Stock Trading

[Del]

This is true. I would personally not move the IRA to Fidelity just because their platform for option trading is terrible. I much prefer E-Trade. There are many others, and Del certainly has a favorite as well, but of the bigger players, Fidelity is surprisingly poor for this purpose based on my experience.

I only mention Fidelity because that is where S&S has his trading account. Sorry to hear that their trading interface sucks. I hope it isn't as bad as Vanguard's.

My IRA is at Vanguard. I will do my research and price-setting on TD Ameritrade's "Think or Swim" platform, then enter orders into Vanguard's interface. That's about all it will do... take orders. No looking at option chains, bid/ask spreads, open interest, or delta. Nuthin.

I'm not versed enough to know how good or bad Fidelity's option trading platform is, but I will look closer. I'm looking through the thread to find the practice site that Del mentioned, but don't immediately see it. BTW, what's the advantage of weekly terms vs monthly?

This is the intro page to TD Ameritrade's "Think or Swim" platform
https://www.tdameritrade.com/tools-and- ... rswim.html

Some trading platforms let you trade from their website.
Others have you download an app and trade from your computer.

Think or Swim offers both versions.

I have not tried the web-access interface. That might be everything you need. You can check it out.
After a quick look, it doesn't appear to have the "Analyze" tab with risk-graphs. I rely on that.

I use an app. It is a lot more powerful, remembering all of my lines and charts on every stock I have ever considered.

Think or Swim is a very powerful, very free app that you can download to your PC. It has a "paper trading" mode and a "live trading" mode. They give it away for free, trusting that we will love working on it and eventually trade with them.

It has a lot of analytical bells and whistles that I never bothered to learn. Don't be daunted by stuff you won't need or use.

I also have the mobile app. It has all the lines and analysis drawings that I enter on the computer. It's not as easy for entering trades or analysis, but it's great for checking things when I am not at my laptop.

As I recall, they offer one-on-one tutorial sessions and plenty of tutorial videos. They invest a lot in making sure you are comfortable and get over the learning curve quickly. I have been very satisfied with TD Ameritrade.

[sweetandsour]

Mr Piper, what position(s) do you currently have? Are you still selling calls for PFE and BP?

[Del]

ping!

Mr Piper, what position(s) do you currently have? Are you still selling calls for PFE and BP?

I got to talk with Mr. Piper last week! He's another great CPS guy. He speaks Southern, so you two should understand each other.

Send him a PM with your phone number, and try to make phone contact for yourselves. He has a great story about how he learned his covered call strategy.

Mr. P knows Pharma, and follows those stocks closely.

He suggested that we look at the following stocks:
BP - British Petroleum.
NVO - Novo Nordisk. Their fat-reducing pill is a hit.
CAVA - A recent IPO. A fast-growing restaurant chain.

I suggested that we could also turn out-of-favor TGT (Target) into a cash cow with covered calls.

Mr. P's strategy is simple: Sell covered calls close to the money to get max premium. Don't fret if it gets called out; just enjoy the additional gain. Buy it back or buy another stock. Repeat every two weeks.

He likes to sell calls that pay premium of 1% of the stock price. He gets called out about every third trade or so.
He is not sophisticated in picking his stocks. If something interesting catches his eye, he might buy and trade it for a while.
===================================

It turns out that premium of 1% has a typical delta of .3, and thus about a 30% chance of getting called out. So his experience follows theory quite well.

If you can get 1% premium at delta less than .3, that's great.
If you can get delta = .3 with greater than 1% premium, that's great too.

We can game the market a bit from here. If a stock and the market have enjoyed a recent run-up, we can sell calls closer to the money for more premium, and likely avoid a severe call-out as the stock takes some time to consolidate.

If the stock is down for the period, the volatility and premium are likely up as well. We can sell calls a bit further from the trading price and still get premium as the stock recovers.

If the stock is down a lot from our purchase price and gets called out, be mindful of the wash rule and buy a different stock to trade for next month.

Advanced trick: If you want to get rid of a stock (because it has peaked its target price, or falling more than you will tolerate), sell calls that are deep in the money. You'll get paid as it falls, plus some time value premium. And just let it get called out.

As for picking stocks..... A unicorn stock has three characteristics:

1) Plenty of implied volatility. More implied volatility means more premium. Also more space between current trading price and strike price.

Market I.V. on SPX/VIX is currently around 0.15. So an excellent stock would have I.V. of 0.3 or more. Small cap stocks typically have more volatility.

2) Plenty of stock trading volume. 1 million shares per day or more.
3) Plenty of "open interest" on options. Open interest is the measure of option trading volume.

Blue Chip stocks are best for high volume. Lots of volume means that there is a tight spread between bid/ask prices, and a liquid market for trading. And high volume usually means that weekly options are available for more frequent trading. Lower volume stocks usually have just monthly options.

Looking at BP, compared to XLE:
Energy stocks march to the same drum. BP and XLE both have implied volatility of 0.23 today.
XLE closed at 88.18. BP closed at 36.64. Sep 8 strikes at 1% premium are pretty darn close to trading price. Delta at .3 pays about 0.5% premium.

I'd rather trade XLE if I had a large position. Fewer contracts means less commission costs.
But BP is an option if a guy has less than $8800 to invest in the underlying.

Looking at NVO:
Trading at 187.5. Implied volatility is 0.28. Bid/ask spread on options is reasonable.

Sep 8 strike at 192.5: delta = 0.28. Premium = $1.275 = 0.68%.

If a guy has $18,750 to plop down for 100 shares, this looks playable. Immediate cash of $125 premium. Looks like stock will consolidate for a while after its recent gap up (caused by FDA approval of the new fat drug). Getting called out at 192.5 would be $500 gain likely in the next month.

Looking at TGT:
Target closed at $ 123.4 today. Getting close to its target bottom of 120.
Implied volatility is 0.26.

Sep 8 strike at 126 is delta = 0.31, premium = $0.955 = 0.77%. Bid/ask is tight.

I actually like how this social loser looks for selling aggressive covered calls. I'm thinking about adding this to my IRA account next week.

I'm still not shopping there.

Looking at CAVA:
I did some reading on this company. They look to be a very promising growth stock. For example:
https://www.qsrmagazine.com/fast-casual ... -go-public

Trading at 42. Volume is right at 1 million shares/day. Only monthly options are available, so Sep 15 is the next contract date. Strikes are $5 apart.
Open interest is good and bid/ask is reasonable. Implied volatility is a whopping 0.64!

Sep 15 strike 45 is delta = 0.30. Premium = $0.875 = 2.1%
Sep 15 strike 50 is delta = 0.11. Premium = $0.275 = 0.65%

I see support above 40.5.

I really liked this situation, so I bought 100 shares at $42 for my trading account. I sold a call at strike 50, and also a put at strike 40. (selling a put and a call at the same time, with different strikes, is called a "strangle.") I got $200 premium for my strangle.

So basically, $4200 paid for shares less $200 received for strangle = $4000. Which means that I have 100 shares at basis 40.

If the price shoots up over 50, then I will make $1000 dollars on the call out.
If the price dips below 40, then I will have 200 shares at 40.
If the price hovers between 40 and 50 (the most likely outcome), then I can sell another strangle at roughly $200. $200/$4000 = 5% per month.

Eventually, I will have either 200 shares to sell calls over or $1000 in gain.

I'm pretty happy, any way it goes.

[sweetandsour]

ping!

Mr Piper, what position(s) do you currently have? Are you still selling calls for PFE and BP?

I got to talk with Mr. Piper last week! He's another great CPS guy. He speaks Southern, so you two should understand each other.

Send him a PM with your phone number, and try to make phone contact for yourselves. He has a great story about how he learned his covered call strategy.

Mr. P knows Pharma, and follows those stocks closely.

He suggested that we look at the following stocks:
BP - British Petroleum.
NVO - Novo Nordisk. Their fat-reducing pill is a hit.
CAVA - A recent IPO. A fast-growing restaurant chain.

I suggested that we could also turn out-of-favor TGT (Target) into a cash cow with covered calls.

Mr. P's strategy is simple: Sell covered calls close to the money to get max premium. Don't fret if it gets called out; just enjoy the additional gain. Buy it back or buy another stock. Repeat every two weeks.

He likes to sell calls that pay premium of 1% of the stock price. He gets called out about every third trade or so.
He is not sophisticated in picking his stocks. If something interesting catches his eye, he might buy and trade it for a while.
===================================

It turns out that premium of 1% has a typical delta of .3, and thus about a 30% chance of getting called out. So his experience follows theory quite well.

If you can get 1% premium at delta less than .3, that's great.
If you can get delta = .3 with greater than 1% premium, that's great too.

We can game the market a bit from here. If a stock and the market have enjoyed a recent run-up, we can sell calls closer to the money for more premium, and likely avoid a severe call-out as the stock takes some time to consolidate.

If the stock is down for the period, the volatility and premium are likely up as well. We can sell calls a bit further from the trading price and still get premium as the stock recovers.

If the stock is down a lot from our purchase price and gets called out, be mindful of the wash rule and buy a different stock to trade for next month.

Advanced trick: If you want to get rid of a stock (because it has peaked its target price, or falling more than you will tolerate), sell calls that are deep in the money. You'll get paid as it falls, plus some time value premium. And just let it get called out.

As for picking stocks..... A unicorn stock has three characteristics:

1) Plenty of implied volatility. More implied volatility means more premium. Also more space between current trading price and strike price.

Market I.V. on SPX/VIX is currently around 0.15. So an excellent stock would have I.V. of 0.3 or more. Small cap stocks typically have more volatility.

2) Plenty of stock trading volume. 1 million shares per day or more.
3) Plenty of "open interest" on options. Open interest is the measure of option trading volume.

Blue Chip stocks are best for high volume. Lots of volume means that there is a tight spread between bid/ask prices, and a liquid market for trading. And high volume usually means that weekly options are available for more frequent trading. Lower volume stocks usually have just monthly options.

Looking at BP, compared to XLE:
Energy stocks march to the same drum. BP and XLE both have implied volatility of 0.23 today.
XLE closed at 88.18. BP closed at 36.64. Sep 8 strikes at 1% premium are pretty darn close to trading price. Delta at .3 pays about 0.5% premium.

I'd rather trade XLE if I had a large position. Fewer contracts means less commission costs.
But BP is an option if a guy has less than $8800 to invest in the underlying.

Looking at NVO:
Trading at 187.5. Implied volatility is 0.28. Bid/ask spread on options is reasonable.

Sep 8 strike at 192.5: delta = 0.28. Premium = $1.275 = 0.68%.

If a guy has $18,750 to plop down for 100 shares, this looks playable. Immediate cash of $125 premium. Looks like stock will consolidate for a while after its recent gap up (caused by FDA approval of the new fat drug). Getting called out at 192.5 would be $500 gain likely in the next month.

Looking at TGT:
Target closed at $ 123.4 today. Getting close to its target bottom of 120.
Implied volatility is 0.26.

Sep 8 strike at 126 is delta = 0.31, premium = $0.955 = 0.77%. Bid/ask is tight.

I actually like how this social loser looks for selling aggressive covered calls. I'm thinking about adding this to my IRA account next week.

I'm still not shopping there.

Looking at CAVA:
I did some reading on this company. They look to be a very promising growth stock. For example:
https://www.qsrmagazine.com/fast-casual ... -go-public

Trading at 42. Volume is right at 1 million shares/day. Only monthly options are available, so Sep 15 is the next contract date. Strikes are $5 apart.
Open interest is good and bid/ask is reasonable. Implied volatility is a whopping 0.64!

Sep 15 strike 45 is delta = 0.30. Premium = $0.875 = 2.1%
Sep 15 strike 50 is delta = 0.11. Premium = $0.275 = 0.65%

I see support above 40.5.

I really liked this situation, so I bought 100 shares at $42 for my trading account. I sold a call at strike 50, and also a put at strike 40. (selling a put and a call at the same time, with different strikes, is called a "strangle.") I got $200 premium for my strangle.

So basically, $4200 paid for shares less $200 received for strangle = $4000. Which means that I have 100 shares at basis 40.

If the price shoots up over 50, then I will make $1000 dollars on the call out.
If the price dips below 40, then I will have 200 shares at 40.
If the price hovers between 40 and 50 (the most likely outcome), then I can sell another strangle at roughly $200. $200/$4000 = 5% per month.


Eventually, I will have either 200 shares to sell calls over or $1000 in gain.

I'm pretty happy, any way it goes.

Thanks for this. Are dividends taken into consideration here, or is it worth worrying (for lack of a better or more correct word) about. And you always go two weeks out?

[Del]

Thanks for this. Are dividends taken into consideration here, or is it worth worrying (for lack of a better or more correct word) about. And you always go two weeks out?

Dividends:
Short answer: You won't have to consider dividends.

If you hold a stock or fund because it pays a healthy dividend, you will likely find that there's not a lot of volatility or premium in it. I have JEPI for income, and it's not worth selling calls on.

If your stock is getting close to paying a dividend, you can look at the premium-plus-gain if it gets called out. That will likely be more than the dividend pay-out, and you'll take the deal -- even if it means missing the dividend. Most likely it won't get called out, and you'll enjoy premium-plus-dividend.

Two weeks:
Monthly is fine, if you don't want to mess with it so often. CAVA only has monthly options available, so that's what I'll do.

You'll get more premium doing two trades a month. But maybe you are content with securing $500 premium each month, and you'd rather play golf on Mondays.

There's even more to be made by selling one-week trades. But then you are committing every Monday morning to buying back stocks and setting up new calls.

Two weeks is a good compromise for a busy guy who wants to maximize his premium, but he still has the flexibility to set up new trades on Monday or Tuesday or even Wednesday after expiration. Then forget about it for two weeks.

[Del]

Meanwhile, I am quietly enjoying my volatility crush trades on the last of the retail and tech companies reporting earnings.

[sweetandsour]

I was a little slower on the trigger than Del, but I finally bought 100 shares of CAVA at 44.5 today. Now, to learn the mechanics of selling a call. I'm in new territory here. Anyway, the analysts expect CAVA to grow, and its' price target was recently raised to 55.

I almost bought BP as well but held off, for no particular reason, except that I may buy a put with CAVA as well. We'll see.

[Del]

I was a little slower on the trigger than Del, but I finally bought 100 shares of CAVA at 44.5 today. Now, to learn the mechanics of selling a call. I'm in new territory here. Anyway, the analysts expect CAVA to grow, and its' price target was recently raised to 55.

I almost bought BP as well but held off, for no particular reason, except that I may buy a put with CAVA as well. We'll see.

Selling calls this aggressively is new territory for me too.

I still like the Sep 15 call at strike 50. Premium mark is $47.5. You can probably fill it at $45. That's right at Mr. P's 1%. But the delta is only 0.18. My stat calculator says only 15% chance of getting called out in two weeks.

As for buying a put.... anything between 40 and 42 looks good (options are trading at 0.5 strike increments). It all depends on how much you want for premium and how much you want to own 200 shares. You could wait for the afternoon and see if the price drops at the end of the week.

CAVA touched resistance at 45.8 in early morning AND touched its 20-day moving average, then retreated. I'm guessing that tomorrow will be another dark candle, maybe touch Wednesday's low of 43.5... then decide where to go next week. I see some firm resistance at 41.5.

If it touches 43.5, you will be in a good position to sell a put.

I see some firm resistance at 41.5. That would be a great strike to sell if you like premium AND you wouldn't mind a shot of owning 100 more shares. Delta is .27. 30% chance of getting assigned. Premium is currently $97, but that will go up fast if the price drops a bit during Friday trading.
Strike below 41.5, you will likely pocket premium.
Strike above 41.5, you might end up with more shares.
============================================

Does your options trading platform tell you what the delta is at each strike as you look at the option chain?
Do you know how to use and interpret delta?

[Del]

At 7:40, looks like SPX and CAVA are both in an exuberant mood this morning.

Definitely a good day to sell your call. Have fun watching it.

[sweetandsour]

At 7:40, looks like SPX and CAVA are both in an exuberant mood this morning.

Definitely a good day to sell your call. Have fun watching it.

I'm just sticking with the call for now, and learn how it works You have 9/15 at strike 50?