One of the things I harp on here is Best Practices. When I make it a habit to engage in best practices in terms of both strategy selection and position management, I put myself in position to win more often.
Best Practices skews odds in my favor. It keeps me from swimming upstream against volatility currents. It keeps my risk lower. It helps with P/L consistency. And it helps me stick with trades that still have time to play out.
Selling Half is a position management best practice I employ most often when trading straight long calls and long puts. I like to sell half of my position when the value of the position has doubled. It can be very tempting to want to hold your entire position if it quickly runs up and you find yourself sitting on tremendous profits thanks to the leverage inherent in long options. And certainly, there are times when I wished I would've just sat on my hands as I watched a stock continue to fly higher. But for every one of those times I wish I had, there are easily five other times I'm glad I hadn't.
There are a number of great services for options traders out there that offer smart ideas for premium selling, or Iron Condor trading, or earnings trades -- I'm friends with many of the best practitioners. They are fantastic at what they do and I'm happy to name names. Just ask.
Subscribers to All Star Options come to us for option trade ideas which take advantage of directional edges the All Star Charts research team uncovers through exhaustive technical analysis. We are not beholden to any particular type of strategy, options spread, or timeframe. We simply examine each opportunity on a case-by-case basis and make an informed decision on what we feel is a good way to play a particular situation. We might not always end up picking the "best" way to leverage into a opportunity, but we think over time and over many iterations, our good decisions compound favorably.
Due to technical and logistical timezone difficulties with JC traveling in Europe, we are unable to have our usual monthly conference call to run through the broad themes JC is seeing from his unique technical perspectives as well as our usual review of open positions that need action taken ahead of the upcoming expiration.
But have no fear -- we got you!
All Options Premium subscribers will also be invited to attend the next All Star Charts conference call so you can get caught up on the bigger picture in the markets. This Call will be held on Wednesday June 19th at 7PM ET.
The markets are engaging in some sideways chop thanks to whatever headlines we're ignoring. Meanwhile, there are some oversold sectors showing signs of some mean-reversion. And within one of those sectors, we've got a stock setting up with a pretty straight forward reward-to-risk opportunity.
The drama queens have been in full force this weekend coming into the opening of trading this Monday morning. Here was my observation after rolling out of bed:
Geez, I shoulda checked $ES_F before I checked my twitter stream this morning.
FinTwit: THE MARKET IS CRASHING. ARMAGEDDON!!!
Futures: Down 6. Barely a rounding error.
Back to bed.
— Sean McLaughlin, NLD 📈 (@chicagosean) June 3, 2019
I rarely seek to be contrarian simply for the sake of being contrarian, but the mini hysteria I'm sensing amongst market participants feels a little hollow. Is everyone too leveraged? You're not trading based off headlines are you? ...are you??
If so, knock it off. Scared money don't make money.
With the S&P 500 re-acquainting itself with it's 200-day moving average, here's how we're going to play it...
As we head into June Expiration, there are a number of open positions with options expiring in June that may need some attention. Generally speaking as we approach any expiration, it is a Best Practice to begin aggressively weeding out or rolling out positions that aren't working. Why? For long premium plays, unless positions are comfortably in-the-money, theta decay will begin to accelerate and whatever premium is left in our options will quickly disappear. For short premium plays where we haven't yet reached our profit target, gamma becomes our enemy making our position more sensitive to fluctuations of the underlying. A small winner/loser could quickly get away from us. Best to roll it out to the next monthly expiration cycle to buy ourselves more time, or close it down and look for newer/better opportunities.
In no particular order, here are some currently open positions with June options that we'll be looking to take action on next week:
We're tracking a household name that -- with the exception of four wild days during the Christmas nadir -- has been riding it's 200-day moving average quietly higher and is setting up for what could be a big move.
When you're bullish on a name and options prices -- in terms of volatility -- are the cheapest they've been all year, the prudent move is often the simplest move: buy longer-dated calls. And the decision is even simpler when you have a clearly defined level to show you where the trade idea is busted.
In a recent report, the All Star Charts team highlighted some mixed signals and the lack of trend in many areas of the stock market right now. These are often frustrating situations for straight stocks players. Luckily for us options traders, we can craft strategies that best suit any market environment we may be in. For today's play, we're going to get a little creative, mixing a credit spread with a calendar spread to establish a unique risk profile in a name that we're cautiously bullish on.
In a recent blog post, All Star Charts highlighted a stock retesting a breakout from a very large base. This was the money quote:
First off, big bases take time to form because they are caused by steady institutional accumulation. Mom and pop investors aren’t the ones creating this trend, so I know that there’s underlying demand that will support prices if they do move lower.
Because prices have memory and the base has taken a significant period of time to build, there’s likely been more trading at each price level along the way. As a result of this institutional support, the rate of change to the downside is likely to be less severe versus a name that’s advanced quickly to the upside with less trading activity at each level, and thus less memory among market participants to defend these levels on the way down.
Secondly, our risk is extremely well-defined when trading these patterns. In the event that we are buying a base breakout (or pullback), we know exactly where we are wrong and can generally minimize our risk relative to potential reward.
Like a fly to honey, I'm always attracted to asymmetric opportunities that offer limited risk and the potential for unlimited gains. Trading options allows us to quite literally create these types of risk/reward opportunities every day. It's built into the very structure of your basic call or put option! And when we can spot a stock chart that offers us a little bit of an edge on the future direction of prices, it is time to take action.