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TRANSCRIPT
Weekly Paycheck LIVE Workshop
June 20, 2016
Welcome to the Weekly Paycheck Workshop
• Video check…can you hear me and see the slides type yes
• This Live Workshop is being recorded
• Use the Question box to ask questions
• Presentation will run about 75 minutes
• Save Questions until the end…we will get to them all
Complete Workshop Experience• Live Workshop 7:30 PM Eastern
• Access to the Recording this Live Workshop Session plus slides
• Wednesday Live Trading Session 12:00 PM Eastern
• Friday’s Closing Trading Session 12:00 PM Eastern
• Customer Care: [email protected] or 866-257-3008
Options Income Blueprint Strategy• Michael Shulman, Founder and
Editor of Options Income Blueprint
• Selling Options Expert and Coach
• Developed strategy out of a desire to find higher and safer yields in a low-interest rate environment
Tonight’s Workshop• Learn about the advantages of weekly
selling put options
• Understanding capital risks and assignment
• My keys for finding the right stocks to sell weekly puts
• Factors you’ll need to select the right put option to sell
Tonight’s Workshop• How to execute the sale of a weekly put
• The best time to sell a weekly put option
• Manage your weekly put trade until expiration
• I will introduce you to a special “Roll and Recovery” strategy when a trade works against us
• And finally how to close the trade with extra cash in your account
Reminder: Live Trading Session Wednesday• Walk through two “Live” Options
Income Blueprint trades from Michael Shulman
• Step-by-step trade execution in real-time
• Review of expectations for trade performance and trade management
• Questions and answers
Selling Weekly Put Options• Our Weekly Paycheck strategy involves selling weekly “put”
options
• Selling weekly options can provide investors like you with a great opportunity to generate consistent income from a portfolio with less risk to their capital
• Weekly options because they can help you efficiently take advantage of short-term trends or market events that lead to a very short, but quick cash pay-off a few days
Weekly Paycheck Selling Put Options• EXAMPLE: SELL 1 XYZ
“this week’s” 60 put and maintain $6,000 of capital
• MAXIMUM GAIN: Premium received
• MAXIMUM LOSS: Strike price - premium received
Selling Put Strategies• Generate and collect
“cash” … from time decay
• Purchase a stock at a discounted price
Advantages of Selling Weekly Put Options• Since you are here viewing this training
program, you have made the decision to at least consider weekly options as part of your selling options for income strategy.
• That’s good, because selling weekly options is another useful tool to have in your income generating strategy.
• Let me show you the advantages of selling weekly options…
Cash From Puts Vs Dividends
Collect Cash From Option Time Decay• Time decay on a
weekly option is ferocious as expiration approaches
• Time decay is option buyer’s enemy
• Time decay is the option seller’s friend
A Favorable Risk-Reward Ratio• The risk reward ratio in
selling weekly options is by far the best in the market. This means you have the best chance of generating the most amount of cash in the shortest period of time … one week to one or two days
Acquire Stock At A Discount• They can work in any
market even markets where others are seeing their capital take a hit. There are enough names – enough choices – you can sell puts in any market to generate cash and income and have extremely low risk to your capital
Easier To Manage• When you sell a
weekly option, you target price to buy them back is zero – you do no plan on buying them back
• Only a few days to monitor before they expire worthless
Usually Lower Commissions• Usually Lower
Maintenance and Lower Costs (The goal of the weekly is to expire worthless on Friday…which doesn’t require a second trade (effort or trading cost)
The Odds Are in the Option Seller’s Favor• The call option buyer is making a bet • Stock will rise above their strike before or at
expiration
• The option seller is taking that bet• The stock will remain at or below the strike price
by expiration
• As the put option seller (the house), you can still collect cash as long as the stock price stays above the strike…we’ll show you how to manage this position to profit
Weekly Options• A weekly option is similar to a regular option contract
(monthly) other than it only lasts 6 trading days
• Monthly option contracts can last months or even years and the always expire after the third week of every month
• Weekly options (puts and/or calls) are listed usually on Thursdays and expire the following Friday
• Before weekly options were introduced, you only had 12 monthly option expiration dates and now you have 52 expiration dates with weekly options
More Trading Opportunities
• Only 20 trade opportunities with monthly option
• At least 80 and possibly 100 with weeklies
• Better odds of finding the right trade
Weekly Options Have Exploded• Over 450 individual stocks and
ETFs have weekly options listed• Some only have them during
earnings or known news events • Now account for over 35% of all
daily trading volume in equity options…
• Flexibility and allow us to maximize the benefits of the acceleration of time decay
Weekly Put Option Universe Start with the universe of option contracts that are available on
most of the widely traded stocks on the US exchanges
Naked Puts? Short Puts?• You will hear the terms short puts,
cash-secured puts and naked puts
• That said, this training program is all about selling “CASH-SECURED PUTS”
• A cash secured put option reduces risk because you have enough cash in case you are assigned the stock
Cash Secured Puts• The term “cash” in cash secured puts
means must have collateral … cash … to purchase shares if they are assigned (or put) to you
• You are not buying an option and you are not spending capital, but you have to have or leave enough capital it in your account to support the position
Capital On Hand To Support The Trade• SELL a weekly put on General Motors (GM) for November Week
Four 35 strike for $0.41
• You will need to have $3,500 (less $41 in trading costs) in your trading account for every contract you sell
• Why?
Assignment - Being Assigned• Because in selling an option contract, the buyer of your option
has the right to assign the stock to you the seller… if and when the stock price is falls below the strike price
• The buyer of that option doesn’t have to assign, but he has the “right” to assign or “put” the stock to you
If The Underlying Moves Against You• In our example, if you sell
that GM November, Week Four 35 Strike on Monday and the price of GM stock declines below $35 to $34.50 or lower by Friday, you could be assigned the GM stock at $35 per share or $3,500 for one option contract sold
Cash Supporting A Position• For the purpose of this training program, we will focus on maintaining
cash in your account to support the sale of a put
• Your cash or margin is sitting in your account supporting a put position. This is very different from owning shares
Getting Started With Selling Weekly Puts• Core stocks with weekly options
• Short-term direction
• Potential events
• Option Characteristics
• Rich premiums
• Strike risk/reward
• Rates of Return
Start With Trends Trends I’ve identified and overlooked by
Wall Street
• Banks
• BioTech
• Food
• Oil/Energy
• Near Luxury
• iWorld
• Travel
• Sub-Sectors of housing
Great Companies…Good Stocks
• Solid companies
• Growth stories
• Investment thesis
Potential Core Stocks Great companies with weekly options
• American Airlines (AAL)
• Apple (AAPL)
• Bank of America (BAC)
• Blackstone Group (BAC)
• CVS Health (CVS)
• EOG Resources (EOG)
• Expedia (EXPE)
• First Solar (FSLR)
• General Motors (GM)
• Gilead Sciences (GILD)
• Netflix (NFLX)
• Southwest Airlines (LUV)
• Starbucks (SBUX)
• Tesoro (TSO)
Narrow Down Your Choices• 200 day M.A.
• 100 day M.A.
• 50 day M.A.
• 20 day M.A.
• Three month - volume support
• One month - volume support
• 10 Day - volume support
• 5 day - volume support
• 3 day - volume support
Support And Resistance• Look for support and resistance points before
entering weekly trade
Beware Of Upcoming Events• Must be aware of “external
events” that week
• Can impact your underlying price direction
• If event expected…take a pass on trade
• There’s always another trade next week
Earnings Reports• Company is announcing
earnings this week
• Risk of extreme directional change
• High volatility
• Buying or selling pressure
Other Expected Events• Ex-dividend dates
• Mergers and announcements
• Product or personnel announcements
• Legal or regulatory decisions
Unexpected Events
• Analyst downgrades or estimate changes
• Bad news on company
• Bad news on sector
Option Characteristics• Option Volume
• Bid/Ask price spreads
• Out-of-the-Money options
• At-the-Money options
• Rich premiums
• Risk/reward
Option Contract Volume• Open interest of 200
contracts or more
• Daily volume of 100 contracts or more
• Need to get your trade filled
• Need volume to exit early if needed
Bid-Ask Spreads• Look for tight bid-ask
spread pricing
• $.01 to $.05 ideal
• $0.06 to $0.10 good
• $0.11 to $0.20 ok
• $0.21 to $0.50 minimal
• $0.51 or more — beware!
Out-of-the-Money• We usually sell Out-of-the-Money (OTM) options
(Strikes below the current stock price)
At-the-Money• Or, we sell At-the-Money (ATM) options
(Strike at the current stock price)
Rich Premiums
Strike Risk/Reward• More premium
available to strikes closer to ATM (At-the-money)
• Probability of OTM (Out-of-the-money)
• ROC (Return on capital)
Calculating Your Rate of Return• Premium collected
divided by the capital required to support trade
• Annualize by multiplying # of periods
• i.e. Weekly x 50, Monthly x 12
Return Calculations
• Sell SBUX March 50 Put for $0.50 per share or $50/contract
• Expected Return: $0.50 / $5,000 = .010%• Annualized return: .010% x 50 = 50%
CalculationsCalculations will help you get into a better weekly put strike price with confidence
Entering Your Trade• Tesoro (TSO) Stock:
Trading around $74
• SELL TSO June (6/17) Weekly 73 Put
• Premium: $0.56 per share or $56 per contract
• 2 1/2 Days to Expiration
Online Broker Order Entry• ACTION: Sell to Open
• EXPIRATION: June 17 2016 (weekly)
• STRIKE: 73 Put
Order Entry Screen• BID-ASK: $0.50 to $0.60
• PRICE: Midpoint of $0.56
• ORDER TYPE: Limit Orders
• TIME-IN-FORCE: Day
Confirm Your Order
• A chance to review your order
• Take the time to check your trade settings
• Click “Place Order”
Goal of Weekly Paycheck Trade• Option contract to expire worthless
• Keep all of the premium
• No additional action to take
Times You May Close Early
• Sudden spike in stock price
• Uncertainty in the overall market heading into the week-end
• May not be availble to monitor trade on Friday
Target Buy-Back Price Execution• ACTION: Buy To Close
• ORDER TYPE: Limit
• PRICE: $0.26
• TIME-IN-FORCE: Good to Day (6/17) GTD or Good Til Cancel (GTC)
And Remember
Many online brokers do NOT charge commissions when buying back an
option with a price of a nickel or less
Confirm Your Closing Order
• A chance to review your order
• Take the time to check your trade settings
• Click “Place Order”
Timing
• Remember, weekly options are open for weeks ahead of expiration
• Weekly Paycheck Strategy: Tuesday or Wednesday of the week of expiration
Managing Your Weekly Put Position• The stock market is
unpredictable and full of surprises
• Don’t sell a weekly put option and totally forget about it
• Monitor your trade position
You Can Set Trade Alerts• Most online brokers offer an alert system
• Alerts can be sent via email, text, or to your smart phone or tablet
• Set the alert up when you execute your trade
• Trigger when stock price is within 2% - 4% of being ‘in the money’
Underlying Moves Against You
• Price of underlying sells off below your strike• Decision Time
You Will Be Assigned Buyer decides to “exercise their option” to
sell stock to you … you must buy
Close Your Put Position Early
1. Close with a small profit2. Close at breakeven3. Close with a small loss
Roll And Recovery
• Avoid taking a loss on the trade position
• Increase cash and profit potential• Avoid being assigned the stock
Rolling a Put Option is One Transaction
1. BUY back your put position2. SELL a new put position
Roll to New Expiration• Same number of contracts• Same strike• New expiration date
One Transaction With Your Broker• Can select “Roll”
transaction with most online brokers
• Still have two transaction costs of “buying” and “selling”
• Can fill with a credit limit order
Weekly Put Option Roll Trade ExampleOpening Trade: April 8
First Solar (FSLR)SELL FSLR April (4/8) 61 Put Received $0.80 per share or
$80 per contract
FSLR Stock Sells Off Below $61
Roll Forward Instructions
Buy-to-Close FSLR April (4/8) 61 Put strike Cost: $0.85 or $85 per contract Sell-to-Open FSLR April (4/15) 61 Put Strike Collect: $1.10 or $110 in cash
Net Credit From Roll Trade
Original Weekly Put: + $.80 Less Buying Back Put: -$.85 Sale of New Weekly Put: +$1.10 NET CREDIT (in order) +$.25
Rolling Works• Rolling extends time value to let underlying work
for you
• Provides flexibility to avoid assignment
• Opportunity to generate additional income
• Chance to roll “down” to lower strike
Adding Cash• Roll out and collect more cash…
• … but you will need to support with your capital
• Time frames are considered when we make a decision
• Tying up capital vs. redeploying capital to a new position
Flexibility
Weekly Paycheck Trade Case Studies
• Two recent “weekly paycheck” trades made in Options Income Blueprint
• One trade we buy back the option back early
• The second trade it expires worthless
Netflix (NFLX) Trade Set-Up• Support NFLX at 95
Netflix (NFLX) Trade• Initiate Trade on 4/20
• Sell April 94 Put (right at-the-money) $9,400 required
• Collect $0.61 or $61 per contract
• Potential 0.6% or 33% annualized
Closed Early on 4/22 Expiration Day• Bought to close at $0.23
• $38 Profit for 0.40% or 21% annualized
Expedia (EXPE) Trade Set-Up• See Support at $105 level
Expedia (EXPE) Trade• Initiate on 4/27
• Sold April (4/29) 95 Put (9.2% Out-of-the-Money)
• Collect $0.85 per contract
• 0.90% potential return or 46% annualized
The Alerts• Expired Worthless on 4/29
• Keep $85 per contract
Reasonble Income Goals• How many weeks a year you can sell weekly puts
• How much capital you are committing to this strategy
• What impact commission may have on your profits
• How many times you believe you will need to extend or roll a position, reducing your return on that position.
Guidelines For Selling Weekly Puts• Put positions on forty
times a year
• Do not not allocate all your capital to this strategy
• Do not put all your capital in support of one position
• Assume 1-to-2 out of ten positions will need to be extended a week
Workshop Recap• Collect an extra “weekly paycheck” selling week
puts
• Take advantage of “ferocious” time decay
• Constructing a simple weekly put option trade
• Roll and Recovery
• Roll with potential to collect even more cash
Reminder: Live Trading Wednesday• Two “Live” Weekly Paycheck trades
• Step-by-step trade execution in real-time
• Questions and answers
• 12:00 PM Eastern Time,Wednesday, June 23
• Plus, Closing Live Trading Session Friday, 12:00 PM, June 25
Time For Your Questions
Weekly Paycheck Live Workshop
June 20, 2016