Options

Options EducationThis section is for those who are using option selling strategies:

  • cash-secured put selling for building stock positions and generating income
  • covered call writing for trimming positions and generating income
  • LEAP call buying for when large opportunities present themselves, such as after major corrections 

While we do not use call strategies often, we do use cash-secured put selling regularly. By taking advantage of people's emotions which cause volatility, we can often sell a cash-secured put on a stock or ETF we like longer-term and generate income while building a position as some of the puts get "put to us" meaning we buy the underlying security. It is a professional strategy that takes some getting used to, however, if you are a long-term investor with a contrarian streak who likes to add income to the bottom line, this is THE strategy worth learning.

Before making any options trades, read Characteristics & Risks of Standardized Options, study the CBOE Education Center and engage in paper (pretend) trading for an extended period before trading options.

Most trades are hidden, however, several have been released to serve as samples. More will be released as the options expire.

The nature of swing trades is that sometimes things swing against you. That is the case in the government shutdown not staying shut down. Our volatility speculation became a lot more speculative this morning when the Senate voted 81-18 to pass a continuing resolution to end the government shutdown for until February 8th.

I have been watching the drama in Washington D.C. over the budget. I have no real idea whether they cut a deal or not tonight, but it seems the Republicans don't have the Senate nailed down. If they don't get all but one of the Republican Senators, right now they're missing at least 3, then there will be a Government shutdown come Monday if there is no deal by then. 

The only way to get Democrats on board for a budget deal is to include a deal on DACA, which seems remote, although it would be a no-brainer to do. Then again, who ever accused politicians of having brains. 

So, here's where I am at. I am going to buy a few calls on the iPath S&P 500 VIX ST Futures ETN (VXX) to start a long position on volatility. Remember, this is a high risk move. We can't own VXX for longer than a month or so on options and the actual vehicle is basically a day trading security. So, this is very speculative. However, when it works, it works big usually.

The First Trust ISE-Revere Natural Gas ETF (FCG) is rising as a hurricane heads towards the U.S. While I am concerned of a further sell-off of about 10%, FCG is a position that we need to establish. We can move in that direction by selling cash-secured puts today for a fraction of a position. 

The upside in natural gas is fairly obvious at this point. A lot of projects have been curtailed for the next couple years, coal plants continue to make the switch to natural gas, natural gas exports have begun and the "bad" companies have been mostly eliminated from the index that FCG tracks. In addition, the fundamentals of the top companies in the index are pretty good and likely to get better:

The First Trust ISE-Revere Natural Gas ETF (FCG) is down today as options expire. While I am concerned of a further sell-off of about 10%, FCG is a position that we need to establish. We can move in that direction by selling cash-secured puts today for a fraction of a position. 

The upside in natural gas is fairly obvious at this point. A lot of projects have been curtailed for the next couple years, coal plants continue to make the switch to natural gas, natural gas exports have begun and the "bad" companies have been mostly eliminated from the index that FCG tracks. In addition, the fundamentals of the top companies in the index are pretty good and likely to get better:

Per our talk in the forum, I am buying stock in Silver Spring Networks (SSNI) a play on the smart grid. I am also selling puts to defray my cost or pick up more shares on downward volatility.

The company has already worked on some huge projects and is profitable. I believe they will continue to surprise to the upside. I think this is especially true given the energy bill working its way through Congress that is already approved by both houses and just in the pork packing process. The Bill will almost certainly be passed in the lame duck session.

Silver Spring Networks Inc provides networking platform and solutions that enable utilities to transform the power grid infrastructure into the smart grid. The Company operates in United States, Australia and rest of world. It is Zero debt, profitable, growing.

Here's are links for the Energy Bill of 2016:

www.nytimes.com/2016/04/21/us/politics/s...-infrastructure.html

www.congress.gov/bill/114th-congress/sen...ndments?pageSize=250

Buying SSNI to 1% of portfolio. 

Selling September $12.50 puts. I'm hoping to get 50¢ but will take 40¢.