhere in between. You think that the company is going to have another blowout quarter and the stock will easily go up another 10% after earnings. But you are also cautions and realize that any mistake or earnings miss might cause a selloff.