Announcements And Friday Q&A
Hello Smart Option Sellers! If you've taken action on our new put-sell trade alert on Oracle (ORCL) from earlier today, then you have definitely been filled at a good price. I will have the official results on Monday. Don't forget to email us your fill prices. Here's the put-sell instructions again: Sell (sell-to-open) the ORCL March 2018 $37 put options for a limit sell price of $.25 per contract or higher, GTC, as an opening transaction (sell-to-open). New Trading Service? Last week I sent out an alert asking for suggestions on a potential new trading service and/or types of trades you would possibly like to see from me in the future. I had given suggestions such as: 1. Weekly trade ideas that are short-term in nature, typically less than two weeks in duration. This would be selling weekly put options on an index such as the SPY using probability analysis. This is great for the active trader looking for more action. A bit more risk resulting in higher potential gains. I know there's a bunch of you who want more trades like this. 2. Personal mentorship with me. This would involve hourly sessions using your PC or laptop most likely via Skype going over specific option strategies of your choice to better help you in your trading. No personal recommendations would be given. It would be a fast-track education to being a better option trader. 3. A credit spread type of advisory. This would involve selling put options like we do now, but with buying a secondary put option to turn it into a spread. This helps alleviate the margin requirements that we have with our regular put-sells, and it also gives you a defined risk maximum. 4. Something along the lines of an "on-demand" type of advisory. This would entail being able to ask about a certain stock and if it would be worth selling put options on. I get requests like this all the time - members asking me if such and such stock would be a worthy candidate. It would be more a communal type of advisory as I cannot render personalized investment advice, but I can answer these questions in an open forum like I do in the Friday Q&A. This could be a fee-based type of advisory where you can ask about a certain stock and I can answer to the group as a whole. 5. Option ideas like the Warren Buffett Report. This would involve more of a straight-forward service where I pick the stocks and you could use the strategy outlined in the report. See the report here So far I've received a handful of responses back - thank you to those who took time out of your day to give me suggestions. It seems from those responses that most of you would be interested in any of the first three options. This is very helpful to me so I know what I could offer to you all down the road. Considering it was only a handful of people who responded, it's not enough data at this time to implement something in the near future - but maybe down the road a bit. I would need to hear more responses from others to make a good decision. So, if you have a thought, please let me know. You can always tell us what you think. The email contact information is always near the end of each alert. Social Media I've also decided to start writing a bit more on my Twitter, Facebook & blog feeds, although Twitter seems to be the quickest and easiest at the moment. This is extra content that is available to the public on ways to become a smarter trader and investor via the use of options contracts. I highly recommend you taking some time to read it if you have the chance. Much of it you probably already know but it's always good for a refresher. I'm not giving away any trade recommendations that I give to you here within The Smart Option Seller newsletter. That would just be unfair! So, if you are on Twitter or Facebook, make sure to "follow","like", "re-tweet" or "share" my thoughts with your friends, relatives, colleagues, etc. I'm trying to raise the visibility of The Smart Option Seller, and your help is greatly appreciated. You can begin to follow me on Twitter or Facebook and read my posts and share with other people. Or, you can go to our website and click one of the Twitter or Facebook buttons that's at the top of every page. You can also go to the blog which will have some of the same posts as Twitter & Facebook. You can also share from the blog posts as well. This is all a bit new to me, so I'm learning the ropes. Be easy on me! I appreciate any sharing you will do. Now, onto the Q&A. Friday Q&A Q: Hello Lee, I hope you are doing well! I did read the chapter 6 of your famous book (2nd Edition) which reinforced my grasp of your Warren Buffett report.One thing I wanted to know is Portfolio Protection Insurance from a significant market correction using SPY puts. Why don't you write a report on this topic unless it is already covered in your book and I missed reading it.I remember back in 1987 the late Martin Zweig had suggested buying puts on OEX in his market letter, Zweig Forecast, which I had done at the time, but sold a few days before the crash!( those puts which were bought cheaply ended up with $20 each!!) Please cover this timely topic; Market seems ripe for a correction! Don't you agree? A: Hi, thanks for writing in. I've been thinking we're due for a major correction for years! But, you've never really seen me talk about it too much. Sure, I've lamented many times how the market just keeps going up, up, up, which sometimes makes it harder for us to find good put-sell trades. But I've learned over the course of my trading career that it's too hard to predict a sell-off. The market goes up over time, there's no way of stopping that. Might as well position yourself long-term with bullish trades. So how can we protect ourselves if a major crash does come, one which many people seem to be talking about more and more lately. Buying long-dated put options on the SPY would seem like a logical choice, yes? (Buying put options can be profitable when the market falls). But you know how I feel about buying options in general - it's a losing proposition. You'll keep waiting for the stock market to drop, but it won't - at least enough to make the put options profitable. The time decay will just eat away at the value of the put options and eventually you'll lose a lot of the money that you spent while waiting for the fall. Think about how much money you'll spend over your lifetime on home insurance, car insurance, life insurance, etc. All those premiums you pay month after month after month - all gone. Most likely you're never going to need to cash in on those insurance policies. Not much chance your house will burn down, or you'll get into a car accident, or you'll die before the policy term is up. Sure, you may file a claim here and there for some flooding, or small fender bender, but all those months of paying the premiums will far outweigh the occasional payout. It will be the same thing as buying put options - you'll be protected against an event that most likely won't occur, and you'll never get the money back. Now, I'm all for protecting our financial assets. Sure, if we have a market crash, I'd like to be able to walk away unscathed too. But, finding the best way to do that is super hard. You'd need to have flawless timing in order to profit from buying SPY put options. Otherwise they'll just wither away and die on you. So what's my suggestion? I don't really have one. Sorry! But, I can give you a few ideas. 1. Make sure you have trailing stop-loss orders set on all your long stock positions. A stop-loss order is a trade that will automatically sell you out of a long stock position at a pre-determined price if the market falls. It automatically "trails" your stock upwards with a condition you set ahead of time. You can set a stop-loss at 20% below the current stock price, and as the stock moves higher, so will the stop-loss. It's a good idea. You should be able to set this up with your broker. 2. You can sell covered-calls against long stock positions. This entails selling one call option for each 100 shares of stock you own. Selling covered calls brings in immediate cash (just like selling put options) but you will be obligated to sell your stock if it reaches a certain level. This is a good way to set a profit-taking point on your stock, but it can also prevent you from participating in any further upside gains above your sell point. You need to think about this one in regards to whether you'd want to sell the stock or not. If the stock doesn't reach the upside threshold, you can then repeat the process and sell another round of call options. 3. Just like in the Buffett Report, you can engage in that specific strategy. This will undoubtedly save you thousands, if not tens of thousands, of potential downside losses. I like that! I outline the method in chapet 6 of my book as you mentioned. And for those of you who have not looked at the Buffett Report yet, click the link. 4. Lastly, sure you can buy a few long-term SPY puts. Maybe use an expiration of 6-12 months in duration and go about 10%-20% out-of-the-money with the strike prices. This can be a costly measure, but it may help you sleep better at night. Hope this helps. Q: I have been reading and rereading Chapter 6 of your book to get an answer to my question. What to do if a call option on a particular security almost doubles in value in just about a week and that security happens to be a “take over” candidate and the call expires in February of 2018. I can not give you the name of this security lest it becomes a “personal advice”. In general terms, for example, it is OA or RTN or LUV or ABC or whatever. What are the possible scenarios one can deploy in a situation like this. Remember , it is a general question!!! A: Ha! Yes, no personal investment advice, but in this forum we can answer questions to a broad audience. If a security that you own doubles in price very quickly, you can do a number of things: 1. Sell it out and book the profits. And then take me on vacation with you! 2. Continue to hold as it may go higher. 3. Sell partially to cover your initial investment and then play with the "house's" money. 4. Turn it into an option spread and sell higher strike call options that pay enough to cover your initial investment. 5. Buy some put options on it to cover yourself if the stock falls back. How's that? Q: Lee, You always state day-orders when closing a trade, otherwise market makers will make somewhat use of the GTC order. I have the possibility at Interactive Brokers to make an order "Hidden". Will market makers see the order anyway in that case? A: Great question, and one in which I've toyed with talking about here in the Q&A. Since not everyone uses Interactive Brokers as their broker, it might not apply to everyone. And since I don't have accounts at every broker out there, I don't know if they have this feature. Maybe I'll do some research. But yes, I believe the hidden order function should make your order invisible to the rest of the market, maybe even the market-makers as well. I'd have to do some follow-up to make sure. If this is the case, I will try to implement it into our instructions in the future. But once again, if everyone doesn't have access to this feature, it wouldn't be fair for some to use and others not. I will give an update when I have more information. And in regards to your statement about using day-order vs GTC - we almost always use GTC orders on both the initial trade and the close-out trade. Well, that's all for today.now. Have a great weekend everyone! You can reach us here Continue to work all other trades as instructed and continue to hold all other open positions as-is. See the Current Portfolio below for current prices & instructions. Quick note on the Current Portfolio - if you are a new subscriber and don't have a position yet on any of our trades, make sure you enter your order at the original recommended sell prices. Do not enter any order unless the current price is at, or higher, than the official recommendation. If you are unsure or have any questions, please ask us! Warren Buffett Report I continue to get good feedback on this new report, so I'll keep this notice going for the time being so everyone has a chance to see it. Here's an article about Warren Buffett that might give you another reason to have a look at it. If you need the link again, click here to read about it. Regards, Lee Let's Grab That Cash!