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Using volatility for income trades - UNG 59% ivNatural Gas and other commodities offer alternatives to main show which is the stock market indices. The spx sp500 is currently offering very low volatility premiums because its been trending higher in smooth way, and put sellers have crushed premium there. UNG etf offers an alternative potential opportunity for me since premium is high enough and its already had a nasty sell off for months since fall of 2022. With headlines of hot summers and potential higher energy use, Im comfortable nibbling at premium trades in UNG.
AMEX:UNGLong
by ValuePig
1
Ride Lordstown Stock - My Worst Trade?You know, on YouTube, all these traders, they’re always showing you how much money they make with trading, but very few of them are actually talking about the bad trades. Well, you know what? I thought today I’m going to address this head-on because many of you had questions about a bad trade that I’m in. That trade being RIDE , Lordstown Motors. I want to discuss why I entered the trade in the first place, what went wrong with this trade, how it is hurting my account right now, and what I’m personally doing to get out of it. Why I Got Into RIDE So far my realized profits for the year to date are at $94,476. So that’s pretty good, right? I mean, for trading for only 6 months and this is on a $250,000 cash account, which I’m using as a margin account. So I have a stock buying power of 2:1. So $500,000 in buying power. Well you see, all of this would be handy, dandy, and good if there weren’t this one pesky, huge unrealized loss. This huge unrealized loss comes from one trade, RIDE. Now, I want to tell you first quickly why I got into this, and then I want to show you what happened, what I’ve been doing so far, and what I’m planning to do. Back in mid-February or 2021, I am with my kids at a sailing regatta in Florida, and we’re doing good. I have a few positions on, all is planned and then this massive snowstorm hits Austin, Texas. Snowmageddon! This meant that we are trapped in Florida. Yeah, boohoo, could be worse places to be. Anyhow, I’m there in my RV. So it’s a 44-foot motor home and we are stuck there, and you know what? I’m bored out of my mind, and this is when I start tinkering around with my trading plan, which I definitely shouldn’t have done. So I’m entering a trade and I’m taking it with my Mastermind group. And I say, “you know what? I am going to take an aggressive trade.” Trading while bored is never a good idea, and I don’t like to trade the usual trades. But there was nothing to do, so I wanted to take a more aggressive trade. At that point, I liked Lordstown Motors and its story. Again, this is mid-February, way before Hindenburg Report. So I’m selling puts at a strike price of 21.50, the premium was good, and the current price was somewhere around $26, so all was looking good. What Happened To RIDE? Pretty much the day before my options expire, the Hindenburg Report comes out and says that they have a bunch of orders that are fake, that are not real orders, they are just pre-commitments, and their trucks catch on fire. So it’s a scathing report. Well the markets reacted, and within a few days, RIDE fell from $24 to around $17, and I got assigned 7,000 shares at my strike price of $21.50. Now, first of all, getting assigned is not a problem at all. I’m trading The Wheel Strategy and getting assigned is part of it. I’ve been stuck in trades before that went against me. My plan when this happens is, as soon as the stock dips more than 30 percent, I am flying a rescue mission . A rescue mission means that now I am selling more puts hoping to get assigned, and therefore lowering my cost basis . My Plan To Get Out of RIDE So this all is still according to my plan, and that plan is, I will fly a rescue mission at some point when the stock is down more than 30 percent. So this means I needed the price to go down to around $14. At this point, I flew a rescue mission and sold more puts. I do believe it was for a 10 strike price. I didn’t want to use all of my buying power for a rescue mission. I like to fly rescue missions in thirds so instead of going in with 100 contracts, which I would usually do, I’m selling only 30 contracts. So now after I’m doing this and getting assigned, I’m lowering my cost basis to $15.79. This basically means that I bought 7,000 shares at $21.50, and I bought another 3,000 shares at around $10, I now own $10,000 shares at an average price, so this is the cost basis here, at an average price of $15.79, instead of $21.50. Usually, what do you see? It is very, very rare that a stock will go down in a straight line. Usually what you see that the stock is going down, bouncing a little bit back up, down, bouncing a little bit up. This is where often you can apply Fibonacci lines, right? And this is why the Fibonacci tools are so powerful where you these retracements. However, RIDE is one of the rare stocks that does not like to bounce back. RIDE Is one of these rare stocks that actually went down almost in a straight line without ever bouncing back. That, of course, causes a problem, because if I’m owning 10,000 shares at a cost basis of $15.79, and the prices are now at around $9-$10, I cannot sell calls anymore. Now, this is part of my strategy The Wheel Strategy that again, I’ve been very successfully trading for a long, long time, where I made in almost $95,000 in realized profits. How RIDE Has Affected My Account But again, this one here is a bugger. It just did not want to bounce back. Now it gets even worse and here’s why. Since I have been flying a rescue mission with one-third, where I actually bought another 3,000 shares, I am flying more rescue missions because I still have another two-thirds available for my rescue missions. So I’m selling puts, 30 puts at a time, at a level of $8 and $7, hoping to get assigned. What does RIDE do? Never goes low enough to actually get me in so that I can lower my cost basis anymore. Now, with my Mastermind members, we have been following this trade together, and many of them have actually been able to get assigned and lower their cost basis. I don’t know what happened here, this is just one of these trades where nothing goes according to plan. Well, a few things went according to plan, but here I didn’t get assigned. So this means that my cost basis is still sitting at $15.79 and RIDE at one point went all the way down to a low of $6.69. Now, when you have a cost basis of $15.79, you have a difference of $9.10. When you have a loss per share of $9.10, and you own 10,000 shares, that is an unrealized loss of $91,000. This is how bad it got. However, I was still following my plan because that’s what I like to do. I have a plan, and I’m following my plan, and I’m selling more and more premium. By doing so was able to collect $14,248 in premium. So yes, I am sitting on a big unrealized loss, but then I have realized $14,248 that I collected in premium. That money has been deposited in my account. So I can subtract this, which is around $14.28. So I’m deducting this from my cost basis to get at a new break-even of $14.37. What Is Happening With RIDE Now? OK, so this is where my cost basis is and now the magic happens. RIDE actually popped up to $15.80. Now the key question here is that you might ask, “Did you get out?” No, I did not, and there are actually two reasons for it and I want to show you exactly why. 1) When that happened I wasn’t in front of my computer. I’m not watching the stocks all day long. Usually, my trading routine is such that I’m only looking at the markets for thirty minutes in the morning. After this, I’m walking away, I’m doing other stuff, and I’m living my life. So I did not see when RIDE went all the way up to $15.80, and I did not see when shortly after this it crashed all the way down to $11. 2) The 2nd reason is super important. So let me explain this to you according to my plan. According to my plan, I am selling calls against my existing position. I sold 100 hundred calls, at 15.50. These are covered calls because I own these 10,000 shares, and I sold another 200 calls that expire tomorrow (at the time of this writing). Now, here is what happens when the stock jumps up to call options. I mean, if you know options, then you know that as the stock goes up, these call options become worth more money. This is why I’m making money on the stock. So on the stock, yay, I’m making money, and on these options, before expiration, I would lose money. Part of the game. How much were these options down when this happened? So we are talking about the 15.50 call, and they went as high as $1.07, so means that on the option, I would lose $10,700, even though right now with the stocks, I would be at break even. So even if I were in front of my computer at this time, I might not have liquidated it, because if I had, I would have still suffered a $10,700 loss. Now, obviously, everybody can say, “Well Markus you should have done this.” Yeah of course. Woulda, coulda, shoulda. You see, in hindsight, we are all the greatest traders. So what happened here? We had positive momentum, this was all before the report with the SEC was filed and it looked good, right? I mean, Lordstown Motors just announced that they will take their Lordstown week virtual, where they let the whole world see what is going on. I mean, I don’t know how good you are at chart reading, but even if you just know some simple chart reading, you would have been able to see a solid one, two, three formation, and we broke above number two. So this from a chart formation standpoint is a solid uptrend. Also, you know that I like to use my indicators and the three indicators that I like to use, according to the PowerX Strategy, are RSI, they are stochastics, they are MACD. So all of this looked really, really good, and this is where we saw that RIDE has been in an uptrend. Then the news hit and of course, you can never factor in the news, and it went all the way down. What Do I Do Now? Honestly, when I looked at the chart, at this point when everything was going on, it looked good. RIDE just recently had the highest volume ever. So what am I doing right now? I am aggressively selling calls at, or slightly below, my break even. So I have an order in there to basically roll this week’s, so this will expire worthless. By doing so, it will add another $1,000 to the existing $14,000. So this is good. It brings me up to more than $15,000. And now the next thing that I want to do here is, for next week, sell the 14 call. My idea here is that for this I would like to achieve a credit of 50 cents. Now, just to let you know, a credit of 50 cents means for the size that I’m trading, $5,000. Now for tomorrow (time of writing was on 6–10–2021), depending on what Lordstown does tomorrow, I’m willing to lower it to $3,000. You see, if I can make $3,000 per week on Lordstown Motors, that will be good. Obviously, I know that there is a good possibility that Lordstown can go further down. Yesterday that there was a massive move. We went from $10 to almost $13 on some rumors that they might have secured funding. Now, hope is not a strategy. I’m not hoping that they will secure funding, but here’s what I see. I see that if there is a small pump, and at this point the pump might only be, right now we are trading at $10.59, so if it is from $10.59 to $11.50, the 14 call option will double in value. This is when I can possibly, instead of $3,000, bring in $6,000 or $8,000 per week. Now, what does this do? It lowers my break-even to a point where I can get out with maybe a small loss. And you see, for the size that I’m trading, for me a small loss, I discussed it with my head coach Mark Hodge earlier, would be around $20,000 That’s a fairly small loss for me. That would be absolutely OK. See, based on $250,000 in cash, $20,000 is less than 10 percent, closer to an 8 percent hit. If I’m basing it on the margin of $500,000, it would be a 4 percent hit. It really depends on how you see it. You see, some of you might do it based on the cash, others might do it on the margin. So that’s what I’m looking for. Where Do I Stand With RIDE Now? So where do I stand right now? So as of now, RIDE is down. The stock is down $51,000, and I collected $14,284 in premium. So right now I’m down about $36,000. It’s not too bad. I mean, yes, let’s face it, that’s not nice. $36,000 based on my account size is around 15 percent. So it’s not nice, but it’s manageable. I mean, think about it. Have you ever done a trade that took down your account by half, or by even more? I mean, in the beginning of my trading career, I did super stupid trades. I was placing trades that really brought my account down by 50 to 60 percent. So what I’m looking for right now are these pops where we go from $10.50 to $11.50. Because the implied volatility that is governing options premium for RIDE is kind of off the chart. The implied volatility, right now, 242 percent. Two days ago it was 300 and 400 percent. So what I noticed earlier today and yesterday is, as soon as we see a one-dollar pop, which again happens all the time, this is when it’s not that nice. I have to watch it a little bit more throughout the day, which is really not my style. I really don’t like to obsess about stocks. I don’t know about you, I like to go on with my life. But here, since right now we are really in trouble and I have to get out of this trade. This is my goal here, again with hopefully a small loss, we shall see. This is why I’m looking right now for these pops, because honestly, this little pop for the size that I’m trading, this here is probably worth to be around $1,000. Currently, every $1,000 helps. So right now, the loss is around $35,000. Once I’m getting to a loss of $20,000, I’ll be fine. Tomorrow, another $1,000 is being added to the realized profits. So I’m going from $14,284 to $15,284. And then the idea is right now to sell the 14 call, and by selling the 14 call I would probably make $5,000. Now, why would I sell the 14 call, if my break-even right now is $14.39? Doesn’t that mean that I’m losing money? No, because for this I’m bringing in 50 cents so this lowers my break-even to $13.89. Anyhow, this is what is currently happening, and this by no means is ruining me or, I don’t know, changing my living style. Yeah, it would suck if I lost $20,000, but it’ll probably honestly take me four to six weeks to make back that money. So this is why I’ve shown you earlier thus far I’m sitting in $95,000 in realized profits, but let’s see how it goes.
R
by rockwelltrading
8
When To Take Profits on Options I’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. Options trading is really fascinating, and it’s a great way to make money, and I think it is very important to know when to take profits, especially if you like trading The Wheel as I do. So the question is, when should you take profits when trading options? How exactly do you figure this out, is there a formula for it? In this article, I’ll share some guidelines for how and when you should take profits on an option trade. We will answer the question of whether you should let options expire or take profits early. I will show you some very specific examples of two trades that I have going on right now (at the time of this writing on March 17th, 2021). One of them, I took profits today, and the other one I’m still holding on and I will show you exactly why. ]How To Calculate Profits On Options Firstly, let’s talk about how to calculate profits on options. In order to address this, there are two types of options traders. One type of options trader are ones that are buying options, and the other, which I feel is very lucrative, and this is what I’ve been doing for a long time, is selling options and collecting premium. I want to actually talk about selling options and receiving premium, because this is, as I said, what I’ve been focusing on recently with trading The Wheel Strategy. My year-to-date profits on this account so far are more than $54,000 selling premium on options, and I’ll show you exactly how to do this. So when selling options, you’re receiving premium, and for me, the most important metric here is the so-called premium per day or PPD. MARA Example The first example that I want to give you is my position with MARA. Looking over my transactions with MARA over the last 30 days. I sold puts at a strike price of 20, and for this, I received $0.28 in premium per option that I sold. Now options come in 100 packs, so this means that per option I made $28. Now, in this specific example, I sold 50 options total, so this means that I’m receiving a premium of $1,400. I put this trade on March 10th, and these options expired on 3/19. This is $1,400 in premium in 9 days. This comes to $155.55 in premium per day, or PPD. Now this includes weekends. My rule is I’m buying back the option when I can get 90% of the maximum profits, but there’s an exception to this rule. First, let me tell you what that means. So again, I sold each contract for $28, for $0.28. The idea is to buy back the option at $0.03, and this is exactly what I did today (March 17th). So we have another two days to expiration. So today, I bought back a total of 50 contracts at $0.03, and by doing so I made $0.25 in profits on MARA. Now, this is where again, we’re looking at 50 contracts, times $25, so this is $1,250. I was in this position for 7 days. So $1,250, divided by 7 days, means that I made $178.57 a day. Let’s just round to $179 per day. As you can see, $179 is more than the $155.55 that I planned per day. Now let’s think about it. If I would keep MARA right now, if I would keep this option until expiration, but what would happen? I would make an additional $150 in three days. This means that now my premium per day is only $50 per day. This doesn’t make sense to me because this here is actually bad, because my plan was to make $156 per day, and I was able to make $179 per day by buying the options back. If I would hold on to this trade and let it expires worthless. So this is where here, and let it expire worthless, right? This is what would happen. I would make an additional $150 in three days and the premium per day would only be $50. That does not make sense to me at all. This is why here in MARA, it made sense to buy back the put option because by doing so, it frees up buying power meaning that now I can sell more puts. So the idea here is that I’m selling more puts and making more money on the new puts than I would make holding on to MARA. DKS Example Let’s go over another example with a position I have right now with DKS . I sold the 66 strike on March 10th. I sold 15 of them and I received $75 in premium. 15 contracts times $75 comes to $1,125. So let’s do the math right now and see if it makes sense to close this trade today (March 17th) or if we should keep it, and we’re using very similar logic here. So we sold the 66 put expiring March 19th, and we received $75 per contract for it, $1,125 total. We then divide this by 9 days to get to our premium per day, which is $125. So right now, on March 17th, let’s see how much DKS is still worth. Right now, the bid/ask for DKS is $0. 05 over $0.10, and that’s really interesting because I want to buy it back at $0.07. Let’s say right now, if I would place an order right now, I could buy it back at $0.10. Should I do it? If I did this, I would make $75, minus $0.10 ($10 per contract), which is $65 per contract. For all 15 contracts, I would make $975. We find our PPD by dividing $975 by 7 days, which comes to $139. So if I really wanted to, and if I needed to free up some buying power, I could do this. But let’s see what happens if we hold this for a few more days. So if we hold DKS until expiration, we can make an additional $150. It might actually make sense to close it out because $150 over the next three days does not make a lot of sense. When I looked at the option earlier, DKS suddenly jumped from 78 to almost 79. This is a 10% jump in 30 to 45 minutes. When we opened this morning, first, we went down, and then we went a little bit up, and then we were hovering right around where we opened. Earlier this morning, the DKS put was trading at $0.25. So the question is earlier this morning, would it have made sense to close it? Earlier today on March 17th, I could have bought it back for $0.25. So that wouldn’t have made sense, right? Because then if I’m buying it back for $0.25, I would only make $0.50. So this here, $0.50, this is then $750 in seven days, and if we divide $750 by 7 days, this is $107 premium per day. As you can see, the $107 premium per day is less than what I expected. If I would hold DKS to expiration, we can make an additional $0.25, $25 times 15 contracts is $375. Now, if you take the $375 in 3 days, that would be $125 premium per day. So when I’m getting $125 premium per day, this is when it does not make sense to sell it just yet. Should You Take Profits Early? So this is the important thing because the question always is, do you take profits early, or hold until expiration? Well here’s my formula for this. So I want to give you a very specific formula that you can use if you want to. If the current realized premium is a premium per day, PPD, is larger than the planned PPD, this means close it out early. If the remaining premium per day is smaller than the planned premium per day, close it. Only if the current realized premium per day is smaller than the planned premium per day, in this case, hold it. If the remaining premium per day is larger than the planned PPD in this case, you want to hold it. Summary This is why today I wanted to show you my formula for when to take profits on options, especially when you are an options seller. You see, selling options and receiving premium is what we do with The Wheel Strategy, and the most important metric here is the premium per day (PPD). This where using the PPD, you can actually get down to a formula of when exactly you should buy or sell. This is where it’s just a good rule of thumb if you don’t want to do all these calculations. So the rule of thumb is I close a trade when I can realize 90% of the maximum profits.
NASDAQ:MARAEducation
by rockwelltrading
3
The Wheel Options Strategy: 29 Things You MUST KnowI’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. Those of you who have been following me know I love trading The Wheel Strategy, in fact, with my $500,000 trading account that I’ve been trading on since mid-January, I just $50,000 in REALIZED profits for the year. The Wheel Options Trading Strategy is a powerful trading strategy that can be fairly low risk IF you know what you’re doing. This is why, in this article, I wanted to give you a complete squad of trading tactics for trading The Wheel Strategy. I look through all of the comments on my YouTube videos & the questions that I get in my live streams, and I have compiled a list of the questions I get most often. So today we’re going to talk about the 29 things you must know when trading the Wheel Options Strategy. The Wheel Strategy Overview So let’s briefly talk about the basics, and the basics of the Wheel Strategy, are actually pretty simple. So let me just tell you the three steps that we need to do when trading this strategy. Step Number One: We want to sell put options and collect premium. Step Number Two: Here, we may or may not get assigned. Step Number Three: If we are getting assigned we will sell covered call options and collect more premium. If we are not assigned, then we will just stay at Step Number One, and keep selling put options to collect more premium. So as you can see, it’s really not that complicated. I mean, wouldn’t you agree? Now I divided this into 3 sections: The Basics, then Picking The Right Stock, because there’s a lot of questions about this topic, and then we will also talk about Selling Calls After Getting Assigned, as well as What To Do When a Trade is in Trouble. The Basics 1.) I have around $30,000 in my Interactive Brokers account. Is it enough to start trading the Wheel? Here is my recommendation. You should have at least $10,000 in cash so that you can get $20,000 in margin. I highly recommend that you are trading a margin account. If you have less than $10,000 in cash, I do not recommend that you trade with the Wheel Strategy. Now, if you have a smaller account, I recommend that you do a maximum of three positions in your account. As your account grows, you can go up to five positions in the account. 2.) What is the best expiration date when selling options? What I personally like to do is go 1 to 2 weeks out, so this also means that I like to trade weekly options. So I’m looking for a really short fuze here because I believe that this is where you have the most control over the prices here. The idea is actually to collect so-called “weekly paychecks,” and I put this in quotation marks because it always sounds so glamorous, right? However, it’s really important that you know what you’re doing here. Now, the next question that I receive all the time. 3.) Should I use margin to increase my buying power? My answer to this is yes, absolutely. I highly recommend this, however, keep in mind that margin is a double-edged sword, which can work for you as well as against you. 4.) How do I know if I have enough capital if I get assigned? It’s easy. So let’s say that you are selling a 100 put, which means a put with the strike price of 100. This means that when you’re getting assigned you have to buy 100 shares at $100 each totaling $10,000, so this is how much capital you would need. So all you need to do is basically just take the strike price that you are selling of the put, times 100 because options come in 100 packs, and multiply this number by the number of options that you’re selling. Let me give you an example. I recently sold 8 put options of Apple at a 133 strike price. So how do you know whether you have enough money in your account? Well, this is where we are taking the strike price, 133 times 100, times 8. This means you would need to have $106,400 in your account. So please make sure that you are sizing your account appropriately. The good news is, if you do have the PowerX Optimizer, which is the tool that I’m using, it will show you exactly how many shares you can trade. So what you need to do here is that you are actually filling in your buying power, and again, your buying power might be different. How many positions you want to take, and this is where I said if you have a smaller account fill in three, if you have a larger account you want to fill in four or five. Then based on the strike price that you are selling here, it will tell you exactly how many options you should trade, and based on how many options it also tells you how much money you need, and how much margin is required if you were to get assigned. I highly, highly, highly recommend that you do use a tool, because you see, if you do all the math in your head, it can go horribly wrong. The tool that I personally use is the PowerX Optimizer. Many of you already have the tool, many of you are familiar with it. 5.) Is there a certain percentage you buy to close at? Some people say 50% profit is best statistically to close. I like to close a position at 90% of the max profits. So as an example, this morning (March 10, 2021) I sold puts on DKS, Dick’s Sporting Goods, and I sold them for $0.75. So this is where right now I have a working order in there to buy this back at $0.07, which is 90% of $0.75. So, yes, if I can get 90% of the max profit here, this is when I want to exit. 6.) So is there a rule of thumb of what percentage this account is tied up with the strategy? It really depends on how many trading strategies you use, right? So right now I trade two strategies. I trade the PowerX Strategy and The Wheel Strategy. The PowerX Strategy is perfect for a trending market, but the markets right now, are far from trending. They are super choppy going up and down, so, therefore, right now I’m dedicating all of my money in the account to the Wheel Strategy. Once I start trading the PowerX Strategy again, this is where I would just decrease the buying power here and say instead of using the $500,000, I might just use, let’s say 400K, and use 100k for the Wheel Strategy. 7.) What screening criteria does the PowerX Optimizer use for the Wheel Strategy? The PowerX Optimizer has a built-in scanner to find the best candidates for the Wheel Strategy, and there’s a conservative scanner as well as an aggressive scanner. For my criteria, we are looking for stocks between $5 and $300 here. We are also looking for stocks that have a down day because when you’re selling put to collect premium, you want to make sure that you’re selling when the market is going down. We are also looking at the implied volatility because want to make sure that there’s enough premium there. Then most importantly, we want to make sure that the annualized premium is actually at least above 30%. There are a few other minor criteria. First of all, we only look for stocks that have weekly options. This is what I explained briefly a little bit earlier, I’m not interested in trading stocks that only have monthly options. 8.) What can I expect? 30% yearly annualized based on what capital? The capital here this would be based on is the buying power. So in my account, I have a $500,000 buying power. This means if I’m looking for 30% based on the buying power, so this would yield into 60% based on the cash that I put in the account because the cash that I put in the account was $250,000. So when I’m talking about the 30% yearly annualized, it’s based on the buying power. If you don’t trade with margin, then this would be based on your cash. Picking The Right Stock: 9.) Do you have a defined universe of stocks that are your “good list?” Well, first of all, I want to make sure that I’m trading the stocks from the PowerX Optimizer Scanner, and then I just look for stocks that I like overall. These are some of the stocks I've traded thus far this year: There's been DBX, DKS, GDXJ, HAL, HAS, IBM, JWM, LL, MARA, MNST, NIO, RIDE, RIOT, SNAP, and many more others. These are stocks that I really like to trade, and as you see, most of them are very well-known names so I’m not trading any exotic stocks. You also will not find meme stocks like GME or AMC on this list here. 10.) Is there a certain level of IV, implied volatility, on a stock that you won’t go to? I’ve traded some 200% plus of IV is that too high? Just as a rule of thumb, the higher the IV the higher the risk. This means that now stock can really swing back and forth. So for me, what I feel is a sweet spot, I like to see at least 40% IV, but no more than 100%. Sometimes I do take trades that are higher than 100 but honestly, for me, the sweet spot where you find most trades that are fairly safe is anywhere between 60% to 80% implied volatility. This is where I don’t have hard rules here, but I need to like the stock. 11.) Markus, have you changed from your “When I started I just wanted to know the symbol. I did not want to know anything about the company, as it might cloud my view. Trade what you see, not what you think” mentality? My answer is NO, for the PowerX Strategy. I absolutely do not want to know anything about the symbol. However, for the Wheel Strategy, the answer is YES because when trading The Wheel Strategy I only want to trade super solid stocks. 12.) So I noticed that some of the stocks on your list for the Wheel have very illiquid weekly options. Do you watch for options liquidity or just the credit limit and hope to get filled? For me, I don’t care about open interest and volume, and here’s why. I am selling premium and I’m fine letting the option expire worthless, so I don’t need to buy it back. If I can buy it back I will, otherwise no. So this is where here I don’t care about the open interest. But again, it really depends on the strategy. I mean, if you’re trading a different strategy, open interest and volume might be very important to you. For me, it is not. 13.) Besides technical support/resistance levels, how do you objectively decide which are the best stocks? Do you take into account any fundamental analysis to filter out which underlying to trade? No. So here is what I do, and this is it’s pretty subjective, so I don’t have objective criteria here. I must like the company, because the point is, you must be OK owning this company, and I must like the story of the company. Yeah. This is where I always use Peleton as an example because I know that many are trading Peleton and it has lots of premium in there. But you see for me, Peleton, it’s a company that I believe can easily be ripped off, and at some point, a major competitor might swoop in. So I must like the company and the story of the company. This is fairly subjective here because the key is that you must be OK owning that stock at the strike price. 14.) Since you are suggesting not to sell puts on leveraged ETFs, why are they then included in the Wheel Scanner? You know what? This is a great question and we actually might exclude them in version PXO 2.0. So right now I thought you’re all adults, and as adults, you can do whatever you want. I did not want to restrict you, so but we might exclude it or, we might add an asterisk as a warning sign. It’s a good suggestion, and I know that some get blinded by premium on leveraged ETFs. So I do not trade leveraged ETFs, anything that has 2x or 3x in the description I stay away from this. 15.) Why do you select growth stocks only instead of a mix of value and growth stocks? Seems that growth is in trouble due to interest rates. Growth stocks offer attractive premiums, but value stocks rarely do. I want to give you a very specific example here, and let’s actually go to IBM, because IBM is one of the value stocks that I have traded. I traded IBM after a massive drop where I sold the 117 strike. Usually in IBM, you won’t find enough premium in there. The implied volatility lately, is usually around 34 or 29. So this is the very simple reason why I’m going for growth stocks because I’m looking for a minimum of 30% annualized in premium. Selling Calls After Getting Assigned 16.) If you sell a call lower than your original put strike price can you still make money? This is actually super dangerous, and here’s why. So when you sold a put you got assigned, and you had to buy stocks at the strike price. I’m using an example of AAPL, and I was assigned Apple at $133 per share. Now, if I’m now selling a call, it means that I have to sell stocks at the strike price, so if I’m selling, let’s say a 125 call, it means that I have to sell the shares for $125. Now here’s the challenge with this. I bought them for $133 and now I’m selling them right now for $125. This means that I’m losing $8 per share. Now when you’re trading options, they come in 100 packs. So this means that you would lose $800 per option. So this is where you need to be careful when you’re selling a call lower than your original strike price. If you do this, make sure that it is above your cost basis, and we’ll talk about the cost basis here in just a moment. 17.) Why are covered calls more profitable in your experience than cash-secured puts? Are you targeting a different percentage return? No, I do not. Here’s a rule of thumb for what I do. Let’s jump to PowerX Optimizer and go to the Wheel Income Calculator. Here is something that I did today (March 10, 2021) where I sold calls on RIDE. Yes, and let me, let me quickly double-check before I do this, what did I sell on RIDE? So on RIDE I sold calls that expire March 19th, and I sold them for $0.35, and the calls that I sold were at 23. So by doing this, this actually gave me an annualized return. By default, I am not going as many strikes out, because all I need here right now is a rise in 7%. So if you are rising seven percent here, then I will be able to make money not only on the premium that I collected, the 16.45, but also an additional $7,000 on the stock, right? So this will be a total of $8,500. It’s just the nature of the beast because when you are selling calls you’re usually closer to the strike price, and therefore, usually higher premium for a higher ROI. This is why I keep telling you, I’m always looking forward to getting assigned because selling calls is actually more profitable. 18.) When you sell calls to reduce the cost basis, do you also include the premium received from selling first the put to reduce the cost basis? Yes, I do include the premium. 19.) Is there a risk of the portfolio becoming nothing but stocks and not being able to sell covered calls out of the money (OTM) to hit your targets? The answer to this is absolutely yes. When trading there’s risk, and there is a possibility that you own a bunch of stocks and you cannot sell calls against. So you have to hold on to these, and so for a few weeks, it could absolutely happen that you’re not making any money. I was recently assigned shares of AAPL, and have not been making any money with them because I have not been able to sell calls. But you see, even though I have one dud in my account, it’s only one of my positions, and I still have been able to make almost $51,000 in about 8 or 9 weeks. So, therefore, it’ll even out. So is there a risk? Absolutely. When trading there is always risk. If you are not willing to accept the risk when trading, do not trade, because there’s always the risk of losing money. 20.) Markus, if you haven’t sold a call against the Apple 103 strike price haven’t you been missing out on money? Not really, and here’s why. Right now, if I would try to sell a 133 call on Apple, that is, for example, expiring this week, I would get $0.01. I’m not missing out on any money, right? $0.01 translates into $1. So, no, I’m not missing out. Even if I would go out next week and I’m looking at the 133, I would only get $0.14. That’s $14. For me, it’s not worth it, and again, everybody’s different, so you might have different rules. For me, however, it’s not really worth it. 21.) When running a rescue mission on margin, how does one sell a covered call? My broker requires cash for any call that I sell. If this is true, change the broker immediately, and here’s why. So I own Apple shares, and if right now I want to sell calls against these Apple shares, let’s say 8 calls, it would not have any effect on my buying power. It’s the opposite So here I highly recommend you change the broker if this is true. Your margin requirements should be reduced when selling a covered call, this is how it works. 22.) Why not still sell calls at your cost basis after the stock drops? Because sometimes there’s not enough premium. If there is enough premium, I will do it, but sometimes there is simply not enough premium and then you are sitting on your hands. This is why I said I have this, the one dud in my account, AAPL, is not making me any money, but everything else IS making me money. I was able to sell calls against GDXJ and RIDE. With DKS, MARA, and SNAP, I sold puts. So everything else is making me money. I mean can’t change the wind, I can only adjust my sails and this is what I’m doing here. What To Do When A Trade Is In Trouble 23.) What do you mean by “rescue mission” for those who have not heard it before? But a “rescue mission” is where you have been assigned shares, and now the trade is going against you. You sell more put options below the assigned strike price. By doing this you collect more premium. If you are assigned, you lower your cost basis, making it easier to get out of that trade. You only should consider flying a “rescue mission” if the stock is down at least 30% from your assigned price. 24.) Why not still sell calls after your stock drops? Because there might not be enough premium in there. So very simple, right? If there is, we will do it, if not like with AAPL for me right now, then it is what it is. 25.) What happens when you run out of buying power and can’t sell calls at your target? So first of all, you can always sell covered calls, because you will not run out of buying power for selling covered calls. What they probably meant is what about not being able to sell puts, and there are two things that you can do. Number one, you can either wire more money into your account, which is probably not always feasible. Number two, you can simply close some positions to free up some buying power. 26.) Is it possible to buy options rather than sell options because selling options is supposed to be very dangerous? Well, of course, and that would be the PowerX Strategy. So with the PowerX Strategy, you are buying options if this is what you prefer to do, and if you’re trading the Wheel Strategy, this is where you’re selling options. So pick your poison. I mean, you got to do one thing, either you’re buying options or you’re selling options. So I have a strategy for each of these. 27.) Any point in waiting to make sure that the market has stopped dropping before flying a rescue mission? Yes! You don’t want to try to catch a falling knife. Wait until you see that the market or the stock is stabilizing here. 28.) I understand starting the rescue mission when the stock drops 30%, how do you determine the new put strike price to enter? The next support level? Yes, absolutely. This would be the next support level that you’re looking at. I got assigned at 21.50, and the next possible support level is right around 12,13, so this here it would be a strike price of 12–13, so this is where I would do it. If we go to Apple, which is another stock that I have, I did get assigned here at 133 and the next support level is around 108, right? So I would probably be most interested in selling the 108 strike price. 29.) It’s hard to make money on a small account unless you get assigned. Yes, it is hard to make money on a small account, period. I know that many want to start with a smaller account, like $500 or $1,000, but honestly, it is super, super, super difficult to make money on such a small account. In order to do this, you would have to trade this account way more aggressively, which means that you are basically risking a whole lot. So if you want to try to double a $500 account, you basically have to risk the full $500. This is what many Robinhood traders and these YOLO’ers do. It’s all-in and maybe it doubles or you lose all of the money. So, yes, it is absolutely difficult. So this is why the capital requirements, I highly recommend that for the PowerX Strategy if you want to trade it, that you have at least $5,000, and if you want to trade the Wheel Strategy, that you should have at least $10,000 in cash, which gives you $20,000 in buying power we talked about this at the beginning of the show here. So this is super important. If you do have smaller accounts, there might be trading strategies for you. I want to be honest with you though if there are, I don’t know them. When I started trading, I started with an $8,000 account and I saved until I had $8,000. Now, I shredded that account into pieces, down to $1,600 and then I saved money up again. Then the second account that I was trading was $16,000. Now that one, I also lost more than half. So I lost, I traded this down to $8,000 and this is when I put some more money in, brought this up to $12,000, and this is when it finally clicked. So again, if right now you have a smaller account, good luck, there might be strategies out there. I wish I had some for you. I promise, if I knew how to grow a $500 account I would tell you. If right now, if all I had to trade was with $500 to trade, I wouldn’t do it. I would probably find a way to save money or make extra money with Door Dash, Insta Cart, or something like this until I have at least $5,000. I wish that I could tell you something different, and unfortunately, I can’t. I’m not saying that it is impossible. All I’m saying is that I’m not the right person to teach you these strategies because I don’t know them. Summary If I didn’t cover a question here in this article that you may have, I promise I’m reading through all of the questions that you have, and I will answer them in one of the upcoming Coffee with Markus episodes. I hope that you enjoyed this article because I love talking about trading. Anyhow. Have a fantastic rest of your day and I’ll see you on the next one.
TVC:NDQEducation
by rockwelltrading
Trading The Wheel Options Strategy — 3 Reasons Why You’d Lose MoI’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. So, as you know, I love trading the wheel options trading strategy, and this past week was a roller coaster for this strategy. Friday morning I woke up and my account was down $25,000. Now I’ve been trading a larger account. It’s two hundred fifty thousand dollars in cash, five hundred thousand dollars in margin, so $25,000 is not that much, but still. So in this article, we are going to talk about the Wheel Options Strategy. We will talk about the three reasons why you would possibly lose money with this strategy and also how to avoid these mistakes. So here we'll talk about my account. As you know, this show is about real money and real trades, and at the time of this writing, I am still down about eighteen thousand dollars. So it has gotten a little bit better since this morning, but down eighteen thousand dollars. So we’ll take a look at these trades in detail. But first of all, let’s talk about the three reasons why you would lose money with this strategy and then also how to avoid them. 3 Reasons You Would Lose Money So there are three big mistakes that you can make when trading The Wheel strategy. So the first is panicking. If you are somehow trapped in a position and you say, what the heck do I do now? I often see traders who say, “What do I do now?” So solution number one is don’t panic. Easier said than done, right? But not panicking is so important. This is what one of our members posted in our community. “It’s not a loss if you don’t sell.” so the worst thing that you can do going back to this is panicking and closing your positions at a loss. Don’t do this. Don’t close your positions, & evaluate what’s happening. The second mistake is not having a plan. Mistake number three is not having the right trading tools. So, now I will go through my positions that I had and then I will show you how I handled them with my plan. Then we will also talk about the third mistake in more detail, and then some more solutions. My Positions So five positions that I had in my account were (On February 26, 2021): AAPL AMD DBX GDXJ RIDE So let’s start with AMD first. If AMD were to stay above 83.50 until the remainder of the trading session (at the close that day), I’d make money. Everything that happens with my positions, I write this down, and I recommend you do the same thing so that you know of what’s happening to your positions. You will know which ones are actually in trouble and which ones are good to go. So if AMD closed above 83.50 nothing would happen, and I would keep the whole premium. For this trade, this was $576 in premium for the week. Not bad at all. The second position is DBX which is Dropbox. So Dropbox needs to stay above 21.50 and it was trading at 22.85. So it seemed that we were pretty good there. You might be wondering why I am talking about the positions that are OK? You see, in order to stay calm and to make sure that you’re not panicking, focus on the positive first. I know if you’re taking a hammer and you smack one of your fingers, what do you focus on? The finger that hurts. Right? But you have four other fingers that are absolutely fine. So it’s important to focus on what’s going right for us. So if DBX stays above 21.50, which is very likely. So I sold 47 of these options for $13 totaling $611 in premium, so not bad at all. So what’s happening with GDXJ? So the week prior I got assigned because it expired below my strike price. So I got assigned 2,100 shares at $48. Now, here’s what I did with this. So let’s forget these shares for just a moment and let’s again focus on the positive of what’s working well for it. I sold covered calls at the 49 strike price, and I collected premium. So how much premium did I collect for these calls? I sold 21 contracts for $75 each. So I collected for this trade, $1,575 in premium. So we are OK there, and I still have the shares, because they expired worthless. So the next position is RIDE. So if it stays above 21.50 I just collect the premium and nothing else happened, but the price stayed below. I got assigned 4,700 shares at $21.50 so this position is in trouble, we will deal with that at some point, but here’s the good news. I still collected $1,974 in premium. So the last position here is AAPL, and I did get assigned these shares a week prior. So I have 800 shares and I’ve not been able to sell any calls against it. So here I have 800 shares at 133, and also these shares are in trouble because Apple right now is trading at $124. So I got assigned and now AAPL is down. Not good. I still collected all this premium and it all added up. So because overall, it was a pretty darn good week, collecting $4,736 overall. I don’t know about you, but this is not bad at all. And I know you might be saying, “oh my gosh, you’re talking about making some money here, but what about all of these red positions?” Why You Shouldn’t Worry About Being Assigned We’ll take a look at these starting with RIDE This is where it goes back to what is the worst thing that you can do? Panicking. Like if I were to sell for example. If I would sell these shares instead of collecting the premium that I have here, I wouldn’t have made any money on RIDE, I would have lost $8,272 instead. I don’t know about you, but I would rather keep the premium of $1,974 instead of losing $8,272. For me personally, I will not worry about it. So here is where it goes back to. What do we do? Follow your plan. So you got to follow your plan, and this point I’m about to make is very important. I’m actually excited to get assigned, and in a moment you will see why. Your reaction should be, “Yes! I am assigned because I want to own the stock.” I’m really, really happy about this. I’m happy about having stocks. Or your reaction might be this where you say, “oh my gosh, what have I done?” If this is your reaction, then you violated the number one rule of “The Wheel Club,” and here’s the number one rule of the wheel club: "Don’t sell puts on stocks that you don’t want to own". OK, wrong movie, but you get the idea right? So let’s take another look at my positions. Am I happy to own AAPL stocks? Yes, I am. Am I happy to own GDXJ and RIDE? Yes! Would I have been happy to own AMD stocks if I was assigned? Of course! Absolutely! OK, so let’s take a look here at the stocks that I’ve traded thus far year to date. And as you can see, my profits year to date, around $43,000. Take a look at all the stocks. These are the stocks that I would not mind owning at all, and this is really the number one rule of The Whale Club. So Apple, AMD, DBX, GDXJ, HAS, IBM, LL, WYNN, ect. All of these are good, solid stocks that I wouldn’t mind owning. So let’s talk about what do we do with RIDE. Why am I so excited to own it? This is where it goes back to having a plan. So my plan is just to follow The Wheel strategy, and this means that after assignment, I will sell covered calls and collect premium. Very, very easy. This is where we go back to mistake number three, not having the right tools. I use the PowerX Optimizer and I will show you right now how to use it and why it is so important. So PowerX Optimizer supports two separate strategies. The PowerX strategy as well as The Wheel strategy and part of the PowerX Optimizer is the real income calculator. I set my buying power to $500,000 because that is the buying power that I have in the account. So the stock I want to use as an example is RIDE. Let’s plug in some numbers and see what our premium is on this one for if I get assigned these shares, and start selling calls. So getting assigned 4,700 shares at 21.50. Now, the option strike price that I’d try to sell would have to be at the price that I bought at or above. The last traded price was $0.43, so let’s assume we’re selling the shares at that same price. So I’m using the strike price here of 21.50 and I’m selling calls for $0.43. If I did this I would get $2,021 in premium! Wholly Cannoli, are you getting excited about this? I’m excited about this. Now you see why I’m excited to get assigned. If you add this with the premium I’ve already collected on RIDE from selling puts, which was $1,974, that’s almost $4,000. You get the idea right? So I would not make any money on the stock but that is OK. So is this stock really in trouble if I make 4000 dollars in two weeks? I don’t think so. So one trade that I had last week that wasn’t doing so well was AAPL. I got a signed AAPL at 133, so I need to see if I would get enough premium to sell calls. This is why it is so important & I can’t even stress this enough, how important it is to have the right tools. Having the right tools help you make the best decisions instead of panicking. Back to AAPL, I was assigned 800 shares at $133. How much premium could we get for selling calls? So right now, if we sell calls with expiration for the end of this week, at the 133 strike price, we would only get about $0.13, and I would only make about $104 which is nothing. So out of all these positions, Apple is the only one that right now is kind of in trouble because I not yet able to get enough premium when trying to sell calls, but that is OK. All I need to do is just be patient and wait until AAPL goes up. Summary In the meantime, I do believe that Apple is a solid company, and I don’t mind owning the shares. This is where we go back to rule number one of The Wheel Club. “Don’t sell puts on stocks you don’t want to own” because if you do this, then you probably sitting there today, like, what have I done? But I hope this helps you see how to deal with being assigned and that you also see, how to handle things when a trade is in “trouble.” Just sell covered calls, and collect premium. If there isn’t enough premium available to sell calls, just wait until it bounces back, it’s really not a big deal. I am absolutely OK making $4,736 last week with the potential to make another $3,000 this week. Not bad at all, as you know. My goal is to make $15,000 per month. If I can make $7,000-$8,000 in two weeks. I’m well on my way.
NASDAQ:AAPLEducation
by rockwelltrading
1
How To Manage A Trade That's In Trouble - My Options Trade On TQI’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. What Do You Do When You Find Yourself In A Trade That's In Trouble? So you have a trading strategy. You have your trading tools ready to go at your fingertips. You trade with a paper trading account to make sure your trading strategy is solid. You’re finally ready to start making real trades. You start trading and everything goes according to plan until a trade comes along when it doesn’t. Now you find yourself in a trade that is in trouble. How do you handle this? Well, the first thing you need to remember to do is to keep your cool. One of the most important aspects of trading is being in the right mindset. This is important because trades will go against you from time to time. It’s just the nature of the business, and you can’t lose your cool when this happens. If you aren’t in the proper mindset when a trade goes against you, then you will not be properly equipped to manage it, and I have some good news… there IS a way to manage a trade that’s in trouble. I was in such a trade recently, and I will show you how I handled it. How I Managed A Trade In Trouble Step-By-Step I was recently in a trade with TQQQ . I opened up my trading software and say I was at -$3,500 open P&L with this trade. 1) The first thing that I did is I sold a put with 150 strike price and I received $66 in premium . 2) However, what happened is with this particular trade was I got assigned. So I had to buy 100 shares of TQQQ for $150 each. At this time TQQQ was trading at $116 which was not good because I bought it at $150. However, as soon as I was assigned these shares, I starting selling calls against these shares. This is how The Wheel Strategy works. You first sell puts and collect premium. If & when you get assigned, you then sell covered calls against these shares at a higher strike price to try and get “called away” to sell the shares at a profit, and you keep doing this while collecting premium until you do get called away. Now understand, you will get assigned trading The Wheel Strategy, but trust me this is a good thing. 3) So I then sold a call with a strike price of 155 for $2.10 . Now with this call, I could have actually been “called away” on this trade and sold the shares at a profit, but I felt that I could just instead hold onto the shares to possibly sell them for a higher profit. So I just kept the premium of $210 ($2.10 multiplied by 100 shares) I collected on this, and then the next day I bought the call back for $0.37 . So $2.10 I collected in premium minus $0.37 that I paid to buy the call back, comes to $1.73 which means I made $173 in premium. These are realized profits. 4) Next, I sold another call, this time with a strike price of 150 for $0.45 and I also bought it back for $0.05 2 days later to keep from being called away to sell them later at a higher profit, but collected more premium. So this means if you take the $0.45 I collected and subtract the $0.05 I paid to buy the call back this comes to $0.40 which means I made another $40. If you add up all the premium collected so far ($66, $173, &$40) I have made a total realized profit of $279 so far over the last 15 days, which is not too shabby. 5) The price of TQQQ started plummeting, so instead of selling another call, I instead, decided to sell two puts with a strike price of 100 for $1.14 . I chose to sell two, based on what my account size allowed if I were to get assigned again. So with each share yielding me $1.14 in premium a share, this comes to $114 each contract, and since I sold two contracts, I collected $228 in premium total ($507 overall). What Happens If You Get Assigned again? Now you might be thinking selling puts was a bad idea. I mean, what happens if TQQQ is below $100 by expiration, and I have to buy 200 more shares of TQQQ ? It would actually be really, really awesome if this would happen. There are actually two scenarios of what could happen and they are both awesome. In the first possible scenario, TQQQ stays above $100 by expiration, which is in one week. In this case, I keep the $228 and my total profit from this trade goes up to $507. Now scenario two, and this is the one that would make some people nervous, is if TQQQ drops below $100 on expiration. In this case, I have to buy another 200 shares for $100. Here is why this would be a good thing, and why buying more puts was a smart move, but I’ll let you be the judge. If scenario number two happens, I would have bought 100 shares for $150 and I would have bought another 200 shares for $100. So this means that right now my cost basis is lowered when you average the cost of the total price I would have paid for all 300 shares. So I did buy 100 shares times 150, plus 200 times 100, and I’m dividing all of this by 300 so that I get my average price per share. This means $116.60 is the average price I paid per share. So this means as soon as TQQQ moves back up to $116 I break even, and if it moves above $166 I’m making money. So $116.66 is my new magic level instead of $150. Now look at this, is it more likely that over the next few weeks TQQQ goes above $116.66 or $150? $116 right? So by doing this, if scenario one happens, okay, great, I just keep racking up premium, and that’s fine. If scenario two happens even better, I’m lowering my cost basis here. If the new average price per share is $116.66 per share, instead of what it actually was which was $150, it is easier to get back into the green. Summary This is how I managed this trade. At first glance, it simply looked like it was in trouble, but in reality, all you need to do is keep collecting premium, and when you can, lower your average price per share. Both of these things will lower your cost basis, making it easier to get back into the green when a trade is going against you. This is the beauty of The Wheel Strategy, even when a trade is going against you the strategy is still going according to plan.
NASDAQ:TQQQEducation
by rockwelltrading
1