basic option strategies for income
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Basic Option Strategies for Income. Enhancing Profits for Building Wealth Walnut Creek – December 16, 2009. Topics Covered so far. This is the fourth and final discussion in this series of discussions on basic option strategies Session 1: Option Basics - PowerPoint PPT PresentationTRANSCRIPT
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Basic Option Strategies for Income
Enhancing Profits for Building Wealth
Walnut Creek – December 16, 2009
1
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Topics Covered so far
This is the fourth and final discussion in this series of discussions on basic option strategies
Session 1: Option Basics• What options are and how they work (calls and puts)
• The option Greeks and what they mean
• Time Decay and its implications
• Basic Long strategies – Their potential rewards and risks
• The advantages of being a seller of options
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Topics Covered so far
Session Two: Basic Selling Strategies• Naked Put Selling – Get paid to buy stock at a
discount
• Covered Calls – Better than Dividends
Session Three: Vertical Credit Spreads• Bull Put Spreads
• Bear Call Spreads
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Tonight’s Topic
Adjustment Strategies for Vertical Spreads gone bad
The goal of the game is to make money Select high probability trades that can
make money even if the trade doesn’t do what you think it will – Make money whether the underlying goes up, down or sidways
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Credit Spreads – Basic things to remember Keep time on our side Don’t panic if the trade doesn’t behave like you
want it to from the beginning Select volatile stocks
• Higher premiums – more potential for profit• Easier to repair.
Plan exit / repair strategies before entering the trade
Don’t be greedy – Get out when profit target has been met
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Critical Point about the Market
I have a crystal ball so I know with certainty what the market will do tomorrow!!!!
It will go up It will go down or It will go sideways
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Critical Point about the Market
The truth is, no one knows with certainty what the market will do tomorrow
We use Technical Analysis to make a prediction about what the market or a stock is likely to do
It’s a little like forcasting weather - far from perfect
It gives you an edge, but there will be times when you’ll be wrong – We need to plan for those times!
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FSLR Trade Management
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FSLR Trade Management
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FSLR Trade Management
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FSLR Trade Management
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FSLR Trade Management
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FSLR Trade Management
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FSLR Trade Management
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FSLR Trade Management
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FSLR Trade History
Exec Time Spread Side Qty Exp Strike Type PriceNet
PriceNet
CR/DB10/21/2009 12:57 VERTICAL SELL -1 9-Nov 145 PUT 6.18 1.55 1.55 CR
BUY 1 9-Nov 140 PUT 4.63 CREDIT11/12/2009 7:11 VERT ROLL SELL -1 9-Dec 130 PUT 17.46 -1.55 0.00 ---
BUY 1 9-Dec 125 PUT 13.92 DEBITBUY 1 9-Nov 145 PUT 29.19SELL -1 9-Nov 140 PUT 24.10
11/24/2009 7:04 VERTICAL SELL -1 9-Dec 125 CALL 3.96 1.40 1.40 CRBUY 1 9-Dec 130 CALL 2.56 CREDIT
12/2/2009 6:36 SINGLE BUY 1 9-Dec 125 CALL 4.70 4.70 3.30 DB12/4/2009 6:32 SINGLE SELL -1 9-Dec 130 CALL 7.20 7.20 3.90 CR12/10/2009 7:30 VERTICAL SELL -1 9-Dec 140 CALL 2.46 1.18 5.08 CR
BUY 1 9-Dec 145 CALL 1.28 CREDIT12/14/2009 7:00 VERTICAL BUY 1 9-Dec 140 CALL 2.87 1.44 3.64 CR
SELL -1 9-Dec 145 CALL 1.43 DEBIT
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General Rules
Identify Levels of support and resistance Look for a strong level of support (or
resistance) above or below the short strike Check for next level of support or resistance
(want the underlying to have a long way to move if it breaks with conviction (a break with much larger volume than normal)
Don’t adjust a trade until the trend is broken – Wait for Confirmation
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Example of support break
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Actions you can take
Buy back the short strike and let the long run Help offset the cost of buying back the short
strike by selling vertical spreads (can be OTM or ITM) as the situation dictates
Buy a put or call option (will gain value to offset the decrease in value of the short vertical spread
Roll spread out and up or down Use your imagination – But Don’t Panic!!!!
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Actions you can take
Practice with paper money until you master the art
Don’t expect to be perfect – You don’t have to be to make money
Get a trading buddy - It helps to discuss ideas with someone else
Be persistent – Don’t give up – You can do this!!!!
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Notable Quotes
“You know you’re a trader when you’re wrong and still make money”
Tom Sosnoff – Founder, Thinkorswim
“It is not necessary to try to get rid of fear in order to succeed”
T. Harv Eker – Secrets of the Millionaire Mind