msweekly paycheck live workshop slidesfinal€¦ · welcome to the weekly paycheck workshop •...

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: support@tradersreserve.com 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