Sunset Beach, Oahu above – my idea of relaxation! The photo looks like a watercolor.
When we look for income trades, weekly options should also be considered. We want to “hit and run” with quick trades, that usually involve a duration of 5 – 8 days. These strategies have the potential to boost your bottom line many times a month and provide the freedom that many seek. Being bound to our trading desks hampers a balanced lifestyle. Income trading releases our minds from the day to day grind.
We also like weekly trades, as the underlying have less time to be influenced by macro data and news. In and out fast is the rule of thumb.
Let’s look at two examples.
TECK has major support just below price, by way of VBP. This is a primary concern when taking income trades. Where is support on the daily and weekly time frames. Second, we look for stocks in an uptrend, that are also in bullish sectors. The (XLB) materials sector fits that criteria. Finally price is above the 9/20ema., but not too extended. RSI is above 50 and grinding higher.
Buy shares of TECK stock at $23.57 (+/-) or better in multiples of 100 shares and sell 1 option contract per 100 stock shares of the 2017 13-APR 23.0 call option for $0.79 or better. This trade will expire in 5 days and return 1.0% (+/-) if the stock is assigned at expiration.
CC also fits our criteria, as price pushes off the upper Bollinger bands. VBP support (dashed HL) is just below price. RSI is above 50 and moving sideways.
Buy shares of CC stock at $37.92 (+/-) or better in multiples of 100 shares and sell 1 option contract per 100 stock shares of the 2017 13-APR 37.0 call option for $1.20 or better. This trade will expire in 5 days and return 0.8% (+/-) if the stock is assigned at expiration.
How you choose to select income trades is a matter of style. Personally, I like to take a mix of weekly and monthly expiring options. The weekly generates income quickly and allows us the freedom of being less concerned with the market environment. Even if there is news, it seldom lasts for days and weeks on end.
The monthly duration affords closer to the money or in the money positions, where we have more cushion to the downside before we hit break even.
The key is writing positions that have a better premium versus the expected move over the next week or two.
For example, when we consider a position, we are thinking, “this is a stock that has the potential to move up or down 1.00 point over the next couple of days, is the premium 1.50 or more? We are getting the additional 0.50 usually for the time and volatility.
In summary, if you are an income trader, you should consider weekly positions, for all of the benefits they have to offer.
Happy Weekend – Vinny
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