Interim Market Update July 28, 2022

[LoriPrecisely]

It ended after hours with the earnings release for AAPL and AMZN. One of our plays popped big time also. I would have closed but my alert doesn't notify after hours. Will pay closer attention but expect the a.m. will provide ample opportunity for the sale.

A lot of stocks jumped after hours.
I sold a call on Amzn for 125. that expires today. The price stayed below that all week, closing Thursday at 122. I thought I was safe until I saw the after hours jump. I will likely lose my AMZN shares today. (there is no crying emoji) The premium to buy back is too much to make it worth it. I will be watching this all day. Maybe I will buy GOOGL instead.

You will get another chance, the markets should experience another minor top sometime in August, so a lot of companies will let out some steam before rallying higher. If you made money you lost nothing but gained valuable experience

Yesterday was a very active, volatile day in the markets.
I bought 3 of my Calls to close them: ASAN, AMZN, and AMD.
I got assigned 3 of my 5 Put options: INTC, TTD, and QCOM.

[jlhooter]

Sold an AMZN $180 Jun 2023 call today for $5.24 which puts me at $99 cost basis. Please call my shares for 80% gain. If/when markets tank I will roll my position often.

Don't your shares usually get called away only near expiration?

Sorry I was being a bit sarcastic. I expect the probability of being called very low for now and expect 1 of the following to occur (1) stock drops in value in the near term enough for me to buy back for some gain or (2) stock rises in the near term 'forcing' me to hold because premium too high to buy back then drops in Q4 2022 allowing me to buy back, sell and repeat as misery in the markets linger. But if for some reason the price ramps well over my strike in the near term and gets called I am happy even though I want to HODL AMZN. I find that stocks like AAPL, AMZN and others I own I become somewhat emotionally attached which is not a good trait to have for a trader so by attempting to push for excellent gains chips away at that character flaw.

[SOL]

Change of strategy for options traders that are willing to take the risk.

In a market that was trying to put in a bottom, which was the case from June to mid-July, the best strategy is to sell calls on up days and puts on down days.

When the momentum shifts to the upside, as is the case now, the best strategy, albeit with more risk (no free meals in the market), is to use down days to sell puts and use some of the funds to purchase calls. One should scale back on selling covered calls when the momentum has shifted to the upside. Then when you recouped the premium you used to purchase the calls, buy back the put position. In essence, you now have a long position (via the calls), which did not cost you a penny.

When the market is in a downward phase, and you don't want to sell your stock. Then use up days to sell covered calls, and use part of the funds on the same day to purchase puts. When you recoup the funds you used to purchase the puts via a drop in the call premium, buy back the calls and now you have a position that is hedged for free. Make sure you understand the nuances of these trades 1000% before initiating one

[jlhooter]

Sol,
Thanks yet again for these comments. I believe I understand better and will continue to internalize what you are saying since this is not the first time you are saying this ("repetition is the mother of skill" Tony Robins); thanks for repeating again.

If I just look at the first part (...market trying to put in a bottom...Jun-to-mid-Jul...), I believe I get it (hopefully finally)
- as the market trends down it is not a straight line, so leverage the volatility of the price to your advantage
- Sell calls on up days (premium is up). As the price starts to shift down, buy back the call staying net positive
- Sell puts on the down day for above security (prem is up) or for a separate security sell puts on down days. As the price starts to shift up, by back the put staying net positive
- Assuming nothing called or put in the process, I gradually increase revenue over the trend down just from premiums; if I choose, these premiums can be leveraged for buying calls and puts later
- If I get called then make sure I have played the call according to my profit plan. Assuming the trend is hitting a 'bottom', I can consider buying back the security later and leverage a strategy when the market momentum shifts up
- If shares are put to me, then I am ok since I don't mind owning the security. Assuming the trend is hitting a 'bottom' it is 'likely' I got the security at a desired price. Again, leverage a strategy when the market trends up, but if it is still trending down I can still add this security to the selling-calls plan as above

What do I have wrong before I pick apart the other guidelines you mention?

[LoriPrecisely]

Change of strategy for options traders that are willing to take the risk.

In a market that was trying to put in a bottom, which was the case from June to mid-July, the best strategy is to sell calls on up days and puts on down days.

When the momentum shifts to the upside, as is the case now, the best strategy, albeit with more risk (no free meals in the market), is to use down days to sell puts and use some of the funds to purchase calls. One should scale back on selling covered calls when the momentum has shifted to the upside. Then when you recouped the premium you used to purchase the calls, buy back the put position. In essence, you now have a long position (via the calls), which did not cost you a penny.

When the market is in a downward phase, and you don't want to sell your stock. Then use up days to sell covered calls, and use part of the funds on the same day to purchase puts. When you recoup the funds you used to purchase the puts via a drop in the call premium, buy back the calls and now you have a position that is hedged for free. Make sure you understand the nuances of these trades 1000% before initiating one

Thank you, Sol, for sharing your wealth of knowledge. I copy your posts regarding options, paste them in Word, organize them and highlight them.
They will go down in infamy.
I honestly have not grasped the buying of Calls and Puts. I know there is a good reason to do it, otherwise you wouldn't be, but my brain says sell, sell, sell, and collect the premiums. I don't even like to own stocks because then I don't have as much money available for cash put assignment. And, I maxxed out my margin. I am only buying right now because of the rally. I even talked my teenage son into buying stocks on Friday.
He wanted me to do it for him, but I said, "No, I want you to engage in this activity so you can learn." He did!!

I am going to ground in my backyard and listen to Manufacturing Consent.
Tomorrow, I will watch some videos on why to buy calls and how to make money doing so.

[SOL]

@lori

I found out over the years that those that know the least about the markets or have the slightest understanding of how they operate; in both cases, I am referring to what experts and economists would use as the basis for determining whether a person was knowledgeable tend to grasp the real inner workings of the market at a surprisingly brisk pace. You have taken to the markets like a fish takes to water.

You are 100% correct; selling options is the safest and best form of investing, even safer and, in most cases, more profitable than purchasing shares, provided one follows the rules; only selling puts on stocks that one does not mind owning and only selling covered calls (one should never sell a naked call).


I only mention the purchase of puts and calls regarding leveraging and/or hedging one's position for free or close to free by using a portion of the premiums obtained from the sale of the puts to buy a call or a put with less time premium. So the buying of the option is, in essence, to be used in conjunction with the sale of an option if one wants to control the risk factor. In essence, options can be viewed as weapons of mass destruction by those that don't take the time to understand the inner operations or they can Weapons of Monstrous wealth creation, provided you stick to the plan and use them in a disciplined manner

[jlhooter]

Change of strategy for options traders that are willing to take the risk.

In a market that was trying to put in a bottom, which was the case from June to mid-July, the best strategy is to sell calls on up days and puts on down days.

When the momentum shifts to the upside, as is the case now, the best strategy, albeit with more risk (no free meals in the market), is to use down days to sell puts and use some of the funds to purchase calls. One should scale back on selling covered calls when the momentum has shifted to the upside. Then when you recouped the premium you used to purchase the calls, buy back the put position. In essence, you now have a long position (via the calls), which did not cost you a penny.

When the market is in a downward phase, and you don't want to sell your stock. Then use up days to sell covered calls, and use part of the funds on the same day to purchase puts. When you recoup the funds you used to purchase the puts via a drop in the call premium, buy back the calls and now you have a position that is hedged for free. Make sure you understand the nuances of these trades 1000% before initiating one

Sol,
Took me a bit, but I get it now. Thanks.
Market shifts up: down days: leverage the STO Put Premium to BTO Call for a net credit. On an up day BTC Put for enough premium to cover the BTO Call for free. Example:
Down Day: STO P: $10; BTO C: $5; net: $5
Up Day: BTC P: $5; net $0 but hold BTO C for free.

Opposite true for Markets shift down; example
Up Day: STO C: $10; BTO P: $5; net: $5
Down Day: BTC C: $5; net: $0; hold BTO P for free

My mind is blown!! Thanks for this.

[SOL]

Change of strategy for options traders that are willing to take the risk.

In a market that was trying to put in a bottom, which was the case from June to mid-July, the best strategy is to sell calls on up days and puts on down days.

When the momentum shifts to the upside, as is the case now, the best strategy, albeit with more risk (no free meals in the market), is to use down days to sell puts and use some of the funds to purchase calls. One should scale back on selling covered calls when the momentum has shifted to the upside. Then when you recouped the premium you used to purchase the calls, buy back the put position. In essence, you now have a long position (via the calls), which did not cost you a penny.

When the market is in a downward phase, and you don't want to sell your stock. Then use up days to sell covered calls, and use part of the funds on the same day to purchase puts. When you recoup the funds you used to purchase the puts via a drop in the call premium, buy back the calls and now you have a position that is hedged for free. Make sure you understand the nuances of these trades 1000% before initiating one

Sol,
Took me a bit, but I get it now. Thanks.
Market shifts up: down days: leverage the STO Put Premium to BTO Call for a net credit. On an up day BTC Put for enough premium to cover the BTO Call for free. Example:
Down Day: STO P: $10; BTO C: $5; net: $5
Up Day: BTC P: $5; net $0 but hold BTO C for free.

Opposite true for Markets shift down; example
Up Day: STO C: $10; BTO P: $5; net: $5
Down Day: BTC C: $5; net: $0; hold BTO P for free

My mind is blown!! Thanks for this.

The best way to learn is to ponder over something repeatedly, then see the light, and now you learn to catch your own fish for life. Someone steps in and helps you all the way, but you learn nothing, and you keep having to buy the worms in an attempt to maybe catch something. Congrats

[AstuteShift]

If you learn options inside and out, you can trade in any market condition

I’d say you will learn to not even care about the trend, they’re option traders that only trade based on the Greeks, the most important is theta along with delta

The second important one is gamma. You can buy pre earning straddles and strangles prior to earnings at a specific time when the relative value is cheap and sell it before the ER reports. You just want the stock to move either up or down big.

Another option is examining option flows, to see what whales are doing and what bets they’re doing. It’s valuable data and gives you clues since whales are usually are the top dogs, however this requires examining the trend along with knowing TA in shorter timeframes

The most profitable is really selling options and it is the most consistent however don’t forget there is no free lunch in markets, selling options also carries risk of assignment and being steamrolled if one is not focused on risk management

[jlhooter]

If you learn options inside and out, you can trade in any market condition

I’d say you will learn to not even care about the trend, they’re option traders that only trade based on the Greeks, the most important is theta along with delta

The second important one is gamma. You can buy pre earning straddles and strangles prior to earnings at a specific time when the relative value is cheap and sell it before the ER reports. You just want the stock to move either up or down big.

Another option is examining option flows, to see what whales are doing and what bets they’re doing. It’s valuable data and gives you clues since whales are usually are the top dogs, however this requires examining the trend along with knowing TA in shorter timeframes

The most profitable is really selling options and it is the most consistent however don’t forget there is no free lunch in markets, selling options also carries risk of assignment and being steamrolled if one is not focused on risk management

Astute thanks for your added value input. I will look at everything you discussed.
I have a very basic understanding of the greeks and heavily leverage delta when wheeling and buying LEAPS, but will investigate more of gamma and theta.
I also recognize the value of options for down markets too since there was a time I didnt understand how you make money in a down market. Now I have an idea and will work it.
I am aware of risks with options since I have been burned but sometimes it is the only way learn and it is important to go slow with the plan that the first times are throw away money.
Thanks again

[MarkD]

I have been trying to simplify and just buy and sell calls, specifically on TQQQ. Batting average will not be disclosed to preserve my ego on this board.

[SOL]

I have been trying to simplify and just buy and sell calls, specifically on TQQQ. Batting average will not be disclosed to preserve my ego on this board.

When it comes to options, unless one is only selling, one has to settle for less stellar results when compared to stock trading. Having said that, options also provide the option of locking in mega gains. One could lose on 6 or 7 trades and recoup it all on one good trade. So when you talk about ego, I think all options traders more or less could relate to your statement. When it comes to options, even the best trader can get knocked out, as I would state that almost 90% (my take, others my might have different opinions and that is fine) comes to money management/risk assessment and discipline.

Usually, with options, the boring stuff is the safest, but many confuse boring with mediocre returns. Appropriately done, just selling options can potentially yield far better returns than any real estate investment or, for that matter, most investments, considering the time and effort one has to allocate.

[harryg]

I have been trying to simplify and just buy and sell calls, specifically on TQQQ. Batting average will not be disclosed to preserve my ego on this board.

Don't worry about that. Traders can be the most incredible liars. Apologies, I meant exaggerators, present company excepted of course!

When trading, batting average (I am assuming that you mean % of winning trades) is overrated as a measure. In my view, the useful measures are calculated over time, such as trade expectancy, max. drawdown, number of consecutive losses etc.

With options possibly more than with shares, it comes primarily down to risk management. Successful options traders tend to have lots of small losing trades offset by some big winners. Unsuccessful options traders tend to have lots of small winners offset by some huge losers, often enough to wipe them out.

People who sell uncovered calls, for example, often think it's such an easy way to make money and then it goes wrong once and they are finished. Also those who only buy options can be fooled into thinking that because the risk is limited they might as well bet more each time. Since more often than not they expire worthless one can lose money quite quickly even with "limited risk".

[SOL]

I have been trying to simplify and just buy and sell calls, specifically on TQQQ. Batting average will not be disclosed to preserve my ego on this board.

Don't worry about that. Traders can be the most incredible liars. Apologies, I meant exaggerators, present company excepted of course!

When trading, batting average (I am assuming that you mean % of winning trades) is overrated as a measure. In my view, the useful measures are calculated over time, such as trade expectancy, max. drawdown, number of consecutive losses etc.

With options possibly more than with shares, it comes primarily down to risk management. Successful options traders tend to have lots of small losing trades offset by some big winners. Unsuccessful options traders tend to have lots of small winners offset by some huge losers, often enough to wipe them out.

People who sell uncovered calls, for example, often think it's such an easy way to make money and then it goes wrong once and they are finished. Also those who only buy options can be fooled into thinking that because the risk is limited they might as well bet more each time. Since, more often than not, they expire worthless one can lose money quite quickly even with "limited risk".

Tend to agree with most of your stuff Harry. I made a mistake in my last post. I should not have said less stellar gains, but the percentage of wins is much lower than buying and selling stock. However, options with discipline is where you only need 1-2 wins for every 8 losses, though the ideal ratio should be somewhere around 60% losers for 40% winners; the winners should generate 2-5X more than you lose.

Also, you have phases in the options markets. If you play this well and only play during specific phases, this takes a lot of discipline you can ramp your win ratio to as high as 80% and during that phase generate spectacular returns. This phase I speak of is only for buying options. When you are selling options, the phases don't apply so much but the best market for option seller is a volatile range bound market.

[AstuteShift]

I have been trying to simplify and just buy and sell calls, specifically on TQQQ. Batting average will not be disclosed to preserve my ego on this board.

Don't worry about that. Traders can be the most incredible liars. Apologies, I meant exaggerators, present company excepted of course!

When trading, batting average (I am assuming that you mean % of winning trades) is overrated as a measure. In my view, the useful measures are calculated over time, such as trade expectancy, max. drawdown, number of consecutive losses etc.

With options possibly more than with shares, it comes primarily down to risk management. Successful options traders tend to have lots of small losing trades offset by some big winners. Unsuccessful options traders tend to have lots of small winners offset by some huge losers, often enough to wipe them out.

People who sell uncovered calls, for example, often think it's such an easy way to make money and then it goes wrong once and they are finished. Also those who only buy options can be fooled into thinking that because the risk is limited they might as well bet more each time. Since more often than not they expire worthless one can lose money quite quickly even with "limited risk".

Also it depends on the individual, some are never going to be built for options or futures.

Essentially, they’re made for the educated gambler, and who are able to move in and out quickly. Also it depends what type of a gambler you are also, do you go in and out? Do you double down on a losing bet? Do you exit early and re-enter? Or do you find another play?

I’d say that’s a market feel and it comes down to experience. Also the sting of losses to remind oneself that they’re not invincible. If you think like a poker player then perhaps you can develop a strategy to find patterns in options and perhaps maybe you can win, however only a small select few can. Those who can, can make money pretty consistently.

There is no free lunch. Patience and discipline is crucial along with meticulous planning and dedication. Personally I enjoy the routine lol