Thursday, January 31, 2013

ISE to introduce mini options on March 18th

Hey Traders! I am not sure how many of you may be following this story or if you are even aware that its happening. But a while back the ISE exchange announced that it had created a new option product that they are calling mini options. The mini options are going to open up the playing field for people with smaller accounts to play big names like: AAPL, AMZN, GOOG, GLD, and SPY.

The new mini contracts are going to be identical to the regular option contracts with the amount of shares it represents being the only difference. The mini option contracts will represent 10 shares vs the typical 100 shares.

I don't know about you but I am pretty excited about this. Because there are times where I would love to play some of these names but the capital required to take delivery of 100 shares of say AAPL by selling a naked put at current prices is about $45,000, which is a significant portion of my portfolio. But with the new mini's it will be a tenth that size, which would make me more comfortable playing those names.

Here is the release for November of last year:

The International Securities Exchange (ISE) today became the first exchange to confirm a launch date of March 18, 2013 to commence trading in Mini Options. Since receiving Securities and Exchange Commission (SEC) approval for this innovative new product offering, ISE has been coordinating with its member firms to determine an appropriate date for launch readiness.
Mini Options will represent a deliverable of 10 shares of an underlying security, whereas standard contracts represent a deliverable of 100 shares. ISE will initially list Mini Options on the following securities: AAPL, AMZN, GLD, GOOG, and SPY.
“We are very pleased to announce a launch date of March 18, 2013, to begin trading Mini Options,” said Gary Katz, President and CEO of ISE. “This exciting new product will make trading options on popular, high-priced names like Google and Apple more affordable and more flexible for the retail segment of the market. We look forward to coordinating with our member firms to achieve a smooth rollout of Mini Options in March and to broadening the reach and appeal of the options product to retail investors with this new offering.”
Mini Options will have the same expiration dates as their standard counterparts, including Weeklies and Quarterlies. Strike prices will also align to those of the standard contracts, as will the quoted bids and offers. The fees associated with Mini Options will be filed with the SEC and announced at a later date.
I also heard on the Tasty Trade show yesterday that these option will be available to all of us that currently trade on the Think or Swim trade platform the day they go live. 

To read more follow this link:$Mini_Options$20121203.pdf

This is not only excited for my own personal trading, but it also comes at a great time. As many of you who have been reading, I am currently teaching a few friends about options trading. So these might be a great product for them in the event they want to trade some of these big names.

Saturday, January 26, 2013

My High Yield Positions In Total

I figured since this is really the only significant position type in my portfolio currently that I would share the different stocks that I currently own with high yield from the dividend they pay based on the stock price.

They are: NLY, PBI, CLF, & VALE

CLF: Current yield is 7% based on a $0.63/share dividend and current share price of $35.71, the next ex-dividend date should be announced February 11th based on historical information. The dividend has been paid out consistently for 23 years and has been rising on a consistent basis. I was also able to sell the Jan '14 $40/call for $3.95, which was about 11% of the stock price when I acquired the stock at $33.74.

NLY: Current yield is 12.12% based on a $0.45/share dividend and a current share price of $14.85, the next ex-divided will be around the 28th of March. The dividend has been paid out consistently for 15 years and varied based on financial performance.  I was also able to sell the Jan '14 $15/call for $0.67, which was about 6% of the stock price when I acquired the stock at $14.59.

PBI: Current yield is 12.35% based on a $0.375/share dividend and a current share price of $12.15, the next ex-divided will be around the 15th of February  The dividend has been paid out consistently for 30 years and has been rising on a consistent basis. I was also able to sell the Jan '14 $12/call for $0.79, which was about 7% of the stock price when I acquired the stock at $11.79.

VALE: Actually no current position here. Closed this one out before the end of 2012.

I like these types of positions due the the nature of set them and forget them. I get paid the dividend while I wait (assuming I don't get called away). Plus I make the call premium to boost the natural yield of the stock itself. I look to aim for an annual return of 15-20% on stocks that have paid a consistent dividend overtime. On top of that I like to buy them after a significant sell off, increasing my "Margin of Safety". 

Good Luck Trading!!!

Thursday, January 24, 2013

Sometimes you have to sit on your hands

First let me start off by stating that my activity level in the markets is much less than it was when I first started engaging the financial markets back in 2007. If you are just starting off it is natural to want to be involved every minute of every day. But overtime you will find your rhythm or cadence as you gain experience and find an activity level that suits both your personality and lifestyle.

I personally have many interests and pursuits, so over the years I have chosen to put on trades that don't require me to check in on a daily basis. But I still remember the time when I was glued to a screen watching every tick in the market. It was a rush, but overtime became a bit of a roller coaster ride. Every tick in favor of your P&L was euphoric and every tick against you was the end of the world. At least this is what it was like for me.

Now I will be the first to admit that my activity level does ebb and flow based on my free time. If I have more free time I am a little more active. But I honestly don't trade option cycle to option cycle. I am much more discretionary putting on trades. I don't trade just to say I made a trade.

The biggest thing that I have learned over the years is that I like to be a premium seller. I like the fact that time makes me money. Because lets be real, in this world you exchange your time for money. So why not let you money increase your pay over time with out putting in the extra hours. Put your money to work for you. I am also a huge fan of the power to reduce cost basis whether executing long or short trades via the premium collected for selling options.

Although you could choose the inverse of any option selling strategy and theoretically have the same statistical chance of profitability. I prefer to collect than to pay when initiating strategies.

Which leads me to the title of this post. As an premium or option seller if you will, I look for a market with higher volatility levels than we are currently experiencing. I want the premium to be worth the risk of taking on the trade. But with the current low vol environment it is difficult to find such trades that meet my criteria.

When you can't find trades that meet your risk/reward criteria, the best course of action is to sit on your hands and sit on your cash to position yourself for the next round of opportunity. That may mean doing absolutely nothing or it may mean trading really small. It depends on you.

For me its a combination of both. I am trading really small, and only putting on what I would call longterm cash flow trades. I have posted about this strategy whereby I look for quality high yielding dividend paying stocks and sell a long term call or LEAP against it. It is kind of a set it and forget it.

But other than that I am basically sitting on my hands and my money waiting for fear to enter the market once again and present me some opportunity. I am sitting on about 50% cash as I write.

Good Luck Trading!

Tuesday, January 22, 2013

HCA is extended to the upside...whats my trade?

As I suggested in the title of this post, HCA from a technical vantage is looking very extended to the upside. Upside price movement has gone parabolic. The RSI is showing a reading of >80 and we are trading at the upper bollinger bands. So based on the chart I want to be short this name for a corrective move.

But I also want to be long the stock, I just don't feel comfortable getting long at current prices. We have decisively broken out above resistance around $34/share. And as the rule goes, what was once resistance becomes support (Around $34/share).

So I put on the following position:
Risk Profile for Aggregated Position

Part #1: Sold 1 Mar '13 $38.50/$40.50 callspread @ 51 cents

Part #2: Bought 2 Mar '13 $37.50/$36.50 putspreads @ 50 cents

Part #3: Sold 1 Mar '13 $36.50 put @$1.45

Overall I collected a net credit of 96 cents or $96.

Upside Breakeven: $39.46
Upside max loss: $104

Downside Break even: $33.54
Downside max loss: Infinite (stock could go to zero)

Max Gain: ~$300 @ $36.50 stock price

A few things to take note of from the risk profile I pasted in above. First the probability of the stock finishing above my upside breakeven of $39.46 by March expiration week is 35.49% chance, meaning there is a 64.51% probability that it will finish below my upside breakeven (I like those odds). Secondly, the probability of HCA finishing below my downside breakeven of $33.54 is 16.22%...meaning that there is an 84% chance of it

At the end of the day. If I am wrong to the upside then my max loss is $104. Anything between $33.54-$39.46 I can make $0 to $300. And anything below $33.54 gets me long the stock at $33.54, which I would be more than happy with as well. That would give me an entry of $4.46/share lower than where HCA finished today.

Lots of options and ways to play out this position. Now we just need to see what happens over time.

Monday, January 21, 2013

Tasty Trade - Free Option Trading Education

How many of you like FREE stuff?

Ok. Stupid question. How many of you like quality free stuff? If you are on this site, you are likely trying to make money trading options...and maybe other trading vehichles as well.

So Tasty Trade could put you back $90/month if you didn't know any better. But we would not let you do that on our watch. The first thing you need to know is that if you use the Think or Swim platform to trade then its free. Oh, by the way, Think or Swim from TD Ameritrade is not only the most sophisticated platform out there but its FREE also.

Now that you have this information, what are you going to do with it?

1) Go open up an account with TD Ameritrade and download the Think or Swim Platform.

2) Then once you account is set up and funded you are going to send an email to to get your free account at tasty trade setup.

Once you get your account, you need to start tuning in and learning.

Don't forget to contact support and ask them to lower your commission rate. Just tell them you want them to match interactive brokers option rates. They may give you a spill...blah, blah, blah. At first they will likely offer you a $1.25/contract commission rate for options and a penny per share for stock. That is a good deal to start, and as your volume picks up you can go back to the table.

For full disclosure Jason, Sandeep, and myself pay $0.75/contract for options and a penny per share for stock trades. Its a great rate, especially when you keep your trades small. Which is really the way we recommend you trade.

Let us know if you open an account with TD Ameritrade and get the account. We have been on the trading platform for a while and can help if you need any navigating the platform. But you will also learn a lot of that from the show.

Good Luck Trading!

P.S. If you are just begining you should tune into the new series on called "Where Do I Start?

Tom Sosnoff, the co-founder of ThinkorSwim and founder of is teaching his daughter from the ground up how to trade the financial markets and make money.

Thursday, January 17, 2013

Short Call spread in SPY

This morning I put on a short 150/160 call spread on SPY. We are approaching the highs from September of 2012 and I am not so sure we will be able to breakout to new highs. One thing I would like to point out is the fact that I went all the way to December expiration for this trade. I collected $4.06 for the trade. There are two reasons I did this. These days balancing trading with all my other ventures I don't want to feel compelled to be glued to the trading screen. When I first started I felt like I had to watch every tick in the market. Now I have periods of super active trading, but for the most part I pick trades I really like and can set and forget.

And it doesn't matter whether I check daily, weekly, or every few weeks. Of course I can set alerts to let me know if I need to check in.

The second reason is I have a few long covered call positions that would benefit on the market going up. But I just want a little more downside protection in the event the market does indeed have a pull back from these highs.

I even acknowledge the fact that at some point this year the SPY could be testing 2008 highs near $157. But in reality I doubt we finish the years at the highs.

At the end of the day I like the risk/reward of this trade in respect to the other positions that I currently have on.

Time to set it and forget it!

Good Luck Trading!

Tuesday, January 15, 2013

How to start trading online

Trading with Chris & Mike #1

Good morning and welcome to a new blog educational series that I will be hosting weekly. I have a few friends that want to learn how to trade and invest online. I will be meeting with them in person and turning our lessons into blog posts. Our first lesson was last Friday and the objective was to cover the basic steps of how to start trading and investing online.

Critical First Steps:

  1. Put together the funds that you will use to open the account. I recommend $2,000 to start. But if you can't start with $2,000, then as much as you can put together. The reason I recommend $2,000 is because it gives you a lot more flexibility with the types of trades you can make.
  2. Choose an online broker. There are a lot to choose from, but if you need help selecting, please reach out to us. We have our favorite platform.
  3. Negotiate the commission rate. Most people don't even know that they can ask for a lower commission rate with out any minimum commission rate. If you need help with this, reach out to me (at and I will help.
  4. Explore the platform of which ever broker you decide to sign up for.
  5. Find Education. It could be from a mentor in person, online trading blog (wink, wink), a trading book. 
I sent Chris & Mike home over the weekend with homework to get some funds together and start the application process online to open an account. Once they have their accounts open, I am going to guide them in negotiating a sweet commission rate. The last thing you need is outrageous commission rates eating into your capital. THE SMALLER THE BETTER!

This week we are going to go into some basic trading terminology...Trading Lingo 101!

Here are some of the questions we will answer this week:

  • What is a stock?
  • What is the difference between being long or short a stock?
  • How does shorting work? How do you sell something you don't own?
  • What is a margin account? Why does it matter?
  • What is the difference between trading and investing?
  • What is a call option?
  • What is a put option?
  • I thought options were really risky...even more risky than stock?
  • How do I choose what to trade and invest in?
Stay tuned for a follow up post with answers to these basic questions next week.

Good Luck Trading!

Sunday, January 13, 2013

High Yield Trade in PBI

Just as it has been a long time since I have posted on this blog, it has been equally as long since I last posted about any trade ideas. 

BTW, you have by now seen some visual changes to the blog. We are still detailing and finalizing the changes for the "Official" re-launch.

One of the strategies that I have utilized over the course of the last year in my IRA account is high yield covered call position. Some of the stocks that this has worked out well with are VALE, NLY, and now PBI.

I use a pre-defined scan that I have set up within the TOS platform to look for stocks that have had recent sell offs and made for very attractive dividend yields. Then I do the following due diligence:

1) Research the regularity of the dividend. You can easily check history from the company's website. Most of the time you can even see them within the TOS platform. Checking the company website for PBI I confirmed that it has had 30 years worth of consistent and increasing dividend payments.

2) Make sure that there were no recent large one time payments to investors that might be inflating the dividend. 
PBI made the cut: 12.5% dividend rate

3) Then I check for any announcements that may be responsible for a sell off.

4) The first 3 steps cut a lot of the results as possible candidates. In step 4 I look at the charts to get the technical perspective and look for a good price entry. I also add notes as you can see in the above chart of the last 4 dividend payments.

5) The last step is to look at the option string to find a call option to sell against the stock in a covered call trade. Usually opting to sell a call at the money or 1 strike out of the money. Additionally I try to grab a call that is 1 year out from expiration.

When I initiate this position last week I was able to sell the Jan '14 $12 call for $0.80/share. I picked up the shares for $11.79. So the short call got me 6.8% on top of a 12.5% dividend yield. Additionally I have $0.21/share of upside potential or 1.8%. So my max gain on this position is about 21% for 1 year. On top of that I have some really nice downside protection with the dividend and call premium while I hold the position.

This is my version of buy and hold.

Good Luck Trading!

Friday, January 11, 2013

Site Re-Launch & Revitalization Coming Soon!

Hello and welcome to 2013!

It has been a long...long....long time since I have last posted to the blog.

Jason and I started this blog back in May of 2009 as a place to share our trade ideas and market analysis. Eventually it grew to a few other contributors and developing traders posting off and on over the past few years. A big part of the time of no activity from me was due to the fact that I was trading professionally for an oil company for about 2 years, and I really could not post about the proprietary trades I was making in house. My focus internally led to way less trading activity in my personal account. I have since moved on to new endeavors and am ready to re-launch and revitalize this trading blog and community. I have a vision of what I want this site to become for myself and the rest of the community. Be patient, and over the next several weeks and months you will see this community come alive.

Stay Tuned!