It is year-end, and time to reflect on this year’s market activity. It certainly has been a strong up trending year for equities. And with all the very positive news currently, there is room for more gains in 2018. However, markets do not just go up forever. The markets are extended without a normal set back of 10% in some time. Is it time to be cautious? While at the library this weekend, I looked through the Value Line Survey. They had a table of some key market and economic parameters for the present vs. historical highs and lows. Some that caught my attention are listed below: Parameter Current Last Top Last Low PE on VL stocks 20.3 19.6 14.3 Dividend Yield VL 1.9 2.0 4.0 Prime Rate 4.5 4.3 3.3 AAA Corp. Bonds 3.5 3.5 5.5 Short Interest/Vol 16.8 17.9 8.6 As you can see most of the…
Part 2: Stock, or Portfolio Insurance?
Here is Part 2 of our Stock, or Portfolio Insurance? Series: Selecting the Right Put In this video we discuss which broad based ETF or Index Put to Select to Insure an overall portfolio. In Part 1 you saw that using an SPY Put option (the 250, ATM strike) was better insurance on a portfolio over buying shares of an Inverse or Leveraged ETF. However, was this the best strike selection? What about lower strike, lower cost, Out of the Money Puts? Wouldn’t puts with a higher delta, deeper In the Money perform better? This video breaks down the costs, outcomes, pros and cons of the different strikes you can use to insure a portfolio. We also give you an outline of how to analyze which put might be best to insure your portfolio. I hope you enjoy Part 2, and I look forward to your thoughts and comments!
Portfolio Insurance (2017) – Part 1: For the Stock Traders
This article is Part 1 of a series on evaluating the ways to add Portfolio Insurance if you are anticipating a market correction or market decline. Most of us are probably in more Bullish positions, based on the last 12 months performance of the market. Every week new highs are being hit, and bullish stock and option traders have been doing well. Over the last 12 months, we have seen SPX (S&P 500 index) and SPY (S&P 500 ETF) gain over 17% (SEP 13th, 2016, SPY closed at $213.23 and is currently around $250.00). During that same time period, NDX (NASDAQ 100 index) and QQQ move up 26% (SEP 14th, 2016, QQQ at $115.85 to about $146.00). Sure, there were small hiccups here and there along the way, but the extended growth has led to many pundits, gurus and other stock prognosticators warning of…
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 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…
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…
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…
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?…
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…
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…