Stock Option Investment Advice

No Free Money with Special Dividend

I am sure that you’ve heard Costco Wholesale (COST) announced a special dividend of $7.00 per share, plus an additional increase of $0.05 to its regular quarterly dividend. The special $7.00 one time cash payment will be paid on May 26th, to those who are on record as owning shares on May 8th, 2017. What do we expect to happen when a special dividend is paid? Well, we expect the COST share price to fall -$7.00 to reflect the $7.00 one time payment. So, is this a Free Money investment if I were to buy an Out of the Money or At-the Money put option? Since the stock is going to fall the put would have to gain in price, correct? Even though I did not receive the dividend, my put would still gain and I would have a nice, juicy, leveraged profit…right? Not quite. In fact, not at all….

Stock Option Investment Advice

Stock vs. Married Put Position Analysis

Married Put Profits Compared to Stock Only Profits: Using married puts to protect and insure a stock position has certain risk / reward trade-offs.  Each position is a little different. Your profit results will depend on your stock selection, how much risk you take with the purchase of the put, and what income methods you apply to the position.  Two different investors taking positions in the same stock will likely have different outcomes just because of their individual choices for strike price of the put, what income method to apply, and when during the hold cycle to apply the method.  Recently an investor wrote to us about some profit concerns with one of his marred put positions: “The stock DB was bought 10-4-16 using the Married Put.  The stock is up 57%.  I am only showing a 16% profit because of the Put.  Granted Hindsight is 20/20.  I realize this…

Stock Option Investment Advice

Free Options Resources on PowerOptions

Free Options Resources: What makes options resources valuable? Is it the promise of high returns?   Is it the promise of a high success rate?   Is it focusing on only the potential success of a strategy, without focusing on the risks or management? Let’s be honest, there are thousands of free options trading resources available. Any trader who has bought one option contract or sold a call against their stock can post a blog, video or white paper about their trade. That doesn’t make them an expert on the subject matter, although they do have an experience to share. Other free resources will give a static definition of a strategy – just enough to illustrate the basics without providing any further details on the risks of the trade or management ideas. In other words, just enough information to be dangerous. And there are still those services that will give you just…

Stock Option Investment Advice

Configure Stock Chart Parameters

Setting Stock Chart Parameters using Big Charts: In Power Options we use Big Charts as our stock charting tool.  There are 3 stock chart programs offered by Big Charts: Basic Chart Advanced Chart Interactive Chart We use the Advanced Chart version, with modifications to the default parameter settings.  We modify the default settings to make the display more user friendly for the options trader.  The modified settings are then saved so they will be applied to future stock chart displays without the need to change from the default setting each time a new stock chart is requested.  Big Charts settings are changed in the left hand column of the chart display (in blue): Stock chart parameter changes The first grouping of parameters are for “Time Frame”.  A one year time frame is shown by default, but for option trading 3 months is a more convenient choice.  And the frequency is left…

Online Stock Trading Software

How did my option pricing lose $1.00 when there was little to no change on the stock?

Earlier today I received a call from a PowerOptions subscriber. He is the owner of a far out in time put option on MOMO and the stock was up about $0.35 in the morning (Stock MOMO, at $25.76 from $25.41 at close on FEB 14th). The put option he purchased was the 2017-JULY 30 strike. At close on FEB 14th the bid-ask spread was listed at $6.60 to $7.20 – figure a mid-point price of about $6.90. Note: A wide bid-ask spread is not uncommon for options that are far out in time and not actively traded. When he looked at his brokerage account this morning, it showed a value of $5.90, down -$1.00. But the stock had only moved up +$0.35. The delta of the put option was about -0.60, and increase of $0.35 in the underlying should have dropped the put price by only -$0.24. So, what gives?…

Stock Option Investment Advice

Earnings Growth Creates Stock Growth

Earnings are an important indicator of stock price appreciation. In general, if you expect to earn 10% on your stock investments, the stock you choose should have their earning grow at 10% or more.  Certainly there are exceptions.  Buying a stock because of some short term news event, a new technology that is being developed, or a rumored merger are all exceptions.  But over the long run, you should select companies for stock purchase that have a steady earnings growth so they will tend to rise in stock price in line with that earnings expectation. When company selections are made for long stocks or married puts, we generally screen for companies that have good earnings growth.  On the PowerOptions site the parameter we like to display and search by for earning growth is %EPSG.  %EPSG is and abbreviation for % Earnings Per Share Growth.  If %EPSG is not displayed in your search results, add that…

Stock Option Investment Advice

Analyzing Married Puts with PowerOptions’ Position Analysis Tool

I recently spoke to an investor about a position he had in LITE @ $47.90 +1.30. He wanted my advice on what to do with the married put position. Here at PowerOptions and RadioActiveTrading we provide tools to help investors find, analyze, and manage their investments. We do not make recommendations or give advice on how and when to trade individual stocks or options. So a question like, “What should I do next”, is rather awkward.  We do not want to give advice, but will work with the self directed investor to find the information they need to make there own decisions.  In this case, the conversation proceeded down the following path:  The position was in his Power Options portfolio as a marred put, which enabled both of us to look at the Big Charts graph (available under  “more/info”, Charts) for LITE, which had a recent large stock price rise.  I asked…

Online Stock Trading Software

Back-Tested Picks of the Day: Only the best 2 or 3 Trades Matching our Winning Criteria

Introduction Just about 20 years ago I created the patented PowerOptions tools to trade my personal account after I retired from HP. At the time I wanted a better way to search across the universe of options based on my stock AND option criteria in a given strategy… I wanted a one-stop tool to simultaneously search though stock technicals, stock fundamentals, market sentiment and option data… something that was not available in 1997. The PowerOptions tools became a huge time saver – rather than pouring through articles and stock reports to find stocks that matched my sentiment, then pouring over options chains to find a combination that matched my goals, all of this was now accomplished with a few clicks. Over that tenure, the stock and options markets have seen many changes: New trade ideas are touted with the promise of unrealistic returns New securities pop up, ETFs, ETNs, Binaries…

Stock Option Trading News

The Best Naked Put Strike Price

Selling naked puts, either cash secured or on margin, is a means for investors to: Generate monthly or weekly income on bullish stocks Potentially get into stocks at a discounted price To enter a naked put trade you will will Sell to Open a put option against a specific stock or ETF. An option premium is received up front and the investor now has the obligation to buy shares of that security at the strike price, if the underlying is trading below the strike price at expiration. The investor will generally need to have the capital on hold in their account to fulfill the obligation of the sold put. This is a neutral to bullish strategy. You should only sell puts against stocks they would not mind owning in their trading account. It is generally not a good idea to sell puts that have a very high premium due to…

Stock Option Trading News

What Happens If a Vertical Call or Put Credit Spread Expires In The Money?

After one of our recent PowerOptions webinars an attendee asked: “What happens if you have a vertical call or put credit spread that expires In the money?” If both options of a credit spread (Bear Call Credit or Bull Put Credit) are in the money at expiration you will receive the full loss on the spread. You will be obligated to deliver shares of stock or buy stock at the short option strike price, and your broker would use the long option to cover the obligation. The most important thing to remember in any spread position is that