Special Topic Option Strategies - Candlecharts Academy...Special Topic Option Strategies: Calendar...
Transcript of Special Topic Option Strategies - Candlecharts Academy...Special Topic Option Strategies: Calendar...
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SpecialTopicOptionStrategies:CalendarSpreads
BrianHouston,NisonCer0fiedTrainer™
www.mycandlecharts.comwww.candlecharts.comwww.candlechartsacademy.com
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RiskDisclosure:The risk of loss trading securi0es, futures, forex, andop0ons can be substan0al and is not for every investor. Individualsmust consider allrelevantriskfactorsincludingtheirownpersonalfinancialsitua0onbeforetrading.Aninvestorcouldpoten0allyloseallormorethantheini0alinvestment.Riskcapitalismoneythatcanbelostwithoutjeopardizingones’financialsecurityorlifestyle.Onlyriskcapitalshouldbeusedfortradingandonlythosewithsufficientriskcapitalshouldconsidertrading.Pastperformanceisnotnecessarilyindica0veoffutureresults.Wemakenoprofitabilitynorperformanceclaimsofanykind;allinforma0onispublishedforeduca0onaluseonly. Disclaimer:Allinforma0onprovidedherein is published for educa0onal purposes only and should not be construed as investment advice. No profitability nor performance claims of any kind are beingmade. Trading is a high-risk,specula0veac0vity.Wearenotaninvestmentadvisor,financialplannernorregisteredbroker.Weareapublisherofeduca0onalcontent.Consultwitharegisteredinvestmentadvisorpriortomakingtradingand/orinvestmentdecisions.Byaccessingthissiteanditsproducts/servicesyouagreetoalltermsofourDisclaimer.Nooffertobuynorsellanyinstrumentisbeingmadeonthissite.Youherebygrantthissitearoyalty-free,perpetual,worldwidelicensetodisplay,modify,adapt,createderiva0veworksfrom,andotherwiseuseanysugges0ons,ideas,commentpostsandinforma0onthatyouprovidetothissite.Noneofourcontentonanysitenorcoursesnorotherpublica0onsisapromiseorguaranteeofspecificresultsorfutureearnings;wedonotofferanyfinancialinvestmentnortradingadviceofanykind;wepublisheduca0onalcontent.Wedonotpurporttotellorsuggestwhichsecuri0esnorcurrenciescustomersshouldbuyorsellforthemselves.Ourowners,employees,subcontractors,colleaguesand/oraffiliatesmayholdposi0onsinthestocks,currenciesorindustriesdiscussedhere.Youunderstandandacknowledgethatthereisaveryhighdegreeofriskinvolvedintrading.Itshouldnotbeassumedthatthemethods,techniques,orindicatorspresentedintheseproductswillbeprofitableorthattheywillnotresultinlosses.Tes0monialsmaynotberepresenta0veoftheexperienceofotherclients,andtes0monialsarenoguaranteeoffutureperformancenorsuccess.Theirexperiencesmaynotbetypicalofwhatyoucanexpecttoachieve,asresultsmayvary.Claims containedwithin tes0monials have not been verified. Tes0monials, case studies and success stories are individual experiences by personswho have used our services. Although these areacceptedfromsitevisitorsandcustomersingoodfaith,wehavenotindependentlyexaminedthetradingrecordsofanycustomersandthereforehavenotverifiedanyspecificfiguresorresultsquotedtherein.Forthisreasonyoushouldassumethattheirresultsarenottypical.Norepresenta0onisbeingmadethatanyaccountwillorislikelytoachieveprofitsofanykind.Generally-expectedcustomerresultsare thatall traders losemoneyanddonotbecomeprofitable, regardlessof the training they receive -- trading isahigh-risk specula0veac0vityand there is significant riskoffinancial lossinvolved.Tradinginvolvesasubstan0aldegreeofriskandmaynotbesuitableforallinvestors.Pastperformanceisnotnecessarilyindica0veoffutureresults.CommodityFuturesTradingCommission(CFTC)Rule4.41HYPOTHETICALPERFORMANCERESULTSHAVEMANYINHERENTLIMITATIONS,SOMEOFWHICHAREDESCRIBEDBELOW.NOREPRESENTATIONISBEINGMADETHATANYACCOUNTWILLOR ISLIKELYTOACHIEVEPROFITSORLOSSESSIMILARTOTHOSESHOWN. INFACT,THEREAREFREQUENTLYSHARPDIFFERENCESBETWEENHYPOTHETICALPERFORMANCERESULTSANDTHEACTUALRESULTSSUBSEQUENTLYACHIEVEDBYANYPARTICULARTRADINGPROGRAM.ONEOFTHELIMITATIONSOFHYPOTHETICALPERFORMANCERESULTSISTHATTHEYAREGENERALLYPREPAREDWITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADINGDOESNOT INVOLVE FINANCIAL RISK, ANDNOHYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THEIMPACTOFFINANCIALRISKINACTUALTRADING.FOREXAMPLE,THEABILITYTOWITHSTANDLOSSESORADHERETOAPARTICULARTRADINGPROGRAMINSPITEOFTRADINGLOSSESAREMATERIALPOINTSWHICHCANALSOADVERSELYAFFECTACTUALTRADINGRESULTS.THEREARENUMEROUSOTHERFACTORSRELATEDTOTHEMARKETS INGENERALORTOTHE IMPLEMENTATIONOFANYSPECIFIC TRADINGPROGRAMWHICHCANNOTBE FULLYACCOUNTED FOR IN THEPREPARATIONOFHYPOTHETICAL PERFORMANCERESULTSANDALLOFWHICHCANADVERSELYAFFECTACTUALTRADING RESULTS. The informa0on, services, products, claims, andmaterials on our sites are provided “as is” and without warran0es of any kind, either expressed or implied.We disclaim allwarran0es,expressedorimplied,relatedtostrategiesandcontentprovidedonthissiteaswellasthosethatarepresentedinourproductsandservices.Allcourses,videosandservicesarelicensedforindividualnoncommercialprivateuseonlyandmaynotberesoldnorredistributedinanymanner.Allsalesarefinalandnorefundsareoffered.Everyvisitortothissite,andsubscriber(orprospec0vesubscriber or customer) acknowledges and accepts the limita0ons of the services provided, and agrees, as a condi0on precedent to his/her/its access to our sites, to release and hold harmlessCandlecharts.com,Candlechartsacademy.comandMycandlecharts.com,itsofficers,directors,owners,employeesandagentsfromanyandallliabilityofanykind(includingbutnotlimitedtohis/herviewingand/orimplementa0onofthissites’content,emails,webinars,videos,subscrip0ontoservicesand/orpurchaseofanytradertrainingproductorserviceherein).Weencouragealltraderstolearntotradeinasimulatedtradingenvironmentusingademoaccountonly,wherenoriskmaybeincurredandtonotrisklivecapital.
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Brian has been trading stocks for over 37 years, and has devoted much of his trading career to trading options and creating options strategies. During that time, he has used Steve Nison's candlestick patterns and education to continually improve his knowledge and skills. Recently, Brian has has also added Elliott Wave theory to his set of trading tools, CFDs in Forex, Indices and Gold. BrianHouston,
NisonCer0fiedTrainer™
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Which Markets
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Your Favourite Market
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TRADER’SSLANG
• BullMarket
• BearMarket
• Support
• Resistance
• Trend
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TRADER’SSLANG
• Windows–bothrisingandfalling• LaggingIndicators!
• Oscillator–MACD,Stochas0cs• MovingAverages
• Candlesandtheircolors
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Leverage
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TheMul1plierEffectWhereaNisoncandlesignalconfirmsanotherindicator
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OptionCalendarSpreads• Sowhatdowedoandwhy?• Whatisyourmarketmoveexpecta0on?• 3Strategies–
• IntheMoney(bearishmarket)• AttheMoney(neutralmarket)• OutoftheMoney(bullishmarket)
• Doyouseetrendsinthemarket?• Whatarethecandlessugges0ng?
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BullishEngulfing Pattern at Support
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How NOT to use candlesticks
Oh my goodness! The market rallied after the shooting star!
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OptionCalendarSpreads
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OptionCalendarSpreads• LEAPS–Longdatedop0ons• Balancepricevsintrinsicvalue
StockPrice=$172.87MinusStrike-160.00IntrinsicValue=$12.87160Strike =$28.00MinusIntrinsic-12.87TimePremium=$15.13
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OptionCalendarSpreads
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OptionCalendarSpreads
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OptionCalendarSpreads• LEAPS–Longdatedop0ons• Balancepricevsintrinsicvalue
StockPrice=$172.87MinusStrike-160.00IntrinsicValue=$12.87160Strike =$28.00MinusIntrinsic-12.87TimePremium=$15.13
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OptionCalendarSpreads• BuyLEAPCallfor$28.00
• InTheMoney(ITM)• Strikepriceof$160
• SellaclosertoExpira0onCallwithahigherStrike• May15,or• June19
May175=$4.00LEAPcost$28.00COST=$24.00
June175=$6.00LEAPcost $24.00COST=$18.00
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DecisionTime• Decidewhichop0onyouwishtosell
• IsthemarketinanUP,DOWNorSIDEWAYStrend• Howlongun0lweresumeourtrenddirec0on
• BigQues0on:ITM,ATMorOTM• IntheMoney• AttheMoney• OutoftheMoney• Thisallrelatestotheexpectedmarketdirec0onwithinapar0cular0meperiod!
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OptionCalendarSpreadsMay175=$4.00LEAPcost$28.00COST=$24.00
June175=$6.00LEAPcost $24.00COST=$18.00
• 1stQues0on–whydidIreducetheJune175Callpricefrom$8to$6?
• 2ndQues0on–isthisexactlyhowitlooksinreallife?
• 3rdQues0on–howdoImakemoneyandwhen?
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OptionCalendarSpreads
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OptionCalendarSpreads• Over0meyourLEAP0mepremiumwilldecay• Themarketisconstantlymoving–up,downandsideway!
• YourLEAPwillreflectthismovement
• NeartheMayExpiryofop0onswhathappens?• CMEmovesup• Mayop0onsdidnotexpireworthless• Priortoexpira0on,ROLLyourop0ons!• BuybacktheMayCallsandSellfurtherout!
May175=$4.00LEAPcost$28.00COST=$24.00
June175=$6.00LEAPcost $24.00COST=$18.00
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RollingOutyourOptions-Example• BuybackMayop0onsfor$1andSIMULTANEOUSLYsellCallfurtherout• IntoJunemaybeandforwhatprice?• MoreortheSame?• Whatisthemarketexpectedtodonext?• ITM,ATMorOTM
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RollingOutyourOptions-Example• Mayop0ons=$0soyouKEEPthe$4andtheyexpire
• MarkethaspulledbackandthereforeyourLEAPSdropped• WhatisexpectednextasaMarketmove?• Areyouatsupport?• AsyourMayOp0onsexpire,considersellinganotherop0onifappropriate
• ITM,ATMorOTM
May175=$4.00LEAPcost$28.00COST=$24.00
June175=$6.00LEAPcost $24.00COST=$18.00
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OptionCalendarSpreads• WhatisyournewLEAPvaluewithamarketincreaseof$10
May175=$10.00LEAPcost$28.00COST=$24.00
June185=$6.00LEAPcost $24.00COST=$18.00
• CLOSEOUT=SellLEAPfor$36–24–10=$2PROFIT!• YourLEAPwillreflectthismovement
• ROLLupandoutyourSHORTCALL• Pay$10andreceivebackforJUNE$6• LEAPhasincreasedinvalue,andSTRIKEis$10higher• IWANTCASH$$$• RollupyourLEAPby1or2Strikeprices• HowmuchcanIaddtomyaccount?
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OptionCalendarSpreads• QuickSummary
May175=$10.00LEAPcost$28.00COST=$24.00
June185=$6.00LEAPcost $24.00COST=$18.00
• RollupandoutyourSHORTCALL• Cost$10–SHORTJUN185$6=-$4
• ROLLupLEAPCALL• Sellfor$36andBuy2Strikeshigher=$28• Profit=$8• NetAccountIncreaseof
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Summary• Thetradehaslastedlessthan1month• Netintoyouraccountof$4• Yourini0alcostoutofyouraccountwas$24• S0llownLEAPS• MarketisTrendingupwards(checkMovingAverages)• AndyouhavehowmuchROI?
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AddedTips• TheBUY–WRITEorCalendarSpreadsworksamazinglywellinrela0velyflatmarketswithrepea0ngpaterns• Youkeepreducingyourcostwhileyouwaitforthemarkettomove
• Ifthemarketistrendingupwards• Keepsellingcloserexpira0onsOTM–OUTOFTHEMONEYop0ons
• Hopefullytheyexpireworthless• IfyourLEAPSarecalled,youshouldhavereducedyourcostnicelyands0llgenerateaprofit
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OptionCalendarSpreads
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OptionCalendarSpreads
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OptionCalendarSpreadsGM =$24.00LEAPSWhatisyourTimePremiumJan’21$15+$10–24=$1.00Jan’21$18+7.70–24=$1.70Jan‘22$15+11.25–24=$2.25Jan’22$18+9.20– 24=$3.20
WhatisyourMarketTrend?Jun$22+$2.85–24=$0.85Jun$23+2.20–24=$1.20Jun$24AllPremium=$1.62Jun$25AllPremium=$1.10
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OptionCalendarSpreads• Sowhatdowedoandwhy?• Whatisyourmarketmoveexpecta0on?• 3Strategies–
• IntheMoney(bearishmarket)• AttheMoney(neutralmarket)• OutoftheMoney(bullishmarket)
• Doyouseetrendsinthemarket?• Whatarethecandlessugges0ng?
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CalendarTradeRisk• Risk–simplytheNETamountofmoneyyouhaveinthetrade
• PROVIDEDyouhavesoldtheshorterdatedcallsatleastashighasyourLongCallStrikeprice
• Jan‘[email protected][email protected]=$9.05
• PremiumonJan‘22$15=$2.25,soldJun$23$2.20• Whatisyour0medecayonthe$2.25?• Rememberyour45daytoexpiry!• Howmany1monthop0oncontractscanyousell(over0me)?
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OptionCalendarSpreads
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RollingMid-Month• WeseeGMstockdroptoanicesupportareabutwes0llhave0mebeforeourop0onsexpire
• Whatdowedo?• Whynotbuybackyourop0ons!
• Jun$23$2.20whichnowhaveaweekorsoremaining• StockDropped!!Soourvaluehasdropped!
• Expectedbuybackat$0.50to$0.75• Profittodateof$2.20–0.75=$1.45• YourLEAPnowstartstoincreasewiththemarketriseandyoucanrolloutyourclosedatedop0onasandwhenthesignalsarepresent
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OptionCalendarSpreads
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CalendarSpreads-PUTS• ThisworksexactlythesamewithPUTS• Buyalongerdated(LEAP),ITMofaPUT• Sellacloserdatedexpira0onmonthPUT
• IdeallyOTM• Ifthemarketcon0nuesdropping,con0nuerollingoutyourclosedatedop0ons
• RollouttheLEAPSifyouwishforsomerealisedgain/cash• Closetheen0retradewhenyoufindsolidsupport• Youwillhavebenefitedfrom0mepremiums
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QuickSummary• CalendarSpreads• BuyyourLEAPacoupleofstrikes(ormore)ITM• Sellclosedatedop0ons(sametypeCALL/PUT)
• Donesimultaneously• WilldependuponexpectedmarketmovementnextBUT• UsuallyjustOTM/ATM
• TakeadvantageofTimePremiumdecay• Rolloutandupyourop0onsdependingonmarketcondi0ons
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QuickSummary• KnowyourMajorSupportandResistanceareas• Youmusts0llhaveamentalstopareawhereyouexitall• NotlikelyholdyourLEAPSbeyond6months0llexpira0on
• YoudonotwantTimePremiumdecayofyourLEAPS• RolloutyourLEAPSifneeded• LookforyourminorresistancewhensellingyourCALLs
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