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This article appeared first on enhanced-investing.com (on June 4, 2019)
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May ended up bringing a $312.95 realized gain for the account after commissions ($25,000 account at Tastyworks, with 2:1 margin).

A total of 11 short Puts were closed, all of them at a profit. (+$219.53)
There was a Dividend Payment for the CVS position (+$50)
Two Covered Calls on CVS were closed throughout the month (+$43.42). Therefore the CVS long stock position produced a total income of $93.62. Not bad for one month. $6000 capital invested, that’s more than a 1.5% return on Capital in a month. 3% if we consider we are playing with 2:1 leverage.
Year to date, we have closed 83 Short Put positions. 80 winners, 1 loser, 2 assignments (CVS, WBA). The total realized gain made in the year is now +$2,473.22. This represents a +9.9% growth for the first 5 months of 2019. At that same pace, a +23.7% return would be achieved strictly from selling options by the end of the year. Again, this is only the Options premiums plus dividends and we are not considering here, potential stock capital gains (or losses). All that will be computed at the end of the year.

May was an interesting month, because it was finally a down period. Enhanced Investing tends to outperform when the markets are not rallying strongly (small upside, sideways or downside action), and that was evident this month with the S&P500 losing 6.3% of its value.

Unfortunately I’m still paying the price of Risk concentration, holding CVS and WBA simultaneously. Chances are they will move in tandem. The mistake was to play short Puts in those names at the same time. Still, there are 7 more months this year and anything is possible.

Looking at June, current live positions (not shown here) are in decent shape, except for a short Put in CAH that is in the money and a nother one in LOW that is getting close. Volatility has picked up its pace and now premiums are more attractive. No earnings concerns this upcoming month for the most part.

If you enjoyed this content, consider acquiring the Enhanced Investing Course. Where you will learn to properly value companies and adopt strategies that truly minimize your risks while increasing your probabilities of making money. Read more details.

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Trade Details:

4 July SPX 2670/2660 Credit Put spread @0.65 credit each
1 July SPX 3040/3050 Credit Call spread @0.90 credit

Net Credit: $350
Max Risk: $3,650
37 days to Exp.

Profit/Risk Profile


SPX Chart for future reference:





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This article appeared first on enhanced-investing.com (on May 16, 2019)
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It is always nice to sell options during high volatility environments. Premiums are higher and you can also position your strikes farther out of the money. However, there are many extended periods in the markets characterized by low volatility. Should we keep selling Puts in those scenarios?

The challenge with the markets is that you never know what comes next. Just because volatility is low it doesn’t mean it is about to go back up. I can think of low volatility years like 2013 and 2017, where, if the low volatility had stopped you, you wouldn’t have done anything all year.

At the same time, the fact that volatility is high, doesn’t mean it can’t keep going up.

So, the way I have learned to deal with this situation is to sell Options (regardless of the market environment) but with very important caveats:
  • Play options on a solid/mature business, whose stock we wouldn’t mind owning in case of a Put assignment.
  • Select strike prices at which, if assigned, the stock would be undervalued, or at least fairly valued.
  • Make your time worth it. Even if the two elements above are present, I may obtain “too little” credit, in which case I skip the trade. I aim for a minimum 30% annualized return on margin. For instance, If a Put option 50 days away from expiration has strike price 60 and it is giving me a credit of $40, I look at how much margin the broker requires for me to carry that short Put (this number will vary from broker to broker). Let’s say for the sake of the example the broker requires $550 in margin (or “buying power”). So, we’re making $40 dollars on $550 margin. That’s a 7.3% return on margin (40/550). Then I annualize it. That return would be obtained in 50 days. So, convert it to a daily return and then multiply it by 365 to obtain the annualized return: (40/550) /50 * 365 = In this case it is a +53% annualized return on Margin. This would be a go. Alternatively you can calculate the return on the entire capital that would be used on an assignment. If the strike price is 60, then the max capital invested would be $6000. In this example we are not using the margin required to carry the Put option but the max buying power on a hypothetical assignment. In this case a $40 return on $6000 divided by 50 days, multiplied by 365. This gives me an annualized return of +4.9%. I would not enter the trade if the annualized projected return resulted in a number smaller than 3% when doing the analysis this way.
The markets are always challenging. No matter the year or the environment. It’s unpredictability requires us to be disciplined and follow a consistent approach. Doing the above in low volatility environments has done well for me over the years. Certainly better than if I had chosen to stay inactive.

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This article appeared first on enhanced-investing.com (on May 16, 2019)
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In a previous post I talked about the CBOE BXY index, which simulates a Covered Call strategy on the S&P500 Index, selling Out of the Money Calls at strikes 2% higher than the index price. BXY has been superior to BXM (At the Money Calls) in terms of absolute returns, but it has been more volatile than BXM.

There is another CBOE Covered Call index that sells the 30 Delta Call Option. This is the BXMD Index. In a way it is similar to BXY as Out of the Money Calls are sold, but it is not a hard-coded 2% higher strike price. By using the 30-delta Call, it is automatically adjusted for volatility, some months the strike of the Call option will be farther away than others.

Consulting this paper by the Wilshire Analytics Applied Research Group and published on the CBOE website ,we can see that BXMD easily outperforms the S&P500 index, but perhaps more surprisingly it also beats the PUT Index!


This is again a testament to the power of Cash Secured Puts and Covered Calls. But let’s have a look at the yearly break-down of recent times:
Notice how both BXMD and PUT have a smaller loss than the S&P500 during the global financial crisis of 2008. This negates the somewhat popular(?) non-sense that ‘Options are weapons of mass destruction’.

Other Key Highlights listed on the Wilshire paper:
  • Total Return: Compared to a wide variety of asset classes, option-based indices offered above-average returns over the past 15 years; the BXMD and PUT indices consistently outperformed the U.S. Equity market over 30 years (Exh. 2 and 3).
  • Heat Map: BXMD and PUT typically had above-average returns and were rarely among the lower performing indices representing a variety of asset classes (equities, fixed income and commodities).
  • Volatility:Each of the five option-based indices had lower volatility than any other asset class included in the study other than fixed income, a traditionally low-volatility asset class (Exh. 4).
  • Downside Risk: The maximum drawdown for the option indices over 30 years was 24% lower, on average,than for the S&P 500®Index. Income captured by option-selling strategies enhances returns and cushions downside risk (Exh. 5).
  • Risk-adjusted Return: The BXMD and PUT indices were highest on the mean/variance Efficient Frontier. Compared to the S&P 500®, all three option-writing strategies had superior Sharpe Ratios while both the BXMD and PUT indices had both a higher return andlower volatility (Exh. 6 and 7).
  • Tail Risk: All three option-writing strategies had Sortinoratios equal to or better than the S&P 500®, with more “Up” months (positive returns) and fewer “Down” months (negative returns) than the S&P 500®(Exh. 7).
  • Implied vs. Realized Volatility: Implied Vol, as measured by the CBOE Volatility Index®(VIX®) exceeded Realized Vol in all but one of the past 18 years, rewarding option sellers. Average monthly gross premiums from writing options trended upward during the study period (Exh. 8 and 9).
  • Liquidity:Average Daily Volume (notional) for S&P 500® options has quadrupled over the past 10 years and indicates sustained liquidity regardless of the level of market volatility (Exh. 10).
For more information on the BXMD Index, consult: Cboe S&P 500 30-Delta BuyWrite Index (BXMD)

If you enjoyed this content, consider acquiring the Enhanced Investing Course. Where you will learn to properly value companies and adopt strategies that truly minimize your risks while increasing your probabilities of making money. Read more details.


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This article appeared first on enhanced-investing.com (on May 7, 2019)
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April ended up bringing a $535.96 realized gain for the account after commissions ($25,000 account at Tastyworks, with 2:1 margin). A total of 18 short Puts were closed, all of them at a profit.


Year to date, we have closed 72 Short Put positions. 71 winners vs 1 loser. The total realized gain made in the year is now +$2,160.27. This represents a +8.6% growth for the first 4 months of 2019. At that same pace, a +25.9% return would be achieved strictly from selling Puts.
Of course, the market is up much more than 8.6% Year to Date. It is expected that a short Put strategy will make less money in periods of strong market rallies. 

Going forward, I’ll be able to short fewer Puts because part of the account is now invested in shares of two companies. Two short Puts became In the Money and ended up being assigned. At this moment, the account owns 100 shares of CVS at an assigned price of $60 per share and 100 shares of WBA at $65/share. I’ll now start collecting dividends on these positions and opportunistically sell Out of the Money Calls on them for extra income.

Looking at May, all open short Put positions look healthy. Volatility is very low right now in the US markets with the VIX below 13. That, and the fact that earnings season is winding down means that finding good option premiums will be harder. So, far we have made more than $500 per month on average, but I am lowering my expectation to the $300/$400 range for the month of May due to the reasons mentioned earlier.

If you enjoyed this content, consider acquiring the Enhancing Investing Course. Where you will learn to properly value companies and adopt strategies that truly minimize your risks while increasing your probabilities of making money. Read more details.

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There is sometimes a tendency to think we have barely any free time in our daily lives anymore. That's partially true. However, I have realized there is always some window of dead time to kill that we can take advantage of on a daily basis. For example, while you are driving to/from work; on your way to a store or a friend's house; when we are taking a shower; doing chores in the house; when working out at the gym; while buying groceries (if you are not being accompanied by anyone of course). All this adds up to several hours every week that can be used to increase your knowledge.

Over the years I have become a podcast aficionado with three main areas of interest: Music/Singing, Sports analysis and of course the Financial Markets (trading and investing) which is the focus of this article.

Below is a list of the Podcasts that I listen to on a regular basis. As you know, I am both an active trader and a long-term investor, so I'm going to break down the list into two groups:


For Traders:


Mostly focused on mechanical (rules based) trading. A good fit for those interested in system design, optimization, curve-fitting, etc.











 Interviews real traders and investors. It is always interesting to see how others, professionals included, go about their craft.











Specialized in Options trading. It covers different strategies, trade re-caps and potential plays for the current market.
I was interviewed on chapter 16 by Kirk on January of 2015.












This is one of the oldest ones in existence. Rob's podcast is mostly focused on Forex trading, but he still takes time every now and then to discuss other potential strategies as well as the usage of other vehicles at different inflection points in the markets. Short episodes of usually less than 10 minutes make it easier to digest.









For Investors:

Animal Spirits












Capital Allocators













Stansberry Investor Hour












The Acquirers Podcast












All these are about more traditional forms of investing in stocks, bonds and indexes, with the additional talk about current market conditions; the main talking topics of the week and some anecdotes here and there. I honestly don't have preference of one over any other.

So, those are the ones I listen to. They don't release episodes daily and that's a good thing. Otherwise I wouldn't be able to keep up. Some post once a week, others don't have a regular schedule and release one episode every now and them. This list allows me to almost always have something to listen to without being overwhelmed. As a formal disclosure, I don't pay for any service/goods offered by the authors nor am  I including them in this list due to any form of affiliation.

There is something good that can be picked up from these resources, plus the provided entertainment value they offer. In any case, I find it more productive than mindlessly watching TV or listening to music the entire day. You are always learning something, no matter how long you have been trading/investing, and I find that listening to podcasts has enhanced my education greatly.

If you listen to any podcast not included in this list, feel free to comment!

Cheers,
LT


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In the trading/investing arena, scam artists are a dime a dozen.
As it turns out, it is much easier to get rich quickly by making money off of overpriced and useless services than to try and do it slowly with one's own capital saved and invested over the years.

The scamming business is so attractive and the entry barrier so low, that new charlatans are born daily. Armed with a Twitter account, a few thousand fake purchased followers and a quickly set up website on GoDaddy, anyone can look good. And all that can be done with less than 100 dollars during a weekend.

Initially when I started this site, frustrated by lies every where, I publicly criticized some scammers (read GPS Forex robot team lies and The truth about the GPS Forex robot). I wrote articles mocking them in general (read The Guru). I was also victim of another artist which I denounced in 2010 only to get a Cease and Desist layer from his lawyer a few days later. I was fresh out of Cuba, inexperienced, with no money and honestly shitted on my pants. I ended deleting that article. Knowing what I know today, I would have never removed that piece.

Suddenly I started receiving emails asking me to review other newsletters, Forex robots and Twitter accounts, but I realized it was a never ending story and my time would perhaps be better spent writing more productive stuff.


Even though I don't spend my time exposing Fake Gurus and Charlatans anymore, thankfully there are two good sources that you can always refer to:

One is Guru Leaks on Twitter (https://twitter.com/Guruleaks1)

and another one is tradingschools.org 

In my opinion, they do a great and necessary job.
New traders and investors need to be aware that the world is full of overpriced newsletters, conferences and services of all sorts whose value is questionable at best.

Always question everything.

If you follow other good sources that expose more garbage, please let me know and I will add them to this blog post.

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The Lazy Trader by Henrik - 1M ago
Trade Details:

4 June RUT 1425/1415 Credit Put spread @0.60 credit each
2 June RUT 1680/1690 Credit Call spread @1.10 credit each

4 June IWM 169 Long Calls @0.27 debit each

Net Credit: $352
Max Risk: $3,648

Risk Profile

RUT Chart for future reference:




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This article appeared first on enhanced-investing.com (April 9, 2019)
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When you are short a cash secured Put, because you would like to own the stock at a cheaper price, it often happens that once the stock begins to fall, and continues to do so beyond your strike price, you suddenly feel like “well, I don’t know….now I don’t want to own it so much now. Look at all the negativity around the name!”

It-always-happens. Business we were a short time ago convinced we would like owning at cheaper prices are suddenly disliked by analysts and the crowd of individual investors. Our herd mentally then tricks us into fear.

When stocks fall, especially hard enough to penetrate your out of the money short Put, it is usually because of some “bad news” of the moment. The ideal would be when a stock falls just as a result of general fear in the markets, and the indexes tanking, take down everything along with them even for companies where things are perfectly fine. You can distinguish those occasions and act without so much fear on that particular name. After all, there’s nothing wrong with it. But this is not the most common scenario. The usual scenario is negativity, downgrades, earnings below expectations and other type of “bad news”. It is in these circumstances that we tend to be more fearful and sabotage our Enhanced Investing approach.

Imagine, if you close your short Puts out of fear every time a stock you are playing falls a little and momentarily puts your option position in loss territory? The number of losing trades would be abysmal. Almost all the short Puts I trade are in loss territory at one point. A perfectly well thought out strategy can be sabotaged this way by our instincts, resulting in long-term failure.

This is why, CONVICTION, when using Cash secured Puts is the most crucial aspect in my opinion. I’m talking conviction in the businesses of the stocks that you play. Conviction in their fundamentals and in the fact that the business model is not broken long-term, only facing temporary problems.
So, Rule Number One: only deploy short Puts in companies that you would ABSOLUTELY love to own at a cheaper price. This will give you the required staying power when things go wrong, and this will provide you indirectly, with the necessary patience to let the probabilities and the positions play out over time.

In Enhanced Investing Premium, we have a permanent list of businesses already pre-selected which are re-analyzed every weekend. No need to analyze 3,000 securities. Just a list of less than 100 is good enough for our purposes, knowing that we are dealing with businesses that have stood the test of time and that for the most part show consistent growing revenues year after year.

If you enjoyed this content, consider acquiring the Enhancing Investing Premium. Where you will learn to properly value companies and adopt strategies that truly minimize your risks while increasing your probabilities of making money. Read more details.


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Trade Details:

4 June SPX 2670/2660 Credit Put spread @0.60 credit each
1 June SPX 3050/3060 Credit Call spread @1.00 credit

Net Credit: $340
Max Risk: $3,660

Profit/Risk Profile


SPX Chart for future reference:



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