#ShortStrangles on #Stocks – stealing money weekly in cash

Let’s say you have $200,000 or so in a margin account at a brokerage — $206,400 to be precise (but more about that number later).

The account is in cash. Probably because as at some point you took to heart Bernard Baruch’s famous comment that he made his fortune in the stock market because he “sold too soon”, and now so have you as this bull market continues to climb leaving you, you think, behind.

What to do? What to do?

Let’s take AAPL, FB, TSLA and NFLX as examples, not as stock holdings, which are far too expensive for a $200K account, but as option trading opportunities using the cash margin your money provides.

I didn’t post these on Twitter this week to verify the timeliness (see more entries below for some of that) so this is a study in retrospect, a look at possibilities, not what was done but instead what could have been done this week, and what can be done any week going forward.

On Monday (11/11), 30 minutes after the open, AAPL was a 259, the price to set up a “short strangle” on its stock. In this case, I’m suggesting selling a 265 call above the market and a 255 put below the market, 10 contracts each, for a combined credit of $1,230 with a margin requirement of about $49,000. Same day, same time, FB was at 189 so a 195 call with a 185 put for a combined credit of $1,100 with a margin requirement of $34,800. Same day, same time, TSLA was at 346 so a 355 call and a 335 put at a combined credit of $6,600 with a margin requirement of $67,700. Same day, same time, NFLX was at 292, so a 300 call above the market and a 285 put below the market for a combined credit of $3,320. The margin requirements are those prescribed for each short strangle strategy by the CBOE, the Chicago Options Exchange.

Hope no one got lost in the thicket of dollar signs in the paragraph above. It all adds up to $12,250 added to you account at the beginning of the week. Now let’s see if you can keep it.

You are going to have to buy back the options you sold to get those credits or let them expire worthless if they are not in the money by the end of the week. All of these options are out of the money and will expire worthless at the end of the week if the stock does not rise above the call strike or drop below the put strike. That is the point of the strangle strategy, to have them all expire worthless.

Drum roll please…

At the end of the week, the AAPL strangle was down $520, which is a profit on the short sale, a gain of about 42% on the position.

At the end of the week, FB had a profit of about $990, a gain of 93% on the strangle position.

At the end of the week, TSLA had a profit of about $6,580, a gain of 99% on the position.

At the end of the week, NFLX had a profit of about $3,500, a gain of 99% on the position.

The total gains on all four stock strangles for the week was approximately $11,590. That is a 94.6% gain on the positions, but not on the margin requirements. The combined margin requirement for the four trades would have been $206,400 (ah-ha!, there’s that “more about that number later” number), which would make the actual percentage gain in the account for the week about 5.6%.

Five-point-six percent may not seem like all that much in volatile options trading but week in and week out for 52 weeks…

It must be said, however, there can be losses, and big losses if there is no stop-loss discipline, but short strangles on stocks could be as close as one can get to safely and legally stealing money in the stock market with just cash to work with.

#ShortStrangles on #Stocks – 10/14-10/18

THIS WEEKS SHORT STRANGLES:

LAST WEEKS RESULTS:

A PERTINENT QUESTION ON TWITTER:

#ShortStrangles on Stocks 10/07 – 10/11

This week’s strangles:

Last week’s results:

(Percentage gains and losses reflect returns on cost of strangles, not margin needed for the trade.)

#ShortStrangles on Stocks 9/30 – 10/04

This week’s setups:

Last week’s results:

#ShortStrangles on Stocks – 9/20 to 9/27



See chart panel below.

(click on chart for a larger view)

Short Strangles on Stocks 9/9 – 9/13

This week’s short strangles (see chart panel below):

Last week’s short strangles:

Results were for the week but during the week (and FB stopped out at breakeven):

CHART KEY: The number in the yellow flag on the lower right is the cost of the strangle. The number in the white flag on the lower right is the price gain on the position (a negative number on the shorts is a gain). The number in the green flag on the lower left of each chart in the panel is the percentage gain or loss on the price of the strangle (not accounting for margin needed for the position).

(click on chart for a larger view)

Short Strangles on Stocks 9/03-9/O6

LAST WEEK’S SHORT STRANGLES:

THIS WEEK’S SHORT STRANGLES:

CHART KEY: The number in the yellow flag on the lower right is the cost of the strangle. The number in the white flag on the lower right is the price gain on the position (a negative number on the shorts is a gain). The number in the green flag on the lower left of each chart in the panel is the percentage gain or loss on the price of the strangle (not accounting for margin needed for the position).

(Click on Chart for a Larger View)

#OptionsStrategy – Stealing money with short strangles on stocks

If there is any way to consistently steal money in the market it might be short strangles on stocks.

That is: with persistence, experience and discipline.

For example last week’s strangles as posted on twitter:

The key is to select the price spreads between the puts and calls for the near Friday’s expiration at a measured distance. There are all kinds of number-crunching strategies for determining the options spread below and above the stock price (Tasty Trade Network is a good reference), but since I believe it is best to keep it simple, and since it’s only for a week, I just eyeball it.

If the stock closes the week between the price of the short put and the short call the short strangle expires worthless, basically a 100% gain.

Those gains stated in the tweet above are for the strangle change itself on the each stock with no consideration for the margin requirements on selling naked options. Needless to say the margins are high and may be prohibitive for most but, even with the high margins, there is three to five percent per week possible on short stock strangle trades and, also needless to say, three to five percent per week adds up over a year’s time.

This week’s strangles:

#MarketTiming – Long-term breadth says sell the rally

MARKET TIMING SIGNALS FOR 7/18/2019.

Long-Term Breadth (NYSI): Sell DAY 1
Short-Term Breadth (NYMO): Sell DAY 3
Price: Sell DAY 2
Nifty-50-Stock-List: 13 BUYS, 1 NEW BUYS, 4 OVERBOUGHT; 37 SELLS, 11 NEW SELLS, 12 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 46, falling, NEUTRAL LEVEL.
Bellwether Stocks: 6 UP, 9 DOWN.

WHAT?

The market took the tumble that been brewing for the past couple of days.

First short-term breadth turned down after a sequence of highs below highs, then price triggered a sell on today’s open, and now long-term breadth has given a sell signal for tomorrow’s open.

That last part is the most significant. Long-term breadth (the NYSI) is the primary context behind the entire market. If it is going up the bulls have the ball, if it is going down the market will tumble too. Maybe not right away — it can whipsaw like anything else, but if it keeps going down most stocks will follow.

Technically the sell signals are on tomorrow’s open but at today’s close this upswing, which began on the open of 6/28 (13 trading days ago), took TQQQ up 8.2%, UPRO up 5.1%, FNGU (the FANG ETF) up 12.4% and TNA remarkably was flat. Among notable stocks TSLA advanced 15.1%, SHOP 7.3%, TWLO 6.1%, WYNN 99%, FB 5.9% and AAPL lagged at up 2.3%.

The Nifty-50-stock-list was a mixed bag with as many stock down double digits as those up double digits. In retrospect that was probably a read on the raggedness of the rally.

However, INS, the number-one stock on the list coming into the upswing vaulted a spectacular 49.4%.

Interesting to note the divergence that registered on the overbought Fear-and-Greed Index, kept by CNN Money, called the exact top two days ago in SPY and in QQQ (see the chart below) and was telling across the board.

WHAT NEXT?

With the NYSI declining, one can only assume swing traders will be looking for short entries, options traders playing puts predominantly (see the post below), and long-term investors should tighten stops to their individual risk tolerance or just hold their breath and hope not to die.

Of note: NFLX after the bell reported earnings, a shortfall in expected subscriptions, and is getting clobbered in overnight trading. That may set a tone for trading tomorrow. Intriguing how often news comes along from somewhere to agree with the NYMO/NYSI breadth indicators.

Nothing much more to say. The market will go down until it doesn’t, and granted, that could be even as early as tomorrow. The VIX remains below 15, which is a bullish level indicating this is likely a pullback and not a serious correction.

(click on the Fear-and-Greed chart below for a larger view)

#MarketTiming -Stock options rule the day

MARKET TIMING SIGNALS FOR 6/18/2019.

Long-Term Breadth (NYSI): BUY DAY 10
Short-Term Breadth (NYMO): BUY DAY 1
Price: BUY DAY 1
Nifty-50-Stock-List: 22 BUYS, 9 NEW BUYS, 12 OVERBOUGHT; 28 SELLS, 1 NEW SELLS, 5 OVERSOLD.
CNN MONEY’S “Fear and Greed” Index: 37, Falling FEAR LEVEL.
Bellwether Stocks: 12 UP, 3 DOWN.

OF PARTICULAR NOTE TODAY:

While the SPY options slopped around all day despite the fact SPY itself was up on the open stayed above the open all day long, the real play today in options was in the key stocks.

TSLA’s at the money call gained 87%, NFLX’ in the money call gained 30%, FB’s in the money call gained 92% (see the 5-minute charts below). AAPL’S in the money call chopped to a 12.6% loss.

WHAT NEXT?

The market is consolidating the gains of the past two weeks, which explains the choppy action during the day. Given there were renewed buy signals in short-term breadth (NYMO) and price while long-term breadth (NYSI) continues to rise one can only assume, the advance will resume any day now

If it doesn’t, there could a quick drop before the advance continues. That would be a buy-the-dip opportunity.

(CLICK ON THE CHART PANEL FOR A LARGER VIEW)