The Cost of Doing Business

What If You Could Spy On The Most Profitable Hedge Funds In The World, And Ethically Steal  Their Best Trade Ideas! Watch Now [Editor's Note: This was first sent to the subscribers of my free newsletter, Weekly Windfalls. If you're not a subscriber and would like to sign up to receive it, then click here to join]    Hello, guys and gals. Being new to options, there's a lot of industry jargon thrown your way -- spreads, slippage, margins, etc. It can get confusing, I know.     When I first began trading options, I also struggled to decipher what felt like Morse code. But… I have TEACHER running through my veins, and I'm here to hold your hand through all of it. Because to be the most successful options trader possible, you must first find an experienced trader who is willing to show you the ropes and simplify things. I would be honored if that mentor were me. That said, two of the most important terms we throw out a lot are intrinsic value and extrinsic value. These two factors make up an option's price. And one of them is CRUCIAL to option sellers like me.     How Are Option Prices Determined?   An option's value is broken up in two ways: intrinsic value and extrinsic value. Intrinsic value is the easiest to determine. It's the difference between the stock price and the strike price, assuming the option is in the money (ITM). A call option is ITM when the stock is trading above the strike price. A put option is ITM when the stock is trading below the strike price. Extrinsic value is mostly comprised of time value. The longer an option has until expiration, the more time value it has (meaning it's more expensive). Implied volatility (IV) -- how much volatility the options market expects for the shares -- also factors into extrinsic value. All options -- ITM, at-the-money (ATM), and out-of-the-money (OTM) -- can have extrinsic value. An option is ATM when the strike is around the stock price. A call option is OTM when the stock is trading below the strike price. A put is OTM when the stock is trading above the strike price. When the option expires, it is worth ONLY its remaining intrinsic value.     A Real-Life Example     So, for instance, Apple supplier Skyworks Solutions (SWKS) made noise yesterday after an upgrade to "buy" from "underperform" at BofA-Merrill Lynch. The stock was up 2.7 points to trade just over $104. Now, let's take a look at the options chain for SWKS calls.     The stock's 102-strike calls are ITM, because $102 (the strike) is below $104, right? That means all the 102-strike calls have $2 in intrinsic value ($104 - $102). But you'll notice the weekly 12/13 102-strike calls -- which expire this Friday -- are asked at $2.90. So they hold 90 cents in extrinsic value ($2.90 - $2 in intrinsic value). The weekly 12/20 102-strike calls -- which expire next Friday, Dec. 20 -- are asked at $3.50. That means they hold $1.50 in extrinsic value ($3.50 - [$104 - $102]). They cost more because there's more time for the stock to make a big move.     Meanwhile, the 106-strike calls have NO intrinsic value. That's because SWKS shares aren't trading above $106. The weekly 12/13 106-strike calls are asked at 75 cents -- that's all extrinsic value. The same calls in the 12/20 series are asked at $1.35, because again, they have another week of life, and thus are more expensive.     Time Decay is an Option Seller's Friend   I trade vertical credit spreads in Weekly Windfalls. That means I sell an option at a strike I think will act as support (a put) or resistance (a call). I then buy "options insurance," purchasing an OTM put or call to limit losses in the event the stock moves against me. So, a vertical spread consists of two options: one sold, one bought. Because I receive more money for the option I sold than the option I bought, my spread is established for a net credit, as opposed to a net debit. Therefore, even though I also buy an option, I consider myself a seller. After all, sellers have the odds in their favor -- that's why they call this spread the "casino strategy."   In the ideal vertical credit spread situation, both options will expire worthless. (Now, that doesn't often happen -- you don't have to wait until expiration day to take profits.) In other words, I don't want the options to finish ITM and have intrinsic value. As with anything you sell -- clothes, options, your immortal soul -- you want to get as much money as you can, right? Therefore, my goal is to capture as much premium as I can when I initiate the spread, and then let time decay erode the value of the options, so I can pocket as much as possible.     How I Made $6,500 on AAPL By Eroding Extrinsic Value   Last week, for instance, I was bullish on Apple (AAPL), which was trading around $262.50. I sold weekly 12/6 262.50-strike puts for about $1.82 each. Since the puts were ATM, that premium consisted of mostly extrinsic value. I then bought 12/6 260-strike puts for about 97 cents each -- again, that's all extrinsic value, since AAPL was trading above $260.     The spread was opened for a net credit of 85 cents per pair of puts, or $8,500 total (since each option controls 100 shares, and I put on 100 spreads). That's the MOST I could've made on the trade, had AAPL ended above both strikes by the close on Friday, Dec. 6, when the options expired. The NEXT DAY -- on Thursday, Dec. 5 -- time decay had eroded the value of the options, which still weren't in the money, and I banked $6,500 on the trade! In fact, last week was a NEARLY PERFECT week for my premium Weekly Windfalls subscribers.     Just imagine what you could do with all that extra cash ahead of the holidays… Click here to become a premium Weekly Windfalls member and get on your way to making HUGE profits in hours.     Jason Bond                Stop receiving exclusive emails from jason@jasonbondpicks.com Neither Jason Bond nor RagingBull.com, LLC (publisher of JasonBondPicks) is registered as an investment adviser nor a broker/dealer with either the U. S. Securities & Exchange Commission or any state securities regulatory authority. Users of this website are advised that all information presented on this website is solely for informational purposes, is not intended to be used as a personalized investment recommendation, and is not attuned to any specific portfolio or to any user's particular investment needs or objectives. The owners, employees and writers of RagingBull.com may engage in securities trading that is discussed or viewed on this website, but all such individuals are buying and selling such securities for their own account. These individuals do not engage in any trades with customers. The buying and selling of securities by these individuals is not part of a regular business of buying and selling securities. Past performance is NOT indicative of future results. Furthermore, such information is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All users of this website must determine for themselves what specific investments to make or not make and are urged to consult with their own independent financial advisors with respect to any investment decision. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. All opinions, analyses and information included on this website are based on sources believed to be reliable and written in good faith, but should be independently verified, and no representation or warranty of any kind, express or implied, is made, including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we undertake no responsibility to notify such opinions, analyses or information or to keep such opinions, analyses or information current. Also be aware that owners, employees and writers of and for RagingBull.com, LLC may have long or short positions in securities that may be discussed on this website or newsletter, but all such positions are held for such representative's own account. Past results are not indicative of future profits. This table is accurate, though not every trade is represented. Profits and losses reported are actual figures from the portfolios Jason Bond manages on behalf of RagingBull.com, LLC.   If you have a current active subscription with Jason Bond Picks you will need to contact us here if you want to cancel your subscription. Opting out of emails does not remove you from your service at JasonBondPicks.com.   62 Calef Hwy #233 Lee, New Hampshire 03861 United States    Stop receiving exclusive emails from jason@jasonbondpicks.com

62 Calef Hwy #233 Lee, New Hampshire 03861 United States