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.

Summary

Use options to build and trim positions for your ebb and flow trading style.

I am erring on the side of caution until this market gives back a little.

Still very bullish on oil stocks given manipulated supply, rising demand, lack of long-cycle investment and Iran sanctions.

You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing. --- Warren Buffett

Options

Each month, I will post a new set of option trades that you can look to make over the next month. I will focus on:

  • Selling cash-secured puts on stocks that we would like to own and are approaching support.
  • Covered call writing on stocks that are rallying but hitting resistance, so we can take some profits.
  • LEAPs for gaining leverage on undervalued intermediate term growth ideas.
  • Hedges.

Always use limit orders and set your GTC for a week or two. Review a few times per week. It doesn't hurt to check early each morning after looking at the stock market futures.

Summary

Call options are up over 60%.

Duration is short - only to November.

Time to take call profits and look for opportunities to sell puts.

Summary

After a mini-correction, the market is warming up again. Maybe it lasts, maybe it doesn't.

Sometimes doing little to nothing, while waiting for existing positions to move or expire (options) is the right thing to do.

There are a few new ideas, but not many. That is par for the course.

You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing. --- Warren Buffett

Oil prices are taking a hit right now as the media and markets are fooled by a narrative that new oil supply is coming onto the market from Saudi Arabia and Russia. That is not the real story. In fact, it's #fakenews.

Good traders took some profits on oil positions in the middle of last week. Smart investors will be expanding their asset allocation to oil investments in the next few weeks.

Each month, the week after options expiration, I will post a new set of option trades that you can look to make over the next month. I will focus on:

  • Selling cash-secured puts on stocks that we would like to own and are approaching support.
  • Covered call writing on stocks that are rallying but hitting resistance, so we can take some profits.
  • LEAPs for gaining leverage on undervalued intermediate term growth ideas.
  • Hedges.

Always use limit orders and set your GTC for a week or two. Review a few times per week. It doesn't hurt to check early each morning after looking at the stock market futures.

You can adjust prices to be a few nickels, dimes or quarters more favorable. When selling options, you want to get the ASK or a little higher if possible on volatility. When buying options, you want to get the BID or a little lower if possible on volatility.