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OptionSIZZLE is created to help you better understand and become more familiar with options and what the professional traders are doing everyday in the market and provide effective options trading strategies to allow you to trade better and trade smarter. We have found over the years some of the... More
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  • Why You Should Avoid Trading Weekly Options

    I don't know if you agree, but it seems like everywhere you turn, the term "income trading" is being tossed around, amongst option educators…Hell, I just received an email from one saying, "Learn to use options for weekly and monthly income generation".

    Let's be real, we both know it's a simply marketing ploy to get your attention. With that said, "income trading" has become very popular, especially for those who trade weekly options. Let's face it, the allure of selling options and collecting option premium every single week sounds pretty sweet!

    But there's one thing…

    …in some situations, selling weekly options can be a lot more riskier than monthly options.

    If you've read Fearless Investing With Options, you know that I don't believe in randomly selling option premium…week in and week out. I always cringe when I hear stories about traders who sell the same options on the same underlying every week.

    For example, I've heard of some traders who sell calls naked on Apple every Thursday…hoping to buy back their options (or have them expire worthless) on Friday. As you know, on expiration day, options will either close in the money or expire worthless. With that said, implied volatility shouldn't be your main concern, but the actual volatility in the stock movement. More specifically, it's important to pay attention to the Gamma of the options (or spread) you're in.

    Gamma is an option Greek which refers to the rate of change in Delta for each $1 move in the underlying. Gamma is the relationship of the change in Delta as a stock price changes. Options that have more time to expiration (like monthlies) are less sensitive to Gamma, but options that are close to expiration will be much more sensitive to Gamma.

    For example, on Friday, February 13th, 2015, Apple was trading around $125.81 with less than two hours till expiration. The at-the-money $126 calls had a value of around $0.20. Some traders might have seen this an easy opportunity to collect $0.20, by selling premium.

    However, it's never that easy…in fact, Apple rallied over a dollar and closed above $127 a share. Those options went from $0.20 to over $1 and change. Imagine, stepping out for an hour or so….only coming back to see the position go against you for a large loss on only a tiny 1% move!!!

    Most of the time…the stock doesn't move and those options do expire worthless. That is why it doesn't make sense to be a buyer of those type of options.

    When you're selling options, you have to be strategic.

    You don't want to sell options because you think it's easy money. Also, you need to factor in the transaction costs of cheap options. That is, commissions and what you'll lose on the bid/ask spread. This will reduce the overall premium you've collected.

    Not only that, it makes the decision to buy back your options a lot more difficult. You see, after you've included your transaction costs, you might be compelled to hold the position longer, in hopes, to collect all the premium. But if you've read Greater Profits In Less Time On Your Option Trades, you'll now that is not the right approach.

    Imagine being naked short near term options and the stock gets halted. Maybe, they're involved in a buyout, have news from a pending legal action, pre-release their earnings report or whatever the case may be. You simply don't have the time to make adjustments…worst of all, you weren't compensated enough to take the risk.

    That's why so many premium sellers end up struggling to keep their profits when they are trading weekly options. This trade might work for a little while, however, they'll underestimate the power of Gamma… and not react quickly enough to make the adjustment.

    This usually results in a large drawdown. You see, if you decide to trade weekly options…you have be ready to make a move quickly if something happens…whether that's taking profits or adjusting the position.

    This isn't "income" that is owed to you. In fact, you might have to work for it. With that said, you've got to be active, meaning, you have to monitor your positions a lot more than you would if you were trading longer term options.

    Now, I do believe there are opportunities to be strategic with weekly options. In fact, there are specific situations where I rely on weekly options to express my market opinion.

    Here's some good news…

    A couple years ago I wrote an ebook on weekly options…it teaches you some of my favorite approaches…what I learned from the winners and losers…stuff that has proven itself to work…over and over again.

    If you're new to weekly options…you'll get right up to speed on some of the most powerful option strategies for trading them…how they work and when to apply them.

    In the past, I've sold this 34-page ebook for more than $50 on this site. However, today you can download the updated version of it for FREE.

    You know…I've recently went back and made updates to it…to have it better reflect the present market environment, as well as, fine tune and highlight the most important stuff I've learned.

    When I first wrote this, there were only a handful of weekly options available at the time. Now, there are several hundred that you can trade, ranging from ETFs to stocks.

    Here's the bad news…

    I'm not sure how long I'll be offering this ebook for free, so make sure to get it now before something comes up and I change my mind.

    After you instantly download this free 34-page ebook on weekly option you'll learn:

    • Advantages of using weekly options over monthly options
    • How weekly options can hurt your overall success
    • Best strategies to use that and when to use weekly options
    • Three detailed case studies of actual trades
    • Five must know tips before using weekly options


     

    Access Your Free eBook To Sizzling Weekly Options Trades!

    34-page eBook teaching you what strategies work best with weekly options

    Click here to access your eBook

    By the way, have you tried to become an "income trader" using weekly options? If so, I'd love to hear how it's going for you…that includes any ups and downs you've had thus far. As always, I'm here to help and will be hanging out in the comments section below.

    Feb 24 5:48 PM | Link | Comment!
  • How To Find Time To Improve Your Wealth & Health With Options

    The mantra at OptionSIZZLE is wealth, freedom and options. Now, wealth doesn't just mean financial gain, it also refers to richness in health.

    You see, many members of our community are middle-aged professionals. They spend a majority of their time balancing their work and family life. Of course, this can be an extremely difficult responsibility to manage, at times.

    They know that no one is going to care more about their financial future than them. It's proven, time and time again that you can't rely on a "financial professional" to help you achieve the freedom that you deserve. After all, their main focus is fattening their pockets, collecting fees, while constantly underperforming the market.

    For whatever reason, investors believe that taking control of their financial future is going to be too time consuming and hence, decide to never give it a go. In many aspects, they treat their health the same way. "Where am I going to find the time to workout?" or "I would love to workout but I have too much on my plate to even think about it" .

    Let's face it, anyone could come up with a number of different of excuses on why they can't do something that benefits their well being. Maybe, it's the belief that you need to be 1000% committed in order to achieve positive results. Sort of like that puritan mind set, the harder you work… the better the results will be.

    I remember when I was on the floor of the CME, the open outcry pits were buzzing with energy. I would have to be on the floor an hour before the market opened and stay till 3:15 PM CST, the time that the S&P futures pit closed. It seemed like such a long day, however, it wasn't like that for everyone. You see, some traders would only come in for a few hours in the morning…sometimes in the afternoon…and call it a day.

    When I first started OptionSIZZLE in 2008, I was glued to the computer screen, managing money for clients, day trading during market hours and developing OptionSIZZLE.com in the evenings. I was becoming a slave to the market, stressed out and out of shape. It's not that I wasn't working hard…I just wasn't working intelligently. Trying to do too much all at once was causing so much inefficiency in professional and personal life.

    It didn't help that I was entering one of the most difficult periods that the market had seen in decades. Working hard and not seeing the results can be frustrating to anyone. I recall spending hours doing research, educating myself on options and technical analysis…all in hopes of turning the corner, getting both my clients and myself back on track.

    However, I drained out my batteries…and burned myself out.

    This forced me to reevaluate my process…go back to what worked in the past and what worked for the successful traders I learned from. I knew that the options firms that typically made the most consistent profits in the financial industry were the firms that took the other side of the market.

    It wasn't about spending your whole day staring at the screens. It became more about trading strategically, leveraging probability and odds to your favor. The same could be said about a fitness and nutrition routine. The more you workout, the more stress you put on the body, if you don't rest, you'll eventually break down and possibly get injured. Again, it's about being smart with your time in the gym vs. devoting hours and hours that we simply don't have.

    After all, our time on earth is precious. Over the last three years, I've lost my mother and both grandmas to cancer. It's important for me, that my time is managed wisely. Believe me, it's not always easy…trading options, managing businesses, spending time with loved ones, exercising and maintaining good health. However, I'd like to share with you what I've learned and how I'm making it work.

    Be economical with your time

    As you might already know, I'm a big proponent of selling option premium. More specifically, finding options with an unjustified high implied volatility. Typically selling them with around 45 days to expiration. The exit strategy is simple, I look to take profits at 50% of the original premium collected. This provides the best framework for success, without being chained to the computer all day. By sizing the position correctly, it makes managing the trade a lot less of a hassle.

    Given my other responsibilities, this type of trading not only gives me a competitive edge but allows me to stay efficient with my time. Best of all, I'm still in control of my finances, but I have time allotted to focus on other ventures. Now, my other business is completely unrelated to the markets. In fact, it involves selling our own fitness products on Amazon and our own website. Again, to make it work I have to be economical with my time because I have to balance my time with OptionSIZZLE and personal life.

    I'm often asked, how much time do I really need to spend trading options?

    It's a tough question to answer. After all, the markets go through periods of extreme volatility to little or no action at all. However, gaining access to the markets easier, due to the enhancement in technologies. With that said, spending at least and hour a day should cut it. But it really depends on what you're trading and how you're going about it. Also, setting up price alerts can help minimize the time you spend on trading.

    In my new book, Fearless Investing With Options, I mention that starting off slow, putting real money at risk is a solid introduction to the options market. Just like one's fitness level, you've got build yourself up first.

    If you follow the framework outlined in my book, you'll have an approach to trading options that is not only effective…but also time efficient. Even in my SPX Method Course, one of the strategies I teach is a trade once a week, using the SPX or SPY options…simple and easy. This is the same way I approach my workout routine.

    How do I maximize results in the shortest amount of time?

    First, let me say, I'm no fitness expert. However, I've done my fair share of research on exercise and nutrition. Not only that, I've tried several different routines and diets. I even experimented with going vegan for 18 months, about three years ago.

    One thing that's helped me dramatically…was ditching the gym.

    Even though I live in Chicago, getting to the gym was a hassle. The commute along with waiting around for equipment and machines was becoming too much of a time suck. That's why two years ago…I decided to put my energy towards home based workouts, focusing on cardio and body weight exercises.

    Two of my favorite workout programs right now take 30 minutes each day, that's it! According to the American Heart Association, they recommend an average of 40 minutes of moderate- to vigorous-intensity aerobic activity, 3 to 4 times per week. By doing this type of activity, you'll put yourself in a position to lower your blood pressure and cholesterol level.

    The routines I do, involve cardio and resistance training. Nothing exotic at all. In fact, you've probably heard of them, they are variations of the popular P90X and Insanity programs. Now, I'm a relatively fit guy…if you haven't been active for a while…then you'll obviously need to consult with a physician before attempting to do any type of fitness routine.

    The beauty behind these type of home based workouts is that it limits your excuses. You can practically do them from anywhere…you're not dependent on the gym, weather, transportation etc.

    For some, working out for such a short duration might be a new revelation…it goes against the grain…the puritan mind set…that you've got to live in the gym in order to see results.

    This is simply not true…just like it's not true that you've got to be glued to the markets all day to make money.

    With all the things going on in our work and family life, it's important more than ever that we take control of our finances and health. No one else is going to care about our well-being more than us. With that said, I've learned to make adjustments and fit these two important aspects of life into my schedule.

    You can still be productive in both areas in life and still have time for your other responsibilities. Having a plan and process will help you in getting closer to achieving the results you desire.

    Are you still you making excuses on why you haven't taken the steps to secure your wealth? It's not easy to get started, but we owe it to ourselves and families to make it happen. If you're struggling or don't know how to get started, we're here to help and hopefully get you to where you need to be.

    To your wealth, freedom & options!

    Joshua Belanger

    P.S. Are you interested in hearing more about the home based workout programs I'm doing? If so, make sure to comment below

    Feb 24 5:43 PM | Link | Comment!
  • Why Options Volume Doesn't Help With Trading Stock Earnings

    We've seen some decent two sided trading in the market so far this year. Despite having higher overall volatility, we've seen some larger than expected earnings moves. For example, Apple, Amazon, Starbucks, McDonalds, Netflix, Disney and Google all had greater moves than what was implied by their ATM straddle. (For a refresher on what that means, check out Don't Trade Earnings Before You Read This).

    As I've written several times in the past, tracking institutional options activity is a forward looking indicator. Similar to how a poker player shows a "tell" when they're holding a good hand or bluffing…certain type of options activity can scream very bullish or bearish action.

    However, it's not simple to detect if you don't know what you're looking for. That's why I wrote the SIZZLE Method Report. I'll be honest, I've noticed through emails and social media that most are not going about it the right way.

    For example, tracking options activity ahead of earnings is generally a worthless endeavor… let me explain why.

    For the most part, we don't know how the market will react to a company's earnings release. They can beat on expectations, guide lower and the stock could tank. Good news can be viewed as bad…and bad news can be viewed as good. Trying to make sense of it all can drive a person crazy and into losing trades.

    Let's try to think about why someone would place certain types of orders ahead of an earnings release, and why it might not be what it seems like.

    1. Large Call Buyers:

    Generally this could be viewed as a bullish bet. However, let's assume a large fund doesn't want to be long a stock ahead of earnings, simply because of the randomness involved. They might sell their shares and buy calls instead. By doing this, they now have a limited risk position. In addition, they can participate towards an upside move with less capital.

    Imagine they're long the stock and it has a massive move lower after the earnings announcement…that's just bad risk management. However, buying some upside calls with defined risk is one way to have exposure without the potential of taking a devastating loss. In other words, large call buying ahead of an earnings announcement can be viewed as a stock substitute. It is not extremely bullish as one might, especially if they're just watching option volume.

    On 1/28, the largest non-spread order in Alibaba Group Holding Limited, BABA, was a 1,482 lot, a trader came in and bought April 17th, 115 calls for $2.34 a piece. The following day, BABA dropped nearly 9% on their earnings release. If this was a stock substitute, that trade might have saved them a lot of money.

    2. Large Call Sellers:

    Generally this could be viewed as a bearish bet. However, let's assume a fund is long the stock. They know that the earnings could go either way…but instead of closing out their stock position, they sell calls against it. Since implied volatility is elevated ahead of earnings, they are collecting some juicy premium.

    Of course, selling calls against your stock position will help reduce their cost basis and soften the blow if the stock trades lower after the earnings release.

    On the other hand, let's assume the stock trades higher. To the naked eye, those calls sold might look really bad. However, there is a good chance that they were sold against a stock position. If the stock trades higher or unchanged…they are most likely making money on the trade.

    3. Large Put Buyers

    Generally this could viewed as a bearish bet. However, let's assume a fund is long the stock ahead of earnings. This time, they don't want to limit their upside by selling calls…instead, they just want to to limit their downside. They can achieve this by buying puts against their stock position…creating what is called a "married put" or synthetic long call.

    For example, the largest single options trade in Netflix, NFLX, on 1/20 was a put buyer. A trader came in and bought 800 1/23 $250 puts when the stock was trading around $338 per share. Was this trader expecting NFLX to have a poor earnings or where they hedging a long stock position?

    Well, we'll never know, however, after their earnings release, NFLX traded above $405 per share. I wouldn't be surprised if that trade was a hedge.

    As you can see, options activity that normally appears bullish or bearish can be very confusing ahead of an earnings release. With that said, as an indicator it does poorly. Believe me, I've seen options activity that was so bullish ahead of earnings…only to see the shares of the stock price crumble after the earnings release.

    By the way, some of the positions mentioned in this piece are called "synthetics" …you can read more about them in Putting Context Behind Your Options Strategy. In addition, it's covered extensively in my new book Fearless Investing With Options (limited time price of $14.95).

    Have you ever fallen into this earnings trap; thinking that a stock was bound to go up, or down, based on what you thought the options volume provided to you ahead of their release? I know it's happened to me, but the I'd love to hear about it.

    Thank you so much for reading and contributing to the conversation.

    To your wealth, freedom & options!

    Joshua Belanger

    Feb 24 5:25 PM | Link | Comment!
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