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…

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…

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…