Today during Trade Fest I will talk about volatility, dividends and selling juice. (More on that last one inside.)
Living off of dividends is not a bad way to go … though it is a very different return profile than trading volatility.
And selling juice can act like a dividend – but with better returns.
It all depends on the risk traders want to take given the market condition at the time.
Right now, volatility is relatively high in the options market but actual stocks are not moving as much in the short term.
That sounds like a recipe for selling juice.
So what IS selling juice?
Selling Juice AKA … Credit Spreads
In general, selling juice is a credit spread.
Sell the spread and expect some percentage of the credit back as a gain.
Below I highlight the broken wing butterfly as an alternative.
Why?
Because I can close the short leg of the trade for a profit if all works well, plus keep the long, near-the-money leg and hold that for an outsized gain on the initial credit.
That is the big difference between “selling juice” as a credit spread and selling juice as a broken wing butterfly:
- The credit spread sells the near-the-money options and buys the out-of-the-money options
- The broken wing butterfly buys the near-the-money-options and sells the out-of-the-money options.
With a market like this – by that, I mean swinging in a range – I like owning the near-the-money option because it affords some flexibility on closing the trade.
This works very well in stocks that pay dividends since it affords a lower entry price with nice profit at the outset.
So, now there is a plan:
- Sell Juice
- Volatility
- Dividends
The Rundown
Option Shopper
Licia went shopping at Gap Stores Inc. (Ticker: GPS) and walked out with 118% gain.
Capitol Gains
I closed both Ford Motor Co. (Ticker: F) and Energy Transfer Partners (Ticker: ET) for triple digit gains on smallish credits to start my broken wing butterfly trading. I was able to close the ET short puts and sell out the long puts for a win each way.
OP Mentoring
I closed the last of my Proshares Ultra short term VIX Futures ETF (Ticker: UVXY) puts for a 20% total position gain yesterday.
To Your Trading Success,
AG