#ShortStrangles on #Stocks – day trading the weekly #options

Interesting week last week in the strategy to day trade short strangles on various stocks.

The basic idea with this strategy is limit risk while taking advantage of daily time decay on the calls and puts expiring on each Friday.

The trades are taken 30 minutes into each day and closed at the close. The protective stop is a 5-minute close either above the upper strike or below the lower strike. If a protective stop is hit then both sides are closes on the stop.

Since the opposite strike hedges the losing strike, a stop at that point is usually a breakeven or small loss for the trade, and sometimes, depending how long during the day the trade has run, yields a small profit. When the stop is hit and the trade closed, if there is a enough time left in the day, the strangle can be rewritten and reentered at the next strike levels.

Last week the short strangles were on TSLA, NFLX and SHOP. See the table below for the day-by-day trading.

TSLA stopped out on Thursday for a 3.6% loss on the margin requirement (see the table) but the reentry has a 2% gain before the end of the day, mitigating the initial loss.”

What is obvious is how steady the week was for logging profits. Since this is day trading, the trades are using roughly the same cash margin over and over each day. As a result, although the daily gains for options trading may be relatively small, the accumulated profits for the week can have a notable return.

Margin requirements can vary day by day, strike by strike and, I supposed, broker by broker. Those listed here are calculated on the margin calculator at the CBOE. For presentation purposes, I’ve calculated the dollar amount on these trades as per each contract.

The short TSLA strangles gained 18.79% for the week, SHOP gained 6.52% and NFLX gained 11.03%. See the green blocks on the table to those results.

In the last green block, I averaged the margins across the week and across the three stocks and came up with the $11,857 number. The highest requirement was the $20K per contract on TSLA at the beginning of the week (that would also be the minimum required to trade this for the week).

The total profit for the trades was $4,759 for the week, a yield of 10% on the three strangles combined.

That’s what I meant when I said above it can have a “notable return.”

(click on the table for a larger view)

$SPY – Up, up, up…and KERPLUNK?

Just got back from a week in New Orleans so if my head feels a bit thick, don’t blame me, blame the Nawlins’ food, drink, the music.

W.C. Fields once said: “I spent half my money on gambling, alcohol and wild women. The other half I wasted.” New Orleans is a perfect city to not do the wastin.’

Anyway, the market after a break of its December/January uptrend line, took another shot and manage another high on SPY (among other index ETFs) last week but dropped back down below the January high (332.95) to close at 332.20 Friday.

Not such a big deal except the NYMO after the rally off a double-bottom earlier in the week (see the white line with the red dots on the chart below) fell with the price weakness to turn the all important NYSI (longer-term breadth) negative.

That’s an automate sell on its own but there’s maybe more…

In his book “Methods of a Wall Street Master,” Trader Vic Sperandeo says determining the trend is a simple as 1-2-3. One is the break of the trend line, which happened on the gap down from 1/24 to 1/27 (see the chart); two is the attempt to resume the recent trend that fails, which may have just happened; three is a fall back to through the low after the trend line break.

Since “three” hasn’t happened yet, there’s a chance, and maybe even the likelihood, the pattern here is just a pause before more advance but…

But Trader Vic Sperandeo’s has more. His most classic set up for aggressive traders is right here, right now. He calls it “2B”, as in “2B or Not 2B, that’s where the money is made.” The fade off the old high on Friday is the 2B, as pretty as can be (see the chart).

This a short.

And it is made all the better by the stop being close by at the old high at 334.20.

That simple. And if it follows through, without stopping out, it could be a great big KERPLUNK right at an all time high.

P.S. There’s also a bearish full moon today for those who put some store in such lunar signs.

(click on the chart for a larger view)
and

ON $AAPL gone parabolic – with an updated chart…

This is a followup to the post below as AAPL takes a predictable hit today.

Wrote the following in this link a couple of week ago: On $AAPL Gone Parabolic.

At the risk of a massive understatement, let’s just say AAPL has gone up…a lot.

In fact one look at its chart below reveals is has gone parabolic.

Let’s define a parabolic move first. Basically, according the website, Prometheos Market Insight, when a stock makes a enough of a move to create three distinct supporting trend lines (see the green lines on the chart below), then accelerates, it is in a parabolic move (the red line on the chart).

There is both good news in that, and bad news.

The good news you own it, the bad news its latest rise is unsustainable. Although one can only guess when and at what level it parabola ends (the way it always is with that phenomenon), but when the inevitable end comes it will likely be violent and the stock could eventually go back to where the parabolic began.

At this point, a rough estimate of where it began in AAPL is around $230.

It’s hard to believe it will ever quit going up as it’s wildly (exuberantly) rising, but I would suggest there is no profit here until one sells.

Also, one other thing to keep in mind, AAPL today, according to Yahoo Finance, has a market cap of 1.377 trillion dollars. That in itself is unprecedented in market history, but it is also nearly $100 billion higher than next highest market cap, MSFT (but that as they say is another story).


(CLICK TO SEE A LARGER VIEW OF THE UPDATED CHART)

$TSLA – #DayTrading options on stocks for less risk and more gain.

TSLA announced earnings on yesterday’s close and gaped up 50 dollars a share today, closing finally at 640, up 63 dollars.

And to think not that long ago the company and its founder, Elon Musk, was the mockery of the market.

After cruising most of last year below 300 a share, it broke above 300 on October 25th and hasn’t looked back.

I wrote this back in August of 2017, giving a long term heads up on the stock:

Is TSLA the best long term investment since AAPL?

But this post is not about that.
This is about options trading. And more specifically day trading stock options.

I wrote about this strategy for the first time in August of last year but primarily in this post in November:

#ShortStrangles on #Stocks – stealing money weekly in cash

That post was about holding the weekly options to week’s end and did not yet consider day trading. Still, as that post indicated there was a 5.6% gain on the margin requirement for the stocks that week. If consistent each week, that would add up to something for the year.

But could it be consistent when the risk on a short strangle strategy is unlimited while the gain is locked in on the credit received? Probably not. Take TSLA today – that 50-point gap on the open would have killed any short strangle, and it would have been even more devastating by the end of the day.

So day trading…

See the chart panel below. The top row of charts in the panel are last week’s four days (Tuesday through Friday) since the holiday. The lower row is this week through today (Thursday).

In the last eight days, day-trading short strangles in TSLA has gained 16.7% against the margin required each day. The margin fluctuates a bit each day depending on the call strikes and puts strikes executed but since the strategy is a day trade on the weekly options the margin remains roughly the same each day.

On the charts the negative numbers in the white flags on the lower right are actually the pluses on the shorts per contract, and the positive numbers are negatives.

For example, Tuesday (the chart second from left on the lower row) the loss was $365 per contract while today (the last chart on the right on the lower row) the gain was $660 per contract. All total, those profits equal $2,012 per contract over the eight days, give or take a bit for commissions and slippage. That’s about 16.7% against an approximate $12K margin requirement day in and day out. With the risk limited to a single day (with stops), there is likely much more consistency in the trades.

I’ve been by a lot of pundits on the internet, so-call options experts parading the common wisdom, day trading on stocks can’t be done (to say nothing about SPY which I’ve written about many times now).

And of course, it takes persistence and discipline and experience to day trade options on anything but in at least this case with stocks, the common wisdom is, again, suspect.

P.S. One final note on TSLA today.The trade was made after its earnings were in the market. Note on the chart for today (lower row, far right) how flat the price action was for the rest of the day as time decay racked up an approximate 5.5% against margin, a 54% gain on the actual money, per contract, put into the trade.

(Click on the chart panel for a larger view)

$TSLA – Update as its stock price launches like a rocket

Elon Musk launched his cherry red roadster into a Mars orbit last year.

TAKE A LOOK:

TSLA Roaster takes a space ride

Today he launched the company’s stock into a Wall Street orbit (see the link and charts below). You’ve heard it here before…

TWO YEARS AGO:

Is TSLA the best long term investment since AAPL?

AND NOW ON ITS LATEST EARNINGS:

(Click on the chart for a larger view)

$SPY #Options – $DayTrading Calls 1/28

Haven’t posted the day trades in SPY calls and puts for quite a while but the strategy still holds – tight spreads, high liquidity, less time decay.

The trades are always the nearest expiration (Monday, Wednesday, Friday), the closest in-the-money (ITM) or at-the-money (ATM) strikes, and never hold overnight (it’s always a day trade). They are posted on Twitter to get the time stamps.

Today was a good day, and a good day to drop this post here.

LAST TWEET

(A note on the “added note” in this tweet for the reentry later in the day – it was up 16% at one time but pulled back and broke even at the close)

EXIT ON MAIN TRADE

TAKING PROFITS ON FIRST HALF

PUTTING ON A TRAILING STOP

INITIAL ENTRY -BEGINNING OF THE TRADE

$SPY – The drop too far, too fast?

The market took a plunge today and all the why-did-it-happen pundits are citing the Chinese coronavirus fears for the sell-off.

Once again, this is news arriving to confirm what’s already happened. The NYSI, measuring long-term breadth on the New York Stock Exchange, turned negative last week. That was the tell that the market’s advance was faltering. News can accelerate a decline, but no-news would have also but probably at a slower pace.

What we have now is a fast fall and based on one of my key charts it is likely too far, too fast. See the chart of SPY below and note nearly every time the average SPY pull-back (as displayed as a histogram) pierces one of lower green lines, it bounces, and sometimes runs. The Nasdaq Composite chart is showing the same pattern.

In addition, 45 of the stocks on my nifty-50 stock list are on sells and 23 are oversold. Forty or more on sells is usually the bottom or the beginning of a bottom of a down swing.

Although today looked relatively ominous, not a lot of damage has been done – most of my bellwether stocks are only down two to three or so percent since the NYSI down turn.

So what’s next?

I think the market bounces tomorrow. The question for the week is will it be a dead cat? Or will it, in this bull market, be the start of another run to the highs?

If it turns out it’s no more than a dead cat bounce, or the market doesn’t bounce and keeps on going right down without pause, then the damage to the stocks and indexes not done yet will be done on the next plunge.

For now, as laid out in the post below the long VIX ETFs and ETNs are the play on this drop. Stops should be tightened to preserve the quick profits on TVIX (29.9%) and UVXY (22.7%). If the market weakness continues, TVIX and UVXY will no doubt be easy swing trades to jump into and out of going forward.

(click on the chart for a larger view)

$TVIX – From heads up to launch up…

On January 14th, I posted this link as a “heads up” to the what was happening in the VIX and its related ETFs and ETNs like the 3x-leveraged TVIX:

$TVIX – Just a heads up…

“I don’t know what’s going to finally trigger it nor when it’s coming,” I wrote in that post, “but when this leveraged VIX ETF turns, it’s going to explode.”

The trigger turned out to be the old reliable standby – the NYSI, the McClellan Summation Index, as long-term breadth tripped under the price surface of the market, along with the first day TVIX did not make another new low. That was on 1/22 for a buy of TVIX on 1/23 (see the blue candles on the chart).

By the time TVIX finished its down swing, it made new lows 11 days in a row, four days after the “heads up” given here (see the blue vertical line and the pink dots on the chart below) – great anyone short any VIX-related product — but that was also a sign the pop was going be a bang, maybe even more than a bang – an explosion yet to come?

Since then, three trading days ago, TVIX is up 29.9% on today’s close. UVXY, the 2x-leverage ETF, is up 22.7%.

(click on the chart for a larger view)

#ShortStrangles on stocks – the weekly on $SHOP WITH UPDATES

Didn’t get around to posting this on Twitter Monday to get the real-time stamp as is often my custom with trades like these but now that’s it is stopped out, I thought I’d note it anyway.

I first wrote about this short-strangle strategy in this post in September:

#ShortStrangles on #Stocks – stealing money weekly in cash

As per the strategy, this was a position to be taken 30 minute into the open Monday (see the green vertical line on the chart below for reference). SHOP closed that bar at 441.01 which made the short strangle an out-of-the-money 450 call and the 430 put, a ten-point spread on each side of the stock price and a 20-point spread over all. The option expiration was this Friday, 1/17.

The stop loss was on a five-minute close by the stock above or below either strike.

If all went well, meaning SHOP stayed between 450 and 430 for the week both the call and the put would expire worthless and earn approximately $850 per contract, a 9.6% gain on the cash margin required for the trade.

All did not go well as the stock broke 450 this morning (see the red line on the chart for reference), which closed out the strangle. Still there was bit of profit, about $183 per contract, 19% on the price of the strangle, 2% on the margin required. SHOP could fade back below 450 by Friday’s close (which wouldn’t surprise me) which would reap the full reward for the strategy but this stop discipline is crucial, otherwise this strategy can have unlimited losses.

UPDATE: At the close of the week SHOP did not slip back below 450 but the flush in the call premium, along with the put going worthless, would have this strangle gaining approximately $427 per contract, a gain of 4.8% on the margin requirement. But it would haven’t taken a different stop-loss strategy to capture the end-of-the-week return.

P.S. Shorted a 460c/440p strangle on the bar after the other stopped out for a potential gain of about $485 per contract on Friday’s expiration.

UPDATE: This strangle which replace the other went well with both the call and the put expiring worthless for a gain of about $475 per contract, a gain of 5.5% on the margin requirement.

(click on chart for a larger view)

#STOCKS – on $AAPL gone parabolic

At the risk of a massive understatement, let’s just say AAPL has gone up…a lot.

In fact one look at its chart below reveals is has gone parabolic.

Let’s define a parabolic move first. Basically, according the website, Prometheos Market Insight, when a stock makes a enough of a move to create three distinct supporting trend lines (see the green lines on the chart below), then accelerates, it is in a parabolic move (the red line on the chart).

There is both good news in that, and bad news.

The good news you own it, the bad news its latest rise is unsustainable. Although one can only guess when and at what level it parabola ends (the way it always is with that phenomenon), but when the inevitable end comes it will likely be violent and the stock could eventually go back to where the parabolic began.

At this point, a rough estimate of where it began in AAPL is around $230.

It’s hard to believe it will ever quit going up as it’s wildly (exuberantly) rising, but I would suggest there is no profit here until one sells.

Also, one other thing to keep in mind, AAPL today, according to Yahoo Finance, has a market cap of 1.377 trillion dollars. That in itself is unprecedented in market history, but it is also nearly $100 billion higher than next highest market cap, MSFT (but that as they say is another story).

(click on the chart for a larger view)