Many of SteadyOptions members are using the CML TradeMachine backtester. The Trade Machine allows to identify patterns that have repeatedly turned a profit over and over again, then see those results with no room for confusion or doubt. This is how traders profit from the option market — it’s preparation, not luck.
Last week Facebook (NASDAQ:FB) had the biggest one day drop of market cap in history for a single stock. It erased $120 billion in market value. Of course, the odds of a such a big move are pretty small, but the result can be devastating. We saw that with Facebook. As options traders, what can we learn from this event?
Last week Apple Inc (NASDAQ:AAPL) stock reached a one Trillion dollar valuation. A remarkable achievement. Of course there is nothing wrong with just buying the stock and holding it "forever". Today I would like to describe a different way to trade Apple using its options. It will also provide some insights into our trading process.
Over the past two months, we have been working on developing a put selling strategy to implement through Steady Options, using Anchor as a partial hedge against market decline. However, back testing has been quite a pain, at least until I was directed to ORATS Wheel software.
What is the real benefit of diversification? Sometimes it's not completely intuitive to investors. Let me provide an example, using historical data of 2 Vanguard mutual funds, VFINX (S&P 500) and VUSTX (Long term treasuries). For fun, we'll compare the end result to Warren Buffett's performance as well, just to further drive the point.
Traders focused in stocks, ETFs, and mutual funds may avoid options for several reasons: Perception of high risk, complexity of the market, dizzying levels of specialized jargon. These concerns are part of the learning curve and can be overcome – if traders look at options trading as science and not just gambling.
A couple of months ago, I wrote and article for Steady Options titled – There’s Volatility To Be Found …. In Turkey. At the time, implied volatility had skyrocketed to 45% amid political turmoil and a falling currency. That level of volatility was a 12-month high, with vol previously being as low as 19%.
It is axiomatic that the largest investment returns typically come from investing in private companies. Peter Thiel initially invested $500,000.00 in Facebook, which was worth over $1b when he cashed out. Eric Lefkofsky turned an investment of $546 (that’s not a typo) into $386m in cashed out payments.
Options expiration dates and strikes are among the most important parameters options traders must consider. Today we have the well-known weekly, monthly, cyclical, and LEAPS options. A lot of choices. But is that as far as we can go? The realm of possibilities could be endless. Consider some of these possible expansions:
“Income” trading has become wildly popular for option traders since the global financial crisis. This style involves selling out-of-the-money options to a hedger and collecting the full premium payment at expiry — assuming the underlying doesn’t trend too hard in one direction.
Is QE money printing or is it something else that appears to be money printing? Search the internet for “QE and money printing”, and you will see countless articles explaining why Quantitative Easing (QE) is or is not money printing. Here are a few articles that we found:
I've written about writing naked puts on multiple occasions, as I find it to be an attractive way to gain long exposure to the underlying asset class. It doesn't have to be a decision of one vs. the other (meaning, is it better to sell puts or own the underlying asset directly?), as there are advantages and disadvantages to both.
