U.S. Market has seen a bullish run since 2009 after its tragic collapse in 2007-2008. It has been more than 5 years of partying on Wall Street and now it looks like the market needs correction and “introspection”. There are various economic indicators that rationalize our belief that the market is now headed for a correction.
The other day I was having a conversation with an options blogger and he asked me how I traded. When I told him that my primary trade is the Butterfly option spread, he was surprised and said I was one of the first people he met who regularly traded Butterflies. In a world where Iron Condors get all the love, it wasn't the first time I had that conversation.
August is finally behind us. It was a worst month in 3 years, with most major indexes down 6-8%. The Dow Jones Industrial Average ended August with the steepest monthly loss in more than five years. At some point the markets entered the correction territory, after declining more than 10%. What's ahead of us? Are the markets going to retest the August lows? Or we are going to see a rebound? Will it be another V-shaped recovery?
Experienced traders know that nothing teaches you more than losing trades. We all would like all our trades to be winners, but we know this is not possible. We know some of the trades will be losers (at least I know that, I hope you don't expect all your trades to be winners). And the bigger the loss, the more you learn. Today I would like to dissect our biggest loser in the last 2 years.
Our regular readers already know that pre-earnings straddle is one of our favorite strategies. The idea is to buy a straddle few days before earnings and take advantage of increasing IV (Implied Volatility) before earnings. IV usually increases sharply a few days before earnings, and the increase should compensate for the negative theta.
Tesla reported earnings this week, and the stock took a hit due to weak guidance. The bears will tell you that this is the beginning of the end. The bulls will see it as a buying opportunity. No matter how you see it, there is no doubt that this is a very risky stock, both for the bulls and the bears. As a non-directional traders, we don't really care. I would like to present a less risky way to trade TSLA, with a good chance to make money no matter what the stock does.
Options trading represents a world of investment opportunities to traders and investors. In basic terms, an option is a contract/deal which lets a person to buy or sell an underlying asset before or on the specific date and at a specific price. A trader can trade options by two ways; either by buying a certain asset at a specific price within a specific time period called Call Option or by selling an asset at certain price and within specific time called Put Option.
Since I started an options trading newsletter over 3 years ago, I met a lot of interesting people. I also learned a lot about human psychology. Maybe the best way to get this across is to imagine -- hypothetically and absurdly -- if other industries got away with stuff Wall Street does. I would like you to take a look at this article. It provides some good perspective about Wall Street and human emotions.
Today we closed our VIX calendar trade for $0.80 credit, after opening it just two weeks ago for $0.25 debit. What percentage gain did we make? This is not a tricky question. Well, maybe a little bit. Any high school student would tell you that 0.80/0.25=220% gain. Correct?
While most major indexes continue to straggle, SteadyOptions continues to deliver strong gains. SteadyOptions flagship service produced 121.5% ROI in First Half 2015, based on fixed $1,000 allocation per trade (non-compounded) and 6 trades open. This translated to 72.9% return on the whole account, based on 10% allocation per trade. The winning ratio was a remarkable 82%. Check out the Performance page to see the full results.
In simple terms, implied volatility is the amount of stock price fluctuations. Understanding implied volatility changes can enhance the chances of success. In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets.
Trading options without understanding Options Greeks is like flying a plane without the ability to read instruments. Unfortunately, many traders do not know how to read the Greeks. This puts them at risk of a fatal error, much like a pilot would experience flying in bad weather without the benefit of a panel of instruments at his or her disposal.
