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| OptionsXpress
XPO Presentation outlines |
 Vic
Schiller: 5 Essential Options Strategies Most Investors
Overlook – Level 2 Erie
The Essential Options Strategies Most Investors
Overlook
- Goals today
- Teach you one new thing
- Help you to be a safer option investor.
- Give you a perfect trade
- Show you something you should not see.
- Who is fresh brewed media.
- You can tell who you are dealing with by the company they keep.
- Tell the Vegas story – The guys who win at poker
- Just regular guys who are lucky – Regular Shlubs
- Not the same in investing… The guy with the best
information coupled with solid strategy and tactics is the
guy who will win in the long run.
- If you are counting on luck to build your portfolio then
go to Vegas the drinks are a better.
- The guy who owns the island
- Get a sense of who I am talking to. (Skill level, interest,
etc…)
- How many of you trade options?
- How long have you been trading options?
- How many of you have a story of how you made a big killing
in the market?
- How many of you would rather have consistent small wins
rather than the occasional big win and many losses?
- How do you deal with investment losses?
- Tell the story of why my kids don’t buy stocks.
- The story of the sailor who is ready of disaster…
Because he has been through one.
- The example of that survival show.
- What are investors trying to do with options?
- What are your goals? Do you think they are achievable?
- Why not just try to achieve the same investment goals with
stocks? Or even mutual funds?
- Very risky
- Stock goes down a dollar you lose a dollar.
- No body really knows which way a stock will move.
- Be careful of people who tell you they know.
- Very capital intensive
- Can take a long time to reap benefits
- How do some investors try to use options? (A typical option
investor)
- Buying puts and calls
- Simple
- Can result in some great stories… Triple overnight?
- Only partially hedged.
- Like buying car insurance that only protects you on odd days.
- Of homeowners insurance that only covers you if the fire starts
in your bedroom not the kitchen. Hey the insurance would be cheap.
- Hmm… How would that fire start?
- Is this like gambling?
- Why not just go to Vegas?
- Or they just do nothing… Endless Research.
- Could there be another way to use options?
- More Strategic.
- Lower Risk. (it’s the market so there is always some
risk of total loss)
- More consistent returns.
- Less capital at risk
- Less damage if you lose.
- It’s all about money management.
- Spread your risk – diversification.
- Starting to sound like something you might use to invest
your Grandma’s Money? It could be.
- The strategies
- Covered calls
- To capture dividends only (Example trades)
- Deep in the money (Simulated CD -> Goal 2% over
the current CD rate)
- Selling a Put to capture the stock before a dividend
comes in. (Same as covered call)
- Call Debit Spreads
- In the money… Way in the Money
- Maybe do some earnings plays
- Put Debit Spreads
- Way in the money
- GM example
- Look for market overreaction to catch some good deals.
- Calendar Spreads
- Try these instead of Covered calls
- Far in the future trade strategies
- See the strategies above but do leaps
- Low dollar cost strategies
- Do you have enough to invest in options?
- This could be a way to dabble.
- See the 5->20 portfolio
- The pit falls and risks of these strategies.
- Tools to use these strategies
- Ten Web sites trades need to know about.
- Most are free
- But why not pay for good information? If it makes you money
it could be a bargain. If you lose money… cancel.
Vic Schiller: 5 Characteristics of Underlying
Stocks to Help you Become a Better Options Trader - Level 2 Erie
Five Characteristics of underlying stocks
– Presentation Outline
- Tell the Vegas story – The guys who win at poker
- Just regular guys who are lucky – Regular Shlubs
- Not the same in investing… The guy with the best
information coupled with solid strategy and tactics is the
guy who will win in the long run.
- If you are counting on luck to build your portfolio then
go to Vegas the drinks are a better.
- Get a sense of who I am talking to. (Skill level, interest,
etc…)
- How many of you trade options?
- How long have you been trading options?
- How many of you have a story of how you made a big killing
in the market?
- How many of you would rather have consistent small wins
rather than the occasional big win and many losses?
- What is the most important thing about any option trade? (Beside
that you trade it with optionsXpress)
- It’s a given that you are going to check out the
trade to make sure it hits you profit goal.
- It’s a given that ….
- The underlying stock! That is the most important thing.
- If you are knee deep on a Microsoft option trade and
Bill Gates decides to upset the market… If you are
on the wrong side you will get hurt.
- If you see a great return on a call but the underlying
stocks is a Biotech stock waiting for word from the guys
at the FDA… If you are on the wrong side of the
trade when the news comes out… You are getting hurt.
- If the CEO of that company you are playing decides
to retire early… Well you get the idea.
- Does anyone want to debate this?
- The direction and distance the stock moves can make
any option trade a winner or loser.
- With so many stocks to choose from why play stocks that are
less than perfect?
- I think the number of stocks with options is somewhere
above 3,500 so do you think you could find a few that have
a little more certainty attached to them?
- The problem is that the more certainty attached to an underlying
stocks the lower the option premiums and the harder it is
to find a trade that meets you profit goals.
- Then it comes to balancing what you can dig up about an
underlying stock with the potential trades you can do.
- The most important thing is the underlying stock.
- First Question…. Which stock?
- Determine your outlook for the stock.
- The proof – Why your outlook is correct This is the
most important thing.
- Don’t depend on your gut.
- Depend on good solid research- Yes it involves work.
And risk. There is no sure thing.
- Look for at least 5 reasons your outlook should be
correct.
- Make the trade “defendable” “Bullet
proof”
- You are going to discard a lot of underlying stocks
this way but better to do that than lose money.
- Watch out for the hype factor… This has distracted many
investors.
- Story about the company conference in New York.. These
guys are liars.
- How investors get distracted by the hype. (The reason I know
these is that at one time or another I fell into these traps)
- New products
- Acquisitions
- Big deals
- New CEOs
- Etc… Learn to separate the hype from the
- The Big Five Characteristics that are important to consider
about underlying stocks.
- 1. Past Stock Movement – (Show a sample stock
chart)
- 2. Analysts ratings. (Show an analysts score sheet page)
- 3. Stock and Option Volume
- Some stocks have very low stock and option volume.
- They will be harder to trade
- Less liquid
- But may be opportunities for individual traders
with an agenda
- Example GOOG options are very easy to trade. You
can usually push your prices because many people are
trading those options. Why do you think that is so?
(Popular, high priced stock)
- By keeping the GOOG stock price high the company
is really helping option traders like us.
- Maybe talk about short term hedged GOOG option
trades.
- When you look at the chart look for the volume traded
when the stock moved the most. (Maybe use MSFT as an example)
- Watch out for insider trading days. When the cooks
and bottle washers can sell their stock – Right
after earnings.)
- Look at the option volumes on the chain
- Check the daily stock volume on the quote.
- http://bigcharts.marketwatch.com/intchart/frames/frames.asp?symb=ADM
- 4. Earnings date
- Be careful around earnings releases
- Why?
- Example of the GOOG and GM trade. One before and one
after earnings.
- The Premiums are high before earnings and go away
the next day.
- GOOG… Don’t buy before the release.
- GM… Bought just after the release and sold
on Gap fill day.
- The 25 cent bet with the new guy.
- But you can also use the pre-earnings.
- The GOOG trades before earnings. – Risky
– Maybe yes maybe no.
- http://www.companyboardroom.com/company.asp?ticker=ADM&client=cb
- 5. Sector Strength (See the yahoo comparison page –
Or “Heat maps” examples)
- Other important factors
- Pending News
- Examples: Pending Drug approvals, Litigation outcomes,
SEC actions
- Mostly leave these to the speculators
- But there are cases where you can use this.
- New competition comes onto the scene
- Fundamental economic factors (Why fight city hall?)
- Is there a stronger stock to play.
- You have limited resources so stick with the best choices.
Does anyone here have unlimited resources?
- Take the time to find them.
- Use a spreadsheet give each underlying stock your
score. Sort to find the best trades.
- Tools on optionsXpress to analyze underlying stocks.
- Example of checking and underlying stock
- Let’s start with the S&P 5 STAR list and see
if there is a stock there we can get excited about. Pick one
and vote on it.
- 1. Look at the chart and set some bounds for the trade.
- General trend – If it is flat it will be hard
to find a good trade.
- Define the Support and resistance.
- Look for the “channel” if it exists.
- Look for relatively big moves in the stocks and check
the news on that day. Why did it move. Can it happen again.
- 2. Analysts ratings
- We started with the five STAR list so we know what
the smartest guys in the universe think about the stock.
- Look for changes in ratings. (Why?)
- 3. Let’s look at the stock and option volume..
- Option Volume .. Try to identify the region of pain.
- Where the most people will lose money on the option
they bought.
- 4. Check the earnings date.
- Is it in the time frame of the trade.
- If so… Go for extra protection.
- See how the stock moved on past earnings dates.
- Maybe there is an earnings play on the stock.
- 5. Sector Strength
- Is this the strongest stock to play in the sector?
- Is this a solid sector to play in?
- Check the star ratings of other stocks in the sector.
- You might just discover a stronger stock this way.
The one you should be playing.
- S&P research – STAR rating.
- Is it always right?
- How do they set the STAR rating?
- Screeners and stock lists
- Ten Web sites traders need to know about.
- Most are free – See list above
- But why not pay for good information? If it makes you money
it could be a bargain. If you lose money… cancel.
Diversify your trades in different sectors and stocks… Double
check to be sure you are really diversified.
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