Option Credit Spread Strategy: An Opportunity For Success
By Greg Jensen
Founder and CEO, OptionsANIMAL
Every trade has a personality. Every trade represents an opportunity for success and an opportunity for failure. The choices you make about what, when, and how much define your success. You make those choices based on the personality of the particular trade. Options are perhaps the most personality driven of all trading instruments.
Understanding the different strategies available for use in options trading is like a golfer understanding the different clubs in his/her bag. A driver in a very useful club, but should not be used in every situation on the golf course. It is awfully hard to putt with your driver. It is equally as hard to chip out of the sand with a putter. Let us look at a pretty common personality for options—a bullish credit spread—and how that personality should be played in the market: just like the right club should be played on the golf course.
A bullish credit spread should not be used in every scenario in the market. It is important for you, as a trader, to know the different trading tools available for any market scenario. Meet a bullish credit spread here, and understand its personality.
Four Reasons To Be Bullish on RIMM
Research In Motion is the Apple of My Eye: Four Reasons To Be Bullish on RIMM
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A couple of weeks ago, I shared one of my trades on RIMM with our community. The trade was a naked put using the weekly options that expired this past Friday.
When you buy a put, you pay a premium and you have the right to sell at specific price. It’s just like insurance – if the value of the stock goes down you have coverage, but that coverage comes at price – the premium that you paid. When you sell a put, you have an obligation to buy the stock at a set price. But, you also get to keep the premium. When you sell puts, you are the insurance company.
Apple Investors Thrilled As The Tech Stock Posts Record Quarterly Earnings
Apple Inc posted a phenomenal quarter and reignited a tech market that felt like it was losing a little steam. The company posted so many records this quarter that is felt as if Drew Brees were the CEO, instead of Tim Cook.
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What The Analysts Expected
The following represents what analysts expected in first quarter of the fiscal year.
- Revenue – $39.2 Billion
- Earnings Per Share – $10.19
- iPhones Sold – 25 to 36 Million
- iPads Sold – 13.5 Million
- Macs Sold – 4.13 Million
Revenue of $39.2 billion and earnings per share of $10.19 would represent year-over-year growth of the first fiscal quarter in 2011 of 47% and 58%, respectively.
Mysteries of Trader Tax Status
Just because you call yourself a securities trader doesn’t make you one in the eyes of the Internal Revenue Service.
In fact, Uncle Sam is predisposed to consider you merely a hyperactive investor—and thus deny you more favorable tax status—unless you meet a number of criteria that are frustratingly open to interpretation.
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You read that right: the tax code contains no actual definition of trader tax status.
Instead, the IRS has issued guidelines that the tax courts have expanded upon with case law, most of which denied tax appeals by traders.
What we’re left with is a blurred image, like a photograph of a trader taken from a speeding car.
OptionsANIMAL Weekly 1-27-2012
Fresh start to a New Year
2008 was a year to learn how to trade bearish. 2009, how to trade bullish. 2010, how to trade in a range. Through the summer of 2010 the market moved in a range and finished the year with a nice bullish run. I expected the same for 2011 but never got the bullish run at the end of the year.
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As it turned out, a nice wide IC placed at the beginning of the year would have given a bit of a scare but would have returned a very nice profit.
So what would you do at the scary times? Would you have the conviction to stay the course? Would you have a plan to compensate? Would you know the outcome because you planned the trade and traded your plan?
Achieving your financial goals
How important is achieving your financial goals to your investing or trading activities? Should your goals be strictly a percentage profit target? Where do you start?
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You’ve heard the catchy comments about goal-setting;
- “If you don’t know where you’re going, how will you know when you’ve arrived?”
- “A goal without a plan is just a wish.”
- “What is not started today is never finished tomorrow.”
- “If you can find a path with no obstacles, it probably doesn’t lead anywhere.”
- “Success is not final, failure is not final; it is the courage to continue that counts.”
- “You are never too old to set another goal or to dream a new dream.”
- “Set your goals high, and don’t stop till you get there.”
When serious investors approach goal-setting they often set a profit target to the exclusion of all else. This is not only short-sighted, but a dangerous attitude with which to tackle the task. There are other specific and measurable activities that lead toward the ultimate goal of making money. Many who have walked this path before us have identified them and written their goals accordingly.
Here I offer some general activities that work well within goals.
Earnings Calendar Strategies
The anticipation of volatile stock movements can instill fear in the most weathered stock trader. Market mavens tout stock picks prior to earnings announcements and with abandon, these “hot tips” are disseminated through media channels. Just look at the all the predictions on stocks that are moving higher based on anticipation of the event, to only have to event come and not meet expectation, causing the stock to lose ground.
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In spite of growing concerns about the global economy, the market continues to march steadily higher. This is driving to a market that feels a little over bought, but continues to do well. The main drivers this week have come from a barrage of earnings that for the most part have been good. IBM, Microsoft, Intel all beat analyst expectations.
Google, on the other hand missed their estimate badly on both earnings and sales. The reason for the miss was both increasing costs and well as some foreign currency issues. GOOG was down $53.57 a share, to close at $586 on Friday. JPM, C and GE also contributed to the weak performances with their respective reports.