Teaser: Upcoming Options Education Program

Recently, you'll have noticed that we've thrown out teeny-weeny tidbits of information regarding an upcoming educational program that we'll be launching in the coming weeks. This program has been years in-the-making and will present some of the best, most clear and easy-to-understand material that you'll find in this arena. 

More details will follow soon. In the meantime, here's a sampling of the types of diagrams that will be utilized in the video presentations to the class...

Call Backspread - Profitability Analysis:

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Short Christmas Tree with Calls, Puts: Options Trading Strategy

We introduced a handful of trading picks that utilized a couple of new advanced options trading strategies, in the Options Picks section of our members area, this week. The two new strategies we speak of are the Short Christmas Tree with Calls and the Short Christmas Tree with Puts. In our estimation, current market conditions are perfect for this kind of options strategy and as such we find it a timely inclusion to the strategies that we cover in our Options Picks section.

Now, not all of you might be familiar with the Short Christmas Tree strategy, which can be considered an intermediate to advanced strategy, so here's a primer to help provide a bit of an understanding. A more in-depth study of the strategy will be provided at another time and date (perhaps you've heard of the new Options Theory and Practice classes that we will be launching in the near future).

Short Christmas Tree with Calls:

Short Christmas Tree with CallsThis variant (seen on the right) is constructed using Calls, as the name suggests, and it is a bullish options strategy that also provides the trader with a modicum of safety, in the event the underlying stock actually falls in value.

The strategy is constructed as follows:

Low strike, Short Call: A short position is taken in a call option; most usually, one that is in-the-money.

Middle strike, Long Call: A long position is taken in a call option on a higher strike price; often, one that is at-the-money.

High strike, Long Call: A long position is taken in a call option on an even higher strike; usually, one that is out-of-the-money.

The distance between the first and second strikes and that between the second and the third strikes is typically the same. 

When a trader uses this strategy, he/she is expecting a sharp move in the stock, and his/her strong hunch is that such a move will be to the upside.

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Follow-up to IWM Long Strip Illustration

This is a follow-up to the illustration provided in the educational article - Long Strip - A Great Bear Market Strategy [Part 1] - that was posted last Monday.

When the trade was initiated, the anticipation was that the underlying ETF would continue to decline; such was the sentiment. However, we were also mindful of the fact that longer term charts were deeply oversold and that a strong bullish reversal was possible at any point (hence the choice of a strategy such as the Long Strip, as opposed to say 'Long Puts').

As things have turned out, the bullish scenario has played out and the underlying has nearly reached the target area as of this afternoon. Aggressive traders may be willing to wait and see what happens next week, which is expiration week of course.

However, the cautious trader will consider selling off the Calls, which are now trading at 4.50 (which was the initial cost of the entire Strip, as you'll remember) and be happy that at worst a breakeven has been achieved on the trade. He/she will hold on to the Puts, just in case there is a big drop into expiration and the Puts grow in value and add to the profitability of the trade.