The following are illustrative examples of “Trading Alerts” that may be sent to your cell phone or e-mail account. Any of the Trading Alerts may also contain a narrative, such as “This is a risky trade”, or “Earnings reported on (date)”
The trades detailed in “Trading Alerts” or in the “Daily Market Update” use the same terminology but do not contain a narrative.
The prices provided are at the time of the transmission of the Trading Alert and are subject to change, sometimes very rapidly. In the event of small, incremental change if you decide to make the trade simply adjust your prices accordingly.
Additionally, in the event of a spread between “bid” and “ask” prices of more than a penny, if you are attempting to buy or sell less than 10 contracts, consider unchecking the “All or None” box in order to take advantage of the “Show or FIll Rule,” which may allow you to get a better price on the transaction. The details aren’t important. Just know that if you are dealing with less than 10 contracts and are offering a price that is intermediate between bid and ask, you are a nuisance to the market maker and they want to get rid of you and can do so by executing your trade, but not being required to publsh the price if “All or None” is not part of the order.
On July 1, 2013 Trading Alerts will also include either Net Debit (ND) or Net Credit (NC) information as outlined in “Making Trades” an article about the mechanics of submitting trade requests. Additionally, Trading Alerts will no longer include Rating information
This is the basic building block that initiates most positions and establishes hedging cover. The suggestion is to “Buy” a specified stock and STO (“Sell to Open”) a covered call position. The typical Trading Alert would be:
- Buy Halliburton (HAL). STO $31 July 20, 2012 calls. Current price $31.04. Premium $0.35 bid. TRADITIONAL. Rating UU
Refer to “FYI” for definitions of TRADITIONAL and MOMENTUM, as well as Rating system
Effective July 1, 2013 the new Trading Alert format will be:
- Buy Halliburton (HAL). STO $31 July 20, 2012 calls. Current price $31.04. Premium $0.35 bid. ND $30.69 TRADITIONAL.
The STO order is given either to sell new call contracts on an existing stock position that is uncovered or to open a new position in Put contracts. The typical Trading Alert would be:
- STO Halliburton (HAL) $31 July 27, 2012 calls. Current price $32.96. Premium $0.31 bid
In the event that more than a single lot of shares is currently held in the portfolio the Trading Alert will identify the lot by date
- STO Halliburton (HAL) 7/16 lot. $31 July 23, 2012 calls. Current price $32.96. Premium $0.31 bid
Additionally, in the event of a Trading Alert suggesting the sale of puts, the typical Trading Alert would be:
- STO Halliburton (HAL) $29 July 27, 2012 puts. Current price $32.96. Premium $0.31 bid. TRADITIONAL. Rating UU
3. Double Dip Dividends
The “Double Dip Dividend” trade is an extension of the “Buy/STO” trade. In addition it includes information regarding an upcoming ex-dividend date and would typically appear as:
- Buy Halliburton (HAL). STO $31 Aug 31, 2012 calls. Current price $31.04. Premium $0.35 bid. TRADITIONAL. Rating UU. Ex-div 8/31 $0.09
The trade must be executed before the ex-dividend date. While purchase of shares may be made in the after hours market and would qualify to receive the dividend if before the ex-dividend date, the option cover cannot be executed in the after hours market.
Rollover trades involve exisitng stock positions and their existing covered option. It is an exchange of one option for another usually into the future. It consists of closing an exisiting option position that you have created through a “STO” transaction. That is accomplished by a “BTC” (Buy to Close” trade that offsets the earlier sale. It is then followed up with a new STO transaction. In general, in order to ensure that the trades are likely to get executed, it is best to submit the BTC trade at the “Ask” price and to execute the STO component of the trade at the “bid” price. Although the net may be lower by doing so, you are much more likely to have the trade completed. Otherwise you may end up with an unwanted uncovered position.
- Rollover. BTC Halliburton $31 July 27, 2012 calls. STO $31 Aug 3, 2012 calls. Premium to buy $0.06 ask. Premium to sell $0.37 bid.
Effective July 1, 2013 the Trading Alert format for Rollover Trades will be:
- Rollover. BTC Halliburton $31 July 27, 2012 calls. STO $31 Aug 3, 2012 calls. Premium to buy $0.06 ask. Premium to sell $0.37 bid. NC $$0.31
5. Earnings (Please see: Turning Hatred into Profits)
During quarterly earnings season there may occasionally be Trading Alerts specifically timed to take advantage of upcoming earnings reports. They may be either of the “Buy/STO” variety or the sale of put contracts. In addition to the usual information the Trading Alert will contain mention of the time of the expected earnings release and whether it is in the AM (before market) open or the PM (after market close). On rare occasion earnings may be reported during the regular trading session.
- Buy Halliburton (HAL). STO $31 Jan 25, 2013 calls. Current price $31.04. Premium $0.35 bid. TRADITIONAL. Rating UU. Earnings 1/25 AM
- STO Halliburton (HAL) puts. $28 Jan 25, 2013. Current price $31.04. Premium $0.29 bid. Earnings 1/25 AM. Stock often has large moves upon earnings.
These trades usually are related to stocks that are likely to have large earnings or guidance related moves and where the reward appears ro be commensurate with the risk
6. Personal Trades
Occasionally I will send Alerts regarding personal trades that I have mad, but that are not part of the Trading Alert recommendations. These trades are always in positions that already exist in the OTP Portfolio and are typically showing paper losses. The trades are in effort to reduce the paper losses but may be of a risky nature that exceeds the risk that I believe to be appropriate as a recommendation. Subscribers may contact me for specific trade details. A typical such message would be as follows:
- For personal account sold Pro Shares Ultrashort Solver (ZSL) puts. NEW SUBSCRIBERS: Personal account trades are not recommendations. If you have questions or want specific pricing information, please text or e-mail.
I do not send such messages for personal trades that I make that are in positions that are not part of the OTP Portfolio. However, those trades are documented in “My Trades.”
7. Buy or Sell
On rare occasion a Trading Alert will be sent to either open a new position, without selling an associated call or to close a position.
In cases where a new position is opened without an associated call it is usually after a large price drop where the anticipation is that the share price will rebound and options will be sold into price strength, rather than weakness, thereby achieving both better premium and perhaps at a higher strike price, as well.
- Buy Halliburton (HAL). Do not sell calls at this time. Current price $31.04. TRADITIONAL. Rating UU
Additionally, uncovered positions positions may be sold to either take profits or to take losses.
- Sell Halliburton (HAL) to take profits. Current price $32.99.
or, in the event of a sale to realize a loss
- Sell Halliburton (HAL) to take strategic tax losses. Current price $26.87. In order to avoid Wash Sales Rule violation a new position should not be opened until 30 days have passed.
Option to Profit Messages
In addition to the Trading Alerts, subscribers may also receive “OTP Trading Messages” on a periodic basis on topics germane to specific stocks, trades, market conditions, interesting questions/observations or web site articles and updates.