Options Boot Camp

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?

Basic Adjustments:

• Close positions and close portions the of trade.
• Adjusting into spreads.
• Good rolls vs bad rolls.
• Long premium vs short premium.

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?

Basic Adjustments:

• 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

Mail Call:

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!

Options Drills: Options as an investment tool.

Stock replacement strategy, Covered calls, Short puts, Collars, Covered strangles, Covered straddles and LEAPs

Mail Call:

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?

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 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.

Basic Training: Here is a rundown of the major topics from the show over the past year:

• Greeks
• 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
• Straddles/strangles
• Spreads with wings: Condors, Flies, etc.
• Volatility skew
• Basic calendar and diagonal spreads

Basic Training: Here is a rundown of the major topics from the show over the past year:

• Greeks
• 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
• Straddles/strangles
• Spreads with wings: Condors, Flies, etc.
• Volatility skew
• Basic calendar and diagonal spreads