OptionPundit

Category: Option Trading

  • Testimonial of the Week

    An interesting week. Major market indices broke their four-week-long losing streak this past week. Whether it is a pause before next downleg begins or resumption of the primary Bull market, remains to be seen. We opened 3 portfolios for March 2010 by investing 43.4% of portfolio capital so far. As of Friday close, OPNewsletter for March’10 is  up +4.9% x-commissions. If you would like to sign-up for the OPNewsletter, pls click here to sign-up for the waitlist.

    Here is the weekly testimonial and this is from one of the anchor OPN members, Sam Russo. Sam has been with OPNewsletter for now almost 2 years. During this period many interested visitors wrote personal e-mails to him to clarify about OPNewsletter. I am so much grateful to him for his kind words and patient replies to them; many of whom have become OPN members. Sam is not affiliated with OPNewsletter and doesn’t get any commissions etc. for referring. This is in the true spirit of helping other traders learn-n-grow together. Sam has not only helped other members but also helped me in improving OPNewsletter’s overall structure by providing continuous feedback. Thank you Sam.

    I have been an OP Newsletter subscriber for about 3 months. I’ve been trading options for 2 years.

    I am extremely Happy with my subscription. I have taken most of OP’s suggested Income Strategy trades and they have been overwhelmingly profitable. The ones I did not take, due to travel or just plain second guessing, ultimately turned out to be profitable as well. LOL.

    Most of the spec trades that I’ve taken have been overwhelmingly profitable as well.

    OPN differs from other Newsletters in that OP provides timely, suggested adjustments for his Income Strategy recommendations. He, or other subscribers, are quick to answer my questions. This keeps you in the trade with an expert assisting you, and teaches you how to trade these strategies at the same time. In addition, I have found OP to be very responsive to questions as well as feedback.

    I’ll be happy to answer any questions you may have.
    Feel free to contact me at smrusso@aol.com.

    Sam Russo
    Boynton Beach, Florida, USA

    Thank you so much Sam.  I appreciate your kind words and support.

    To read more testimonials pls click here or to sign-up for the OPN waitlist, pls click here.

    Profitable Trading, OP

  • A Straddle Strangle Swap on Berkshire

    This post will explain what’s a Straddle Strangle Swaps option trading strategy? And also share a trade idea on how to use this strategy on Berkshire Hathaway (BRK.B) to make some money while learning it as well.

    A Straddle Strangle Swaps (SSS) is the sale of a front-month Straddle and the purchase of a back-month Strangle. From the pictorial perspective, it looks like a simple Calendar Spread.

    (For beginners who are wondering what is a Straddle and Strangle- A straddle is long 1 call and long 1 put at the same strike price and expiration and on the same stock. For example, long 1 IBM Mar 120 call and long 1 IBM Mar 120 put ; and a Strangle is long 1 call at a higher strike and long 1 put at a lower strike in the same expiration and on the same stock. For example, long 1 IBM Mar 125 call and long 1 IBM Mar 105 put)

    Straddle Strangle Swap (SSS) is a Market-neutral, defined-risk position that profits from positive time decay (theta) as well as collecting credits from rolling short options forward. Most of the time it is a Theta Positive, Vega positive and Delta neutral. Albeit, depending upon IV skew it can be Vega negative; and as underlying moves higher/lower than the short strike, trade can convert into a directional trade thus delta positive and delta negative.

    [OPNewsletter has outperformed the broader market. Pls read customer reviews or If you would like to sign-up for OPNewsletter directly, pls click here to sign-up for the wait-list (as the subscription is by invitation only)].

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  • Testimonial of the Week

    For US stock market, it was almost a flat week in general. However, beneath the surface, market internals are suggesting a short term pull back. Albeit, this is an interesting market that has been trending up defying all technical (probably except one) or fundamental indicators. This is a market that is overvalued, overbought, overbullish, facing with rising yield conformation and much more, but guess what, “market can remain irrational longer than you can remain solvent”.

    Dow Jan 15 2010Look at the chart attached, and you will notice that Dow has been pretty much trending in a channel for the past 9 months. As soon as it hits the upper channel, it pulls back and similarly when it hits lower channel, Dow rises. However, look closely and you will notice that, in the past 6 weeks, for first time Dow has been creeping slowly up but towards the bottom of the channel.  Is there a change in Market’s mood? we’ll only know in retrospect.

    Here is the OPN testimonial of the week from one of the oldest member of OPNewsletter.

    Dear OP,

    I have been a keen reader of your blog for almost a year and when you initially started OPN I jumped in rightway knowing this is once in a lifetime opportunity to learn from somebody who is the top of his game. What I admire most about you/OPN is not just the trades but the education and the personal touch. I feel like I am communicating with a mentor and friend.

    Learning from you is an incredible experience. Your depth of knowledge is vast and you can explain in a language one can easily understand. Prior to discovering your website my experience with options is primarily long calls , puts and vertical spreads at best. You introduced me to income trading and inspired me to learn a lot about options. These strategies suit my style where I don’t have to watch the market tick by tick.

    Your results speak for themselves. They are consistent and outstanding in a market as volatile as it can get over the last one year. I am looking forward to work with you for a long long time. Finally I want to thank all OPN members for making OPN an outstanding community.

    Sridhar A
    New York, US
    Investment experience: Stocks – 8 yrs, options – 5 yrs

    Sri has been an active OPN member and pulled together lot of resources on Option Trading/ OP’s style of trading so that other members can shorten their learning curve. He has also been actively sharing his trading knowledge with other members via OPN discussion forum. Thanks Sri. I sincerely appreciate the kind words and help.

    Continue to read more testimonials here.

    Profitable Trading, OP

  • Did You Notice This?

    US Stock market registered a positive 1st full week for the Year 2010. For background, this is a week that is closely watched by market participants for if as goes the 1st week, so is the year; some say that probability rate is greater than 85% (Feel free to dig past data to see the worth). If only markets were so simple to understand; we all know this surely wasn’t the case last year when Dow closed 15% higher vs. the performance of 1st trading week of 2009.

    The Dow, S&P 500, and the Dow Transports all closed at new high for the year. So technically, from Dow Theory Standpoint, Markets are now in a continued Bull Market phase.

    The most noteworthy news last week was Friday’s December Nonfarm Payroll report which slipped 85,000. It was far worse than economists’ anticipated.  Not all was good. According to Briefing.com-

    However, the details of the unemployment rate are not good. The total number of employed workers declined 589,000. Unfortunately, the labor force declined by 661,000 and negated the drop in employment from the unemployment rate statistics. If the labor force had declined by only 134,000 — the change from October to November — the unemployment rate would have increased 0.3 percentage points to 10.3%… Those that do have jobs saw minimal gains in income. The average workweek held at 33.2 hours in December. Manufacturing and overtime hours also posted no change from last month… Average earnings increased 0.2% over the last month as hourly earnings increased from $18.77 to $18.80. Average weekly earnings grew by $1.00 to $624.16.

    So all is well till it is not. There is, however, some change in the past few months, that requires little extra attention.

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  • Testimonial of the Week

    A very Happy New Year to all the OptionPundit readers. May this new year bring lots of love, good health, peace, success and prosperity to you and your loved ones! May the 2010 be a shining year that we shall remember as a year of transformation that brought lot of cheers to the world community and economy.

    This is to start a weekly column on OPNewsletter testimonials. I am always grateful for the trust you’ve placed in me and thank you for championing OPNewsletter.

    Hi OP,

    I find it hard to put into words the value of the service you (and the whole OP community) offer the individual retail trader and investor. In my opinion, this style of options trading is the only path to consistent and repeatable profitability. I also have not found another service that puts all of these strategies together the way that optionpundit.com does. It feels like a true group of friends and peers that are learning and growing together, not just someone taking our money and throwing out trade ideas. I sincerely appreciate the time and efforts you put into your service for your members, especially at the price you offer it for. True knowledge is priceless.

    Thanks Again,
    David Castello
    Ormond Beach, Florida, USA

    Continue to read more testimonials here. David is currently venturing into real estate, to benefit from opportunity that exist in the foreclosures. He has started a thread on OP Discussion forum and if you are interested in joining hands, why not drop a message on the forum.

    Happy New Year!

    Profitable trading, OP

  • How Large is OPN Portfolio?

    Contrary to what many newsletters might tell you, designing option trading strategies to invest large amount of capital is not easy. You can’t invest a big portion of your capital, for instance $200K, into a single iron condor (a strategy that is considered low risk, high probability yielding 4-5% month after month) unless it’s a very small percentage in your portfolio.

    Since OPNewsletter has been using $10K as a model capital for OPN portfolios, my earlier assumption was that subscribers invest roughly the same range for OPN strategies. However, members have been asking for strategies for large amount of capital. So before I start investing time and effort to design additional strategies, I wanted to assess current capital investment size in OPNewsletter. I, therefore, conducted a small survey asking subscribers to share details of their current capital allocation for OPN strategies and also to share additional capital they are planning to invest for OPN. I am very encouraged to share generic results that tell me a different story vs. my assumption.

    OPNewsletter Investments Overall 61.54% of OPN subscribers responded to this first ever capital investment survey. According to this survey-

    • Average/Subscriber is over US$65K,
    • Median investment was larger than US$32K; the future plan to invest is roughly double.
    • While 40% invest less than US$25K (but greater than US$10K), 2% of respondents invest over U$500K.

    In order to check genuineness of the above information, I then checked actual trading volume in options that OPN suggested. Here are two screenshots of MDY options trading volume and these are taken before and after the alert of creating a MDY Jan’10 Income portfolio.

    MDY Volume prior to the alert

    2009-12-09-StockAndOptionQuoteForMDY post opn alert

    The first picture is before the OPN alert was sent and next picture is after the close of the day. For additional confirmations, I also took snapshots of ThinkOrSwim’s spread book (I am not sharing that here).

    This wide range of investment size confirms that OPNewsletter caters to a wide range of investors. At the same time, this also entrusts more responsibility to carefully design portfolio and focus on risk management.

    Wishing you a Merry Christmas, a bright and happy Hanukkah, and the blessing of knowing your blessings. Always, I am grateful for the trust you’ve placed in me.

    Profitable trading, OP