The OptionAlpha is a highly respected publication managed by highly dedicated and extremely knowledgeable editor, Kirk Du Plessis. I had the privilege to be interviewed by Kirk recently for his highly successful podcast. The Podcast was created and dedicated to options trader, stock market investor or trading wannabe.
Options Trading is a business. As in any business, there are costs. One of the major costs is commissions that we pay to our broker (other costs are slippage, market data etc.) While commissions is a cost of doing business, we have to do everything we can to minimize that cost. This is especially true if you are an active trader.
Our long term followers know that buying premium into earnings is one of our favorite strategies. I wrote about the strategy in my Seeking Alpha article Exploiting Earnings Associated Rising Volatility. IV (Implied Volatility) usually increases sharply a few days before earnings, and the increase should compensate for the negative theta. We have been using this strategy in our SteadyOptions model portfolio with great success.
We discussed in the previous article that the risk graph of the stock market involves unlimited risk. That means despite using super good stop levels, there might be days when the market skips your limit order. Or, your market order could be executed at a price you did not expect. Consequently, a precise risk management cannot be achieved. Those who trade on the Forex market may groan now because this is not strictly true for them.
Option is the contract or deal, that lets a person to sell (put) or buy (call), a certain asset before or on the specific date. There are about 72 options trading strategies. There three most commonly used options strategies: bullish, bearish and neutral or non-directional. The following infographic describes few basic options strategies.
2014 marks our third year as a public service. We had a fantastic year. We closed 150 trades in 2014 which produced 146.6% ROI, based on fixed $1,000 allocation per trade (non-compounded) and 6 trades open. The winning ratio was pretty consistent around 63%. We had only one losing month in 2014. Check out the Performance page to see the full results.
In the present article, I am going to explain how you can make money if you own shares and the market moves sideways. You know my attitude towards simple share buying, so I won’t go into details at this time. The starting point is that you own 100 AAPL shares. For some reason, you bought it and hold it, that’s your business. Meanwhile, you use the well-established, but mostly pretty weak, stock market risk management method: the stop loss.
It is a well known fact that most retails traders/investors lose money in the stock market. The numbers vary from 80% to 95%, but the fact remains. There are many explanations for that phenomenon, such as: poor money management, bad timing, bad government policy, poor regulation or a poor strategy. Personally, I'm not surprised. As an options newsletter editor, I see exactly why vast majority cannot make money consistently. I was there. Experienced it first hand.
In one of my previous articles I described a study done by tastytrade, claiming that buying premium before earnings does not work. The title of the study was "We Put The Nail In The Coffin On "Buying Premium Prior To Earnings".
I demonstrated that their study was highly flawed, for several reasons (strikes selection, stocks selection, timing etc.)
It seems that they did now another study, claiming to get similar results.
An option provides the owner the right to buy or sell an asset at a pre-determined price before or on a certain date. Options are basically of two types - Calls and Puts. A call provides the right to the owner to buy an asset while a put provides the right to the owner to sell an asset. Trading options can be very profitable for the owners. However, it is important to gain a proper knowledge and an understanding of options trading terms.
When markets are volatile, and especially when that volatility is on the downside, it costs more cash to buy your entry into the positive-gamma game using market neutral strategies because the options are more expensive. This should make sense because “everyone” wants to buy options when the possibility of a big market move has increased.