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All Theta is not Created Equal

Yo Pit Crazies,

 

Is it news anymore that Licia Leslie notched another win in Option Shopper?

 

A quick 63% return – this time in Cameco Corp. (Ticker: CCJ) calls – is mighty nice.

 

If you’re interested in cheap options, quick hold times and (often) tasty profits, give Customer Care a call later today at 1-888-872-3301.

 

Now, in Option Shopper, Licia often employs a debit, or “theta negative” strategy. That means a move needs to happen for the bucks to come in.

 

For a theta positive strategy, the trade does NOT need much to happen for the decay dollars to kick in.

 

And there are two ways to make it happen.

 

All theta is not created equal, you say? 

 

A credit spread is a credit spread, you cry.

 

Oh no …

 

Most Positive Theta Spreads Are Credit Spreads, However …

Often when options are written about, an income trade is involved at some point.

 

And usually that is some kind of credit spread sold out of the money farther away from where the stock is trading.

 

Now below note the theta below of $4.96.  This trade should produce about $5 per day if the 

Invesco QQQ Trust Series 1 (Ticker: QQQ) does not go anywhere.

 

Also note the buying power requirement of $2,000.

 

That means a risk of $1,800 to make a bit over $200.

 

Now flip the script to a debit trade with positive Theta ….

 

 

The max gain here is around $1,000, but the debit risk is only $205 for a 5-to-1 payout.

 

The reward for the risk taken is way below the credit spread – 9-to-1 lower, as a matter of fact, with a decent payout.

 

My Trading Legion is about recognizing the difference between these two trades and when the market conditions are right for either one.

 

It’s something good traders need to know how to do to make consistent profits.

 

The QQQ butterfly, for instance, something I am looking at into January. (More on that later this week.)

 

WATCH: Understanding intermediate level butterfly trading.

 

The Rundown

 

Option Shopper

Licia Leslie puts on her best trading shoes to find option bargains using market making and charting experience. Generally debit options and spreads with low risk, high reward setups. Short hold times are the norm.

 

      • Licia is ringing in the new year with Cameco Corp. (Ticker: CCJ) calls and a 63% gain.  I like this name in Cap Gains, too, for a uranium play.

 

Capitol Gains

Wall Street insider Frank Gregory and I run a portfolio approach to trading options with stocks that have good long-term prospects based on Frank’s K Street knowledge and my options expertise.

 

      • I closed some short calls in Ford Motor Corp. (Ticker: F) and Cliffs Natural Resources Inc (Ticker: CLF) yesterday in my diagonal call spreads. Both trades are green by 10% to 20%.

 

Other stocks currently in the CAPITOL GAINS portfolio:

 

      • Mandiant Inc. (Ticker: MNDT) long cybersecurity
      • SPDR Oil and Gas Explorers (Ticker: XOP) long oil
      • Cleveland Cliffs Resources (CLF)
      • Ford Motor Company (Ticker: F)

 

Power Income Trader:

Power Income Trader is a systematic approach to trading inflation. By pulling real-time data from the Fed, US Treasury and Gov’t, Power Income Trader alerts users on changes in money flow driven by Fed policy. Bill’s system puts you out in front of the most powerful money flow in the world.

 

Look for me and Bill to put on a nice pair trade in the new year. More details coming soon.

 

Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Gamma Radar to find order flow in active MEME  names.

      • Mark’s retail action trade is long some Apple Inc. (AAPL) puts, and he has been closing  Pro Shares Trust Ultra VIX Short Term Futures ETF (Ticker: UVXY) put options in Vol Edge.

Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 

 

The Pro Room has been looking for ATM and lower VIX this week.

 

Volatility Edge & Volatility Trading Club:

Volatility Edge is run by Mark and uses the proprietary Option Pit VIX Light indicator to guide volatility trading. The Vol Trade Club is run by me (AG), and employs a long strangle strategy that seeks to use Cboe Volatility Index (VIX) future decay to pay for upside iPath Series B S&P 500 short-term VIX futures ETN (VXX) and Pro Shares Trust Ultra VIX Short Term Futures ETF (UVXY) options.

The Option Pit VIX Light Is Moving And Still Yellow, as realized vol starts to drop in the S&P 500.

 

My VTC Trade No. 274 is up 10% on risk right now with No. 273 up 17%. Mark closed some VIX Jan. 19 20-strike puts for a 70% gain in Vol Edge..

 

Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!

 

To Your Trading Success,

AG

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