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November 25, 2014

Weekly Options and Theta

There are so many different characteristics of options that I talk a lot about with my options coaching students. But one of the more popular subjects is that premium sellers see the most dramatic erosion of the time value (option theta) of options they have sold during the last week of the options cycle. Most premium sellers strive to keep the options they have sold short (also known as options they have “written”) out-of-the-money (OTM) in order that the entirety of the premium they have sold represents time (extrinsic) premium and is subject to this rapid time decay.

With 12 monthly cycles, there historically have been only 12 of these final weeks per year in which premium sellers have seen the maximum benefit of their core strategy. The continued and expanding use of weekly options has changed the playing field. Options with one week durations are available on several indices and several hundred different stocks. These options have been in existence since October 2005 but only in the past couple of years have they gained widespread recognition and achieved sufficient trading volume to have good liquidity. Further now, there are even more weeklys that go for consecutive weeks (1 week options, 2 week options, 3 week options, 4 week options and 5 week options).

Standard trading strategies employed by premium sellers can be executed in these options. The advantage is to gain the “sweet spot” of the time decay of premium without having to wait through the entirety of the 4 to 5 week option cycle. In addition, it gives premium-selling option traders even more choices to take advantage of option theta. The party never ends for premium sellers using these innovative methods. Of course there is a trade-off because the shorter the time there is left until expiration, the smaller the option premiums are compared to an option with a longer expiration. As option traders, we are used to tradeoffs.

Option traders interested in using these weeklys MUST understand settlement procedures and be aware of last days for trading. An excellent discussion of weeklies given by Dan Passarelli is available at Learn to Trade Weeklys. enjoy the Holidays!

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

March 20, 2014

Aint’ Nothin’ Like the Real Thing, Baby!

When it comes to learning to trade, there really isn’t anything like the real thing. You can read hundreds of books, watch thousands of videos, but without having someone to show you the way to actually DO IT, learning to trade can be tough.

Imagine trying to learn a complex game like chess by reading a book or watching a video. You’ll get some good pointers, but can you really learn to master the game? There is logic, psychology, player interaction, time-tested moves and other intangibles that a book or video can only teach you so much about. You can practice playing the game over and over again as well, but without someone showing you move-by-move, piece-by-piece how to play the game, you’ll never achieve mastery of the game. You need someone to show you how to play, the way to counter certain moves, the way to set up attacks three moves ahead, the way to read your opponent.

That’s the way I learned to trade: Face-to-face, and often toe-to-toe, down on the trading floor. I learned the old fashioned way: By having people around me to show me how to do it. The benefit of being able to ask the experts standing next to me on the trading floor the burning questions that I needed answered. This helped me to reach the level of competency I need to become a successful a trader. It proved to be the biggest contributor to a long and rewarding trading career.

It’s hard for people to learn to trade without access to the knowledge center that I was fortunate enough to have which was smack dab in the middle of the trading floor; and I appreciated that. I consider myself extremely fortunate to have grown up in Chicago and to have gotten a break, getting a job on the trading floor after college. I was able to springboard that opportunity into a successful trading career. I get it. And that’s why, for two days, I am going to help recreate some of that experience for YOU.

We are planning an intensive (but fun) two-day class in Chicago. It will be held at the Chicago Board Options Exchange (CBOE), where I first learned to trade.

We’ve got a GREAT curriculum planned and a really fun social event in the plans as well. Right now, this class has not been made officially public. We’re still in the final stages of planning and we’ll announce all the details next week. Right now, we’d like your input so we can finish off the amazing itinerary we have planned. Please help us create the kind of class you’d love to be a part of—your DREAM CLASS—by answering this short, four-question survey.

Dan Passarelli

CEO, Market Taker Mentoring, Inc.

Create your free online surveys with SurveyMonkey , the world’s leading questionnaire tool.

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March 6, 2014

Weekly Options and Time Decay

There are so many different characteristics of options that I talk a lot about with my options coaching students. But one of the more popular subjects is that premium sellers see the most dramatic erosion of the time value of options they have sold during the last week of the options cycle. Most premium sellers strive to keep the options they have sold short (also known as options they have “written”) out-of-the-money (OTM) in order that the entirety of the premium they have sold represents time (extrinsic) premium and is subject to this rapid time decay.

With 12 monthly cycles, there historically have been only 12 of these final weeks per year in which premium sellers have seen the maximum benefit of their core strategy. The widespread use of weekly options has changed the playing field. Options with one week durations are available on several indices and several hundred different stocks. These options have been in existence since October 2005 but only in the past couple of years have they gained widespread recognition and achieved sufficient trading volume to have good liquidity. Further now, there are weeklys that go for consecutive weeks (1 week options, 2 week options, 3 week options, 4 week options and 5 week options) that were just late last year.

Standard trading strategies employed by premium sellers can be executed in these options. The advantage is to gain the “sweet spot” of the time decay of premium without having to wait through the entirety of the 4 to 5 week option cycle. The party never ends for premium sellers using these innovative methods. Of course there is a trade-off because the shorter the time there is left until expiration, the smaller the option premiums are compared to an option with a longer expiration. As option traders we are used to tradeoffs.

Traders interested in using these weeklys MUST understand settlement procedures and be aware of last days for trading. An excellent discussion of weeklies given by Dan Passarelli is available at Learn to Trade Weeklys.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

January 2, 2014

A Few Pennies Can Make a Difference

One of the more difficult problems with which to deal for an options trader has historically been the broad bid-ask spreads quoted for options. I often refer to them in class and depending on how large the spread, it may keep me out of a potential trade. Experienced traders have routinely negotiated the bid-ask spreads downward with varying success when trading individual positions, but the non-economic price has been the significant effort and time required to achieve these negotiated results.

Beginning in January 2007, Chicago Board Options Exchange (CBOE) initiated a Pilot Program to reduce bid-ask spreads to as low as 1¢. As of the beginning of this year, there are currently around 360 in the series (including such big names as Apple (AAPL), Google (GOOG) and more) quoted in these penny increments. CBOE maintains an Excel file of option series currently included within this “Penny Pilot” program.

Because option positions are frequently constructed with several individual legs, the impact of the ability to trade with tighter bid-ask spreads can have significant impact on the aggregate slippage of positions. Combined with the falling commission rates resulting from the increasingly intense competition among brokers specializing in options, significant trading efficiencies have resulted. Looks like a great situation for an option trader to be in.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

July 11, 2013

Time Decay and Weekly Options

One of the characteristics of options that I talk a lot about with my options coaching students is that premium sellers see the most dramatic erosion of the time value of options they have sold during the last week of the options cycle. Most premium sellers strive to keep the options they have sold short (also known as options they have “written”) out-of-the-money (OTM) in order that the entirety of the premium they have sold represents time (extrinsic) premium and is subject to this rapid time decay.

With 12 monthly cycles, there historically have been only 12 of these final weeks per year in which premium sellers have seen the maximum benefit of their core strategy. The widespread use of weekly options has changed the playing field. Options with one week durations are available on several indices and several hundred different stocks. These options have been in existence since October 2005 but only in the past couple of years have they gained widespread recognition and achieved sufficient trading volume to have good liquidity. Further now, there are weeklys that go for consecutive weeks (1 week options, 2 week options, 3 week options, 4 week options and 5 week options) that were just late last year.

Standard trading strategies employed by premium sellers can be executed in these options. The advantage is to gain the “sweet spot” of the time decay of premium without having to wait through the entirety of the 4 to 5 week option cycle. The party never ends for premium sellers using these innovative vehicles.

Traders interested in using these weeklys MUST understand settlement procedures and be aware of last days for trading. An excellent discussion of weeklies given by Dan Passarelli is available at Learn to Trade Weeklys.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

November 29, 2012

Time Decay and Weeklys

One of the effects of the seasonality of options (that I talk a lot about with my options coaching students) is that premium sellers see the most dramatic erosion of the time value of options they have sold during the last week of the options cycle. Most premium sellers strive to keep the options they have sold short (also known as options they have “written”) out of the money (OTM) in order that the entirety of the premium they have sold represents time (extrinsic) premium and is subject to this rapid time decay.

With 12 monthly cycles, there historically have been only 12 of these final weeks per year in which premium sellers have seen the maximum benefit of their core strategy. The advent and widespread use of weekly options has changed the playing field. Options with one week durations are available on several indices and several hundred different stocks. These options have been in existence since October 2005 but only in the past couple of years have they gained widespread recognition and achieved sufficient trading volume to have good liquidity. Further now, there are weeklys that go for consecutive weeks (1 week options, 2 week options, 3 week options, 4 week options and 5 week options) that were just added a couple of weeks ago.

Standard trading strategies employed by premium sellers can be executed in these options. The advantage is to gain the “sweet spot” of the time decay of premium without having to wait through the entirety of the 4 to 5 week option cycle. The party never ends for premium sellers using these innovative vehicles.

Traders interested in using these weeklys MUST understand settlement procedures and be aware of last days for trading. An excellent discussion of weeklies given by Dan Passarelli is available at Learn to Trade Weeklys.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring