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Recent selling on Wall Street has seen volatility spike and VIX is currently sitting above 20 which means option premiums are elevated.

Iron Condors can work well in this environment although risks can be high in the short-term.

The below SPX Condor will generate $1,360 in premium with maximum risk of $6,140 representing a return potential of 22.15% in 2 months.

There is a lot of skew at the moment, notice that the puts are trading with implied volatility around 24%, but the calls are only 12%. This means traders are willing to pay a lot more for puts. Makes sense if you think about it, because the market is looking shaky and traders are rushing to buy downside protection.

In cases like this, I like to trade and unbalanced Iron Condor by selling more puts than calls. This helps to keep the position more delta neutral. Notice that this position has -2 Delta. If we increase the calls to 3 contracts, the delta would jump to -5.

The short put delta is at -0.15 and the short call delta is and 0.11. Adjustment points will be if the put delta hits -0.25 or the call delta hits 0.25.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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Options trading IQ by Gavin - 1w ago

Quick update on the 5 trades so far. Comments welcome.

Trade 1: V Bull Put Spread – As mentioned in the original post about this trade, by going longer-term, this trade was less affected by the drop than a shorter-term trade would be. Part of the trade plan was setting a stop loss if the stock broke back below the 20 day moving average which happened mid last week, which would have seen the trade closed for a $19 loss. Even with the selling, the trade would currently only be down $34 which is SIGNIFICANTLY less than a monthly trade would be.

Trade 2: INTC Cash Secured Put – The worst performing of the 5 trades and is down $264. Was a bit unlucky with the timing on this one as it dropped about 5% the day after opening and chip stocks have been badly impacted by the trade war. The initial stop loss was set at $46 and the stock closed today at $44.76 so we have some decisions to make. I tend to think the move has been a bit overdone and I believe in the company long-term. If we take assignment, we can turn it into a Wheel trade.

Trade 3: RUT Directional Butterfly (Bearish) – This trade is doing well as RUT drops down near the center of the butterfly. Currently at +$75 and should continue to do well if the market stays here or drops lower.

Trade 4: SPY Short-Term Bear Call Spread – Got this one spot on and profits have accrued quickly. Basically sitting with a full profit of $210 so this could be closed early, or even held a few more days to let it expire worthless.

Trade 5: MMM Put Diagonal – Only been open one day and P&L is flat so far. I feel like MMM is deeply oversold and due for a bounce here, so it may not trade down into our profit zone, but we have zero risk on the upside, so you never know, we might get lucky.

Have a great week everyone and trade safe!
Gav.

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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Sometimes when a stock has had a really bad run, it can trade sideways or continue going lower. In cases like that, I us a Put Diagonal.

A Put Diagonal creates a profit zone below the market and has very little and sometimes zero risk on the upside. That way, if the oversold stock snaps back to the upside, there is no damage.

The majority of the risk is on the downside and while a small drop is ok, a big drop would be harmful to the trade.

MMM is currently the most oversold stock in the Dow, so looks like a good candidate for this type of trade.

Selling the June 21st 160 put and buying the July 19th 155 put will cost $0.12. The most the trade will lose on the upside is $12 per contract.

The maximum potential gain is $238 and the maximum loss is $512.

The trade should show a profit if MMM finished between about $156 and $176 at expiry.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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Yesterday I posted in the Facebook group this 1-hour chart of SPY showing the 200-hour moving average providing support and then resistance once it broke through.

Short-term this is bearish.

It’s not my style, because I prefer longer-term trades, but someone could sell a short-term Bear Call Spread and use the 200-hour line as a stop loss.

For example, at the end of the day yesterday, traders could sell a 294-296 May 17th Bear Call Spread for $0.52.

The 294 calls had a delta of 21 which is not a bad spot to sell.

The maximum risk on the trade would be $148 which gives the trade a 35.14% return potential.

This is a much higher risk trade than the previous example, because if that market rebounds sharply, losses would mount pretty quickly, so this trade would need a lot of attention. That can be hard for people working full-time.

Futures are down overnight with the S&P 500 currently down 0.70% so when the market opens this spread will already be trading for a lot less so probably too late to enter, but it will be interesting to follow this one and see how it performs.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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I use directional butterflies all the time as a way to gain short-term exposure to a directional opinion or to hedge a portfolio.

I’ve used them on the upside when stocks are grinding higher and also on the downside as a cheaper way of buying put protection.

Today, we’ll look at a RUT directional butterfly on the downside given that markets are looking a little shaky right now.

A June Butterfly on RUT with strikes at 1475 – 1500 – 1525 can be bought for $100 with a maximum potential gain of $2,400.

You would have to get very lucky to get the full gain and its unlikely RUT will close right at 1500, although I have had this happen before on a trade like this.

The more likely scenario is that we lose the entire $100.

A trade like this might be used when markets are looking vulnerable and we have some long deltas elsewhere that would get hurt by a 4-6% down move in RUT.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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Today’s trade idea is on INTC which is a bellweather Dow stock that has been beaten down lately. The stock is trading at $50.48 and is holding above the 200-day moving average which currently sits at $48.72.

INTC is currently the 6th most oversold stock in the Dow behind MMM, DWDP, XOM, WBA and BA and it is also a high dividend payer which makes it a great addition to any long-term portfolio.

The current yield is around 2.47%.

Selling a Jun 21st Cash Secured Put at $48 would bring in around $1.02 in premium per contract.

The breakeven on the trade would be 6.93% lower than the current price at $46.98.

If the put expires worthless, the return over 44 days would be 2.13% which equates to 17.63% per annum.

If INTC drops below $48 and the put gets assigned, I would hold the stock, collect the dividends and sells calls at around $50.

In terms of a stop loss, if INTC dropped below $46, I would rethink the position. The maximum potential loss is $4,698.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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I recently launched a Facebook Group – Elite Option Traders Community as a way of bringing people together and sharing trade ideas etc.

It’s a completely free group and I’ll be sharing lots of tips and other ideas as well.

I know not everyone is on Facebook and some people outright despise it and that’s fine. I’ have a love-hate relationship with the company myself. But, if you’re on Facebook and you want to join a group of traders who are dedicated to improving and growing, then I hope to see you there!

Today, we started with the first trade idea – a Bull Put Spread on Visa.

V has been one of the strongest stocks in the market for the last few years. On the latest leg of the rally, the 20-day moving average has provided strong support. After briefly opening below that line today, V quickly recovered and had a strong close.

A December 20th, Bull Put Spread at 150-145 can be sold for $1.10 with maximum risk being $3.90. This results in a return of 28.21% if V finishes above 150 at expiry with a breakeven point at $148.90.

For a trade like this I would either hold to expiry if V continues to rally or close out early if I can achieve a 20% return on capital at risk within the first 6-8 weeks.

In terms of stop loss, the 20-day moving average provides a nice line in the sand, any close below that would make me rethink the position. Otherwise a stop loss of 10% of capital at risk is also a good idea.

I’ll try and post all 10 trades here on the blog as well, but if you don’t want to miss any make sure you join the group:

https://www.facebook.com/groups/820574011637760/

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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CML Viz is a tool that I regularly use to generate option trade ideas and MSFT is one of my favorite stocks to trade using this tool.

CML Viz is the best options backtesting tool on the market in my opinion and last year it received a Fintech award from Benzinga.

The beauty of the software is that you can backtest specific strategies and also include parameters like stop loss and trading around earnings.

One such earnings trade that has worked really well in the past in buying calls on MSFT in the lead up to earnings and then selling them 1 day before the announcement.

The setup goes like this:

  • Buy 40 delta calls 14 days before earnings
  • Close 1 day before earnings
  • Only open if the stock is above the 50-day moving average
  • 40% profit target
  • 40% stop loss

Here are the results over the last 3 years:

Remember that options tend to hold their value in the run up to earnings due to the higher implied volatility surrounding the uncertain outcome.

MSFT also seems to have a habit of rising into earnings as traders expect positive results.

By closing the calls before the announcement, we are not exposed to any earnings risk.

This trade worked to perfection again this time, you can tell just by looking at the chart!

Earlier in the year the founder of CML Viz did a demo for my readers, you can watch the replay below:

Trade Machine Webinar for Options Trading IQ Members - YouTube

If you want to take advantage of the special offer mentioned at the end of the webinar, you can do so here.

Trade safe!
Gav.

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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A poor man’s covered call is like a regular covered call but requires only a fraction of the capital. It’s like taking a leveraged position, so the returns in percentage terms will be amplified both on the upside and downside.

CVS is a stock that has beaten down recently, but the $52 level seems to be holding as a floor for now. There is also some positive divergence starting to emerge on the chart.

CVS POOR MAN’S COVERED CALL

Let’s take a look at how a poor man’s covered call might look on this stock

Trade Date: Apr 23rd, 2019

CVS Price: $52.93

Trade Details:

Buy 1 January 15th, 2021 $40 Call @ $15.48
Sell 1 June 21st, 2019 $55 Call @ $1.76

Total Paid: $1,372

Free Covered Call Course

Below, you can see the trade has the potential to make about $200 which would represent a 14.57% return on capital at risk. There is also a 2.5% margin for error on the downside.

Poor man’s covered calls are one of my favorite trading strategies. Traders can achieve excellent returns, but they need to be aware that percentage losses on the downside are magnified as well.

If you want to check out a detailed example of a poor man’s covered call that played out over the course of a year, you can do so here.

Trade safe!
Gav.

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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One of the all-time record market bubbles saw the Bitcoin price hit the dizzying height of $19,783 in December 2017. The following year saw an almighty crash with the price bottoming at around $3,179, a massive drop of 83.90%

Following that, Bitcoin dropped off the radar of most investors, but it is back making headlines again after an impressive recovery in the last couple of months.

Bitcoin is currently trading a $5,218 which is a healthy 64% higher than the 52-week low.

Things are looking up in crypto land, but will it last?

While there aren’t any bitcoin ETF’s, there are a couple of blockchain ETF’s at investors disposals.

Blockchain ETF’s are a nice way to gain exposure to Bitcoin for those that don’t want to actually buy Bitcoin’s.

BLCN, BLOK and LEGR are the 3 main ETF’s related to blockchain.

Below, you can see that BLOK has had a nice rally since the December low and has just crossed above the 200 day moving average.

Unfortunately, while there are options available on these blockchain ETF’s, the liquidity is virtually non-existent.

Another way to play the bitcoin rally is via the semiconductors. Mining of cryptocurrencies requires the usage of semiconductors. SMH is the most popular semiconductor ETF and it has also been performing well lately.

Options on SMH are much more liquid, so that would be a better underlying if you wanted to go with an option play.

Either way, it seems like the remainder of the year should be interesting in crypto land.

Let me know what you think in the comments below. Have you ever traded bitcoin or any of the blockchain ETF’s?

Trade safe!
Gav.

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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