Open Question Time!
Hey Option Traders! So I’ve been thinking…
I hate to just post stuff arbitrarily and hope it’s something you want to read about. I’d rather be writing about the things you want to learn. With that in mind, I’m going to have an open question time. Here’s how it works…
Simply scroll down to the bottom of this post. You will see a box with the words "Leave a Comment" directly above it.
Click your mouse inside that box. Then type out your question.
The question you ask must be about option trading or covered call writing. Also, your question must be straightforward. One sentence that ends in a question mark would be ideal. In other words, I want your question to be succinct, and without all the reasons why you’re asking the question.
Please realize I cannot give personal advice regarding a specific situation or trade you may be facing. I can only provide education. I will provide that education based on the specific questions you ask.
Does all this make sense to you? If so, please scroll down right now and enter your question in the comment box. Click the "Submit Comment" button to send your question to me. I currently have "Comment Moderation" turned on, which means you won’t see your comment appear immediately. I’ll have to approve it before it shows up on this blog.
I guess that about does it. I look forward to hearing what questions you have!
Best regards always,
A.J. Brown
P.S. Depending on the number of questions I receive, I may post my answers all at once, or I may turn the questions and answers into individual posts. Since this is the first time I’ve done this, I’ll just have to wait and see. Thanks again for participating.
P.P.S. Have you checked out my other most recent posts on this blog? If not, you should now. Click here to check out what I’ve been talking about.
A.J. Brown @ 5:56 am:
Oh Kathleen…
I’m sorry I missed your question from February 6th. Yes, you get points for not calling me TJ. I still don’t get what that’s all about.
Your question deserves more than a comment response in a blog to actually do it justice. I have taught a good portion of a whole day on this subject alone in my Intensive trainings.
The long and the short of it is, it depends on what strategy you are using. At a 100,000 foot level, if you are looking to own the underlying stock a long time and just collect premiums every month, than you want a stock to be channeling horizontally. The longer the better. At least long enough that support and resistance of the channel has been challenged enough that they become solidly established. At least that’s my experience.
There’s more to it, but there’s not enough room in this blog to dig down deeper on the subject. And, as I read through my response, it is actually fairly thorough and complete. I hope you think so.
Don’t forget about defensive strategies should the stock price drop. Contingent selling of the underlying stock and then buying back the option when the premium is almost nil, is one of my favorites.
Thanks Kathleen for contributing to the blog. Good luck in your trading practice.
Ken Long @ 12:56 pm:
AJ,
When you sell calls, do you usually try to hold them for expiration, or do you trade them, in a similar manner to your short term stock trading. Of course without the need for a big move.
Also, how much time do you consider optimal for selling? Front month expire quicker and have greater time decay, but one or two months out have a higher premium and can profit well from a pullback.
Ken Long @ 1:06 pm:
As long as we are using options as a leveraged proxy for trading the stock, and not employing directionless and volitility based spread strategies, is there a good reason to trade options in preference to the other leveraged vehicles.
As long as we are managing our risk through the use of stops and our trading skills, and not relying on the price of the option to limit our risk, is there a solid reason to prefer options over Forex or futures?
same question as further above, just reworded a bit.
Ken Long @ 3:15 pm:
How has your overall strategy changed since this time last year?
Short term trades are still abundant and powerful, but the underlying trends are not as secure as they were.
thanks
I’ll try not to ask too many more questions
Ken
kathleen morgen @ 4:48 pm:
Thank you for answering my questions. my question was denied so i thought I would see if it was just that question or maybe you are done with this thread.
Kathleen
Dario @ 7:19 pm:
Hi A.J.
Thanks for this opportunity to let us obtain a little
piece of your great wisdom.
When in the process of analyzing particular stocks that may be included in a watch list, do you use the S&P 500 or DJIA to see areas of support and/or resistance?
In other words, would it make sense to you to buy and hold a call option on any financials that may be in a pullback if the S&P appears to be below a strong long term resistance?
Thanks in advance
Dario
Theo @ 12:16 am:
Hi TJ…….ummm, MY BAD…i mean A.J.
I don’t know where TJ came from. Anyway, AJ is burned into my consciousness for future reference.
OK, great response to my theta question. I’m feeling your ‘take’ on things. By going Deep ITM you have ‘less’ time value, hence less time decay to worry about, right? This is what i attempts to do by buying options with a delta over 75% so i can mimic the stock mvmnt as much as possible.
I really think this is a superior ‘long-term’ strategy than buying stock……i.e…just buy a longer term option with a high delta. No-brainer and save a boat load of money in the process.
But AJ, burning question here…. i’ve noticed that many professional traders are SELLERS of options not buyers. We all know that over 70% (probably 80%) of options expire wortthless. So that translates into the ’sellers’ making most of the profits, no? And when volatility is HIGH, does it NOT make more sense to SELL into the volatility instead of buying ‘overpriced’ options? Your take, plz.
Finally, AJ, i thinks i can speak for others as well as myself, we greatly appreciate you taking time out of your busy schedule to respond to our queries. I’m learning a lot from this.
Dan @ 12:33 am:
Hi AJ. WOW!!! That was a great reply to Shawn’s question regarding Time & Volatility. Buying deep in the money & buying more time is a great way to mitigate time decay & volatility. Awesome!
But aren’t there times when you buy the ‘front’ month & out the money options…e.g….current news events like the problems CME was having with the justice dept that caused a 1 day drop of 103pts a couple days ago?. Man, i wish i bought some puts that day. How would u have played CME that day?
Also, what about earnings plays..esp. with expensive stocks that have ‘mega-moves’ post earnings…e.g..ISRG, MA, AAPL,etc….? Do u play earnings and if so, how would u have played stocks (like above)?
Thank U sir.
A.J. Brown @ 8:49 am:
Hi Ken,
In one comment you asked me about my feelings on different time frames and trading styles.
Let me start with this underlying philosophy that I base my whole trading practices on first…
I have feelings, thoughts and opinions. So does every other person in the world. However, how does having or, even worse, sharing those opinions effect the “thump” value of your wallet? It doesn’t.
I just do what works, never mind my, or anyone else’s, feelings, thoughts and opinions.
Now, for a specific answer to your question. If you have the right (1) tools, (2) knowledge, and (3) experience, to trade a particular time frame and / or execute a particular trading style, proven through you consistently ending quarters with a bigger portfolio, then I like it.
A.J. Brown @ 8:58 am:
Asking me about my opinions again… One more time, does what I think really matter? Or, does what works really matter?
For me, there were two main reasons I adopted trading stock options… and, sorry, to disappoint you, but they had to do with the circumstances in my life at the time.
There were:
(1) My experience in real estate with using a tool called the “Lease Option”. The concept was something that really made sense to me. It was a no brainer for me to grasp and then make the transition to underlying stocks versus real property.
(2) In looking to take control of my own portfolio from a investment adviser that was useless, I started attending every seminar on trading I could. (I still do, by the way.) I very quickly found out which of these “gurus” were for real or not. It just so happened that I came across an expert on trading stock options that was really genuine. It was a matter of timing for me. I latched on to that expert and the rest is history.
The philosophy behind my option trading strategies, mind you, work with options on real estate, futures and any thing else that’s optionable… not just stocks.
Hope that was enlightening.