Option Trading strategies (Cannonballing etc)

[SOL]

A repost of a general conversation on options that was posted on April 10

Ultra-Low risk option strategy

You have enough funds to purchase 200 shares, or you currently own 200 shares and you are ready to sell them for a small profit because you want to leverage your position. This strategy is best used on stocks that are trading in the oversold ranges on at least the weekly charts but ideally the monthly charts.

You use the funds you received from the sale of the shares to sell puts. If you can only afford 100 shares, then sell 1 put only.The money you received from the sale of the puts can be used to purchase several out of the money calls.

For example, AMD is trading at almost 97. You sell April 2023 80 put and you get roughly 920 per contract. Then you can purchase the April 2023 145 or 150 calls for between 5.00 to 5.70 (the higher price is for the 145 calls) If you go for the 150 calls you can roughly get 2 calls for every put you sold. If the stock closes below 80, the shares could be put into your account, but you would get in almost at a $17 discount. At the same time, you have the option to lock in unlimited gains via the purchase of the calls, which are essentially free as you don't mind owning the stock. Now you have a limit order with the potential to get paid very well.

[SOL]

A very easy way to boost returns is to use the DRIP option if its available on any stock you buy. You get more shares and as long as the trend is up, this tends to pay off well. More importantly its a passive strategy

Second option if you have cash is to sell puts on stocks that are trading in the oversold to neutral ranges.

[jlhooter]

There is a wealth of info on all the internets and I haven't check TI's site, but I got most of my learning from this guy (InTheMoney). He is good to watch, but like any other learning of a trade don't settle on one location, check many. This dude is a good place to start (at least for me).
Cash Secured Puts: https://www.youtube.com/watch?v=r_rKof8IdfU
Covered Calls: https://www.youtube.com/watch?v=jnTsQBJHMSk
The Wheel Strategy: https://www.youtube.com/watch?v=siFsIleNTzk
Options in General: https://www.youtube.com/watch?v=ZJjRnKp ... 91&index=2

I feel my worksheet for The Wheel Strategy is near done and I am trying to get it to you, but not going as quickly as I like. I promise I will present it, but need more time. I know don't worry, Jeff, no pressure, but still I want to get it to you. Stay tuned. In the meantime, check the videos and realize even though it is called the wheel strategy and sounds gimmicky, it is excellent for getting in and out of plays.
Keep in mind that if you want to use my worksheet, you need Excel and ThinkorSwim for it to work. No other choice for you (sorry), but when I present it, I will do my best to explain the math so you can understand without the sheet.

[SOL]

One should understand how options work, at least the setups that pay. The following option techniques can significantly boost one's returns. As always, start slow and then speed up and don't use these suggestions for speculating.

This video will help those who are not familiar with the concept of selling puts

https://www.youtube.com/watch?v=BR8SNZ7 ... olTactical

Rolling over a put and call. You need to learn this only if you don't want the shares to be put into your account or if you don't want your shares to be called away (when selling a covered call)

How to enter an order to sell a put or a covered call

Hint; the transaction looks like this; Sell to open, then enter the strike price for the put or call and time factor. For example, sell to open 1 AMD Jan 2023 80 put. Or sell to open 1 AMD Jan 2023 125 calls. You only sell a call if you own the shares. Otherwise, you are playing with fire.

How to close put or call option position

Hint: You would enter a sell to close order. In the above example, if you sold a covered call on AMD and the stock dropped, you want to bank the profits. You would enter the following order buy to close AMD Jan 2023 125 Call. If the stock rose and you want to close the AMD put, you would enter the following: buy to close AMD Jan 2023 80 put.

All the concepts discussed are simple to understand. We will not deal with complex options strategies as most of them are a waste of time, and they only feed the broker. The option ideas we discuss will be straightforward, and with a bit of practice, it will be as easy as buying or selling a stock.

It is relatively easy to turbocharge this strategy once you get used to SCSP (selling cash-secured puts). Use some of the premia to buy far out of the money calls. Now you have a limit order that pays, and the call option ensures that you have the chance of making money if the stock takes off.

Once you learn how to SCC (selling covered calls), you can use part of the premium to purchase downside insurance. This is almost a free way to hedge your position. Using part of the premium to purchase downside insurance via puts should only be done if you feel the markets will head lower. Stock ABC is currently trading at 39. So, you sell a covered Call on ABC, Jan 2023 45, and you receive 2.50 (250). If you feel the markets might pull back, you can use part of this premium to purchase a far out of the money put. For example, you can purchase the Jan 2023 25 puts for 0.90.

Other things you can do to boost your returns. Enable DRIP on all stocks that pay dividends.

[jlhooter]

First, if interested check out "Options Action" on CNBC. I record the 1/2 hour show weekly and learn by watching and then researching to minimize confusion. I believe it is good to jump in and be confused first, then figuring out later by researching and doing. When I first watched the show (mainly for the spread types they use), it was word salad; lately and over time it is starting to make more sense.

I am playing my first Debit Put Spread, which is a Bearish move, on INTC. It is also called a Vertical Spread since I am buying and selling the same security, at the same expiry, while using Puts instead of Calls.

A Debit/Bearish Put is one where the ITM/ATM (higher strike) is bought and the OTM (lower strike) is sold. Since you are buying a higher premium and selling a lower premium, respectively, your net is negative (debit).
A Credit/Bullish Put is the exact opposite.

The following is what I did for INTC and may be anywhere between completely wrong and completely right. Follow at your own peril.
I use the dailies to predict price action. In my case I expect INTC to go down in the near term.
I use an expiry in the near term based on how the price will move in that time and leverage lower terms to leverage time decay.
I sell to open (STO) at a strike that is at or higher than where the price will be by expiry (OTM)
I buy to open (BTO) at a strike that is at or higher than the present price (ITM/ATM)

On your own, you'll have to figure out why I did the following or realize I made some bad moves and mistakes. The math for the play (results below) has to be left up to you too since it is very involved and too much to list. Of course, I made a spreadsheet to calculate for me.

My play for INTC expecting price to drop using July 29, 2022, expiry (49 days from now):
Market price at writing: $40.01
STO: Strike: $37; Premium: $1.00; I want the price to be <= $37 for max profit
BTO: Strike: $42; Premium: $3.15; my max loss is caped when the prices is >= $42
Debit (cost to me): ($2.15)
Max Profit: $2.85
Max Loss: ($2.15)
Breakeven (price of security with $0 profit): $39.85
Goal:
- Either let it expire and walk away with $285 per contract (assume price hit <= $37)
- BTC/STC my options with a 30-70% gain ($85.50 to $199.50)
- Minimize my losses (if I can), meaning BTC/STC towards the end of expiry if the price trends >= $39.85

[SOL]

Rolling over an option is usually done when you don't want your shares to be called away (you sold a covered call) or you don't want the shares to be put to you after selling a put

I sold the June 24 46 puts and from being slightly in the money it moved deeply in the money. I used TD to create a custom option spread. You can use the custom button when you click on options trading, if your broker is different just ask them how you can create a custom spread

So I created this custom credit spread
Buy to close June 24, 46 call
Sell to open Jan 2023 55 calls. I walked away with a net credit of 105.00. I also kept the credit I received for selling the June 24 call which was over 400 as I closed the position by creating a custom spread. Now I will jump in and out and try to milk this trade as much as I can.

Another stock that has proved to be very good for selling puts on down days and selling covered calls on up days has been TTD. WOLF, TSM and AMD are also quite good

[SOL]

Okay, it's very simple, sell covered calls or cash-secured puts. When you think about it is like getting a dividend for employing low-risk techniques

Find stocks that you like and put this strategy into play. It is something you should teach your kids, its far better than most of the crap they learn in school. The strategy is simple and might appear boring but it could generate more income than owning real estate with 1/10th of the headache. The base principle is to sell covered calls on up days and cash-secured puts on down days. You then buy back the calls on down days and the puts on up days and then rinse and repeat.

When the market is in rally mode, modify the strategy as follows. Sell calls on very strong up days; minimum move of 500 points. Or sell covered calls when the market has rallied cumulatively over 700 points in one week.

[SOL]

How to Cannonball

1) look for a company making money or at least one where earnings are rising rapidly. Or another good option is to check the P/S Ration (Price to sales). Lower values are generally better
2) It should be trading in the extremely oversold ranges on the monthly charts; this should be confirmed by at least two TA indicators. The deeper in the oversold territory, the better. Ideally, the indicators are trading in the extremely oversold ranges in the monthly and weekly charts. Daily charts can be used to time entries if one has the time.
3) At least two major indices should be trading in the extremely oversold ranges also; for example, Nasdaq and Dow. However, the more, the merrier, as it will create a synergistic effect akin to the beat effect
4) Bearish sentiment should be trading in the high 60's and should test this zone several times. Acceptable ranges 60-63. However, readings of 65 to 70 would be better. Or Bullish sentiment should be trading close to 10 as possible (12 is acceptable, but nine is excellent)



Other Developments that can be viewed as a positive
Kansas financial stress Index (KFSI) is trading at least 1.5 Standard deviations above its normal range
Bearish to bullish ETF readings at an extreme. For example, TQQQ/SQQQ is trading in the extreme zone. Look at the image below




Why do such setups work? 90% of traders will not have the patience to wait for such a setup, but if you do, this is one of the fastest ways to accumulate wealth. One always needs to remember the above rule when it comes to investing. If it were easy, everyone would be rich. When the going gets tough, understand that the weak hands are cut and bled to feed the strong hands (PTB). It's a ruthless game, but the rules are relatively simple. However, Patience and discipline are of paramount importance.



Keep this in mind

Whatever you do, please don't start to cannonball too early. Wait for the ideal set-up.

It is a powerful strategy, but as with anything powerful, used incorrectly, it could knock you out.