When I looked at my trades, realized that almost 90% of them are on weekly options.
Weeklies advantages are :
- Theta decay is most fierce in the last week of expiration
- Plenty opportunities to do Earning play
- Technical Signals setup; Hammers, Shooting stars and crossover .etc
- Ride on Macro news like FOMC, Oil inventories or any major news
- Counter like SPX have three expiry dates within a week
- Big counters with weeklies are gaining more liquidity and thus easy to close or exit
There are a few downsides of the weeklies :-
- Gamma risk (positions get tested often)
- Adjustment is almost impossible
- Commission cost
Of late, I have been trading on a new broker platform and that save me a huge commission cost with $1 per contract and no closing cost.
Do open an account with tastyworks.com if you trades weeklies.
Recently, at local option gathering group, we were discussing using TDA scan to identify stocks to play options. A friend ask for me for any good watchlist. I recommended them to use penny increment options from TDA platform that provide optimal price and liquidity for option.
A good friend wanted to know what I do before market open. I told him that I usually plan my trades before market open. He asked how do I plan and can give him some specific example.
Example : This period is earning season and I will plan for earning play. I would list down all the after-market and before-market earning and list down all the counters. I prefer to do post-earning trades or when the earning result is announced. The stock will have a general direction where it is heading, I would put in my option trades and within 5 days I will be out of the trades.
- List down those stocks earning After Market closing and Before Market opening result
- Observe the earning result to get a sense of general direction
- When market open, note the price direction (spot trend or candle signals)
- Enter when there is confirmation
- Chose weekly option or DTE within a week (at most two weeks)
- Probability of win is high (follow trend strategy)
- Premium may be low but time decay is fast
- Effective use of margin as every week the margin is replenish
I caution my friend that following other people option method may or may not suit his character or nature. The best is that one should develop his own and practice it into perfect with fullness of time in the market.
The above is the result of back test of SPY using delta neutral strategy.
- Weekly option open on Monday
- Premium collected around $0.15
- Close on the last day market close
- Loss is calculated base on the different of the 1 SD and closing price
- Strategy used is Delta neutral (Strangle or IC with $2 wide spread )
- The 17 trades resulted in a net loss
- Undefined risk or wide spread protection will result in higher loss
- Winrate 82% but the 3 trades loss can wipe out the profit
- Commission will result in a bigger loss
Even with stop loss for every trade or use 1 SD IC with maximum $1 loss spread will result in a loss and the commission will wipe out that profit. This option system is not workable in long run.
This is my weekly options, Weekly Option watchlist.
Update: Realise some unable to import into their watchlist. Use the cut and paste method or use this code http://tos.mx/Ki0XGF
Import the list into TOS as watchlist and look out for high IV for consideration. Sell when IV is high and whenever volatility contract, the option loose it’s value very fast and can exit the trade very quickly.
This week, 26 Oct is APPL earning week and when market opened, it gap down from 118 to 114. This triggered a few strategy I had in mind as I am bullish on AAPL and had calculated the intrinsic value of AAPL to be $124 (Using DCF and PL Chart http://www.gurufocus.com).
Enter three stocks this week:
HLF rollover – continue to milk more premium on price upward movement.
CZR with 300% IV and SRPT 59%, decide to do strangle on both.
Contingency plan if tested: HLF will let it assigned away if no more premium to be milked and perform inversion adjustment for CZR and SRPT.
2 Sep 2016 Update: 100% winrate this week
BREXIT and the danger of listening to the news.
- Hammer – LGF touch outer BB (grade A)
- Shooting Star – WOR touch outer BB (grade A)
- Shooting Star – UTX and TREX touch inner BB (grade B)
Wait for confirmation tonight before entering.
Update : No confirmation signals.