Wednesday, July 3, 2013

Why Premium Sellers Typically Short Delta

Yesterday I tuned into "Where do I start" @ TastyTrade.com. And during this 15 min segment Tom explained to Case why premium sellers like himself are typically delta short. In a nutshell it has to do with the fact that as a premium seller you are short volatility which rises in in a down market, so being short delta helps offset that a bit when markets move lower.

Put another way, first you have to realize that volatility and market direction typically have an inverse relationship. When the market goes up volatility typically falls and when the market goes down volatility typically rises. As a premium seller you are selling or shorting volatility, so in a vaccuum your short vol position (short option) will make money as the market rises and lose money as the market drops. However we do not live in a vacuum and there are other factors that move your position's P&L.

Delta is the equivalent position in the underlying and gives you an estimate of how much your P&L will move up or down for each $1 move in the underlying. This is why you can be short premium and when the market goes down, assuming you are also short delta, your P&L is not down nearly as much as your short vol or vega may suggest.

If you are interested in learning more check out the where do I start video on the TastyTrade.com website. It was uploaded on 7/2/13.

Good Luck Trading!

In The Money Trades




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Tuesday, July 2, 2013

Broad Markets are Building New Range

The /ES has been setting up a new trading range since hitting a low of 1,553 in the most recent and much overdo corrective move to the downside. I know that many people point to the feds hints at pulling back at quantitative easing as the trigger...but lets also be fair that the market was just plane overbought and was due for a corrective move lower. Over the next few weeks and maybe few months as we move through summer I believe that the trading range is going to be between 1,550 to 1,645.


I have highlighted the proposed trading range in grey in the above chart screen shot. We have to realize that this market has had a massive move to the upside and is need of some digestion before further direction up or down can be decided.

Good Luck Trading!

In The Money Trades

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Wednesday, June 26, 2013

I Give A Lot Of Credit To Tom Sosnoff At Tasty Trade


I have been trading for over 7 years now and I took many wild rides both up and down in my trading in the early days. When you first get started you are in search of the holy grail of trading...which you eventually find out actually does not exist.

However there are many ways of trading that can make money. The important thing is to find YOUR style and choose the ASSETS you're most comfortable trading. It probably makes a lot of sense to choose instruments and strategies that MATCH the size of your account.

When I started I did a lot of things the hard way. But in today's world you have tasty trade with veteran trader Tom Sosnoff. I thank him for starting his network and for snowballing a revolution for the self directed trader/investor. I have learned a lot since first meeting Tom back in 2010 at the traders expo.

The lessons preached over and over on the show:

  1. Trade Small, Trade Often! You don't want to trade too big relative to your account and risk blowing up. And you want to trade often so that you can allow the probabilities to work in your favor.
  2. Sell into strength. This is true when selling long positions to take profits...but it is just as true when you want to get short. It is hard to sell into strength as it is counter intuitive. But it gives you edge over selling into weakness. 
  3. Buy into weakness. You can buy to close profitable short positions. But you can also get long into weakness. Again very hard to do psychologically. 
  4. Be mechanical about your trading...trade based off probabilities and don't get emotional.
  5. Its all about cost basis reduction. In one sentence this is what premium selling is all about. So sell premium to reduce cost basis, increase probability of success, and give yourself more than one way to win.
So if you have not already done so make sure you head over to TastyTrade and open up a free account and start learning so that you can start earning!

Good Luck Trading!

In The Money Trades

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Tuesday, June 25, 2013

8% Corrective Move On /ES, Whats Next?


We have had a very nice corrective move on the /ES the past few sessions. And since topping out at 1,685 (the all time high), we have traded off about 130 handles or about 8%. The question is whether the move is over or will we see lower prices?

I continue to be short the /ES (net delta position) as I believe we could see a bit more downside until we see 1,530 on the /ES and then that will likely be followed by some consolidation through the rest of the summer. In the above chart you can see the profitability range I have highlighted in grey based on my aggregated position in the /ES. To date I have collected about 100 /ES points in premium over 52 contracts traded. Although I have collected 100 points my max gain is only 70 points or $3,500 on this aggregated position with 66 days left to expiration.

Good Luck Trading!

In The Money Trades


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Thursday, June 13, 2013

I AM ALIVE!!!

It has been a couple of weeks since my last post. If you look through the feed you will likely notice that my last post was on May 23rd. I really can't believe that it has been almost three weeks. Never fear I am alive and well and have continued to trade the markets. But over the last few weeks I have been pretty busy with work in both my day job and in my side pursuits. More recently I have been teaching myself programming skills. Before we break off into market analysis I will leave you with this quote I live by from Jim Rohn: "A formal education will make you a living, but self education will make you a fortune".

My last post was the first of what would be the first corrective move to the downside after hitting all time highs at around 1,685 on the /ES.

Chart from May 23rd


And 3 weeks later...


Looking at the chart above you can see that the markets pulled back about 90 points and have found support around 1,597 on the /ES. During this time we finally got a pull back and a awesome move lower in JNJ:


Remember JNJ had an incredible run of 19 strait weeks to the upside without a single down move. Although the above chart is not a weekly chart, you can see that JNJ topped out a penny shy of $90 and hit a low at around $82.50 11 days later. Only to remind us that there is cycality in the market...meaning that the market goes up AND it also goes down.

As public as I have made it, it is no secret that I have been net short the market place. But over the recent pull back I have been selling puts in NLY which finally showed some life today. I am short 20 put contracts that have an equivalent delta of about 30 SPY. If you look back in the archive you will see numerous posts about my fascination of NLY for its juicy dividend. I made really good money until exiting the trade in March and have been since been patient to build up a healthy position again. My effective long price puts me long the stock around $13.30/share. The current yield at this price is around 13.5%. There is ton's of chatter about rising interest rates and reform to fannie mae and freddie mac....I don't care!


I have continued to play in and out of VXX as a compliment to my short position in the /ES. I have mostly been short puts to get long volatility since my position in /ES is short premium which by its very nature is short premium. So although intrinsically I am up a little money...the expansion in volatility that has happened over the past few weeks doesn't show me up as much as I would be at expiration. But that is fine with me, I am currently getting paid $33/day in theta in my aggregated position. My profit range on this position is 1,537 to 1,645. I think the recent high at 1,685 has given us something to trade against to the upside.

Getting back to VXX...with a pop volatility I covered the latest short puts I had and turned around and sold out the Aug '13 $21/strangle for $5.15.

Good Luck Trading!

In The Money Trades

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Thursday, May 23, 2013

Big Reversal Yesterday

Yesterday I started a new chart of the day series to record this epic move, which now looks like it may be a short lived series. We did however go on to make another all time high after my morning post yesterday. The new all time high put in on the S&P 500 via the /ES was 1,685.75...the day started out very well for the bulls until fear finally showed up in the market bringing with it close to a 40 point reversal on the day:


Before we made any new highs on the session this morning I went ahead and sold a 1,610 put for 20 points against my much publicized short /ES position. I also bought in my short 1,555 put for a small gain as I continue to believe and operate that staying small with no more than one contract of exposure the prudent thing to do in this trade. My new effective short price as of the close yesterday is 1,635 and my aggregated position looks like a giant short call spread:


Looking at the risk profile above you will notice that I have hedged off my risk at the 1,700 level via a long call. Additionally although I sold the 1,610 put I do own a 1,600 put that keeps me positioned well to profit for an accelerated move to the downside. And just for the record if I were to sell out my long call and put, my effective short position would be around 1,640, but that would also expose me to unlimited upside and downside risk.

To date I have collected a total of 80 points over 26 trades. And as I write this the market is about 100 points off where I got short around 1,555.

Good Luck Trading!

In The Money Trades

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Wednesday, May 22, 2013

S&P 500 New High Chart of The Day


Starting today I will be posting a daily chart with the new high of the day. And in the event that I post the chart to early and we make another high from the time I posted the previous chart I will post a new chart the following day. This should be fun documenting this epic move to the upside.

Good Luck Trading!

In The Money Trades

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Tuesday, May 21, 2013

Another Day, Another New All Time High


The chart that has been amusing me each and everyday I look at it. Today we have the /ES or what I refer to as the market up making yet another new all time high. I read a statistic this morning that said that the market has closed higher every Tuesday this year. So new high is in at 1,670.25. The interesting thing I have noticed the past few days is the vix has been trading higher as the market has traded higher, not sure if this is a sign of things to come or if its meaningless. I feel like the question is whether the /ES will trade to 1,700 before having a single decent downtick.

I will be the first to admit that there are plenty of gains to be REALIZED in the market. But as I write this the gains we are witnessing in the market are all paper gains. Remember, you don't actually make money until you book profits. Remember all those folks that had made thousands and maybe hundreds of thousands of dollars of home equity? We all know what happened to that paper gain.

Look I am happy that the markets are showing solid signs of recovery in the market. But the retail investor is going to be the one playing the regret game for not booking their double digit gains when they see this market make a corrective move to the downside when profit taking eventually takes place. At the very least if these folks are not going to sell I hope they are at least selling calls against their long stock.

Anyways just my ramblings for the morning. I continue to be short the /ES and trading around the position. As of this morning my effective short is at 1,627 on the /ES. The key has been to stay small, not trading more than 1 contract in either direction. With hindsight we can see that has been key to staying in this trade, for if I continued to add to this position I would have likely been forced out of the trade. But instead I have stayed small enough to trade around the position and continue to increase my effective cost basis.

Good Luck Trading!

In The Money Trades

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Monday, May 20, 2013

Should I Manage My Own Money?

This past weekend I was talking to one of my friends about earning potential, investments, and realistically how much time was actually needed to manage your own money. And is it worth it?

First lets talk about traditional money management for retail investors. The incentives of the financial advisor and retail investor are not aligned. What I mean by this is that financial advisors are compensated for assets under management and not performance. Meaning they are not compensated for making you money. Furthermore they make money whether you make money or not. WHAT? So in a bull market like we have had the past 4 years these financial advisors look like geniuses. But its easy to make money in a bull market. When was the last time you heard someone tell you how much their financial advisor made them a killing when the market fell 20%??? NEVER!!!

So you tell me do you think it is worth having a financial advisor?

Lets say you agree with me that maybe financial advisors are not worth it, BUT the markets are so complicated and I don't have the time to stay on top of it. So in the end putting my money with a financial advisor is the best worst option I have...Look, I once read a quote "if you leave your future in someone elses hands, guess what they have in store for you? Not Much...."

Think about why you think the financial markets are so complicated. There is a vested interest out there to keep individuals mystified about how markets work because they make money from your lack of knowledge and knowhow. The reality is that the markets are not that complicated and I honestly think you can get by managing your own money with 30 minutes a day, 5 days a week. All you have to do is learn the basics and after that most things just go on autopilot. And 30 minutes a day is probably an overstatement because I am assuming that once you start learning, you start having some fun and want to have a little involvement everyday.

This blog is here to de-mystify the financial markets. Anytime you have questions about anything I am writing about or have a suggestion for future topics, please let me know by leaving comments below.

Additionally one of the best things you can do is go over to and tune in to Tasty Trade, your best FREE resource anywhere on the net.

Good Luck Trading!

In The Money Trades




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Sunday, May 19, 2013

Hedging Short /ES Position

As many of you know who have been following the blog the past month or so, I have flipped from bullish to bearish. Admittedly I have been wrong as the S&P 500 has rallied over 100 points since I initiated my short. As you may recall I sold a call on the /ES at the 1,555 strike for 32 points that effectively got me short at 1,587 which was only about 5 points off of the S&P 500 all time highs. We have since then traded to NEW all time highs several times over. With the most recent high putting us 1,000 points off the March 2009 low of 665.75...putting the new all time high at 1,665.75. The thing to keep into perspective is that it took only 17 months to trade off the previous all time high in 2007 to the March low. It has taken over 4 years to recover from that fall and finally build enough momentum to make a new all time high.


So what have I done while the market has moved 110 points against my short position? I have bought OTM upside calls at 1615, 1650, and 1700. I have sold various OTM puts and put spreads. The position started off as a naked call position that had unlimited risk to the upside, but once my breakeven was challenged I had to do the prudent thing and begin to hedge to the upside while defining my maximum risk. At the same time I have had to sell put premium in the direction I want the market to go at extremely low volatility levels. The short position at this point is really just a stake in the ground to trade against. So far I have moved my breakeven up 30 points to 1,618.

Over the coming weeks I will continue to trade premium around my position. We still have 33 days left until expiration...and really about 30 days before I need to start thinking about rolling the short call out to pick up some duration and hopefully some additional premium.

I will continue to be conservatively aggressive if that makes any sense. Although I have sold OTM premium in the direction I need the market to go, I have been conservative in the sense that I have left my ability to profit from a downside move open. My preference would be to get a nice pop in volatility and thus option premium that would allow me to be a little more aggressive in trading around the position. Otherwise I am forced to continue to sell low vol premium.

Good Luck Trading!

In The Money Trades




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Tuesday, May 14, 2013

Remember When Apple Was Going to Be 1st Trillion Dollar Company?

In the not so distant future everyone in their brother were buying Apple and touting that it was going to be the  first $1 trillion dollar company. At its all time weekly closing high of $705 Apple was valued at $663 Billion. Don't get me wrong, I love apple but really a trillion dollars. The at some point the market ran out of buyers and over the preceding 8 months the stock lost $300 billion in value.


Why am I telling you this? Its to make a point that things do not go up forever. Eventually we run our of motivated buyers and eventually we get to a place where people need to take profits. The crazy thing is that it usually takes an overdone and overhyped move to act as the catalyst lower.

As I write this the markets are making yet another all time high at 1,637:


I admit that I have no clue when this market will finally correct, but I also still favor playing the downside when thinking about risk/reward. Although my portfolio is short delta, this does not mean however that I have not been taking on any long trades. I have and will continue to play the upside as I trade around my short position until the market finally starts moving in my direction. The ultimate goal at the moment is to keep losses as small as possible while I wait out the market.

Why am I short? Because I don't like the prospect of entering into a position at all time highs. Obviously I don't know which "All Time High" will be THE ONE, but eventually we trade lower off of an all time high and I have obviously been early the past 5 weeks.

Good Luck Trading!

In The Money Trades


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Wednesday, May 8, 2013

2013 On Track To Set Record Margin Levels

I think the article below does a better job than I could explaining the landscape of the market. As of the March data on investor margin levels, we hare at $380 Billion vs the 2007 All Time High of $381 billion. You have got to assume with the markets continuing to edge up since April that we have surpassed the all time high. As we all know, leverage is a double edged sword and many investors are going to feel some pain when the market finally has a decent trade lower and the margin calls start flying from their brokers. So without further ado, here is the article from the Wall Street Journal:


High levels of margin debt on the New York Stock Exchange are raising concerns about the state of the rally.
Stephen Suttmeier, technical research analyst at Bank of America BAC +0.87%Merrill Lynch, notes leverage, as measured by NYSE margin debt, rose 28% in March from a year ago to $380 billion. That figure is slightly below the July 2007 peak of $381 billion.
Market analysts track margin-debt activity as an indication of investors’ appetite for taking on speculative trading. It has been trending higher since bottoming out during the financial crisis and currently is hovering around all-time highs.
“Leverage can be used as a sentiment indicator because it is related to investor confidence…Although it should not be used as a market timing tool, the implication is contrarian bearish,” Suttmeier says. ”Peaks in NYSE margin debt preceded peaks in the S&P 500 in both 2007 and 2000.”
It’s no surprise people have been taking on more risk as the market has moved to record highs. But the question is what happens when the easy ride higher turns south and some of that margin debt turns into margin calls?
A potential pitfall for those trading “on margin” is a sharp decline in stock prices, which can expose investors to margin calls, requiring them to post additional collateral lest their brokers sell their securities to cover the debt. A wave of margin calls can worsen selling pressure on stocks and was seen as partly to blame for the market’s woes during the financial crisis.
“It’s rather alarming to see NYSE margin debt just shy of its all-time high as of the March reading,” Cullen Roche of Orcam Financial Group wrote on the Pragmatic Capitalism blog (hat tip Business Insider).  ”My guess is we’ve actually already surpassed the all-time high though we won’t officially know until April data is released.
“Fun times knowing we live in a world that is built on such a fragile foundation.”
–John Kell contributed to this report.

Good Luck Trading!

In The Money Trades

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Did we forget that markets trade lower???


I am short all of the above with various strategies. These charts are starting to look pretty ridiculous. My assumption is that eventually we will have a two sided market where sellers will take control for a bit while the bulls catch their breath. I continue to just wait as we continue to grind higher.

Not much else to talk about with markets still at all time highs and the vix super low, doesn't bode well for selling much premium. Only have about 25% of my capital committed.

Good Luck Trading!

In The Money Trades


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Saturday, May 4, 2013

JNJ: Oops I did it again...18th Consecutive Week Up


I am short and it is not working. But while I am a little frustrated, I am at the same time amazed with this run to the upside. The new high for the week was put in just shy of $86 at $85.99. May 1st was a day of hope for the bears where JNJ traded a buck lower, we all thought it was day 1 of decent trade lower (but it was just a head fake). I continue to be long the May '13 $85 puts and it now seems like we are going for a hail mary on this one given its resilience to the upside (probabilities say it only has a 17% chance of hitting $82.50). But then again, what do the probabilities say about this thing finishing higher for a 19th consecutive week in a row?

But after getting short this name starting on 4/8 at the time when it was only up 14 consecutive weeks in a row, I am committed to the trade. Eventually this thing will crack. I would love to see some profit taking in this name for a move $5 lower, that would be ideal :)

Other than hoping for that down move between now and May expiration I continue to sell some premium against my long puts with the weekly's to try to mitigate the time decay as much as possible.

Good Luck Trading!

In The Money Trades

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Friday, May 3, 2013

WOW! I think that sums it up

Many of you have been reading this blog may have noticed that my blogging frequency has increased over the past few weeks as I got short the market. As you can imagine I am down money since getting short the market, this is the time when most people pull away from posting. But my goal is to stay active and involved and show you that trading is not always rainbows and butterflies. It is times like these that the things I have been sharing over the past couple of weeks are so important. You need to trade small relative to your account. I have a decent short position in the market and my portfolios are set up to make some awesome returns if we finally turn lower. But something I would like to point out is that my account is 70% Cash. I learned a long time ago how important it is to live by the rules you preach.

Because of my discipline I am able to continue to hold my positions, I have time and capital on my side. I can't stress enough how important it is not to get to big.

Now onto the market analysis:


The /ES has broken through the 1,600 level with strength. The high put in this morning is 1,611.75 as I write this post. Obviously with all time highs, there are no levels of resistance to the upside. The market resilience is very impressive to say nonetheless. There is no fear in the market and with a breakout above 1,600 this market could have an extended move to 1,630 in the short term. Its scary when everyone wants to be long the market. Now obviously I am a bit biased with a overall short position. But take a look at the longer term chart and see what's happened the last decade when markets were breaking out to all time highs:

Is the 3rd time going to be different?
I don't consider myself a technician but, a google search for triple top yields results of a very rare and bearish chart pattern???? Anyone following this blog have any comment from a technicians perspective on this possible chart formation?

Where do we go from here?

Good Luck Trading!

In The Money Trades

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Thursday, May 2, 2013

Short Premium in VXX



Believe it or not, but the market continues its grind higher only 3 points off its all time highs after a nice move lower during yesterdays session. If the market continues to grind higher this does not bode well for my overall portfolio as I am leaned to the short side. I think as I write this I am about 200 SPY deltas short. With that said I decided to sell a 19/20 put/call strangle with a kicker buying the 23 call to define my risk to the upside.

Now you may be asking yourself why I would add more negative deltas. Well my thought is that we are either going to have a move that finds velocity to the downside which will cause volatility to pop (think February move with 35% pop) which would be good for my overall portfolio and leaves my max risk on this trade at $90 to the upside. Or the other scenario is we keep grinding higher with little one day sell offs with small pops in vol in which case I don't think vol really goes anywhere between now and Jun expiration. My break even to the downside as it stands is at $16.46. The max gain is around $510.

And for full disclosure, one thing I will be looking to possibly do is sell some 30 calls against the 23 that I bought on a decent pop in vol. This would effectively move my break even to the upside to $30 (a 55% move in vol). These calls are currently trading for about $0.30 and would need to move another $0.20 before I decide to sell them.The new risk profile would look like this:


Good Luck Trading!

In The Money Trades


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Wednesday, May 1, 2013

/ES New All Time High in After Hours 1,595.50

What a run this market has had not just in 2013 but really since October of 2012. If you take a look at the chart that I have shared below you will notice that we started this uptrend we are currently in at 1123 on 10/3/13. As of last night the all time high is 1,595.50, thats 472.5 points or +42%. That is a very impressive run indeed.


In 2013 alone we are up 135.25 points or about 10%. Q2 is over and its a new quarter. The question everyone is asking themselves is whether the run up can continue or is the market getting tired and ready for a nice corrective and consolidation move?

I honestly don't know how you can commit any new capital to the longside at all time highs. Will the seasonal sell in May go away provide the needed environment to bring this market in? Only time will tell, in the meantime I will continue to remain negative delta.

Good Luck Trading!

In The Money Trades

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Tuesday, April 30, 2013

Price Direction: A 50/50 Probability?


If you buy into the idea of probabilities and statistics and the fact that direction is a 50/50 probability. Then you would also agree that with enough occurrences that the up days vs down days should be about 50/50 (same concept for weeks or any other time frame). In the quick analysis I put together below it is evident that direction on any given day or week follows a normal distribution and JNJ’s current price run to the upside is an outlier way out on the right tail of the distribution curve with 17 consecutive up weeks.

Analysis Based On Weekly Closes (10 year data set)

Just on up weeks vs down weeks alone we are looking at a 5-6 standard deviation move which only happens 1/100 times. This coupled with the fact that price to the upside has also made similar moves away from the mean is what makes this trade so attractive. It’s just a numbers game.

Good Luck Trading!

In The Money Trades


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If you like the hard work we put into our blog posts and videos, PLEASE help us out by sharing them. Click the share links below and share them on FB, twitter, etc. It really helps us get more exposure and grow IN THE MONEY TRADES!

Monday, April 29, 2013

Anatomy Of A Trade

Last week for all of you who are following I finally traded my first futures option on the /ES. To bring everyone up to speed before I go further let me remind you what I did last week. It was last Sunday night (4-21-13). The /ES was up 9 points in the Sunday session and since it was the only thing that was tradeable I was interested in selling a call to serve two purposes:

1) Scalp 4-5 points on a pull in as we rolled into the normal US trading session. I thought there was a chance that the futures would reverse and allow me to possibly scalp some profits. I do need to add that we were within 1/2 a futures point from getting filled on the scalp.

2) To initiate a short position on the /ES at all time highs. Since I sold the short 1,555 call for 32.5 points it would get me an effective short of 1,587.5 only about 4 points away from all time highs.

The markets irrational move to the upside has continued as investors poor money into anything with some possibility of a return of more than they can earn in money markets or bonds...which is much closer to zero. As I write this the /ES is currently trading at 1,586.50. But lets update you on what I have done with this trade as it has moved against me.


First let me tell you that the above risk profile shows you the aggregated position that I now have in /ES. As convicted as I am in this trade I have to realize that markets can do crazy things and I am not willing to be a hero as I am always trading with longevity in my mind. So as my break even on the short call began to become in danger I had to do the prudent thing and define my risk to the upside. So lets outline the different adjustments I have made to this position:

1) I sold 1,415 put @ $4.10

2) I sold 1,550/1,530 putspread @ $4.50

3) I bought the 1,615 call to spread off my risk to the upside @ $4.35

All in all you will see that on a net basis I have collected $36.75 in option premium. Now look we have 53 days left until the expiration of these options. Looking at the risk profile you can see that I have a peak in profitability at the 1,550 strike price. So other relevant stats:

Downside Breakeven: $1,398.50
Upside     Breakeven: $1,592.00
Profit rage: 1,398 to 1,592 = 194 point profit range (with short bias)

  1. Profit in 1,415 - 1,530 range = $837.50

Margin Requirement: $2,873 (risk capital)
Max Gain: $1,837.50 (at $1,550 /es, potential return on capital of 64%)
Max Upside Loss: ($1,162.50)


I know I have put out a lot of numbers above, but these are the things I am watching. You will also notice that I left my risk to the downside open as we are so far away that I am not concerned with the downside at the moment. If we move 175 points, I may look at protecting the downside...but that is not likely in my opinion.

Until next time I continue with my bias to the downside. The risk/reward at all time highs favors playing the market with a short bias. I will continue to update you on this position and what I do with it.

Good Luck Trading!

In The Money Trades

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Friday, April 26, 2013

JNJ Finishes Up 17th Consecutive Week


I really don't have to say much here, as many of you that have been following the blog know I am short JNJ with conviction. We made another new high this week and closed up for the 17th straight week in a row. Call me crazy but I am sticking with my bet that this thing is going to have a down week. And I honestly feel that the higher this thing goes the harder it is going to fall. My first target is $80/share and as low as $76/share.

I had previously mentioned that I was going to roll my $85 puts out a month if I did not get the move lower I was looking for, but after watching the price action the last few days of this week. I decided to keep the May puts in place with 21 days to go until expiration.

We will see what happens next week.

Good Luck Trading!

In The Money Trades

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Trading Commissions...The only cost to trade!

The barrier to entry to trade these days is so low with firms providing data and trading platforms for free to all customers. There is no reason why any retail trader should be paying to use a platform or receive market data feeds. For online brokers, this is now a cost of doing business.

The only cost you have as a retail trader is commissions. And even these have been commoditised over the last decade. Now that is not to say that brokers are not going to try to squeeze a higher commission rate to the uninformed trader. I have talked to a lot of new traders lately on the topic of commissions and the fact that they are negotiable.

As many of you know reading this blog, TD Ameritrade is our preferred and recommended broker for all traders. I have been with Interactive Brokers and TradeMonster and it does not even come close to what the ThinkOrSwim platform offers. With that said I want to share a few insights on negotiating your commissions.

After helping a few traders get their commission rates lower of the the last few years I have found the sweet spot to where TD Ameritrade is willing to start a new trader until they build up some account activity.

1) $1.50/contract for option trades (no minimums)
2) $5min or  $0.01/share for stock trades ($5 for 100 shares, $6 for 200, etc)

If you are opening up a new account with TD Ameritrade you get your first 60 days of trading for free, so I would wait to negotiate the commission rate until after your free trades are up.

Over time as you become more active you can go back to the negotiating table to get your commission rate lowered on the option trades and have them remove the $5 minimum for the stock trades. I personally have a $1 min or $0.01/share.

Good Luck Trading!

In The Money Trades




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Thursday, April 25, 2013

Who buys at all time highs???


As I write this post this morning the markets are back within arms length to ALL TIME HIGHS! I really don't know how you can buy all time highs. If history tells us anything, buying all time highs whether in the stock market or in the housing market or any other market for that matter is a losing trade. But we have to remember that the markets can stay irrational for longer than expected. If you don't get too big for your pants, you can weather the storm.

In continue to be a difficult environment to sell option premium given the super low volatility environment. 



Positions: Short /ES, Short JNJ, Short GME, Long CLF, Long NLY,

Markets at all time highs are not great on my portfolio but I do have 2 pieces of saving grace:

1) I have positive theta

2) I am long CLF and that is offsetting negative P&L as we move higher.

Good Luck Trading!

In The Money Trades

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Wednesday, April 24, 2013

Stay Small, Stay Out of Trouble

To expand on my post from yesterday about patience. I want to talk about a very important element that allows patience in a position, and that is staying small. If you trade too big RELATIVE to your personal account size, you are likely to be forced to exit the trade before the trade works in your favor. Many trades myself included have all experienced the pains of trading a position way too large given our account size.

There is this predisposition out there that the only way you are going to make money in the financial markets is if you are trading 10 lots of options and 1000 shares of stock at the time. This is not the case, and if this is your mentality you will likely ensure yourself trouble. We have all read the stories of traders blowing up their account.

I personally think a good rule of thumb is to not risk more than 5% of your account value on any one position.

Good Luck Trading!

In The Money Trades


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Tuesday, April 23, 2013

Sometimes Patience Is Hard

Sometimes the hardest thing to have in the markets is patience, I know this all too well as when I first started trading my attention span was that of a rock...thats right I was all over the place. But know I find trades that I like and I extend my duration (thus my patiences). I have seen huge improvements in my trading by doing this, but in the short term this sometimes means some pain. Luckily with options we can trade around a position to reduce cost basis (whether short or long).

The biggest thing to remember if you are going to trade like this is to TRADE SMALL. You can't be a gun slinger trading like this. If you trade too large in the context of your account, you will never be able to stay with the trade long enough to see it work out. And you risk blowing up your account. This is probably the biggest change I have made over the last 5 years trading, and thats my trading size. I use to think that I always had to trade in 5 and 10 lot trades. I almost felt ashamed by trading a one lot. But not anymore.

I have also realized that there are certain strategies that I am comfortable with in individual stocks and others that I will only use on indices. You have to find what works for you.

This post was inspired by my current position in JNJ and a comment that I got on my short call position on the /ES. I was asked if I was worried about the unlimited risk on the short call I sold on the /ES. The answer is NO! That does not mean however that I am unaware of the risk to the upside. But I am comfortable with the position due to its size and the different strategies I have at my disposal to trade around the position.

JNJ Testing Patience


This chart is starting to look pretty parabolic and so strong for a consumer staples company. We are working on putting in the 17th consecutive week to the upside. I have been short this name a few times over the last few months and cashed in some profits early on. But then a week and a half ago as I analyzed the chart a bit further my conviction to the downside has grown and I got short naked $85 puts when the stock was trading around $82-$83/share. As I write this JNJ is making another new high at $85.68. The up move is starting to look like a strait line and the only thing I can liken it too is throwing a ball up in the air, eventually the energy your transferred to the ball as you through it up in the error runs out and then gravity puts pressure on the ball to fall back to earth.

I am committed to seeing this position through and because I have stayed small I can have patience and I feel like the move is right around the corner. We all know that when it comes to price movement, we take the escalator up and fall off a cliff to the downside. I am looking for a drop in price and uptick in volatility in JNJ in the coming sessions. As you can see from the above chart my initial price target to the downside is $80/share, but I do think that $75 is possible. I will also remind everyone that has been following this position that I do have plans to roll the puts out a month if we don't get the move I am looking for this week.

Lastly I would like to mention that because I chose to use puts to define my risk I have lost less on my long puts that the stock has risen if I would had just been short the stock.

Good Luck Trading!

In The Money Trades

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Monday, April 22, 2013

Trading Options on /ES for the first time

So Jason and I have talked about trading /ES for so long...and one of the big benefits that I have thought ever since he started trading /ES is the extra trading time that comes with trading futures contracts. For those of you that don't know, the futures markets only shut down for 45 min/day during the week and is closed on Friday through Sunday evening before it opens back up. There are a few times when I see markets trade on a Sunday afternoon that I would like to put some kind of position on going into the open on Monday. Well I finally executed a trade in options on /ES.

It feels like the steam has been lost to the upside in the /ES for sometime and I have a short to neutral bias. So with the /ES up 8-9 points last night (at high) I decided to sell a call for almost 32 points (was ATM option). I am looking to make about 4-5 points on this option. But I sold it with the mindset that I would be okay being short at my breakeven price which puts us at the highs for the markets around 1590. Otherwise I am happy to make the 4-5 points. So I really look at this as two possible positions:

1) A scalp for a nice overnight trade or a swing trade.
2) A nice short entry at all time highs...would rather be a seller than a buyer at these levels.

I do have to admit however that I was apprehensive to execute my trade last night, not because I was not comfortable with my trade idea, but because it was the first time I have traded this product. With that said I did not sell the top, we were up only about 6 points when I executed my trade.

I have a limit order in to make about 4 points on this short call in TOS and will let that work this morning. A few more points lower on the /ES and it will get filled. It feels likely that it will get filled this morning based on how its trading (down 3 points as I write).

The only caveat that I would give to traders venturing into a new product is to make sure you understand the product and what price movement means to your P&L. I had to refresh my memory that each point in the /ES is +/-$50.

Good Luck Trading!

In The Money Trades




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Saturday, April 20, 2013

JNJ Finishes Up 16 Consecutive Weeks

When you look at a weekly chart of JNJ it has had an amazing run up. It has finished higher 16 weeks in a row. I started getting interested from the short side around $81-$82 share. At first I got short via some put spreads and on a day last week we had over a $1.50 sell off in the stock where I cashed in the put spreads for a decent return of about 30% on total risk for a few days of holding. After watching JNJ close up another week (making it 15 consecutive weeks), I saw the opportunity to put the same putspread on for close to the same entry price as the first time. And too my amazement JNJ continued higher, at some point in the middle of this week I closed the put spread for a loss and bought 6 ITM puts @ $85 strike price. My conviction has increased and each consecutive week higher adds another level of confidence with the probability of decline more likely.


JNJ has gained over 21% in the last 16 weeks with no real pullback in price...at least not on a weekly basis. I think the first weekly close can get us down to the $80 price level and that is my first price target. $75 is in the realm of possibilities. With only 27 days to go until my put options expire, I will be looking to roll them if we do not get the move I am expecting this next week. Another weekly closer higher would have consider rolling up and increasing my size to 10 contracts. The higher this stock goes relative to its parabolic formation, the higher reward I see.

Good Luck Trading!!!

In The Money Trades

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Thursday, April 18, 2013

So you wanna be a trader? Be prepared!

This guest blog was provided to us by Bogdan Giulvezan (BinaryOptions.com), who has been trading both Forex and binary options for the last few years.
I don’t want to sound pessimistic, in fact I’m one of the most optimistic guys I know, but I’ll tell you right from the start: it’s gonna get rough out there and no matter who you are, no matter how well trained you are, the market is going to bring you to your knees…and that’s when winners will choose to get up and losers will walk away. Who am I and what’s my right to talk? Just a guy who weathered the storm and chose to keep on going.

Losing…That’s the first step forward.


I had my share of losing and I learned the hard way that success in trading is not achieved overnight. Like a fool I failed to see the difference between luck and skill and I thought I am good…in fact I was just wrong. One of the things I didn’t realize in my early trading days was that I will lose some and win some. I naively thought I will enter the trading game and hit it big, without ever losing…then the first loss came along; and the second… and they kept on coming. My confidence started to shake and I wasn’t sure of myself anymore. I couldn’t make a sound decision anymore and probably a deer in the lights of a speeding car was more determined than I was…all because I wasn’t prepared and I didn’t know how to deal with defeat. Or rather, I didn’t understand at the time that loss does not equal defeat; it’s just a part of trading and a step forward because it will make you see things you were too blinded to see before.

Give me your best shot!


It is no secret that the psychological aspect of trading plays a big role but maybe sometimes we fail to see just how big that role is. I often compare a great trader with a great boxer. Bear with me and you will see where I’m getting at: no matter how good a boxer is, he knows for a fact when he gets in the ring that he will be punched in the face. He will take some and give some, but after the first couple of punches he takes, he doesn’t start to question his skills or his strategy, he keeps on fighting because the punch he just received is no surprise to him…he knew this will happen even before he stepped inside the arena. In other words, when you see something as a distinct possibility and prepare for it, you are never caught off guard and you carry on with your plan. Just how the great boxer knows he will have his hand raised when the final bell rings if he follows his plan, a great trader must have the same mentality: ok, I will lose some, but my overall balance will be positive if I keep on track. And if I think of it, we have a major advantage over the boxer: he cannot control how hard his opponent will hit him, but we can control how much we want to lose on a trade. Cool advantage to have!

Wrapping it up


To be honest, I started writing this article because I read Jason’s article “How I blew up my account” which made me remember some of my mistakes (yes, I have plenty) but it also gave me a feeling of confidence because I saw how somebody can overcome adversity and still manage to move forward. The ability to do that lies within us; losses don’t have to make us stop and just like George Soros said, “It doesn't matter how often you are right or wrong - it only matters how much you make when you are right, versus how much you lose when you are wrong."





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Wednesday, April 10, 2013

Where we are on the SPY


The SPY continues to grind its way higher on the back of investor complacency. As you all know I have been a devoted believer in the rally until recently. We got my minimum expectation of 30 points lower on the SPY and during yesterdays session we traded right back up to highs on the SPY and near lows on the VIX. So apparently there is no fear in the market, but it still just does not feel right. I don't have a huge position on, but with the market up yesterday I was short an equivalent of 60 deltas and was actually up $220 on the day.

Notice in the above chart the range that I drew in blue. Yesterday I decided to put a very wide Iron Condor with December expiry. And those blue lines represent my breakeven points.

Last week I got short JNJ via some putspreads that I covered on Monday with JNJ trading down over a buck. Well yesterday I had an opportunity to put the same trade back on around 10 cents higher than the original trade. This thing is up 15 consecutive weeks in a row and still has a reading of over 81 on the RSI on a weekly chart.


I am only using about 20% of my capital and am going into this mornings open with a short delta equivalent of short 155 shares of SPY.

Good Luck Trading!

In The Money Trades

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Wednesday, April 3, 2013

Long Vol in Low Vol Environment






On Monday I posted that I moved to 95% cash and that I thought short term that we could see some weakness in the markets. I also added a comment to that post that because of this thesis, I decided to get long volatility via the VXX. I sold 5 May '13 puts @ $1.24 with a $19 Strike price.

Above I have a 4 hour chart of the VIX. The thing I want to point out is that the VIX has been below 15 for all of 2013 except for 2 days. One of those days was the 35% spike on February 25th. I have 44 days til expiration to see a spike in volatility and plenty of time for theta to work for me. My goal is to capture about 50-70% of the premium I sold.

My break even is $17.76 and I would look to roll if we actually continued lower towards my break even before I close the trade. Remember when we had the spike in VIX in February I was short vol with a covered put position in the VIX. At these prices I don't like that trade as much, which is the justification of being long.

Remember I took off the VXX, I think last week for most of the max return with plenty of days til expiration.

Good Luck Trading!

In The Money Trades

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Monday, April 1, 2013

Why I am still short the ES

I'll be honest and say that I haven't seen an ES quote in about ten calendar days. I have happened to catch some general market numbers when I'm passing by TV screens at lunch the last few days, I know my short is looking ugly. But here is why I'm still short:

  1. Roughly 13% of the current total value of the S&P  has been gained in the last 90 days, that seems a little extreme. Those types of moves rarely come with no pullbacks. So if I wasn't already short I would be shorting here, this really is the main reason for continuing to be short.
  2. Markets can only do three things, go up, down, or sideways. The odds of these three options are supposed to be random over the long haul; and in 2/3 or 67% of those outcomes, I can make money. Though the market has done nothing but go the wrong direction since my initial short back in the last week of December, I've still managed to cost average up my position by 40 points. I know from experience what I can do in sideways or down markets.
  3. From a trader's perspective, you can't lose 90 days in a row and then walk away, at least I can't. That's equivalent to selling your longs when the market crashes simply because you can't stand the pain anymore. But I'll be honest and say this has been a painful short and the reason why I'm only passively paying attention right now. I'll know when volatility is back. You can't wait for the market to turn ugly to put on a short, but again that's just this biased trader's perspective. I will also admit that at this point the goal has been modified to reclaiming a large part of my losses and no longer trying to break even, that will have to come in the long run and not this particular trade.
I rolled my two short contracts a few weeks ago and have yet to update my spreadsheet. I don't even know my current cost average. I know the rough number is I'm down about $9,000, so with two contracts a break even is 90 points away. That's actually not far fetched if there is a correction, but I'm not waiting for 90 points to pull the plug. If we got a down move or return of volatility I anticipate bringing in one contract well before then and attempting to trade around. If I get unlucky and pull in a short and the market continues to fall, then I've still got one short on.





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Is Volitility DEAD? Will the market ever trade lower?

Anyone that has been reading this blog over the last few months knows that I have been bullish for all of Q1 and have been projecting a bullish story for all of 2013. Overall I continue to be bullish for the year, but short term my opinion is being challenged. The S&P 500 finished Q1 up 10% on the year and volatility has basically traded near historical lows for a big part of the quarter besides the 35%+ spike in February.



This morning I happen to be watching the SPY trade up to test the $157 level. But it failed and reversed course. This is one of many instances of the last 1-2 weeks where we have had a pretty large reversal in the market. It feels like a tuggle war is taking place in the markets.

The VIX is popping 10% as I write this.


Volatility has been dead, but there is a certain level of complacency that is making me a bit nervous in the short term. I am starting to believe that we could see a correction lower. I am initially thinking that it could be in the tune of 30 points to start. I would re-evaluate if this occurs.

With that said I have actually lighted up on a few positions that were pretty deep in the money. With 9 months to go on a lot of my positions, today I had the opportunity to close those positions for close to 60% of the gain in some cases.

Before today I was close to 95% invested...after this morning I am more like 10% invested. Now don't get me wrong, I typically want to have passive positions on. But something told me this morning that it was a good opportunity to move to cash and wait for another opportunity to re-enter the market at lower prices. So until then I will likely sit in a large cash position.

Maybe we will get a pop in volatility that would allow me to put my covered put position back on in VXX. If we could see vol back in the 20's, it may also bring some opportunities to sell some premium.

Good Luck Trading!

In The Money Trades




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Sunday, March 31, 2013

Tasty Trade Interview with Tim Sykes





The above interview is only about 15 minutes long with Tom Sosnoff (of TastyTrade.com) and Tim Sykes. Tim Sykes got his fame in trading penny stocks after he turned his $12,415 Bar Mitzvah money into $2 million bucks. He is character to say the least. Although he has done well trading penny stocks and training his students to do the same. Tom Sosnoff argues that he is an outlier and that over time the statistical change of trading directionally and doing better than 50/50 is zero. As anyone who has watched Tom speak, he is all about increasing your probability of success (increasing your edge), doing this by selling premium and reducing cost basis. 

Its an interesting video and very entertaining to listen to two very outspoken people in the trading space.

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Thursday, March 28, 2013

Options Assignment On A Covered Call Position (NLY)

I know that many of you out there reading this blog, wonder what happens when the call options you sold against your stock position get exercised? And then the next thing you are likely asking yourself is what you have to do?

As you can see from the screen shot, I was notified via email from my broker at TD Ameritrade that my calls that I sold against my 1,000 shares of NLY were being exercised early. It was a good ride, I was able to collect a few dividends, but what would had been the 3rd dividend was called away from me right before the ex-dividend date. The call was in the money by at least a $1/share, so it made sense for the buyer of that option to exercise his/her option to collect the dividend.

"Option Assignment is just a fancy term describing the fact that the owner of the option as exercised his right to buy your stock, since you as the seller of the option have the obligation (in the case of being short calls)."

So what happens now?

Everything from this point on is automated. The entire covered call position will be removed from your account. In my example my 1,000 shares of stock was sold at $15/share, leaving me with $15,000 in capital to re-allocate or get back into the same position if I still liked it. Additionally the call that I sold for about $0.55/share is mine to keep. So in reality I actually now have $15,550 dollars to re-allocate. There is an $15 fee that I was charged for this transaction.

Click here if you want to read more about Option Assignment.

Good Luck Trading! 

In The Money Trades


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Tuesday, March 26, 2013

Retail Trader with $105MM in profit



I didn't get a chance to see this interview when it first aired, but all I can say is WOW! The funny thing is the comment that Tom makes about the fact that professional SPX pit traders don't even know this lady exists and wouldn't believe that there is a retail trader that has made this much money. The video is about 52 minutes, but is really interesting and worth your time.

Oh and by the way if you are not already a tasty trade member you should check it out here! This is the best education you are going to find on trading, I personally don't think you could find a paid service that beats what Tom and Tony give each and every day. Look the membership is free when you sign up for a free account at think or swim.

Good Luck Trading!

In The Money Trades



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Sunday, March 24, 2013

AAPL Stock

Chart Multi-Month Downtrend in AAPL:

APPLE STOCK

As anyone knows that has been trading AAPL for any length of time, it has been in a strong and decisive down trend for months (since September 2012). I know many, myself included are wondering when the move lower will be over. So I have decided to take a closer look at how AAPL stock has been performing technically.

In the above chart I have drawn in support at $419 and resistance at $485. Once you draw these support and resistance lines, AAPL seems to be trying to digest the cliff dive it took from $705 back on 9/21/12. Because of the hear mentality my guess is a lot of people got hurt playing APPL and will be licking their wounds for sometime. With that said I do think AAPL has bottomed, but I also think it will trade sideways in this new consolidation channel for sometime to come.

Option Trade Ideas:

As you can see on the chart, AAPL stock is trading in the middle of its new trading range with implied volatility around 33%. I think implied volatility is a high enough level given the chart pattern of AAPL to consider selling an iron condor. Here is the one I am looking at specifically in the month of May:

AAPL Stock Iron Condor
Analysis of AAPL Iron Condor Using Mini Options
The above screen shot is displaying a May iron condor selling the $475/$485 callspread and the $430/$420 putspread. As you can see I am looking at the mini options that just became tradable on the 18th of March. A mini option is 1/10 the size of a regular option. So in this case it represents only 10 shares. 

You can collect around $6.12 for this $10-wide iron condor. It has 54 days left until expiration with a 55% probability of success. I think the probability is a bit higher looking at the technicals. for every 1-lot you put on you are looking at a max gain of $62 on $38 of risk.

Profit Range: $423.84 - $481.15
Last Close:   $461.91
Max Loss: $38
Max Gain: $62 (almost 2x)

Good Luck Trading!

In The Money Trades


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