TRADING STRATEGIES

TradeWise offers defined-risk option spread trade recommendations through a variety of different trading strategies. Subscribe to one or more strategies for just $20 each per month and begin receiving initiating trades, adjustments and closing recommendations specific to that strategy. On average, TradeWise attempts to recommend at least 2 new trades per month for each strategy, but is dependent on favorable market conditions. Trade recommendations are delivered right to your email inbox. Subscribers may also set up Autotrade with TD Ameritrade to have the trades automatically entered for you in your designated TD Ameritrade account.

 

The Collar, which is a covered call with a protective put, involves purchasing stock, selling a call on that stock and buying a protective put to define the overall risk

The Collar strategy employs the same strategy as a Covered Call by purchasing 100 shares of a large capitalization stock with high liquidity and then selling a call option on those 100 shares, collecting a credit. However, in addition to the Covered Call, the simultaneous purchase of a Protective Put defines the amount of risk in the overall position and guards against a large downward move in the price of the stock.

The Protective Put is typically about 10-20% out-of-the-money and its cost will typically be less than the credit received on the sale of the call. With the Protective Put in place, we are covering any downside move in the underlying below our protective Put.

The Collar strategy provides the opportunity to roll the options from month to month, thereby collecting additional premiums against the long stock position and reducing the cost and risk of each trade. This can work to the client’s benefit if it is anticipated that the underlying stock is going to continue to trade in a relatively narrow range. The client may also have the benefit of dividend payments on many of the stocks TradeWise recommends for this strategy.

In some cases, TradeWise may recommend a Collar with a call in a further-out month and a Protective Put in a month that is closer to options expiration. This can reduce the cost for the protection until the put expires. In the event a trade is initiated with the call and put in different months, it provides the opportunity to either close the trade or roll the long put. This will depend upon the pricing of the individual options and the price movement of the underlying stock over the time frame of the trade.

Typically the shares of stock purchased will be trading for less than $50 per share so for those who elect to Autotrade, an allocation of $5,000 should ensure participation in each recommended trade.

Of the various strategies recommended by TradeWise, the Collar entails the least risk but is the most capital intensive and there can still be no assurance that an individual collar trade will be successful.

The length of any specific Collar recommendation will typically be 20 to 180 days.

For additional information about this TradeWise service, please see the ADV Part II

Trade Advisory

June 30, 2020

 

TradeWise Strategy:   Collar Advisory

Underlying:  Western Digital (WDC)

Status:   Opening Trade

Trade:  BUY +1 COLLAR WDC 100 21 AUG 20 47.5/42.5 CALL/PUT/WDC @44.81 LMT [TO OPEN/TO OPEN/TO OPEN]

Trade Price:   $44.81 Debit

Underlying Price:  $44.21

Trade Risk:   $2.31

Trade Duration:  Medium Term

Buying Power Reduction: $4,481.00

 

Trade Explanation:  For the Collar Advisory in Western Digital, we are buying (WDC) stock, buying the 21 Aug 42.5 puts and selling the 21 Aug 47.5 calls for a debit of $44.81 to open.

 
Price Action:   To initiate this Collar position, we buy 100 shares of the underlying equity (WDC), buy 1 contract of the 21 Aug 42.5 puts and sell 1 contract of the 21 Aug 47.5 calls for a net debit of $44.81.  Our total cost on the trade is the price we pay for the stock, plus the put, minus the premium received for the calls on this trade.  WDC shares reached a June low yesterday before seeing a 5% bounce in today's session. We expect the shares to stabilize and perhaps retrace higher as the pullback appears to have created a strong support level. 

 

Volatility:  Volatility is above average with an current IV rank of 27%.  The recent pullback in share price gives us a good entry point.

 

Probability:   With the recent fall, we are giving ourselves a positive probability for the shares to turn higher.  We expect the shares to move back towards $47.5 into Aug expiration.

 

Risk:   We are risking $2.31 to make a potential $2.69 on each individual collar. Although the Buying Power reduction is high due to the stock, the long put acts as protection to the downside to limit risk. We will have an opportunity to roll our options from month to month but only if it reduces risk and costs. Our initial break-even price is $44.81 on this position.

 

Trade Duration:   We have 52 days to adjust or close this trade by 21 Aug expiration. 

 

Logic:   We are buying the Collar to take advantage of the recent downturn, and today's positive momentum in the shares.  The selloff in WDC appears to be overdone at this level as the shares are sitting near their mid-point for the month, and could see a relief rally from these oversold levels. An attractive entry point with limited risk should provide a favorable opportunity for this position going forward.

 

We will continuously monitor all of our positions to determine if adjustments need to be made or when to close out of a trade.

 

TradeWise

 

Original Trade Price: $44.81 Debit         

Closing/Adjustment Price: 

 

***If you are placing the trade yourself, you can now copy and paste the trade from this email directly from the ‘trade line’ above to the Thinkorswim trading platform. Just use the clipboard icon under the ‘Order entry’ tab; Make sure to adjust the quantity if necessary as the default is at 1 lot in the trade line above***

 

Trade Advisory

June 30, 2020

 

TradeWise Strategy:   Collar Advisory

Underlying:  Western Digital (WDC)

Status:   Opening Trade

Trade:  BUY +1 COLLAR WDC 100 21 AUG 20 47.5/42.5 CALL/PUT/WDC @44.81 LMT [TO OPEN/TO OPEN/TO OPEN]

Trade Price:   $44.81 Debit

Underlying Price:  $44.21

Trade Risk:   $2.31

Trade Duration:  Medium Term

Buying Power Reduction: $4,481.00

 

Trade Explanation:  For the Collar Advisory in Western Digital, we are buying (WDC) stock, buying the 21 Aug 42.5 puts and selling the 21 Aug 47.5 calls for a debit of $44.81 to open.

 
Price Action:   To initiate this Collar position, we buy 100 shares of the underlying equity (WDC), buy 1 contract of the 21 Aug 42.5 puts and sell 1 contract of the 21 Aug 47.5 calls for a net debit of $44.81.  Our total cost on the trade is the price we pay for the stock, plus the put, minus the premium received for the calls on this trade.  WDC shares reached a June low yesterday before seeing a 5% bounce in today's session. We expect the shares to stabilize and perhaps retrace higher as the pullback appears to have created a strong support level. 

 

Volatility:  Volatility is above average with an current IV rank of 27%.  The recent pullback in share price gives us a good entry point.

 

Probability:   With the recent fall, we are giving ourselves a positive probability for the shares to turn higher.  We expect the shares to move back towards $47.5 into Aug expiration.

 

Risk:   We are risking $2.31 to make a potential $2.69 on each individual collar. Although the Buying Power reduction is high due to the stock, the long put acts as protection to the downside to limit risk. We will have an opportunity to roll our options from month to month but only if it reduces risk and costs. Our initial break-even price is $44.81 on this position.

 

Trade Duration:   We have 52 days to adjust or close this trade by 21 Aug expiration. 

 

Logic:   We are buying the Collar to take advantage of the recent downturn, and today's positive momentum in the shares.  The selloff in WDC appears to be overdone at this level as the shares are sitting near their mid-point for the month, and could see a relief rally from these oversold levels. An attractive entry point with limited risk should provide a favorable opportunity for this position going forward.

 

We will continuously monitor all of our positions to determine if adjustments need to be made or when to close out of a trade.

 

TradeWise

 

Original Trade Price: $44.81 Debit         

Closing/Adjustment Price: 

 

 

***If you are placing the trade yourself, you can now copy and paste the trade from this email directly from the ‘trade line’ above to the Thinkorswim trading platform. Just use the clipboard icon under the ‘Order entry’ tab; Make sure to adjust the quantity if necessary as the default is at 1 lot in the trade line above***

Please note: All TradeWise Advisory emails are price sensitive. Therefore, all recommendations, unless otherwise noted, are applicable for 'DAY' orders only, not good-till-cancelled. If a recommendation cannot be filled, we may choose to resend the email the following day along with any modifications. In addition, if a recommendation can only be partially filled, clients may receive a pro rata allocation.


*****Options involve risk and are not suitable for all investors. Customers must consider all relevant risk factors including their own personal financial situation before trading. Every investor who uses options should read and understand the publication Characteristics and Risks of Standardized Options. A copy can be obtained from The Chicago Board Options Exchange (1-800-OPTIONS) or from your broker. The investor considering options should consult their tax advisor as to how taxes may affect the outcome of contemplated options transactions. A prospectus, which discusses the role of the Options Clearing Corporation, is also available without charge upon request at the Options Clearing Corporation, 440 S LaSalle St, Suite 908, Chicago, Illinois 60605.*****

To unsubscribe from e-mails, please visit your Account Management page.

Note: You can always view all TradeWise content by logging onto the website at www.tradewise.com

All content ©2016 TradeWise| All rights reserved.

 

The Covered Call strategy consists of purchasing 100 shares of a large capitalization stock, ETF or index-based ETF ("underlying") and then selling one call option on each 100 shares for a credit.

The Covered Call strategy is designed to profit in two different scenarios. Upon selling a call, the credit received effectively reduces the cost of the trade, thus reducing the overall amount of money risked on the trade. If the price of the underlying moves above the strike price of the call, the client will likely be assigned and will be obligated to sell the underlying at the strike price at expiration. This will result in a profit, as the client will keep the profit realized from selling the underlying at a higher price than was initially paid, as well as the initial credit received for selling the call (less any applicable commissions and assignment fees).

If the price of the underlying trades in a relatively narrow trading range and stays below the strike price, the strategy provides an opportunity to roll the call option from month to month (buying back the short call and then selling a further-out month call), thereby collecting additional premium each month and further reducing the amount of money risked on the trade. The client may also have the benefit of receiving dividend payments on many of the stocks TradeWise recommends for this strategy. Of course, this is only possible if the client remains in the position and does not get assigned.

The Covered Call strategy may be utilized when an investor believes the underlying will either move up or remain in a relatively narrow trading range over the life of the call option. There is limited upside potential for this strategy, up to the strike price of the call. If the stock moves above the strike price of the call, the client likely will not keep the underlying shares as they will be called away and is obligated to sell theunderlying at the strike price as described above. Also, the strategy does not provide downside protection beyond the credit received when the call was sold, should the underlying lose significant value. In the event the underlying experiences a large down move of more than a 25% drop in price, TradeWise may send out a recommendation to close out of the trade. For Autotrade clients, TradeWise will attempt to close out the trade.

Typically the shares of the underlying purchased will be trading for less than $50 per share so for those who elect to autotrade, an allocation of $5,000 should ensure participation in each recommended trade.

This strategy is capital intensive and there can be no assurance that an individual covered call trade will be successful. As with any other strategy, any adjustments or rolling of the position will incur applicable commission fees.

The length of any specific Covered Call recommendation will typically at least 30 days.

For additional information about this TradeWise service, please see the ADV Part II

Trade Advisory

June 25, 2020

 

TradeWise Strategy:  Covered Call Advisory

Underlying:  Coca-Cola (KO)

Status: Opening Trade

Trade:  BUY +1 COVERED KO 100 21 AUG 20 47.5 CALL/KO @43.55 LMT [TO OPEN/TO OPEN]

Trade Price:  $43.55 Debit

Underlying Price:  $44.55

Trade Risk:  $4355.00

Trade Duration:  Long Term

Buying Power Reduction:  $4355.00

 

Trade Explanation: For the Covered Call Advisory in Coke, we are buying (KO) stock and selling the 21 Aug 47.5 Calls for a net debit of $43.55 to open. 

 

Price Action:  To initiate this Covered call position, we buy 100 shares of the underlying equity (KO) and sell 1 contract of the 21 Aug 47.5 calls for a net debit of $43.55. Our total cost on the trade is the price we pay for the stock minus the premium received for the call. KO shares are down by  5% over the past 4 sessions. We expect the shares to stabilize and begin to retrace higher in the long-term as the shares appear to be reaching a some support near $44.  

 

Volatility:  Volatility is moderate in KO which still allows for enough credit collected on the short call in the strategy. Any increase in volatility should provide good opportunities to roll our short 21 Aug 47.5 calls to further-term months for additional credits in order to reduce risk.

 

Probability:  With the recent slide, we are giving ourselves a great probability for the shares to turn higher.  We have a cushion of over 2% to the downside before we reach our break-even.

 

Risk:   We are risking our initiation price of $43.55 on this position. We will have multiple opportunities to roll our short calls from month to month which will gradually decrease this risk. The company pays a quarterly dividend of $0.41 also, which can help reduce risk and potentially increase profitability should we own shares over the ex-dividend period. 

 

Trade Duration:  We have 57 days to adjust or close this trade by 21 Aug expiration. 

 

Logic:  We are buying the Covered Call to take advantage of the recent slide in the shares and the potential upside in this stock.  In addition to a recent raise in the price target, a solid 3.7% dividend yield provides an appealing long/neutral opportunity. With this strategy, we have plenty of time for Coke shares to rebound as we look to take advantage of any stabilization near our strike.

 

We will continuously monitor our positions to determine if adjustments need to be made or when to close out of a trade.

 

TradeWise

Original Trade Price: $43.55 debit   

      

Closing/Adjustment Price: 

 

***If you are placing the trade yourself, you can now copy and paste the trade from this email directly from the ‘trade line’ above to the Thinkorswim trading platform. Just use the clipboard icon under the ‘Order entry’ tab; Make sure to adjust the quantity if necessary, as the default in the Trade line above is a 1 lot***

 

*Follow us on Twitter @TradeWise

Please note: All TradeWise Advisory emails are price sensitive. Therefore, all recommendations, unless otherwise noted, are applicable for 'DAY' orders only, not good-till-cancelled. If a recommendation cannot be filled, we may choose to resend the email the following day along with any modifications. In addition, if a recommendation can only be partially filled, clients may receive a pro rata allocation.


*****Options involve risk and are not suitable for all investors. Customers must consider all relevant risk factors including their own personal financial situation before trading. Every investor who uses options should read and understand the publication Characteristics and Risks of Standardized Options. A copy can be obtained from The Chicago Board Options Exchange (1-800-OPTIONS) or from your broker. The investor considering options should consult their tax advisor as to how taxes may affect the outcome of contemplated options transactions. A prospectus, which discusses the role of the Options Clearing Corporation, is also available without charge upon request at the Options Clearing Corporation, 440 S LaSalle St, Suite 908, Chicago, Illinois 60605.*****

To unsubscribe from e-mails, please visit your Account Management page.

Note: You can always view all TradeWise content by logging onto the website at www.tradewise.com

All content ©2016 TradeWise| All rights reserved.

 
The “Directional” strategy is a defined-risk setup that looks to take advantage of a market move in one particular direction. TradeWise can make trade recommendations using either long single options, long/short vertical call spreads or long/short vertical put spreads in underlying securities (“underlying”) such as individual stocks, ETFs or Indices with high liquidity and generally with moderate volatility. The spread is considered a “Vertical” because the options are on the same underlying in the same expiration month but at different strike prices. The details of each specific trade will be stated in the trade recommendation email that we send you.
 
A Call Vertical spread involves simultaneously buying one call option and selling another call option at a different strike price in the same underlying, in the same expiration month. A Put Vertical spread involves simultaneously buying a put option and selling another put option, at a different strike price in the same underlying, in the same expiration month. Generally, we will be recommending, “selling” a vertical call or put spread, because there is a higher probability that the recommended trade will be successful.
 
We will generally recommend selling out-of-the-money Call Verticals or out-of-the-money Put Verticals but reserve the right to recommend individual calls or puts based on volatility. Upon selling the Vertical, an initial credit will be collected. There are three out of four market situations where this type of trade can be successful.
 
(1) If the underlying is moves sideways for a period of time while seeing a decrease in volatility;
(2) If the underlying moves away from the short strike; or
(3) If the underlying moves towards the short strike, but does not surpass the break-even point by expiration.
 
We may also periodically recommend ”Single” long Calls or Puts with a bullish or bearish bias as they are still considered a risk-defined trade. Selling premium against the original long position at a later date can be accomplished as long as the position remains risk-defined.
 
Suggested Allocation
A minimum of at least of $500 is required to Autotrade this strategy. There is no assurance that an individual Directional trade will be successful.
The length of any specific trade recommendation in the Directional strategy typically ranges from 5 to 50 days.
 
Potential Benefits
• You cannot lose more than your allocation (not including commissions charged by your broker-dealer or dividend risk).
• Potential gain on selling Verticals when the underlying remains in a relatively narrow trading range or on buying Singles/Verticals when the underlying moves in the desired direction.
• Investor education.
 
Potential Risks
• You could potentially lose 100% of your allocation per trade plus any commissions charged by your broker-dealer.
• Potential gains will be reduced or possibly eliminated by the commissions you pay your broker-dealer for the recommended transactions.
• There can be no assurance this strategy will be successful over time.

For additional information about this TradeWise service, please see the ADV Part II

Trade Advisory

July 23, 2020

 

**For our Autotrade Clients, we initiated a 50% allocation only due to current market conditions; If you would normally trade 10 spreads, you only received 5 on this trade**

 

TradeWise Strategy:  Directional Advisory

Underlying:  Microsoft Inc. (MSFT) 

Status:   Opening Trade

Trade:  SELL -1 VERTICAL MSFT 100 21 AUG 20 192.5/190 PUT @.64 LMT [TO OPEN/TO OPEN]

Price:  $0.64 Credit

Underlying Price:  $203.20

Trade Risk:   $1.86

Trade Duration: Short Term

Buying Power Reduction: $186.00

 

Trade Explanation:  For the Directional Advisory in MSFT, we are selling the 21 Aug 192.5 Puts and buying the 190 Puts for a net credit of $0.64 to open on a 50% allocation.

 

Price Action: We are selling this neutral/bullish out-of-the-money 192.5/190 put vertical in the 21 Aug cycle in the tech conglomerate. The shares have fallen 4% today despite a solid quarterly report.  MSFT appears to be bouncing off a support level at $200, and we expect the underlying to either stabilize or reverse higher to hold above our break-even of $191.86 which is over $10 away from today's price.

 

Volatility:  Volatility is moderate at 23%, allowing for a decent credit to be collected on short out-of-the-money verticals. Volatility will revert lower if we stabilize at current levels or MSFT begins to trend back near its recent average.

 

Probability: There is a 69% probability that our short $192.5 strike will be out of the money at 21 Aug expiration. Time Decay (Theta) also works in our favor as our short vertical loses value over the life of the trade.

 

Risk:  We are risking $1.86 to make a potential $0.64 on this short vertical position. We profit in three out of four scenarios: if MSFT trades higher, remains at current levels or even trades lower as long as it remains above our break-even level of $191.86 at expiration. We also have a cushion of 5% before the breakeven level would be breeched which allows for some normalized fluctuation going forward. 

 

Trade Duration: We have 29 days to adjust or close this short-term trade at 21 Aug expiration.

 

Logic:  MSFT shares have pulled back following a solid earnings report which sets up for an attractive entry point. Analysts have already begun to raise profit targets this afternoon which may help to build further demand.  Shares of MSFT are now well off their 52-week high of $216.38 which is near several analyst price targets.  We will be looking for new interest considering the company is set to release new products over the next quarter and continues to fare well in the work-from-home environment. Only a 50% allocation is being utilized due to today's sudden drop.  

 

We will continuously monitor our positions to determine if adjustments need to be made or when to close out of the trade.

 

TradeWise

 

Original Trade Price:  $0.64 Credit         

Closing/Adjustment Price:  

 

***If you are placing the trade yourself, you can now copy and paste the trade from this email directly from the trade line to the thinkorswim trading platform. Just use the clipboard icon under the ‘Order entry’ tab; Make sure to adjust the quantity if necessary as the default in the ‘Trade’ line above is only a 1 lot***

 

*Follow us on Twitter @tradewise

Please note: All TradeWise Advisory emails are price sensitive. Therefore, all recommendations, unless otherwise noted, are applicable for 'DAY' orders only, not good-till-cancelled. If a recommendation cannot be filled, we may choose to resend the email the following day along with any modifications. In addition, if a recommendation can only be partially filled, clients may receive a pro rata allocation.


*****Options involve risk and are not suitable for all investors. Customers must consider all relevant risk factors including their own personal financial situation before trading. Every investor who uses options should read and understand the publication Characteristics and Risks of Standardized Options. A copy can be obtained from The Chicago Board Options Exchange (1-800-OPTIONS) or from your broker. The investor considering options should consult their tax advisor as to how taxes may affect the outcome of contemplated options transactions. A prospectus, which discusses the role of the Options Clearing Corporation, is also available without charge upon request at the Options Clearing Corporation, 440 S LaSalle St, Suite 908, Chicago, Illinois 60605.*****

To unsubscribe from e-mails, please visit your Account Management page.

Note: You can always view all TradeWise content by logging onto the website at www.tradewise.com

All content ©2016 TradeWise| All rights reserved.

 
The “Range Bound” strategy consists of four possible trade types – “an Iron Condor” a “Double Calendar,” a “Double Diagonal” or a “Straddle/Strangle Swap.” The underlying securities (“underlying”) will be highly liquid individual stocks, ETFs and Indexes (e.g. the SPY, IWM, or DIA) with medium correlation to market movements (beta). The “Range Bound” strategy is the most complex of the strategies we recommend. Accordingly, it is important to have a clear understanding of all previous strategies listed in order to comprehend the nature of a 4 legged spread as it involves simultaneously buying and selling options with more than one strike price, expiration date or sensitivity to the underlying asset’s price.
 
An “Iron Condor” is an option strategy involving a single complex option spread. It entails the simultaneous sale of an out-of-the-money call “vertical” and an out-of-the-money put “vertical,” in the same month in the same underlying (see the “Directional Spreads” strategy description for additional information about verticals). A call is out-of-the-money when the price of the underlying is lower than the option's strike price: a put is out-of-the-money when the price of the underlying is higher than the put's strike price. When looking for an Iron Condor to recommend, we are seeking a calculated probability of approximately 70-80% that the short Call Vertical and the short Put Vertical will not close in the money at options expiration. Only one side of the recommended trade can possibly close in the money since it is structured by means of a vertical on the upside, and a vertical on the downside. An Iron Condor is designed to profit when the underlying remains in a reasonably narrow trading range during the expiration cycle positions that we recommend.
 
The trade recommendations that we make for an Iron Condor will typically involve collecting a credit upon initiation of the trade. The goal is to keep the initial credit collected upon initiation, which will occur if the underlying stays between the short Put Vertical strike price and short Call Vertical strike price. Depending on market movements and the time remaining to options expiration, we may recommend adjustments to the trade. In some instances, TradeWise may also recommend purchasing Iron Condors in an environment of extremely low volatility with the debit amount being the maximum risk on the trade.
 
A “Double Calendar” is the purchase of two Calendars, buying a call calendar above the strike price of the underlying and buying a put calendar below the strike price of the underlying. The Double Calendars that we recommend will always involve paying a debit upon initiation of the recommended trades. As the shorter term options that were sold decay and lose value, the idea is that we recommend you buy those shorter term options back by rolling to subsequent cycles, collecting a credit, and therefore reducing the amount of risk on the trade. If our recommendations are successful, upon rolling the two Calendars, you will collect a credit for either a put Calendar roll and/or a call Calendar roll.
 
“Double Diagonal” - Unlike the Double Calendar, where the strike prices will be the same in both the front and back month, in the Double Diagonal the front month strike prices will be different than the back month strike prices. A Diagonal spread combines a Calendar spread (since the options expire at different times) and a Vertical spread (since the strike prices are different). A Double Diagonal is simply two diagonals. When the diagonals are rolled (collecting a credit on each one), the resulting position will be an Iron Condor. At that point, we will be looking for the same conditions as in the Iron Condor strategy The biggest difference between the Double Diagonal and the Iron Condor is that the Double Diagonal requires more buying power because of the make-up of the trade.
 
A “Straddle / Strangle Swap” is the sale of a shorter term at-the-money call and an at-the-money put, which is known as a “Straddle.” This is coupled with the purchase of a longer term out-of-the-money Call and an out-of-the-money put, which is known as a “Strangle.” The call and the put are typically the same distance away from the price at which the underlying is trading. The goal is to roll the short strikes for credits.
 
Suggested Allocation
A minimum allocation of at least $1,000 is required to Autotrade this strategy. There is no assurance that an individual trade will be successful.
The length of any specific trade recommendation in the “Range Bound” strategy typically ranges from 1 to 50 days.
 
Potential Benefits
• You cannot lose more than your allocation (not including commissions charged by your broker- dealer or dividend risk).
• Potential gains are possible when the trade remains in a defined trading range.
• Investor education.
 
Potential Risks
• Any large moves to the upside or to the downside before we have a chance to recommend adjustments could potentially result in a loss of 100% of your allocation plus any commissions charged by your broker-dealer.
• Potential gains will be reduced or possibly eliminated by the commissions you pay your broker-dealer for the recommended transactions.
• There can be no assurance this strategy will be successful over time.

For additional information about this TradeWise service, please see the ADV Part II

Trade Advisory

March 31, 2020

 

**For our Autotrade Clients, we initiated a 50% allocation only due to the current market volatility; If you would normally trade 10 spreads, you only received 5 on this trade**

TradeWise Strategy:   Range Bound Advisory
Underlying:   Select SPDR Energy Select ETF (XLE)
Status:  Opening Trade
Trade:  BUY +1 DBL DIAG XLE 100 (Weeklys) 1 MAY 20/9 APR 20 34/26/34/26 CALL/PUT/CALL/PUT @1.35 LMT [TO OPEN/TO OPEN/TO OPEN/TO OPEN]

Trade Price:   $1.35 Debit
Underlying Price:  $28.68
Trade Risk:  $1.35 
Trade Duration:  Short Term
Buying Power Reduction:  $135.00 per spread

Trade Explanation: For the Range Bound Advisory in XLE, we are buying the 1 May 26 Puts and 34 Calls and selling the 9 Apr 26 Puts and 34 Calls for a Debit of $1.35 to open a 50% allocation.

Price Action: We are buying this three-week-wide straight Double Calendar in the Energy sector tracking ETF for a debit of $1.35. This Double Calendar consists of a long out-of-the-money call calendar ($34 strike) and put calendar ($26 strike) around the current share price of the ETF ($28.68). We have a $8.00 wide range between the strikes in this position and expect to see XLE shift towards either strike over the next several weeks as the oil sector has recently imploded. A Double Calendar allows us not to have to pick a direction, but relies on a move towards either strike and/or a rise in volatility.

Volatility:  Option volatility has remained escalated near extremes over the last month since XLE reached a 52 week low in mid-March. A skew in the front week sets up for an attractive entry point for a long double calendar.  Any increase in volatility will expand the price of the position as it is a long Vega strategy. The short strikes are currently seeing a 20% higher implied volatility vs the 1 May series which should set up for better roll possibilities.  

Probability:  Double Calendars take advantage of the underlying trading at or near either strike in the trade. We have a reasonable range for the shares to trade in, considering that XLE has almost had over a $20 range this month.   This gives us a better probability of seeing a move in the shares closer to either strike.

Risk:   We are risking our initiation price of $1.35 on this double calendar position. We will also have the opportunity to roll our short options twice, along with a closing trade. A roll can help to reduce risk and potentially increase profit on the position. Each individual week-wide double calendar roll has the potential to trade above $0.75 so we have a good risk/reward profile on the trade.


Trade Duration:  We have 9 days to roll or close this trade at 9 Apr expiration and 31 days total in the position.

Logic: This Double calendar strategy is a good way to take advantage of a a higher volatility environment with the expectations that XLE shares will move closer to either strike by the beginning of May. We expect the underlying to remain active after its recent pullback on demand concerns and recent talks with Russia to curb output.  There is an additional 1-3% of cushion outside each of the strikes, should we see an extended move. We are only using a half allocation based on the extreme moves and fluidity of the overall market as we adapt to the Coronavirus outbreak.  

We will continuously monitor all the positions in this advisory for the best time to adjust or close out of all positions.


TradeWise

Original Trade Price: $1.35 Debit    
Closing/Adjustment Price:  

***If you are placing the trade yourself, you can now copy and paste the trade from this email directly from the ‘trade line’ above to the Thinkorswim trading platform. Just use the clipboard icon under the ‘Order entry’ tab; Make sure to adjust the quantity if necessary as the default in the ‘Trade’ line above is a 1 lot***

*Follow us on Twitter @TradeWise

Please note: All TradeWise Advisory emails are price sensitive. Therefore, all recommendations, unless otherwise noted, are applicable for 'DAY' orders only, not good-till-cancelled. If a recommendation cannot be filled, we may choose to resend the email the following day along with any modifications. In addition, if a recommendation can only be partially filled, clients may receive a pro rata allocation.


*****Options involve risk and are not suitable for all investors. Customers must consider all relevant risk factors including their own personal financial situation before trading. Every investor who uses options should read and understand the publication Characteristics and Risks of Standardized Options. A copy can be obtained from The Chicago Board Options Exchange (1-800-OPTIONS) or from your broker. The investor considering options should consult their tax advisor as to how taxes may affect the outcome of contemplated options transactions. A prospectus, which discusses the role of the Options Clearing Corporation, is also available without charge upon request at the Options Clearing Corporation, 440 S LaSalle St, Suite 908, Chicago, Illinois 60605.*****

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Note: You can always view all TradeWise content by logging onto the website at www.tradewise.com

All content ©2016 TradeWise| All rights reserved.

 
The “Time Spread ” strategy involves:
 
• The simultaneous sale of a shorter term call option and the purchase of a longer term call option, at the same strike price, in the same underlying, which is known as a “Call Calendar”; or
• The simultaneous sale of a shorter term put option and the purchase of a longer term put option, at the same strike price, in the same underlying, which is known as a “Put Calendar”; or
• The simultaneous sale of a shorter term call/put option and the purchase of a longer term call/put option, at a different strike price, in the same underlying, which is known as a “Diagonal Spread”.
 
The underlying investment (“underlying”) can either be an individual mid to large cap company or an exchange traded fund (ETF) based on the major Indices (e.g. SPY, DIA, IWM) with high liquidity and medium correlation to market movements (beta).
 
The structure of a Time Spread will always be short (selling) the shorter term option and long (buying) the longer term option. The positions that TradeWise recommends can be initiated as either a net debit or credit depending on the structure. Both the short and long position that is recommended will be entered simultaneously, so that they are not done as two transactions, known as either a “Calendar spread or a Diagonal spread.”
 
When recommending a Time Spread, we generally want to see the underlying trading at or near the strike price of the option position. As option expiration gets closer, the shorter term option should decay (lose premium) faster than the longer term option. This would ideally provide the opportunity to buy the short option back for less than it was sold for and then either sell the long option in the back month to close the position or possibly collect additional premium by rolling the short strike to an additional expiration cycle.. We will monitor the recommended trade and will seek to make further recommendations intended to take advantage of such opportunities and/or suggest when to adjust or close the trade.
 
Suggested Allocation
A minimum of at least $500 is required to Autotrade this strategy. There is no assurance that an individual Time Spread trade will be successful.
The length of any specific trade recommendation in the Time Spread strategy typically ranges from 5 to 50 days.
 
Potential Benefits
• You cannot lose more than your allocation (not including commissions charged by your broker-dealer or dividend risk).
• Potential gains are possible when the underlying remains in a defined trading range and credits generated by rolling the options exceed the debit paid at inception.
• Investor education.
 
Potential Risks
• Any large moves to the upside or to the downside may negatively affect this position.
• If the underlying should move too quickly and there is not a chance to roll, you could potentially lose 100% of your allocation plus any commissions charged by your broker-dealer.
• Potential gains will be reduced or possibly eliminated by the commissions you pay for the recommended transactions.
• There can be no assurance this strategy will be successful over time.

For additional information about this TradeWise service, please see the ADV Part II

Trade Advisory

June 18, 2020

 

TradeWise Strategy:   Time Spreads Advisory

Underlying:  General Motors (GM) 

Status:  Opening Trade

Trade:   BUY +1 CALENDAR GM 100 17 JUL 20/26 JUN 20 26 PUT @.66 LMT [TO OPEN/TO OPEN]

Trade Price:  $0.66 Debit

Underlying Price:  $27.20

Trade Risk:   $0.66

Trade Duration:  Medium Term

Buying Power Reduction: $66.00

 

Trade Explanation: For the Time Spreads Advisory in GM, we are buying the 17 Jul 26 Puts and selling the 26 Jun Weekly 26 Puts for a debit of $0.66 to open.

 

Price Action: We are buying this 3-week-wide, slightly bearish, 26 strike put calendar in the global auto maker. The shares have pulled back from recent highs, but the overall market looks ready for a pullback and the underlying looks like it could be ready to consolidate near the $26 level.  Coronavirus cases are picking up again in some states which could become a problem for the auto industry. We expect the stock to either consolidate or begin to move lower over the short-term.

 

Volatility:  Implied volatility is low in General Motors. This gives us a good price level for entry into this calendar. Any increase in volatility should benefit the calendar as it is a long Vega strategy.

 

Probability:  Calendars take advantage of the underlying trading at or near the strike in the trade. We have a Probability of 83% that GM will touch our strike into 17 Jul expiration. This gives us plenty of time for Time Decay (Theta) to work in our favor as our short options lose value faster than our long Puts.

 

Risk:   We are risking our initiation price of $0.66 on this calendar position.  We have the opportunity to roll the short strike 2 times if we choose, along with a closing trade.  This will allow us to gradually reduce risk and potentially increase gains. We could always close the entire position at any point without adjusting the trade. Each weekly calendar roll has the potential to trade above $0.25 so we have a good risk/reward profile on the trade.  

 

Trade Duration:  We have 8 days to roll or close this calendar at 26 Jun expiration with 29 days total in the trade.

 

Logic:  With the shares perhaps consolidating lower over a short-term, this calendar offers a positive risk/reward scenario. As we move closer to our short option expiration, the near-term options can quickly decay (theta) while our long options should remain firm.  Again, this works best when GM  trades near our $26 strike. Multiple Weekly options listed in the stock provide better flexibility to roll under the best available conditions.

 

We will continuously monitor our positions to determine if adjustments need to be made or when to close out of the trade.

 

TradeWise

 

Original Trade Price:  $0.66 Debit          

Closing/Adjustment Price: 

 

***If you are placing the trade yourself, you can now copy and paste the trade from this email directly from the ‘trade line’ above to the Thinkorswim trading platform. Just use the clipboard icon under the ‘Order entry’ tab; Make sure to adjust the quantity if necessary as the default above in the Trade line in a 1 lot***

 

**Follow us on Twitter @tradewise

 

Please note: All TradeWise Advisory emails are price sensitive. Therefore, all recommendations, unless otherwise noted, are applicable for 'DAY' orders only, not good-till-cancelled. If a recommendation cannot be filled, we may choose to resend the email the following day along with any modifications. In addition, if a recommendation can only be partially filled, clients may receive a pro rata allocation.


*****Options involve risk and are not suitable for all investors. Customers must consider all relevant risk factors including their own personal financial situation before trading. Every investor who uses options should read and understand the publication Characteristics and Risks of Standardized Options. A copy can be obtained from The Chicago Board Options Exchange (1-800-OPTIONS) or from your broker. The investor considering options should consult their tax advisor as to how taxes may affect the outcome of contemplated options transactions. A prospectus, which discusses the role of the Options Clearing Corporation, is also available without charge upon request at the Options Clearing Corporation, 440 S LaSalle St, Suite 908, Chicago, Illinois 60605.*****

To unsubscribe from e-mails, please visit your Account Management page.

Note: You can always view all TradeWise content by logging onto the website at www.tradewise.com

All content ©2016 TradeWise| All rights reserved.

 

The Volatility Strategy will use a variety of TradeWise Strategies. We aim to take advantage of this product by offering clients a way to participate in event-driven markets and short-term volatility trading strategies. Because of the event-driven nature, the Volatility Strategy will allow clients the opportunity to trade many different option strategies in a short-term time frame in all market sectors.

 

The Volatility Strategy is most appropriate for experienced option traders. TradeWise clients using this strategy must be extremely attentive to their positions as changes to underlying prices and days to expiration will have a larger impact due to the shorter time frame.

 

We will use any combination of monthly, quarterly or Weekly option cycles when trading the Volatility Strategy. We generally look for short-term opportunities of approximately 1-60 days. Since we will be using the various strategies listed in this Form ADV Part 2, please see the strategy descriptions listed above to review the details of each strategy. We will look for news-based events for directional trades or high volatility for market-neutral positions. We generally look for high volatility underlyings so that there is the opportunity to sell short-term options that decay at a very fast pace due to the shorter time frame to expiration.

 

We will use the following strategies: buying single options, buying or selling Vertical Spreads, buying Calendars, buying Diagonals, buying Double Calendars/Diagonals, buying Butterflies* (see description below) and buying or selling Iron Condors. The strategy implemented by TradeWise on any particular trade will depend on many variables such as the underlying, beta, volatility, timeline and event. The same risks will apply to the trade recommendations in the TradeWise Volatility strategy as detailed in the descriptions of the individual strategies within this Form ADV Part 2. Each trade recommendation that we make will define the strategy that is being used, as well as outline details on the various dynamics of the individual trade.

 

For the underlying, we will recommend options in equities, ETFs and Indices.

 

* A butterfly is a 3-legged, complex option strategy, comprised of two verticals. It is the simultaneous sale of one call vertical spread and the purchase of another call vertical spread, with a common short strike. Therefore, a butterfly will consist of 4 contracts, but only 3 legs due to the overlapping short strikes. The same would be true of a put butterfly spread.

 

Suggested Allocation

A minimum of at least $1,000 is required to Autotrade this strategy. There is no assurance that any individual recommendation in the Volatility Strategy will be successful. We recommend that clients who use this strategy have a strong working knowledge of the other TradeWise strategies as described above.

 

The frequency of TradeWise trade recommendations in Volatility will be similar to the other TradeWise strategies. However, the frequency may increase or decrease from time to time, as the recommendations are more dependent on specific market events such as earnings season.

 

Potential Benefits 

 

•Short-term defined risk in that the client cannot lose more than their allocation (not including commissions charged by your broker-dealer or dividend risk).

 

• May appeal to the active trader as these options trade more frequently and for a shorter time frame than the other options used in different TradeWise strategies. Potential Risks

 

• You could potentially lose 100% of your allocation per trade plus any commissions charged by your broker-dealer.

 

• Potential gains will be reduced or possibly eliminated by the commissions the client pays for the recommended transactions.

 

• Weekly options are often more volatile due to the shorter time to expiration and Weeklys will lose time value at an accelerated rate compared to monthly options.

 

• There can be no assurance this strategy will be successful over time. 

 

For additional information about this TradeWise service, please see the ADV Part II

Trade Advisory

Aug 12, 2020

 

**For our Autotrade Clients, we initiated a 50% allocation only due to the recent volatility; If you would normally trade 10 spreads, you only received 5 on this trade**

 

TradeWise Strategy:  Volatility Advisory

Underlying:  Newmont Corp. (NEM)

Status:  Opening Trade

Trade:   BUY +1 VERTICAL NEM 100 (Weeklys) 11 SEP 20 63/65 CALL @.95 LMT [TO OPEN/TO OPEN]

Trade Price:  $0.95 Debit

Underlying Price:  $63.90

Trade Risk:   $0.95

Trade Duration:  Medium-Long Term

Buying Power Reduction:  $95.00

 

Trade Explanation: For the Volatility Advisory in NEM, we are buying the 11 Sep 63 calls and selling the 11 Sep 65 calls for a debit of $0.95 to open with a 50% allocation.

 

Price Action: We are buying this two-point wide bullish call vertical in the gold-miner.  The shares have pulled back after a recent surge to new highs above $72, and looks like they are finding support near this level after 6 straight days of selling pressure.   We will look for gold to strengthen after yesterday's surprise selloff for the best results in NEM.  

 

Volatility:  Volatility is moderate in NEM which is currently near the 30 percentile in IV. This setup gives us an attractive price entry point for long directional verticals because of positive upside call skew. We only need a slight uptrend to expand the closing price and any rise in volatility should also increase the value of our vertical.

 

Probability:  The long calls are currently in-the-money  and essentially at face value of the spread and we have a probability of 87% that the shares will extend to the $65 level over the next month which would help to expand the value of the spread near a max gain. We initiated a long vertical to take advantage of any rebound higher to potentially reduce risk or close the trade.

 

Risk: We are risking our initiation price of $0.95 to make a potential $1.05 on this vertical, which is an attractive risk/reward scenario on a directional trade.

 

Trade Duration:  We have exactly 30 days to adjust or close this trade at 11 Sep expiration. We generally initiate verticals in the 10-90 range as we use them as a short-term strategy to capture a potential directional move.

 

Logic:  We are buying the vertical for a directional play with NEM acting as an attractive safe haven off any further economic weakness or increase in government debt .  We will be aggressive in closing a portion or all of the trade if we see a significant move in either direction due to the shorter time frame. Buying the vertical makes more sense considering the fact that the spread is currently right at fair value and any slight rise will help to quickly expand the value.  We are only using a 50% allocation due to the recent volatility in the sector.  

 

We will continuously monitor all of our positions to determine if adjustments need to be made or when to close out of a trade.

 

TradeWise

 

Original Trade Price: $0.95 Debit          

Closing/Adjustment Price: 

 

***If you are placing the trade yourself, you can now copy and paste the trade from this email directly from the ‘trade line’ above to the Thinkorswim trading platform. Just use the clipboard icon under the ‘Order entry’ tab; Make sure to adjust the quantity if necessary as the default above is only a 1 lot in the Trade line***

 

**Follow us on twitter @tradewise

 

Please note: All TradeWise Advisory emails are price sensitive. Therefore, all recommendations, unless otherwise noted, are applicable for 'DAY' orders only, not good-till-cancelled. If a recommendation cannot be filled, we may choose to resend the email the following day along with any modifications. In addition, if a recommendation can only be partially filled, clients may receive a pro rata allocation.


*****Options involve risk and are not suitable for all investors. Customers must consider all relevant risk factors including their own personal financial situation before trading. Every investor who uses options should read and understand the publication Characteristics and Risks of Standardized Options. A copy can be obtained from The Chicago Board Options Exchange (1-800-OPTIONS) or from your broker. The investor considering options should consult their tax advisor as to how taxes may affect the outcome of contemplated options transactions. A prospectus, which discusses the role of the Options Clearing Corporation, is also available without charge upon request at the Options Clearing Corporation, 440 S LaSalle St, Suite 908, Chicago, Illinois 60605.*****

To unsubscribe from e-mails, please visit your Account Management page.

Note: You can always view all TradeWise content by logging onto the website at www.tradewise.com

All content ©2016 TradeWise| All rights reserved.

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