Tuesday, July 17, 2018
What’s Insider Options Trading…
Insider Options Trading (IOT) many times is a ‘tell’, a signal that there is a likelihood of a potential large move in the underlying stock. This informed activity is usually initiated by hedge funds and institutional traders. These insiders will use the options market to make very large bets to profit on the leverage that options provide. Frequently they will use the options market to pre-position in advance of an impending news announcement, such as a takeover, that may not be public knowledge.
Hedge funds are using options to a greater degree on a daily basis. Famed hedge fund manager Carl Icahn used options, not stock, to take his large positions in Netflix and Herbalife. Bill Ackman of Pershing Square, the noted adversary of Mr. Icahn, used mostly options to take a very big stake in Target Stores stock.
So our goal is to uncover what the big players are doing and follow along with them in the most profitable manner possible. It requires knowledge, skill and diligence, but the payoff can be enormous.
For those unfamiliar with listed options, they’re classified as either calls or puts. A call gives you the right to buy stock (usually 100 shares), while puts give you the right to sell stock. A call buyer would be taking a bullish stance, while a put buyer would be taking a bearish stance.
Discerning unusual options selling certainly has value, especially on the put side, but the focus of this article will be on uncovering unusual options buying …specifically call options buying.
IOT is first and foremost identified by the size of the trade. But you can’t just look for the biggest trades to discover the unusual aspect of unusual options activity. One has to compare it to the average size trade for that particular stock. For example, 2,000 contracts traded in an Apple option would not be considered unusual, since Apple trades 100,000 option contracts or more daily. But 2,000 contracts traded on a less liquid issue would certainly be a more meaningful event. Normally 3-4 times the normal volume would qualify as unusual.
Another screen we employ is to compare volume to open interest. Open interest represents exiting positions outstanding that still need to be closed. If the volume exceeds open interest, you know it is a new opening position, which has more informative value than a closing position.
We also look to see that the large orders move the implied volatility of options in a meaningful manner. Implied volatility is just another way of stating the price of options. So a large move in the options price, represented by an increase in implied volatility, is a more powerful trade signal than a large order that has a lesser impact.
Finally, we look to uncover if the trade took place on the offer price, meaning the buyer was aggressively willing to pay the higher price to get the trade executed. Trades executed on the offer tend to be a much more meaningful indicator.
While all this may seem to be a daunting process, there is an easier option. We use options scanners to screen out potential unusual options based trade opportunities, in a much more streamlined manner. The technology they employ allows filtering for size, open interest, and trade in relation to bid/ask, plus it is available to the individual trader.
So let’s runthrough real examples from trades we made start to finish…
Fiat Chrysler (FCAU) January 10th entry
We see 16,500 January 10puts bought for .15-.25c on Fiat Chrysler against an open interest of 573. Recent sales indicate this is one of the worst performing automaker and today’s revelation from the US Government Agency the EPA that it cheated on diesel emissions provides the impetus for a short term sell-off similar to Volkswagon.
January 13th exit which was one day later, we sold at .40. Based on the purchase of 12 contracts at .18 per contract totaling $216.00 for one trade, we had a total gain of $480.00, a 264.00 profit, which is a gain of 122% in one day!
Lowe's (LOW) February 6th entry
2,850 March $72.50 calls bought from $2.12 to $2.19 into the lows of the day and now volume climbing over 4,200 up to $2.23. Today’s action looks to be adding to more than 5,450 in open interest from 1-18 buyers at $1.73 to $1.79 and still has some notable February open interest and longer-term bulls in the January 2018 $67.50 calls
March 17 exit which was 3 weeks later we sold at $11.10. Based on a $212.00 trade, making a total gain of $1,110.00 a 895.00 profit, which is a gain of $416%.
AMC Entertainment (AMC) March 3rd entry
Trading over 17X average call volume today with a buyer of 2,000 April $29 calls at $1.40 in a stock replacement where 2,500 opened earlier this week. Shares are down following earnings and below its 200 MA, but touching the 38.2% Fibonacci and just above its weekly cloud, a potential bounce spot. The $3.85B theater operator trades 28.5X Earnings, 1.25X Sales with a 2.7% yield. AMC is coming off a strong quarter which topped revenue estimates easily with Admissions up 18.1% and Food & Beverage up 16.6%. AMC looks like an interesting name at this level on the charts, though still fairly rich on valuation. I think the stock can be traded versus today’s low if looking for a nice reward/risk.
March 17th 2017 exit which was 2 weeks later we sold at 2.86. Based on the purchase of 2 contracts at 1.40 per contract, totaling a 240.00 trade, the total profit was 572.00, a 292.00 profit, which is a gain of 104%.
All IOT will not be this foretelling or profitable, but by following the big and unusual options order flow, many times we can put ourselves in a position to profit.
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Key Options Trading Terms
KEY OPITONS TERMS
Don’t worry if some of these meanings aren’t crystal clear at first. That’s normal. Just keep forging ahead, and everything will become more apparent over time.
Long — This term can be pretty confusing. On this site, it usually doesn’t refer to time. As in, “Ally Invest never leaves me on hold for long.” Or distance, as in, “I went for a long jog.”
When you’re talking about options and stocks, “long” implies a position of ownership. After you have purchased an option or a stock, you are considered "long" that security in your account.
Short — Short is another one of those words you have to be careful about. It doesn’t refer to your hair after a buzz cut, or that time at camp when you short-sheeted your counselor’s bed.
If you’ve sold an option or a stock without actually owning it, you are then considered to be “short” that security in your account. That’s one of the interesting things about options. You can sell something you don’t actually own. But when you do, you may be obligated to do something at a later date. Read on to get a clearer picture of what that something might be for specific strategies.
Strike Price — The pre-agreed price per share at which stock may be bought or sold under the terms of an option contract. Some people refer to the strike price as the “exercise price”.
In-The-Money (ITM) — For call options, this means the stock price is above the strike price. So if a call has a strike price of $50 and the stock is trading at $55, that option is in-the-money.
For put options, it means the stock price is below the strike price. So if a put has a strike price of $50 and the stock is trading at $45, that option is in-the-money.
This term might also remind you of a great song from the 1930s that you can tap dance to whenever your option strategies go according to plan.
Out-of-The-Money (OTM) — For call options, this means the stock price is below the strike price. For put options, this means the stock price is above the strike price. The price of out-of-the-money options consists entirely of “time value.”
At-The-Money (ATM) — An option is “at-the-money” when the stock price is equal to the strike price. (Since the two values are rarely exactly equal, when purchasing options the strike price closest to the stock price is typically called the “ATM strike.”)
Intrinsic Value — The amount an option is in-the-money. Obviously, only in-the-money options have intrinsic value.
Time Value — The part of an option price that is based on its time to expiration. If you subtract the amount of intrinsic value from an option price, you’re left with the time value. If an option has no intrinsic value (i.e., it’s out-of-the-money) its entire worth is based on time value.
Let us also take this opportunity to say while you’re reading this site, you’re spending your time valuably.
Exercise — This occurs when the owner of an option invokes the right embedded in the option contract. In layman’s terms, it means the option owner buys or sells the underlying stock at the strike price, and requires the option seller to take the other side of the trade.
Interestingly, options are a lot like most people, in that exercise is a fairly infrequent event.
Assignment — When an option owner exercises the option, an option seller (or “writer”) is assigned and must make good on his or her obligation. That means he or she is required to buy or sell the underlying stock at the strike price.
Index Options vs. Equity Options — There are quite a few differences between options based on an index versus those based on equities, or stocks. First, index options typically can’t be exercised prior to expiration, whereas equity options typically can.
Second, the last day to trade most index options is the Thursday before the third Friday of the expiration month. (That’s not always the third Thursday of the month. It might actually be the second Thursday if the month started on a Friday.) But the last day to trade equity options is the third Friday of the expiration month.
Third, index options are cash-settled, but equity options result in stock changing hands.
NOTE: There are several exceptions to these general guidelines about index options. If you’re going to trade an index, you must take the time to understand its characteristics.
Stop-Loss Order - An order to sell a stock or option when it reaches a certain price (the stop price). The order is designed to help limit an investor’s exposure to the markets on an existing position.
Here’s how a stop-loss order works: first you select a stop price, usually below the current market price for an existing long position. By choosing a price below the current market, you’re basically saying, “This is the downside point where I would like to get out of my position.”
Past this price, you no longer want the cheese; you just want out of the trap. When your position trades at or through your stop price, your stop order will get activated as a market order, seeking the best available market price at that time the order is triggered to close out your position.
Any discussion of stop orders isn’t complete without mentioning this caveat: they do not provide much protection if the market is closed or trading is halted during the day. In those situations, stocks are likely to gap — that is, the next trade price after the trading halt might be significantly different from the prices before the halt. If the stock gaps, your downside “protective” order will most likely trigger, but it’s anybody’s guess as to what the next available price will be.
Standard Deviation — This site is about options, not statistics. But since we're be using this term a lot, let’s clarify its meaning a little.
If we assume stocks have a simple normal price distribution, we can calculate what a one-standard-deviation move for the stock will be. On an annualized basis the stock will stay within plus or minus one standard deviation roughly 68% of the time. This comes in handy when figuring out the potential range of movement for a particular stock.
For simplicity’s sake, here we assume a normal distribution. Most pricing models assume a log normal distribution. Just in case you’re a statistician or something.
In the next lesson we will get into a brief history of options.
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What is an option? Why trade options?
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2 Unique Strategies designed to win!
I don't know about you, but I'm sick of trading "gurus" acting like trading is really easy. It’s not!
And it's an insult to struggling traders who are smart and work hard but haven't found success yet (especially since the guru saying his method is easy probably isn't even a real trader).
The reality is that thoughtful, hard-working retail traders are struggling because trading is hard.
You know that- no matter how much slick marketing they throw at you.
And the reason it's hard?
It's complex.
How many times have you got the direction of the market completely right and still lost money? How often have you learned a technique that works for a bit and then starts losing you money when the market changes?
But one professional day trader has studied this market complexity for years and ingeniously narrowed things down to the 2 unique day trading techniques that work in every possible market condition.
The techniques are not complex in themselves, but they're not overly simplistic either. You need to study and practice them to use them right, but once you do your trading can take off beyond your wildest dreams. Want to know what those two unique strategies are?
Long/Bull Call Spread
A long/Bull call spread gives you the right to buy stock at strike price A and obligates you to sell the stock at strike price B if assigned.
This strategy is an alternative to buying a long call Selling a cheaper call with higher-strike B helps to offset the cost of the call you buy at strike A. That ultimately limits your risk. The bad news is, to get the reduction in risk, you’re going to have to sacrifice some potential profit.
Because you’re both buying and selling a call, the potential effect of a decrease in implied volatility will be somewhat neutralized.
The maximum value of a long call spread is usually achieved when it’s close to expiration. If you choose close your position prior to expiration, you’ll want as little time value as possible remaining on the call you sold. You may wish to consider buying a shorter-term long call spread, e.g. 30-45 days from expiration.
Long Put Spread
A long put spread gives you the right to sell stock at strike price B and obligates you to buy stock at strike price A if assigned.
This strategy is an alternative to buying a long put Selling a cheaper put with strike A helps to offset the cost of the put you buy with strike B. That ultimately limits your risk. The bad news is, to get the reduction in risk, you’re going to have to sacrifice some potential profit.
When implied volatility is unusually high (e.g., around earnings) consider a long put spread as an alternative to merely buying a put alone. Because you’re both buying and selling a put, the potential effect of a decrease in implied volatility will be somewhat neutralized.
The maximum value of a long put spread is usually achieved when it’s close to expiration. If you choose to close your position prior to expiration. You’ll want as little time value as possible remaining on the put you sold. You may wish to consider buying a shorter-term long put spread, e.g., 30-45 days from expiration.
Call Now to learn how to execute these strategies and many more!
Universal Investment Strategies
How to Trade for A Living!
How does someone go from just $8 in their pocket to producing 7 figure income in their personal account?
It’s an amazing story but it all boils down to one simple concept:
Doing the opposite of what everyone else is doing.
In this case, it’s his dynamic strategy for selling options (the right way). We call it the Fig Leaf!
You see, most traders buy options and lose money.
And, even the ones who sell options can’t make it work…
It’s an amazing story but it all boils down to one simple concept:
Doing the opposite of what everyone else is doing.
In this case, it’s his dynamic strategy for selling options (the right way). We call it the Fig Leaf!
You see, most traders buy options and lose money.
And, even the ones who sell options can’t make it work…
But, you’re in luck! Read below as we breakdown one of our unique strategies.
Fig Leaf aka Leveraged Covered Call or Leaps Diagonal Spread
Buying the Leaps gives you the right to buy the stock at strike A mentioned below Selling the call at strike B mentioned below and obligates you to sell the stock at that strike price if you’re assigned.
This strategy acts like a covered call but uses the LEAPS call as a surrogate for owning the stock. Though the two plays are similar, managing options with two different expiration dates makes a leveraged covered call a little trickier to run than a regular covered call.
The goal here is to purchase a LEAPS call that will see price changes similar to the stock. So look for a call with a delta of .80 or more. As a starting point, when searching for an appropriate delta, check options that are at least 20% in-the-money. But for a particularly volatile stock, you may need to go deeper in the money to find the delta you’re looking for.
Some investors favor this strategy over a covered call because you don’t have to put up all the capital to buy the stock. That means the premium you receive for selling the call will represent a higher percentage of your initial investment than if you bought the stock outright. In other words, the potential return is leveraged.
Of course, there are additional risks to keep in mind as well: LEAPS, unlike stock, eventually expire. And when they do, it’s possible that you could lose the entire value of your initial investment.
Unlike a covered call (where you typically wouldn’t mind being assigned on the short option), when running a fig leaf you don’t want to be assigned on the short call because you don’t actually own the stock yet. You only own the right to buy the stock at strike A.
You wouldn’t want to exercise the long LEAPS call to buy the stock because of all the time value you’d give up. Instead, you hope your short call will expire out of the money so you can sell another, and then another, and then another until the long LEAPS call expires.
Some investors choose to run this strategy on an expensive stock that they would like to trade, but don’t want to spend the capital to buy at least 100 shares.
If the stock price exceeds the strike price of the short option before expiration, you might want to consider closing out the entire position. If the strategy was implemented correctly, you should see a profit in such a case.
If you do get assigned on the short call, don’t make the mistake of exercising the LEAPS call. Sell the LEAPS call on the open market so you’ll capture the time value (if there’s any remaining) along with the intrinsic value. Simultaneously buy the stock to cover your newly created short stock position. This is a situation when it pays to have a broker who really understands options. So give us a call at Ally Invest and we’ll help you through the process.
Want to learn more about how to implement this strategy?
Call Now!
Universal Investment Strategies
This strategy can help you Trade for Income!
Tell me if any of these sound familiar...
"My family's medical bills are destroying my retirement savings."
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So I decided to figure out how I could help regular Americans across the country grow their wealth FASTER and safer than they ever thought possible!
Ive outlined below an Options strategy that could potentially help you triple your money... and do it without taking any sort of crazy risks.
Cash Secured Put
Selling the put obligates you to buy stock at a designated strike price if the option is assigned.
In this instance, you’re selling the put with the intention of buying the stock after the put is assigned. When running this strategy, you may wish to consider selling the put slightly out of the money. If you do so, you’re hoping that the stock will make a bearish move, dip below the strike price, and stay there. That way the put will be assigned and you’ll end up owning the stock. Naturally, you’ll want the stock to rise in the long-term.
The premium received for the put you sell will lower the cost basis on the stock you want to buy. If the stock doesn’t make a bearish move by expiration, you still keep the premium for selling the put. That’s sort of nice, because it’s one of the few instances when you can profit by being wrong.
Don’t go overboard with the leverage you can get when selling puts. A general rule of thumb is this: If you’re used to buying 100 shares of stock per trade, sell one put contract (1 contract = 100 shares). If you’re comfortable buying 200 shares, sell two put contracts, and so on.
Want to know how to execute this strategy? Call now!
Sincerely,
Universal Investment Strategies
" Don't Buy Any Trading Program Or Meet With A Financial Planner
" Don't Buy Any Trading Program Or Meet With A Financial Planner
Till You Hear This Free Recorded Message >>> Call 888-657-8466"
A No BS incoming earning strategy!
As traders, we want the best and most actionable ideas for right now.
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No reading through 100 pages of an eBook to get one semi-helpful concept...
Here’s one freebie trading strategy below that is guaranteed to give you an ROI if implemented properly in a volatile market.
Long Put
A long put gives you the right to sell the underlying stock at a specific strike price. If there were no such thing as puts, the only way to benefit from a downward movement in the market would be to sell stock short. The problem with shorting stock is you’re exposed to theoretically unlimited risk if the stock price rises.
But when you use puts as an alternative to short stock, your risk is limited to the cost of the option contracts. If the stock goes up (the worst-case scenario) you don’t have to deliver shares as you would with short stock. You simply allow your puts to expire worthless or sell them to close your position (if they’re still worth anything).
But be careful, especially with short-term out of the money puts. If you buy too many option contracts, you are actually increasing your risk. Options may expire worthless and you can lose your entire investment.
Puts can also be used to help protect the value of stocks you already own. These are called protective puts.
Don’t go overboard with the leverage you can get when buying puts. A general rule of thumb is this: If you’re used to selling 100 shares of stock short per trade, buy one put contract (1 contract = 100 shares). If you’re comfortable selling 200 shares short, buy two put contracts, and so on.
You may wish to consider buying an in the money put, since it’s likely to have a greater delta (that is, changes in the option’s value will correspond more closely with any change in the stock price). Try looking for a delta of -.80 or greater if possible. In-the-money options are more expensive because they have intrinsic value, but you get what you pay for.
After the strategy is established, you want implied volatility to increase. It will increase the value of the option you bought, and also reflects an increased possibility of a price swing without regard for direction (but you’ll hope the direction is down).
Call Now to learn more!
Sincerely,
Universal Investment Strategies
Want to learn this Homerun Options Strategy?
Hey Options Aficionados,
Do you want to consistently see ROIs in your trading?
What will consistent profits do for you and your family financially?
Can you see how your trading can improve with the right strategies in your arsenal?
This is one of my favorite options strategies because it gives me high probability trades all year round and in all market condition so I can consistently profit from options.
Long Call
If you are struggling to make money trading options, or if you are having trouble finding a steady stream of high probability setups to trade, or if you know that all you need are a few aggressive tried-and-true strategies to get you over that hump, then UIS is for you.
What are you waiting for?
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Universal Investment Strategies
What will consistent profits do for you and your family financially?
Can you see how your trading can improve with the right strategies in your arsenal?
This is one of my favorite options strategies because it gives me high probability trades all year round and in all market condition so I can consistently profit from options.
Long Call
A long call gives you the right to buy the underlying stock at a certain strike price.
Calls may be used as an alternative to buying stock outright. You can profit if the stock rises, without taking on all of the downside risk that would result from owning the stock. It is also possible to gain leverage over a greater number of shares than you could afford to buy outright because calls are always less expensive than the stock itself.
But be careful, especially with short-term out of money calls. If you buy too many option contracts, you are actually increasing your risk. Options may expire worthless and you can lose your entire investment, whereas if you own the stock it will usually still be worth something. (Except for certain banking stocks that we won’t name)
Don’t go overboard with the leverage you can get when buying calls. A general rule of thumb is this: If you’re used to buying 100 shares of stock per trade, buy one option contract (1 contract = 100 shares). If you’re comfortable buying 200 shares, buy two option contracts, and so on.
If you do purchase a call, you may wish to consider buying the contract in the money , since it’s likely to have a larger delta (that is, changes in the option’s value will correspond more closely with any change in the stock price). Try looking for a delta of .80 or greater if possible. In-the-money options are more expensive because they have intrinsic value, but you get what you pay for.
What are you waiting for?
Sign up Now!
Universal Investment Strategies
" Don't Buy Any Trading Program Or Meet With A Financial Planner
Till You Hear This Free Recorded Message >>> Call 888-657-8466"
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