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WTI Crude Oil: Crude Oil plummeting again this morning and dropped below $87. Bears are really driving this down. $85 is the next support for this free fall.

VIX Spike to 15.86 - Time to start looking at high IV option strategies such as Jade Lizards, Ratio Spreads, and Broken Wing Butterflies. Discontinue the calendar spreads, unless there is a favorable IV skew.

SELL AAPL NOW: Let's see if this guy is right in about a month. AAPL is trading at $99.95 right now.

SPX calendar spreads, front month expiring on Sept. 5th. I opened up a bearish put calendar hedge before Yellen's Jackson Hole speech. Instead of a drop, the market drifted higher to all new highs. I added 3 more calendar spreads(calls) as I don't expect it to spike that much higher. Additionally, I added another put calendar to "smooth" out the risk graph to the downside.

Calendar Spreads - SPX Position

I have decided to open up a position using Calendar Spreads on the SPX. Volatility keeps on getting lower, and its getting harder to place Broken Wing Butterflies farther out of the money with low vol.

While I am expecting the market to correct, as well as many others, it hasn't happened yet, and who knows when it will happen. The Dog Days of Summer has seen the market grind higher due to the lack of volume in the market. Does the market finally crash in September or is it in October?

I have decided to open up some Calendar Spread trades for the SPX with a wide profit area since I don't know if the market will grind up, or finally correct. A massive correction will wipe this position out, but the trade is only exposed fro 15 days using the SEP1 Weeklies.

This multi-layer Calendar Spread position has Short Calls at the 1995 and 2000 strikes, and Short Puts at the 1960 and 1970 strikes.

My prognosis is that the market continues to grind higher, but with implied volatility coming back into September, as traders are back from vacation and all of the kids are back to school. I don't expect(or want!) a correction in the next 15 days.

Why Hasn't the Market Crashed Yet?

The Good The SPX has rallied about 90 handles in the last 10 days. The NASDAQ has reached all time highs. The Dow Jones is again flirting with 17,000. America must really be happy, and everybody must have jobs. The economy must be humming, and everybody is spending their money, fueling the stock market rise through blowout corporate earnings. If you believe the Labor Department Numbers, Unemployment is sitting at 6.1% - the lowest in 6 years - and all of the jobs lost in 2008, have now been filled with new jobs. But it doesn't seem that way does it? The Ugly President Obama's approval rating hovers at his all time low. Congressional Republicans are stonewalling the President, and the Senate Democrats are stonewalling the Congressional Republicans. There are riots and looting in the streets of Ferguson, MO where racial tensions are exploding. There seems to be a lot of social unrest with mass shootings and killings in Los Angeles, Houston, Sandy Hook, and Aurora Colorado, to name a few. As for Jobs, in a few days, Federal Reserve Chairman will give a cautionary speech telling us that the job gains are due a spike in part time workers. These part time workers cannot find full time work. Also, the job participation rate has been plummetting the past 4 years. Around the world, there are wars in Isreal, Iraq(again), Syria, Libya, and Ukraine. Europe's economy is looking tired and fragile. What the? So, why hasn't the market crashed yet? What is propping the market up? The financial pundits keep saying its the cheap money caused by Yellen's ongoing QE that is fueling the stock market asset bubble where the money is looking for yield found only in the United States. This theory is great, and I guess I can believe it for now. Even if it is not correct, I do believe that Janet Yellen controls the cards. She could send the market tumbling not only by annoucing a rise in interest rates, but even a slight change of tone from going from "Dovish" to "Hawkish" could start a stampede to the exits. What now? Will you be ready? I certainly won't be as I haven't been able to figure this market out yet, as I would have figured a crash or at least a significant correction would have already occurred. My bearish trades have been wiped out, luckily I have had some bullish/long trades going at the same time. Should I trade at all? Go long a few names? Sell the market short?(again?) At we should be happy that Crude Oil has corrected this summer down over 12%, making future gasoline purchases lighter, putting money back in consumers pockets. Unless your long Crude Oil. Sorry. The market should go down any day now. Or not. Trade lightly and dig in. Volatility should be around the corner soon.

#SPX

The Weekly Short Butterfly Trade - Let's Try this Again

Late last week, I have decided to go back and watch the Weekly Short Butterfly System Training run by the Options Tribe. The Weekly Short Butterfly system was created by Author, Trader, and Investor Jeff Augen who uses big data to create and develop trading systems. I have tried this system in the past to mixed results. I will give this system another try, but will go through weeks of iterations to try and get the timing and execution correct. I have watched the videos again and here are my notes from class, using his words and paraphrasing some. **Weekly options have generated a flood of retail investors attempting to sell time decay. Their combined activities artificially depress short-term option prices creating opportunities for more sophisticated traders. ** Pick stocks for this strategy that are event driven, have low earnings quality(earnings are unpredictable), takes big jumps, highly owned by institutions, and generates lots of news and headlines. **Stock Selection for this Strategy - The best Stocks for this strategy are the ones that trade in a certain IV volatility Range: Around 30 Volatility Range, with NFLX being the exception. Stocks mentioned in the videos to use are AMZN, AAPL, BIDU, GLD, and NFLX. But any liquid and highly traded stock with options will work. **Open the trade in periods of low volatility, for example, after large events such as earnings or a product introduction, and when the stock has settled down. Volatility will be priced in before these events. **Short Butterflies benefit from large movements in the stock or rising volatility in the options. For morning trading, open a short fly at 10 AM, and not at the opening bell, where volatility will be higher due to the market absorbing overnight news or algorithms opening and closing trades. Here are the best time frames to execute to opening of the Short Butterfly. Time Frame 1: Monday AM to Tuesday AM Time Frame 2: Tuesday AM to Tuesday PM Time Frame 3: Friday AM to Friday PM Time Frame 4: Friday, 2:30 PM, Last Hour or Half Hour **One of the most profitable times for a short butterfly is in the final hour before expiration when the credit is excessively large and virtually any movement of the stock generates a profit. **Best Times and Days to Trade: 10AM to 2PM: After 2PM, the time decay is flushed out and you are pretty much into the next day. Trades are good for Monday, Tuesday, and Wednesday. None on Thursday(due to the flush of time decay in the afternoon), but again resume on Friday, especially during the last half hour of the tradng day. **Look at Open Interest volumes of the Calls versus the Puts to determine which to use and what strikes have the best spreads. **Some Strike Width Guidance A. Stock Under $200: 5 Point Spread B. Stock Over $200: 10 Point Spread C. On Expiration Fridays: The lower strike spread is best, due to the more compressed time frame, the greater sensitivity to moves, the higher time decay, and the massive volume trying to settling trades and speculation. So for Under $50 stocks, use 3 Point spreads? That would be my guess. Wider spacing between the strikes makes the trade more sensitive to movement of the underlying stock but also increases time decay risk. Use Wider spacing for longer time frames **Use Calls or Put Butterflies? Doesn’t really matter as they are usually only 2 cents difference. Augen uses calls as that is intuitively easier for most to understand. In reality, look for the better credit, but its about the same. Augen looks for the higher volume side, or the one with the tighter bid-ask spread, or the one more liquid. So, there you have it, my notes from his training class. I will begin executing some trades, trying to figure out the strike widths with the best bid-ask spreads, and trying to figure out the best days to place these trades. Now, what stocks should I pick to trade this darn thing?

#Short Butterfly #Weekly Options

Calendar Spreads - I Can't Walk Away!

Calendar Spreads will be the death of me. I was successful trading them for a few years from 2006 to 2008, but since then, I have had losing trades over and over. I thought my luck would return not only with Weekly Options, but with extended weekly options. I would then try short term Back to Back Calendar Spreads. Only a few stocks in the beginning had the extended weekly options, so I ended up forcing trades on some stocks, and my many winners were wiped out by the few big losers. I had to walk away, once again from Calendar Spreads. But, like a boxing professional or even an addict, I cannot stay away from this simple strategy. There has to be a way to make consistent money on Calendar Spreads or somebody wouldn't have invented it! I just can't stay away. I am back! I will revisit the Back to Back Short Term Calendar Spread system. This time around, many more stocks have Extended Weekly Options. Additionally, most Weekly Options are very liquid, with Bid-Ask Spreads as low as 1 cent for stocks such as AAPL or FB.

Risk Graph for a Calendar Spread I brainstormed some Entry Rules, and came up with these rules and guidelines for the B2B Calendar Spread. I figured that I will keep my subset of stocks to the Dow 30(and WFM & TGT?), as the blue chips do not move as much as the high growth stocks such as TSLA, NFLX or AMZN. Here are the rules: 1. The Product must have Extended Weekly Options 2. Bid-Ask Spread of the ATM Options should be less than 12 cents 3. The Vega of the ATM options should be the same or greater than the Bid-Ask Spread 4. There should be a positive skew(the front month IV greater than the back month) or no skew at all 5. IV Rank is less than 50% 6. Implied Volatility is greater than 12%

Most important Rule: Avoid Earnings!

If the product passes the initial criteria, then here is the entry instructions: 1. Open a Put Calendar Spread using the ATM front month of 8 to 16 days, with the long option being the next available Weekly Options(which could also be the monthly option). 2. After the trade is filled, immediately queue up a Good to Cancel(GTC) closing order calculating a profit of 15 to 25 percent. For example, if the trade was filled for $1.00, queue up a GTC order for $1.25. For a loss exit, if the stock closes outside one of the break even for 2 days, then exit the trade for a loss. As of now, I do not have any adjustment rules such as adding another calendar spread if the stock gaps either way. This system is a work in progress, and if my personal history serves me right, I will be discarding Calendar Spreads again! Hopefully, this time its for keeps!

#Calendar Spreads #Options Trading

RUT Bull Put Spread & Call Broken Wing Butterfly Combo: This short term trade expires tomorrow and is looking good as the market is rising into the position’s sweet spot of 1155. In the next iteration of this trade, I am toying with adding an upstream OTM bear call spread to try and stretch the profit zone. That would make the new proposed position an Iron Condor and Call BWB combo.

SPX "Batman" Trade: This combo put and call broken wing butterfly(s) position expires this Friday. The Sweet spots(short strikes) are at the 1855 Put and the 1955 Call strikes. The SPX at 1930 in this snapshot.

Light Crude Oil dipped to its 9 month low to $96.55, but rallied back above $97 by the end of the trading day.

Last week's price action has Crude Oil(WTI) breaking through the 200 Moving Day Average. The price seems to have found a short term base at around $97. Could see more weakness in the coming week.

Core Options Trading Systems

Here is a quick post about my current Bread and Butter Options Trading Strategies. This changes every year as I learn more about options trading, or learn the hard way, which is tanking with a strategy that I thought was good. This is always an ongoing exercise, but there is the current idea list. Also, a change in volatility could shuffle this list. I will get into more details of these strategies on this blog or in my Seeking Alpha Instablog explaining entry and exit points of these systems.

THE STARTING LINEUP

Short Strangles on Light Crude Oil: One main short strangle is for /CL, which is the symbol for light crude. This system looks at selling Puts and Calls at the 8 Delta strikes. The exit strategy would be to get at least 30% of the credit, then reload a new trade after exit. Also, the one adjustment would be to roll the untested side.

Bull Put Spread – 10 Delta: This trade will only be done on the SPX or the RUT but not at the same time as these indices tend to move together. The triggers are to get at least 5% credit of the max risk at the 10 delta put strike. This is a short term trade and days to expiration will be about 10 or less days. Take the trade past expiration, then reload on the next trade.

Dynamic Collars: For longer term investments, I will go long stock and execute a dynamic collar around the stock. The main goal for the Dynamic Collar is to accumulate shares when the stocks go down as the Long Put of the collar will be profitable. The profits of the Long put will be used to buy the shares. At this point, I will roll down the long put as well as the short call to establish a new collar position. I currently have a Collar on TWTR, and have TSLA, DDD, AAPL, F, and WFM on my collar watchlist.

Broken Wing Butterflies: This is a strategy to generate short term income using higher priced assets such as TSLA, RUT, and the SPX. I would enter in a short term trade, using 7 to 16 days to expiration Weekly or Monthly options. The center of the broken wing butterfly will be selling a 15 to 20 Delta put or call option(depending on my prognosis of the stock). The strategy will be to take the position to expiration unless the stock closes below the lowest(or highest) strike, where I would take the short term loss. Like the Bull Put Spread strategy, the goal is to get at least 5% credit of the Max Risk.

The Jeff Augen Long Butterfly: This strategy is a very short term strategy taking advantage of "distortions in the market" as Jeff Augen would call it. On Thursday Morning looking at Weekly Options for 8 Days to Expiration, you would open up a Long Call or Long Put Butterfly on very liquid stocks, and exit with a 20% profit on Friday or sooner. Exit the trade on Friday, but a trader can leave the trade over the weekend and into Monday and Tuesday, but the initial edge of the trade(the distortions) would have passed. In the past week, I have successfully profited on 2 of these butterflies on AAPL. I will execute both AAPL and FB for this strategy. Looking at SBUX and NKE as other possible alternatives.

ON THE BENCH

Jade Lizard: The Jade Lizard is a unique trade that combines the Naked Put with a Bear Call Spread in the same expiration. This is a trade that requires a high IV, and that I am slightly bullish on the direction.

Short Strangles on Stocks/ETFs: I also trade Short Strangles on stocks and ETFs using a ThinkorSwim scan where the IV Rank has to be at least 50% or greater. If the options are liquid enough, then sell the Put and Call at one standard deviation with about 45 days to expiration, and exit with 25 to 50% credit.

RUT Bull Put Spread - It is Time

The market has finally shown some decisive weakness. The Dow took a 300 point beating on Thursday. The VIX has spiked 27% to 17. The Option Giants are awakening.

More bears are piling on onto the financial wires to say that this is the beginning of a 5, 10, 20 percent correction. A simple technical level has been breached, the SPX has crossed the simple 50 moving day average decisively.

SPX Chart, August 1st 2014

Is this the beginning of a crash? Is it time to panic?

It is definitely time Not to panic, but to start aggressively looking at Premium Selling Strategies. The VIX's recent spike has given all options some "juice" and liquidity to start premium selling strategies.

I opened up a Bull Put Spread on the RUT on Thursday, July 31st, taking advantage of the pumped up volatility, as well as the event ahead of the Jobs report on Friday. The Russell 2000 Index has already been showing weakness and has started falling a few weeks ago, and I proposed that it would not drastically fall on a weak Jobs Report.

To open the trade, I look to sell the Put Option Strike with a 10 Delta, to get a least 5% credit of the maximum risk. So, that means that I should be getting at least 30 dollars of credit for every 470 dollars worth or risk( a 5 point bull put spread in this scenario).

Here is my trade from Thursday, using options that were 7 days to expiration.

Sell 1 Contract of the RUT 1070 AUG2 Put Weekly Options

Buy 1 Contract of the RUT 1060 AUG2 Put Weekly Options

Credit Received: $60 , Maximum Risk: $940

My profit target is to take full credit and take the trade to expiration. If the strike at any time closes below my Short Strike, then I will exit the position completely as the market will be crashing hard if this happens. The short time frame keeps me focused and I will aggressively exit if it loses, and aggressively reload with new trades as volatility in the options will increase as the price of the instrument decreases(even more so if it falls rapidly).

No time to panic, but it is time to dig in and execute some premium selling trades.

Option Trading System Notes

My Notes for this week. Hope I can piece together some good trading thoughts and hope this does not turn into a rant! Here is what I am trading now: Jade Lizards: This strategy that I learned from Tasty Trade is my best winning strategy to date. Will keep trading this strategy especially as the VIX has been rising. Some open Jade Lizards are underwater(WFM, GM, SHLD), due to the lower strike calls(selling) have a lower IV than the high strike calls that I am buying creating the wrong skew. Need to check those before putting on a Jade Lizard! Diagonal Spreads: This strategy was my bread and butter in 2013, it is showing some weakness in 2014. My open Diagonal trades have 3 losers(LULU, HD, and MCD) and one slight winner(MSFT). Will not open any new positions any time soon unless their is a decline in the VIX and a bullish feel to the market. Collars: I am migrating to putting on at least 5 Collars total. Currently trading F, SODA, and TWTR as collars. Opened a small starter position in AAPL, will need to add 5 more shares to be able to use Mini-Options. I believe that AAPL has bottomed and will slowly rise towards 600. I will hedge my AAPL shares with Mini-Options butterflies or BWB's and pay for it with some covered calls. Other collars that I am considering is CLF, MGM, and SPWR. Vertical Spreads/Naked Puts: I have been trading the wild swings of TSLA, thus far and have scalped some short term profits on CLF(naked put), and NFLX(bear put spread). Playing both sides of TSLA right now as the stock has swung through several strikes on a daily basis on both the bullish and bearish side. Call Ratio Backspreads - Earnings: Waiting on the results of AMZN and GOOG. The AAPL trade worked out, but not on the unlimited upside direction. If AMZN and GOOG are profitable, will continue this trade only for AMZN, GOOG, and AAPL using mini-options. Short Fly - Earnings: Discontinued for earnings plays. Don't have a good feel on when to put on this trade before earnings. Risk Reversal Butterfly - Earnings: Setup this trade on FB where I buy an upside Call Butterfly, and finance it by selling a lower strike OTM Put. I calculated the expected move looking at the front month straddle and FB was going to move 10% to either $60, or $48.50. So, I opened up a JANW5 Call Fly with the strikes 57.5-60-62.5, and financed this trade by selling a JANW5 46 Put. FB blew out their earnings after the market close, and is up over 11% to $60 in after hours trading. Look to exit this trade tomorrow afternoon, where I hope the stock stays around $60 as Theta decelerates rapidly. I don't want to hold this trade into Friday as who knows what news would wipe out any profit I may have. Looking to setup another one of these on GMCR next week. Well, there you have it. Looks like I am migrating my strategies to Jade Lizards and Collars, with that occasional Vertical Spread to call a top or bottom.

Today's Volatile Market

Here are my notes on some of my positions today, as the market has started a high volatility phase starting last Friday with the supposed emerging markets sell off. This week's earnings and Fed Meeting could send the stock market down further. TWTR Collar: Down 6% today. Rolled down my puts TWICE today, scooping up a total of 6 shares with the profits. FB Call Ratio Backspread: Closed my Ratio Backspread for a loss. I didn't like that 5% gain would land in the dead spot of the risk graph. Opened up a new earnings position: FB JANW5 Call Butterfly: 57.5-60-62.5 Call Strikes for a $.26 Debit. I financed this butterfly by selling a JANW5 46 Put to get an overall credit of $.07. The expected move was about $6, hitting $60 to the upside and $48 to the downside. Earnings are set for 1/29 after market close. Expecting a pop to the upside, as I believe the recent selling has removed the downside pressure. Diagonal Call Spreads: Added lower call diagonal spreads for LULU, MCD, and HD as these stocks have drifted lower in today's weakness. TSLA Bear Put Spreads: Closed a couple of Bear Put Spreads for profit on a sharp move down in the morning, and rolled down some more FEBW4 Bear Put Spreads as the stock rallied in the afternoon. EWW: Opened this Jade Lizard this morning. UNG: Stock dropped 5% today, putting this Jade Lizard in the red.

Diagonal Call Spreads

With the market starting a bearish run, several of my call diagonal positions may be in trouble if the market slide continues.

Here are my diagonal spread trades, all calls:

1. NKE: This position has been under water and needs a spike to reduce the loss.

2. MSFT: Opened up right after earnings, the stock should be a short term bull with the surprise earnings report.

3. MCD: Recent earnings report, expect the stock to trade sideways. May leg in a Put diagonal to convert this to a Double Diagonal.

4. LULU: The stock has rallied in the past couple of days, making the adjustments profitable. The bleeding in the stock may subside!

5. HD: Added a lower strike call diagonal as the stock started to drop.

Tried to open a diagonal call spread on NFLX, but the options pricing was out of whack and did not like the risk graphs of several iterations.

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