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The Cheapest Options You Will See This Year

When an earnings event comes out, the premium in the options market will go down.

By a lot.

That's because the market no longer has to price in the risk of an event.

Yet there are sometimes in which the option premium gets so low that it makes sense to be a net buyer of options.

Let's take a look at an example.


This is VXAPL, which is the VIX for AAPL options.

There really wasn't any kind of bid going into earnings, and after earnings we saw it drop below 20.

This is an incredibly rare occurrence, and it tends to revert back.

These are levels you won't see the rest of the year. And we're seeing the same kind of setup in other high beta tech stocks like AMZN, FB, and GOOG.

If you've ever wanted to buy volatility, this is the best risk/reward you're going to get.

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Get The Best Option Trading Fills

If you're looking for full time profits as a part time trader, you must adjust how you approach the market and how you execute on your trades.

I'm going to show you a simple way to get better entries and exits on your option trades so you can earn better profits even when you aren't in front of a screen.

Avoid This If You Want To Stop Losing Money In The Market

If you are a reactive trader, then you'll spend all day chasing hot stock tips and getting bad fills. You'll feel like you're doing something in the markets, but when you look at your results it's disappointing.

Your success as an options trader revolves around how you plan your trade executions before they happen.

Step 1: Pick Your Prices

This may seem obvious.

Yet it's a mistake that many new traders make.

What I've found with new stock and option traders is that they rarely get the best price on a trade.

By forcing yourself to pick the best price, it keeps you out of bad trades and allows you to tune out the noise.

Will you miss out on a few winning trades?

Sure it's possible. But you'll also be avoiding those costly reactive trades that deplete both your financial and psychological capital.

The other benefit of picking your price is that it allows you to take a step back and be a much better observer of the market.

Your opinions and biases are completely different when you're involved in a position compared to when you are "stalking" for the best price.

If you get good enough, you can develop a feel for a stock on where the pain points are and where the stop runs will be. Those are usually the best entry points for a stock.

Here's an example:


Chevron (CVX) just had a failed breakout. It cleared key resistance at 104 for a week or so, but the continued weakness in the oil space helped to bring the stock back into the range.

When we have a failed breakout, the stock tends to trade to the other side of the range, which is at 97.50. That's a price I'd be willing to get long.

Step 2: Pick Your Option Prices

This step works best when you are looking at reverting kinds of setups where you let the price come to you.

If you are trading breakouts or trend continuation plays then you'll need to be more active, setting alerts and being ready to enter on your breakout signals.

Yet if you're looking for a way to automate your options trading, this is as close as you can get.

Simply put, you need to pick your option strategy and then figure out what price that strategy will hit if the stock price comes into what you want.

Remember, options are derivatives. The pricing is derived from movement in the underlying and the implied volatility.

Let's head back to our example in CVX.

Say I wanted to use bull put spreads as a position. So I'd go out and look at the September 90/85 bull put spread.

Here's what it looks like right now:


So the current price is 0.33. That's not the kind of risk/reward I am looking for.

However, if CVX trades into my target price of 97.50, then the spread will be worth between 0.65 and 0.70. That's a better entry point.

Here's the cool thing... you can set GTC (Good till cancel) orders on this spread. That way you don't have to worry about being at your trading screen at the right time.

You've already planned your price, and planned your option strategy. What else can you do?

Step 3: Develop a Scaling Strategy

I'll be straight up with you, even if you have your perfect prices, the natural volatility of the market will try to shake you out of your position.

Why not use that in your favor?

When I work with newer traders, they view each trade as an "all or nothing" kind of strategy.

Get into the trade all at once, and if it doesn't work then you stop out.

Doing that leaves you with tighter stops on a trade, giving you higher odds you'll get shaken out of a trade.

If you can learn to use the natural volatility of the market, you can get better fills and more profits with the same amount of risk.

Let's go back to our example in CVX. My initial price would be 0.65, but I would start with smaller size and then add to the trade at 0.95 and then at 1.50.

That way if CVX really stretches to the downside I'll be prepared to take the heat and increase my odds in the trade.

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Welcome to Summer Trading


This chart shows the S&P 500 etf (SPY), and the lower indicator is the 10 day historical volatility.

It currently sits around 5%.

That means if we were to continue to see this kind of price action, we should expect the S&P 500 to be about 5% higher or lower from these prices in about a year.

Of course, that doesn't happen, as volatility cycles from low to high... but it has been a grind.

So we've got the actual vol at 5%, and the VIX under 12% for some time.

The "traditional" response here is that it means we are due for a selloff.... that when the VIX is low and the market hasn't moved in a while it clearly means it's time to be bearish.

I'd like to point out that from what I can tell this is the consensus. And that the true contrarian bet is actually looking for more upside.

And you know what?

It would be nice to see a pullback. I would prefer it.

But the other scenario here is that vol comes off the floor but it's not the end of the world. And instead of seeing vol head back to 20%, it just normalizes to 12%.

More summer trading.

Here's the beauty of this kind of market.

When vol is low, it also means correlations are low. It's a stock picker's market.

The indexes can rotate and go sideways and pullback... and in the meantime you can have setups underneath the surface trigger.

Both to the long side and short side.

What this means is-- don't get lost in the noise.

Way to many people are getting sucked in looking for a market top and the next big macro move, when the better edge is to look for stocks moving after earnings and placing your bets there.

Looking for the Pre Earnings Run in CRM


As we head into earnings season, one of my favorite trades is to look for stocks that will move in anticipation of their earnings event.

What happens here is that investors, exepcting good news from the company, will start to buy the stock before they release earnings. This casuses a "pre-earnings" run in the stock. (CRM) has a lot of potential for this kind of setup. It doesn't report earnings until the middle of August.

And if we start to see good earnings across the board in the tech space (like MSFT, QCOM, and FFIV already have) then we should see the stock start being bid up in anticipation of its event.

On top of all this, it doesn't hurt that the stock is trading just a few points short of all time highs, and has seen volatility compression the entire time since its previous earnings event.

Look for the stock to run another 5 points before its earnings event. I like using bull call spreads, and if you want to be aggressive you can just buy calls straight up as earnings will help to keep the option premiums elevated.

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