We joke that when stock markets get stormy, it’s time to head over to Uncle Warren Buffett’s house to ride out the storm.

Of course, no science or extensively backtested algorithm is at play here that gives us this conviction. But time and time again, we’ve been rewarded for selling naked puts in $BRK/B when stocks slide and $VIX spikes.

If it ain’t broke…

Here’s a recent chart of $BRK/B that shows a level of support around $350 per share:

We’re going to lean against this level for our risk management purposes.

Here’s the Play:

I like selling $BRK/B November3 (weekly) 350 puts for approximately $5.00 per contract. I’m choosing this weekly expiration instead of the regular November monthly options because Berkshire is expected to announce earnings on November 3rd and I’d like to be out of my position (win or lose) before that deadline.

Our risk management is simple: If we see a $BRK/B closing price below $350 per share, putting our short puts in-the-money (ITM), that is my signal to close the trade, book the likely loss, and move on. I won’t be interested in sticking around to see if this is a false breakdown while holding a position that has the potential for unlimited losses.

Meanwhile, I’ll leave a resting good-til-canceled (GTC) limit order to buy these puts back for $2.50 per contract — half of what I collect in premium today. I want to take the “easy” profit and move on to the next trade.

In the unlikely event that we’re still in this position on the eve of expiration day which is also the day Berkshire announces earnings, I’ll close the trade down win or lose. I don’t want to be holding these short puts with their super high gamma into the binary risk event that is earnings announcements.

If you have any questions on this trade, please send them here.

If you missed last week’s video Jam Session, you can catch a replay on Stock Market TV.

~ @OptionsSean

P.S. We do trades like this regularly. If you’d like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free! Or give us a call to learn more: 323-421-7991.

 

He had it coming.

But this isn’t really about Philip and his cancer sticks.

Instead, I’m going to sell premium in his Philip Morris stock options, betting on the company going nowhere for at least the next month.

First up, look at this chart:

We can clearly see the range contracting all year in $PM. Given what the broader stock market is doing, my bet is this range contraction continues.

Now the wrinkle we have to deal with is that Philip Morris is slated to release their next quarterly earnings statement on October 19, which is ONE DAY before October monthly options expire! That makes it tricky to be selling premium in the regular monthly options.

But the good news is, we can select the October 13 WEEKLY expiration options to express our trade.

Here’s the Play: [Read more…]

We’re adding another bullish leg to an existing position we already have on the books in Google.

In early May, we purchased December 120 calls that have performed nicely for us. In fact, we already sold half of our position and are #FreeRiding on the remaining portion of that initial trade. We can’t lose!

Given the price action and relative strength we’ve seen in $GOOG this summer, we’re ready to put on another fresh position to take advantage of even more upside.

Check out this chart:
[Read more…]

At the risk of sounding like a broken record, I’m continuing my theme of the past week of looking for opportunities to sell premium in mostly delta-neutral options trades.

“Delta-neutral” basically means I’m looking to collect income in sideways consolidations while the broader markets sort out this current correction.

Not only is this a good tactical bet for sideways, sloppy, and messy markets, but it also provides nice portfolio diversification if you have a book of long positions like I do.

We’ve got a well-known mega-cap stock to use as our vehicle today, so let’s get to it. [Read more…]

As is common when the stock market is moving lower, we’re seeing rising options premiums. We aren’t seeing any big volatility spikes yet, and $VIX is still relatively muted, but the recent rise coupled with setups that appear to be ripe for some sideways action in the coming weeks and months has me on the hunt for delta-neutral premium selling opportunities.

Today’s trade is in a metals and materials stock that appears to be stuck in a year-long range that we’re betting on continuing.

Check out this chart of Freeport McMoran $FCX for a visual of what we’re seeing: [Read more…]