OptionsANIMAL Instructors Blog


In The Money (ITM) and Out Of The Money (OTM)

Written by Ken Bailey on . Posted in Instructors Blog

Recently a member asked me to explain in-the-money (ITM) and out-of-the-money (OTM). I am a bit embarrassed to say that my first thought was how hard is that. Then I remembered that I struggled with it when I was a new member learning about options. There is a great deal to know about options. ITM and OTM are pretty important concepts to know and understand if you want to make money with options. However they are not part of normal conversation so they are just a couple of the many ideas you will need to learn. I have to say it was hard to learn, but it is also very profitable to learn.

I’ve read some definitions of ITM and OTM that just didn’t help me: A call is ITM when the equity price is above the strike. A put is ITM when the equity price is below the strike. Sure I can memorize that but still not understand what it means.

Fear

Written by Emilu Bailes on . Posted in Instructors Blog

Here it is, the last day of February 2014. I cannot help but wonder “who” was born on February 29th. Hmmm, if I was, I would be only 16 years old. Would I have counted the year as another one that made me older, since there was no birthday unless it were a Leap Year? This may be a puzzling question for anyone born on February 29th. That makes me wonder if they might have FEAR. Would they be frightened by old-age? Death? Not being able to celebrate their birthday? What was I doing when I was 16 years old? I wasn’t at all prepared to be a Coach to teach others how to trade options.

Time to “Sow” Those Credit Trades Again – Part 2

Written by Karen Smith on . Posted in Instructors Blog

Time to “Sow” Those Credit Trades Again – Part 2

My last blog was at the end of January when the markets were in pullback mode. The pullback that started at the beginning of the year was quick and sharp, paralleling the “few and far between” pullbacks this bullish market has experienced for quite some time now. We saw the S&P 500 fall from its all-time high near 1850 to a low of 1740 representing just under a 6% correction. It took a mere 8 days to lose over 60 days’ worth of gains! The velocity of price action during this correction caused the VIX – the “fear gauge” – to increase precipitously. In my last blog, I talked about taking advantage of this increase by selling options that have “inflated” premiums due to the fear premium being larger than what had previously been priced in.

Don’t begin with the conclusion. Begin with an open mind.

Written by Ken Bailey on . Posted in Instructors Blog

Recently my wife and I were talking about a Bible study she attends every Tuesday morning. I have spoken at length with the person leading the Bible study so I had a good idea of where the study would go. While I enjoy every conversation I have with this person and every study they are involved with, they have pretty much made up their mind. You see the person leading the study has a Masters in Divinity so they are VERY knowledgeable and have a wealth of information to share. They also hear and read everything with an end in mind. I confess, I’m not much different, except I don’t have a Masters in Divinity just a lot of time spent reading and studying. It seems we can read the exact same material and draw different conclusions. I can see their point, I just don’t agree with it. But I certainly enjoy talking about it and respect their position. We both think we’re open minded, I’m just not sure we are. While some of my views have changed over the years, some of my views will never change, at least not while I’m alive.

Time to “sow” those credit trades again?

Written by Karen Smith on . Posted in Instructors Blog

“There is a time to reap and a time to sow” – an adage we have all heard before. While it is applicable in many areas of our lives, it is particularly pertinent to the business endeavor of buying and selling options instruments. Understanding the mechanics of these instruments helps the trader to better know when it might be time to reap or time to sow different trades.

Options Stop Loss Strategy

Written by Emilu Bailes on . Posted in Instructors Blog

My investing began in 1990 when I received a Welcome book from Investor’s Business Daily. I was lured toward growth-stock investing by William J. O’Neil. During that decade, when I was actively working outside of the home, I made every effort to follow the Can Slim Rules and Guidelines. By the time the Bear Market hit in 2000, I had lost many small amounts of capital and felt that I would die from a thousand cuts. My mind was clear that options were right for me, as well as learning how to adjust my positions. There remained a big question about whether to use Stop Losses or not. During my education process on Options’ Behavior I became confident toward not using any SLs.

Why do good things happen to bad stocks?

Written by Eric Hale on . Posted in Instructors Blog

I recall a particular situation several years ago on CROX. My due diligence indicated that the equity was overpriced and was due for a pullback. Sales were declining, the fundamentals were terrible, but the stock was rising. It was clear to me that the stock was going to trade lower.

Out Perform 2013

Written by Ken Bailey on . Posted in Instructors Blog

It is time to make New Year resolutions. Mine is to do even better in the market than I did in 2013. What is yours? Would you like to do even better in the market than you did in 2013? It will take some work but it will be worth it.

My style is to get to know a few equities really well. I study them year after year getting to know how they move throughout the year. Each year I set my expectations for the year. Presently I feel that most of my equities will look a lot like they did in 2013, which was a lot like 2012, which was a lot like 2011, which was a lot like 2010, which was not a lot like 2009 but it did have some similarities. With options I can set up a trade that will take advantage of my 2014 outlook. I can also pick just how right I have to be. I can pick how much I want to risk and the time frame I want to use. I can also pick the return that I want. In some cases, the higher the return, the lower the monetary risk, but the lower the probability.

TRADERS ANNUAL GOAL

Written by Emilu Bailes on . Posted in Instructors Blog

We’re at the end of the year 2013, about to enter the new year, 2014. Have you evaluated your trading strategies from this year? Have you found mistakes and accomplishments? What’s your trading objective for the coming year? How do you set your goals?

When I entered my education on options behavior I was pleased to learn the structure of goal-setting. It is identical to the organization of goal-setting that I had learned in my job with a Fortune 500 company. The process name is S.M.A.R.T., a mnemonic, giving criteria to the setting of objectives. The letters conform to the words specific, measurable, attainable, relevant and time-bound. If I take time to set my annual goal according to these letters, and refer to the written goal during the year, I can follow my trading efforts toward the goal.

Let’s break down the word SMART and see what it would take to structure the trading goal.