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General Sell to Close Prices Using the Daily Options Trading Strategy Based on Share Price – (Repost) – Updated – 10/8/15

I am often asked how do I determine my sell-to-close prices when using the Daily Options Trading Strategy (DOTS), so I am posting it again with an update…

There are numerous factors I consider when choosing sell-to-close (STC) price when using the Daily Options Trading Strategy (DOTS). Among them are the following:

  • The share price for each security
  • The stocks volatility, daily highs and lows, and current market conditions
  • Width of Bollinger Bands
  • The time of day the trade is placed
  • The current bid/ask price
  • Leverage

Share Price and Sell-To-Close (STC) Prices Using the Daily Options Trading Strategy (DOTS)

$10.00 – $60.00 = $0.20 STC order above the price paid per contract

$61.00 – $80.00 = $0.30 STC order above the price paid per contract

$81.00 – $100.00 = $0.40 STC order above the price paid per contract

$101.00 – $120.00 + = $0.60 STC order above the price paid per contract

$150.00 – $200.00 + = $0.70 STC order above the price paid per contract

$250.00 – $400.00 = $0.80 STC order above the price paid per contract

$500.00 + = $1.00 minimum STC order above the price paid per contract

Example #1: Buy 100 (TWTR) November 2015 $30.00 call options at 2.00 per contract. The sell-to-close order would be $2.20.

Example #2: Buy 10 (GOOGL) November $665.00 put options at $10.00 per contract. The sell-to-close order would be $11.00

Note: these sell-to close (STC) order prices are not static, but a great guideline to use, especially for trader’s new to the strategy.

The share price is extremely important when choosing a STC price. For example, a stock such as Netflix (NFLX) will have a higher STC than Twitter (TWTR) based on share price. NFLX is currently around $99.00/share, while TWTR is $28.00/share. On average, the minimum STC I would have on NFLX is about $0.40. This means that if I paid $4.00 per contract, my STC would be at $4.40. For TWTR, the average STC would be between $0.20 – $0.30. If the price per contract is at $1.20, the STC would be between $1.40 – $1.50.

A stock like Google (GOOGL), however, would have a much higher STC. Since the current share price is around $630.00/share, the minimum STC would be about 0.70, but usually much higher, $1.00+. This is because of higher price per contract paid, it moves more in dollar increments, and has wider daily price swings.

A stock that has higher volatility also plays a role in choosing a STC that assures the trade will be exited as soon as possible. Some of the stocks on the DOTS list simply move a lot more than the others daily.  This is why I have the 3 Tiers with 27 total stocks. I will always prefer to trade stocks that are higher-priced and have larger daily swings. Tier 1 has that. This not to say that stocks on Tier 2 and Tier 3 are not great for trading, they are, but generally the Tier 1 stocks will take a lot sooner to exit than the Tier and Tier 3 stocks. On the same hand, stocks like TWTR, BABA, FB, BA, and CRM all have inexpensive contracts that allows traders to use that as leverage. For example, if it cost me $10.00 per contract to trade a GOOGL strike price, but only $2.00 to trade FB, then I would multiply the contract size on the FB trade five times that of GOOGL to basically have the same cost basis.

  • GOOGL 10 contracts X $10.00/contract = $10,000.00 cost to place trade. $1.00 STC above price paid/contract = $11,000.00 (minus commission costs).
  • FB 50 contracts X $2.00/contract = $10,000.00 cost to place trade. $0.20 STC above price paid/contract = $11,000.00 (minus commission costs).

The minor downside is that FB will take a bit longer to exit than GOOGL would, but this is not always the case. Just understand that after years of trading my strategy, this is generally true of the lower priced stocks. I actually find TWTR to be more volatile than FB, and those contracts are even lower-priced than FB.

The time the trade is placed is also very important. If it is very early in the day, I will use a higher sell-to-close price than I would if there were only two hours left in the trading day. If early, I can always adjust the STC price and lower it, as there is still plenty of time left. If I place a trade at 2:00 p.m. EST, my STC would be more conservative. This is due to lower volume, possible pinning (happens often late Friday’s). If there is an early GOOGL trade at 9:50 am am EST, I would use a STC starting at $1.50 above price paid per contract. Then, depending on the price movement, would adjust and lower accordingly from there (increases happen, as well).

The Bollinger Bands play a very important role in determining my STC price. This is often gained from experience trading the strategy and repetition. If I see a GOOGL chart, where the bands are extremely wide, and all of the bottom 4 indicators are showing extremely oversold for a call buy, I will not hesitate starting with a much higher STC than I usually would. PCLN has this happen often. The one main issue with a stock like PCLN is the bid/ask prices, which I will get into later. A couple of years ago I had a PCLN call trade that had a $5.00 STC order above price paid per contract that cost $18.00 initially. If I see an APPL chart, and there is a $4.00 + difference from high to low daily when the time to place a trade is available, I would set a STC higher than usual. On TWTR or GPRO, for example, if I see a $2.00 difference from the high to low, this would also be a situation where an increase STC price is appropriate. One thing I look at also is the top Bollinger Band high and the Bottom Bollinger Band low, not necessarily the price action, but the Bands themselves. This is a great indicator of where the stock can move to.

Bid/ask prices are also very important and play an important role in my STC prices. As I mentioned, PCLN could probably be traded at least 3 times per day if only the bid/ask prices were reasonable. Especially the last few months, I am seeing a bid/ask difference on the strike prices that are sometimes $3.00 + apart. This is impossible to trade. Occasionally, I will see PCLN strikes that are about $1.20 apart. I will trade this, but would have initially been a $2.00 + STC price above the price paid per contract, I would automatically know to place the STC at $1.00, maybe slightly more. This is because since these trades are round-trip trades, getting in and out of the trade will cut profits simply due to the wide bid/ask prices. If PCLN should ever have a stock split (hope it’s soon), it would probably take over as the #1 DOTS stock to trade. GMCR, even as a lower-priced DOTS stock, has had this issue with the bid/ask prices being too wide. Currently at $58.50/share, the $56.00 strike price call options are trading at $2.24 – $2.76. This is too wide. If my pre-determined STC price would be at $0.30 above price paid per contract, it would be extremely difficult to exit this trade without needing double the price move of the share price. A more reasonable bid/ask would be $2.25 – $2.35 or $2.20 – $2.40 even.

There are trading opportunities where I will buy a lot more calls or puts than usual. In situations like this, since you are more leveraged, the STC can be lowered. I will do this especially if it is later in the trading day. 100 contracts will require a lot less of a price move to exit the trade than 50 contracts would. If I have 100 contracts on TWTR at $1.20 per contract and my initial STC price was at $0.30, I would have no problem lowering that to $0.20 if I wanted to close the trade out as soon as possible. If a STC on GOOGL was initially set at $1.00, lowering that to $0.70- $0.80 is perfectly fine.

My subscription service on Skype and Chatzy for these DOTS trades does provide all of these real-time STC orders, but I wanted to give everyone a good gauge on how to determine what STC orders are appropriate under each circumstance.

If you have any questions about determining a STC price, you can leave a comment here or e-mail me at kmob79@gmail.com.


Earnings Strategy: The Double Neutral Calendar Spread

The Double Neutral Calendar Spread Strategy

The Double Neutral Calendar Spread is a very unique strategy. I have personally never seen anyone really use it the way I do. The strategy can be looked at as a “synthetic” Straddle/Strangle, and is so much cheaper to place than a Straddle or Strangle. Here I will outline the trade, when it is appropriate to use, and show comparisons. This will be a long post, as it does require a lot of examples and complete understanding of the strategy to adapt it to your trading arsenal. It is the type of strategy where you are taking a neutral position and could really care less which way it moves, and at a price that is a fraction of the cost to place as a Straddle, Strangle, or Reverse Iron Condor.

The premise of the strategy is neutral-based, meaning that the direction the share price moves is irrelevant. I use this strategy strictly for earnings trades. While the Neutral Calendar Spread is a neutral trade, this is a trade on volatility and price movement, but in a completely different way than a Straddle or Strangle.

Since Neutral Calendar Spreads offer some of the highest returns with a low cost to place, the goal of the strategy is to have one side of the trade (the call or put side) profit more than the cost to place the trade and off-set the losing side. On average, gains are usually around 100%, sometimes lower, but often much higher. It is not uncommon to pay $0.50 for a DNCS trade and sell it for $1.50. Even selling at 0.75 + is still a very good profit.

Lululemon Athletica Inc. (LULU) reported earnings pre-market today, 9/10/15. To place a Straddle or Strangle yesterday, you would have to pony up a large amount of capital to trade it, with plenty of risk. To buy 10 contracts each on LULU with both calls and puts at $64.00 strike prices, this would have cost you over $6,000.00:


LULU 2 STR 9915

While LULU historically does move a lot after reporting earnings, paying over $3.00 + per contract on both the call and put side is simply too risky. With LULU at $64.05/share at the market close yesterday, to just break-even on this trade using the Straddle, the stock price would have to move to $70.21 on the calls or down $57.79 on the puts. No thanks.

Even if you wanted to use a Strangle, a cheaper alternative to the Straddle, it would still be very expensive (I will use out-of-the money strikes, $3.00 apart from the share price):


While the Strangle is cheaper than the Straddle, there is also more risk, as the share price has to move more in order to profit. Both the Straddle and Strangle have unlimited upside potential should the stock make a meteoric rise or fall. However, if the stock only moved $3.00 or so, the trade would be a disaster, as the Implied Volatility (IV) would drop a lot, losing value on the call and put positions. This is why you have to be very careful and aware of when to these strategies.

This is where the Double Neutral Calendar Spread comes into play. The strategy consist of buying two Neutral Calendar Spreads, calls and puts that are out-of-the-money. Knowing that LULU has a fairly consistent history of making $4.00 + price moves after reporting earnings, here is how the trade would be placed using this strategy:

Entered Trade #1: The Call side

LULU 4 ncs1

Entered Trade #2: The Put Side

LULU 5 ncs puts


Combined Trade Placed as One Order

LULU 7 dncs 91015



Depending on your trading platform, this trade can be placed as one order, or you will have to enter each side of the trade separately. OptionsXpress and TOS allow you to do it as one, I believe eTrade, TradeKing, Fiedelity you will have to place it separately. It is important to remember that if placing the trades separately, if one side of the order gets filled, the other side must get filled, as well. The success of the strategy depends on having all four (4) legs.

As it turns out, LULU is down $5.00 a share right at the market open here, a perfect position for the put side of the trade.

What is really great about this strategy is the minimal cost it takes to place and the high ROI. Unlike the Straddle or Strangle, it does not require a massive move to profit. In fact, even if the stock only moved $3.00 a share up or down, this trade still would be profitable. It holds value extremely well too. I have had many instances where the stock moved much more than I anticipated, and I still profited.

It is also important to understand that no matter what, one side of the trade will be a loser. It is the way the trade is structured. For example, on LULU, the call side of the trade is currently going for about $0.20 at 9:51 am EST on 9/10/15. Generally, I like to close out the losing position (the calls in this instance), especially when there are weekly options. When there are only monthly options available to use, which would be September/October, then I tend to hold onto the losing side longer in case there is a reversal, which can happen.

Time-decay is a big factor when using this strategy. As each hour passes, the price will continue to rise on the profitable side. Even if the stock should start to reverse, do not panic and sell too soon. A lack of time is on your side, so to speak.

As I mentioned earlier, if there is a choice between using a high priced Straddle/Strangle or a more safe, extremely less expensive strategy like the Double Neutral Calendar Spread, I will always use the DNCS. It is low-risk, high-reward strategy.

Now to the issue of what stocks to use this strategy with and other notes. You will only want to use this strategy with liquid stocks and especially liquid options. The reason for this is that on non-liquid options, the bid/ask price is very wide. Market makers and a lack of volume make it difficult to exit at the desired price. The entry is that tough to fill, but closing it out will be, so stay away from stocks where there is low volume, and always check the option volume, daily and open interest before placing any trade. A good example of this is a stock like Intuitive Surgical. A great candidate for this strategy based on how it moves post-earnings, the bid/ask prices can be $5.00 apart sometimes. That is simply too wide, and what usually happens is that the bid price will be extremely low, while the ask is high. Even trying to get a mid-point price is difficult because of the lack of volume, so just keep this in mind.

You do not want to use this strategy on a stock like MSFT, T, or other non-volatile stocks that don’t move too much after reporting earnings. Looking at a stocks historical movement after reporting earnings (use at least the last 4 quarters, if not more), will give you a good idea of which strike prices to use. You can also look at the options chain and the at-the-money calls and puts, add those up together, and see the anticipated price movement “priced” in.

This strategy works great on stocks like TSLA, AAPL, BIDU, BWLD, GMCR, Z, YELP, PCLN (depending on bid/ask prices), ULTA, etc..

Choosing the right strike prices to use at first may seem to be difficult, but it is not. Remember, this strategy holds up very well no matter what the movement is (even non-movement), so if the strikes you chose are off a a little, it is not a major issue. If anything, I like to widen the strikes out more on stocks like TSLA just to be on the safe side.

Always use your trade calculator when using this strategy.  If you ever see a Profit/Loss chart that looks like this (another LULU example that shows when the strike prices are too wide apart, using 71.00 strike calls, and $57.00 strike puts compared to the trade posted), do not trade it:

LULU Bad Chart

To understand this, if there are 0.00 ‘s or a negative (in red) in the middle price  (in this case at $60.87), this is a clear sign to steer clear. Sometimes, you will find a stock that you think will be a good candidate for this strategy, but when using the strikes that look like they would work well, they simply don’t align. This happens. Move on to the next trade. Other times, you will need to adjust the strike prices by a dollar, but make sure to never force a trade that isn’t there. As you begin using this strategy, you will become more familiar knowing when to use it. I do recommend using this strategy on stocks you follow or are at least familiar with.

As I write this, LULU has moved down over $7.00 a share, and the trade has still held up remarkably well. However, the goal of the strategy is to exit the profitable side quickly, not to keep it open for too long.

I do use this strategy quite often, especially during earnings season, and post them on my Trading Forum subscription with a full explanation of the strategy for that specific trade and the entry and exit points.  If you have any questions on this strategy, you can e-mail me at kmob79@gmail.com or leave a comment here and I will respond as soon as possible. Thanks.








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