Options

Options EducationThis section is for those who are using option selling strategies:

  • cash-secured put selling for building stock positions and generating income
  • covered call writing for trimming positions and generating income
  • LEAP call buying for when large opportunities present themselves, such as after major corrections 

While we do not use call strategies often, we do use cash-secured put selling regularly. By taking advantage of people's emotions which cause volatility, we can often sell a cash-secured put on a stock or ETF we like longer-term and generate income while building a position as some of the puts get "put to us" meaning we buy the underlying security. It is a professional strategy that takes some getting used to, however, if you are a long-term investor with a contrarian streak who likes to add income to the bottom line, this is THE strategy worth learning.

Before making any options trades, read Characteristics & Risks of Standardized Options, study the CBOE Education Center and engage in paper (pretend) trading for an extended period before trading options.

Most trades are hidden, however, several have been released to serve as samples. More will be released as the options expire.

Summary

Hedges are small positions with potential for large offsets in a falling market.

We place hedges when markets are overvalued and there is a discernible catalyst to drive prices down - we try to avoid outright speculation.

Our current hedging thesis is almost played out and we need to look for exits.

In August we started talking about hedging our portfolios. The first batch of hedges expire in December and January. We are about to start running into very serious time value deterioration, so we we want to find exits on these positions. We are likely to win 3 of 4 trades and might win all four, possibly a couple of them with significant gains.

Summary

Selling puts this month could be a boon if there is a small correction and volatility.

We will want to be aggressive put sellers into the buyback bubble that is blowing into year-end.

I am not too keen on buying calls right now, that seems a time for a bigger correction.

Selling covered calls on bigger positions that have RSI near 70 is always a good move.

You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing. --- Warren Buffett

Options

Each month, I will post a new set of option trades that you can look to make over the next month. I will focus on:

  • Selling cash-secured puts on stocks that we would like to own and are approaching support.
  • Covered call writing on stocks that are rallying but hitting resistance, so we can take some profits.
  • LEAPs for gaining leverage on undervalued intermediate term growth ideas.
  • Hedges.

Always use limit orders and set your GTC for a week or two. Review a few times per week. It doesn't hurt to check early each morning after looking at the stock market futures.

You can adjust prices to be a few nickels, dimes or quarters more favorable. When selling options, you want to get the ASK or a little higher if possible on volatility. When buying options, you want to get the BID or a little lower if possible on volatility.

(note: if any prices look funny, ask, there's usually a reason, sometimes I made a mistake, usually, it has to do with expectations.)

Summary

Antero ahead of winter natural gas demand.

SPWR and FSLR on general solar weakness.

Couer Mining on gold weakness but new mine upside.

AT&T on merger depression but 5G upside.

Below find some revisions to the August Cash-secured puts list that are timely. I noted by bold a few that are close to executing now. Others, I've pushed out >>> to a new month expiration.  

Summary

Use options to build and trim positions for your ebb and flow trading style.

I am erring on the side of caution until this market gives back a little.

Still very bullish on oil stocks given manipulated supply, rising demand, lack of long-cycle investment and Iran sanctions.

You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing. --- Warren Buffett

Options

Each month, I will post a new set of option trades that you can look to make over the next month. I will focus on:

  • Selling cash-secured puts on stocks that we would like to own and are approaching support.
  • Covered call writing on stocks that are rallying but hitting resistance, so we can take some profits.
  • LEAPs for gaining leverage on undervalued intermediate term growth ideas.
  • Hedges.

Always use limit orders and set your GTC for a week or two. Review a few times per week. It doesn't hurt to check early each morning after looking at the stock market futures.