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Great Start to the Week, Notes, Info – 12/28/15

We have had two very good Daily Options Trading Strategy (DOTS) trades today. (NFLX) at 10:13 am EST, $0.35 sell to close order above price paid (paid $4.70, sold at $5.05), and (GOOGL) at 11:01 am EST, $1.00 sell to close order above price paid (groupchat paid an average of $14.70, sold at $15.70. GOOGL took off right after being placed.

Many of the DOTS trades trades actually go for a much higher sell to close price daily if held longer, but I am more interested in making a very nice profit fast, and move on to the next trade. In and out. For example, the GOOGL trade today netted a 6.8 % ROI, but could have been sold much higher if held even 20 minutes longer. But the goal of the strategy is to exit as fast as possible and to not be greedy.

Stocks like (TWTR) tend to average at least a 10% per DOTS trade. This is because on average, a TWTR call or put option is less than $2.00 per contract, and I use minimum $0.20 order above the price paid per contract. However, the higher priced stocks, like (NFLX),(GOOGL), (TSLA), (AMZN), (BIDU), etc, have higher sell to close orders, and tend to close out a lot faster than lower-priced stocks, but not always.

The STC prices I use are based on numerous factors:

– The stocks share price
– The volatility of the stock itself
– Option liquidity (daily)
– Time of day the trade is placed (i.e. I will use a higher STC earlier in the day and a lower STC after 1:00 pm EST)

You can see my daily trade log at: http://kevinmobrien.com/?page_id=480

My subscription-based service provides all of these trades in real-time, with the ticker symbol, strike price, my sell-to close orders used (before the trade is even placed), and when the trade is closed out.

If you have any questions about the strategy, subscription plan, or about stock options, you can e-mail me at: kmob79@gmail.com or info@kevinmobrien.com

Updated Daily Options Trading Strategy (DOTS) List – Current as of 12/28/15

Here is the new updated Daily Options Trading Strategy list as of 12/28/15:

Tier 1: AAPL, AMZN, FB, BIDU, GOOGL, LNKD, NFLX, PCLN, TSLA

Tier 2
: BA, BABA, GPRO, IBM, CRM, TWTR, CHK, BBY, AKAM

Tier 3
: C, CIEN, PYPL, UPS, EBAY, CMG, FIT, EXPE, ADBE

Tier 4
: DIS, BWLD, CAT, FDX, HD, ATVI, COST, MNST, ULTA

Understanding the Correlation of Share Price and Strike Prices When Using Debit Spreads – Part 1: The Neutral Calendar Spread Strategy

One of the most important factors when trading debit spread strategies is the share price and strike prices, and what is available. A common mistake some option traders make when using debit spreads is not paying enough attention to these and how they can seriously impact the chance of profitability. To explain this, I’ll take a look at 3 different debit spread strategies in a Three Part series: The Neutral Calendar Spread, The Reverse Iron Condor, and the Strangle strategy. First up is the Neutral Calendar Spread….

The Neutral Calendar Spread: is a strategy that has 2 “legs”. There is a sell side and a buy side. I prefer to use this strategy with stocks/ETF’s that have weekly options, when available. The weekly option is the sell side. The monthly (or whichever you choose that is a further out expiration that the weekly) is the buy side. This is a strategy that takes advantage of time-decay and a lack of a large price movement. Let’s assume the security I want to trade has a share price at $50.00 at the time of trade placement. This is an ideal share price because there will be $50.00 strike price increments. So, if I was trading XYZ stock using a Neutral Calendar Spread, the trade would look like this:

Sell 10 December 2015 XYZ Calls
Buy 10 January 2016 XYZ Calls

But what if the share price is at $51.50, and I look at the options chain and realize that there are only $2.50 strike price increments? This is an problem, because the trade is no longer neutral and it puts you at an immediate disadvantage from the start.

Today, on my Trading Forum, we had 2 earnings-based Neutral Calendar Spread based-trades. There would have been 3, but this example will explain very well why I did not place it: The stock in question is General Mills (GIS), which reports earnings before the bell tomorrow morning: At the time of looking at the trade, the share price on (GIS) was at $58.80/share.

Entered Trade

Sell -25 GIS Dec15 57.5 Call

Buy 25 GIS Jan16 57.5 Call

I only had two choices as far as strike prices, to use either the $57.50 calls, or the $60.00 calls:

GIS Chain 121615

Knowing the share price, and the strike prices available, this would cause a major problem of neutrality regarding the trade itself, as this shows:

KMO Ex GIS 121615

As you can see from the Profit/Loss chart, the break-even points are uneven, clearly favoring the downside movement more than the upward movement by more than $2.00. That may not seem like a big deal, but it is. This can be the difference between profitability and a loss. The great thing about the Neutral calendar Spread strategy is that it does allow a good amount of price movement, just not excessive. My concern on the (GIS) trade would be if the stock moved up too much. I would be much less concerned about the downside movement. However, when you see a trade have a set-up like this (GIS) example, avoid it like I did today, even though it may initially seem like a good trade.

Overall today, 3 earnings trades, should have 2 tomorrow. (RHT) especially should be a good one.

If you have any questions about this strategy or specific stocks, you can e-mail me at kmob79@gmail.com or post a comment. I usually respond very quickly. Coming up next is the Reverse Iron Condor…

Keurig Green Mountain, Inc. (GMCR) Sold to Private Equity Firm

Keurig Green Mountain, Inc. (GMCR) has been bought out by a private equity firm for $13.9 billion. In October, I placed and posted a long-term trade on (GMCR), seeing it as extremely undervalued. I have posted a screenshot of that trade below, along with the news of the buyout…

GMCR 12715

http://www.usatoday.com/story/money/2015/12/07/keurig-green-mountain-jab-holding-company-acquisition/76913020/

3 Quick In-and-Out Daily Trades Today, Getting Plenty of Action 11/3/15

The three trades placed today were on LNKD puts at 10:24 am EST, position closed 13 minutes later; BABA calls at 10:44 am EST, position closed 11 minutes later; and AMZN calls at 10:46 am EST, position closed 35 minutes later.

The daily trades are picking up even more lately, but always a consistent number of trades happen weekly, regardless of market conditions. The daily strategy (DOTS) does require patience, but you really don’t need to be glued to a computer screen non-stop, as the Bollinger Bands provide great insight as to when a trade is looming. If you have any questions on the strategy, you camn leave a comment or e-mail me at: kmob79@gmail.com

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