The Options Insider Radio Network
Options Boot Camp
Options Boot Camp is designed to help get you into peak options trading shape by teaching you options trading inside and out, basic to complex. Listeners can even submit their own options questions to be answered on the program.
Listen to the latest episode
Mail Call: The drill instructors will take your questions now.
- Question from TennisGr8t - Can you give examples of managing positions using Greeks and is it a good strategy? Your show is awesome.
- Question from Pedro Indio - Discovered podcast within the last week and I am up to episode 8. I understand how overall market and industry direction might influence a stock direction. Is there something similar, regarding volatility that can be observed, where an overall sentiment might influence or work with an option's implied volatility? As a new recruit, wonderful educational basic training, SIR!
- Question from TopStep - Why would we use options in lieu of futures or other underlyings?
- Question from Steamboat Willie: What would you say is the best buy and hold strategy using options? I am interested in using some options in my retirement account but I do not have the time to manage them on a daily basis. I would like to put something on and only check on it every few weeks or months. I am mostly interested in large cap stocks although I am not averse to dipping my toes into alternative assets such as oil.
- Question from Beansie - Is there such a thing as a commitment of traders report for options? Something that shows bullish and bearish positions in the marketplace?
- Question from 999 - How do you spec on the market falling out of bed using options?
Options Bootcamp 56: Options Trade Tags Demystified
Basic Training: Today’s guest is Andrew Giovinazzi, of Option Pit, Option Block, and Options Oddities fame.
Mark, Dan and Andrew discuss options trade tags, including:
- Block Trade
- Inter-market Sweep
- Price Variation
- Buy Write
Mail Call: Listener questions and comments
- Question from Vegan - What oil products do airlines use to hedge their crude exposure?
- Question from Alan - Why is rolling a position so prominent? Is that not just averaging into a losing trade?
- Question from Angus - Maybe this is a basic question, but where do the names call and put come from? What about straddle and strangle?
Options Bootcamp 55: Going Naked in IRAs
Basic Training: Using Options in an IRA Account. Can you trade options in a retirement account? What are the limitations? What strategies can you utilize? What are the benefits of writing covered straddle vs calls? What is a stock replacement strategy? When should someone consider this strategy? Using options as an investment tool. What are any other investment strategy?
Mail Call: Listener questions and comments
- Question from Hector - Can I still trade mini options or are they no longer available?
- Question from Neil Cerone - What are the most common mistakes you see from “stock guys” who try to become “options guys?”
- Question from Steve: First off, I love ALL the shows. They fill my daily commute with wit AND wisdom. Thanks! Also, better late than never, it was great meeting you all at Benny’s Chophouse back in Sept. I am one of the Lobster and Meatballs trainees (thanks to your shows). I had the pleasure of sitting right next to you and across from Uncle Mike as we devoured steaks on The Greasy Meatballs tab. That would be Extra pleasure as Sebastian was paying for them! However, I gotta tell you that you blew it big time the other day when trying to describe why a Leap Call Diagonal is called the "Fig Leaf". Brian named it the "Fig Leaf" because you are "kinda covered but not exactly" due to the curves in the profit graph. I think that makes perfect sense and is pretty funny to boot. Finally, on a side note I would love to hear Uncle Mike explain what is and what is not considered holding in the NFL. It boggles my mind to see play after play of inconsistent enforcement. I understand if that’s out of scope, but what the hell I thought I would ask anyways. It is not too often you meet a Pro Lineman. Best regards - Steve aka "Hawkeye".
Options Bootcamp 54: The Great Theta Debate and More Listener Questions
Mail Call: Listener questions and comments
- Comment from Max_p24 - One of the best podcast for option trading. They have amazing Bootcamp for option beginners.
- Question from Brian Collamer - Back in October I sent this question and I see you ran with it in a couple of other shows: “You mentioned that when selling options the fastest theta decay occurs in the 45-30 day range. I thought that was only true for ATM options? Do OTM options decay the fastest at 60-70 days and then kind of flatten out?” In each show you had asked where I had seen/heard this. LiveVol blog and forum. Thanks for the great content! PS: Futures Roundtable needs to be twice a month IMHO.
- Question from Imbroglio - If I exercise a call option what happens - do I just hit a button and the stock hits my account? Or does it take some time? When do I actually get the stock? If I want to collect a dividend do I need to exercise a few days early in order to get the stock in time to collect the dividend?
- Question from Angry Bunny - What the hell is a front spread? How does it differ from a back spread? Who the hell comes up with these names? They seem to make no sense.
- Question from Neal Tompkins - How do I know when an option is going to be less liquid? What are some good suggestions for dealing with less liquid options?
- Question from Jason Dague - I am long AAPL from about $99, and have a protective put on right now at $105 for July. When do you know whether to roll your put up? I am obviously down on the put by ~%70% from where I bought it in November.
- Question from Jay - If the market is really falling out of bed what are some good strategies to take advantage of that movement while also minimizing option decay?
- Question from Matt Dilks - Hi, I have just listened to Mark on Topstep trader, and missed the questions. But could you recommend which company/broker to get a sim/demo account to get to grips with trading options? Any advice would be greatly appreciated.
- Question from John D. - Hi, Love your show. You guys do a great job. Keep up the good work. My question...If I am looking at a pair trade (e.g. long Facebook, short Twitter), obviously I can do it by buying/shorting the stocks. I was trying to figure out if there is any way to effective do the same thing with options what the advantages might be, if any. I thought of doing a synthetic long/short, but did not see any advantage since I will be naked short an option for both names... but maybe margin treatment is different? Long call on one and log put on the other does not seem to make sense since I am pretty much guaranteed to lose the premium on both those positions. Is there another or better way to structure this type of trade using options? Thanks.
Options Bootcamp 53: Income Trade Adjustments
Options 101: Income Trade Adjustments
- An overview of income trades: Covered call, short put, short straddle, etc.
- What do we mean by adjustments? When to or not to adjust?
- Previous episodes that will be helpful: Options Bootcamp 41: Advanced Adjustments & Options Bootcamp 40: Trade Adjustments.
- Basic adjustments, partial adjustments and adjusting into spreads.
Mail Call: Listener questions and comments
- Comment from Dmitry Shesterin - @Options There is no V in the Greek alphabet, so how come Vega is considered a "Greek"? Who started this madness?
- Question from Brian Collamer - Do OTM options decay the fastest at 60-70 days and then kind of flatten out?? Great show, wish it was longer! Thanks, Brian
- Question from Charles Patterson - Is it accurate to describe delta as the probability of an option expiring in the money?
- Question from Rohan - Do you think it is viable for an active retail trader to become a professional retail trader using primarily the freely available tools from OX and other retail brokers? How viable is that in the current environment? Would I always be at a disadvantage from the pros picking me off? Is this just a pipe dream? How much would you say the average pro trader needs to make to be viable? Thanks again for all of the great programs you guys have put out for free.
- Question from AVG - I heard Dan Passarelli talking about Goldman telling people it’s not worth it to sell S&P puts anymore. Do you guys agree with that sentiment?
Options Bootcamp 52: Looking Back at 2014 and Ahead to 2015
Basic Training: 2014 Year-in-Review/2015 Preview
- What option strategies worked in 2014: put credit spreads, IV overpriced throughout the year, “Wheel of fun.”
- Things to learn from 2014 - Do not get married to a single strategy.
- Misperceptions of 2014 - VOL/VIX was cheap. Despite “low volatility” options volume was still very strong in 2014. Tempting to believe that OTM call buyer did well in this extended market.
- Fed tapering - When is it likely to happen? What is likely to happen in the market when the Fed tapers?
- Things to keep in mind for 2015 - It might be time for a smart hedge. The return of Rho. Volatility has a volatility. Exchange fragmentation will continue. Expand your horizons.
Options Bootcamp 50: Futures Options vs. Equity Options
Basic Training: Futures Options vs. Equity Options
We’ve talked about how to use options to mitigate your portfolio risk, but many traders also rely on commodities diversification as a way to mitigate portfolio risk.
Futures options strategies: All of the options strategies we’ve discussed on this program in the past are applicable to futures options as well with a few exceptions
Covered call & protective puts both require underlying futures positions - something most traders prefer to avoid.
Most traders looking for diversification typically want bullish exposure to the underlying. Some great options strategies for this include:
- Stock/futures replacement strategy
- Vertical call spread
- Spreads with wings
Futures are useful for traders who want to establish sizable positions with a minimum of outlay
Options on futures can be useful for traders and asset managers who want exposure to alternative asset classes but can’t or won’t trade futures. You’ll need a futures account to trade futures options - but if you use risk mitigated strategies such as spreads and don’t get net short units and close out positions near expiration you don’t have to worry about dealing with the underlying.
Mail Call: Listener questions and comments
- Question from Jim Horn: Hey boot campers! I keep hearing about a spread called a onebytwo. What the heck is that? Am I even saying it right? Great show. Thanks for educating poor slobs like me.
- Question from Tom Evans, St. Louis, MO: What does more volume futures or options? Also does one do more electronically than the other? If I’m looking to dive into one am I better off going with the futures or the options? Lastly can you clarify the difference between CBOE and CME and CBOT? They all sound the same to me.
- Question from Anon: On several of your programs you mention that it is important to understand the VIX cash level at a given SPX level. Can you please explain this further? As an example, what are the implications of a 12 VIX at 1800 vs. a 9 VIX at 1800? Likewise, how does a 15 VIX at 1800 compare?
Options Bootcamp 49: All Mail, All Day Long
Mail Call: This episode is dedicated to our listeners.
- Question from Neil Filasco - What sets do you recommend to hedge my retirement accounts, in clouding my defined contribution plans? The pickings in these accounts are relatively slim and there are no options to speak of. As one of the newly enlightened options masses, I thank you for bringing me into the fold.
- Question from Chandra Bajpai - Hey Mark, I love the Radio show...I find myself wanting the next show because I something new every episode. My question is: How should a trader handle stop losses on a naked call/put and/or a vertical spread. When should you call it quits? IBD mentions 8% for stocks, but what is the level for options. Thanks.
- Question from Hedger - I am a bit flummoxed when it comes to spreads. I listen to a show like this, that tells me to use spreads. I read a few articles about spreads, and I think I have the gist of it. Lets say ABB is trading for $50, if its going to $55, I can buy the 50-55 spread for $1, if the underlying moves to $55, that spread should be worth the maximum profit of $5. However, in the real world, my experience has been much different. In the real world, that spread would be trading around $2.50 or $3 forever! If I hold the spread, to expiration and all other things hold constant, I "may" get my five bucks, but thats hardly a given. I goes I am asking - What give with spreads?
- Question from ToothFish - Hey Mark and the Black Hat One. Loving the Boot Camp show. Why is it back to once a month? Should be daily! Anyway I have hear you guys bicker back and forth on dark side vs light side trading, but I don't think you have ever actually committed to one or the other. So gun to your head. Which way are you going - premium selling or premium buying?
- Question from Ing86 - Cool show. Learning a lot from all the options talk about XYZ and Apple. But what are some of the crazier things I can trade with options? Can I trade options on a big hollywood premiere for instance? I would have loved to be long calls on the Ninja Turtles or Guardians of the Galaxy. What about sporting events or elections? I would think this would be fertile trading ground for these products. Can I do something like this or is this too outlandish?
- Question from Chilly Palmer - Hey Drill Squad. Lets say I bought calls on Firm A, and then Firm B buts them out (something I am dealing with now). What happens to my calls on Firm A? That firm is doing away and the stock will no longer trade. Will my calls be automatically exercised for me on the day the merger is put through? Should I just sell them now rather than wait for the issue to be settled?
- Question from Civas - What is the best way to handle a ratio vertical spread that has moved to my short strike? Close it out as soon as it hits the short strike, even though that means buying back two options on the short strike for every one I sell?Play the wait and see game to see if the underlying retreats and those short options go out worthless? Or add a long premium third leg to my trade to cap my risk - essentially legging into a short iron butterfly? I know Mark is partial to those. Enjoying the app. Thanks for all the shows and the mad knowledge.
Options Bootcamp 51: Covered Strangles, Theta and Closing Spreads
Basic Training: Covered Strangles/Covered Combo
- What is it? Long stock, covered call, short put. Why do it? Collect more income than a standard covered call or short put. Why not to do it? Increased margin requirement, you will increase your stock position to the downside.
- Example: XYZ trading at $50.
- Option 1 - Sell covered front month 55 strike call for $1 - collect 2% income.
- Option 2 - Sell both front month 55 call and 45 put for $1 each - collect $2 or 4% income. Rinse and repeat.
Note: Call and put should only be sold on strikes where you are comfortable buying/selling the stock.
Listener Mail: Listener questions and comments
- Question from Tony - Mark, love boot camp. I was lucky enough to have a fairly significant weekly put spread position in DIA this week (long puts at 166-167 and short at 161-162.5). I was making good money on Wednesday and ran into a problem. The bid ask spread on my long puts were so wide, I could not close out, roll or adjust the trade. I thought about buying futures contracts to hedge my delta risk and suck out the theta. Is there any other strategy to adjust or hedge a successful trade without getting haircut on the executions? Should I just calculate the extrinsic value add a spread and put in a limit order for the long leg? Is it always harder to close out a spread trade in a volatile market… i.e. if I want to close a spread trade does one person have to want to enter the same trade? Or can the trade go to two counter parties?
- Question from Mukund Ambarge - Hi Team, I had question on theta decay. I understand that delta is in constant flux with every tick move in stock, the delta / gamma changes. IV is in constant flux with buying and selling of options and volume etc. So vega changes with option transactions. But theta decay is the only one which is always in a steady pace i.e. it’s not like it will decay quickly today and slowly tomorrow. The question is when the theta decay is really adjusted in the prices of options. Do the theta decay get adjusted at every tick move? Or every hour? If it is adjusted daily. Then when is the theta decay taken out of options. Early morning before start of trading? Or late in the day like last few minutes that whole days theta is taken out? Also I do not know when is weekend theta taken out of prices? Friday early morning or Friday ending or middle of the day? Basically when does market maker run the prices with the model and set the prices? Only once before trading starts or does he keep adjusting every minute/hour/tick based on demand/supply?
Options Bootcamp 48: The Great Open Interest Conspiracy
Mail Call: Your questions directed this episode.
Question from Jason Kruse: Is there a Bootcamp episode that discusses OI and how it can affect expiration moves? I hear people talk about max pain and pinning like it’s a conspiracy. Would love to hear real info about how it works.
- What is it?
- Why is it important?
- Why is it not important?
- What is it?
- How prevalent is it?
- When should you be concerned?
- Is there really a conspiracy?
Question from Allen Manning: Hello everyone, I just started listening to the Options Bootcamp podcast, and I'm really enjoying it! I have a question about a strategy described in episode 20: Options in Lieu of Stocks. As a covered call alternative, I was interested in possibly buying a LEAPS with a 1 or 2 year expiration and selling monthly calls against it. When I looked up a few stocks and ran some preliminary numbers, I noticed that the cost to purchase a deep in the money LEAPS (about 80 Delta) option was usually higher than the total money I would make selling monthly calls for the duration of the LEAPS. What I did to get these rough numbers was to take the money earned from selling the initial 1-month call (after commission cost) and multiplying it by 12 or 24. I'm assuming one or more of these possibilities:
- The method I used to get these figures is wrong, even as a rough estimate.
- This strategy will only work with certain stocks/underlying that have optimal Greek numbers.
- This method only works when assuming the underlying LEAP also appreciates in value to offset its own cost.
- Commission costs make this strategy less successful (I have a TD Ameritrade account)
Any information you can provide about this strategy is greatly appreciated. Thank you, and keep up the good work on a great program!
Question from Ethan Kamen: My question may be a little basic for the esteemed Bootcamp drill instructors, but I would like to know about back spreads. It seems like the majority of the information online is devoted to ratio spreads. Is there a reason for this? Are back spreads not popular? Do you use them? If so, what scenarios are suitable for back spreads? Thanks for this show. I look forward to each new episode.
- What are they?
- What is the use case for them?
- When shouldn't you use them?
Back spreads vs ratio spreads
- What is the difference?
- When should you use each?
- Are ratio spreads more common/popular than back spreads?
Question from Ilythian: What is the ideal time horizon for trading options? My typical stock trade lifespan is 3-6 months? I have heard many people describe options as short-term investments. Is my time horizon too long to be trading options?
Options Bootcamp 47: Protecting Profits
Basic Training: How to protect your profits.
- Easiest method: 1st buy a 2-3- month put ATM or slightly OTM put.
- Purchase an ATM put spread with the short leg at your break-even point. Easiest to do in a single stock or underlying.
- What to do if you have a broad equity portfolio? Its a little more complicated. Determine the effective beta of your portfolio an how many effective shares of that index you own.
- Rule of thumb - Expect to spend about 2% of your portfolio for effective 3-6 month protectionHow to reduce the cost of protection. Buy a spread instead of an outright put. Set up a collar. Set up a collar with a kicker.
Mail Call: Listener Questions and Comments
- Question from Big Charlie - Hey guys. What is your take on the OH/Monster merger? What does this mean for the options landscape going forward?
- Question from Brian Collamer - Hi Mark, If I have a short call in $SPY on the ex-dividend date that is OTM, I will not owe the dividend correct? Thanks, Brian
- Comment from Justin - Hi Mark, Just heard my question on the podcast! Awesome! Thanks so much. Keep doing what you do. And I will keep listening. -Jay
- Question from Niles F. - How much of my portfolio should I allocate to defensive strategies such as protective puts? Thank you for answering my question and for producing this fine program.
- Story and Question from KAISERDOG76: Funny story- I was trading on my IPad. It is the Summer 2013. CNBC is on but I am not paying attention to it. I had some cash to play with and there was some electricity in the air that day. I settled in on Apple options. This was the first and last time I used mini options. In total I spent $2,800 in capitol for options. !,400 I spent on 3 or 4 regular Apple options. Then I spent equal amount on Apple "Mini" options. This was when Apple was trading below $400 if memory serves true. Well no sooner that 10 minutes after I had completed my order and was filled on those calls? Some guy named Carl Ichan came out and made his first "Famous Apple Tweet" LMAO. I got an instant $20 plus move on the stock. My Calls I had just bought? Exploded as they were now deep in the money. On the regular Apple options I instantly made several thousand dollars? You know what I made on those Mini's? After Commissions and such it was a few hundred bucks. I was so pissed and felt just ripped off. So I have never touched a "Mini" again. Why would I right? With that kind of move and you still cannot make any real money? Forget about it. Minis are Dead to me...The VIX flirting with $11? I wish I bought some calls today too. LOL...So If I do not have a futures account. What is best way for me to hedge using Volatility? Please help a hopeless Bull who wants to get into insurance.:) Thanks for all the insight and education!
Options Bootcamp 46: Building a Better Hedge
Roll Call: Bringing in the Big Guns
Our guest today is Jim Bittman, Senior Instructor at The Options Institute.
- What sort of content/classes our listeners can access at The Options Institute
- What the number one options question is that he receives from students
- What is the number one options mistake and/or misperception students may have about the options market?
- What changes did he make in your recent renovation at The Options Institute, and what can our listeners expect from your new facilities?
Mail Call: Listener questions and comments
- Question from Kevin Duggan - Hi Mark, Great show! I have been listening to episodes for months but it was only recently that I saw Dan’s picture- shocking! In my mind I have always pictured Walter White, as they sound exactly alike and, you always refer to his black hat. You can imagine my surprise when I saw Dan’s pretty face and those curly brown locks. Shave that bean, Heisenberg! Re: short puts (I'm already long calls) If I am certain the stock will move higher fairly quickly, wouldn't it be best to sell the big, meaty, long term puts? If I sell a weekly for .45 and then close it at .20, where's the fun? How do you balance term and premium in naked shorts? Thanks, Kev
- Question from Josh Norell - Hello everyone, enjoy the show, I am trying to work out the details with a diagonal collar, and its adjustments. I want to buy a stock, buy an OTM put several months out, and sell weekly OTM calls against it. If the stock rises, I get called away, all is well and good, and I can just buy the stock back next week and do it again. Where I am confused is when the stock drops below my put strike. What do I do? Because of the puts lower delta, for every dollar I lose on the stock, I am gaining less than 1 dollar on the put. So do I exercise the put and lose all its extrinsic value? Do I roll it down and hope for a retracement? Do I just blast out more calls? A little help, please. Josh
- Question from INC429 - VXX or VIX options? Which is the better hedge for a broad based equity portfolio?
- Question from Buckeye - I enjoyed the discussion about the percentage of a portfolio one should devote to hedging on the last episode. I do have a question about the 1.5%-2% figure discussed on the program. If that was for a three-month put, then you are talking about 6-8% on an annualized basis. Given that most funds only return about 7% a year, will that not eat up all of the profits in your portfolio? Or am I missing something? Thanks again for this excellent program. It truly is a unique source of options education. It makes my long train ride much more bearable.
Options Bootcamp 45: Mini Options
Basic Training: The world of mini options
- What are Mini Options? (Just celebrated first birthday last month)
- Where do they trade?
- Which underlying names trade?
- What is the use case?
- When should you use them?
- When should you not use them?
- Pros vs. Cons: Unfortunately we cannot give many pros for mini options as of now.
Mail Call: Listener questions and comments.
- Question from Maximus - Hi Mark, Hope you have been doing well. Following up in connection with my question in the email below, since I haven't seen a new episode of Options Bootcamp come out for the past several weeks, and have been waiting with baited breath for your expert comments on my question. :) Hope I didn't overwhelm you and the panel with my frighteningly complicated question, and the insanely large account balances I am referring to (sarcasm alert! :)) I did notice a mention of "Maximizing a ROTH IRA" in episode 331 of Option Block, which came out on April 21st. However, for some reason, this episode seems to end abruptly at just under 37 min, and seems much shorter than the approx. 1 hour duration of these episodes normally. Perhaps there has been a technical glitch causing the episode upload / recording to end abruptly? I am thinking the question you may have answered on this episode is either my question, or probably one very much related to mine. Would love to learn your and the panel's thoughts regarding my ROTH IRA question. Have a few other questions that I plan on sending in shortly as well. Once again - I think you and your panel do an absolutely fantastic job at spreading knowledge across the several podcasts on your network! Please do keep up the good work, and I hope you are able to produce more podcasts, more frequently! Thanks in advance for your assistance - look forward to hearing from you soon. Take care and be well. Maximus
- Question from Marco - This one is for the Boot Camp Drill Instructor Squad - probably John. Can I open two accounts at the same brokerage firm? Not an IRA and a regular account but two regular options brokerage accounts. I want to have an account for my regular income trades and an account for other more speculative strategies. It’s easier for my systems if I keep them separate. I am aware that I won’t receive offsetting margin, etc. Is this a possibility or is there some prohibition against this? Thanks for answering and thanks for sponsoring this show. It’s a great program that is helping a lot of people. Still can’t believe it’s free.
- Question from Lil Tim - Quick one about vol - Are realized and historical vol the same thing? Are there any pricing models that use historical vol? Thx
- Question from Avery - Help! My broker hates options! What should I do?
- Question from Joe - Love the show. I look forward to my fresh episodes every couple of weeks. It’s my treat during my commute. Although my wife thinks I listen to too many of your shows Mark. Anyway - I wanted to write in regarding the OIC conference. I have heard you mention this on several programs on the network. I do not live far from Austin, the site of this year’s conference. I am still a relative neophyte when it comes to options, although programs like this one are helping to change that. Do you think its worth it for beginners like me and others listening to this show to attend conferences like this. Is there any material there for me? Thanks for taking the time and thanks for the network Mark. You have got a listener for life.
Options Bootcamp 44: Mail Call-A-Palooza
Mail Call: All mail. All day
- Question from David Medley - I have listened to about half of the 40+ episodes. I do not recall hearing anything about how to get started professionally. I am a 38 year old software developer looking to change industries. The positions that seem to be open to me are commission-only and require a significant cash "Capital Contribution". I am actually OK with this. Some positions have hefty training and/or desk fees, which seems a bit scammy to me. Either way, it's not something I want to go into blind…If you have covered this, I would love to read or listen to it. Thanks!
- Question from Jay - Hi Mark, Options Bootcamp is a phenomenal program. I have learned so much it’s unbelievable. I do still have one question, and it stems from the fact that I am not a convert from the equity world. I am new to the investing world, but I could never wrap my head around equity trading because it seemed too haphazard. It was not until I learned about the flexibility of options that I really thought that I had found something worth sinking my teeth in. So, with that being said. How do you pick your underlying stocks? Is there a set of criteria you screen for among the all of the optionable underlyings, or is it better to really start learning about a few select stocks and then just applying a specific strategy towards the stock situation as you see it? So far I have just been using SPY as a starting ground but would like to move towards specific positions to play on the higher fluctuations in vol, inverse skew events, earnings reports and such. Thanks again for all of your work, and please send a high five to Dan, he is my favorite drill instructor.
- Question from Ted Schwartz - Hi, I am working my way through the Options Boot Camp, learning lots of good stuff. I was wondering what kind of options strategies exist to hedge my 401K mutual funds gains? Would it be practical to use protective puts on some indexes, etc. to offset my risk of fund losses? Thanks!
- Comment forwarded from Dan Passarelli - I am really glad that you participated in the options Bootcamp podcast and that I was fortunate enough to find it. Please convey my gratitude to Mark, (who has no idea who I am) when you get a chance.
- Question from David M - Hey, listening to your show has really helped me grow in my options knowledge. Two questions: (1) Do you have a platform you recommend? (e.g., Tradestation, etc.) - (2) I am currently with Tradeking. I did some long calls last year and lost some money. I realized I needed to learn more. So I stopped and started reading. Now I am ready to start trading spreads and selling premium, but Trade King won't clear me for that level of options trading, because I have not been trading live. Is it time to find another broker, or do I need to trade according to their rules until they clear me for more advanced options? Thanks!
- Question from Mark Radcliffe - Hello Mark, John and Dan. Thanks for providing your excellent options boot camp program it has done a lot to get me started with trading options. I split my investing between long term buy and hold for retirement, short term stock trading for side income and am now adding options. My question is about selling calls to simulate a dividend on buy and hold stocks in my retirement account. The recommendation is to sell front month or even weekly ITM calls to collect the time decay. The problem I see is that these near term options are extremely cheap. E.g. SBUX is currently trading around $72 next week’s 73 strikes ask is $0.26. Does this not mean that if that if I wrote a single call and it expired worthless I would make $26? (assuming no changes). Once you take away the cost of the trade itself you might make pennies or even go backwards on these trades unless you have many lots of that stock in your account. Am I reading this correctly? If so do you think that in order for call writing to really generate any real income you would need to hold several 100 shares of any one stock in your account? Thanks!
- Question from Darren - Hi, do you guys have option alert services?
- Comment from Martin - Thank you that you share this precious information on your site for free. A great job. Well done. Martin from Germany.
- Question from Tom A Bomb - First, huge fan. Second, question about the wheel-o-fun trade: Recently assigned on a short call in a collar position. Monday morning, I was long my protective put (a far-OTM leap), and decided to sell a weekly put that positioned me long about 25 delta. Now, I am wondering how all this will affect my margin SMA. From the margin perspective - is this a put spread, or is this a naked short put? After I put this on, I realized the margin was a bit fuzzy. Since I just rolled out of a covered call, I am obviously cash-secured, but I want to work this out before I find my foot in a bear trap. Thanks guys! Nice hats!
- Question from Jas Sol - How can you tell if implied volatility is cheap or expensive for a option? I assumed, from listening to the show, that a higher volatility means, the time component of the option price is more expensive compared to an option with a lower implied volatility. But comparing the Dec 27 ATM calls for Pandora (P) and Apple (AAPL) that does not seem to be the case. For example, P has an implied volatility of 113.6% and a time value of $2.57. And AAPL has an implied volatility of 23.8% and a time value of $10.84. Since P has a much higher implied volatility, why is the time value lower compared to AAPL? I assume the answer lies in the Greek's Vega, because P has a Vega of .02 and AAPL has a Vega of .48. But I am not sure. So is Vega how you can tell if an option is cheap or expensive? I love the show! Please keep up the good work. Thanks!
- Question from John B - Where do I submit options questions and the tweets that you guys read on your podcast? If this is the place to submit questions, here is my question: I recently stopped trading PCLN *(Priceline) Options because the spread ranges from $2.00 - $4.00. Is this to deter traders and why would the Market Makers keep the spread so high.
Options Bootcamp 43: Options & Dividends
Basic Training: Options & Dividends
- How do option holders collect dividends?
- How do derivatives impact options?
- What happens to call and put prices when dividends enter the equation?
- If you are an options holder what must you do to collect a dividend?
· What are dividend plays and how do they work?
Mail Call: International trades, closing positions, and more
- Question from Glenn Baker - Question for Options Boot Camp I've been listening to Options Boot Camp since the first episode & have been listening to the Option Block for about 2.5 years. I currently have a Schwab account where I primarily buy mining stocks. I would be interested in possibly switching to Sogotrade for the lower commissions. Does Sogotrade allow you to buy stocks on Canadian exchanges? Thanks and I really enjoy the show."
- Question from Nick Snow - Hello. First, thanks for all the shows. I used to listen to options insider years ago. Somehow lost the podcast and recently found it again. Good news there is I have been listening nonstop for the last 2 weeks. Second, for the real reason. I have been trading for a while (retail only) and in listening into your shows, particularly Boot Camp. I have heard "close your credit positions, if I had a nickel for every time a person came to me and said this crazy event happened and it wiped me out". I do close my credit positions at $0.20-0.05 every time. But I have wondered if outside of the commission, has anyone ever done a risk reversal? Or roll down to a lottery ticket? E.g. I sell bull put or bear call spread. I go to close the position at 80% of my profit and there's a day or two left. If I just closed my short leg and left the long on, or even just swapped my short leg for a lower short now making my spread a debit albeit a supper cheap debit spread lottery ticket. I could capture those freak events that you always talk about. By my count in options boot camp I would have 128 nickels for those freak events mentioned. :) Any thoughts? Am I missing something? Sincerely yours.
- Question from Abe - Can you make an episode on how to repair losing options trades? I enjoy listening to your show, it keeps me going while I am slaving the night shift at work. Thank you!
- Question from Greg S. - I am looking for some advice from an experienced options professional regarding stock replacement using American-style calls. Really the question comes down to- for a higher dividend yielding stock, should I be buying a LEAP or rolling out approximately every three months after exercising very close to expiration and capturing each dividend? I get that the dividend lowers the price I pay the longer dated the options are, but does not reflect as much as if the options were available as European-style. It seems that if the dividend yield is high enough, the American style can't fully compensate the option holder for the missed dividends as the value can't drop below intrinsic value. Does this call for the shorter term options to capture each dividend? The caveat seems to be that the roll out should cost more extrinsic value on ex-dividend. Since I have a buy-and-hold objective, euro-style or warrants would be ideal to avoid transaction costs, but again, not available. So far, I have been rolling an ITM call option position on a relatively high dividend yielding (5-7%) stock I have wanted concentrated exposure in as part of my overall portfolio but limited risk. It makes regular scheduled quarterly dividend payments and the timing of the annual increases is known to occur in Q1 each year. Well just yesterday (day before ex-div for my stock), I figured I would skip the dividend capture and roll out the May contract to the August one cheaper than I could today because today it trades ex-dividend. I confirmed this using the CBOE calculator, holding price constant. It showed the time value paid to roll should have been more today due to trading without the dividend vs. yesterday. Though just eyeing the bid x ask spread it didn't appear to do so by much and implied volatility looked to be the same.
Options Bootcamp 42: Legging & Protecting Gains
Basic Training: Legging and Protecting Gains
- What is legging?
- How do you leg into a vertical call spread?
- When should you leg a spread? When should you not leg a spread?
- How do you protect you gains?
- How do you lock in a gain? Buy a protective put, but watch out for the cost.
- Do I write a call ITM, OTM, or ATM? Remember, a covered call is no a defensive play.
- How do you leg into a collar? How do you create a collar plus?
- How does your strategy change during a crisis?
Mail Call: Hey Recruits, it seems you have some questions!
- Question from TelStorm: This question is for Options Boot Camp. Please do discuss when to adjust long protective put with stock. When to sell put vs. just close the position? Do you roll to a lower strike or to a put spread? Thx.
- Question from Alexander Samuels, Chicago - You would never know you guys are Chicagoans from the way you complain about the weather! But seriously, can you discuss which options tools you guys prefer for analytics and trading? Do you have certain products you use every day? Are they in the price range of a basic options trader? I trade maybe 20 times a month, mostly income trades -short puts, wheels, covered calls, etc. What should a guy like me be using?
Options Bootcamp 41: Advanced Adjustments
Basic Training: Advanced Adjustments
- Spread adjustments
- When should you adjust a spread?
- Vertical spreads. Long and short straddles.
- Long and short butterfly adjustments
- When should you adjust your flies?
- Iron butterflies and iron condors.
- Calendar spread adjustments
- When should you adjust basic horizontal one-month calendars?
Mail Call: The drill instructors will now take your questions
- Question from Dr. Anthony - I enjoyed you episode on the wheel trade. I would like to know more about your typical use case for wheel trades, particularly when it comes to the second leg. Do you write an ITM or ATM call, hoping for the stock to be called away quickly, thereby allowing you to begin the process again? Or do you prefer to write an OTM call and attempt to capture some appreciation in the underlying, while risking losses in the stock?
- Question from Nik_Miner - How much money should I keep in my account for adjustments? Does 10-15% seem reasonable in case I need to roll or trade stock against my options?
Options Bootcamp 40: Trade Adjustments
Basic Training: The topic of the show today comes to us courtesy of a listener question.
Question from Dr. Toboggan: Love the podcasts. Would like to see an episode (maybe options bootcamp) that covers trade adjustments. This was been the most difficult aspect of learning to trade options for me, and would be useful now that you've covered most of the basics on this program. Specifically, would like to hear a discussion on how to adjust trades when the stock moves against you (i.e. price hits the short strike in a condor/credit spread, or the wings of a butterfly). Thanks
- Adjustments are where the rubber meets the road from an options perspective.
- What are adjustments?
- Why have an adjustment strategy?
- When do you make the adjustment?
- Close positions and close portions the of trade.
- Adjusting into spreads.
- Good rolls vs bad rolls.
- Long premium vs short premium.
Options Drills: Options as an investment tool.
Stock replacement strategy, Covered calls, Short puts, Collars, Covered strangles, Covered straddles and LEAPs
Question from Charles Binder - Can you guys explain 60/40 tax treatment? What do I need to trade to qualify for this special consideration? Thanks for your help. Keep the show coming!
Basic Training: The Wheel Trade
A great trade for novice options traders. Our friends at RCM call this the "triple income trade" or "the wheel of fun."
What is it? Write a put to get long equity, then immediately write a call to sell equity. When should you use it? When should you not use it?
This is a great way to add some extra bang to your covered call trades.
Mail Call: Fabulous questions, insightful answers.
- Question from Bit Tim: You recommend closing out your shorts when they go your way. Do you advise factoring the closing price of the trade in to your calculations when writing options? For example - write a put for $.30, but know at the onset that you will only collect $.25, because you will close it out for $.05. If more people did that at the outset, they might be less reluctant to close out their winner for a profit.
- Question from Jack - I know you guys are not tax advisors, and so nothing you say can be taken as certain in any answer to this question. I am a small time trader, and at the moment cannot afford a CPA with trading expertise in options to do my taxes. So I am wondering if you can talk about the potential tax consequences of front spreads, especially when used as covered call replacements? I have had good success with this strategy, and I would like to move it into my margin account this year, instead of just using it in the IRA to avoid the tax headache.
- Question from Alejandro Garcia, NYC - Given Wang’s experience in the Chinese market, I would be interested to hear John’s take on the impending launch of listed options in China in April. Does he think it will be a success? What will the popular strats will be with Chinese options traders?
Options Bootcamp 37: Our Holiday Wish Lists
Basic Training: Options Boot Camp Holiday Wish List
- John – Consolidation in the exchange market place.
- Mark – Better spread execution in the options market in 2014.
- Dan – Continued growth in the options business.
- Mark – Financial/mainstream media would abandon its perception that options are dangerous, complex risk-additive instruments.
- John – Customers close every expiring position.
- Dan – Continued growth in options education.
- Mark – Brokers would make it cheap or free to close out shorts below a nickel.
- John – Customers never (or almost never) trade inverse or leverage ETFs.
- Dan – I hope to be successful in guiding my students, and potential students’ expectations of options.
- Mark – I wish more customers would break away from their fixation with VIX.
- John – I would like to see an end to the day trading rules. I also wish more customers had a trading strategy firmly in place before they put a trade on.
- Dan – I would like to see no crazy blow-ups like PFG, etc.
Listener Mail: Listener questions to the Drill Sergeants
- Question from Ed - I am a call writer but I am having a hard time finding trades that suit my criteria in this low vol environment. What is your recommendation? How do I find more acceptable covered writes in this environment?
- Comment from Tom Giles, Newport, RI - I just want to thank you guys for putting together this program. It has really been helpful for me as I take my first fumbling steps into the options market. I have been mainlining the show on my commute every day and repeating episodes that are particularly suited to my trading style. I have already identified a few mistakes in my trading and also adopted a few of your suggestions, including stock replacements and short puts for limit orders. Thanks for the help. When can I look forward to a daily show? I have a long commute.
Options Bootcamp 36: Year-End Spectacular
Basic Training: Here is a rundown of the major topics from the show over the past year:
- Pros/cons of buying premium
- Pros/cons of selling premium
- Speculating with an ATM/OTM call
- Hedging with a protective put
- Stock replacement strategy
- Pros/cons of basic vertical spreads
- Ratio spreads
- Front spreads/back spreads
- Stock repair strategy
- Spreads with wings: Condors, Flies, etc.
- Volatility skew
- Basic calendar and diagonal spreads
Option Bootcamp 35: Lessons from the Trading Floor
Basic Training: Lessons from the Trading Floor
- Paper flow rules all - Go with the flow! Being obstinate and refusing to adjust to changing market conditions will only cost you money.
- Don't step in front of the train!
- When in doubt, palms out!!
- There is such a thing as an upside crash.
- Calls are puts and puts are calls.
Mail Call: Schooling traders, one question at a time.
- Question from George: Why were puts so expensive when TWTR options launched?
- Question from Niles F., Montgomery, AL - I saw an article recently touting a "synthetic covered call strategy" that essentially involved buying an ITM call and selling an OTM call against it. It was really just a vertical call spread. What am I missing? How is this a synthetic covered call?
- Question from Mr. Gif - Great show on volatility skew. What do you guys think of this piece? Should I, as an investor, avoid these volatility ETFs?
- Question from Buckeye - A question from John - Can I buy a stock on margin then write covered calls against it? Or does a broker like SogoTrade remove the 50% margin and make you pay the full price for the stock when you sell the calls?
Options Bootcamp 34: A Very Special Episode
Mail Call: All Mail. All day long.
Question from Benjammin - I am currently a law student and have always been interested in options. I have read about options and am now listening to all of the Options Bootcamp podcasts, which is a great show, to prepare to start trading options! SCENARIO: Assume I sell a naked put option and collected $500 in prem. 1 week prior to expiration the value of the underlying has increased and it looks like the option will expire worthless and I will get to keep the $500. Is there anything I can do other than waiting to expiration to lock in my profits by sacrificing a portion of that collected premium?
Question from Richard D - Mark and the Team,
The shows are consistently great! Thank you! You may remember me from "the mega question" early in the month. I will be a LITTLE more succinct in these posts. Also thank you for that bootcamp episode on vol and skew!
I think expiration and settlement could be a good topic for a future Bootcamp show.
Could you discuss a little on how American style options stop trading on Fridays but actually expire on Saturday (at least the monthlies do)? Is anyone allowed, like for example brokers or large institutions, allowed to trade these options after they stop trading for the retail investor?
I understand there are ways a trader can get hurt by this because if you hold a short option at the Friday close, even if it’s a covered option like a bear call, and the stop gaps up after 4 PM Friday, you will get exercised and then be short or long that lot of stock come Monday morning. Could your team discuss what happens if I'm holding a long position and hold it past 4 PM on a Friday? If it’s even a penny in the money it gets exercised, however how does the timing on that work. Here is a hypothetical example:
I own a Nov 18 '13 100 call on stock XYZ. Stock XYZ closes on Fri, Nov 18 at 99.99 but then by 8 PM it goes up in after hours to 100.15. Is my contract automatically exercised?
Alternatively, stock XYZ closes on Fri, Nov 18 at 101 but then by 8 PM that evening drops to 99.99. Again what happens?
Question from Lil Rich - Can you explain the origins of volatility skew? Is it true that skew didn’t exist pre-1987?
Question from Eric Thamos - I love the Boot Camp show. It is a great resource for newcomers to options like me. I am listening to the skew episode on the train home right now. I am still puzzled about the actual fundamental underpinnings of skew. What is the bigger determining factor - the actual order-flow or the psychological factors? Also, is it possible to impact the skew myself? For example, if I see a stock where the skew is inflated, could I sell it and deflate it - locking in a profit in the process? Thank again for this insightful program.
Question from Tim Santiago, Albany, NY - I am catching up on options basics including the Greeks (great book Dan). Most of them make sense but I’m kind of hung up on two - rho and delta. Why do we need rho? Is it me or is it really a superfluous variable? Have you ever encountered a circumstance where your knowledge of RHO came in handy and saved the day? As for delta - it seems like the super variable. It’s a hedge ratio, a measure of price change AND the probability of expiring in the money all wrapped up into one shiny package. Is it me or is that just too tidy? Do you find this to be the case in real life or is this another example of mathematicians trying to extrapolate their findings to areas that don’t really apply?
Options Bootcamp 33: Jumping into the Volatility Trenches
Basic Training: Trading VIX and Volatility Products
- What is the VIX? How is the VIX calculated?
- How are VIX options priced?
- How do the Greeks work with VIX options?
- What is the difference between VIX cash and VIX futures?
- The VIX is NOT a perfect hedge that offers pure inverse correlation of the S&P?
- VIX can be used as a kicker for extreme events.
- Beware of VIX settlement process.
- Remember to understand the context with which the VIX is being represented.
Mail Call: How may we be of assistance?
- Question from Bicycle My - So how do you become a better trader? I have been trading for a few years now and although I am profitable, I have not seen phenomenal returns.
- Question from Hawkeye6: Can you explain what Maker-Taker is? What is different about it from the traditional methods? Advantages? Disadvantages? Thanks.
Options Bootcamp 32: Volatility and Skew
Basic Training: Let’s talk fundamentals
- What is Implied Volatility and how it is derived? Why is understanding implied volatility is so important?
- Historical volatility versus implied volatility.
- What is skew? Why does skew exist?
- What is the put wing? What is the call wing?
- What is investment skew? What are other types of skew?
- #1 Options question from newcomers - I bought a call option then the stock rallied and my call lost value. Why?
- How do you evaluate skew? How is skew measured?
- What is reverse skew? What does reverse skew sometimes indicate?
- What is term structure?
Mail Call: You have questions. We have answers.
- Question from Nick D. - I am a covered call seller. I have some people recommend that I should sell in-the-money covered calls instead of my usual 5%-10% out-of-the-money calls because of volatility. But why would I want to sell a call that is going to inevitably be called away? What is your thought on this strategy?
- Question from Charles Midler, Santa Fe, NM - I am thinking about hedging my short stock positions with short put positions. How do the drill instructors view this strategy? Am I on the right track? Can John discuss the margin requirements of such a strategy?
- Question from Nomad 6 - What are flex options?
Options Bootcamp 31: Stock Repair Strategy
Basic Training: Stock Repair Strategy Review
- Have a downturn in your account? Options can help make that money back.
- When do you use this?
- How does this differ from just holding the stock outright?
- Is there a better alternative to doubling down?
Mail Call: Tell us what you want to know.
- Question from Nick - Can you explain the difference between a front spread and a back spread? Thank for the program. It has a regular spot on my podcast playlist.
- Question from Avalon 360 - I have heard a lot of talk about covered calls. They are in interesting income trade, but they seem to be leaving money on the table - namely the put. Why does no one talk about covered straddles? After all, if you are comfortable selling the vol or premium on one strike you should be comfortable selling both and collecting twice the income?
Basic Training: It’s that time of the year again. The kids are back to school, so let’s go back to school as well, and refresh our listeners on the options basics.
- What is an option? How do options work? What is a multiplier?
- What are the greeks: Delta, Gamma, Theta, Vega.
- Long premium vs short premium.
Option Drills: A review of the basic positions:
Long call - Short call - Covered call - Long put - Basic vertical spread - Collars. Others can be found in previous episodes.
Mail Call: Question from Dave S. - In the Options Boot Camp podcast #28 and #20 you discussed buying deep in the money LEAPS and selling shorter term calls against them. If the calls you sold expire worthless everything is great. What happens if the underlying goes up and the calls you sold are in the money at expiration? Is it better to just buy back the calls or let them get exercised? Can you discuss the process if they are exercised? Do I need to sell the LEAP to cover the call that was exercised?
Options Bootcamp 29: Diagonals
Basic Training: Trading Diagonals
- What is a diagonal?
- Why would you put it on?
- What adjustments need to be made?
- How is it performed?
- How does it differ from a typical horizontal calendar spread?
- Why would you use a calendar vs. a horizontal spread?
- How do the greeks differ?
- How do you choose the strikes?
Mail Call: Fall in, recruits!
- Question from Richard D: I think a whole boot camp show on skew could be very helpful! Thanks!
- Question from Hawkeye6: Love the pair of calendar spread shows. Can you make it a hat trick and have a show on double diagonals and double calendars? I am especially interested in hearing about selection criteria -- what makes a good candidate, criteria for strike selection, when to pick DD/DC vs. Condor/Iron Condor, etc.
Options Bootcamp 28: Pro Tips, or Learning from the Mistakes of Others
Basic Training: Pro Tips
- Swap LEAPS for stock when writing covered calls.
- Everyone, even pros, have losing trades.
- Never ever ever enter a market order in the options market place pre-market.
- Swap in-the-money calls for stock whenever possible to utilize trading capital more efficiently.
- Use implied volatility on all your option trades.
- Don't base a sale or purchase of an option based purely on the implied volatility levels without understanding the context on the implied.
- When looking at implied volatility, be very careful around expiration.
- Don't be a lemming and blindly follow "unusual activity". Often it's better to sell the strike where the unusual buying activity took place.
- Swap in-the-money calls for stock whenever possible to utilize trading capital more efficiently.
- Fit the strategy to the situation.
- When reverse skew flips, it's usual a big buy signal.
- Question from Ron Yuravich - I listened to the podcast on calendar spreads and would like to know what book do you recommend that is compressive on spread trading? I have never had much luck with spreads. I have done a few iron condors for credit and few credit spreads - I just let them expire. The concept of trading the spread and not the underline is new to me. I see that I still have a lot to learn, but I am determined to be a well-seasoned, successful option trader in the end. Keep up the good work - I respect your group for knowledge on options. Thanks, Ron
- Question from Tom Simmons - Just to clarify -- If I write a time iron butterfly in DNDN ahead of earnings with Sogo - sell the Sep 5 straddle and buy the Aug 4/6 strangle - Sogo will margin me as if I sold the Sep 5 straddle naked because the Aug will expire before the Sep. Do I have that correct?
- Question from Alan Dickerson, Provo, UT - Options are a derivative of stocks. Yet there are far more options exchanges than stock exchanges in the U.S. How is that possible? Why are there so many options exchanges? Do they all trade different products or serve different purposes?
Options Bootcamp 27: Calendar Spreads, the Sequel
Mail Call: So many questions, so many answers.
- Question from Alpha_Dog - Let's say I buy the Ford August Week 1 17 call, and then sell the July Week 4 17 call for a $.07 debit. How does that position make money? I don't get it. Don't both calls make/lose money as the stock goes up and down?
- Question from Nevin Pierce - What is more important when trading time spreads - gamma or vega? Is vega the source of profit and gamma the source of risk, or vise-versa? How do I profit of vega without a corresponding large move that ends up costing me more with the gamma? Please help options drill instructors! I'm in over my head!
- Question from Tim Nettles - I am confused about time spreads. I don't really get how they work and how I'm supposed to view them. For example, in the XYZ July/Aug 50 call example cited my Mark Longo - what do I do after the July leg expires? Should I consider that or should I close out the whole position prior to July expiration? What if I was using the short leg to finance a longer term speculative play? Wouldn't it make sense then to leave the second leg on beyond the expiration of the first leg?
- Question from Ron Yueravich - On July 22, in FB, I will buy one Aug 23 put for $.32 and sell one weekly Week 1 July 26 call for $.16. I plan to sell the following after the short side expires - sell two Aug next week puts and then nine Aug 23 puts again. What do you think about this plan on Facebook? I feel there will be a little weakness in the stock before it climbs any higher. Thanks.
- Question from Mikos V - For John Critchley on Options Boot Camp - Does SOGO have any plans to alter the way they handle the margin for short time spread, to avoid the issue you cited where they are margined the same as naked short positions? This seems to waste a lot of capital and provide a disincentive to traders to take on these positions. Is there any way to provide better margin treatment, at least while the first leg of the trade is still active, or is that limited to portfolio margin clients only?
- Question from Emily Duncan, Fairfax, VA - So let me see if I have this straight - If I buy the Facebook Aug 26 call for $1.25, and I sell the July Week 4 26 call for $1.05. I've net paid a $.20 debit for a one month calendar spread. If Facebook rallies to 28 by expiration this week, I will have lost roughly $1 on my July calls and made about $.80 on my Aug calls. So I pretty much would have broken even, or am I completely off-base with my understanding of how this spread works?
- Question from Tim Anders - So if I have no bias and expect no movement, I should buy a time spread to profit from decay in the first month. Why not just short front month instead and save the hassle?
Options Bootcamp 26: Calendar Spreads
Basic Training: Calendar Spreads
This builds on the knowledge from episode 13 "Basic Spreads" and episode 14 "Advanced Spreads" from December.
- What is a calendar spread?
- Why would you want to use a calendar?
- Calendars are much more complex that basic textbooks tell you.
- The delicate balance between gamma and volatility in a calendar trade.
- Can't use P&L diagrams
- How do you manage a calendar?
Options Bootcamp 25: Using Options in Retirement Accounts
Basic Training: What can and can't you do with options in a retirement account. Retirements accounts do not let you use margin. Stick to the covered calls.
Mail Call: Listener questions are filling up our inboxes
- Question from Aman16 - Where does the "Iron" part of Iron Fly and Condor originate from?
- Question from Tim Phillips, Boston, MA - What is your referred way to express a near-term bullish outlook on a stock? Write an ATM or near ATM put or use a stock replacement strategy (deep ITM call)?
- Question from T_BO - When should I use a stock replacement strategy vs. call or call vertical?
- Question from Anaz9 - If I buy 1 ATM, sell 2 OTM calls in a ratio spread, how is the margin calculated on the naked portion? Is it the same as selling naked OTM?
Options Bootcamp 24: Alternative Income Strategies
Basic Training: Alternative Income Strategies: Writing covered straddles vs. covered calls. What are the benefits of writing covered straddle vs. calls? What are the drawbacks? Remember your synthetics: Covered straddle = short two puts.
Some additional pros and cons of this strategy.
Mail Call: Listeners Take the Mic
- Comment from Ronald Yuravich: I heard your podcast of the Option Boot Camp episode talking about straddles. I don't like straddles because I would have a gain on one side, but it didn't cover the loss on the other side. I prefer strangles better, but only when vol is high, like in 2008. On September 15 I placed a trade on XOM after I got home from work that would be placed for the opening of the next day. I bought 3 JAN 09 90.00 strike calls and I bought 2 JAN 09 45.00 strike puts. XOM was trading around 65.00 a share at that time. The next morning when the markets had opened, I checked to see if my trades were placed, and they were. I was watching Bloomberg around 11:00 AM and saw that XOM was trading around 58.00 a share. I went online and closed the put side for an 18% gain. Later, when I was at work I received a text message that told me that my call side was in money, so I went online and sold the call side for a 34% gain, altogether I made 42% in less than a day. – Ron
- Question from Theodore Roland - To what do the hosts attribute the rise in popularity of the VXX ETF? How can an ETF based off the implied volatility of the VIX be such a popular product? Do you think retail traders should be using options on this product versus the actual VIX options?
- Question from Alex K- What is a risk reversal and when should a trader use this strategy?
Options Bootcamp 23: Straddles
Basic Training: Getting to know the fundamentals
- What is a Straddle? Why would you want to use it?
- Straddle pros and cons.
- Iron Butterflies and Iron Condors are straddles and strangles with protection.
- Gamma scalping is the only way to really make long straddles profitable over the long run.
- Exiting straddle positions is difficult to do effectively. Using straddles pre-earnings
- Scammers love to pitch straddles, saying "Make money in any market condition." Be careful.
Mail Call: Even bootcampers get mail privileges.
- Question from Alan Utchins, Baltimore, MD - I read with great interest the recent article about options trading in the New York Times. The article seemed to contradict everything you've discussed on this fine program. They highlighted several studies that they claimed prove that most options traders lose money. What is your response to this? Is this essentially a hit piece on the options market or does this author have some valid points?
- Question from Optrader - What books would you recommend about options trading (aside from Mr. Passarelli's, of course)?
Options Bootcamp: Exit Strategy
- Why is it so important to have an exit strategy?
- What are the rules of thumb when closing out positions?
- Should you be more aggressive when closing out long or short positions?
- What are the rules of thumb regarding when to roll you positions vs. closing?
Mail Call: Boot campers have so many questions.
Question from Teddy Z: Mark - Love the show! I've listened to every episode. I think I'm getting a handle of this stuff now. Just wanted to ask - What do you guys think about ETF options? Are there any you prefer over others? Perhaps that's a good topic for a future show.
Question from Alexander Gustaffson, Stockholm, Sweden: Guys, just want to let you know that you have a big following in Sweden. Maybe you should plan a live show in Stockholm one of these days? My question regards single stock futures. They are very popular in Europe but don't appear to have caught on very much in the U.S. I wonder why that is? Can you discuss the hedging of option positions with single stock futures - the pros & cons? Thank you!
Options Bootcamp 21: Playing Defense
Basic Training: Playing defense with options: it’s very important right now!
- Basic Defense: Protective Puts (full overview in Ep. 3)
- How do you hedge your position with protective puts?
- Intermediate Defense: Put Spreads and Ratio Put Spreads.
- Covered Calls - (full overview in Ep. 4) How do you generate income with a modest hedging impact?
- The Power of the Collar: combining the put and the call into a beast of an option. This is the favorite defensive strategy of most financial advisors who use options.
- The pros/cons of repeatedly doing zero cost collars.
- Volatility Defense: VIX Options/Futures. The myth of VIX's perfect inverse correlation- there are problems with relying on volatility as your only hedge, i.e. black swans, days when VIX outperforms, etc.
- The pros/cons of direct defense vs. indirect defense.
Mail Call: Hey recruits, what do you want to know?
- Question from Tina K. - When (if) should I consider volatility products as a hedge?
- Question from Mr_Zen - Can you explain the difference between iron condors and iron butterflies?
- Question from Alan O - What do the drill instructors think of the Minis so far? Are they worth exploring for basic options traders?
Basic Training: We present two choices for using options in lieu of stock:
Stock Replacement Strategy.
- How does it work? Examples include:
- An ITM leaps call purchase - requires premium over parity payment
- Selling a one month ITM put - for the more options savvy trader.
- By swapping out a LEAPS for an underlying, you get a much more preferable position from a Greeks perspective.
Stock Repair Strategy
Under the right set of circumstances, it can be very useful and practical. Appropriate for stocks that fall in value of 20-30%, that you feel within a few month can recoup half of it losses. How does it work?
Mail Call: Bootcampers get their questions answered.
- Question from M Higgins: My financial advisor is not a big fan of options. He keeps trying to steer me into annuities and life insurance policies instead. What do you guys of those products as investment vehicle instead of using options?
- Question from Mr. Anonymous: I've heard a number of options traders, including hosts on this network, use the term "legging" when referring to options trading. What does this term mean? Thanks for your help and for all of your fine options content. The Options Insider Radio Network is truly a unique options content destination for options traders.
- Question from T Biz: What do the drill instructors think of the potential jumbo/max S&P contract?
Options Bootcamp 19: Margin
Basic Training: The topic this week is margin
- What is margin?
- If I have leverage in my options, why do I need margin?
- Is it possible to not qualify for margin?
- Why do you need a cash account? What can/cannot you do with a cash account?
- What are some of the most common risks, mistakes or problems customers run into when implementing margin in their account?
- What are the benefits of portfolio margin over other, different types of margin?
Mail Call: Let our drill instructors answer your questions.
- Question from Jason Cruz, heyojayo: Would Bootcamp be able to detail the pros and cons of buying two 50 delta calls vs. one 100 delta call, or point me to an episode if there is one already?
- Question from Tad Briggs: What does the term "risk reversal" mean? What risk am I reversing? How should I use this strategy in my training?
Options Bootcamp 18: The Joys of Synthetics
Basic Training: Today's topic is Synthetics
- What is put/call parity?
- Example of put/call parity.
- What does it mean for your options trading?
- What are synthetics?
- What is a married put?
- Why knowledge of synthetics is important for successful options trading.
Mail Call: Fall in for listener questions.
- Question from EonJ: Does portfolio margin matter if I am just trading long verticals and ratio spreads?
- Question from Phil S., Santa Fe, NM: I attended an options seminar recently where they promoted the selling of credit spreads in Apple and Google. I'm still somewhat unclear on the concept however. What exactly is a credit spread and how does it differ from other spreads like straddles, call spreads, etc.? Thank you for your time. I just discovered your program and I'm looking forward to listening to your earlier episodes.
- Question from Ephram J.: I'm a CFP and I'm starting to add options to my asset mix. Does Sogotrade offer a platform and/or specialized tools for institutional/advisor customers?
- Question from Timtim409: What is meant by a "stock replacement strategy?"
Options Bootcamp 17: Should I Buy, or Should I Sell?
Options 101: The quintessential options debate -- buy options or sell them?
- Many options professionals lean toward "when in doubt palms out."
- Simplify the options universe into two segments of risk: directional risk and volatility risk.
- The use of delta and other Greeks when deciding or analyzing when to buy or sell options.
- Short premium pros and cons
- Long premium pros and cons
Mail Call: Recruits are asking a lot of questions.
- Question from Tim Nagerty: Mark and the other drill instructors have repeatedly stressed portfolio margin on this program, but I'm somewhat confused by this concept. Can the hosts explain the benefits of PM for an options trader? I have about $70k in my trading account right now. Is it worth it for me to transfer in the extra $30k to me the $100k limit to qualify for PM? Lastly, does SogoTrade/Wang Investments offer PM for its customers? Thanks, love the show!
- Question from Allison S., Spokane, WA: I thank you all for this wonderful program. Do you have any plans to take Options Bootcamp "on the road?" I'd love to meet you all in person.
- Question from Joey Beltran: I’ve heard the term "backspread" a few times. Where do it come from? What does it mean? How do you use them?
Options Bootcamp 16: Avoid Earnings Pitfalls with Options
Options Drills: How to play earnings through options plays. There are two basic approaches to earnings trading: long premium and short premium.
- Long Premium - PROS: Advantageous because you essentially receive free or dramatically reduced gamma with little decay in the weeks leading up to earnings. CONS: All of that decay comes out, and more, after the announcement. Also, much of the movement in the underlying occurs after-hours and is unavailable to options traders.
- Short Premium - PROS: Higher probability of success, need a substantial move post-earnings to lose money. CONS: Doesn’t collect decay until earnings event, potentially losses can be catastrophic can make it hard to sleep at night.
- How to analyze Greeks during earnings week.
- Different strategies to employ during earnings: Calendars, Straddles, Strangles & Butterflies
Mail Call: Our drill Sergeants show their softer side.
- Question from Stock Doctor: Why can't I trade options after hours? I'm missing most of the stock movement if I wait until the next open.
- Question from Timothy Stephens, Tulsa, OK: If I buy a 3-month ATM calendar spread prior to earnings, am I correct in saying that I'm net long vega and short gamma? If so, what type of earnings announcement would benefit me the most - an as-expected announcement where the stock stays at the ATM strike for my short gamma or a wildly unexpected announcement where the stock moves dramatically for my long vega? Which risk metric is king in the time spread equation - gamma or vega? Thank you very much for you insight and for producing this informative program.
- Question from Rich T: Does Sogo offer reduced commissions to close out short options trading for a nickel or less?
Options Bootcamp 15: Secrets of Exercise and Assignment
Basic Training: Exercise, Assignment, and Settlement.
There are two styles of options you will encounter -- American and European style. What's the process when your exercises and assignments are determined? When do those contracts settle? How do I determine if my options are going to be exercised or assigned against me? What is pin risk? What is a dividend trade?
Mail Bag: Even options recruits get mail privileges. Send those letters in.
- Email question from Alan P - Michigan: You guys have talked about the difficulties of executing multi-leg spreads in the past. What should I, as a retail options trader, be aware of when executing my spreads to guarantee better execution?
- Tweet from Riley: Are there any plans to speed up exercise and settlement in the options market?
- Facebook question from Dan Thomas: Isn't it a good thing for my call that aren't in the money to be exercised against me? Doesn't that mean that I'm locking in a profit by buying or selling stock at a more favorable price then where it's currently trading?
Options Bootcamp 14: Advanced Spreads
Basic Training: Spreads with wings.
What is a butterfly? Iron butterfly? What is a condor? Iron condor?
Mail Call: Even bootcampers get mail privileges
- Email from Alan Rick: What makes a spread "iron?" What is the difference between an iron butterfly and a regular butterfly, iron condor, etc. Thanks and please keep up the show; I'm learning a ton!
- Email from Alan Charter: If I think a stock's volatility is elevated going into earnings, should I write an iron condor or an iron butterfly? Which is the better trade?
- Tweet from Mr. Dockerson: AAPL! AAPL! AAPL! What are your favorite Apple spreads right now?
Options Bootcamp 13: Spreads, Part One
Basic Training: A quick review of spreads.
What are spreads? Why should we use spreads? How do the Greeks work with spreads? How do you calculate, performance, etc? Why do I want to net reduce my delta and exposure in these elements? What are some of the downsides to spreads?
Options Drills: Vertical Spreads
Verticals - What are they? Long verticals vs. Short verticals. Credit spreads vs. debit spreads. You'll experience the maximum profit when the underlying moves to or sits at the short strike of that spread. What are collared spreads?
Mail Call: It’s your turn to pick on the drill instructors.
TWEET FROM PHIL S: What's the deal with options spreads? Why can't my orders get filled? How do we fix this problem?
JOHN’S CUSTOMER QUESTION: How do I know if a spread is worth doing or has some "trade" value?
Options Bootcamp 12: Weekly Options
Basic Training: What are weekly options? How do the Greeks differ in the weeklies? How are the weeklies traded?
Option Drills: Selling strategies for weekly options. Diagonal and vertical spreads, straddles, ratios, etc. What are some strategies for selling weeklies around earnings?
Mail Call: Taking on your questions.
- Tweet from @JJacks: Does Sogo trade offer weekly options? What approval level do I need to trade them?
- Email from Theodore in Houston, TX: How long does it really take to learn options and become a good options trader?
- Email from Alex S. in Tusla, OK: My financial advisor doesn't know anything about options and doesn't seem inclined to learn. Should I fire him? If so, where do I find an advisor who uses options?
Options Bootcamp 11: Busting Myths and Taking Names
Basic Training: Busting Options Myths:
1) Market makers know where the stops are, therefore market makers who take the other side of trades are taking advantage of retail customers.
2) The only way to trade profitably is to be a dark side short premium seller. Plus, credit spreads are better than debit spreads.
3) I only need to be good at one trading strategy.
4) Option trades and spreads in particular are difficult to
execute and should only be handled by professionals with years of experience.
5) Options are too risky for the retail customers.
Mail Call: Our drill instructors answer your questions.
Email From Alan Donson: Your format is excellent. Please add more pure options trade/content and feature John Critchley. Your intense focus on real options information with a view to options profits, not tedious theory is highly appreciated.
TWEET FROM @ReallyG: You suggested put buy as an ASET to limit buy order? Certainly not in the gap below strike scenario your guests were discussing.
Options Bootcamp 10: Common Trading Mistakes
Basic Training: Your COs cover the most common options trading mistakes:
- Writing long-term options for income.
- Using market orders in illiquid options.
- Not closing options offered at a nickel.
- Buying worthless OTM "lottery ticket" options.
- Selling when implied volatility is high buying when it's low.
- Over-adjusting income trades.
- Believing that sell stops are better than wasting premium on buying downside puts for protection.
Mail Call: Answering your options questions
Via email from John S. - Which is the better method of portfolio protection, a put option or a stop order?
Via email from Phil K. - I’m very interested in weekly options. They appear to be a very popular product right now. Can you do a show about weekly options for those of us who are thinking about diving into these products? Perhaps common mistakes, misconceptions, myths, errors, etc. Thanks a million. I just discovered the show and I've already learned a ton. Tell John I'm on the SogoTrade site right now and about to pull the trigger.
Via Twitter from @Exxav: What do you mean by implied volatility? What is the difference between implied vol and historical vol?
We're going to bust many of the myth and misconceptions the permeate through the options market, particularly to those new to retail options.
1. Somewhere between 75-80% (or even more) of options expire worthless every month, therefore you should be an options buyer.
2. Selling options is a risk-less, or near risk-less, endeavor.
3. All out of the money options have higher volatility than at the money or in the money options.
4. Calls go lower, stock goes higher - How could this possible be?
Tweet from @UncleJessie - I love Bootcamp, it's transformed me into an options trader. I'm also new to Sogo trade, can John explain why his platform is the best for options traders - commissions aside.
Facebook question from Tim Stevens - As a new options trader, should I focus my efforts on maximizing delta or theta? I primarily buy calls/verticals.
Tweet from @Eddie66 - Hey drill instructors, I love the Bootcamp! I'm looking to hedge my portfolio - Spy puts or Vix calls?
Tweet from @Thessa - Sogo thanks fro bringing back Bootcamp, it's my favorite show. Do you offer portfolio margining over there at Sogo?
Tweet from @AstroX - What is your favorite options book for beginning/intermediate options traders?
Options Bootcamp 8: It’s All Greek to Me
Basic Training: Time to revisit the Greeks:
· Delta - The chief Greek
· Gamma - The rate of change of Delta, as the underlying stock changes, but sometimes overwhelming to beginners.
· Theta - Time decay. The rate of change of an option given a change in the time to expiration.
· Vega - The king of the Greeks. The rate of change of an option price, as a result of change in implied volatility.
What is the difference between a retail and professional options trader?
Mail Call: Reaching out for a bootcamp lifeline.
· Tweet from Tex05: Mark, why do you always say that retail options traders trade Delta and professionals trade Vega?
· Email question from Evan - Atlanta, GA: Can you guys explain the importance of dividends to an options trader? That seems particularly important given the recent snafu over SPY dividends. Why are dividends important to options traders and how should it affect my options trading?
· Facebook question from Mike Debrasse: I'm hearing a lot about this being a "low volatility environment." Apparently, that makes it difficult for options traders. Why is that? Why does options volume drop so dramatically when volatility goes down? Should I wait to trade options before volatility/vega goes up? Thanks for your help.
Options Bootcamp Episode 7: Back to Basics
Roll Call: Mark and Dan introduce the newest Drill Instructor, John Critchley from SogoTrade. Find out more about SogoTrade, from its philosophy to its commission structure.
Basic Training: Why should someone trade options? What’s in it for different levels of traders? Will you be able to drive a Maserati tomorrow? How options work: the honest breakdown. Believe it or not, options can actually reduce risk. The negative connotation of derivatives. The concept of the multiplier. Why trade options?
Mail Call: Giving listeners a chance to steer the discussion.
- Can you exercise options early?
- What happens when options are exercised?
- How options settlement works.
- When is premium credited to an account?
Options Bootcamp 6: Complex Spreads
Basic Training: Today we're going to dive into complex spreads. What are complex spreads? We're usually talking multi-leg spreads. Calendars are when you buy and sell a call/put at the same strike price, but in a different month. Diagonals, a combination of a vertical and horizontal spread, can be a proxy to a covered call. The concept of the ratio, 1-to-1 on a simple spread, but you can play with the ratio. A stock repair strategy using diagonals, ratio risk reversals and collars.
Roll Call: Mark and Dan sit down with Craig Pinkston, Senior Director of Operations at Zecco.
Mail Call: Does the Theta decay occur just at open/close or is it a gradual decay throughout the day? (Via Facebook from Jason Cruz)
Options Bootcamp 5: Spread Trading
Basic Training: Today we're going to dive into spreads. Spreads are really the defining characteristics of options. What is a spread? Why would you do a spread vs. trading an option outright? Max value of a spread is the differential between the two strike prices. Long call spread, aka vertical, examples with everyone's favorite stock XYZ. Spreads have components called legs - they are the individual parts of the spread
Roll Call: Mark and Dan sit down with Christopher Newman, the Zecco Trading Vice President of Customer Service, and run him through a few questions:
- A big part of the brokerage experience is support. What are some of the things Zecco does to ensure the customer has a great experience when they need support?
- If I'm a Zecco customer, or a potential Zecco customer, how can I reach out to get support? What methods of communication does Zecco offer?
- If I'm an options trader, will Zecco go the extra mile for me on the phone? Explain what options traders can expect in terms of phone support.
Email from Stephen Maxes, Des Moines, IA - I'm interested in trading options spread. Do I need a special options account to do this or does the regular option account work for spreads as well? Thanks and please keep doing the show. It has been very helpful for me.
Options Bootcamp 4: Selling Options
Basic Training: Turning to the dark side! It's time to learn how to sell options. Why sell options? Time decay and theta. Collecting theta, instead of paying theta, turning an enemy into a powerful ally.
The Naked Call
The Naked Short Put
Mail Call: Facebook questions from the Zecco community.
From Chad: What is the difference between a married put and a covered call?
From Austin: I have an IRA account which is approved for basic options strategies. My investment objective is to preserve capital and generate additional income while remaining risk adverse. What basic strategies can I use in this situation?
BASIC TRAINING - BUYING OPTIONS
- Buying Options, with special guest Joe Burgoyne from the Options Industry Council.
- Benefits & Downsides of buying options.
- The Greeks most relevant to novice options buyers.
- Bullish Example: Buying a call
- Bearish/Defensive Example: Buying a put.
- Common options buying mistakes: Buying OTM options vs ATM/ITM options, Intrinsic vs. Extrinsic value, Loading up before earnings.
Mark and Dan sit down with this episode's guest Benny Joseph to discuss the Zecco mobile app. They cover a wide range of topics including:
- Can it execute options orders?
- Can you access the greeks of your position via the mobile app?
- Can you execute complex, multi-leg spreads via the mobile app?
- What features of the Zecco mobile app set it apart from the rest of the pack?
- What has the feedback been since launching this new app?
Mark and Dan answer questions from Zecco's Facebook community including:
- From Arsalan: If I buy a call option and when it is time to exercise it, will that be done automatically (from the strike price or by the cost basis price, which would be the premium+strike?) or will I need to do something, as well as if I don't have the buying power to exercise the option, what happens, can I just have it buy and sell the stock right then and there and just have the profit.
- From Mike: Is Delta a measure of how much the option moves in relation to the stock? Example. A delta of 0.7 would mean if the stock moves 10%, the option would move 7%?
Options Bootcamp 2: The Greeks
- Risk variables (aka "the Greeks") are Delta, gamma, theta, and vega.
- Delta: The measure of the sensitivity of the options' price given a change in the underlying instrument. It's also used to view the likelihood of whether an option will expire in-the-money.
- Gamma: The rate of change of an options' delta given the change in the underlying instrument.
- Theta: The rate of change of an options' value given a change in the number of days until an options' expiration.
- Vega: The rate of change in an options' value given the change in implied volatility.
- How professional traders use the Greeks and ways that novice traders can use them, too. It's a symbiotic relationship.
- John Foley joins Mark and Dan to discuss the how customers can use the Greeks to enhance their trading, where they can find the information in the Zecco platform, and how to avoid mistakes they have made in the past.
- Host: Mark Longo, The Options Insider
- Co-Host: Dan Passarelli, Market Taker Mentoring
- Guests: Michael Raneri and Tony Leach from Zecco
Roll Call: Mark and Dan are joined by Tony Leach and Michael Raneri from Zecco. They touch on the need for more options education. Why did Zecco want to educate the retail options trading audience? For Zecco, why options, and why now? Zecco's new trading platform: The single trading page approach, contextual trading, help mode, ease of spread execution, the depth of spread calculations within the strategy chain, customization options, ratio spreads, and the many functions available in the mobile app. Zecco's social media initiatives. The importance of knowing how to effectively use options in your portfolio.