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.
How many times did you hear from traders "I make 50% on most trades, so I can live with few 100% losers"? I guess too many. What those traders don't tell you is what impact those 100% losers have on your overall portfolio. This article discusses why position sizing is key to good and sound risk management.
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. He wanted to make it his new career. He asked me if I can recommend any books or internet sites to learn/practice the options strategies. 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.
The newsletters industry is full of crooks. I see too many "gurus" promise to make you money with no effort, charging thousands of dollars in the process. They present some of the highest risk strategies (like trading weekly options) as "low or no risk". They make a bad name to the whole industry. The Kirk Report is one of the few exceptions.
