Market Update Hello Smart Option Sellers! I hope everyone had a nice Thanksgiving holiday last week (if you celebrated). It was nice to have a few days off from the grind. Where do we stand in this market? As far as our portfolio of put-sells, we're in good shape. We have seven open positions, four of which are in profitable territory. The other three are not too far from our original entry sell price, and if you are a newer Smart Option Seller, you can still get into these trades at current prices if you don't hold a position yet. Make sure to check the Current Portfolio a little further down to see the prices and instructions. Of the trades that are slightly underwater, those stocks are starting to turn back up, which allows the put option prices to move back down (that's what we want). It will only be a matter of time until we're in the black (or green) on all of our positions. The markets in general continue to chug higher (although the Nasdaq is getting hit today), and I don't foresee that uptrend ending anytime soon. I continue to look for quality stocks for us to sell put options on, but not at the expense of us taking on undue risk. Volatility is still crawling along all-time lows. See the VIX chart here. The VIX is the market's gauge of how volatile it's expected to be over the coming months. And with it being so low, the market is pricing in smooth sailing ahead. Why do we look at the VIX? Because volatility has a direct affect on how option's are priced. When volatility is low, option prices are much cheaper compared to their past history. And when options are cheaper, put-sellers like us get less money when we sell them. Not our ideal scenario. It's true that each specific stock has its own volatility component which can be vastly different than the VIX. This is good for us because we sell options on specific stocks, not the general market. But we use the VIX as a gauge to take the temperature of the market as a whole. It's good to keep an eye on it just to keep yourself informed. Why Probability Is So Important In addition to helping everyone make money from trading options, I also like to educate my readers on some of the aspects that can make you a smarter options trader. One of the biggest determinants of successful option trading is the concept of probability. When you buy or sell stocks, you can hold onto the trade for as long as you desire, so the idea of a stock getting to a certain point doesn't rely on probability as much because your time frame could be unlimited. But it's different with options contracts. As an option buyer, you are tasked with not only trying to predict the direction of the stock, but also with when the stock will make that move. That's when probability really comes into play, because if the stock doesn't make the intended move by the expiration date, you will lose your investment (option premium). As an option seller, we don't have that pressure on us because we're not making the prediction on where the stock needs to go. We rely on where the stock probably won't go. Think about it... If you bought a $50 put option on a stock that is currently at $60 per share, you absolutely need that stock to fall below $50 in order to make a profit. But if you sold that $50 put option, then you can still profit if the stock goes up, if the stock stays stagnant, or even if the stock falls (but not below $50). That's three scenarios for the put-seller to profit vs the one scenario for the put-buyer. Let's take a look at our trusty probability calculator to give us a visual of the odds we have on our side as put-sellers.
As we look at the calculator above (which is on our site here), we've used the sample $60 stock with the goal of it reaching $50 in our typical four-month time frame. As you can see from the bottom-left box, this stock, based on its 20% volatility (typical for most stocks), has only a 5.6% chance of finishing below $50 at the end of four months. Who wants to make a trade that only has a 5.6% chance of success? Not me! That's why we as put-option sellers have a 94.4% chance of success on this typical trade, as shown in the bottom-right box. Most option investors (buyers) have no clue about their odds of success at the outset of their trade. They don't know the probabilities. But we do! That's why most of our trades at The Smart Option Seller fall into that category of 90%+ chances of success, and how the probability calculator helps us figure out where the stock most likely won't go. Some of you might also know that I only recommend one strategy for option buying - and that's buying deep-in-the-money (DITM) call options. You should use this strategy only when you want to buy a stock and want to save lots of money on the purchase. With this strategy, you can get close to 50% chances of winning. That's not much different than your chances when you buy a stock outright, which is never more than 50%. Right? Because when you buy a stock, you only have a 50% chance that the next tick is going to be higher. Anyway, the DITM strategy is outlined in my book and is the subject of the Warren Buffett report that is included in the section near the bottom of this alert. Bitcoin Update Yes, another Bitcoin update for those who have asked me. It's already climbed above $11,000 per coin as I type. It is now up 1,000% in 2017. This is on top of the move above $8,000 per coin which hit just before Thanksgiving, the move above $9,000 per coin that hit during Thanksgiving, and the move above $10,000 per coin which just occurred yesterday. It took less than a day to move another $1,000 per coin to its current level. It is truly amazing to watch this thing. None of my commentary has changed since the last alert so I don't need to re-hash. I'm still holding and buying small lots as it moves higher. If you decide to get involved, you can sign up at Coinbase.com Use this referral link to get started. If you do, we both will receive $10 worth of free bitcoin after you've bought your first $100 worth. Don't forget, if you do open an account, make sure you use a very long & intricate password. And sign up for the "Two-Factor Authentication". This is just another layer of protection for your account. It will send you a 6-digit code to your phone to use for logging in purposes in addition to you typing in your password. That's all for now. Continue to hold all trades as-is. Check the Current Portfolio below for updates & instructions. You can always reach us here
Regards, Lee Let's Grab That Cash!
Current Portfolio 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. 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 no enter any order unless the current option price is at, or higher, than the official recommendation. If you are unsure or have any questions, please ask us!