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

And 1 favor that we ask: 

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!

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

And 1 favor that we ask: 

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!

Coffee, Bonds, and Interest Rates

So yesterday I was sitting in a local coffee shop working on a financial model for my day job, when a gentlmen asked me if I was studying. That question led to about an hour long conversation about what I do and a lengthy discussion about the financial markets. Michael was his name and he is a retired pilot trying to figure out what to do with his idle cash. From our conversation I gathered that he had been trading bonds from the long side had been recently raising cash as he realizes that bond prices likely don't have much room to the upside. We talked about interest rates being near zero, with no room to go lower. Although neither of us know the timing, eventually interest rates are going to go up. At the very least we agree that they can't go any lower.

After we talked through a few different ways and trading vehichles to play out this thesis I reccomended to him two resources that I reccomend to everyone. That is the Think or Swim trading platform by TD Ameritrade and Tastytrade.com (links below). And of course a shameless plug, I gave in our blog url.

You could say that I am on a mission. I want people to take a more active role in their finances. I am not suggesting that you need to be glued to your computer screen 24/7, but you should know that trading is not as complicated as the media makes it out to be. You are smart enough to manage your own money. And there are ways to not only provide you with downside protection, but also to enhance your returns. The best thing is that most of the strategies that I would be an advocate of for the average retail investor will only reduce the amount of risk taken and increase the probabilty of success where comparing it to the traditional buy and hold strategy touted by financial advisors (glorified salesman).

I want you to have more than one way to make money. Don't you?

Good Luck Trading!


And 1 favor that we ask: 

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!