Dan, I congratulate you on listening well to your members. I think it is coming together now and, for me, a couple of these trades have already turned the lights on, particularly this two option analysis. It makes it very easy to see the potential impact and risks. The stop loss analysis was also interesting and I confess I didn’t look at it quite that way before. Could have saved me a few bucks and I could have escaped the executive director’s ire from time to time.
One question that is raised when you indicate the earnings date is how to trade around those dates with options. It is not as significant with earnings in far out months than in the same month of the trade, but the question is a general one.
One kind of trade I would love to see somewhere down the line is the set-up for exhaustion or capitulation. I’m anxious to see how you handle those when the opportunity comes. I’d also like to see how you handle options for stock with a high dividend yield. I’ll be patient and wait for those lessons to come over time.
I’m used to faster turnover of trades, but I also am beginning to see the advantage of longer term options which don’t require having to have fingers poised at the keyboard at all times. It might also allow for a relaxed vacation instead of continually finding hot spots along the trail. THNX, well done and I’m sure it will get better. jolinla
This might be a dumb question but, are these uncovered calls that we are buying? since I’ve not heard Dan say that it needed to be cover. The only two that I heard that needed to be cover was BAC and GM.
@Charlie- if you are buying calls to open, they are neither covered nor uncovered, they are just calls. Look at it this way: the adjective refers to the potential liability of the call writer- as a writer, you are either naked (ie at that moment you have potentially unlimited liability because you do not own the stock you may be called on to deliver) or you are covered (at that moment, your obligation is covered, finite, known, taken care of, because you own or control the stock that you may be called on to deliver)
As a call buyer, you don’t have an obligation- you are buying a right- so, there is nothing that you need to cover.
Since I am approved only for covered calls, is there some way to convert these ideas to covered call options? Would this even be a smart thing to try to do? I gather these are long calls which I’m not approved to do. Thanks,
Linda…you really need to get approved to buy options…both Calls and Puts. I find it interesting that your broker would let you write a covered call and not let you buy a call. With exception of the time element, buying calls is no more riskly than buying a stock…the most you can lose is whatever you paid for the option.
If what you say is true the only way to do the trade as a covered call trade would be to buy shares of SWN and then write a covered call on those shares. If the stock does move higher as anticipated then you would make money…however please note that the covered call strategy should only be used if you want to own the stock. Given the longer term downtrend in this stock I would not be comfortable owning the shares until more of a base is formed to give me confidence in the floor. The purchase call strategy Dan is offering up really looks good as the stock is showing nice signs of possible future appreciation, however if the position goes against us it will be easy to get out with a small loss. Buying the stock now and writing covered calls puts a lot more $$ at risk and getting out is a little more problematic.
DAN – Can you please provide TA for the stop (if you did, I missed it)? Is it as simple 30%? Behind the scenes, you’ve calculated the delta to 50 dma? etc. Thank you for all the hard work. OMM is awesome! jim
Dan, I just watched both videos and I think you’re nailing it. The format of the SWN is perfect. I’m a seasoned options trader and I like the format. You provided the trade and the backing with the technicals so I can understand how you came up with the trade. This helps me develop so I can find other trades on my own. The time of the video is fine. I feel it important to make the video as long as it takes to discuss the technicals and for the newbies, I think you’ve put enough info to make it clear. I think you’re right on for anyone not understanding this, they need to go review the training videos.
Thanks for the graph Dan. Really easy to understand this trade. Some people can think in theory, but others think more concretely. I’m a concrete thinker. Thanks.
Here’s some “user feedback”…I find it difficult to sugggest any improvements to your most recent format…the recommendations and the logic behind them are very clear. I really like what you have done.
My concerns go to 2 issues other than format:
>given that the market appears to be a bit stretched (i.e. “overbought”) and could easily “pullback”, our (appropriate) trading discpline could very well stop us out of May or June calls……having been a SMM member for 2 years I would surmise that this is why you recommend starting with a “small” position.
>execution of your recommendations..i.e. can we get fills at or under your “buy price recommendations.” We are just in the Beta test and your recommendations already appear to be moving prices…what happens when you expand the OMM service?….obviously you recognize this and it is helpful that you are providing a little more lattitude on the buy side, as you have done with SWN and UNP…I also look forward to learning how to use the “Auto-Trade” feature that you reference…..and wonder if this feature is available via Schwab, as well as Option Monster. (I will research to see what I can learn re: Schwab.)
OMM–Now I have a bona fide track to run on. Am truly juiced. And, your brand of casual yet focused delivery is so easy to process. Really look forward to both the SMM daily and the OMM periodic videos. Hope OMM grows to where you do them daily as well. To add to my fellow OMMer, Gary Purkart, any chance you will be including OptionsXpress in the Auto-Trade offerings?
Dan, I like this format much better. Trade numbers at the beginning, then follow with the trade description and chart analysis and trade theory….good job.
Thanks to you and Gary for your hard work and getting OMM working.
Hi, Dan,
Thanks for the simplicity with the format. As a beginner, it was easier for me to follow along. Although I have watched the educational videos several times, I struggled with ITM and OTM concepts. But a light bulb went off today; I was able to visualize the two when I watched the chart analysis in the video. Thanks again. Also, should I cancel my order for CRUS to buy at 2.20 or watch for a lower option price down from $2.525 and then make the purchase for the 16CALL.
I really like the new format. However I think it would be a bit more complete if Delta were added to the chart below the video. Dan, I also think it would help everyone if you discussed just a bit more about why you choose a particular strike price and expiration month versus all the other choices available.
Yes, I’ve wondered that also. I guess because it’s a safer bet, but on the last one SWN, why was one strike price higher than the stock price and one was lower. Is it a lot riskier to choose a slightly higher strike price? Also, why did Dan choose calls for May and June rather than Feb or March? What’s the reasoning? If making the SWN trade, what do I ask for? For BAC and GM we were told to ask for a ‘buy-write with net debit of 32.95.’ If I can make this trade. how do I ask for it? Thanks, Linda
This may seem obvious – but – on the display below the video consider displaying the words – “buy” call or “sell” call. I take it from listening to the videos that we are buying the call. Is that correct?
Hi Dan, great format; simple and straight forward. I do have some questions related to stop loss. I’ve been trading Options for awhile, one of things I struggle most is setting the stops given the spread between ask and bid is usually wider than the stock itself. What often happen is by the time my stop is triggered, the price already went below my limit price and it never gets sold. Some of things I’ve been trying to do is use scale in/out strategy that you often advocate for the stocks. e.g. I would buy 10 contracts, if it goes up 20-30% or if the stock is getting close to a resistance point, I would sell 5 of the contracts and looking to reload if it consolidates little bit. So far, that strategy is hit and miss. Can you comment on how the stop loss strategy for options (especially if the options are not very liquid and spread between ask and bid is wide). thx!
dmb..regarding stops…what I do is place stops with contingent orders based on the actual stock price v the option price…Since I derive support/resistance and position risk from the price of the stock…as Dan did in his video tonight, I find setting a market order to sell my option based on a contingent stock price works really well. Now with that said…I tend to trade high delta options…so I am pretty much assured that the stock price and option price will be moving in tandem.
DAN – The straight forward approach in the new format really works for me. I understand the target, does the stop equate to around a $36 stock price, which looks to me like a support level. Your explanation of how you used the delta in the CRUS trade was helpful and I missed that in this trade. We appreciate your hard work and passion at making OMM the best!
Since I am approved only for covered calls, is there some way to convert these ideas for UNP SWN to covered call options? Would this even be a smart thing to try to do? I gather these are long calls which I’m not approved to do. Thanks,
Have you asked your broker to upgrade your option trading level? With a phone call, Schwab changed my level 0 to level 1 so I could make my first option trade (CRUS). Just ask them.
Linda,
I spoke to Fidelity and they told me that all I have to do is “reapply”, which is code for lie about your experience. It is not a big deal. They are just covering their tails.
After all, you could put your whole portfolio on “Enron” if you want to. Its not their call.
Dan,
I understand your goal for a video with highlights on here is,what it is, and these are the trades, but please continue with the information that leads up to your selections including the details and strategy. Thanks for that you delivered so far, it helps to understand the operations and reasoning correlating the options pricing to the stock preformance.
Thanks. As always Dan, your presentation is clear, concise, and thoroughly researched. I like the conservative approach to these options. After trading options on and off for many years, I’m expecting to keep learning and improve my success rate with your guidance. Plenty of time to make some good trades, no need to chase. “There’s another bus coming in ten minutes”. Goldbug
Dan,
Am enjoying the general format and I reiterate, you can’t give too much explanation. Those of us who know what we are doing can
gleen what they need from the tables while the rest of us (I suspect the majority) look forward to and need the intense explanation in order to understand. I am still a little foggy on a delta of 50 or so not needing more of a stock run to see the profits your are suggesting in the tables. It would seem that the stock would have to rise roughly twice as much in order to reach your profit targets.
shopguy, Calculating the relative moves in the option and the underlying stock for the short term is usually straight forward as you suggest but, this is a longer timeframe trade.
As expiration gets closer the delta of in the money (ITM) options approaches 1 (it is 1 at expiration or a bit sooner) while the delta of out of the money (OTM) options approaches 0 (and is 0 at expiration) and the deeper in the money the option is the sooner delta equals 1. This is due to the probability that the option will finish ITM or OTM. That probability changes due to many market factors between the time the option is purchased and expiration date. (The greeks explain it all but these trades are designed to be simple as we are just starting out.)
Dan also mentioned in the video that the trade is likely to hit the target before expiration so there will still be some time value in the option. The combination of the increase in delta plus the remaining time value is how the target is reached.
Dan,
I very much appreciate and will heed the “cooler heads” advice on having the patience to wait for the options activity to settle down in the event the prices run up first thing in the morning. Patience is perhaps one of the most difficult aspects of trading to master.
-GP
Regarding presentation format I would prefer to see the basic parameters of the trade presented including stock, last price, target, option price, pay no more than ___, target return, stop/risk. This is good. However, I would also like to see a brief presentation of the stock chart’s technical basis for the option’s target price and stop including the delta that is being used. This presentation need not be long but it will help me understand the rationale behind the trade. just my opinion.
This is pretty well explained. How the numbers work with stop losses. It appears to be quite close to buying regular stock with a stop loss, or trailing stop to protect from the down side. If I am getting this, the amount we are optioning, which is hopefully getting called out .. is minor enough that if all hell breaks loose and we get stopped out, the loss is not gonna kill us. Am I close? Bulls make money, Bears make money.. we are not pigs/hogs so we don’y get slaughtered? The Delta charts Dan is taking car of. The prices we pay for the contract… eventually that would be good info to have available.. maybe it is?? Ane then it would be easier yet to understand where Dan is coming from. ..
SWN – bot the $37 June calls at $3.90. Have gone through the video a couple times. Not sure how we’ll trade out of this, but there’s time to ‘review’ the video and ask questions. I did by the CRUS $17 call last week. At 1.70. My video, for some reason, kept stopping and having to reset… so, somehow in my scramble, I wrote down $17 instead of $16. I’m thankful that this will likely be an okay mistake… watching it closely dor the education. The lowest that trade could have been had was $16/$2.25. Now, this SWN trade makes sense for either option, 1 or 2. Very good explanation of the chart Dan… and honestly, with everything we need to know, the ‘step by step box chart’ you’ve posted is super easy for those who totally get this… and then your fuller chart explanation is wonderful for those of us who are just starting. Really great video! Thank you… Everyone seems to have a cold! Wonder if it’s catchy through OMM… or SMM? Cuz, even my cats have a cold! And I know Tanya was sick. Geesh… Must be January. Have a great one everybody! :>
Dan, good formatt and explanation. Unfortunately, this is the first of your trading ideas I’ve been able to review and consider. So, just to be clear, this, and all “calls” are and will be covered calls? Meaning, if I buy (5) contracts that I should be owning 500 shares of the underlying stock? I’ll review your earlier videos regarding terminalogy on how to state the buy with my broker, similar to what Linda asked above, ie: buy-write with net debit of ___?
Thanks Dan. Please don’t apologize regarding the length of your videos. Like someone said earlier, they can push the stop button if they want. It is there choice to listen. For me, well I am learning lots and love the way you explain, a wealth of knowledge in each one. Keep up the good work. I really appreciate all that you and Gary and the team have put into what you are developing.
Did one of those videos show how to set stops ? I think I have it right, SWN sell to close at $2.20? I understand stops with stock which is entirely logical, but the vocabulary with options is strange. This is obviously my first trade.
Susan, this was a June Call option. Nothing happens automatically until options expiration in June. However, if the Call option goes in the money before June you have the RIGHT to exercise your option at any time for a profit. I believe Dan wanted to wait until the option was worth $6.50 for a 110% profit. So when, and if, it reaches that value we will exercise that option to buy the stock at either $37 or $39 and turn around and sell it for $6.50 for a nice profit! Get it?
You don’t have to take possession of the stock, you simply “sell to close” the optrion position
Dennis Arkwright says:
So you are saying my broker will only charge me a fee for STC the Call option and not for a stock transaction fee?
Paul says:
Yes, as long as you exercise the option before the expiration date
Peter says:
Dan, Is it too late to enter the trade or should we jump in on todays weakness? Thanks for the slow and steady teaching process….learning AND making money!
DAN
I know you are very busy, but I hope you get a chance to read and answer this. I remember you saying that you wouldn’t be posting in the OMM forum. I don’t know if you you have time to read both the forum and these posts or if we have to email you, so I’m taking a chance that you might see this.
My self like some others are wondering if we should be out of SWN. SWN and UNP were my first option trades. I have kept my stop on SWN at $2.90 as you originally sugested. From reading the forum It seems like some of the experienced option traders have already sold theirs. I did not for several reasons. First I figured you would let us know if we should have sold the past day or so. Second I wasn’t sure if I should bail on the trade since we have more time. Just don’t have this kind of experience and judgement yet. Thanks for OMM and the forum and Happy Birthday to you and Gary. Marian
Seems like there’s a typo in the tables under the video..
Option #2, should be pay no more than $3.10, not $4.10
BTW- great format for the videos with the trade upfront and tabled below then with explanations afterwards!
Hi Dan,
You have different sets of numbers on the video and message. Which ones should we consider. Thanks
I’ll echo the first two posters… the numbers in the video do not match the posted numbers.
In option #1…
$4.10 or $4.20?
$7.50 or $8.50?
$2.70 or $2.90?
In option #2…
$3.10 or $4.10?
$6.25 or $6.50?
Dan… besides this little snags, this new presentation is a whole lot better!
Dan, I congratulate you on listening well to your members. I think it is coming together now and, for me, a couple of these trades have already turned the lights on, particularly this two option analysis. It makes it very easy to see the potential impact and risks. The stop loss analysis was also interesting and I confess I didn’t look at it quite that way before. Could have saved me a few bucks and I could have escaped the executive director’s ire from time to time.
One question that is raised when you indicate the earnings date is how to trade around those dates with options. It is not as significant with earnings in far out months than in the same month of the trade, but the question is a general one.
One kind of trade I would love to see somewhere down the line is the set-up for exhaustion or capitulation. I’m anxious to see how you handle those when the opportunity comes. I’d also like to see how you handle options for stock with a high dividend yield. I’ll be patient and wait for those lessons to come over time.
I’m used to faster turnover of trades, but I also am beginning to see the advantage of longer term options which don’t require having to have fingers poised at the keyboard at all times. It might also allow for a relaxed vacation instead of continually finding hot spots along the trail. THNX, well done and I’m sure it will get better. jolinla
This might be a dumb question but, are these uncovered calls that we are buying? since I’ve not heard Dan say that it needed to be cover. The only two that I heard that needed to be cover was BAC and GM.
Correct. Uncovered (not naked). Buy-to-open. Max risk should you choose to not have a stop is what you pay for the contract ($3.95 as detailed).
@Charlie- if you are buying calls to open, they are neither covered nor uncovered, they are just calls. Look at it this way: the adjective refers to the potential liability of the call writer- as a writer, you are either naked (ie at that moment you have potentially unlimited liability because you do not own the stock you may be called on to deliver) or you are covered (at that moment, your obligation is covered, finite, known, taken care of, because you own or control the stock that you may be called on to deliver)
As a call buyer, you don’t have an obligation- you are buying a right- so, there is nothing that you need to cover.
Since I am approved only for covered calls, is there some way to convert these ideas to covered call options? Would this even be a smart thing to try to do? I gather these are long calls which I’m not approved to do. Thanks,
Linda
Linda…you really need to get approved to buy options…both Calls and Puts. I find it interesting that your broker would let you write a covered call and not let you buy a call. With exception of the time element, buying calls is no more riskly than buying a stock…the most you can lose is whatever you paid for the option.
If what you say is true the only way to do the trade as a covered call trade would be to buy shares of SWN and then write a covered call on those shares. If the stock does move higher as anticipated then you would make money…however please note that the covered call strategy should only be used if you want to own the stock. Given the longer term downtrend in this stock I would not be comfortable owning the shares until more of a base is formed to give me confidence in the floor. The purchase call strategy Dan is offering up really looks good as the stock is showing nice signs of possible future appreciation, however if the position goes against us it will be easy to get out with a small loss. Buying the stock now and writing covered calls puts a lot more $$ at risk and getting out is a little more problematic.
Thank you, Big Lad. I really appreciate all the detail. Exactly what I needed. Hope you have a good day. Linda
Just ask your brocker to raise your option level. Just explain to them you never want to be aproved to buy or sell naked.
DAN – Can you please provide TA for the stop (if you did, I missed it)? Is it as simple 30%? Behind the scenes, you’ve calculated the delta to 50 dma? etc. Thank you for all the hard work. OMM is awesome! jim
Dan, I just watched both videos and I think you’re nailing it. The format of the SWN is perfect. I’m a seasoned options trader and I like the format. You provided the trade and the backing with the technicals so I can understand how you came up with the trade. This helps me develop so I can find other trades on my own. The time of the video is fine. I feel it important to make the video as long as it takes to discuss the technicals and for the newbies, I think you’ve put enough info to make it clear. I think you’re right on for anyone not understanding this, they need to go review the training videos.
Mike
Great video. Don’t worry about length. Most people know how to turn it off if they get tired of listening.
DAN —Love the format –Perfect. Gives me the trade and if I want, the analysis. We essentially have 4 option trades.
Use the figures in the video, Team. We are changing out the numbers below the video.
TO BE CLEAR: The VIDEO is correct. The grid below the video is INCORRECT.
Thanks…and sorry for the “confusement”.
Dan
Thanks for the graph Dan. Really easy to understand this trade. Some people can think in theory, but others think more concretely. I’m a concrete thinker. Thanks.
In spite of the typos, Dan, the presentation is perfect and I really like the format. Thanks
Dan:
Here’s some “user feedback”…I find it difficult to sugggest any improvements to your most recent format…the recommendations and the logic behind them are very clear. I really like what you have done.
My concerns go to 2 issues other than format:
>given that the market appears to be a bit stretched (i.e. “overbought”) and could easily “pullback”, our (appropriate) trading discpline could very well stop us out of May or June calls……having been a SMM member for 2 years I would surmise that this is why you recommend starting with a “small” position.
>execution of your recommendations..i.e. can we get fills at or under your “buy price recommendations.” We are just in the Beta test and your recommendations already appear to be moving prices…what happens when you expand the OMM service?….obviously you recognize this and it is helpful that you are providing a little more lattitude on the buy side, as you have done with SWN and UNP…I also look forward to learning how to use the “Auto-Trade” feature that you reference…..and wonder if this feature is available via Schwab, as well as Option Monster. (I will research to see what I can learn re: Schwab.)
Norman Simon
OMM–Now I have a bona fide track to run on. Am truly juiced. And, your brand of casual yet focused delivery is so easy to process. Really look forward to both the SMM daily and the OMM periodic videos. Hope OMM grows to where you do them daily as well. To add to my fellow OMMer, Gary Purkart, any chance you will be including OptionsXpress in the Auto-Trade offerings?
Dan, please tell us the current Delta for either SWN trade. Many thanks for the excellent presentation.
BK
Dan, it’s great to see the chart under the video. It’s clear, concise and useful. Thank you so much ! (hope it continues : )
Dan, I like this format much better. Trade numbers at the beginning, then follow with the trade description and chart analysis and trade theory….good job.
Thanks to you and Gary for your hard work and getting OMM working.
Dan-This format is excellent! Exactly what I’m looking for…thank you
Hi, Dan,
Thanks for the simplicity with the format. As a beginner, it was easier for me to follow along. Although I have watched the educational videos several times, I struggled with ITM and OTM concepts. But a light bulb went off today; I was able to visualize the two when I watched the chart analysis in the video. Thanks again. Also, should I cancel my order for CRUS to buy at 2.20 or watch for a lower option price down from $2.525 and then make the purchase for the 16CALL.
All have to say is” U Did IT Again, Dan, FANTASTIC!!! Thank You : 0 ))
Hey OMM members … just so you know Dan has already addressed the discrepency between the video and image below video. Check out his post in this blog.
Dan … nice improvement on the format.
Dan- again, great format and trade. The summary charts are a great addition, and having 2 trades to consider is also a big plus.
I really like the new format. However I think it would be a bit more complete if Delta were added to the chart below the video. Dan, I also think it would help everyone if you discussed just a bit more about why you choose a particular strike price and expiration month versus all the other choices available.
Great job Gary and Dan !!
Yes, I’ve wondered that also. I guess because it’s a safer bet, but on the last one SWN, why was one strike price higher than the stock price and one was lower. Is it a lot riskier to choose a slightly higher strike price? Also, why did Dan choose calls for May and June rather than Feb or March? What’s the reasoning? If making the SWN trade, what do I ask for? For BAC and GM we were told to ask for a ‘buy-write with net debit of 32.95.’ If I can make this trade. how do I ask for it? Thanks, Linda
Perfecto! Thanks Dan.
This may seem obvious – but – on the display below the video consider displaying the words – “buy” call or “sell” call. I take it from listening to the videos that we are buying the call. Is that correct?
Hi Dan, great format; simple and straight forward. I do have some questions related to stop loss. I’ve been trading Options for awhile, one of things I struggle most is setting the stops given the spread between ask and bid is usually wider than the stock itself. What often happen is by the time my stop is triggered, the price already went below my limit price and it never gets sold. Some of things I’ve been trying to do is use scale in/out strategy that you often advocate for the stocks. e.g. I would buy 10 contracts, if it goes up 20-30% or if the stock is getting close to a resistance point, I would sell 5 of the contracts and looking to reload if it consolidates little bit. So far, that strategy is hit and miss. Can you comment on how the stop loss strategy for options (especially if the options are not very liquid and spread between ask and bid is wide). thx!
dmb..regarding stops…what I do is place stops with contingent orders based on the actual stock price v the option price…Since I derive support/resistance and position risk from the price of the stock…as Dan did in his video tonight, I find setting a market order to sell my option based on a contingent stock price works really well. Now with that said…I tend to trade high delta options…so I am pretty much assured that the stock price and option price will be moving in tandem.
Dan,
Don’t worry about the length of the videos. I think they are perfect. Great explanation of why we want to take the trade.
DAN – The straight forward approach in the new format really works for me. I understand the target, does the stop equate to around a $36 stock price, which looks to me like a support level. Your explanation of how you used the delta in the CRUS trade was helpful and I missed that in this trade. We appreciate your hard work and passion at making OMM the best!
Since I am approved only for covered calls, is there some way to convert these ideas for UNP SWN to covered call options? Would this even be a smart thing to try to do? I gather these are long calls which I’m not approved to do. Thanks,
Linda,
Have you asked your broker to upgrade your option trading level? With a phone call, Schwab changed my level 0 to level 1 so I could make my first option trade (CRUS). Just ask them.
Linda,
I spoke to Fidelity and they told me that all I have to do is “reapply”, which is code for lie about your experience. It is not a big deal. They are just covering their tails.
After all, you could put your whole portfolio on “Enron” if you want to. Its not their call.
Thanks Dan I think I am starting to Learn.And It feels good JP
Dan,
I understand your goal for a video with highlights on here is,what it is, and these are the trades, but please continue with the information that leads up to your selections including the details and strategy. Thanks for that you delivered so far, it helps to understand the operations and reasoning correlating the options pricing to the stock preformance.
Thanks. As always Dan, your presentation is clear, concise, and thoroughly researched. I like the conservative approach to these options. After trading options on and off for many years, I’m expecting to keep learning and improve my success rate with your guidance. Plenty of time to make some good trades, no need to chase. “There’s another bus coming in ten minutes”. Goldbug
Dan…I am loving this trade idea and the format…Thank you…Gary thank your again for all your hard work on the site.
Dan,
Am enjoying the general format and I reiterate, you can’t give too much explanation. Those of us who know what we are doing can
gleen what they need from the tables while the rest of us (I suspect the majority) look forward to and need the intense explanation in order to understand. I am still a little foggy on a delta of 50 or so not needing more of a stock run to see the profits your are suggesting in the tables. It would seem that the stock would have to rise roughly twice as much in order to reach your profit targets.
thanks
shopguy, Calculating the relative moves in the option and the underlying stock for the short term is usually straight forward as you suggest but, this is a longer timeframe trade.
As expiration gets closer the delta of in the money (ITM) options approaches 1 (it is 1 at expiration or a bit sooner) while the delta of out of the money (OTM) options approaches 0 (and is 0 at expiration) and the deeper in the money the option is the sooner delta equals 1. This is due to the probability that the option will finish ITM or OTM. That probability changes due to many market factors between the time the option is purchased and expiration date. (The greeks explain it all but these trades are designed to be simple as we are just starting out.)
Dan also mentioned in the video that the trade is likely to hit the target before expiration so there will still be some time value in the option. The combination of the increase in delta plus the remaining time value is how the target is reached.
GatorD
Dan,
I very much appreciate and will heed the “cooler heads” advice on having the patience to wait for the options activity to settle down in the event the prices run up first thing in the morning. Patience is perhaps one of the most difficult aspects of trading to master.
-GP
Dan
Great vidoes. I would not worry about the length; you use the time time wisely in getting your analysis across to us.
I echo the auto-trader comment of getting optionsxpress as one of the services.
I asked earlier where I can access the charts that you show to us. Also, are you going to teach us how to screen for the stocks that you find?
Thanks
Regarding presentation format I would prefer to see the basic parameters of the trade presented including stock, last price, target, option price, pay no more than ___, target return, stop/risk. This is good. However, I would also like to see a brief presentation of the stock chart’s technical basis for the option’s target price and stop including the delta that is being used. This presentation need not be long but it will help me understand the rationale behind the trade. just my opinion.
great job
This is pretty well explained. How the numbers work with stop losses. It appears to be quite close to buying regular stock with a stop loss, or trailing stop to protect from the down side. If I am getting this, the amount we are optioning, which is hopefully getting called out .. is minor enough that if all hell breaks loose and we get stopped out, the loss is not gonna kill us. Am I close? Bulls make money, Bears make money.. we are not pigs/hogs so we don’y get slaughtered? The Delta charts Dan is taking car of. The prices we pay for the contract… eventually that would be good info to have available.. maybe it is?? Ane then it would be easier yet to understand where Dan is coming from. ..
SWN – bot the $37 June calls at $3.90. Have gone through the video a couple times. Not sure how we’ll trade out of this, but there’s time to ‘review’ the video and ask questions. I did by the CRUS $17 call last week. At 1.70. My video, for some reason, kept stopping and having to reset… so, somehow in my scramble, I wrote down $17 instead of $16. I’m thankful that this will likely be an okay mistake… watching it closely dor the education. The lowest that trade could have been had was $16/$2.25. Now, this SWN trade makes sense for either option, 1 or 2. Very good explanation of the chart Dan… and honestly, with everything we need to know, the ‘step by step box chart’ you’ve posted is super easy for those who totally get this… and then your fuller chart explanation is wonderful for those of us who are just starting. Really great video! Thank you… Everyone seems to have a cold! Wonder if it’s catchy through OMM… or SMM? Cuz, even my cats have a cold! And I know Tanya was sick. Geesh… Must be January. Have a great one everybody! :>
Dan, good formatt and explanation. Unfortunately, this is the first of your trading ideas I’ve been able to review and consider. So, just to be clear, this, and all “calls” are and will be covered calls? Meaning, if I buy (5) contracts that I should be owning 500 shares of the underlying stock? I’ll review your earlier videos regarding terminalogy on how to state the buy with my broker, similar to what Linda asked above, ie: buy-write with net debit of ___?
Thanks for your help!
Erv,
These are not covered calls. Just buy the contracts.
Love this format!!!!! Thank you so much.
Thanks Dan. Please don’t apologize regarding the length of your videos. Like someone said earlier, they can push the stop button if they want. It is there choice to listen. For me, well I am learning lots and love the way you explain, a wealth of knowledge in each one. Keep up the good work. I really appreciate all that you and Gary and the team have put into what you are developing.
Ahhh! Patience does pay. Just filled the SWN Jun’11 37 calls at.$3.95. They promptly returned to $4.20.
Love it when the plan comes together.
DAN Thanks for posting the new stop limits. Being new to options I had no idea what to do and when. Marian
Did one of those videos show how to set stops ? I think I have it right, SWN sell to close at $2.20? I understand stops with stock which is entirely logical, but the vocabulary with options is strange. This is obviously my first trade.
SD
Susan – Hi. I’m new to options too so I was glad he sent the new stops via Email. Strange I didn’t get the link to the
Q&A. Someone was nice enough to quote the questions and Dan’s answers in the forum under SWN.
Here are the new stops:
CRUS March 16 call: Raise stop from $1.10 to $2.35
UNP May $95 call: Raise stop from $4.10 to $6.90
UNP May $100 call: Raise stop from $2.95 to $4.40
SWN June $37 call: NO change
SWN June $39 call: No change
The best, Marian
Thank you ! What happens now that the SWN $39 call price has been exceeded ?
Susan
Susan, this was a June Call option. Nothing happens automatically until options expiration in June. However, if the Call option goes in the money before June you have the RIGHT to exercise your option at any time for a profit. I believe Dan wanted to wait until the option was worth $6.50 for a 110% profit. So when, and if, it reaches that value we will exercise that option to buy the stock at either $37 or $39 and turn around and sell it for $6.50 for a nice profit! Get it?
You don’t have to take possession of the stock, you simply “sell to close” the optrion position
So you are saying my broker will only charge me a fee for STC the Call option and not for a stock transaction fee?
Yes, as long as you exercise the option before the expiration date
Dan, Is it too late to enter the trade or should we jump in on todays weakness? Thanks for the slow and steady teaching process….learning AND making money!
DAN
I know you are very busy, but I hope you get a chance to read and answer this. I remember you saying that you wouldn’t be posting in the OMM forum. I don’t know if you you have time to read both the forum and these posts or if we have to email you, so I’m taking a chance that you might see this.
My self like some others are wondering if we should be out of SWN. SWN and UNP were my first option trades. I have kept my stop on SWN at $2.90 as you originally sugested. From reading the forum It seems like some of the experienced option traders have already sold theirs. I did not for several reasons. First I figured you would let us know if we should have sold the past day or so. Second I wasn’t sure if I should bail on the trade since we have more time. Just don’t have this kind of experience and judgement yet. Thanks for OMM and the forum and Happy Birthday to you and Gary. Marian
I added to my position on today’s pullback. Hope this one continues to work.
Why is this trade still open, the option was well below the stop loss last week.
Michael, I’m sitll in the position — down 23%. Do you think I should hold on to it.? Thanks. Jim