Stock Option Investment Advice

Gilead (GILD) War Story: I Learned A Trading Lesson On This One

Several months ago I purchased Gilead Sciences (GILD) in my married put Fusion account. This is an investor war story about this position and some lessons I’ve learned as a result of doing a regular quarterly review of my holdings. But before I get into the lessons learned, I need to share some background information that led up to the purchase in the first place. During the December 2015 to January 2016 time period the entire Biotechnology sector was under pressure and most stocks in the sector declined. But February 2016 brought some stability and consolidation. During the February to March period, volatility declined, Bollinger Bands narrowed, and MACD turned positive. I thought, It was clearly time to consider

Stock Option Investment Advice

The Best Covered Call Strike Price

Writing covered calls (CC) is a commonly used strategy for increasing income in a stock portfolio. Just to review, a covered call (CC) strategy consists of buying a stock and writing (selling) a call against the stock. Your stock, acts as collateral for the obligation to deliver the stock if the stock price is above the option strike price at expiration. You receive option premium income because you give the right to an option buyer to buy your stock at the strike price. A basic rule of thumb in writing covered calls (CC) is to choose underlying stocks that you wouldn’t mind holding in case the stock declines. This basic rule would also apply if you were buying a stock for its’ dividend income. In both cases, the highest risk in the position is the decline of the stock, which could create a loss many times larger than the income…

Stock Option Investment Advice

Locking In Gains on a Long Call Option Position

You have probably heard about using put options to lock in a gain on a stock that has moved up in price. This is also one of the ways investors can lock in gains on a long call position. We received an email from a PowerOptions customer with the following details: “Bought AUY Jan 20 2017, $1.50 CALL @ $1.19 a long time ago.  Current price of the CALL is $2.85. I don’t own the stock itself. How do I lock in the profit but stay with the position, as I think that gold has a bright future? The only idea that crossed my mind is very simplistic: buy a protective PUT.  For example, pay $1.41 for AUY Oct 21 2016 $5.50 PUT.” Let’s break down this position: Yamana Gold Inc. (AUY) currently at $4.21

Stock Option Investment Advice

Long Straddle/Strangle Example for Earnings Season in this Market Environment

Straddle/Strangle Example Many of you know, I’ve been trading for over 50 years. Over that time, I’ve come to recognize market conditions that coincide with trading opportunities. Here are some of the conditions that led me to one of my latest trades… and an example trade you might love! The last two weeks of October is when most companies announce third quarter earnings. This particular October, following several years of bullish market conditions, stocks appear to be topping and consolidating. This topping process seems to be accompanied with increased volatility. In this mix of market environments, stocks with earnings disappointments are getting hit particularly hard while other stocks having positive surprises and large upward moves. This seemed to be an opportunity to speculate with an option strategy that might take advantage of these wide swings in stock price due to surprise earnings announcements. The long strangle is an option strategy…

Stock Option Investment Advice

A Balanced Approach for Portfolio Success

The Conservative Barbell Strategy We recently reviewed a book written by Nassim Taleb called “The Black Swan”. In it, the author suggests an approach for investing called the Barbell Strategy. The approach is based on the concern that unexpected market events can happen with devastating impact to our portfolios. The Black Swan is about such events that are generally unknown, unpredictable, and cannot be planned against to mitigate losses. Because they are unpredictable they cannot be avoided, we need a way to protect assets as best we can against these unforeseen events. The Barbell strategy uses the two extremes: Ultra conservative positions at one end and highly leveraged, speculative positions at the other end of the risk range. The strategy advocates having most assets in very safe securities like treasury bills and a small portion in high risk – high reward securities like options. The Barbell image is used to…

Stock Option Investment Advice

Effectively Track and Manage your Options Investments

As we approach options expiration you need tools to properly track, evaluate and manage your options positions.  All of this can be done using the Portfolio tools on PowerOptions. You can quickly create and enter new or existing positions into the Portfolio tools. Once a position is entered you can set Alerts to be notified when profit targets are hit or when losses may need to be managed. As you track your positions you can link to the Position Analysis tool to see your current liquidation and future expiration values as well as view various roll out opportunities for your positions. As you are viewing potential Roll Out Opportunities you can link to the Trade Simulator tool to see the before and after profit and loss graph of your current position compared to the potential adjustment. This video shows just how easy it is to enter positions into the Portfolio…

Stock Option Investment Advice

5 Keys to a Successful Option Spread Trading Plan

The key is likely to first develop a trading plan for your spread positions in conjunction with the tools on PowerOptions. A trading plan may consist of: What are my goals for monthly or annual income? What exposure am I willing to risk in the market? Should I look for lower probability trades with a higher return, or higher probability trades with a lower return and higher risk vs. reward ratio? What is most important in your trade selection: The underlying security? Minimum option premium? Volatility? % Return or % Annualized Return? % Probability? Difference in strike prices (risk on the trade) Time frame for an open position (weeklies vs. standard expiration). Detailed Exit Strategy, including what is an acceptable loss vs. management techniques in various situations. This may sound like a lot to cover but once you map out a trading plan the pieces will fit together regarding: What…

Stock Option Investment Advice

Conversions Are A Riskless Options Trade

Conversions, if you are able to receive a credit, are no risk options trades with a very limited reward. One example of a conversion is: Buy shares of SLV @ $18.73 Sell JUN 18 call @ -$ 1.08 Buy JUN 18 put @    $ 0.34 Net Debit =         $17.99 Guaranteed exit/assignment = $18.00 Guaranteed Profit =          $ 0.01 ADVANTAGES: 1.  Possibility for a no-risk trade 2.  Credit is received 3.  Management is not necessary 4.  Opportunities can easily be found with PowerOptions DISADVANTAGES: 1.  Guaranteed Profit is extremely limited 2.  After commissions limited profit might turn into a loss 3.  Due to low profit, 1,000s of shares may need to be traded which hinders the retail investor 4.  Opportunities may appear, then disappear quickly.  I found this trade on PowerOptions, but by the time I linked to the profit and loss chart the trade showed a guaranteed loss of -$0.04…

Stock Option Investment Advice

Stock Insurance OR Portfolio Insurance – Revisited

With the addition of new and interesting securities to help hedge a stock portfolio, the question arises more and more: ‘Is it better to insure my stock directly or use a different hedge to insure my portfolio?’ This is a very important question which has many components to it. During a PowerOptions Open Forum Webinar on January 14th, 2014 this question was posed. The actual question was:

Stock Option Investment Advice

MORNING UPDATE: PriceWatch Alerts for BA, TSLA, AAPL, and More…

MORNING UPDATE: PriceWatch Alerts for BA, TSLA, AAPL, and More… February, 11 9:00 AM ET – PriceWatch Alerts for BA, ATVI, MNST, TGT, YPF, TSLA, DISH, BLK, MMM, RIG, AAPL, NPSP, GM, X, Market Overview, News Leaders and Laggards, Today’s Economic Calendar, and Index Support & Resistance Levels. PriceWatch Alerts for BA, ATVI, MNST, TGT, YPF, TSLA, DISH, BLK, MMM, RIG, AAPL, NPSP, GM, X, DLTR.