How to Calculate annualized.
Nov 15
written.
Strike
-60
If EXP
is NOV 26
how
many to expire - 11 days , we add 1 day extra for calculation
Premium
= 0.6 for 60 STR, so got $60 for 100 stocks
(60/12)
* 360 = ABC
in
financial world 1 year = 360 days.
60*100=6000
if assigned we have to have 6000 to buy the stock.
ABC /
6000
Rate of capital.
Credit spread 205 / 210, got $ 2
so mar profit for that spread 10 got 2. so 10-2 = 8
2/8 = 0.25 that means 25% is returned for $10. $20 is capital.
1. Covered call trade + protective put.
2. Collar trade has 3 legs
3. Should we add a 4th leg by selling PUT as well?
-To fund the protective put.
All traded on 10/9/2018
Adding a Short Put to fund the cost of the Long Put: Advantages
Adding a Short Put to fund the cost of the Long Put: Disadvantages
We can roll out to the same strike at a later date or out-and-up to a higher strike at a later date. For both, there will be an intrinsic-value cost-to-close. When we roll out-and-up, we will benefit from share value being worth more than prior to closing the original short call. In our BCI methodology, this gain is referred to as bought-up value. This article will detail all the explanatory calculations.
Hypothetical trade
Initial trade structuring (multiple tab of the Ellman Calculator)
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| BCI - initial calculations |
The initial time-value return is 3.1% (yellow cell) with the possibility of an additional 4.2% of upside potential (brown cell) if BCI moves up to or above the $50.00 strike by expiration. As long as the contract obligation to sell at $50.00 is in place, our shares cannot be worth more than $50.00. This is how the trade is structured.
Rolling-out-and-up: information into the “What Now” tab of the BCI Calculators
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Rolling-Out-And-Up Data Entries |
Rolling-out-and-up: final calculations from the “What Now” tab of the Ellman Calculators
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BCI: Rolling-Out-And-Up Final Calculations
The bought-up value is $2.00 per share or $200.00 per-contract. This is because shares can only be worth $50.00 with the original short call in place, but once the short call is closed, shares are worth market value of $52.00. This bought-up value must be incorporated into our calculations since we paid for it in the form of intrinsic-value cost-to-close.
The final calculations show an initial time value + bought-up value combined return of 1.8% (brown cell). If share price moves up to the new out-of-the-money $55.00 strike by expiration (an additional $3.00 per-share), the total one-month return will be 7.80% (Yellow cell).
Discussion
When rolling an ITM strike out-and-up, there will be an intrinsic-value cost-to-close. There will also be an unrealized increase in share value by that intrinsic value amount. In the BCI methodology, this is known as bought-up value and must be incorporated into our rolling calculations.
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Unwind calculations if both legs of the position are closed on 10/6/2020
The time-value cost-to-close (CTC) is 0.58%. There are 10 days remaining to contract expiration. We ask ourselves: Can we generate at least 1% more than the time-value CTC or 1.58% or more with a different security by 10/16/2020? If yes, we execute the mid-contract unwind exit strategy. If no or unsure, we take no action and continue to monitor the trade with possible rolling opportunities as expiration approaches.
Discussion
Exit strategy opportunities must be executed when beneficial to our overall portfolio success. To make these determinations, the BCI Calculators will assist as the formulas are built in to allow us to understand the mathematics of our trades. In the case of Alex’s TAN trade, a successful trade was executed with the possibility of establishing a second income stream in the same contract month with the same cash investment.
When the market is in a correction, how do you know when that trend has changed and it's time to buy stocks again?
Wait for a "follow-through day."
IBD's ongoing study of every market cycle since 1880 has found that no bull market has ever started without a follow-through day. So instead of relying on hunches or predictions, wait for this time-tested signal to confirm the market has hit bottom and a new uptrend has begun.
Not every follow-through day leads to a big, sustained uptrend. About 25% - 30% will fail, and the market will quickly fall back into a correction. That's why you want to get back into the market gradually when a follow-through day occurs and the Market Pulse shifts from "Market in correction" to "Confirmed uptrend."
If the uptrend takes hold and leading CAN SLIM® stocks start to move higher on heavy buying by institutional investors, you can start to get in more aggressively. If the uptrend fails, follow your sell rules and move safely back to the sidelines.
Watch Out for Distribution Days
If you see distribution days within just a few days after the follow-through, look out! It could mean the nascent uptrend is not taking hold and will quickly fall back into a correction. Regularly check the Market Pulse for the current distribution day count and any alerts to changes in trend.
As noted earlier, the biggest winners tend to launch new price runs right at the beginning of a new uptrend.
It's all part of the market cycle: During the prior correction, they form base patterns. Then they break out as the market direction changes, often on the actual follow-through day or within the next two — three weeks.
The examples below show how that same phenomenon happens year after year.
First, look for stocks at or near proper buy points. Most will be building bases. After that, look for a slightly out-of-the-money weekly or monthly call option. This means the strike price is just above the underlying stock price. Every strike price comes with a premium, or the cost of the option. Divide the premium by the stock price, and multiply by 100; this gives you the downside risk for the trade in percentage form. Looks for trades with downside risk of 4% or less.
The strategy is detailed every week in the Earnings Preview column of the IBD Weekly print edition, on page B2.
NVDA example
One of the early winners since this feature's debut? Check out Nvidia (NVDA), featured in the May 9, 2016, edition of IBD Weekly as it got support at the 10-week moving average.
When shares were trading around 35.50 on May 12, a slightly out-of-the-money weekly call option with a 36 strike price (May 13 expiration) came with a premium of $1.27. That offered a trade with 3.6% downside risk.
Shares gapped up May 13 on earnings and closed at 40.98. The option could have been exercised that day at 36. If you didn't want shares, you could have sold the option itself for a nice profit.
Other winners that arrived in later weeks included Salesforce.com (CRM), Ulta Beauty (ULTA), Lululemon (LULU), Paychex (PAYX), Yum Brands (YUM) and Domino's.
Of course, earnings option plays aren't always going to work, but they're a lower-risk alternative to buying a stock outright ahead of earnings because risk is predefined.
Wells Fargo Stock Earnings Next Week; Options Market Helps Set Expectations
Calculating Expected Move On Wells Fargo Stock
The quickest way to work out the expected move is to look up the option chain and add together the price of the at-the-money put option and the at-the-money call option. We use the first expiration date after the earnings date.
While this approach isn't as accurate as a detailed calculation, it does serve as a reasonable estimate.
Let's take Wells Fargo stock as an example. Earnings are before the open on July 14 so we would use the option chain with a July 16 expiration. The at-the-money call and at-the-money put on Wells Fargo stock are trading just above and below 1.00. The sum of both is roughly 2.05 and that is the expected point move. With Wells Fargo stock trading around 42.50, that's about a 4.8% expected move.
Remember, that doesn't tell you direction. It could be either up or down!
Bollinger Band strategy.
1. 80 length (SMA) and 1 Std deviation on 4 hour time frame.
buy (Long) on next day if price breaks out upper BB. Sell if price breaks lower BB.
2. 100 length (SMA) and 3 Std deviation on 1 hour time frame.
buy (Long) on next day if price breaks out upper BB. Sell if price breaks lower BB.
3. 20 length (SMA) and 2.3 Std deviation on 4 hour time frame.
buy (Long) on next day if price breaks out upper BB. Sell if price breaks lower BB.
Images for forex but it will work for stocks.
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| 1 Hour 100 length 3 Std.Div |
How to find Market TOP?
5 distribution days happened in 3 week period. . Market closes lower on heavier volume than previous day. Market means SP500 and Nasdaq.
How to find Market Bottom?
2 events leads to it.
After market trades down it starts to go up. That low point is considered as market bottom. After market bottom we have to see Follow Trough days on 4th day or later. But before 10th day.
Event 1:
Day 1 of the 'day count' is the first day that either: market touches its lowest point and closes upper half of its range. OR the 1st 'up' day after market touches its lowest point and closes lower half of its range.
Event 2:
Once day 1 occurs and the low is in place we are looking something called as "Follow-Through" day
Follow-Through day
When 1 of the indexes (DJIA, COMP or SP500) closes up 1.25%+ on higher volume than previous day
It happens somewhere on day 4 or later (It does not count if it happens on day 2 or 3 )
The most powerful Follow Through can happen after day 10 but they are rare and usually not as powerful.
This methodology signals the market bottom about 80% of the time and the market has never bottomed without a Follow Through day.
Follow-Through days that have staying power tend to have a lot of stocks ready to lead the charge and ready to breakout. This was not the case initially, but now many more stocks are setting up and breaking out.
If one of the indexes suffers a distribution day (a decline in higher volume) soon after the follow through, its often a sign that the follow through will fail.
Follow through days tend to fail more often after the indexes have fallen sharply over a short period of time while slicing their 50 day and /or 200 day moving averages (like in Feb 2020)
A close below the low of the follow through day also signals likely failure.
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| Market Top |
Covered Call
Stock Selection
We select the top-performing Dow 30 stocks that have been out-performing the S&P 500 in both three-month and one-year time frames as shown in our BCI Blue Chip Reports.
Option Selection
For this article, I used the first five stocks in the report and checked the option-chains for out-of-the-money strikes that generated 1%-2% for one-month initial time-value returns. I entered the option-chain information into the blue cells of the multiple tab of the Ellman Calculator.
Exit Strategies
Once we have entered a covered-call trade, we move to position-management mode. A complete detailed discussion of exit strategies is beyond the scope of this article, but these include:
20%/10% guidelines, “Hitting a double”, Rolling down, Selling the stock after closing the short call, Mid-contract unwind exit strategy, Rolling-out, Rolling-out-and-up
EXIT strategy -
How Do You Create an Exit Strategy?
I personally like to keep it simple. Here’s a simple, yet powerful, profit-taking strategy: P = 2 x R
This means: Take profits when you make twice as much money as you risk. Here’s an example: I highly recommend using the 2% rule for your risk, i.e., you should never risk more than 2% of your trading account on any given trade. So. if you have a $10,000 account, don’t risk more than 2% = $200. When you risk $200, you should take profits as soon as you make $400. With a simple profit-taking strategy like that, you will make money even if you’re wrong half of the time.
in option buy at (.70 delta) 25.00 sell if it comes to 20 so risk is 5. sell at 30 so reqrd is 10 (this is my view)
Advanced Profit-Taking Strategies
Here’s the challenge...when you're using the simple profit-taking strategy that I outlined above, you might leave some profits on the table. Because when a stock is more volatile, you could get 3 x R, or maybe even more. As an example, when you look at the stock SLCA, you could easily get 5 x R, i.e., you could get $1,000 for every $200 that you risk. In this case, what do you do? Do you try to get 5 x R, even though it is more aggressive? Or do you stick with the more conservative 2 x R?
Is There a Best Way to Exit a Trade?
Here’s what I personally like to do. I like to use the best of both worlds. I take profits for 1/2 of my position when I see 2 X R, and then I take the remainder of the profits when the stock gets to my optimized profit target, i.e., 5 x R.
Here’s an example:
Let’s say you’re trading 100 shares of ABC. Your risk is $2 per share, i.e. $200 for 100 shares. Your conservative profit target is 2 X R = 2 x $2 = $4. Your optimized profit target is 5 X R = 5 x $2 = $10.
I personally sell 50 of the 100 shares as soon as I can get $4 in profits per share. In this case, I would make 50 x $4 = $200. Now I cut the stop loss for the remaining 50 shares in half. Instead of risking $2 per share, I will now risk only $1 per share. Since I have 50 shares left, my risk is now reduced from $200 to $50. But the best: since I already sold half of my shares, I already made $200.
This money has been deposited into my account. So, if the stock turns around now and I get stopped out, I only give back $50 of these $200. Therefore, my total profit for this trade would be $150.
As you can see, once I take profits, I cannot lose on this trade anymore—even if the stock turns around. And if it keeps going up, I can sell the remaining 50 shares when the stock moves up $10, which is my optimized target. In this case, I would realize an additional $500 for a total of $700.
3 Different Profit-Taking Strategies
Let’s recap:
I can relax, sit back, and don’t have to worry about this trade anymore. If everything works out, I’m making $700 on this trade. If it doesn’t work out, I still make $150.
Important!
This example is for an account of $10,000, and if you get the $700 in profits, you make 7%—on one trade! That’s pretty good! As you can see, THIS is smart trade management.
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Price Action
How to find momentum Divergence
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| Momentum divergence |
Reversal Candle stick patterns
Reversal Candlesticks, Hammer Candlesticks, Flanked Doji’s
Risk, SL
