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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

Earnings Trade of the Week: NIKE, Inc. (NKE) – Reports After the Markets Close 12/22/15

It’s a slow week for earnings with the shortened week, but this trade stands out.

NIKE, Inc. (NKE) is scheduled to report earnings after the markets close on Tuesday, 12/22/15.

Last quarter, the stock made a significant move upward, as this shows:


Sep 25, 2015

123.13
125.95
122.70
125.00
18,484,100
124.70

Sep 24, 2015

114.30
115.15
113.50
114.79
7,176,300
114.51

I am going to use a Reverse Iron Condor here, and keeping the strike prices as narrow as possible, but which stills bring a very good ROI. This trade is also going for a very good price, especially for a RIC. 9/10.

Here is how the trade is placed:

Entered Trade

Buy 20 NKE DecWk4 125 Put

Sell -20 NKE DecWk4 124 Put

Buy 20 NKE DecWk4 135 Call

Sell -20 NKE DecWk4 136 Call


Requirements

Cost/Proceeds
$940.00
Option Requirement
$0.00
Total Requirements
$940.00
Estimated Commission
$120.00

NBBO 0.27 – 0.68. Try to pay 0.49 or less for this trade. At a maximum, pay up to 0.51. See the attachment for the profit/loss chart.

NKE RIC 122215

Update 1: : 9:15 am EST: This trade looks good pre-market, the stock is up about $4.50/share. I am placing the close order on the call side of the trade (bull call spread) at 1.05. On the put side (bear put spread) of the trade, place the close at 0.20. This trade does expire tomorrow, so on the put side I will take whatever price I can get that would off-set the commission costs. I would wait until tomorrow to take less than the 0.20, however.

Update 2: Seeing a bit of a pullback after a big open. Place the close order on the put side at 0.70 for now, just in case.

Update 3: Place the close order on the put side at 0.80. On the call side 0.80.

Earnings Trade of the Week: Red Hat, Inc. (RHT) – Earnings Trade – Reports After the Markets Close 12/17/15

Red Hat, Inc. (RHT) is scheduled to report earnings after the markets close on Thursday, December 17, 2015.

(RHT) price movement after reporting earnings has been unpredictable at times. Last quarter, the stock didn’t move too much at all, as this shows:

Sep 22, 2015

71.45
73.20
70.45
72.72
3,923,900
72.72

Sep 21, 2015

71.66
73.16
71.13
72.72
2,952,500
72.72

On the other hand, I have used Strangles on (RHT) many times before and have done extremely well. On specific stocks over the years, I have placed this strategy I will be using here. It is a Neutral Calendar Spread in combination with a Strangle that uses deep-out-of-the money calls and puts, along with at least month out expirations. The premise of the strategy is to immediately profit off the Neutral Calendar Spread, which in this case expires tomorrow, 12/18/15. The Strangle side can be looked at as a safety net and a potential big winner in the event the stock does make one its large price moves. Since this specific Neutral Calendar Spread trade allows plenty of price movement anyway at a great price, even if the stock make a big move, there is a good chance both sides will profit at some point.

To explain this strategy and how I expect to profit, look at it this way: Let’s assume that tomorrow pre-market, (RHT) isn’t doing much in terms of price movement. Maybe up or down $2.50 a share. This would be great, as the Neutral Calendar Spread would profit immediately (even quicker than usual since it’s expiring tomorrow). But what about the Strangle side, and how would that do? Since the price paid for the Strangle in this case is so minimal, the gains made by the Neutral Calendar Spread would more than wipe out any loss by either side of the Strangle. However, since the Strangle still has a month of time-value left on a volatile stock such as (RHT), it will still hold value quite well.

In the event that (RHT) makes a huge move, up or down, well, this would be even better, actually. Since the Strangle has that time-value, and the Strangle has unlimited profit on the call side, this would make even more than the NCS strategy. The same is similar with the put side on teh Strangle, only that a stock can only drop to zero. If the stock does make a large move, I will simply close out the Neutral Calendar Spread tomorrow before the markets close, probably fairly early in the day, just to close it out.

This is a unique options strategy, but you do have to very selective in which stocks to use this strategy with for an earnings trade.

Depending on your trading platform, you may have to enter each strategy separately. Most platforms will allow you to place it as one order. For simplification purposes, I will post each strategy and post what limit order should be placed for each, and as a whole.

Here is how the trade is placed:

Entered Trade: The Neutral Calendar Spread Side of the Trade (1)

Sell -10 RHT Dec15 77.5 Call

Buy 10 RHT Jan16 77.5 Call

Requirements

Cost/Proceeds
$750.00
Option Requirement
$0.00
Total Requirements
$750.00
Estimated Commission
$30.00

NBBO 0.50 – 0.95. Try to pay 0.75 or less for this side of the trade.

Entered Trade # 2: The Strangle Side

Buy 10 RHT Jan16 90 Call

Buy 10 RHT Jan16 65 Put


Requirements

Cost/Proceeds
$850.00
Option Requirement
$0.00
Total Requirements
$850.00
Estimated Commission
$30.00

NBBO 0.60 – 1.20. Try to pay 0.90 or less for this side of the trade. At a maximum, pay up to 0.95.


Entered Trade as One Order

Sell -10 RHT Dec15 77.5 Call

Buy 10 RHT Jan16 77.5 Call

Buy 10 RHT Jan16 90 Call

Buy 10 RHT Jan16 65 Put

Requirements

Cost/Proceeds
$1,650.00
Option Requirement
$0.00
Total Requirements
$1,650.00
Estimated Commission
$60.00

NBBO
1.20 – 2.25. Try to pay 1.70 or less for this trade. At a maximum, pay up to 1.75 for the entire order.

I will post the price to close the orders out tomorrow pre-market.

Update 1: 9:21 am EST: Pre-market, the stock is up around $6.00 a share. This is what I expected. On the NCS side of the trade, place the STC at 1.40. On the Strangle call side, this has some serious upside now, place the STC at $4.00. Leave the put side open for now. I’ll update this later.

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…

Stocks I Will Definitely Be Trading This Wednesday – Friday For Earnings

There may be more, but these already look like good set-ups. Here they are:

Wednesday – Joy Global (JOY, before the bell, order already filled), Oracle (ORCL, reports after the bell, usually very solid trade for earnings), FedEx (FDX, after the bell)

Thursday: Red Hat (RHT, after the bell, one of my favorite stocks to trade for earnings)

Friday : Darden Restaurants (DRI, before the bell, usually a solid winner quarterly)

Daily Options Trading Strategy (DOTS) – Updated List Current as of 12/14/15

Here is new updated Daily Options Trading Strategy list as of 12/14/15: I have added Fitbit (FIT) in place of (GMCR)

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, JNUG, PYPL, GDDY, EBAY, CMG, FIT, EXPE, ADBE

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

Earnings Trade of the Week: Adobe (ADBE) – Reports Earnings After the Markets Close 12/10/15

Adobe(ADBE) – Earnings Trade – Reports Earnings After the Markets Close 12/10/15
Adobe Systems Incorporated (ADBE) is scheduled to report earnings after the markets close on Thursday, December 10, 2015.

I really like this trade. Giving it A 10/10. It’s a Neutral Calendar Spread. Place it.

Here is how the trade is placed:

Entered Trade

Sell -100 ADBE Dec15 90 Call

Buy 100 ADBE Jan16 90 Call

Requirements

Cost/Proceeds
$8,000.00
Option Requirement
$0.00
Total Requirements
$8,000.00
Estimated Commission
$300.00

NBBO 0.72 – 0.8. Try to pay 0.78 or less for this trade. At a maximum, pay up to 0.80, that’s all.

See the attachment for the profit/loss chart.

ADBE NCS 121015

Update 1: 9:26 am EST, Friday: The stock is up about $4.20 pre-market. I am placing the close order at 1.70. I will update any changes to this here, if needed.

Update 2: 3:27 pm EST. The closing order now at 1.60.

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