How to Generate Consistent Returns in These Crazy Market Conditions

Have you noticed we’re getting a lot of brutally sharp reversals in the markets lately? It’s so frustrating because most traders get caught on the wrong side over and over again. So called safe trend trades get destroyed while betting on bold reversals is working like clockwork.

What’s going on?

For years, it was possible to just buy any dip in stocks and crank out winner after winner. But those days are long gone. If you try that now, you’ll burn through your account in the blink of an eye. These days’ trends reverse on a dime, but at the same time, you can’t just blindly pick tops and bottoms either.

Anyone who was short stocks recently learned that lesson the hard way when the market rocketed to new all time highs. The bottom line is that those outdated strategies no longer work. If you want to generate consistent profits in these volatile conditions, you’ve got to adapt. And that’s why this short video by renowned trader John F. Carter is so exciting

You’ve just got to see the breakthrough strategy that allows him to catch massive price swings without breaking a sweat.

See for yourself >>> Click HERE to Watch <<<

If you haven’t heard of John before, he’s a best selling author and trader with over 25 years’ experience. He’s developed a world wide reputation for catching explosive trends in stocks, options, and even futures, too.

So I hope you attend on September 6th, 2016 at 7:00 PM Central for a special webinar called, “Hunting for Tops and Bottoms - Low Risk Setups for Trading Precise Turning Points in Any Market”.

Here’s just some of what you’ll learn....

  *  A simple 3 step process to identify major market turning points in any market

  *  How to find low risk, high probability trades in today's volatile market conditions

  *  Why it’s finally possible to catch tops and bottoms in real time on almost any chart

  *  Why these ‘Bold and Beautiful’ reversal trades can be safer than ‘comfortable’ trades

  *  How to avoid getting suckered into the costly traps that most traders fall into

  *  How to adapt your trades automatically for choppy conditions and big trends

  *  How to know when a support or resistance level is likely to hold or not

And that’s just the tip of the iceberg.

I’m looking forward to this special event and I expect I’ll be taking a lot of notes, too. There may not be a replay and this event will almost certainly fill to capacity – so register now and be sure to show up a few minutes early. Unless you’ve already mastered trading these volatile swings, this could be the most important training you attend this year.

To claim your spot just Click HERE

See you next Tuesday,
Ray @ The Stock Market Club


P.S.   If you have not downloaded John's free eBook do it asap....Just Click Here

Protection Against this Weeks Correction Was Just One Click Away

This weeks market correction has the average trader and even some pros scratching their heads wondering what they could have done different. But traders like our trading partner John Carter of Simpler Options dream of markets like this. The spike in volatility creates amazing opportunities but also creates sleepless nights for most traders and fund managers alike. But your positions can be held without losing any sleep if you have the right protection in place. Sound difficult or to good to be true? Well, it's neither.

This market correction is not over so this is a perfect time to download John's latest version of his free eBook. And it's great timing since we have been telling our readers that we are partnering with John on another great event in September and you really need to be familiar with John's trading methods to fully take advantage of what we will be doing in the next few weeks.

In this free options trading eBook you will learn.....

  *  How to use leverage to grow your account exponentially or free up excess capital

  *  How to create protection for each one of your positions

  *  What the options basics are so you’re never confused by an options chain again

  *  The essentials to managing your position at expiration

  *  The two different types of settlement

  *  The key options terms you need to know

  *  The most important factor to your options trading success

       ......and much much more

It's crunch time, download the eBook here and get ready to benefit during these volatile times.

See you in the markets!
The Stock Market Club


Get our latest FREE eBook "Understanding Options"....Just Click Here!

Understanding Options.....Easier Then You Think

If you have not taken the time to do this, do it asap while it's still available. You know our trading partner John Carter from his wildly popular free trading webinars and John has found yet another way to make learning to trade options in any size account even easier. With his latest FREE eBook.

The options trading eBook "Understanding Options"

In this free options trading eBook you will learn.....

  *   How to use leverage to grow your account exponentially or free up excess capital

  *   What the options basics are so you’re never confused by an options chain again

  *   The essentials to managing your position at expiration

  *   The two different types of settlement

  *   The key options terms you need to know

  *   The most important factor to your options trading success

......and much more

To get this FREE eBook "Understanding Options"....Just Click Here!

"Understanding Options".....John Carters New Free Options Trading eBook

You know our trading partner John Carter from his wildly popular free trading webinars. Well, John has found another way to make learning to trade options in any size account even easier. With a brand new free eBook. The options trading eBook "Understanding Options".

In this free options trading eBook you will learn.....

  *   How to use leverage to grow your account exponentially or free up excess capital

  *   What the options basics are so you’re never confused by an options chain again

  *   The essentials to managing your position at expiration

  *   The two different types of settlement

  *   The key options terms you need to know

  *   The most important factor to your options trading success

......and much more

Just Click Here to get your free eBook "Understanding Options"

OTS Profits Through the Market Correction

During the recent carnage our friends at Options Trading Signals managed to lock in 16.80%, 32.20%, & 41.49% returns. Let's see how J.W. Jones and the staff at OTS can help us do the same......

As we move into Quarter end, many investors and traders suffered a sizable drawdown in mid to late June. However, members of Options Trading Signals closed 3 trades during the selling carnage for huge overall gains.

As a professional trader, a focus on implied volatility, probability of success, and a typically contrarian market view have served members well since the inception of the service back in December of 2010. A summarized description of recent action in the OTS Portfolio is described below.

On June 13th the OTS Portfolio took a Put Debit Spread on VXX. The reasoning behind the trade was the expectation that volatility would decline going into triple witching on Friday’s expiration. As expected, volatility contracted and on June 19th the VXX position was closed for a gross gain per spread of $21. The maximum risk per spread was $125 so the trade produced a gross gain of around 16.80%.

Entire article > "During Recent Market Carnage, OTS Locked in 16.80%, 32.20%, & 41.49% Returns"


Enroll now for our “Spread Trading Strategies for Growing a Small Account” class this Saturday, June 29th from 1:00 – 5:00 p.m.

AAPL Trade Considerations for Option Expiration Week

Option trading is not “just the same as stocks.” It turns on the three primal forces ruling an options trader’s world....time to expiration, price of the underlying, and implied volatility.

As expiration approaches, the forces of time exert their strongest influence of the cycle on a trader’s positions. In today’s blog, written as August expiration is but a few days away, I want to call attention to some of the practical considerations traders would be well advised to incorporate into their trading plan.

Pundits have long cited the aphorism that there are only two sure things in life, death and taxes. Options traders must incorporate a third inevitability, the time component (aka the extrinsic component) of an option premium goes to zero at the closing bell of options expiration. This occurrence is neither negotiable nor avoidable and it occurs with clockwork like precision.

A recent change to the market has introduced an important new element to the long standing monthly expiration cycle. The tremendous popularity of weekly options has rendered every Friday the end of an expiration cycle.

It is critically important to recognize this new phenomenon because it allows tailoring of strategies to fit more precisely the anticipated time frame in which the trader’s hypotheses play out.

Let us consider some of the practical implications of this cyclical pattern. I have discussed before in this blog the fact that erosion of time premium is not linear across the life of an option but accelerates dramatically as expiration approaches. Expiration week is where this acceleration reaches its greatest pace as it heads to zero at Friday’s closing bell.

What is often not immediately understood by the new option trader is the radical change in the risk / reward ratio of a trade produced by this erosion. Consider a simple one legged trade. A trader who was bullish on AAPL during the price weakness in late July could have chosen to sell naked puts to reflect his price view. The graph below shows the trade of selling short the August 545 strike put at mid day on Thursday July 26 with 23 days to expiration:

The trader would have taken a credit of around $425 for each contract he sold on this trade with a probability of success of 84%. The trade could have been closed last Friday for $16/contract locking in $409 per contract less commission.

While the probability of AAPL trading below the 545 strike as August expiration approaches is close to 0, it is not O. To accept the risk of a Black Swan event occurring in order to capture the remaining 3.8% of the initial credit is not smart trading. The general rule of thumb I follow in this type of trade is to close or roll up the position to a higher strike when 80% of the initial credit received has been captured.

Perhaps the most nuanced effect of time to expiration is seen in the behavior of the butterfly trade construction. To review briefly, remember that the classic butterfly is constructed in either calls or puts and consists of both a debit and a credit spread which share the same short strike.

Butterfly positions have the interesting characteristics of responding only minimally if at all to price movement when far out in time from expiration. These same trade structures will react violently to price movement when little time to expiration remains.

An example could be constructed during the July AAPL price rout. Let us assume a trader was sufficiently prescient to predict the price recovery. In order to capture this hypothesized movement, he could have purchased the August 605/-625/645 in a (+1/-2/+1 standard butterfly ratio) call butterfly spread on July 26th. This trade structure is a defined risk position where the maximum risk is the cost of entering the position.

This position would have been very inexpensive because of two factors:

1. Implied volatility was elevated, rendering the butterfly cheap.

2. The center strike where the options were sold short and the point of the theoretical maximum profitability had less than a 5% chance of being in-the-money.

The P&L graph for this position at the time of entry is presented below:

Several practical points bear emphasis. First, the maximum potential profit from this low probability trade is in excess of 1800%. This trade construction which cost around $100 per spread at the time could have been closed last Friday for a profit of over $850 per spread.

Second and the point germane to today’s discussion is the behavior of the trade with regard to time. Notice that the broken lines, representing intermediate time points in the trade achieve nowhere near the full profit potential that exists when expiration arrives.

However, not to be missed is the fact that the range of profitability narrows dramatically as expiration is approached. It is for this reason that most experienced butterfly traders remove profitable trades before their wild relationship to price is activated as expiration gets quite close.

I want to be very clear about this demonstrated butterfly trade. This is not a typical trade I would enter because of its low probability of success. I present it as a purely educational exercise to demonstrate the behavior of these frequently encountered trade structures.

I invite you to try my service to follow my trades and understand how the nuanced behavior of options can be used to deliver highly profitable trades.

Happy Trading!

Want my simple ONE trade per week trading strategy?

Just click here to join me at Options Trading Signals today and enjoy a 14 day FREE trial!

J.W. Jones

Exiting an Option Position

From guest blogger Todd Mitchell.......

Once you own options, there are three methods that can be used to make a profit or avoid loss: exercise them, offset them with other options, or let them expire worthless. By exercising what you have purchased, you are choosing to take delivery of (call) or to sell (put) the underlying asset at the option’s strike price. Only buyers have the choice to exercise an option. Sellers, on the other hand, may experience having an option assigned to a holder and subsequently exercised.

Offsetting is a method of reversing the original transaction to exit the trade. If you bought a call, you have to sell the call with the same strike price and expiration. If you sold a call, you have to buy a call with the same strike price and expiration. If you bought a put, you have to sell a put with the same strike price and expiration. If you sold a put you have to buy a put with the same strike price and expiration. If you do not offset your position, then you have not officially exited the trade.

If an option has not been offset or exercised by expiration, it expires worthless. If you originally sold an option, then you want it to expire worthless because then you get to keep the credit you received from the premium. Since a seller wants options to expire worthless, the passage of time is a seller’s friend and a buyer’s enemy. If you bought, the premium is nonrefundable even if you let the it expire worthless. As it gets closer to expiration, it decreases in value.

It is Important to note that most options traded on u.s. exchanges are American style. In essence, they differ from European options in one main way. American style options can be exercised at any time up until expiration. In contrast, European style options can be exercised only on the day they expire. All the options of one type (put or call) which have the same underlying security are called a class of options. For example, all the calls on ibm constitute a class. All the options that are in one class and have the same strike price are called a series. For example, all ibm calls with a strike price of 130 (and various expiration dates) constitute a series.

Check out Todds latest program "How to Risk Less When You Trade"

Netflix: An Extreme Example of an Open Interest Volume Trade

“I love the smell of napalm in the morning” Lt Col Bill Kilgore, Apocalypse Now

From guest blogger and analyst J.W. Jones......

One of the opportunities available to the knowledgeable options trader is the ability to capitalize on major price movements while maintaining an acceptable risk profile. These opportunities are particularly attractive when they occur late in the options cycle because of the rapidly accelerating decay of the time premium of options. In appropriately structured positions, this time decay can be a wind at your back as the time premium relentlessly goes to zero at the closing bell on options expiration Friday.

Let us consider the recent opportunity presented during the current options expiration week by NFLX. As an aside, for those of you who have read my columns before, remember that we recently discussed an earnings trade on this underlying. Lest you think my screen is stuck on this underlying, remember that not all vehicles exhibit adequate liquidity for options trading.

NFLX is a prime example of such a stock with huge Open Interest (OI), tight bid/ask spreads, and tremendous daily volume. These are the types of vehicles that work best for option trading. Beware of options with little liquidity, they can lead to “Hotel California” syndrome; you can check in but you can’t check out.

But I digress; let’s return to the situation in NFLX. This past Monday, the beginning of the February options expiration week, NFLX gapped up and reached an intraday high of $247.55, a price which represented an all time historic high for this stock. The chart is displayed below....

As is always the case in options trades, it is important to consider the reaction of the implied volatility to this price spike. As shown in the chart below, the rapid price rise resulted in a volatility spike. The at the money options went from an implied volatility (IV) of 34% at market close Friday to an IV of 44% at market close Monday. As another aside, many option traders consider that IV is inversely correlated to price. This current reaction demonstrates the more accurate view that IV is more closely correlated to the velocity of price change.

These factors together with my prognostication that this spike in price was, at least for the short term, not sustainable led to the initiation of a high probability trade. The structure of the trade was that of a put butterfly constructed with a bearish directional bias. The essence of the trade was twofold:

1. I expected downward movement in the price of NFLX.
2. A dual impact on the time premium sold within the butterfly.

This hypothesized dual impact would be both time decay into expiration and decreases in IV as the unsustainable price velocity slowed. The structure of the trade implemented Monday afternoon and its expected P&L behavior is graphed below.....

Pay particular attention to the lowest broken line; this represents the P&L characteristics at the time the trade was initiated. Using the options expiration break even points as stops, the point at which the solid red line crosses the 0 point, a potential risk:reward in excess of 1:7 is possible.

Over the next 2 days of market action, the prediction of a decrease in price came to fruition. At market close Wednesday I removed half of the trade and captured a return of 32.6% on invested capital. The remainder of the trade remains in place and currently shows a profit of around 40% on invested capital.

One of the important functional characteristics of option positions in general is the extreme dynamic nature of their profitability. It is for this reason that it is often wise to remove part of a profitable position in order not to suffer economic loss, and, more importantly, the damage to emotional capital from allowing a winning position turning into a loser.

When considering the dynamic nature of option positions, one of the fastest potential movers is a butterfly at expiration. As the position approaches expiration, the rapid decay of time premium results in extreme sensitivity to price movement. Butterflies turn from gentle creatures lazily flapping their wings in the breeze to man eating dragons as expiration approaches. Be prepared to slay the dragon before he can take your hard earned profits.

Get More J.W. Jones Trade Ideas at Options Trading Signals.Com......


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Bigger Gains, Less Time. Tap Into the Potential of Weekly Options

From Price Headley, one of the most respected authorities on Options....


Traders spoke, and the exchanges listened. And, if the growing popularity of the new weekly-expiration options is any indication, these shorter term puts and calls will soon join their monthly-expiration counterparts as mainstream trading instruments.

Just as the name implies, the newest innovation in option trading are derivatives that are issued on Thursdays, and then expire the following Friday.... six trading days later.

But why bother with short duration instruments when the traditional monthly expiries have been working fine for all these years? There are actually quite a few advantages these instruments boast that simply can't be said for the alternatives. Consider this:
• Weekly options inherently offer a greater 'delta'. That just means each of them are more responsive to changes in the underlying security's price during their lifespan than monthly options are.
• Weekly options don't suffer from a high 'theta'. In other words, time decay isn't a major impediment for weekly options. Since they're so short in duration, there's no excess time value (or premium) baked into the price. As a result, weekly options tend to cost less.

While those two details are the favorable technicalities, the overarching attraction to these new short-term derivatives is not only 'bigger picture', but much more important than the high delta and low theta..... weekly options are amazingly flexible.

Learn specific techniques and strategies for trading Weekly Options
Free Weekly Options Training Kit - Click Here! 

One of the more challenging drawbacks of trading traditional options has been the misalignment of a trader's timeframe and the option's lifespan.

For example, a trade's "sweet spot" may end up spanning the last week of one month and the first week of the next month. However, since monthly options expire right before that sweet spot has occurred (and are issued several weeks before that period), a trader may be forced to choose an option, expiration, or strike price that doesn't fully maximize a trade's potential.

Said another way, a lack of choices of when an option's life begins and ends means the trade's theta and delta aren't ideal, leaving money on the table.

Weekly options, conversely, are new every week, so a trader can pick and choose to step into a trend that's moving at the time. Or, he or she can choose to pass on a trade that's stagnant at the time. And what happens when the underlying stock or index starts to move again? No problem - just step in again with the next weekly issue. There's no need to waste time and tie up capital by holding an option during the underlying security's dead periods.

And what sorts of securities or indices currently offer these weekly options. All the usual suspects in terms of indices are available.... major indices like the S&P 500, and weekly options for some of the major sector ETFs are on the table as well. A few of the most highly-traded stocks are in the fray too. Since these are issued on a revolving basis at the discretion of the exchanges though (largely depending on demand), you never know which stock you may be able to play this way in the future. [Indeed, many traders have used them as a way to leverage a position for purely a one time event, like an earnings announcement.]

While the advantages of trading weekly options are clear, a new set of trading mindsets and rules also apply:
• Get your short term charts and ebb/flow predictions ready. One of the primary reasons equity and index options exist in their traditional time frames, with a lifespan of months if not more than a year, is to offer an active investor a way to leverage his or her capital, while allowing that same trader to ride out rough patches on the way to the end goal. Weekly options, on the other hand, are a short-term chartist's dream. The key question is, where will this stock/index be in a week (or less)?

• Use the market tide to your advantage. In the same vein is 'think short-term', traders should tap the market's near term tidal forces.... since 3 out of 4 stocks tend to move in tandem with the market's strong moves. Yes, given enough time, the best individual stock trends can defy the market's ebb and low. The whole point here is speed though, which means calling the market right at any given time is half the battle (whether you're trading stock or index options).

• Keep the original intent in mind. It's contrary to most everything we've been taught as investors, but the whole point of weekly options is to reap the benefit from a short-term move; get in and out accordingly. Some traders are using them to profit from news announcements (like earnings). Others are just using them to hedge a position through a certain timeframe. Don't be afraid to cut loose once your reasonable objective has been met.

The proliferation of weekly option trading is sure to be a beneficial one for traders. Like any other trading arena though, it's the mastery of the nuances more than the mechanics that will be the key to your success.

Looking for More strategies on Weekly Options?
Learn How to make MORE with Weekly Options - Click Here! 

Price Headley @ BigTrends.com





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