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July 29, 2015

Thoughts on Being a Great Trader Part II

Last week we talked about option traders really being committed to reaching their trading goals. This time we’ll go over why an option trader needs a trading plan and a few general guidelines to follow. If you really want to improve your trading heading into this fall trading season, you should absolutely have and follow a trading plan. But be forewarned; this is the part nobody wants to do. Most option traders think that their trading plan is in their head and that all they need is a proper options education. “I know what I need to do and when I need to do it” most beginning and some veteran options traders will exclaim. If it was just that easy, everyone would be a great options trader. Unfortunately it is simple not the case. That is specifically why you need a written options trading plan. Just because you know what to do doesn’t mean you will do it. And that is the key!

Before you even begin to write your options trading plan, you must take an inventory of yourself. What are your strengths and weaknesses? You must take the time to truly examine yourself and be honest about whom you are. Your options trading plan must match your personality. You will probably discover more about yourself that you were bargaining for.

The first thing you need to do to start your options trading plan is to write down your goals like we talked about in the previous blog. Once you do this, it brings everything into perspective. The same reason you need to write down your goals is the same reason you need to write down your options trading plan-so your thoughts are transformed from the subconscious to the conscious. It does not matter if you write the plan on a nice piece of paper or a cocktail napkin. It just needs to be written down in your own words.

The next section of your options trading plan will be money management. This is one of the most crucial and often overlooked components of successful options trading. How much are you going to risk per trade? What are your weekly or monthly profit targets? What are the maximum losses you are comfortable with on a daily, weekly or monthly basis? All of these questions need to be answered right in this section. A great tip for this money management section is to not worry about monetary goals at first. Concentrate on taking and managing the best possible trades and then after some consistency has been established goals can be set.

Strategies will be the next component of your options trading plan. This will be the meat and potatoes of the plan so to speak. A thing to consider is to start with relatively a few simple strategies (long calls and puts) and master them before you write in more complex option strategies into your plan. You need to describe in as much detail as possible the strategy you intend to use. You will probably be making constant changes to this part until you get exactly what you want.

The last section will be the follow up and review. This is when an option trader needs to print out the charts and the option chains and review them. Did I follow my written options trading plan like I said I would? This needs to be done when the market is closed so all your attention can be on the review. You must keep a trading journal and must always acknowledge your winners and more importantly learn from your losing trades. Understanding and watching how the option prices change in regards to time and the underlying is a big bonus that can be also gained by observing past trades. This in my opinion is invaluable for progressing as an option trader.

Feel free to use this as a general outline of an options trading plan to get you started. If you need more help or more direction, feel free to contact me.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

May 21, 2015

Call Options Instead of Apple Stock

Although Apple Inc. (AAPL) is much cheaper to purchase now then it was before the split, it is still rather pricey. You believe that this stock, despite its high price, continues to have tremendous upside potential and could easily make it to $150 soon. The problem is that you don’t want to shell out $130 for one share of the technology giant. What can you do to maximize your money and cash in on the perceived upside? Easy, buy a call option rather than the stock.

Quick Definition

A call option is a bullish strategy wherein a trader purchases the right (but not the obligation) to purchase a stock at a specified price within a specific time period. One advantage to buying a call option rather than purchasing a stock is that you can gain a much larger percentage return on your investment. To learn more advantages, please check out the Options Education section on our website.

The Example

If you want to purchase 100 shares of AAPL stock at $130 it is going to cost you (100 X $130) $13,000. However, let’s say that you decide to purchase 1 call option on AAPL (each option represents 100 shares) with a strike price of, say, 120 with a July expiration (gives the buyer the right to purchase 100 shares for $120 a share), which carries a price tag of $11. Rather than dishing out $13,000 for 100 AAPL stock shares, you instead pay $1,100 for the options – a rather nice difference of $11,900 that you can use for something else or to purchase other options.

The Money

The cost efficiency of purchasing call options can be far greater than simply purchasing shares of a stock, especially when you are dealing with high-priced stocks like AAPL. Remember that one option contract is the right to purchase 100 shares of a stock at that price. So, rather than purchasing 100 AAPL shares at $130 at the massive cost of $13,000; you have dished out a more reasonable $1,100 for the transaction. Of course this is the scenario if you want to be simply bullish on AAPL stock.

Conclusion

As you can see, it is possible to lay out far less money to purchase call options on a stock that to by the call itself. In fact, the earlier the expiration you choose, the lower the price you could pay. No matter what math you use, paying $1,100 is far better than paying $13,000 for the same product. What if you want to sell these options to someone who is willing to pay a higher ask price than you paid? That is another subject for another time. Remember, there is no fool-proof way to make money in the market – there is risk involved in any trading strategy. One way to make sure you maximize your cash is to make sure you study your subject, remember that knowledge is power.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

April 30, 2015

Risk/Reward is Ever Changing in AAPL

There are quite a few option strategies have defined maximum rewards that are approached as a result of the passage of time, changes in implied volatility (IV), and/or movement or lack of movement in price of the stock. Examples of such strategies include the sale of naked options and vertical spreads.

As the positions “mature” or moves closer to expiration by virtue of various combinations of changes or lack of change in these three main variables, the initial risk/reward calculation often changes and sometimes even dramatically. The successful options trader with a proper options education is aware of these changes, because the risk to gain the last bit of potential profit is often dramatically out of whack to the magnitude of the profit he or she seeks to obtain. Let us consider the hypothetical example of a trader who has elected to open a position as a naked put seller. This trader has chosen to sell out-of-the-money (OTM) puts, the June 120 strike, on AAPL which currently trades at $130 after earnings in this example. His risk in the trade is that he is obligated to buy AAPL at the strike price at any time between opening the trade and June expiration. For taking the risk of writing these puts, his account receives a credit of $0.40 and margin is encumbered based on SEC rules. The credit received when the trade is opened is the maximum amount of money that can or will be received as a result of the trade.

As June expiration approaches, the stock remains around the $130 level and the market price of the puts he has sold decreases as a result of time (theta) decay. As the price of the puts decreases and the profits increase, the risk/reward increases. As the price declines below the often used 20% re-evaluation benchmark (although I like to use 50% as well) of the initial credit received, the risk incurred to gain the remaining residual premium is potentially substantial and may no longer be appropriate given the reward.

The experienced options trader will many times take profits and find opportunities to invest his or her money in other trades that appear to be much more attractive from a risk/reward standpoint than to remain in the existing position.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

December 17, 2014

Options Education for Every Holiday Budget

Looking for an options trading system to give to someone in need or for yourself this Holiday Season? Let the Market Taker Mentoring Trading Path be your options trading guide.

The MTM Trading Path

The MTM Trading Path is a simple, but powerful proprietary options trading system designed to be a veritable options trading guide that outlines a step-by-step a plan for options trading. There are a total of twelve steps in this options trading system which begins with observing the market and discovering opportunities.

Options trading is, of course, more involved than stock trading. Specifically, there are two steps in this options trading guide that are not in a conventional trading plan. These steps center around analyzing volatility and selecting among the various strategies.

The important thing here is discipline. Having a guide to follow to avoid missing important steps is the key to any options trading plan. The Trading Path is central to our Options Coaching program, Dan’s Online Options Education Series and my Group Coaching. The Market Taker Live Advantage Group Coaching is our most popular class because of its “earn while you learn” format. Be sure to check it out!

I encourage my options coaching students and students in Dan’s options seminars alike to closely follow this option trading guide for all their trades.

Any of these programs makes the perfect gift because it is a gift that can keep on giving!

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

October 8, 2014

Thoughts on Being a Great Trader Part II

About a month ago we talked about option traders really being committed to reaching their trading goals. This time we’ll go over why an option trader needs a trading plan and a few general guidelines to follow. If you really want to improve your trading heading into this fall trading season, you should absolutely have and follow a trading plan. But be forewarned; this is the part nobody wants to do. Most option traders think that their trading plan is in their head and that all they need is a proper options education. “I know what I need to do and when I need to do it” most beginning and some veteran options traders will exclaim. If it was just that easy, everyone would be a great options trader. Unfortunately it is simple not the case. That is specifically why you need a written options trading plan. Just because you know what to do doesn’t mean you will do it. And that is the key!

Before you even begin to write your options trading plan, you must take an inventory of yourself. What are your strengths and weaknesses? You must take the time to truly examine yourself and be honest about whom you are. Your options trading plan must match your personality. You will probably discover more about yourself that you were bargaining for.

The first thing you need to do to start your options trading plan is to write down your goals like we talked about in the previous blog. Once you do this, it brings everything into perspective. The same reason you need to write down your goals is the same reason you need to write down your options trading plan-so your thoughts are transformed from the subconscious to the conscious. It does not matter if you write the plan on a nice piece of paper or a cocktail napkin. It just needs to be written down in your own words.

The next section of your options trading plan will be money management. This is one of the most crucial and often overlooked components of successful options trading. How much are you going to risk per trade? What are your weekly or monthly profit targets? What are the maximum losses you are comfortable with on a daily, weekly or monthly basis? All of these questions need to be answered right in this section. A great tip for this money management section is to not worry about monetary goals at first. Concentrate on taking and managing the best possible trades and then after some consistency has been established goals can be set.

Strategies will be the next component of your options trading plan. This will be the meat and potatoes of the plan so to speak. A thing to consider is to start with relatively a few simple strategies (long calls and puts) and master them before you write in more complex option strategies into your plan. You need to describe in as much detail as possible the strategy you intend to use. You will probably be making constant changes to this part until you get exactly what you want.

The last section will be the follow up and review. This is when an option trader needs to print out the charts and the option chains and review them. Did I follow my written options trading plan like I said I would? This needs to be done when the market is closed so all your attention can be on the review. You must keep a trading journal and must always acknowledge your winners and more importantly learn from your losing trades. Understanding and watching how the option prices change in regards to time and the underlying is a big bonus that can be also gained by observing past trades. This in my opinion is invaluable for progressing as an option trader.

Feel free to use this as a general outline of an options trading plan to get you started. If you need more help or more direction, feel free to contact me.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

May 22, 2014

When Investors Should Consider a Collar Strategy

A collar strategy is an option strategy that can particularly benefit investors. In this blog we have a lot more options education for traders and less for long-term investors so here is a strategy both can consider. A collar is simply holding shares of stock and buying a put and selling a call. Usually both the call and the put are out-of-the money (OTM) when establishing this option combination. A basic single collar represents one long put and one short call along with 100 shares of the underlying stock. A collar strategy is frequently implemented after stock (investment) has increased in price. The main objective of a collar is to protect profits that have accrued from the shares of stock rather than increasing returns. Is that an option strategy you might consider? Let’s take a look.

Why a Collar?

Since the market has been on a rather a bullish run and there are a plethora of stocks that have increased in value, it might be a good time to talk about them. One option strategy is to buy a put. The investor has some protection for the unrealized profits in case the stock declines. The other part of the combination is selling the OTM call. By doing this, the investor is prepared to sell his or her shares of stock if the call is exercised because the stock has moved above the call’s strike price.

Advantages

The advantage of a collar strategy over just buying a protective put is being able to pay for some or the entire put by selling the call. In essence, an investor buys downside stock protection for free or almost free of charge. Until the investor exercises the put, sells the stock or has the call assigned, he or she will retain the stock.

Volatility and Time Decay

Even though implied volatility (IV) has been really low over the last several months in the market, volatility and also time decay are not usually big issues when it comes to a collar strategy. The simple explanation is because the investor is long one option and short another so the effects of volatility and time decay will generally offset each other.

An example:

An investor could have bought 100 shares of Delta Air Lines (DAL) in December of last year for about $28 a share. At the time of this writing the stock has climbed to $38.40 a share and the investor is worried about the current market conditions being extended to the upside and protecting his unrealized gains. The investor can utilize a collar strategy.

The investor can buy a June 37 put for 0.75. If the stock falls, the investor will have the right to sell the shares for $37. At the same time the investor can sell a June 39 call for 1.00. This will make the trade a net credit of 0.25 (1 – .75). If the stock continues to rise, it can do so for another $0.60 until the stock will most likely be called away from him.

Three Possible Outcomes

The stock finishes over $38 at June expiration. If this scenario happens, another $0.60 per share is realized on the stock and $25 on the net credit of the combination is the investors to keep.

The stock finishes between $37 and $39 at June expiration. In this case, both options expire worthless. The stock is retained and the $25 net credit is the investors to keep.

The stock finishes below $37 at June expiration. The investor can sell the put option if he wishes to retain the stock or exercise the right to sell the stock at $37. Either way the $25 net credit is the investors to keep.

Conclusion

The nice thing about a collar strategy is that an investor knows the potential losses and gains right from the start. If the stock climbs higher, the profits may be curbed due to the short call but if the stock takes a dive, the investor has protection due to the long put and protection might not be such a bad idea if the market corrects itself. Even an investor can benefit from some options education!

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

November 14, 2013

The Best Online Trader Community in the World!

Thank you all for your overwhelming support for our brand new MTM Elite Trader’s Community. I’m glad to say the launch of this state-of-the-art traders’ resource was a HUGE success! We promised you the best trader chat room ever to exist… And we delivered!

The new MTM Elite Traders Community has been referred to as “Facebook for traders”. It’s built with modern social network technology and look and feel. You can “like” posts of people and comment on them. There have been some lively discussions and a flurry of trade ideas. It truly is traders helping traders.

The first Community Members that joined this week have been great! A SPECIAL THANKS to you and all your feedback. We got some really great, positive comments, like, “Just signed up. Like what I’m seeing here so far!” and “The share feature is awesome! I’m only using it right now for FB & TWTR, but there are almost 300 social media options. Wow!”

And, we took into account some initial feedback and made a few changes to make it even better and easier to use than we initially planned.

So if you haven’t had a chance to join this incredible online trader community, now is a great time to start. We are offering it for half price right now. Plus you’ll get complimentary access to our popular class Exiting Options Positions for Maximum Profit (a $197 value) just for signing up. AND, the person who contributes the most will win an iPad. Winner announced December 15.

JOIN US today!

MarketTaker.com/Join_Us

Dan Passarelli

CEO, Market Taker Mentoring, Inc.

October 10, 2013

What Makes a Great Trader Part II

A few weeks ago we talked about traders really being committed to reaching their trading goals. This time we’ll go over why an options trader needs a trading plan and a few general guidelines. If you really want to improve your trading in heading into this fall trading season, you should absolutely to do this but be forewarned; this is the part nobody wants to do. Most options traders think that their trading plan is in their head and that all they need is a proper options education. “I know what I need to do when I need to do it” most beginning and some veteran options traders will exclaim. If it was just that easy, everyone would be a great options trader. Unfortunately it is not. That is specifically why you need a written options trading plan. Just because you know what to do doesn’t mean you will do it. And that is the key!

Before you even begin to write your options trading plan, you must take an inventory of yourself. What are your strengths and weaknesses? You must take the time to truly examine yourself and be honest about whom you are. Your options trading plan must match your personality. You will probably discover more about yourself that you were bargaining for.

The first thing you need to do to start your options trading plan is to write down your goals like we talked in a previous blog. Once you do this, it brings everything into perspective. The same reason you need to write down your goals is the same reason you need to write down your options trading plan-so your thoughts are transformed from the subconscious to the conscious. It does not matter if you write the plan on a nice piece of paper or a cocktail napkin. It just needs to be written down in your own words.

The next section of your options trading plan will be money management. This is one of the most crucial and often overlooked components of successful options trading. How much are you going to risk per trade? What are your weekly or monthly profit targets? What are the maximum losses you are comfortable with on a daily, weekly or monthly basis? All of these questions need to be answered right in this section. A great tip for this money management section is to not worry about monetary goals at first. Concentrate on taking and managing the best possible trades and then after some consistency has been established goals can be set.

Strategies will be the next component of your options trading plan. This will be the meat and potatoes of the plan so to speak. A thing to consider is to start with relatively a few simple strategies (long calls and puts) and master them before you write in more complex option strategies into your plan. You need to describe in as much detail as possible the strategy you intend to use. You will probably be making constant changes to this part until you get exactly what you want.

The last section will be the follow up and review. This is when an option trader needs to print out the charts and the option chains and review them. Did I follow my written options trading plan like I said I would? This needs to be done when the market is closed so all your attention can be on the review. You must keep a trading journal and must always acknowledge your winners and more importantly learn from your losing trades. Understanding and watching how the options change in regards to time and the underlying is a big bonus that can be also gained by observing past trades. This in my opinion is invaluable for progressing as an options trader.

Feel free to use this as a general outline of an options trading plan to get you started. If you need more help or more direction, feel free to contact me.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

December 13, 2012

Options Trading System

Looking for an options trading system to give to someone in need or for yourself this Holiday Season? Let the Market Taker Mentoring Trading Path be your options trading guide.

The MTM Trading Path
The MTM Trading Path is a simple, but powerful proprietary options trading system designed to be a veritable options trading guide that outlines a step-by-step a plan for options trading. There are a total of eleven steps in this options trading system which begins with observing the market and discovering opportunities.

Options trading is, of course, more involved than stock trading. Specifically, there are two steps in this options trading guide that are not in a conventional trading plan. These steps center around analyzing volatility and selecting among the various strategies.

The important thing here is discipline. Having a guide to follow to avoid missing important steps is the key to any options trading plan. The Trading Path is central to my Options Coaching program, Dan’s Online Options Education Series and my Group Options Coaching. I encourage my options coaching students and students in  Dan’s options seminars alike to closely follow this option trading guide for all their trades.

It makes the perfect gift because it is a gift that can keep on giving!

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

October 13, 2011

Options Gamma and You

Filed under: Options Education — Tags: , , , , , — Dan Passarelli @ 11:30 am

The trifecta of option greeks are delta, theta and vega. But the next most important greek is gamma. Options gamma is a one of the so-called second-order options greeks. It is, if you will, a derivative of a derivative. Specifically, it is the rate of change of an option’s delta relative to a change in the underlying security.

Using options gamma can quickly become very mathematical and tedious for novice option traders. But, for newbies to option trading, here’s what you need to know:

When you buy options you get positive gamma. That means your deltas always change in your favor. You get longer deltas as the market rises; and you get short deltas as the market falls. For a simple trade like a long call, that means you make money at an increasing rate as the stock rises and lose money at a decreasing rate as the stock falls. Positive gamma is a good thing.

When you sell options you get negative gamma. That means your deltas always change to your detriment. You get shorter deltas as the market rises; and you get longer deltas as the market falls. Here again, for a simple trade like a short call, that means you lose money at an increasing rate as the stock rises and make money at a decreasing rate as the stock falls. Negative gamma is a bad thing.

Start by understanding options gamma from this simplistic perspective. Then, later, worry about working in the math.