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When it comes to trading strategies, I make sure generating cash flow is on the top of my list.

By defining my income, I will always be able to plan for the future without having to take oversized bets to achieve my profit goals.

Having stability in business is paramount to my success.  

Allow me to share with you some tricks that I use during every trade which allows me to score huge winning streaks.

When you learn this, you’ll be kicking yourself for not starting earlier. 

 

Options Profit Planner

 

It’s all in the name … I like to plan for profits using options!

And that doesn’t mean going around and buying lotto tickets on random stock.

Instead, I use a slow and steady strategy to win the race approach to my investing and trading strategy.  

Focusing on quality stocks that I feel comfortable holding for the longer term if things don’t work out as I planned.

And when trading an option selling strategy, this can always be a possibility, especially when I am dealing with a Naked Puts strategy

So let’s go a little more in depth with

  • How this strategy works
  • Why I choose to trade Naked Puts and not Naked Calls
  • How to offset the loss of being assigned stock with selling Covered Calls

 

What Are Options

 

Options are a financial instrument that gives investors the right, but not the obligation to purchase a security, at a specific price and date in the future.

And for this right, the investor will pay a cost, or premium, at which the seller feels is a fair value to exchange these contracts.

Now let’s take a look at price obligations…

 

Price Obligations

 

An obligation on selling put options is if the price falls below your strike, you will be required to own that stock (at the strike price), as the sample trade above.

Let’s take a look at a quick example on the SPY’s quick…

 

Source: ThinkOrSwim

 

Each option contract has an associated strike price at which buyers and sellers agree upon buying and selling stocks.  

The value of the contract is what the markets are pricing the options at and are subject to change based on the supply and demand on that stock or option contract.

 

Options Expiration

 

Every option has a time and price associated with them and adjusts in price based on a number of underlying factors.  

Factors that influence pricing are volatility, time until expiration, and underlying price changes, or IV, Theta, and Delta.

Let’s discuss how Theta impacts options pricing and how it’s one of the most important greeks towards option sellers.

 

Theta

 

One of the factors is time decay, and it is based on how much time is left on the options.  Typically, the value of a weekly call option is cheaper than that of a monthly all option.

For example, a weekly option that is expiring on Friday of this week has 5 days of time value added to the options price.

Theta is the value of time in the options contract, and the longer the amount of time, the more time value an option will have.  

How this works…

 

The Strategy

 

Let’s assume that the trade we are about to take is a Short Put on SMSI that expires next month.

In general, we know that the market pivot around the Bollinger Bands tends to be extremely strong areas of support for a stock. 

 

Source: ThinkOrSwim

 

Looking at SMSI, the Fractal Energy is above its upper limits showing that we are set up and energized to trend.

And combining that with Bollinger Bands, we know that the markets are more likely to find support and trade higher into the future.

Which allows us to trade a short put.  

Let’s take a look at options contracts.

 

Source: ThinkOrSwim

 

At the time I placed the trade, I was able to sell SMSI at $0.60 and now it’s time to start looking for defense positions.

 

The Trade

 

And this is the trade that I could place on SMSI when it was trading near its lower Bollinger Band with Fractals that are charged up.

 

Source: ThinkOrSwim

 

  • SMSI : Sold the Oct ‘20 $4 put for $0.60

 

This trade is aiming to capitalize on a market where it should find support from the lower Bollinger Band and combined with Fractal Energy, should start to trend higher.

But why sell a Naked Put that close to At The Money?

If I get assigned this stock I feel comfortable owning the stock at this price and believe that it can go up in the near future.  

Which makes this trade almost risk-free.

And by selling puts you can get paid upfront for telling the markets you would like to own stock at that price.

What do I want to happen?

  1. The market to rally
  2. The market to continue to sell off and I get to own SMSI at a great price

Wrapping up

 

So here is a quick breakdown of the pros and cons of trading Naked Puts that should give you a better indication of what an options selling strategy can do for you!

Pros:

  • Huge returns of 75% to 100%
  • House odds in your favor of over 60%
  • Ability to purchase stock at a significant discount
  • Can win in a up, down, or sideways market

Cons:

  • Limited upside gains

Click Here To Join Options Profit Planner Today!

Author: Dave Lukas

There are thousands of indicators one has at their disposal…

From RSI to VWAP…momentum to mean reversion… there’s an unlimited number of combinations you could come up with.

Test them all out… and it will most likely drive you crazy. 

So what’s the solution?

I designed a proprietary indicator that shows both trend and chop signals in an easy to read plot.

It’s called the Fractal Energy Indicator, and I use it before I enter every one of my trades.

Which is why I want to show you exactly how powerful it is to find your trade… no matter what type of trader you are.

 

Fractal Energy

 

Fractal Energy is the cornerstone indicator of Options Profit Planner and its power is used to pinpoint key market reversals.

The power of fractals allows me to determine the strength of trends and how much “life” is remaining in a stock’s movement.  

There are 2 main components of Fractal Energy:

  1. Fractal Pattern
  2. Energy 

And when you use the power of this indicator you will be able to successfully determine the strength or weakness of trends on any stock.

Energy is the term used to describe the stored or potential energy a stock has built up.  Like a spring that is compressed, it stores potential energy and erupts when you release the force that is keeping it held together.

And by combining those two different components you create a single indicator that is able to successfully determine the strength or weakness of a trend on any stock.

Fractals tap into the inner strength of every stock across every time frame giving you the most comprehensive understanding of what a stock is going to do in the future

Now I typically use Fractal Energy on the daily timeframe but I want to quickly show the power of the indicator on higher time frames.

 

The Weekly Chart

 

By using Fractal Energy Indicator, Options Profit Planner has been able to predict this move down and this bounce almost perfectly!

And the way to predict larger market movements is to reference a longer time frame to understand what the major trends are doing.

Let’s take a look at SPY’s with the Fractal Energy plotted…

 

Source: Thinkorswim

 

Here is how this breaks down…

Breaking down what Fractals said about the markets at all-time highs:

  • The Fractal Energy indicator dropped to new lows, below the lower threshold value of 30
  • Markets struggled to continue trend higher, showing weakness in the stock

Ok so that might work, but perhaps that same signal was generated with an RSI.  

And it’s true!  There are times where other indicators might give the same signal.

I’m going to now show you how Fractal Energy stands out from the RSI.

 

Fractal Energy vs The Competition

 

When looking at a stock chart, many times a trader is just guessing at what levels to enter their trade at.  

And to make it worse, there is hardly any information that a trader can reference just by looking at standard indicators.  

When reading the RSI, when a value is near or over 70, a stock is considered to be overbought.

At this point, a trader would most likely remove shares of the stock they own at these levels, or execute a short trade.

And that’s exactly the opposite of what a trader should really be doing at certain key levels.

 

The RSI

 

Let’s take a closer look at a sample trade on TSLA with Overbought RSI readings.

 

Source: Thinkorswim

 

According to traditional RSI strategies, if the value of the indicator was to reach overbought, the trader would look to short the stock.

And clearly looking at the chart this would have been a terrible spot to go short TSLA.

Why did this happen?

Because RSI is a simple calculation that measures the number of moves up and down to determine the ratio of up bars to down bars on a stock.  

This ratio is inherently flawed as it doesn’t take into account any energy the stock might have built up going into the overbought zone.  

 

The Fractal Energy Indicator

 

Now let’s take a look at how we would look to TSLA with a charged reading in the Fractal Energy Indicator.

 

Source: Thinkorswim

 

According to the Fractal Energy Indicator, we would actually look to get long with a charged reading on the indicator!

And what a trade this would have been if you were able to get into it! 

The Fractal Energy Indicator of TSLA at the time was the highest reading in a year!  This means that the energy was more charged than usual, causing stock to erupt to the upside.

This setup sent the stock of TLSA soaring from $250/share to nearly $1000 in 6 months!

After the move, the Fractal Energy Indicator started showing the lowest reading all year, with a 12, showing the move is fully exhausted and can’t run any further.

Now that you see the difference, let’s go over how you can use credit spreads and short options to take advantage of the “casino effect”, or the ability to be the house with winning odds.

 

Selling Options and Credit Spreads

 

In order to get long or short the markets, a trader is left with only a handful of choices, and those are buying or selling stock or buying calls or puts.

And to be honest, buying options is usually a terrible idea.

Although there are times when you could be right on the direction and still lose on the trade because of other factors such as Implied Volatility decreasing the price of the stock on you.  

One strategy you might not have heard of is a credit call spread, and that’s the trade we are going to focus on when looking to short the stock.

Definition: A credit spread, or net credit spread is an options strategy that involves a purchase of one option and a sale of another option in the same class and expiration but different strike prices. It is designed to make a profit when the spreads between the two options narrows.

Simply put – a credit spread strategy will make you money, while a debit spread strategy will cost you money.  

This is the house vs the gambler.

And at Options Profit Planner, I want the house odds in my favor as the business owner and expect to have steady money coming in, not going out!

A credit spread involves selling a high-premium option while purchasing a low-premium option in the same stock and option type.

As a credit trader you have 4 strategies to generate income for your business.

The 4 trades to go long or short the markets are:

  1. Short Put
  2. Short Call
  3. Short Put Spread
  4. Short Call Spread

Wrapping up

 

A fractal is a never-ending pattern and is repeatable and found across everything in nature, such as, coast lines, pine cones, and snowflakes. 

Fractals are created by repeating a simple process over and over in an ongoing loop. 

Meaning that a pattern working on a weekly time frame will work all the way down to a 1 minute time frame.

Which is exactly why I want the Fractal Energy to work for me!  And when I am selling options, I want to put the house odds in my favor!

And only then do you then have a winning combination that can give you the best shot at making money in the markets!

Now – start tapping into the inner workings of the stock market and make Fractal Energy a cornerstone of your trading business!

To get started, Click here to sign up for Options Profit Planner now! 

Author: Dave Lukas

 

Ask any option pro out there…

They’ll tell you the same thing…

When it comes to options it’s all about volatility and time decay. 

Today I want to talk to you about one of my volatility indicators. 

If you want to:

  • Improve your entries and exits
  • Set targets and stops
  • And develop a better trading plan

Then this lesson is for you…

 

Bollinger Bands

 

Bollinger Bands were developed by John Bollinger as a price envelope designed to define the upper and lower price range of a stock.  

Bollinger Band Indicator consists of a middle Simple Moving Average (SMA) along with an upper and lower offset band.  Since the distance between the bands is based on statistics, such as a standard deviation, they adjust to volatility swings in the underlying price. 

How do you read them?

Bollinger Bands help to determine whether prices are high or low on a relative basis, and according to these calculations, price should fall within range 95% of the time!

Let’s take a look at an example chart.

 

Source: TradingView

 

You may have noticed right away that price tends to fall inside the Bollinger Band nearly every single trading day with very few actually making it outside the two bands.  

And if the price did trade outside of the bands, the stock made sure to rebound quickly to get back inside of it.  

 

How this indicator works:

 

  • When Bollinger Bands tighten, there is a high likelihood that price will have a sharp move
  • When the bands separate by an unusually large amount, this is showing a significant increase in volatility or a gap in stock price. 
  • The stock price can exceed and even hug or ride the band price for extended periods of time.
  • Price has the tendency to bounce within the bands’ envelope, touching one band and moving back towards the  other.
  • You can use the middle SMA or opposite band as target prices and exits for your trading 
  • If prices move outside of the band, it’s expected to see a trend continuation until the price moves back inside the band.

Let’s take a look at this chart closer…

 

Source: Tradingview

 

Here you can easily see exactly the many signals the Bollinger Band will give a trader from the items that were listed above.

In a quick glance the trader will see :

  • Tightening of bands leads to breakout
  • Stock trends higher, riding upper band
  • Trader can buy the moving average the entire way up
  • Price drops suddenly below lower band and snaps back inside the next day acting as a price barrier

So, how does this apply to the SPY’s chart this week.

 

Source: Tradingview

 

The trade setup:

  • Stock price was at or above the Bollinger Bands at the end of June
  • There was a sudden reversal from the highs after riding the upper Bands 
  • There was slight consolidation at the center moving average
  • Once lower Bollinger Band approached the stock price, it acted as support for the stock, sending it higher

 

Putting it all together

 

I know this market is crazy… you have to trust the tools you use in order to trade safely.  

And those tools are the Bollinger Bands and Fractal Energy Indicator.  

When they are combined, they really are one of the best strategies a trader can deploy in markets that are unpredictable.  

When looking at these two indicators, this is where statistics and probability really shine and make for a highly profitable trading opportunity.  And to make it even better, I combine selling options and spreads to put the house odds in my favor for every trade!

Which means not only do I trade using two battle-tested indicators, I combine these with a credit trading options strategy that can pay me 100% ROI on my trade if timed correctly to the markets.

So… to recap what makes this trade:

  1.  The Options sellers always have statistical advantages over buyers.  That’s a built-in feature for the entire options market, regardless of calls or puts.
  2.  Bollinger Bands act as both support and resistance levels for a stock
  3.  Fractals are approaching a charged state and have built up energy for a strong move

 

Click here to receive updates to how I use the Bollinger Bands or Fractal Energy to determine the market direction

 

Author: Dave Lukas

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