Options Education Opportunity

Let's take a short look at XLF 16 Nov Calls. With the market rebound the last few days and XLF back at an intraday over 15 from just under 14 why haven't the call options rebounded to where they were the last time XLF was at 15?

If you haven't heard of an options term called "The Greeks" this will be your first introduction to one of them named Theta, T for time. Theta is an option indicator relative to time. You should be familiar with the term time decay and options as well as how it impacts the overall makeup of the premium. This is the indicator that is showing the 16 calls will not move much more than a cent or two. The XLF would have to be above 16 in order for them to become worth much more than .10 by the time next Friday rolls around.

Many new options traders trade premiums like stocks anticipating the premium price will continue to climb as the underlying climbs regardless of how little or slow the underlying is moving in relation to the expiration date. In other words they forget that the XLF Nov 16 call option, with 6-days left on it, is pretty much worthless at this point and with no real volitility no reason for the premium to be worth anything much more than 0. XLF would have to be over 16 by next Friday at 4pm in order for them to begin to be worth more than worthless or a couple of pennies. Why would you pay premium for an equity you can buy outright for less?

This is why I usually suggest buying options a couple of months out providing time to recover losses or bad timings.

Happy Trading...

Berkshire Split!!!!!!!!!!!!!!!!!!

If you haven't heard already, Berkshire Hathaway common is splitting 50 to 1. Talk about opportunity for the mere mortals! This is a by product of his purchase of BNI announced this morning.

If you want to be long this is one to be long...

Happy Trading

Making money in markets like this

A couple of pointers:

Don't just not be greedy be gracious. Set tight stops and limits that will execute intra-day, especially days like yesterday where we had a 140 point swing from top to bottom. 10% returns instead of 25-50%. Look for an aggregate percentage return over multiple trading days instead of all at once.

If you are buying Puts or Calls to trade premiums by them in the money not just at the money, this will provide more cushion to recover if the market swings widely in either direction. Set your buy up lower than you normally would to take advantage of the swings.

This will be another telling week with more economic data to solidify consensus on going higher or lower this year. Trade accordingly.

Continued Happy Trading...