#OptionsStrategy – #DayTrading $TSLA strangles

Posted on by diogenes227

“No one can day trade stock options!” an irate administrator of a Facebook options trading group told me back at the beginning of the year.

His group was centered on “investment income using options.” He was basically doing covered calls or puts, rolling them forward when necessary, in an effort of adding ten or so percent to ownership of the stocks themselves. Fine.

I just happened to blunder into the group day trading SPY calls and puts for ten times that return. I don’t know if it was the returns or, as he said, his belief the practice was so risky I should not be suggesting it anyone.

I argued there were ways to control risk and he might want to open his mind.

He didn’t want to evidently since he blocked from the room.

Well, at the time I got tossed, I thought maybe he might right – after all, trading SPY options was not the same as stock options. As the most popular ETF its option were extremely liquid, with tight spreads, and three expiry days per week. I’ve chronicled much of the SPY trading in posts below so I won’t get into it anymore in this one.

Stock options didn’t have those qualities but some came close – AAPL and FB particularly, others like NFLX, NVDA. The trouble with each of the stock-option trades, however, was that not only did one have to get the direction right for the day (it is a call or a put?) but one also had to have enough movement to make it worthwhile, and then each trade needed to be monitored pretty much constantly all day.

What I was after was a strategy that could be put on early and ignored to the end of the day unless it hit a stop loss during the day, at which time there might have to be a reentry if there was still time to reap some reward.

The trouble with even the best stocks like AAPL, FB, etc. was there was usually not enough bang for the buck in a single day.

Then along came TSLA.

It didn’t take to discover TSLA weekly options were as good as it gets for day trading short strangles, lots of premium, a big range of movement and enough liquidity to fairly easy to put on the trade and, most importantly, to get out of the trade.

In a short strangle, one is playing time decay (theta) every day on the strikes both above and below the stock’s price at the start of the trade.

And one has to keep in mind that shorting options naked (without owning the stock) requires considerable margin buying power – one ends up needing to put up $30K to $50K to maybe make $500 on some days. That might not seem worth it, but the ringer in a day trade is it’s the same margin every day and stays the same as the daily profits pile up all week long. Oftentimes, the day by day ends up making double-digit on the margin requirement for the week (see the green cells in the table below).

Using a tight stop (like $200 per contract) and selecting the right spread of strikes prices, significant returns can be had in a month.

For August, the TSLA short strangles yielded $18,800 per contract on a maximum margin requirement of $50,521 per contract (as prescribed by the CBOE MARGIN CALCULATOR, a 37.4% return for the month (see the yellow cells in the table below).

That’s without having to know what TSLA was going to do on any given day in any volatile month of wild price swings.

(click on the table for a larger view)

#OptionsStrategy – #DayTrading $SPY Calls and Puts

Posted on by diogenes227

The contents of this post appeared here last on June 11th. I’m lifting it intact because nothing ever changes in the strategy.

There are so many options strategies in the stock market the head spins – a straddle, a strangle, a naked and/or a covered put and/or call, a calendar, a condor, an iron condor, an iron butterfly (isn’t that a rock band?) and any combination of any of these for hedging purposes, for capital appreciation or preservation, for gambling. Mind boggling.

But buying options…

Buying options, just plain buying a call or a put, everyone will say is a “fool’s game.”

Regardless of whether a trader buys calls or puts on index ETFs like SPY or QQQ or IWM, or buys options on stocks, there are only three things that can happen – the option goes the trader’s way (good), or the option goes against the trader (bad), the option goes sideways with price decay over time (also bad).

Two out of the three possibilities for the option buyer are losers. What fool would want to play that game?

But is it really a fool’s game, like everyone in options trading says?

For day traders it doesn’t have to be. If the trader is persistent, disciplined and experienced, it almost never is.

Let’s take SPY options as the prime example — very liquid across multiple strikes, tight spreads, hardly any time decay on a trade for only a day, a stop-loss is close by and immediate, and the profits, if there is a trend for the day, can be substantial, even rather astounding.

Also great for scalping on any time frame intraday.

Again, the key, as always, is persistence, discipline, experience, and an entry signal the trader is comfortable taking.

$SPY #Options – #DayTrading puts as the market plummets

Posted on by diogenes227

For twelve days the major market leaders defied the falling long-term breadth, measured by the McClellan Summation index (the all-important NYSI) dragging the general market high and higher on FED intervention (I guess) and irrational exuberance for the big, big tech stocks.

Well, today, the NYSI 13th day down, took care of that. Across the board, the indexes and stocks plummeted. The Dow was down 800 points, the Nasdaq Composite down 598. High flyers AAPL down 13%, TSLA down 14%, NVDA 13%, ZM down 14%. A lot of shock going around as exuberance gave to way how can this happen? Aren’t these stock things supposed to go up every day?

Funny.

Anyway, it was great day for day trading SPY puts:

The strategy for taking these trades is stated in this link: #DayTrading $SPY #Options – Buying calls and puts.

FIRST TRADE: 320%.

SECOND TRADE: SOME ICING ON THE DAY

$UVXY – a slow walk to its next explosion…

Posted on by diogenes227

The fuse has been lit all that’s left is for the blast to blast.

ON August 10 I gave another heads up to look over at UVXY before it takes off, maybe to the stratosphere…again.

See this link: $UVXY – lighting a fuse for its next explosion…

In the link it was pointed out that UVXY – like other VIX derivatives – had again worked itself into a falling-wedge pattern.

The last time that happened was in January. In February, after a slow walk out of the wedge it suddenly rose nearly to 140 from 11 – FROM ELEVEN TO NEARLY ONE HUNDRED AND FORTY! That explosion was fueled by the worldwide pandemic and, in the U.S. particularly, by the utter incompetence of Trump and his administration to deal with it.

I have no idea what is going to drive it now, although the Trump disaster continues unabated, but UVXY has again walked out of a falling wedge and is slowly walking toward whatever it is (see the chart below).

Maybe it will be reality setting in that an economy — that has been masked by a exuberant market rally fed by FED pumping and a few big tech stocks like AAPL, AMZN, MSFT, FB — more or less sucks.

Much, much more than less.

So many sectors – airlines, movies theaters, cruise ships, BANKS, now even fossil-fuel stocks like XOM, CVX, BP – after the initial bounce off the March lows have been going sideways for months and are now poised to drop off cliffs the market has built for them.

UVXY showed a hard run up off its low today. That could mean it’s done with slow walking. Or maybe not.

Regardless, it likely won’t be much longer until it explodes to the upside, and when it does, it will be fast and across the rest of the market it will take no prisoners.

(click on the chart for a larger view)

#StockTrading – $NIO and its #DarvasBox

Posted on by diogenes227

The basis of everything in the stock market is simplicity.

That’s hard to tell when there are thousands of opinions and indicators and time frames and derivatives flying around all the time. There must be a thousand videos on YouTube giving lessons in stock and option trading and now there’s also cryptocurrency too. There are brokerage programs and financial advisors and television commentators and TV guests galore. The mind boggles with all the information available, with all the noise, with all the complications.

But it all comes down to one simple fact – whatever it is, it either goes up or it goes down.

Even then, the question arises when is going to do one or the other?

So let me reminisce moment. I had a Twitter exchange recently with the excellent market-timing advisor, Brian Shannon, in which I had the opportunity to recall a conversation I had years and years ago in the parking lot of Cal. State University Northridge with the great market wizard, Willian O’Neil. He was just getting Investors Business Daily off the ground (that’ll tell you how many years ago it was) and was promoting it everywhere. That day at the university as he was leaving his presentation it turned out his car was parked next to mine. We had a nice chat about how useful his paper was, about his CANSLIM method of stock picking, his approach to timing the market particularly, and, as Hemingway used to say, how the weather was.

I asked him as he was trying to slip into his car to leave, what books and people influenced him when he started out. He paused, then with a sly smile and a twinkle in his eye, said “the Darvas book is awfully good.” The Nicolas Darvas book is “How I Made $2,000,000 In The Stock Market.” He made the money in the 1950s and published the book in 1960.

The book is a classic.

Darvas was one half of a renowned dance act that toured constantly and often gave ballroom-dancing demonstrations on cruise ships. The market was a sideline and since he couldn’t pay all that much attention to it while he was away, he would study the stock tables in Barrons and the Wall Street Journal to find stocks in sideways consolidations. He would then draw a box around the consolidation and He would give his broker instructions to buy the stock if the price came out of the top of the box and use the bottom of the box as a stop-loss level.

His stock investing system is simplicity itself. So simple, I’m sure there are those who go “What? It can’t be that easy.” Yes, it can.

Darvas turned his $10,000 savings into $2,000,000 in an 18-month period. As Bill O’Neil said “the Davas book is awfully good.” After I first read it, I realized that the sly smile and twinkle O’Neil gave me that day was him giving away his own stock-market secret – his CANSLIM methodology has Darvas written all over it.

Enough with the reminiscence, enough with the history. Dravas wrote that book 60 years ago.

What about now?

Nothing, absolutely nothing, has changed.

Let’s take NIO, the Chinese electric-vehicle TSLA wanna-be. See the chart below with the Dravas Boxes on each price consolidation since this year’s March low. NIO first came out of a Darvas Box at $3.20, then another at 4.17, then another at 7,91, and finally today again, on high volume, at 17.84 with no Darvas stops hit during its entire climb. Simplicity itself.

Of course, all of these boxes in NIO’s uptrend are in retrospect unless one happened to be focused on the stock and were watching for it to make its moves. That’s the past but notice is hereby given – NIO popped out of its box again today to 17.87 on a significant rise in volume. That makes it a buy on the open tomorrow. A tight stop would be the top line it just crossed at 16.44, and the stop Darvas would use would be the bottom of the box at around 10.5.

Stops are always determined by each individual’s risk tolerance but if the stops don’t get hit, NIO is an investment for the long term from this moment on.

(Click on the chart for a larger view)

Oh, and by the way:

(Click on the chart for a larger view)

#DayTrading $SPY #Options – after seven days up, SPY gets put

Posted on by diogenes227

As SPY tried to gap into an 8th day up in a row, it was obvious any fall back through the open was trigger to buy the puts.

FIRST TRADE:

SECOND TRADE ENTRY:

SECOND TRADE CLOSE:

(CLICK ON CHART FOR A LARGER VIEW)

#DayTrading $SPY #Options – Buying calls and puts

Posted on by diogenes227

The contents of this post appeared here last on June 11th. I’m lifting it intact because nothing ever changes in the strategy.

There are so many options strategies in the stock market the head spins – a straddle, a strangle, a naked and/or a covered put and/or call, a calendar, a condor, an iron condor, an iron butterfly (isn’t that a rock band?) and any combination of any of these for hedging purposes, for capital appreciation or preservation, for gambling. Mind boggling.

But buying options…

Buying options, just plain buying a call or a put, everyone will say is a “fool’s game.”

Regardless of whether a trader buys calls or puts on index ETFs like SPY or QQQ or IWM, or buys options on stocks, there are only three things that can happen – the option goes the trader’s way (good), or the option goes against the trader (bad), the option goes sideways with price decay over time (also bad).

Two out of the three possibilities for the option buyer are losers. What fool would want to play that game?

But is it really a fool’s game, like everyone in options trading says?

For day traders it doesn’t have to be. If the trader is persistent, disciplined and experienced, it almost never is.

Let’s take SPY options as the prime example — very liquid across multiple strikes, tight spreads, hardly any time decay on a trade for only a day, a stop-loss is close by and immediate, and the profits, if there is a trend for the day, can be substantial, even rather astounding.

Also great for scalping on any time frame intraday.

Again, the key, as always, is persistence, discipline, experience, and an entry signal the trader is comfortable taking.

$UVXY – lighting a fuse for its next explosion…

Posted on by diogenes227

File this under “history repeating slash history rhyming.”

The last time I posted a VIX ETF heads up was January 14TH ($TVIX – Just a heads up…), when TVIX was 40ish and UVXY was 10 something. Both, at the time of that post, were down eight days in a row in a falling wedge pattern, like UVXY is now (see the chart below).

I suggested at that time that whatever buy trigger came along it was going to come along soon and those leveraged ETFs were going to explode.

Three days later they popped nicely, not spectacularly but nicely, then backed off to retest the lows into early February. Then there was a another buy, triggered by a down turn in the NYSI, the longer-term breadth measure of the McClellan Oscillator, on February 19th.

And the VIX ETFs exploded.

UVXY went from under 11 to as high as 135. In two weeks. TVIX, which rocketed from 40 to a 1000, is no longer with us, having killed itself with success…well, extreme volatility.

The blast was driven by the onset of the Covid-19 pandemic in the United States. It started slow but with President Trump’s incompetence and his totally botching of this country’s response to the virus (calling it a “hoax”), it ran the major indexes down 36% in a few weeks.

The market has rallied back to the previous highs with Congress putting out a two-trillion-dollar stimulus that once again helped Wall Street but not much on Main Street, and with the Federal Reserve throwing money onto the market like gasoline on a bonfire.

Truly, it has been a market rally led by tech and irrational exuberance. Remarkably, the banks have been relative laggards in the rally, never a good sign for the market longer term.

So what now?

As yet, the market has not come to terms with how severely the economy has been damaged with double-digit unemployment, with a possible waves of evictions, with thirty/forty million people out of work, with relative consumer buying power in the shitter, with small businesses failing all over the place (YELP predicts sixty percent of restaurants will not recover). And now schools likely will not be able to fully open.

Even now the Trump Administration doesn’t have the slightest idea what to do, and Republican Senators are dickering with each other, holding up the Democratic rescue plan. Trump has returned to the coronavirus briefing podium to spout his lies and ignorance. Trump’s big botch goes on while the rest of the world has shown to varying degrees what should have been done.

Five million Americans have been infected and 170,000 have died (with both those numbers still rising fast). As the rest of the world continues to make progress against the pandemic (New Zealand has not had a new case now for 100 days), the United States, governed by not much more than an orangutan, continues to be a mind-boggling catastrophe.

What now? What now?!

This is just another heads up…like last time:

Watch UVXY. It will tell, and there will be money to be made there. It’s setting up another explosion. After these eight days down in a row it could come tomorrow or two weeks from now but it’s likely the fuse has been lit.

(click on the chart for a larger view)

$SPY #Options – #DayTrading calls on a FED day

Posted on by diogenes227

The Federal Reserve announced its actions Wednesday in what was going be a foregone conclusion – nothing new, more to come.

So call that bullish.

CLOSING FIRST HALF:

CLOSING DAY TRADE:

#MarketTiming – Adding #Banks to the #ShortList

Posted on by diogenes227

I have already outlined the obvious stock sectors that are no-brainers for shorting largely because Covid-19 has put them either out of business for the immediate future or has severely hampered profit prospects for this year.

The most obvious are the cruise companies – NCLH, CCL, RCL – since it’s going to be a long time before they can pack a liner with either customers and crews. And now several of the key destinations have so enjoyed being tourist free there is talk they are not even going to allow the ships to dock and disgorge passengers like they were doing before the pandemic.

Next on the list movie theaters – AMC, CNK – since even if they open with social distancing they will at reduced audience capacity. Can they make profits on half a house or less?

It’s the same in the airline sector – AAL, UAL, DAL, LUV – less flights, less passengers, more trouble with the virus every hour of the day. Throw with BA too. No need to buy passenger planes when there are so few passengers and you have a fleet of excess airliners in storage.

I always have coal stocks – BTU, ARCH, SXC, CNX – on the short list because the coal sector always a short. It is not the fuel of the future and is becoming more and more not the fuel of the present.

Now I’m going to add banks as short prospects — JPM, GS, BAC, C, WFC – largely because they have lagged the rally from the March low for too long. That spells trouble not only for the sector but for the market as a whole. If the economy is going to tank and take the stock market with it (any day, week, or month now), it’ll probably, seriously, start the drop in the banks.

I’ve included DB on the chart panel below bacause it is a bank but it’s a somewhat separate case. Its price action is news driven since it has been the primary conduit for the money laundering between the Russian Oligarchs and the Trump Organization. Whether it is or is not going to have to pay for those illegal activities bats its stock price around more than banking fundamental alone.

The market sell off may have begun today with the NYMO putting in a high below a high on short-term breadth and the all important NYSI turning down (my key triggers) but with the FED meeting tomorrow, the timing is still a bit of a crap shoot.

(click on the chart panel for a larger view)