Using Weekly Options

Transcription

1 Using Weekly Options TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.

2 Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read the previously provided copy of Characteristics and Risks of Standardized Options before investing in options. Supporting documentation for any claims, comparison, statistics, or other technical data will be supplied upon request. Spreads, iron condors, and other multiple-leg option strategies can entail substantial transaction costs, including multiple contract fees, which may impact any potential return. These are advanced option strategies and often involve greater risk, and more complex risk, than basic options trades. The examples contained in this webcast do not take transaction costs into account (commissions and other fees such as contract fees, exercise and assignment fees, etc.) -- they are important factors and should be considered when evaluating any trade. The following presentation is not a recommendation or endorsement of any particular investment or investment strategy. Returns will vary and all investments involve risk, including loss of principal. Asset allocation and diversification do not eliminate the risk of investment losses. Diversification does not assure a profit or protect against loss. TD Ameritrade does not provide tax or retirement-planning advice. We suggest you consult with a qualified tax-planning or retirementplanning professional with regard to your personal circumstances. Past performance is no guarantee of future results or success. Important Disclosures The webcast is provided for general information purposes only and should not be considered an individualized recommendation or advice. Investools Inc. and TD Ameritrade, Inc. are separate but affiliated companies that are not responsible for each other's services or policies. Investools does not provide financial advice and is not in the business of transacting trades. This presentation includes a feature that allows recording of electronic (including audio) participant-shared content. By continued participation in this session you automatically consent to such recording, and the subsequent rebroadcast of any recording.

3 Speaker Mike Follett Investools, Instructor 17 years in the financial industry Former options principal and trade desk manager at Morgan Stanley Online Instructor at Investools since 2003 Co-created and teaches the Advanced Options Strategies workshop

4 Today s Goals 1 2 Define weekly options. Explain iron condors and calendars. 3 Demonstrate two methods for using weekly options for earnings trades.

5 Weekly Options Characteristics Weekly Options Not available for all stocks Cease trading Friday every week Most eligible stocks have five weeks available (including regular expiration) Why Use Weekly Options Rapid time decay (income) Short-term volatility events Short-term portfolio protection

6 Weekly Iron Condor Iron Condors Below is an example of how short verticals are combined to create an iron condor, which is a market-neutral approach to selling volatility. Bear Call Spread Bull Put Spread

7 Weekly Calendar Spread Below is an example of how a pair of long and short options (calls or puts) are combined to create a calendar spread. The focus is to sell a highly inflated near-term option covered by a further-dated option with much lower volatility. 35% 51%

8 Earnings Events Implied Volatility Inflates in anticipation of the event Options prices inflate Near-term options tend to inflate the most Collapse after the event Large downward adjustments after the news Like popping a balloon Stock prices Who knows? Iron condors and calendars can cover a range of prices.

9 Scanning the Volatility Significant Positive Volatility Skew Look for front week volatility to be at least 10% higher than back week volatility. Volatility Crush Happens Quickly Potentially enter before market closes before announcement. Potentially exit by mid-day the next trading session.

10 Weekly Options Earnings Sell inflated volatility Short-term speculative Continue learning weekly options to: Enhance portfolio through time decay Manage with short-term risk adjustments

11 Goals Recap 1 2 Define weekly options. Explain iron condors and calendars. 3 Demonstrate two methods for using weekly options for earnings trades.

12 Contact Info Investools Website Investools Education

13 Using Weekly Options Up next: Pairs Trading Futures TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank TD Ameritrade IP Company, Inc. All rights reserved. Used with permission

14 Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read the previously provided copy of Characteristics and Risks of Standardized Options before investing in options. Supporting documentation for any claims, comparison, statistics, or other technical data will be supplied upon request. Spreads, iron condors, and other multiple-leg option strategies can entail substantial transaction costs, including multiple contract fees, which may impact any potential return. These are advanced option strategies and often involve greater risk, and more complex risk, than basic options trades. The examples contained in this webcast do not take transaction costs into account (commissions and other fees such as contract fees, exercise and assignment fees, etc.) -- they are important factors and should be considered when evaluating any trade. The following presentation is not a recommendation or endorsement of any particular investment or investment strategy. Returns will vary and all investments involve risk, including loss of principal. Asset allocation and diversification do not eliminate the risk of investment losses. Diversification does not assure a profit or protect against loss. TD Ameritrade does not provide tax or retirement-planning advice. We suggest you consult with a qualified tax-planning or retirementplanning professional with regard to your personal circumstances. Past performance is no guarantee of future results or success. Important Disclosures The webcast is provided for general information purposes only and should not be considered an individualized recommendation or advice. Investools Inc. and TD Ameritrade, Inc. are separate but affiliated companies that are not responsible for each other's services or policies. Investools does not provide financial advice and is not in the business of transacting trades. This presentation includes a feature that allows recording of electronic (including audio) participant-shared content. By continued participation in this session you automatically consent to such recording, and the subsequent rebroadcast of any recording.