Category: Jason Bond Picks

For those of you who don’t know, I’m a former elementary school teacher.

I got into stock and options trading out of necessity.

My wife and I were drowning in student loan debt to the tune of $200,000.

During that desperate time, you could find me collecting soda cans after the high school football games to earn a whopping nickel per can.

True story!

And while I am so thankful to be a self-made millionaire — and that Pamela didn’t leave me back then, ha — my passion is and always will be one thing…

Education.

Now, I know that trading options can be intimidating. Trust me, I get it.

That’s why I encourage my premium  Weekly Windfalls  subscribers to watch me in action via my live trading feed until they’re comfortable placing their own trades.

It’s also why I created this questionnaire for trading credit spreads — for both investors already comfortable with options AND for would-be investors still thinking about implementing my “casino strategy.”

When people want to trade my credit spread strategy, seven common questions should always pop up.

Today I’m going to cover them for you.

1. Do I Have the Street Cred?

Before we do a deep dive into the necessary questions to ask before putting on a spread, you should first make sure that you’re eligible and have plenty of practice making paper trades.

When buying shares of a stock outright, you usually need only enough cash to cover the purchase, plus any brokerage fees.

It’s typically the same when simply buying a call or put option — you usually need just the cost of the contracts.

That’s because the most you can lose on an outright stock or options purchase is the initial cash outlay.

However, trading credit spreads is a little different.

These typically require a minimum margin requirement of just $2,000, though that could vary among different trading platforms.

However, you could cover that with just ONE fat  Windfall , like this one!

It should also be noted that there is a tiered system of approval levels for options traders.

That’s to protect you from getting yourself in too deep.

Specifically, there are four option approval levels, and you’ll simply be vetted by your broker before moving up the chain.

Buying call or put options requires a “Level 2” clearance, while trading spreads requires a “Level 3” badge, which is relatively easy to acquire.

2. What is My SETUP?

This is likely the most important question before implementing ANY trade.

Before you can even start thinking of speculating on a stock, you need to be able to visualize its trajectory.

This, in a nutshell, means some hardcore technical analysis.

You can’t just say, for instance, that you expect shares of Stock XYZ to move from $20 to $30.

Hunches in stock and options trading rarely work out.

The easiest way to scrutinize a stock’s charts is to identify possible areas of support or resistance.

Support can come in many forms: round numbers like $60 or $100, closely watched moving averages like the 50-day or 200-day, or — one of my favorites — a Fibonacci retracement level.

Fibonacci retracement levels often allow stocks that have shot higher to “rest and retest” before bouncing again, allowing bullish traders to BTFD (Buy The Freakin’ Dip, we’ll say).

On the other hand, stocks can also find resistance at round numbers and key trendlines, as well as former highs or notable percentage gains — like the 25%+ year-to-date level, for example.

That’s because shareholders who got in when the stock was cheaper will take profits at these levels.

In addition, you should know if the stock is running too hot or too cold.

Shares that have rallied too far, too fast will often be overbought, and vulnerable to a dip.

There are several ways to tell if a stock is overbought, but probably the most common is a Relative Strength Index (RSI) above 70.

Take Alibaba (BABA) here… I recommended a bear call spread on the shares, partly due to a red-hot RSI.

And wouldn’t you know it, my paid Weekly Windfalls subscribers made $5,000 on this trade IN THREE SESSIONS.

Weekly Windfalls  premium subscribers saw this BABA trade in real time!

Meanwhile, stocks with an RSI below 30 are considered oversold, and ripe for a short-term bounce.

In a nutshell, support and resistance levels will help you determine your option strikes, and be careful placing near-term bearish trades on overbought stocks, and bullish trades on oversold stocks.

3. What is My PLAN?

Another VERY important piece of the trading puzzle: having a plan of action before placing your bet.

By that I mean you should have a profit target and a stop-loss level.

Now, you don’t have to follow my Weekly Windfalls trades to a T, by any means. But for reference, I typically eye a 50% gain for profit targets on credit spreads.

Of course, different trading strategies will be more conducive to higher or lower profit targets.

For instance, my targeted percentage gains in Jason Bond Picks tend to be much smaller, but that’s because I’m buying small-cap momentum stocks set to explode.

You see, trading options offers you the benefit of leverage vs. buying a stock outright, so you’re more likely to see larger returns on your options investments.

As far as stop-loss levels, it’s a similar story — everyone is different.

It really just depends on your personal tolerance for risk. For me, I try to take losers off the table as quickly as possible.

When you trade credit spreads, though, you also need to be aware of the risk of assignment, which can happen when your sold option is deep in the money at expiration. Traders who want to avoid that should consider setting their stop levels accordingly, or closing their spreads before the options expire.

And speaking of options expiring…

4. What is My Timeframe?

So, you’ve pored over the charts and figured out a plan… The next question is: How soon do you expect this stock move to play out?

As you may have already guessed, in Weekly Windfalls I exclusively trade WEEKLY options.

Most big-cap stocks have weekly options available now, but in the grand scheme of things, these contracts are relatively new to the trading world.

Just a few years ago, options expiration dates were limited to the third Friday of every month. These types of contracts are now known as standard monthly options.

Today, however, short-term traders can utilize options that expire at the close every single Friday!

That is definitely a boon for option sellers like me, especially, who have time decay working in our favor.

So, if you expect the stock you’re stalking to go up or down or sideways (traders of my “casino strategy” can make money in all of those directions, btw) within the next few days, weekly options are probably your jam.

If you’re looking a little further out for your expected stock move, you could try those slightly more expensive standard monthly options.

Longer-term options traders could use the even more expensive LEAPS — or Long-term Equity AnticiPation Securities — which are January-dated options that go out years into the future.

But those types of options are best left for buyers, due to their massive time value — something option sellers should avoid.

5. Are There Any Known Events That Could Mess Me Up?

Once you’ve homed in on a timeframe, you should check the corporate calendar.

Most paid trading platforms (like TD Ameritrade’s ThinkorSwim) offer a calendar option to easily check for events like quarterly earnings.

Personally, I like to check a company’s Investor Relations page, which should have some kind of event calendar.

If a firm is reporting earnings within your timeframe, think twice before putting on that trade — if you’re an options seller, at least.

While option premiums are juicy ahead of earnings, these reports can send a stock shooting way higher or lower in a matter of minutes, meaning the shares could move against you in a big way. And option sellers don’t want their contracts moving into the money (ITM).

Some sectors could have even more events that might move a stock.

For instance, healthcare stocks could move on things like an FDA approval — which is fine for traders like my protege Kyle Dennis, who is making an absolute killing with  FDA Insider Alerts .

Just look at ONE of the winners he cranked out last week in a matter of HOURS.

Sign up for FDA Insider today and get a BONUS SERVICE FREE!

But again, in the case of the credit spreads I crank out in Weekly Windfalls, a known volatility catalyst could ruin your trade.

6. How Much Trading Capital Am I Allocating?

This is another question that is strictly personal.

Many options traders allocate something like 5% of their trading capital to a single trade. For others, it might be higher or lower.

Just remember to stick with your trading plan.

It’s often tempting when you’re on a hot streak to up the ante, so to speak, perhaps dedicating 25% of your trading account instead of 5% to one trade.

The next thing you know, you’re sitting alone at a bar at 3 p.m., flicking stale peanuts and staring at a loss five times more than it should be.

And, once your trading bankroll grows, 5% of your capital will be much higher than before, dollar-wise.

Just ask my long-time friend and fellow teacher Jeff Williams, who grew a Small Account Challenge by ROUGHLY 1,000% in both 2018 and 2019, and is about to do it again!

So, in summary, if you’ve capped yourself to 5% of your capital per trade, don’t deviate — even when it’s reaaaaally tempting.

7. Do I Understand My Risk/Reward?

One of the perks about trading credit spreads is the LIMITED RISK.

If the stock moves against you, the most you can lose is the difference between the strikes, less the net credit you received to put on the spread.

That means the closer your sold and bought option strikes, the less you’re risking.

Personally, I tend to go for spreads that are “2.50 wide,” meaning a 2.5-point difference between my sold and bought option strikes.

The net credit (how much you received from the sold option minus how much you paid for the bought option) represents the most you can possibly make on the trade.

I like to risk $12,000 to make $13,000.

Watch over my shoulder as I trade credit spreads in real-time!

Breakeven for bearish credit spreads is the sold call strike plus the net credit, and breakeven for bullish credit spreads is the sold put strike plus the net credit.

Keep in mind, also, that a lot of your risk/reward profile will be determined by the distance between your option strikes and the actual stock price.

I prefer selling at-the-money (ATM) options, which are options that are roughly in line with the stock’s price. For instance, if Stock XYZ was trading at $20, the 20-strike calls and puts would be considered ATM.

Now, this can get risky — the closer an option is to “the money,” the higher the chances of the stock moving against you. Which means a higher probability of a loss for my spread.

However, I feel like my years of experience as a momentum trader offset that negative probability — I’ve been analyzing charts successfully for years over at  Jason Bond Picks.

And while I could go with a safer bet, selling out-of-the-money (OTM) options — which is when the stock is below the call strike or above the put strike — I’d have to sacrifice potential profits on the trade.

In closing, guys and gals, I hope this questionnaire helps you snap some necks and cash some checks!

[Ed. Note: Jason Bond runs
JasonBondPicks.com and TheWeeklyWindfalls.com. In 2015 he earned a 180% return on his money. Then in 2016 he turned a $100,000 account into $430,000! Discover How He Did It]

Source: ragingbull.com | Original Link

Next week will be a short one for U.S. markets, with Wall Street shuttered Monday for MLK Day.

Hopefully many of you get the day off and have a chance to relax.

As far as this week, well… traders continue to pump up this overinflated basketball of a market, despite some cracks at the seams.

It appears no matter what happens, stocks are making record highs every single day.

And while I fully expect this decade-plus bull market to run out of steam sooner rather than later, I’ve learned that stepping in front of the tracks when a locomotive is set to pass—costly and dangerous.

So against this backdrop of all-time highs, I thought I’d outline one way to time your profit-taking — and show you how it worked on a pair of FAANG stocks — as well as how to identify entry points.

Because while I’m no longer a poor elementary teacher swimming in student loan debt, I will always be an educator at heart, and I only want the best for my subscribers — of Weekly Windfalls and other services — like Sean here (thanks, man).

Who is Fibonacci?

No, Leonardo Fibonacci (aka – Leonardo Bonacci) is not a RagingBull guru… but he damn well could’ve been.

The Italian mathematician was born around 1170, and as a young man traveled throughout the Mediterranean learning how various merchants did math.

He discovered that the Roman numeral system was much more difficult to calculate than the Hindu-Arabic numeral system, and said as much in his Liber Abaci book, which introduced the decimal place system to the Western world.

Studying the growth of the rabbit population, Fibonacci popularized his now famous sequence of numbers.

The Fibonacci sequence begins with 0 and 1, and each subsequent number is the sum of the two previous numbers.

So, 0, 1, 1, 2, 3, 5, 8, 13, 21, etc…

The sequence can be found in several unexpected places, including in architecture and electrical networks, and the Fibonacci spiral can be seen all throughout nature, like in the structure of pineapples and daisies.

It was even incorporated into the plot line of The Da Vinci Code and an episode of “Criminal Minds.”

But enough about that underachiever! (I kid.)

Fibonacci Retracements

If you’ve been with me a while, you already know that one of my favorite patterns to trade is the Fibonacci retracement.

When a stock makes a huge move higher in short order, and then stalls, it will often retrace — or backpedal — to support near the key Fibonacci lines, usually giving back 23.6%, 38.2%, 61.8%, or 76.4%, with 50% an unofficial (but important) level.

For example, if Stock XYZ rallies from $100 to $200, it might eventually drop back to find support near $177, which would be a nearly 23.6% retracement of that rally.

Pullbacks to these Fibonacci retracement levels often act as zones to buy a stock (in Jason Bond Picks) or initiate a bull credit spread (in Weekly Windfalls ).

Take a look at good ol’ Apple (AAPL).

Shares of the iPhone maker started 2019 on an absolute tear, rallying from around $140 at the start of the year to well above $210 by late April.

You can see on the chart below that I’ve placed the 0% Fibonacci line at the top of that rally, and the 100% line at the bottom.

Therefore, a 100% retracement would mean AAPL forfeited all its gains.

As you can see, after peaking in the second quarter, the stock took a dive, with the bleeding ultimately stopping around $170 — a 61.8% Fibonacci retracement of that rally.

The rebound subsequently stalled again back around AAPL’s previous highs, before the shares ultimately broke north of the range in September.

On the flip side, stocks that have taken a beating could also bounce into Fibonacci retracement or other key percentage levels.

For instance, during the fourth-quarter 2018 drubbing, Amazon (AMZN) went from being north of $2,000 (my 100% marker) to falling to around $1,300 (my 0% marker) in short order.

The stock’s early 2019 rebound hesitated a bit in the $1,700 region, which represented a 50% retracement of that sell-off.

Once the shares got beyond that area, gains once again were capped just above $2,000, and subsequent retreats were contained around $1,700.

Now, AMZN is struggling to get past the $1,900 area — a 78.6% Fibonacci retracement — indicating that even more than a year later, these levels are still in play.

Fibonacci Extensions

Now, how do you use Fibonacci levels to set profit targets?

While there are two points you need to set for Fibonacci retracements (0% and 100%; the rest should auto-populate beyond that on most trading platforms), on many platforms there are three data points to set with extensions, assuming you’re measuring an uptrend:

• First, you’ll set your 0% at the swing low (or swing high, if you’re looking at a downtrend)
• Then, you’ll set your 100% at the swing high (or low ^^^)
• Finally, you’ll set your third point back at a swing low (or high ^^^)

This should populate Fibonacci extensions for you — or at least one of the most-watched extensions, at 161.8%.

In platforms like ThinkorSwim, and many others, you can manually set additional Fibonacci extensions.

Now, I’ve seen different traders plug in different sets of numbers. But it should be noted that most traders use Fibonacci levels in reverse order above 100% to calculate extensions.

So, in the example below, I included the 123.6% level and the 161.8% level, and while it’s not a Fibonacci extension, I included the round 150% level, too.

That said, let’s take a look at Mattel (MAT) stock.

The shares went from single digits in August to peaking around $13 by the middle of the fourth quarter, with help from a big-volume bull gap.

They then went on to retrace 50% of that surge by December, testing support just above $11.

As you can see, the shares subsequently moved beyond their former peak before the start of 2020, though upward momentum once again ran out of steam, this time just shy of $15.

This level represented a 138.2% Fibonacci EXTENSION of the initial rally.

It’s also the same region as MAT’s mid-2019 high.

As such, it seems some traders took profits at this level, as the stock has since taken a breather.

Of course, some of the recent losses were due to dismal holiday sales figures from Target (TGT), which said toy sales were particularly lackluster in December.

Looking at it another way — using the same 0% marker from August, but adjusting the 100% level to MAT’s recent high around $14.72 — one could surmise that if the stock can get past $15, the next area to take profits might be just above $16, which is a 123.6% Fibonacci extension of that longer-term rally.

In conclusion, guys and gals, I hope this lesson helps propel your trading, and aids you in identifying where stocks might stall — to either the upside or the downside.

The important takeaways here are twofold:

• Fibonacci retracements are a great way to find ENTRY points for a trade
• Fibonacci extensions are interpreted differently by different traders, but they’re a great way to identify EXIT points for a trade

As with any other indicator or form of technical analysis, the Fibonacci sequence shouldn’t be traded on alone.

Make sure you’re using other tools to help identify trends — like overbought/oversold scans, for instance — and don’t go into a trade unless the SETUP and the PLAN are concrete.

That’s my philosophy in Weekly Windfalls — and if you upgrade to the premium version today, you can watch me trade these indicators and more in REAL TIME.

[Ed. Note: Jason Bond runs
JasonBondPicks.com and TheWeeklyWindfalls.com. In 2015 he earned a 180% return on his money. Then in 2016 he turned a $100,000 account into $430,000! Discover How He Did It]

Source: ragingbull.com | Original Link

Bank earnings will be a big theme this week, with JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) among the names reporting today.

A handful of other financial names are slated to report later this week, too.

As such, I thought I’d outline one technical indicator that can act as an alarm for trend reversals: the Parabolic SAR.

I know, I know – it sounds like some kind of fatal disease. (“Sorry to be the bearer of bad news, Linda, but your test came back positive for… Parabolic SAR. You should really start making arrangements.”)

Joking aside, though, this indicator has been around for years – long before online trading and interactive chart analysis – and it’s still a favorite among many Wall Street pros for good reason.

So follow me as we dive into the Parabolic SAR, and outline a couple of potential bullish and bearish signals on a pair of banks before earnings tomorrow.

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The Parabolic Wut?

In the simplest terms, the Parabolic SAR (Stop and Reverse) indicator provides potential entry and exit signals and often acts as an alarm for trend reversals.

Many traders use the indicator to identify stop-loss targets, but for the purposes of this article, we’re going to dive into how it’s used to generate buy and sell signals on a stock.

Now, I’m not going to get into the nitty-gritty on how the Parabolic SAR is calculated, because it’s complex and makes my head spin.

Just know that settings can be adjusted to make the indicator more or less sensitive.

The default for the “step” (aka – the rate of change, or the “acceleration factor”) is 0.02, and the default for the “maximum value” is 0.20. This is what we’ll be using in our examples later on.

But, in order to make the indicator more sensitive, one could increase the step to, say, 0.04. However, if the step is too high, the Parabolic SAR could produce more frequent – and often fake-out – signals.

The sensitivity of the indicator can be decreased by decreasing the step to, say, 0.01. This setting would provide looser signals and stops.

Now, the Parabolic SAR appears as a series of dots.

The dots will be underneath the stock price when the shares are in an uptrend, and above the stock price when the shares are in a downtrend.

Typically, traders will buy when the dots move below the stock, which can signal a reversal higher on the horizon.

On the flip side, they’ll short the shares when the dots move above the stock, which can signal the start of a pullback.

It should be noted that the Parabolic SAR isn’t very effective when a stock is moving sideways, because the indicator will yo-yo too much and give off false signals. As such, it’s best used on stocks with a trend already present.

Now, on to what you came for…

PNC Indicator Flips Ahead of Earnings

PNC Financial (PNC) will report earnings ahead of the opening bell tomorrow.

The stock has been a monster over the past year, and peaked above $161 earlier this month.

Shortly before that top, the stock’s Parabolic SAR flipped, moving above PNC’s price bars – suggesting a pullback was in the cards.

Sure enough, the security backpedaled, dipping to around the $158 level last week.

Now, though, the Parabolic SAR is back below the price bars, hinting that another leg higher could be coming soon.

As you can see on the chart below, these signals have been fairly accurate in predicting short-to-intermediate term pivot points for PNC over the past year.

Still, keep in mind that when it comes to earnings reactions, nothing is guaranteed.

And know that I’m not putting on an official trade in Weekly Windfalls, but for educational purposes, let’s break it down as if I were.

With the stock trading around $159, we could put on a bull put spread by:

• Selling the weekly 1/24 157.50-strike put for the bid price of $2.26
• Buying the weekly 1/24 155-strike put for the ask price of $1.49

Since we received more money for the sold put than we paid for the bought put, our spread would be established for a net credit of 77 cents – that’s the most we can possibly make on the trade.

The goal of the spread is for PNC shares to stay above $157.50 (our sold put strike) during the options’ lifetime.

We will make at least a little money as long as the stock stays above breakeven at $156.73 (sold put strike minus net credit).

And that’s why they call it “the casino strategy,” guys and gals. Because we can make money if PNC stock does one of three things:

• Moves higher
• Stays put
• Moves slightly against us

If PNC ends up tanking after earnings, the bought put acts as an “insurance policy,” limiting our losses to $1.73 (difference between strikes minus net credit).

BAC Parabolic SAR Points to Backtrack

Bank of America (BAC) will also report earnings ahead of tomorrow’s session.

The stock was range-bound between $26 and $30 for most of 2019, before enjoying a big bullish breakout at the start of the fourth quarter.

BAC stock ultimately peaked around $36 near the turn of the year, but has since taken a breather to trade around $35.

However, the Parabolic SAR is now above BAC’s price bars, and has been for the longest stretch since September – a signal that predicted the security’s last major pullback.

Now again, I’m not saying I’m putting on an official Weekly Windfalls trade here, but for S&Gs, let’s break one down.

With the stock trading just shy of $35, we could put on a bear call spread by:

• Selling the weekly 1/24 35.50-strike call for the bid price of $0.42
• Buying the weekly 1/24 36.50-strike call for the ask price of $0.15

Again, since we received more money for the sold option than we paid for the bought option, our spread would be established for a net credit of 27 cents – that represents our maximum potential reward.

The goal of the spread is for BAC to stay below $35.50 (our sold call strike) during the options’ lifetime, which ends next Friday, Jan. 24.

We will make at least a little money as long as the stock stays south of breakeven at $35.77 (sold call strike plus net credit).

Once again, this demonstrates why I love “the casino strategy” – because it allows traders to make money one of three ways. For BAC, the spread would profit if the stock:

• Moves lower
• Stays put
• Moves slightly against us

If BAC stock ends up rallying after earnings, the bought call acts as a hedge, capping our risk at 73 cents (difference between strikes minus net credit).

Word to the Wise

Before I wrap up, just one more warning about earnings season…

All the preparation and technical analysis in the world can’t 100% predict how a stock will react to earnings, so when you place trades ahead of a report, you’re incurring more risk than usual for a move against you.

But as I’ve said a few times already, the vertical credit spreads we trade in Weekly Windfalls give you a relatively high probability for success, since you can profit as long as the stock doesn’t make a massive move in the wrong direction.

That said, I hope you’ve enjoyed our lesson on the Parabolic SAR, and use this indicator in your own trading to help identify the end of trends.

For even more options education, upgrade to the premium version of Weekly Windfalls, which will allow you to watch me trade in real-time – and cash some big checks, like Leslie here!

[Ed. Note: Jason Bond runs
JasonBondPicks.com and TheWeeklyWindfalls.com. In 2015 he earned a 180% return on his money. Then in 2016 he turned a $100,000 account into $430,000! Discover How He Did It]

Source: TheWeeklyWindfalls.com | Original Link

After a strong fourth quarter and Santa Claus rally, stocks kicked off 2020 with a bit of whiplash.

Bulls were shaken up a bit to start the year, after President Donald Trump ordered the assassination of a top Iranian general.

Iran then threatened “harsh revenge.”

The news fueled concerns about oil supplies from the Middle East, sending crude prices skyrocketing.

In addition, gold prices got a boost—hitting seven year highs…  as geopolitical fears had traders seeking safety in tangible assets.

However, as I told my paid Weekly Windfalls subscribers earlier this week — one thing I’ve learned in 10 years of trading is it can get very, very costly trying to predict the top of a market.

So, while I’m mindful of these overbought conditions — and I still think we’ll see the end of this 11-year bull run sooner rather than later — I’d like to go over three things I’ve learned about positioning during unpredictable markets.

1) How to Balance Your Portfolio

As I’ve said before, once overall market sentiment is decided — to the bullish or bearish side — weight your trades accordingly.

That is, I prefer to weight 70% of the positions to go along with market sentiment, and the other 30% as contrarian trades, to reduce exposure to unexpected volatility.

So right now, I’m aiming to have 70% of my Weekly Windfalls trades on the bullish side — selling bull put spreads on strong stocks or stocks with firm support in place.

For instance, on Friday, Jan. 3, I let my premium subscribers know that Beyond Meat (BYND) looked ripe for a bullish trade.

The stock was diverging from the market, which indicated BYND was poised to squeeze.

With the shares trading around $75.89, I initiated a bull put spread.

That means I:

• Sold the weekly 1/17 76-strike put, as I expected BYND to move and stay above $76 in the short term
• Bought “options insurance” by purchasing the weekly 1/17 73-strike put, which would limit losses in the event BYND turned lower and breached $73

Subtracting the premium I paid for the lower-strike, out-of-the-money (OTM) put from the premium I received from selling the 76-strike put, my spread was established for a net credit of $1.35, or $13,500 total (since I trade 100 contracts and each contract controls 100 shares of BYND).

Then, on Tuesday, Jan. 7, BYND had jumped above $77.25, thanks to a nice 4% bounce!

As such, I booked a cool $2,800 windfall — in less than three sessions!

And I wasn’t the only one, as you can see from this nice subscriber message… (Thanks, Craig!)

The other 30% of my Weekly Windfalls trades are on the bearish side — selling bear call spreads on weaker stocks or securities facing off against stern resistance.

I’ve found that when there’s an unexpected crash, as long as 30% of my portfolio is bearish, I can hang in there, because the strong stocks usually rebound.

To put on a bear call spread, you would:

• Sell a call option that aligns with resistance for the stock
• Buy a higher-strike call option to protect against losses, should the shares rally

The premium you receive for the vertical call spread represents the most you can possibly make on the trade, and requires the underlying stock to move and/or stay below the sold call strike through expiration.

Of course, you don’t have to wait until expiration to close out your spreads — you can take profits or cut losses anytime.

Speaking of losses, the maximum risk on a bear call spread — and a bull put spread, for that matter — is calculated by subtracting the net credit from the difference between your sold and bought strikes.

So, if you implemented a spread at the 100 and 103 strikes for a net credit of $1.25, your risk would be $1.75 ([103 – 100] – $1.25).

2) Make the Next Best Decision When Caught Off-Guard

We all have losing trades, guys and gals. It’s part of the game.

But as I’ve said several times, whenever you’re pushed down in life, you have to dust yourself off and learn from your mistakes.

One thing I’ve learned from dealing with unexpected volatility over the past decade: Shake off your losses and go at it again.

That means when I have a losing trade during a roller-coaster market, I’ll often PUT ON THE SAME TRADE FURTHER OUT IN TIME, which usually offsets the losing trade — especially when it comes to selling puts on typically strong stocks.

For instance, a few months back, I was taken by surprise when two of my positions were assigned and I suffered the maximum loss.

However, I still liked those trade setups.

So, after an easy, breezy 10-mile jog to clear my head, I made the next best decision for me: I sold more puts on those same two stocks, using options 1-2 weeks out, because probability was still in my favor to win big.

By shaking off my losses and extending my trades, I was able to bank NEARLY $70,000 in TWO SESSIONS — more than enough to offset my initial losses.

3) Sink Your Teeth Into Juicy Premiums

When the stock market is volatile, or when traders are expecting volatility, implied volatility (IV) tends to run hotter.

The Cboe Volatility Index (VIX) reflects Wall Street’s short-term volatility expectations for the S&P 500 Index (SPX), and this week touched its highest point since mid-December.

The VIX tends to rise when Wall Street is anxious, which is why many call it the “fear index.”

However, inflated IVs can be a boon for premium sellers like me, especially when you sell pretty close to in the money (ITM).

Of course, I target sold strikes that are pretty close to ITM because I believe my skill in selecting the right stocks and market direction will prevail, and I’ve been perfecting my chart analysis game for about 10 years over at Jason Bond Picks.

But by capturing those juicy premiums, I’m also assuming more risk.

That’s because ITM options are more likely to stay ITM compared to OTM or at-the-money (ATM) options — and premium sellers don’t want their options to stay ITM.

We want to capture that fat premium by selling the options, then watch it whittle down as the contract moves OTM, and ultimately close our position.

Nevertheless, if you are risk-averse, you can still put on similar trades and grab some healthy premium when IVs are high — you just have to be nimble and make some adjustments.

For example, let’s say Stock XYZ is trading around $446, and I expect it to go lower. Plus, IVs are high, which means a higher potential profit for option sellers.

I go aggressive with my trade, selling the ITM 445-strike call for $17, and then hedging by buying the 450-strike call for $14.70, resulting in a net credit (aka – max reward) of $2.30 and a max risk of $2.70.

The probability of the 445-strike call expiring ITM is about 46.3%, so the odds are just slightly in my favor.

Breakeven on the trade is $447.30 (sold call strike + net credit).

Now, let’s say you also want in on the action, but prefer more favorable odds and don’t want to risk getting assigned.

By simply adjusting your strikes, you can boost your odds of a winning trade — but you’ll also have to sacrifice some potential reward.

For instance, in the same options series — with roughly two weeks to expiration — you could sell the 450-strike calls and buy the 455-strike calls for a net credit of $1.40 — the most you could possibly make.

Theoretical risk is higher here, at $3.60 (5-point difference between strikes, minus $1.40 net credit), but the odds of the sold 450-strike calls finishing ITM are much less, at around 40%, per a simulated trade on ThinkorSwim.

That’s good for you.

Breakeven is also higher than my trade, at $451.40.

Also favorable.

So, by being more conservative with your strikes, you’re giving up potential profits, and possibly assuming a higher risk, but the probability for a winning trade is also greater.

Another way to reduce risk is to narrow the gap between your sold and bought strikes, if at all possible. (It just depends on the specific stock.)

So, you could sell the 450-strike calls and buy the 452.50-strike calls for a credit of just 80 cents on the spread, with a maximum risk of $1.70. Breakeven would be $450.80.

In conclusion, guys and gals, don’t let unexpected market tremors keep you from trading.

The beauty of options is you can profit in ANY market environment — you just have to know how to be nimble and pivot.

Sign up for Weekly Windfalls today, and watch how I use the “casino strategy” to bank big winners in just days.

[Ed. Note: Jason Bond runs
JasonBondPicks.com and TheWeeklyWindfalls.com. In 2015 he earned a 180% return on his money. Then in 2016 he turned a $100,000 account into $430,000! Discover How He Did It]

Source: TheWeeklyWindfalls.com | Original Link

Markets got its first taste of volatility yesterday, as geopolitical tensions rise following a U.S. airstrike in Baghdad killed five members of Iran-back militia, including General Soleimani.

Putting politics to the side, the spike in volatility was welcomed by most option sellers like myself—which should open a lot of opportunities in the coming weeks.

But today, I want to talk to you about something else important.

Last week, I said goodbye to 2019 by booking a $5K winner on Alibaba (BABA) in less than three trading sessions!

There were several things that clued me in on BABA’s potential pullback…

To start, the stock was highly overbought after a big run higher, and seemed stretched thin.

But what I’d like to discuss today is how the security’s VOLUME played into my decision to put on a bearish spread… and how you can use various indicators to aid your trading.

Why is it so important?

Because a lot of stocks right now are experiencing a similar pattern.

What Volume Can Tell Us

Volume, in a nutshell, is the number of shares traded during a certain time frame.

It can help you gauge general market enthusiasm and/or demand for a particular stock, fund, or another trading vehicle.

Not only that, but volume trends can serve as alarms for short-term tops and bottoms, reversals, exhaustions, and more.

It is generally thought that a rising stock market or individual stock should see rising volume.

When a stock makes a strong move higher on weak volume, the uptrend is often viewed as suspect and suggests the stock is vulnerable to a turn lower.

This is because declining volume indicates demand for the stock is waning, leaving fewer buyers on the sidelines to push the shares even higher.

That said, here’s what I sent my paid Weekly Windfalls subscribers regarding the aforementioned BABA trade on Friday, Dec. 27:

As I said, BABA shares were notably overbought, and the breakout was accompanied by relatively weak volume, suggesting a short-term top could be coming — before the $220 level (my sold call strike).

Thankfully, BABA shares did, in fact, stall for a while, and on Tuesday, Dec. 31, I was able to close out of the trade with a $5,000 gain, capturing about 50% of the maximum profit potential!

And, as you can see on the correspondence above, my brand-new 12-week MasterClass will kick off later this month. I’ll answer common questions about options trading, technical analysis, and more — and the best part is, the first session is practically free to all paid Weekly Windfalls subscribers! Upgrade now before it’s too late.

3 Volume Indicators for Your Trading Arsenal

One volume indicator that some traders use is Ease of Movement (EoM), which quantifies the relationship between a stock’s volume and price change.

I won’t get into the nitty-gritty on how EoM is calculated, but it’s generally considered a buy signal when the EoM plot moves above zero, and a sell signal when the EoM crosses below zero.

Take a look at this chart of General Motors (GM) stock over the past year.

The yellow arrows on the top chart point to notable rollovers of the EoM, which is illustrated on the bottom chart.

Back in April, the EoM moved below zero, and preceded a nasty sell-off to GM’s June low of $33.08.

Shortly after that low, the EoM crossed back above zero, preceding a bounce-back into GM’s August high of $41.90.

More recently, crosses below zero preceded pullbacks for GM in September and November.

Another volume-based indicator is the Money Flow Index (MFI).

This is calculated as “a ratio between the total Money Flow over periods having the Typical Price raised, and the total Money Flow over all periods,” according to ThinkorSwim.

I know, I know — pretty convoluted.

BUT, the important thing is that a stock is considered overbought if the MFI goes above 80, suggesting a pullback could be on the horizon.

On the flip side, if the MFI goes below 20, it’s considered an oversold signal, suggesting a stock could bounce.

Sticking to GM, you can see where the MFI flashed an overbought signal just before the April and August tops, and then flashed an oversold signal just before the October lows.

Finally, the Chaikin Money Flow (CMF) oscillator is another indicator you can use.

In relatively simple terms, it is based on volume and an Accumulation/Distribution Line, which assesses the cumulative flow of money into or out of a security.

When the CMF value goes above zero, it’s considered a bullish signal, and vice versa when the CMF value goes negative.

Again using GM as our example, you can see that most previous CMF signals marked notable bottoms for the shares. However, a couple moves below zero — particularly in mid-March and mid-August — didn’t precede major sell-offs, so for this specific stock, at least, the signals seem to be more effective when GM’s CMF goes above zero than when it crosses zero.

In conclusion, there are hundreds (or at least dozens) of volume-based indicators you can use to see how a stock might perform in the future.

However, keep in mind that these should be considered complementary to your fundamental and technical analysis.

Oh, and don’t forget to upgrade to the paid version of Weekly Windfalls before my MasterClass kicks off this month! The class alone is about $1,200.

[Ed. Note: Jason Bond runs
JasonBondPicks.com and TheWeeklyWindfalls.com. In 2015 he earned a 180% return on his money. Then in 2016 he turned a $100,000 account into $430,000! Discover How He Did It]

Source: TheWeeklyWindfalls.com | Original Link