Options Boot Camp

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Options Bootcamp 46: Building a Better Hedge Jun 16, 2014

Show notes

Roll Call: Bringing in the Big Guns

Our guest today is Jim Bittman, Senior Instructor at The Options Institute.

He discusses:

What sort of content/classes our listeners can access at The Options Institute
What the number one options question is that he receives from students
What is the number one options mistake and/or misperception students may have about the options market?
What changes did he make in your recent renovation at The Options Institute, and what can our listeners expect from your new facilities?

Mail Call: Listener questions and comments

Question from Kevin Duggan - Hi Mark, Great show! I have been listening to episodes for months but it was only recently that I saw Dan's picture- shocking! In my mind I have always pictured Walter White, as they sound exactly alike and, you always refer to his black hat. You can imagine my surprise when I saw Dan's pretty face and those curly brown locks. Shave that bean, Heisenberg! Re: short puts (I'm already long calls) If I am certain the stock will move higher fairly quickly, wouldn't it be best to sell the big, meaty, long term puts? If I sell a weekly for .45 and then close it at .20, where's the fun? How do you balance term and premium in naked shorts? Thanks, Kev
Question from Josh Norell - Hello everyone, enjoy the show, I am trying to work out the details with a diagonal collar, and its adjustments. I want to buy a stock, buy an OTM put several months out, and sell weekly OTM calls against it. If the stock rises, I get called away, all is well and good, and I can just buy the stock back next week and do it again. Where I am confused is when the stock drops below my put strike. What do I do? Because of the puts lower delta, for every dollar I lose on the stock, I am gaining less than 1 dollar on the put. So do I exercise the put and lose all its extrinsic value? Do I roll it down and hope for a retracement? Do I just blast out more calls? A little help, please. Josh
Question from INC429 - VXX or VIX options? Which is the better hedge for a broad based equity portfolio?
Question from Buckeye -I enjoyed the discussion about the percentage of a portfolio one should devote to hedging on the last episode. I do have a question about the 1.5%-2% figure discussed on the program. If that was for a three-month put, then you are talking about 6-8% on an annualized basis. Given that most funds only return about 7% a year, will that not eat up all of the profits in your portfolio? Or am I missing something? Thanks again for this excellent program. It truly is a unique source of options education. It makes my long train ride much more bearable.

Options Bootcamp 45: Mini Options May 12, 2014

Show notes

Basic Training: The world of mini options

What are Mini Options? (Just celebrated first birthday last month)
Where do they trade?
Which underlying names trade?
What is the use case?
When should you use them?
When should you not use them?
Pros vs. Cons: Unfortunately we cannot give many pros for mini options as of now.

Mail Call: Listener questions and comments.

Question from Maximus - Hi Mark, Hope you have been doing well. Following up in connection with my question in the email below, since I haven't seen a new episode of Options Bootcamp come out for the past several weeks, and have been waiting with baited breath for your expert comments on my question. :) Hope I didn't overwhelm you and the panel with my frighteningly complicated question, and the insanely large account balances I am referring to (sarcasm alert! :)) I did notice a mention of "Maximizing a ROTH IRA" in episode 331 of Option Block, which came out on April 21st. However, for some reason, this episode seems to end abruptly at just under 37 min, and seems much shorter than the approx. 1 hour duration of these episodes normally. Perhaps there has been a technical glitch causing the episode upload / recording to end abruptly? I am thinking the question you may have answered on this episode is either my question, or probably one very much related to mine. Would love to learn your and the panel's thoughts regarding my ROTH IRA question. Have a few other questions that I plan on sending in shortly as well. Once again - I think you and your panel do an absolutely fantastic job at spreading knowledge across the several podcasts on your network! Please do keep up the good work, and I hope you are able to produce more podcasts, more frequently! Thanks in advance for your assistance - look forward to hearing from you soon. Take care and be well. Maximus
Question from Marco - This one is for the Boot Camp Drill Instructor Squad - probably John. Can I open two accounts at the same brokerage firm? Not an IRA and a regular account but two regular options brokerage accounts. I want to have an account for my regular income trades and an account for other more speculative strategies. It's easier for my systems if I keep them separate. I am aware that I won't receive offsetting margin, etc. Is this a possibility or is there some prohibition against this? Thanks for answering and thanks for sponsoring this show. It's a great program that is helping a lot of people. Still can't believe it's free.
Question from Lil Tim - Quick one about vol - Are realized and historical vol the same thing? Are there any pricing models that use historical vol? Thx
Question from Avery - Help! My broker hates options! What should I do?
Question from Joe - Love the show. I look forward to my fresh episodes every couple of weeks. It's my treat during my commute. Although my wife thinks I listen to too many of your shows Mark. Anyway - I wanted to write in regarding the OIC conference. I have heard you mention this on several programs on the network. I do not live far from Austin, the site of this year's conference. I am still a relative neophyte when it comes to options, although programs like this one are helping to change that. Do you think its worth it for beginners like me and others listening to this show to attend conferences like this. Is there any material there for me? Thanks for taking the time and thanks for the network Mark. You have got a listener for life./li>

Options Bootcamp 44: Mail Call-A-Palooza May 05, 2014

Show notes

Mail Call: All mail. All day

Question from David Medley - I have listened to about half of the 40+ episodes. I do not recall hearing anything about how to get started professionally. I am a 38 year old software developer looking to change industries. The positions that seem to be open to me are commission-only and require a significant cash "Capital Contribution". I am actually OK with this. Some positions have hefty training and/or desk fees, which seems a bit scammy to me. Either way, it's not something I want to go into blind. If you have covered this, I would love to read or listen to it. Thanks!
Question from Jay - Hi Mark, Options Bootcamp is a phenomenal program. I have learned so much it's unbelievable. I do still have one question, and it stems from the fact that I am not a convert from the equity world. I am new to the investing world, but I could never wrap my head around equity trading because it seemed too haphazard. It was not until I learned about the flexibility of options that I really thought that I had found something worth sinking my teeth in. So, with that being said. How do you pick your underlying stocks? Is there a set of criteria you screen for among the all of the optionable underlyings, or is it better to really start learning about a few select stocks and then just applying a specific strategy towards the stock situation as you see it? So far I have just been using SPY as a starting ground but would like to move towards specific positions to play on the higher fluctuations in vol, inverse skew events, earnings reports and such. Thanks again for all of your work, and please send a high five to Dan, he is my favorite drill instructor.
Question from Ted Schwartz - Hi, I am working my way through the Options Boot Camp, learning lots of good stuff. I was wondering what kind of options strategies exist to hedge my 401K mutual funds gains? Would it be practical to use protective puts on some indexes, etc. to offset my risk of fund losses? Thanks!
Comment forwarded from Dan Passarelli - I am really glad that you participated in the options Bootcamp podcast and that I was fortunate enough to find it. Please convey my gratitude to Mark, (who has no idea who I am) when you get a chance.
Question from David M - Hey, listening to your show has really helped me grow in my options knowledge. Two questions: (1) Do you have a platform you recommend? (e.g., Tradestation, etc.) - (2) I am currently with Tradeking. I did some long calls last year and lost some money. I realized I needed to learn more. So I stopped and started reading. Now I am ready to start trading spreads and selling premium, but Trade King won't clear me for that level of options trading, because I have not been trading live. Is it time to find another broker, or do I need to trade according to their rules until they clear me for more advanced options? Thanks!
Question from Mark Radcliffe - Hello Mark, John and Dan. Thanks for providing your excellent options boot camp program it has done a lot to get me started with trading options. I split my investing between long term buy and hold for retirement, short term stock trading for side income and am now adding options. My question is about selling calls to simulate a dividend on buy and hold stocks in my retirement account. The recommendation is to sell front month or even weekly ITM calls to collect the time decay. The problem I see is that these near term options are extremely cheap. E.g. SBUX is currently trading around $72 next week's 73 strikes ask is $0.26. Does this not mean that if that if I wrote a single call and it expired worthless I would make $26? (assuming no changes). Once you take away the cost of the trade itself you might make pennies or even go backwards on these trades unless you have many lots of that stock in your account. Am I reading this correctly? If so do you think that in order for call writing to really generate any real income you would need to hold several 100 shares of any one stock in your account? Thanks!
Question from Darren - Hi, do you guys have option alert services?
Comment from Martin - Thank you that you share this precious information on your site for free. A great job. Well done. Martin from Germany.
Question from Tom A Bomb - First, huge fan. Second, question about the wheel-o-fun trade: Recently assigned on a short call in a collar position. Monday morning, I was long my protective put (a far-OTM leap), and decided to sell a weekly put that positioned me long about 25 delta. Now, I am wondering how all this will affect my margin SMA. From the margin perspective - is this a put spread, or is this a naked short put? After I put this on, I realized the margin was a bit fuzzy. Since I just rolled out of a covered call, I am obviously cash-secured, but I want to work this out before I find my foot in a bear trap. Thanks guys! Nice hats!
Question from Jas Sol - How can you tell if implied volatility is cheap or expensive for a option? I assumed, from listening to the show, that a higher volatility means, the time component of the option price is more expensive compared to an option with a lower implied volatility. But comparing the Dec 27 ATM calls for Pandora (P) and Apple (AAPL) that does not seem to be the case. For example, P has an implied volatility of 113.6% and a time value of $2.57. And AAPL has an implied volatility of 23.8% and a time value of $10.84. Since P has a much higher implied volatility, why is the time value lower compared to AAPL? I assume the answer lies in the Greek's Vega, because P has a Vega of .02 and AAPL has a Vega of .48. But I am not sure. So is Vega how you can tell if an option is cheap or expensive? I love the show! Please keep up the good work. Thanks!
Question from John B - Where do I submit options questions and the tweets that you guys read on your podcast? If this is the place to submit questions, here is my question: I recently stopped trading PCLN *(Priceline) Options because the spread ranges from $2.00 - $4.00. Is this to deter traders and why would the Market Makers keep the spread so high.

Options Bootcamp 43: Options & Dividends Apr 28, 2014

Show notes

Basic Training: Options & Dividends

How do option holders collect dividends?
How do derivatives impact options?
What happens to call and put prices when dividends enter the equation?
If you are an options holder what must you do to collect a dividend?
What are dividend plays and how do they work?

Mail Call: International trades, closing positions, and more

Question from Glenn Baker - Question for Options Boot Camp I've been listening to Options Boot Camp since the first episode & have been listening to the Option Block for about 2.5 years. I currently have a Schwab account where I primarily buy mining stocks. I would be interested in possibly switching to Sogotrade for the lower commissions. Does Sogotrade allow you to buy stocks on Canadian exchanges? Thanks and I really enjoy the show."
Question from Nick Snow - Hello. First, thanks for all the shows. I used to listen to options insider years ago. Somehow lost the podcast and recently found it again. Good news there is I have been listening nonstop for the last 2 weeks. Second, for the real reason. I have been trading for a while (retail only) and in listening into your shows, particularly Boot Camp. I have heard "close your credit positions, if I had a nickel for every time a person came to me and said this crazy event happened and it wiped me out". I do close my credit positions at $0.20-0.05 every time. But I have wondered if outside of the commission, has anyone ever done a risk reversal? Or roll down to a lottery ticket? E.g. I sell bull put or bear call spread. I go to close the position at 80% of my profit and there's a day or two left. If I just closed my short leg and left the long on, or even just swapped my short leg for a lower short now making my spread a debit albeit a supper cheap debit spread lottery ticket. I could capture those freak events that you always talk about. By my count in options boot camp I would have 128 nickels for those freak events mentioned. :) Any thoughts? Am I missing something? Sincerely yours.
Question from Abe - Can you make an episode on how to repair losing options trades? I enjoy listening to your show, it keeps me going while I am slaving the night shift at work. Thank you!
Question from Greg S. - I am looking for some advice from an experienced options professional regarding stock replacement using American-style calls. Really the question comes down to- for a higher dividend yielding stock, should I be buying a LEAP or rolling out approximately every three months after exercising very close to expiration and capturing each dividend? I get that the dividend lowers the price I pay the longer dated the options are, but does not reflect as much as if the options were available as European-style. It seems that if the dividend yield is high enough, the American style can't fully compensate the option holder for the missed dividends as the value can't drop below intrinsic value. Does this call for the shorter term options to capture each dividend? The caveat seems to be that the roll out should cost more extrinsic value on ex-dividend. Since I have a buy-and-hold objective, euro-style or warrants would be ideal to avoid transaction costs, but again, not available. So far, I have been rolling an ITM call option position on a relatively high dividend yielding (5-7%) stock I have wanted concentrated exposure in as part of my overall portfolio but limited risk. It makes regular scheduled quarterly dividend payments and the timing of the annual increases is known to occur in Q1 each year. Well just yesterday (day before ex-div for my stock), I figured I would skip the dividend capture and roll out the May contract to the August one cheaper than I could today because today it trades ex-dividend. I confirmed this using the CBOE calculator, holding price constant. It showed the time value paid to roll should have been more today due to trading without the dividend vs. yesterday. Though just eyeing the bid x ask spread it didn't appear to do so by much and implied volatility looked to be the same.

Options Bootcamp 42: Legging & Protecting Gains Mar 27, 2014

Show notes

Basic Training: Legging and Protecting Gains

What is legging?
How do you leg into a vertical call spread?
When should you leg a spread? When should you not leg a spread?
How do you protect you gains?
How do you lock in a gain? Buy a protective put, but watch out for the cost.
Do I write a call ITM, OTM, or ATM? Remember, a covered call is no a defensive play.
How do you leg into a collar? How do you create a collar plus?
How does your strategy change during a crisis?

Mail Call: Hey Recruits, it seems you have some questions!

Question from TelStorm: This question is for Options Boot Camp. Please do discuss when to adjust long protective put with stock. When to sell put vs. just close the position? Do you roll to a lower strike or to a put spread? Thx.
Question from Alexander Samuels, Chicago - You would never know you guys are Chicagoans from the way you complain about the weather! But seriously, can you discuss which options tools you guys prefer for analytics and trading? Do you have certain products you use every day? Are they in the price range of a basic options trader? I trade maybe 20 times a month, mostly income trades -short puts, wheels, covered calls, etc. What should a guy like me be using?

Options Bootcamp 41: Advanced Adjustments Mar 06, 2014

Show notes

Basic Training: Advanced Adjustments

Spread adjustments
When should you adjust a spread?
Vertical spreads. Long and short straddles.
Long and short butterfly adjustments
When should you adjust your flies?
Iron butterflies and iron condors.
Calendar spread adjustments
When should you adjust basic horizontal one-month calendars?

Mail Call: The drill instructors will now take your questions

Question from Dr. Anthony - I enjoyed you episode on the wheel trade. I would like to know more about your typical use case for wheel trades, particularly when it comes to the second leg. Do you write an ITM or ATM call, hoping for the stock to be called away quickly, thereby allowing you to begin the process again? Or do you prefer to write an OTM call and attempt to capture some appreciation in the underlying, while risking losses in the stock?
Question from Nik_Miner - How much money should I keep in my account for adjustments? Does 10-15% seem reasonable in case I need to roll or trade stock against my options?

Options Bootcamp 40: Trade Adjustments Feb 21, 2014

Show notes

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 Bootcamp 39: Options As Investment Vehicles Jan 31, 2014

Show notes

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 Bootcamp 38: Triple Income Trading Jan 24, 2014

Show notes

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 Dec 20, 2013

Show notes

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.

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