tag:blogger.com,1999:blog-30945816935398995382024-03-18T21:59:43.893-07:00myOptionIncomeBlaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.comBlogger34125tag:blogger.com,1999:blog-3094581693539899538.post-92085110545167681712010-10-08T14:03:00.000-07:002010-10-08T14:35:19.218-07:00We've Moved!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjp5U26af4AuWISp_8Jo-sAfleHAVunqKpcNgwu2wLK6VMglBQWFhW55IZRXP222ZNFzhqWqI0S0WyFVFB2Q3V6d5JJUbS9TYoGjBSTKYs85-KXIV7hBBXv3SfyQxS9HtOQd_a9C0cumxY/s1600/b_watkins.jpg"><img style="float: right; margin: 0pt 0pt 10px 10px; cursor: pointer; width: 115px; height: 130px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjp5U26af4AuWISp_8Jo-sAfleHAVunqKpcNgwu2wLK6VMglBQWFhW55IZRXP222ZNFzhqWqI0S0WyFVFB2Q3V6d5JJUbS9TYoGjBSTKYs85-KXIV7hBBXv3SfyQxS9HtOQd_a9C0cumxY/s200/b_watkins.jpg" alt="" id="BLOGGER_PHOTO_ID_5525791704060129730" border="0" /></a><br />I'm happy to announce we just launched our website... <a href="http://www.myoptionincome.com/">www.MyOptionIncome.com </a><br /><br />If you wondered why we dropped off the blog-sphere it's because I had to stop new content on this blog so the webmaster could catchup to launch MyOptionIncome.com. We are now back to work generating monthly income!<br /><br />Please come join the conversation and follow us to learn how to use the stock market to generate passive income month after month! While your on our new website don't forget to signup for our free email trade alert service!<br /><br />Happy trading!<br /><br />Blaine Watkins<br />Mr. Option IncomeBlaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-34415417947485726392010-07-27T19:34:00.000-07:002010-07-27T22:50:46.229-07:00While GDX Fundamentals Decay - Time Decay Saves the Day<a href="http://www.investopedia.com/terms/f/fundamentals.asp">Fundamentals</a> count!<br /><br />In fact one of our top rules (<a href="http://optionincome.blogspot.com/p/get-started.html">#2 to be exact</a>) states: "Only trade options on stocks that you have qualified through fundamental analysis." Today the fundamentals for GDX took a turn for the worst. What a difference a day makes! I post this months trade last night and the next morning while commuting to work I hear on a talk radio show that new EPA government regulations came out (oh great what this time) many of which negatively effect the gold mining industry.<br /><br />Apparently the news or rather the uncertainty of it caused GDX to drop from $48.89 to $46.82 (low) closing at $47.09 per share. Down 3.7% for the day on heavy volume. <br /><br />This means that until all of the hub-bub of what the new regulation means to the bottom line of the gold mining industry; GDX breaks rule #2 and is no longer fundamentally qualified as a trade candidate. Oh yeah it happens. This is why with all of the unknown policies to yet be defined "by regulators" within the recent health care and financial regulation bills passed by congress I don't have any health care or financial companies in my watch list. Our rules help prevent unnecessary risk and keep us on track to only use the best trade candidates. <br /><br />GDX held at the recent $47 support level and is still well above our $44 Put strike price. It could very well stay above $44 on August 20th; however, the risk of the unknown could also drive GDX well below our strike price. With our #2 rule now breached we must exit the trade to protect our capital and move on to qualified trades that meet our rules. <br /><br />Now here's the good news! The option income system still made money; whereas, buying stock we would have lost money. If we had purchased stock in GDX at the time when I entered and exited my option trades the GDX stock trades would have looked like this:<br /><br />July 19 - Buy $47.10<br />July 27 - Sell $46.97<br />Not a big loss (13 cents per share) or $130 on 10 option contracts<br /><br />Compare that to selling cash-secured Put options:<br />July 19 - Sell-to-Open $0.83<br />July 27 - Buy-to-Close $0.56<br />A gain of 27 cents per share or $270 on 10 option contracts<br /><br />During the 8 days that we owned the contracts the time decay value of options was working for us and allowed us to buy back our option at a lower price than we sold it. This turned a potential $130 loss into a $270 gain! <br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUTHrrCZ3nfg3i8ZtXq8UzP189UdvMVjkTGvhZOfp8dDPPWm3HWxgjLUqMfQwUTjH8A0fGffD39VLmabh9Y6J3MuTC7l05HaVJkq7FQYLeuZRuELswnoPouU7mZE2AG44TtEosHYVKKbQ/s1600/time-value-decay.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 262px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiUTHrrCZ3nfg3i8ZtXq8UzP189UdvMVjkTGvhZOfp8dDPPWm3HWxgjLUqMfQwUTjH8A0fGffD39VLmabh9Y6J3MuTC7l05HaVJkq7FQYLeuZRuELswnoPouU7mZE2AG44TtEosHYVKKbQ/s400/time-value-decay.jpg" border="0" alt=""id="BLOGGER_PHOTO_ID_5498806811227440530" /></a>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-28344048968670116942010-07-26T17:23:00.000-07:002010-07-26T23:54:46.750-07:00August Trade Generates 22.6% Annualized Return!The August trade is on...<br /><br />On July 19th we placed the following cash flow trade: Sell-to-Open GDX Aug 21 '10 $44 Put at $0.83. For every option sold you pocket $83 cash straight into your account! This conservative cash-secured Put trade generated 1.9% monthly income (22.6% annualized).<br /><br />At the time we placed the trade GDX (the underlying asset) was selling at $47.10 per share. The Option Income indicators at the time were as follows:<br /><br /><ul><li>Williams %R = -90 "Extreme oversold"</li><li>Trade Probability = 77.2% Success</li><li>Profit = 1.9% (26.6% Annualized)</li></ul><br />More about this trade and why I like it:<br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbj87kGrQVZuLJQayh-eZVyfao0ph2uh7wI97GxObemc1apekuH-W2QJajl7f6z96G5mEBabBFSmpPvjDyro1CZ2XunlGA6lbll__0u6W6PwT4z7pKFqHVPl9pk6JtQ3S9jnW834KjX9I/s1600/Aug2010-Trade.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 223px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbj87kGrQVZuLJQayh-eZVyfao0ph2uh7wI97GxObemc1apekuH-W2QJajl7f6z96G5mEBabBFSmpPvjDyro1CZ2XunlGA6lbll__0u6W6PwT4z7pKFqHVPl9pk6JtQ3S9jnW834KjX9I/s400/Aug2010-Trade.png" alt="" id="BLOGGER_PHOTO_ID_5498469543877456082" border="0" /></a> Our $44 Put strike price is well under the recent $47 support level. If the price of GDX moves up, goes sideways, or trends lower but stays above $44 by the end of trading on August 20th (option expiration day) the option expires worthless and we keep the option premium! <br /><br />On the other hand, if the price of GDX is below $44 on August 20th the option will be exercised and we'll be assigned GDX stock at $44 even if the price is lower at the time. Currently with the price of GDX moving up to $48.89 we have a 90.4% probability of success! If you think about it even if we get assigned the stock we just purchased an ETF that we would like to own at a great price!<br /><br />So far I like our chances!Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-86304638148790038082010-07-23T00:18:00.000-07:002010-07-23T00:28:41.346-07:00Is This What You Need?<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmxy8xC-13xTVY3lOdxPB5yEW9l4PZ5J-1elrZC9SXJhyHfk1iGT06V-kL_pqZE0fd3zKOI08x4dULmlGpm77IpGYIUsCba0GIcSngRcaks5VOF42Utea3gvUCEtFM_wKhUTNdCz9VVPw/s1600/Requirements_icon.jpg"><img style="float:right; margin:0 0 10px 10px;cursor:pointer; cursor:hand;width: 156px; height: 200px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmxy8xC-13xTVY3lOdxPB5yEW9l4PZ5J-1elrZC9SXJhyHfk1iGT06V-kL_pqZE0fd3zKOI08x4dULmlGpm77IpGYIUsCba0GIcSngRcaks5VOF42Utea3gvUCEtFM_wKhUTNdCz9VVPw/s200/Requirements_icon.jpg" border="0" alt=""id="BLOGGER_PHOTO_ID_5496999173185796962" /></a><br /><b>Requirements</b><br /><br />Over the years as I was searching for the right system for me (and hopefully you), I developed the following list of twelve requirements to develop a successful investment system that would allow me to achieve financial freedom and retire on my terms. <br /><br />So check this investment system out and let me know if it will meet your needs? <br /><br />The system shall...<br /><br /><b>1. Produce positive returns every year</b><br />I don’t like losing money. Who does? If you invest directly in stocks or mutual funds your portfolio will have up years and down years as the market fluctuates through bull markets and recessions. In order to build wealth through compounding you cannot have losing years. <br /><br /><b>2. Generate income monthly in order to utilize the power of compounding</b><br />Monthly income allows us to reinvest our profits to grow our capital faster! Earning 2% each month and reinvesting it monthly has a compounded return of 26.8% instead of 24% annually. Now that doesn’t sound like much but over 5 years your monthly compounding return is 228%! Compare that to a buy and hold strategy which would return 120% over the same 5 year period.<br /><br /><b>3. Consistently produce 20%+ annual returns</b><br />When reinvested this allows our money to double every 2 to 4 years which builds incredible wealth over a relatively short period of time. For example, if you start with $20,000 to invest compounded monthly at a 20% rate in 14 years you will have amassed $321,390. At which point you could earn a nice living still implementing this system and making 2-3% a month, in this case earning 2% each month from your capital would produce $64,277 a year. If you did a little better and averaged 23% a year, after 14 years you would have $485,540, which could generate $111,674 a year from earning 2% each month without being reinvested to retire on.<br /><br /><b>4. Give you control over your investment</b><br />Traditional investing of buying and holding stock affords you very little control of your investments, as you are left to the up and down whims of the market. You also have no idea how much money you are going to make (or lose) and when you will realize that profit or loss. With the Option Income System before you enter a trade you know how much money you are going to make, when you will make it, and the probability of your success!<br /><br /><b>5. Not take more than a few hours per month to perform</b><br />Once you have developed your prospect list you only need to spend a few hours each month to determine the best qualified candidate for your trade. After the third Friday of the month (options expiration day) you simply repeat the process to generate income for the next month.<br /><br /><b>6. Not require constant monitoring</b> <br />After my order has been executed I like to take a few minutes each evening to check on the status of my trade. However, if you wanted to take a one week Caribbean cruise with no internet access you could do so without any problem.<br /><br /><b>7. Trade only high quality fundamentally sound companies or strong sector ETF’s as the underlying asset</b><br />This system not only works with stocks of great, fundamentally sound companies, but it should only be performed with the best, most fundamentally sound companies or ETF’s that you would be willing and interested in purchasing! Unlike other books that contain selling put strategies I actually show you how to determine and find these strong performers. <br /><br /><b>8. Put time decay value on your side</b><br />We must have time working for us and not against us. As the seller of the option, your probability of success increases each day as you move closer to the options expiration date due to the time decay value of options. <br /><br /><b>9. Have a 70%+ statistical success rate for each trade using mathematical probability models before entering the trade</b><br />You only enter a trade when you have a minimum of 70% chance of success at the beginning of the option month. Sometimes you start with even a higher success rate -- upwards of 80%. With each passing day your probability of success rate increases due to time decay of the option.<br /><br /><b>10. Have less exposure to market risk than traditional buy and sell stock for capital gain investment methods</b><br />Due to the thorough qualification process of what, when and how you sell cash-secured Puts you rarely have your options exercised requiring you to buy stock, (on average two times a year) so you are technically at most only in the market a total of 8-10 weeks a year. Being out of the market most of the year greatly reduces your exposure to the nasty down swings that can wipe out large portions of your portfolios worth. Granted you don’t participate in the upswings either, but year-after-year you consistently generate income that produces positive returns in up, down or sideways markets!<br /><br /><b>11. Be simple enough to be learned by anyone with a basic understanding of stock options</b><br />The option income system is really quite simple. Monthly income is generated by selling stock options on the strongest companies when we meet our risk to reward and success rate rules. In this book we go over the mechanics of selling a Put option, but do not cover the fundamentals of how stock options work. There are many excellent books that cover this topic that you can study. <br /><br /><b>12. Be repeatable, others can learn this system and produce the same results</b> This is the acid test that determines if it’s really a system. My hope is that others can learn my system and profit as I have from its success. Doing so will validate that what I have created is much more than an investment philosophy or trading strategy; but a system that others can repeat and produce consistently to benefit their families and their retirement. <br /><br />Does this sounds like an investing system that you would like to pursue? If so, dig in and read the 'Getting Started' page to learn more!Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-91796095468377728042010-07-20T21:42:00.000-07:002010-07-20T23:56:18.774-07:00July 2010 Trade Results - 15.6% Profit!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiVBwkFhopJrZA3Mp0SQVtU7E1-E3YVwvs7RVuFnsGsT9u0UsIN5jvaZ7aZH36XExhFcOWw14N5vbpHNuToDwJ4JwCqQeKxtCxb6Os6qbgfYdUsR2UhcyYDr29efvZkhB3Lz3N5WEQniak/s1600/2010-Winner.jpg"><img style="float:right; margin:0 0 10px 10px;cursor:pointer; cursor:hand;width: 200px; height: 199px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiVBwkFhopJrZA3Mp0SQVtU7E1-E3YVwvs7RVuFnsGsT9u0UsIN5jvaZ7aZH36XExhFcOWw14N5vbpHNuToDwJ4JwCqQeKxtCxb6Os6qbgfYdUsR2UhcyYDr29efvZkhB3Lz3N5WEQniak/s200/2010-Winner.jpg" border="0" alt=""id="BLOGGER_PHOTO_ID_5496249756791843010" /></a><br />Another successful month generating positive cash flow! Our July GDX Put options expired out-of-the-money last Friday when GDX closed well above our $46 strike price at $48.54. Yes!<br /><br />As the seller (or writer) of the option we get to keep the 60 cents per share premium ($60 per option contract) for a 1.3% monthly profit that's a 15.6% annualized return. With the contract expiring we are back in all cash ready to repeat the process and generate more income!Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-23837062843187444262010-07-18T22:56:00.000-07:002010-07-18T23:40:15.711-07:00Here Come the Q2 Earning Reports!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNy1f5n1sdHQXPKqakLehrC4o2GM3RD7eURBq4BYDRF-hyL0QMwoC0LgbyiCmtBhLzIS8lu0-4JyWoRcpDtohA2utiawrwPGa0mmgGIHq_jGU8yebrS-NA9afTNh9oca3NurAogzdrIoA/s1600/BullBear.jpg"><img style="float: right; margin: 0pt 0pt 10px 10px; cursor: pointer; width: 286px; height: 320px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNy1f5n1sdHQXPKqakLehrC4o2GM3RD7eURBq4BYDRF-hyL0QMwoC0LgbyiCmtBhLzIS8lu0-4JyWoRcpDtohA2utiawrwPGa0mmgGIHq_jGU8yebrS-NA9afTNh9oca3NurAogzdrIoA/s320/BullBear.jpg" alt="image: Paul Antonson at invisibleman<br />" id="BLOGGER_PHOTO_ID_5495495608906850514" border="0" /></a>A Look at the Week Ahead...<br /><br />With 25% of the S&P 500 companies reporting Q2 earning next week it will likely make for a very volatile week in the stock market. It's not so much the movement of the actual Q2 results, yes they do play a role in market direction, but they are mostly priced in. The bigger factor is the changes in Q3 guidance. If most companies' Q3 forecasts are lowered (and by how much) will really be the big downward driver next week. If on the other hand guidance is raised or even maintained the market should react favorably to the upside. <br /><br />Here's a short list of big names reporting next week: IBM, Microsoft, AT&T, Coca-Cola, American Express, Apple, Wells Fargo, Ford Motor, and UPS.<br /><br />We'll want to keep our eyes on the Williams %R on the S&P500 to flash oversold (below -80) for good opportunities to sell out-of-the-money Puts when the market is down and/or pushing down against the most recent support level or 1020.<br /><br />Steady on the trigger boys!<br /><br /><a href="http://invisibleman.com/2006/12/007-bear-vs-bull/">Bear vs Bull image by: Paul Antonson at invisibleman</a>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-89772296394831920062010-07-14T11:15:00.001-07:002010-07-14T19:47:15.112-07:00July Trade Update - Looking Good!With three days left until July's option expiry the probability of our trade succeeding is now up to 99.5%! last week it was at 84% and two weeks ago when I placed the trade it was well above our 70% threshold starting off at 78.7%. Remember the profit on our trade this month is a 15.6% annualized return. This is a typical example of a how the Option Income System works by consistently producing low risk to high reward ratio trades that generate monthly cash flow! <br /><br />Here's what the probability stats look like in my option probability calculator:<br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEip3uzwcn-lEy8p3R9QAPKeY26ivWu71wP10OybQOIxoPJNVxYKCcB7RnGce5M3TjZR4eywJrU47L5j5j46Emde9ugTM_xjcpVZfXYhsf7e5ZDAQmRyZASOoS5dOFFEZ4zm_GQhhRMeZbc/s1600/GDX+Trade+Update.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 383px; height: 400px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEip3uzwcn-lEy8p3R9QAPKeY26ivWu71wP10OybQOIxoPJNVxYKCcB7RnGce5M3TjZR4eywJrU47L5j5j46Emde9ugTM_xjcpVZfXYhsf7e5ZDAQmRyZASOoS5dOFFEZ4zm_GQhhRMeZbc/s400/GDX+Trade+Update.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5493939854928099490" /></a><br />As a 'seller' of cash-secured Puts we have time on our side. From the moment we place our trade, time decay of the option contract is working for us. Each passing day it chips away at the contract lowering the price of our option so we could buy it back for less and take an early profit (of course the price movement of the underlying asset (GDX) moves the option price up and down as well). Time decay also improves the probability of our success if we let the option expire. Which with only 3 days left and these great odds we might as well let this puppy expire. <br /><br />The image below illustrates what option time decay looks like. Notice that the curve is exponential so by trading just the last month of the option we capture the steepest drop in decay to work for us.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiK70LpubXGOdDsHSmJyyE0p9pI2q-IsGFBhq-nHTmOoSCRx7vX4LXFjGe6OYqVmITRVjCxDXpgUBhnrJJOH64Uwk4CDenypjFLhpflkYVEDyLE7kYlufk0qCcfmcP03HsBT0S2iEEO9Xo/s1600/time-value-decay.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 262px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiK70LpubXGOdDsHSmJyyE0p9pI2q-IsGFBhq-nHTmOoSCRx7vX4LXFjGe6OYqVmITRVjCxDXpgUBhnrJJOH64Uwk4CDenypjFLhpflkYVEDyLE7kYlufk0qCcfmcP03HsBT0S2iEEO9Xo/s400/time-value-decay.jpg" border="0" alt=""id="BLOGGER_PHOTO_ID_5493956841715026098" /></a><br />There's also an added benefit to letting the contract expire because you do not have to pay a closing commission cost! We'll be back all in cash next week to compound our profits into the next months high probability trade.<br /><br />And here's what the GDX chart currently looks like:<br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiai6xW4x91cO8Sv5LQCF7E5G9HhqHYE63krSyrAM9oZZ3HPY5_CqQoxUpg5tdpwKfn4lTE6AprKVHK40OeD44Yz0XoJFAoCVu5w8DteLrkV5zuyLzkVhLpIRPSmoUUDUM9Wy8l7yBZ4cY/s1600/GDX+Trade+Update+6moChart.png"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 214px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiai6xW4x91cO8Sv5LQCF7E5G9HhqHYE63krSyrAM9oZZ3HPY5_CqQoxUpg5tdpwKfn4lTE6AprKVHK40OeD44Yz0XoJFAoCVu5w8DteLrkV5zuyLzkVhLpIRPSmoUUDUM9Wy8l7yBZ4cY/s400/GDX+Trade+Update+6moChart.png" border="0" alt=""id="BLOGGER_PHOTO_ID_5493940271052332578" /></a><br />As you can see we have a very nice margin of safety (4 points) above our $46 strike price. Now I realize that the odds are slim that GDX will close this Friday BELOW $46, but if is does what's the down side? Well our option contract will be assigned to us and we will end up owning shares of an excellent ETF of Gold Mining companies at a great price!Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-42980637057061294822010-07-10T08:50:00.000-07:002010-07-12T23:34:51.458-07:00Mr. Market puts on his Angry Eyes?<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinQFVh6r7W7mrpFSYVFpqCOLIE0olxLXlShj_iQkeoBwRx4gtPWX4FvtOONFULpwSkotJUvNfk-WPWHE8g5g_fW59HmTlqXOMKax4mng6KAxq2RRRJVYuW7ZzSl8dYmC5He_tv-ax7T7I/s1600/mrs_potato_head_toy_story_2_angry_eyes.jpg"><img style="float: right; margin: 0pt 0pt 10px 10px; cursor: pointer; width: 200px; height: 128px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinQFVh6r7W7mrpFSYVFpqCOLIE0olxLXlShj_iQkeoBwRx4gtPWX4FvtOONFULpwSkotJUvNfk-WPWHE8g5g_fW59HmTlqXOMKax4mng6KAxq2RRRJVYuW7ZzSl8dYmC5He_tv-ax7T7I/s200/mrs_potato_head_toy_story_2_angry_eyes.jpg" alt="" id="BLOGGER_PHOTO_ID_5492825398559901282" border="0" /></a>Mr. Market (the S&P 500 index) may have put on his angry eyes last week when two bearish long term technical indicators occurred. The first breached indicator was the death cross (Uh yeah, I know that doesn't sound too good does it). This is when the 50 day simple moving average crosses below the 200 day simple moving average, which has received a lot of coverage in the media and by financial experts recently. If you haven't heard about it yet I recommend you read Jim Jubak's post: '<a style="font-style: italic;" href="http://jubakpicks.com/2010/07/08/this-stock-market-bounce-has-bought-us-the-luxury-of-uncertainty/">This stock market bounce has brought us the luxury of uncertainty</a>'.<br /><br />The second bearish technical indicator which hasn't received as much attention is the Head and Shoulders Top. The Head and Shoulders Top is one of the most common, and reliable, forms of reversal pattern. The shape consists of a left shoulder (lower top) followed by a head (higher top) and then a right shoulder (second lower top). The indicator is confirmed or should I say activated when the market closes below the neckline of the shoulders. In the chart below you will see that the S&P 500 has charted out a head and shoulders top pattern with a neckline support level at 1040. Last week the neckline was breached but then the market quickly bounced back up above the 1040 level. Yes the neckline was in fact breached, but instead of just retesting by coming back up to 1040 (to new resistance which is expected) the market has broken back through above 1040. So where are we now? Good question!<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgx6j7_Nza8orcHkx_QU4W_O9N4V6mqNcka2pg8TFOLUGR1uo3omD_bosna0uAkZw-0Tj2FSDspoPWQf-x_OYhKL_LxLbYcLVll9sWQlFaPN9oFqmhgWkHUiyA2Dg7LuuBvJPh053QyTFk/s1600/SP500+AngryEyes.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 215px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgx6j7_Nza8orcHkx_QU4W_O9N4V6mqNcka2pg8TFOLUGR1uo3omD_bosna0uAkZw-0Tj2FSDspoPWQf-x_OYhKL_LxLbYcLVll9sWQlFaPN9oFqmhgWkHUiyA2Dg7LuuBvJPh053QyTFk/s400/SP500+AngryEyes.png" alt="" id="BLOGGER_PHOTO_ID_5492320061266022482" border="0" /></a><br /><br />In my humble opinion (and I'm by no means a technical analysis wizard) the verdict is still out on our current head and shoulders top technical indicator. My best advice would be to tread with caution and continue to watch for further evidence of a reversal. It's likely that we will find out whether or not the angry eyes are here to stay sometime this week from the Q3 guidance given in the upcoming earning reports.Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-18101932858458884842010-07-06T19:23:00.000-07:002010-07-06T23:52:09.150-07:00July 2010 Trade is "BOOM" Cash Flow!<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8_jJimjrzk5jyuQuszs3PCdak-iog7DRvVNZQ73O89uNEMUMv_8FAI25ybixMxOSe4-lpNwEPDoUyPR2CAKpl9Xy2sqc81V5QbV1FK55cDfb4fVinvbs0yv9Z830W2ZfQJDS4BAHmM2w/s1600/madden.jpg"><img style="float: right; margin: 0pt 0pt 10px 10px; cursor: pointer; width: 320px; height: 245px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8_jJimjrzk5jyuQuszs3PCdak-iog7DRvVNZQ73O89uNEMUMv_8FAI25ybixMxOSe4-lpNwEPDoUyPR2CAKpl9Xy2sqc81V5QbV1FK55cDfb4fVinvbs0yv9Z830W2ZfQJDS4BAHmM2w/s320/madden.jpg" alt="" id="BLOGGER_PHOTO_ID_5491043633960438322" border="0" /></a>Use your best John Madden here... on July 1 the 80/70/2 Option Income indicators (Williams %R, Probability, and Profit) all flashed green "AND BOOM" we pulled the trigger to generate some cash flow!<br /><br />The trade was... Sell Open GDX Jul 17 '10 $46 Put at $0.60. For every option sold you pocket $60 cash straight into your account!<br /><br />Here are the Option Income Indicators for the GDX $46 Put on July 1. At the time we placed the trade GDX (the underlying asset) was selling at $49.00 per share, so there you go.<br /><ul><li>Williams %R = -82 "Extreme oversold"</li><li>Trade Probability = 78.7% Success "Hey, you gotta like them odds"</li><li>Profit = 1.3% (15.6% Annualized) "Some yards is better than none yards?"</li></ul><br />More about this trade and why I like it:<br /><br /><ul><li>Check the technical's on the GDX chart - the price of GDX would have to break the trend line, the 200 day moving average and the $46 support level to get assigned in 11 trading days to get assigned the stock.</li><li>The trade is three points below bottom of upward trend</li></ul><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiixZbZ0c3FRcSLYq_kAGmCxZq2Zu4pukj2_Q2KzDIvI-XrpdOHzWVaUcTCAINl6OfiU0GQoxRYhwVpPSSVnIb1SV5mz-LVmmC-vNXvPftxWIW-TODaRQ-Arye_1wnx9gr7PSRC8cPGSvs/s1600/GDX_7-6-2010.png"><img style="display: block; margin: 0px auto 10px; text-align: center; cursor: pointer; width: 400px; height: 243px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiixZbZ0c3FRcSLYq_kAGmCxZq2Zu4pukj2_Q2KzDIvI-XrpdOHzWVaUcTCAINl6OfiU0GQoxRYhwVpPSSVnIb1SV5mz-LVmmC-vNXvPftxWIW-TODaRQ-Arye_1wnx9gr7PSRC8cPGSvs/s400/GDX_7-6-2010.png" alt="" id="BLOGGER_PHOTO_ID_5491039703647201922" border="0" /></a><br /><ul><li>Even if I get assigned I would like to own GDX at $46 long-term, because I like gold long-term and the price of gold helps support this fund of gold miners</li><li>Did I mention that as a seller of the option I have time decay on my side and on the day of this post the probability of not getting assigned is now 83.7%<br /></li></ul><br />More fun with "BOOM" John Madden...<br /><br /><object height="385" width="480"><param name="movie" value="http://www.youtube.com/v/XBW7ysPcbT0&hl=en_US&fs=1"><param name="allowFullScreen" value="true"><param name="allowscriptaccess" value="always"><embed src="http://www.youtube.com/v/XBW7ysPcbT0&hl=en_US&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="385" width="480"></embed></object><br /><br />So there you go!Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-37228840944492650942010-07-02T16:57:00.000-07:002010-07-02T19:12:15.425-07:00New Logo!<span style="font-family:arial;">No this isn't the new myOptionIncome website, but it has a prototype of the new logo! The new website is officially under construction and hopefully will be launched in a few weeks. Until then I would appreciate your thoughts on the new logo and tagline. </span><br /><br /><span style="font-family:arial;">I'll post a separate blog entry with the details of this months trade... </span><br /><br /><span style="font-family:arial;">I entered the July trade this Thursday (July 1) where I sold GDX $46 strike price Puts for 60 cents. 0.60/46 = 1.3% profit (15.6% annualized return). </span><br /><br /><span style="font-family:arial;">More to come... </span><br /><br /><span style="font-family:arial;">http://optionincome.blogspot.com/</span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-38384208559297308142010-05-10T19:30:00.000-07:002010-05-10T22:15:17.022-07:00Coming Soon... MyOptionIncome.com<span style=";font-family:trebuchet ms;font-size:100%;" >I recently came into a possible business opportunity using my Option Income system to manage other people's portfolios to generate monthly income for them. This is one of the reasons why I haven't posted on my blog for so long as I have been investigating the various possibilities and weighing my options (no pun intended).<br /><br />After much consideration and thought about how to best move my trading system forward I have come to a realization that for me to manage other people's money would, in all likelihood, over time take the fun out of it. To me the satisfaction is in teaching others how to become successful at making money in the stock market so that they can achieve financial independence, freedom and the opportunity to give back to others and their community.<br /><br />The quandary of what to do with my book, trading system, and blog--which to this point have been somewhat independent of each other--are going to culminate into a new exciting website MyOptionIncome.com. The site will provide free educational content (the book) to help you learn the system, tools to analyze the best option income opportunities and up-to-date commentary (blog) on the market and how to consistently generate monthly income!<br /><br />I'll keep you posted on the progress of the new website on this blog, so far I have purchased the domain name and submitted a website questionnaire to help my web designer mock up some early design ideas.<br /><br />I value your feedback and ideas so please feel free to comment on what you would like to see or use on the website. Also, if you are interested in submitting guest posts or being a regular content contributor please let me know. I would like to make the site as collaborative as possible so that we can pool our collective knowledge to continue to refine the system and help each other navigate our course to financial freedom.<br /><br />More to come...</span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-77016850361366103502009-12-29T19:52:00.000-08:002010-05-10T19:15:17.881-07:00Jan 2010 Trade Update - Watching JOYGJOYG is finally heading back down towards support and our three qualifying indicators are all moving towards flashing the green light to pull the trigger. Just a little more patience is needed.<br /><br />The beauty of the three qualifying indicators (Williams %R, Probability and Percent Profit) is that they act as a set of checks and balances to help determine the proper strike price. For example, let's take a look at the current status of JOYG which is currently our top trade candidate. Notice that the probability for the $50 Put is only 67.9% (we need 70% or higher to qualify), so we need to drop down to the next lower strike price $49. With 17 days left to the Jan expiration date we simply cannot achieve all three qualifiers if JOYG drops more in price the success probability for the $49 Put we drop even lower. We now have to look at the $49 strike price which qualifies with a 75.2% probability of success rate, and has a %5 buffer to give up if the price of JOYG drops further. <br /><br />We still have to qualify for being oversold enough, and of course we want to meet our 2% monthly profit target. If one of the three indicators has to give a little I prefer to be conservative and take less profit by letting the profit percent slide a little. <br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirbYaPZn0PmrGgeWA6H5xGtA8fObjSgIr1pp1-H-h4LpgnBiWzup4heKhIoA-Gw0lhjt7pERtrtZEhLqWwf8i0EvqKcQ4KeaVkHbOE4gNp8r81OFwjTLvxVV4m8tYX8YzijDBoqQ56xlw/s1600-h/12-29-2009+JOYG.png"><img style="cursor: pointer; width: 400px; height: 189px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirbYaPZn0PmrGgeWA6H5xGtA8fObjSgIr1pp1-H-h4LpgnBiWzup4heKhIoA-Gw0lhjt7pERtrtZEhLqWwf8i0EvqKcQ4KeaVkHbOE4gNp8r81OFwjTLvxVV4m8tYX8YzijDBoqQ56xlw/s400/12-29-2009+JOYG.png" alt="" id="BLOGGER_PHOTO_ID_5420907058227678994" border="0" /></a><br /><br />If the price of JOYG drops a little more we should see its oversold rating drop below 80 and the price of the $49 Put option should go up to $1.00 to get our 2% profit. Our other four top trade candidates are not close to knocking JOYG out of the #1 position.Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-7415769181247194742009-12-21T07:46:00.000-08:002010-05-10T19:16:23.759-07:00Jan 2010 Top 5 Trade Candidates<span style="font-family:trebuchet ms;">Here are the top 5 trade candidates for the January option expiration month.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjubyzMBAkWB8dliQvYVcTL1rlkR73-IVBJchvYwsVgigFqHU9Nv38JcR_Z8HgukHFg2DKjmWNhnLQG73rScq87oSfJIhkuk2TWnXNxo3GNcn6MpQSxEVA70WNXkclr_VK3VyqXMsWwVeQ/s1600-h/Jan+2010+top+trade.png"><img style="cursor: pointer; width: 400px; height: 103px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjubyzMBAkWB8dliQvYVcTL1rlkR73-IVBJchvYwsVgigFqHU9Nv38JcR_Z8HgukHFg2DKjmWNhnLQG73rScq87oSfJIhkuk2TWnXNxo3GNcn6MpQSxEVA70WNXkclr_VK3VyqXMsWwVeQ/s400/Jan+2010+top+trade.png" alt="" id="BLOGGER_PHOTO_ID_5417719932560865058" border="0" /></a><br /><br />Last months trade of the JOYG $49 Put was another 100% successful option income trade that produced a 3.6% return for the month of December (43% annualized) more on this in next post. </span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-63911423291967100832009-09-20T17:57:00.000-07:002009-09-25T11:16:07.516-07:00The CAT Jumped! - Sept Trade Results<span style="font-size:100%;"><span style="font-family:trebuchet ms;">Last Friday was options expiration day and our option premium collection strategy which generates monthly income worked flawlessly. We wanted CAT to stay above $42 by Friday Sept 18 and boy did it ever! CAT jumped 12 points since we traded our option closed at $53.42 Friday well above our strike price.<br /><br />The big jump reminds me of the day I bought some piping hot Kentucky Fried Chicken for lunch, you know the 3 piece lunch box with mashed potato's and gravy, coleslaw and a biscuit with butter and honey. I took my lunch over to my Sisters house to eat and visit with my nephews. The second I sat down to eat my Sister's cat caught a whiff of the Colonel's 11 herbs and spices original secret recipe steaming hot chicken and went MAD! It screamed with one of those famous cat screechy Rrreeeeeeooww calls and thrashed wildly at me scratching me with its claws! I made a reflexive move to half stand up in my chair and quickly grabbed my box of chicken as it started to fall toward the floor with the cat tearing at my arms. Without hurting the crazed cat I quickly flexed my arms straight and the cat popped off of me when my elbows snapped.<br /><br />Seeing the cat turn towards me I sensed it would strike again! At that very moment (and not a second before) I decided the sacrifice of one piece of chicken would be worth keeping the cat a bay, so I quickly reached in the box and grabbed the first piece that my hands touched flipped it backhand out of the box aiming for it to go over the cats head so that it would see the chicken and retreat away from me. My throw was dead on and the cat did a 180 turn away from me and headed for the chicken. (Thank heavens I grabbed only a drumstick.) The cat now chomping on my drumstick was appeased and I sat back down, let out a huge sigh of relief and gave my Sister a "what the hell is going on here" look.<br /><br />Apparently my Sister was trying to teach her Son's a lesson. She told them that they had the responsibility to feed the cat, because it was their cat and she was no longer going to feed it. Oh yes, then she yelled at the boys "I told you <span style="font-style: italic;">last week</span> you had to feed the cat, you feed her right now!"<br /><br />Okay with that fun little cat jumping story off my chest (and arms) back to this months trade results...<br /><br />If you recall my September 1st post <a href="http://optionincome.blogspot.com/2009/09/shooting-cat.html">'Shooting the CAT'</a> when CAT dipped below -80 on the Williams %R indicator which signaled the stock was oversold; I sold a Put </span></span><span style="font-size:100%;"><span style="font-family:trebuchet ms;">on the $42 strike price option at 95 cents per share ($95/option contract) for a 2.26% return. With the objective to have CAT close above $42 eighteen days later on expiration day, so I don't have to purchase (assigned to me) any stock.<br /><br />Before - 9/1 Trade Entry Date to 9/12:<br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGAU3EVZQh8DR37AQK8H5St3TsKF_6DqcrofCNdh9pCInc84y6fOYzF5SFfV09mtgM-_aY6soHQRwnhdnluW7eBWyKGUIGvOnQkqapmzBj3fxDQet-3jhMBhMXmUDDA-ZET41FqDWCGiE/s1600-h/CAT_After_9-12-2009.png"><img style="cursor: pointer; width: 400px; height: 265px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGAU3EVZQh8DR37AQK8H5St3TsKF_6DqcrofCNdh9pCInc84y6fOYzF5SFfV09mtgM-_aY6soHQRwnhdnluW7eBWyKGUIGvOnQkqapmzBj3fxDQet-3jhMBhMXmUDDA-ZET41FqDWCGiE/s400/CAT_After_9-12-2009.png" alt="" id="BLOGGER_PHOTO_ID_5385464854705374354" border="0" /></a><br /><br /><br />After - 9/18 Expiration Day:<br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikplVzq91Pe__8cdIOwNaQg8dqskY3zbwErl4hrDlK82qi8d-vIfT9HkFoNnj58Z7m8_3fKA06lCbErMr9K1T9mn-dIZsm07EERMGlqnUkvpsLz_6G1bLzj5iJgkDq-nWraIm4XJBIQBA/s1600-h/CATafter_9-25-2009.png"><img style="cursor: pointer; width: 400px; height: 259px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikplVzq91Pe__8cdIOwNaQg8dqskY3zbwErl4hrDlK82qi8d-vIfT9HkFoNnj58Z7m8_3fKA06lCbErMr9K1T9mn-dIZsm07EERMGlqnUkvpsLz_6G1bLzj5iJgkDq-nWraIm4XJBIQBA/s400/CATafter_9-25-2009.png" alt="" id="BLOGGER_PHOTO_ID_5385462218985133906" border="0" /></a><br /><br />As you can see this CAT really jumped </span></span><span style="font-size:100%;"><span style="font-family:trebuchet ms;">during the 18 days that we held the option it </span></span><span style="font-size:100%;"><span style="font-family:trebuchet ms;">broke through the $49 resistance level to close at $53.42 on expiration day. This was 12 point higher then our strike price and 10 higher then when we entered our trade. A huge margin of safety, so the lesson here is about timing and how using the Williams R% indicator to buy when the underlying asset is deeply oversold helps us stay above the strike price and reduce the risk of being assigned the stock. Now are account in safely back in all cash and we can rent out our money for more income next month!<br /><br />Related links of interest see: <a href="http://www.kfc.com/about/history.asp">Timeline History of KFC</a><br /></span></span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com1tag:blogger.com,1999:blog-3094581693539899538.post-15397137002573476792009-09-14T21:26:00.000-07:002009-09-14T23:26:44.727-07:00Barron's Bearish on Realty Income<span style="font-size:100%;"><span style="font-family:trebuchet ms;">Well I guess everyone is entitled to their opinion. This explains why the sudden sell off early this morning...</span><br /><br /><a style="font-family: trebuchet ms;" onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4T2KJ-isqCTSPLwNVxIof12aMICWCzZBMJ4xyMOhsYmao58cX6vYKZMVZGriL9Xvk8zEZVVGVySUjLlpMTarQS8NYBGp07eDM1Q0R3NqYi4NBLLmEAh2jmHAnWu7vaQ2LVHw6EG8yXL8/s1600-h/BarronsBearArticle9-14-2009.png"><img style="cursor: pointer; width: 400px; height: 328px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4T2KJ-isqCTSPLwNVxIof12aMICWCzZBMJ4xyMOhsYmao58cX6vYKZMVZGriL9Xvk8zEZVVGVySUjLlpMTarQS8NYBGp07eDM1Q0R3NqYi4NBLLmEAh2jmHAnWu7vaQ2LVHw6EG8yXL8/s400/BarronsBearArticle9-14-2009.png" alt="" id="BLOGGER_PHOTO_ID_5381562858433988658" border="0" /></a><br /><br /><a style="font-family: trebuchet ms;" href="http://online.barrons.com/article/SB125270868039604779.html?mod=BOL_hpp_dc#artCommBookmark">Barron's released a bearish article about Realty Income</a><span style="font-family:trebuchet ms;">. Interesting how the stock was bought back strongly at the end of the day by the institutional buyers. Apparently they (the smart money) were not fooled by Barron's Bearish take on 'O'. I wouldn't be surprised if they had some short action in on O this morning. By the looks of the short squeeze (run up back on the price during the day) they created when shorts were covered during the day.</span><br /><br /><span style="font-family:trebuchet ms;">Ah, but that is mere speculation. Let's look at the fundamentals and facts - where in my opinion I respectfully disagree with Barron's article:</span><br /></span><ol style="font-family:trebuchet ms;"><li><span style="font-size:100%;">Realty Income has a 40-year track record of level or rising dividends. Two words: Impressive and experience.<br /></span></li><li><span style="font-size:100%;">Realty Income builds in a margin of safety as taught by investing greats Benjamin Graham and Warren Buffett in two ways: First, into its sale-leaseback transactions with retailers by purchasing its tenants' most profitable stores. This ensures that they will still be able to cover rent payments with cash, even if store performance deteriorates. Second, they carry a large buffer of cash to make dividend payments if a short-term cash flow problem ever did arise.<br /></span></li><li><span style="font-size:100%;">Unlike their competitors (who derive property values from store profitability) Realty Income takes care to pay no more for real estate than those individual properties are worth, so if a property does go vacant they can re-lease or sell it without taking a big hit.<br /></span></li><li><span style="font-size:100%;">Realty Income has an average of 4% of its total rental revenue up for renewal annually over the next five years, which should provide some protection if rents fall over the near term. The other 96% has built-in rent bump increases tied to inflation.<br /></span></li><li><span style="font-size:100%;">Realty Income is overvalued? Maybe, or maybe not that's a tough call. Historically it has commanded a higher P/E ratio value over other comparable REIT's due to the quality of the company.<br /></span></li><li><span style="font-size:100%;">Insiders get paid from the sale of company stock and stock options all the time. The CEO selling 20% of his stake is more likely due to the overall market coming back 48% from the March lows. He's probably worried the market will correct (and take 'O' down with it and so he's taking some off the table.<br /></span></li></ol><span style="font-weight: bold;font-family:trebuchet ms;font-size:100%;" >Near Term Trading Outlook</span><span style="font-size:100%;"><br /><span style="font-family:trebuchet ms;">We might see increased volatility and selling that pushes the price back down to the $24 suport range in the next few days. In my mind that would be a good opportunity to sell Oct $22.50 Puts which would be out of the money and well below support.</span></span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-78012383389466672712009-09-12T17:20:00.000-07:002010-05-10T19:16:46.802-07:00The CAT is Swimming! - Sept Trade Update<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMiH44_NbO9SVWsOt_7o8Q5ZiJXP7SgzUxfGS3D4P_J49Kx2L5fZNWLGu0g4VYWVFcNClIZzPrUELuOWJjRwExydBJaBADndVD9aBEROgFwDJZ2R7cAQ9fh1GvWDvNK_PxQ1BT7DkrVh0/s1600-h/CAT_After_9-12-2009.png"><img style="cursor: pointer; width: 400px; height: 265px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMiH44_NbO9SVWsOt_7o8Q5ZiJXP7SgzUxfGS3D4P_J49Kx2L5fZNWLGu0g4VYWVFcNClIZzPrUELuOWJjRwExydBJaBADndVD9aBEROgFwDJZ2R7cAQ9fh1GvWDvNK_PxQ1BT7DkrVh0/s400/CAT_After_9-12-2009.png" alt="" id="BLOGGER_PHOTO_ID_5380741740260948034" border="0"></a>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-50587281185003420912009-09-07T12:09:00.000-07:002009-09-07T12:30:05.287-07:00How are we doing?<span style="font-size:100%;"><span style="font-family:trebuchet ms;">Before we take a look at our year-to-date performance let’s look at the track record of some of the greatest investors and speculators of our time. Here are their annualized returns and length of time that it was achieved:<br /><br />Warren Buffett 21% - 42-years<br />George Soros 30% - 30 years<br />Benjamin Graham 20% – 20 years<br />Peter Lynch 29% - 12 years<br /><br />That’s right the all time greats are in the 20%-30% range! Frankly a few years ago when I was looking into this I was surprised. I thought the returns would have been higher probably because of all the people selling gimmicks claiming to get 50-100% returns. The reality is that over 80% of mutual fund managers cannot beat the S&P 500, which is the benchmark that all money managers and funds are measured against. The S&P 500 has a 25 year annualized return record of 9.6%. Therefore a 20-30% annual return average over a minimum 10 year period of time is phenomenal! The long track record is the key component that establishes legitimacy - the longer the period, the stronger the credibility of the record - it also weeds out the one-hit wonders.<br /><br />Okay here’s our results - drum roll please…<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4LA7jXLCVZYPzVPvFUGOjEsOipOWC4pqI22W7mKoFT4KD5oW8afgTs0Hn8Tns8DmpHhSgShGlYEKCHRIYnUsHKkOLcGiKkMgetzVSgKLYYA6EDmr14ANnSLRKSYtcrf5s2PTF22yIDIc/s1600-h/OI+Performance9-7-2009.png"><img style="cursor: pointer; width: 400px; height: 162px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4LA7jXLCVZYPzVPvFUGOjEsOipOWC4pqI22W7mKoFT4KD5oW8afgTs0Hn8Tns8DmpHhSgShGlYEKCHRIYnUsHKkOLcGiKkMgetzVSgKLYYA6EDmr14ANnSLRKSYtcrf5s2PTF22yIDIc/s400/OI+Performance9-7-2009.png" alt="" id="BLOGGER_PHOTO_ID_5378805306763098114" border="0" /></a><br /><br />Year to date we are up 20.2% (31% annual) assuming we can keep up the same pace for the rest of the year. We might be even higher if I had not gotten a late start by missing January and February trades.<br /><br />What does this say about the Option Income system and its early results? Well we certainly have not yet stood the test of time, however the early results are promising and on track. Each successful year will bring added credibility to the system. To me it says that this system is right in the sweet spot. That 20-30% range that has been and can be achieved. Any higher has not been proven to be sustainable and is subject to too much risk, and any less would not be maximizing our capital’s potential. Oh and did I mention doubling our money every 3 to 4 years!<br /><br /></span></span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-88373734624151186152009-09-01T20:53:00.000-07:002010-05-10T19:17:38.574-07:00Shooting the CAT<span style="font-size:100%;"><span style="font-family:trebuchet ms;">I would never shoot a cat. When I was a kid I did shoot our dog with my BB gun. Don't worry, it was one of those weak air-pistol types. Heck, I could shoot it into my hand and it barely stung.<br /><br />The funniest thing I ever saw a cat do was take a swim in the neighbor's pool. <span class="blsp-spelling-error" id="SPELLING_ERROR_0">Hmmm</span>... I better explain (cat lovers this is your fair warning not to read the next two paragraphs). You see a funny thing happened once when the neighbors were on vacation and we were watching over their yard. We came up with this great idea. We wondered what would happen if we brought my dog (a beautiful, lightning fast Australian Shepherd) into the neighbors' back yard, closed the gate and then put the cat in the pool for a little swim. Cats do love to swim don't they?<br /><br />We really didn't know what to expect, but we sensed it would be a good show. Our expectations were exceeded beyond all measure. The dog immediately charged toward the cat (which was now in the pool) and abruptly put the skids on and stopped at the pool's edge. The cat seeing (and hearing) the dog did a wide, slightly banked 180 turn in a full cat-paddle </span></span><span style="font-size:100%;"><span style="font-family:trebuchet ms;">swim to the opposite side of the pool to make its escape from both the dog and pool.<br /><br />However, the dog seeing the cat advance to the far side of the pool, ran around to the other side at full tilt to meet the cat. You know what's next don't you? Right! The cat did a 180 slow turn in the pool and headed back to the other side, and the dog? Yep. It ran around the pool to meet the cat on the other side.<br /><br />This cat-and-mouse dog game, was a sight to behold for us kids and put us all on our knees, our sides aching with laughter. We finally got the dog back out through the gate, which allowed the cat to climb out of the pool. No harm in the end, just some well-exercised pets and a unforgettable childhood memory made.<br /><br />Today I did however, pull a trigger on CAT </span></span><span style="font-size:100%;"><span style="font-family:trebuchet ms;">(Caterpillar) </span></span><span style="font-size:100%;"><span style="font-family:trebuchet ms;">and purchased (sold) a minor position on the $42 Put option (<span class="blsp-spelling-error" id="SPELLING_ERROR_1">CATUC</span>). The steep $1.47 pullback to $43.84 in CAT today sent the Williams %R indicator above 80 (oversold) signaling a green light to place a trade. The premium for the $42 option was 95 cents for a 2.26% return (0.95/42=2.26%) which was above our 2% profit target. At the time of the trade I ran the probability calculator and it came in a little above 70% success rate, so all indicators flashed the green light!<br /><br />The big price swing today raised <span class="blsp-spelling-error" id="SPELLING_ERROR_2">CAT's</span> implied volatility, so at the close of the day with the higher volatility % my probability is now a little lower at 65.2%. That's okay it's normal for the volatility % to go up when the underlying stock price swings more than usual.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDzlA7suIoZNYh119Il3FhHioDzb97h8SAq1v97GgbYf4Soy9HISBc8_6mf-NalZiWkDt4uz7403uh5yCxTPbp8YMD8RAdRwEroSN8ClyIMUzt2K0S3HHFL6Uq4rHp_19QVDiG5L3Xmlw/s1600-h/CAT_Trade_9-1-2009.png"><img style="cursor: pointer; width: 400px; height: 143px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDzlA7suIoZNYh119Il3FhHioDzb97h8SAq1v97GgbYf4Soy9HISBc8_6mf-NalZiWkDt4uz7403uh5yCxTPbp8YMD8RAdRwEroSN8ClyIMUzt2K0S3HHFL6Uq4rHp_19QVDiG5L3Xmlw/s400/CAT_Trade_9-1-2009.png" alt="" id="BLOGGER_PHOTO_ID_5376737422294254866" border="0" /></a><br /><br />I'll wait and see if the market will drop some more before committing more capital. Both the S&P500 and DOW Williams %R are only at 68 and 62 which is just slightly oversold. I would prefer above 80 on the overall market as well, if we can get it.<br /><br />Go CAT! Swim, baby, swim!<br /></span></span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-32155284915545306422009-08-31T21:48:00.000-07:002010-05-10T19:17:56.656-07:00Checking Up On the Top 5<span style="font-size:100%;"><span style="font-family:trebuchet ms;">What a difference a day makes! Well three day's really when you count the weekend. Here's what our closing numbers looked like last Friday, Aug 28.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZixp6ZtWegHC-iUm_ZC20q0_yrr1nCy3LZyFWOZai6obPn6QZvrrojjtwi97PPGewicozOyex9hB3czFGvxusr-JB6WkvcNGmXOYEHcKPoSTAxPSRqhiT9lnJBnJjvBwnfIlt0OkZunw/s1600-h/Top5_8-28-2009.png"><img style="cursor: pointer; width: 400px; height: 127px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZixp6ZtWegHC-iUm_ZC20q0_yrr1nCy3LZyFWOZai6obPn6QZvrrojjtwi97PPGewicozOyex9hB3czFGvxusr-JB6WkvcNGmXOYEHcKPoSTAxPSRqhiT9lnJBnJjvBwnfIlt0OkZunw/s400/Top5_8-28-2009.png" alt="" id="BLOGGER_PHOTO_ID_5376357928449516098" border="0" /></a><br /><br />Now take a look at the numbers for our candidates at the close of Monday, Aug 31. Note that I added an extra row for 'CAT' and 'O' for alternate strike prices to watch (more on that later).<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg49qG5Zts3XnjxTxHGm7ZKlZxjHS4p1CUbFaCm8Z5wfSRiGsGCec272XpFEbAQn_PIJbrpK4zSulaadKY0_I_ooFURAx6lDCDjgHc4VEcdmynsW9z0y4ign2MDD0fEN-wKs9I8rpXVkfc/s1600-h/Top5_8-31-2009.png"><img style="cursor: pointer; width: 400px; height: 158px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg49qG5Zts3XnjxTxHGm7ZKlZxjHS4p1CUbFaCm8Z5wfSRiGsGCec272XpFEbAQn_PIJbrpK4zSulaadKY0_I_ooFURAx6lDCDjgHc4VEcdmynsW9z0y4ign2MDD0fEN-wKs9I8rpXVkfc/s400/Top5_8-31-2009.png" alt="" id="BLOGGER_PHOTO_ID_5376361787778866178" border="0" /></a><br /><br />With the S&P500 pulling back 0.81% some good things happened to our prospective Put positions. For one thing the premiums and profit percentages naturally went up. Alternately, the lower stock prices moved closer to our strike prices, so naturally the probability of them staying above the strike price 18 days from now went down. More importantly the Williams R% indicator moved closer to the oversold side, which is what we need to time the entry of our trade for the best deal (less risk, lower strike price and higher profit). In fact, Nike (NKE) registered our first green light in the group as it went above 80.<br /><br />So what's currently the best deal? Personally, I like the $43 strike price on CAT (circled in red). Why? Because although the probability and profit are not in the green zone they are both extremely close to it.<br /><br />The problem is CAT is still not oversold enough with a Williams %R of 64, so while the timing is close and we have our finger on the trigger, we're not close enough to pull the trigger. I would much prefer being closer or above 80.<br /><br />This is why I added the next lower strike price for CAT (and O) because as their stock price drops the probability of the higher strike prices (i.e.: $44) moves out of the 70% favorable range. Dropping down to the lower strike price gives us back our margin of safety cushion, and of course a lower purchase price if we get assigned the stock. So the qualifying indicators act as a system of built-in checks and balances to help you choose the best deal.<br /><br />I know, I know... for us geeks it's the coolest thing since the IBM PC Jr. came out! Well for us finance geeks anyways. (For my Son it would be the Apple IPOD Touch.) Remember geeks rule!<br /><br /></span></span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com1tag:blogger.com,1999:blog-3094581693539899538.post-18816385729755556452009-08-30T18:28:00.000-07:002010-05-10T19:18:14.472-07:00Statistics! You’ve got to be Kidding<span style="font-size:100%;"><span style="font-family:trebuchet ms;">My college roommate used to joke around and say: “I liked the class so much I took it twice!” At least I always thought it was a joke. </span><br /><br /><span style="font-family:trebuchet ms;">Every semester my final exams would get stacked up on the first 3 days of the week. It made the cramming harder, but it was nice to get it over with and go home early. However, my junior year was different I had one exam each day of the week. My last final “Statistics” was scheduled for Friday. I went to the testing center at the usual time to take the 4 hour exam. During the exam everything was going great I felt I was doing well when 1.5 hours into the test I heard the PA systems crackle and a recording announce: “the Testing Center will be closing in 15 minutes.” What! 15 minutes! I didn’t even think to check when the center closed, because it had closed at 9:00 PM all week. Talk about your major 'opps' there sports fans.</span><br /><br /><span style="font-family:trebuchet ms;">I explained what happened to the professor, but he wouldn’t let me retake the final even in his office. Blast! Failing the final gave me a C- in the class, so you guessed it… <span style="font-style: italic;">I liked the class so much I took it twice!</span> The upside was that I aced the class the second time around, and the GPA boost helped me get accepted into the School of Business Management program. I also learned something from the "classes" that I use today, which is that <span style="font-style: italic;">statistical probability is a powerful ally to have on your side. </span></span><br /><br /><span style="font-family:trebuchet ms;">Okay so just how do you determine the probability of an option contract? With the help of online calculators it’s quite easy. To illustrate I’ll run the numbers for our current top trade candidate which is Caterpillar (CAT). </span><br /><br /><span style="font-family:trebuchet ms;">First go to the Optionistics probability calculator at:<br /><a href="http://www.optionistics.com/f/probability_calculator">http://www.optionistics.com/f/probability_calculator</a></span><br /></span><span style="font-family:trebuchet ms;"><br />Then fill-in the following fields:</span><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlm1WYEhvj1LXu3Xy4JTFfJmjygP4l40R15wNbgPVVmcmCdR-j10C0AeFu6X3l61-0M6FTKotvsjEgiwInaMHiZnFrWvd-iiFumdtA0SNEcAkD6sZaLTWYKKrVIpslKnZf_eabCkfLD6o/s1600-h/ProbCalc1.png"><img style="cursor: pointer; width: 400px; height: 225px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlm1WYEhvj1LXu3Xy4JTFfJmjygP4l40R15wNbgPVVmcmCdR-j10C0AeFu6X3l61-0M6FTKotvsjEgiwInaMHiZnFrWvd-iiFumdtA0SNEcAkD6sZaLTWYKKrVIpslKnZf_eabCkfLD6o/s400/ProbCalc1.png" alt="" id="BLOGGER_PHOTO_ID_5375937188292797922" border="0" /></a><br /><span style="font-size:100%;"></span><ol><li><span style=";font-family:trebuchet ms;font-size:100%;" >Symbol = CAT. Now click 'Load Data for Symbol'</span><span style="font-size:100%;"> </span></li><li><span style=";font-family:trebuchet ms;font-size:100%;" >Lower Bound = 44 (this is the Put strike price under consideration).<br /></span></li><li><span style=";font-family:trebuchet ms;font-size:100%;" >Upper Bound = 0 (we don’t need an upper bound, but I always enter zero which makes the results easier to read)</span><span style="font-size:100%;"> </span></li><li><span style=";font-family:trebuchet ms;font-size:100%;" >All of the other fields are entered for you. Now click ‘Compute’. </span></li></ol><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKt0KavF7Rf3o2BTNukjizAtLkfWVHveMceLqWRxF5cUQiTrytcsyl6IyqHULM14Q6Zd5OBbgdR9f63f1oaELOE2allv0XSdsXmhP7mk4Kh657VI2D6O611vEEu_XemOI-N2iL_yqJMlM/s1600-h/ProbCalc2.png"><img style="cursor: pointer; width: 400px; height: 246px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjKt0KavF7Rf3o2BTNukjizAtLkfWVHveMceLqWRxF5cUQiTrytcsyl6IyqHULM14Q6Zd5OBbgdR9f63f1oaELOE2allv0XSdsXmhP7mk4Kh657VI2D6O611vEEu_XemOI-N2iL_yqJMlM/s400/ProbCalc2.png" alt="" id="BLOGGER_PHOTO_ID_5375945419737960002" border="0" /></a><br /><br /><span style="font-size:100%;"><span style="font-family:trebuchet ms;">The results show that as of today (21 days to expiration day) CAT has a 70.6% of closing above our Put strike price of $44. The probability will change each day as two variables 'stock price' and 'volatility' change. The one constant 'Time' works on our side. <span style="font-style: italic;">With each passing day the odds increase in our favor as we near the expiration date!</span> This is also called time decay and it works against the buyer of an option and for the seller (us). Give the probability calculator a whirl on a few stocks, you'll see it's really easy. <br /><br />Oh you might have one other question. Why did I choose the $44 strike price? Two reasons really $44 is at Caterpillar's near-term support level and the premium for the $44 option gets us above our 2% or more profit target. Getting the hang of this? </span></span><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgW5FAal6lCR2acybYa82pKBI95GK9DEJUrd62sZg0L2qYIUjRIykz68QkauUB4QkAisoj3K_zEq6NocecmOrstgnBWDbesK3SKznckqFNMb_1w7iL6st4p30HLg6-eyYREDzUnoU0R494/s1600-h/CATsupport_8-30-09.png"><img style="cursor: pointer; width: 400px; height: 260px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgW5FAal6lCR2acybYa82pKBI95GK9DEJUrd62sZg0L2qYIUjRIykz68QkauUB4QkAisoj3K_zEq6NocecmOrstgnBWDbesK3SKznckqFNMb_1w7iL6st4p30HLg6-eyYREDzUnoU0R494/s400/CATsupport_8-30-09.png" alt="" id="BLOGGER_PHOTO_ID_5375955952072092402" border="0" /></a>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-42541116712553820642009-08-29T18:04:00.000-07:002009-08-29T19:12:06.306-07:00A picture is worth a 1000 words - maybe more!<span style="font-size:100%;"><span style="font-family:trebuchet ms;">Future stock prices can go anywhere, up, down sideways who knows? According to technical analysis theory the past can help narrow down the possibilities, or should I say help draw some more likely possibilities. </span> <span style="font-family:trebuchet ms;"><br /><br />Case in point - let's take a look at the stock chart of Realty Income 'O' which was last months trade. I'm no technical wizard but here's what the past performance tells me is more likely to happen then not. There's clearly new resistance developing at the $26.60 level and the old resistance level of $22.90 has become the new support level. The swapping of old resistance becoming new support is actually a common reoccurring pattern, which is what charting is all about. </span> <span style="font-family:trebuchet ms;"><br /><br />Based on the chart here are my two observations that may occur:</span> <span style="font-family:trebuchet ms;"><br /></span></span><ol><li><span style="font-size:100%;"><span style="font-family:trebuchet ms;">It will retest $26.90 resistance and if a clear break occurs (say above $27) it will move up into the $28-29 range.</span> </span></li><li><span style="font-size:100%;"><span style="font-family:trebuchet ms;">It will continue back to support around $23-24 after last weeks failed second attempt. It may even retest $26.60 and if it fails to break away it will then trend back down to the $23-24 support. </span> </span></li></ol><span style="font-size:100%;"><span style="font-family:trebuchet ms;">With the current overbought condition of both the market and Realty Income I would lean toward #2. Time will tell.</span><br /><br /><span style="font-family:trebuchet ms;">Okay so that's my 2 cents. What's yours?</span></span><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZ7iTp_TxkQv_45fp0DBfThAisPnW4hOo0CPhMoYbYYporHrRkh5ne-X8_RLwVP2MXm_fH47k5KbC09HiNNZd6TcQjkoCx3s29zeupaS2xYKuNxriRFgD1_74LyXRzYRAHTdzzhnDUGwc/s1600-h/O_Chart_8-29-2009.png"><img style="cursor: pointer; width: 400px; height: 262px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZ7iTp_TxkQv_45fp0DBfThAisPnW4hOo0CPhMoYbYYporHrRkh5ne-X8_RLwVP2MXm_fH47k5KbC09HiNNZd6TcQjkoCx3s29zeupaS2xYKuNxriRFgD1_74LyXRzYRAHTdzzhnDUGwc/s400/O_Chart_8-29-2009.png" alt="" id="BLOGGER_PHOTO_ID_5375566772970031762" border="0" /></a><br /><br /><span style="font-size:100%;"><span style="font-family: trebuchet ms;">http://optionincome.blogspot.com/</span></span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com1tag:blogger.com,1999:blog-3094581693539899538.post-10603390937223267132009-08-28T20:00:00.000-07:002010-05-10T19:18:35.773-07:00Narrowing down the prospects<span style="font-family: trebuchet ms;font-size:100%;" >Now that we have qualified our list of prospects to choose our stock from using fundamental analysis our next step is to narrow down the list. To use a Baseball analogy, we need an easy way to know who the best players are and get them to the top of the batting order. Then we need to know what a fat pitch looks like and time our swing to ensure the best odds to hit it out of the park!<br /><br /><span style="font-weight: bold;">STEPS</span><br /><br /><span style="font-weight: bold;">1. Use fundamental analysis stock screener to build your prospect list.</span> Ultimately this should be a list of stocks you would want to own right now at their current price. You may want to make some adjustments. For example, personally I don’t have a high enough confidence level to own financial sector stocks just yet, so if my screener returns any I remove them.<br /><br /><span style="font-weight: bold;">2. Use option and technical analysis to disqualify prospects</span><br /></span><ul style="font-family: trebuchet ms;"><li><span style="font-size:100%;"> Stock Price – Cannot be outside of $15-70 range. Stocks outside this range are either too risky (below $15) or are more difficult to produce good option premium returns (above $70).</span></li><li><span style="font-size:100%;">Options Traded - Are options traded on the stock? If not remove them from your list</span></li><li><span style="font-size:100%;">Open Interest - There needs to be a minimum of 100 options 500 is preferable</span></li><li><span style="font-size:100%;">3-4 Month Downtrend - Stock trend is not downward (trend must be sideways or up)</span></li><li><span style="font-size:100%;">Earnings Report Date – Release date cannot be during the term when you would hold the Puts (prior to expiration date). This reduces the risk of bad or unexpected news causing the stock to drop sharply.</span></li></ul><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMnbecfVp-GEGfctEz1UY6dnSNyXaIOyisF6SBNzevqfkYdQ1psqNN-ZSAnOweF9tGAAkRrH9emT7EQsYdtLuFdI5J_s9LLi_cdL8Pci1EbcFkf1sXEjrazls_8Z6YwUOK3LrB5SYoVu8/s1600-h/ST_S1-S2_v2_8-28-09.png"><img style="cursor: pointer; width: 381px; height: 400px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMnbecfVp-GEGfctEz1UY6dnSNyXaIOyisF6SBNzevqfkYdQ1psqNN-ZSAnOweF9tGAAkRrH9emT7EQsYdtLuFdI5J_s9LLi_cdL8Pci1EbcFkf1sXEjrazls_8Z6YwUOK3LrB5SYoVu8/s400/ST_S1-S2_v2_8-28-09.png" alt="" id="BLOGGER_PHOTO_ID_5375261680882239138" border="0" /></a><br /><br /><span style="font-family: trebuchet ms;font-size:100%;" ><span style="font-weight: bold;">3. Sort remaining stocks by Implied Volatility to find expensive Puts.</span> (I use Optionistics.com probability calculator to find Volatility and Probability.)<br /></span><ul style="font-family: trebuchet ms;"><li><span style="font-size:100%;">Divide the top five stocks with the highest volatility from those with lower volatility. </span></li><li><span style="font-size:100%;">The top 5 is your Watch List of “At-Bat” candidates. You’ll select your trade from this group!<br /></span></li><li><span style="font-size:100%;">Stocks with lower volatility are “On-Deck” this is your list of farm cluber stocks looking to move up to the major league list.</span></li></ul><span style="font-family: trebuchet ms;font-size:100%;" ><span style="font-weight: bold;">4. Use analytical tools to qualify the best timing and stock candidate for your option trade</span><br /></span><ul style="font-family: trebuchet ms;"><li><span style="font-size:100%;">Down Market Day - Purchase Puts only on down market days (when both the DOW and S&P500 are down)</span></li><li><span style="font-size:100%;">Williams %R - Enter trade when stock is oversold to get best premium and minimize option assignment (below -80 is preferred)</span></li><li><span style="font-size:100%;">Probability >70% - Seek a 70% or more probability that when you enter your trade the stock price will be higher than the strike price on expiration day (Put expires worthless you keep premium and don’t have to buy stock at the strike price)</span></li><li><span style="font-size:100%;">Profit >2% - Seek monthly profits that average 2% or more in terms of premium per share vs. strike price. When implied volatility is very high you can often collect 3% to 4% per month.</span></li></ul><span style="font-family: trebuchet ms;font-size:100%;" ><span style="font-weight: bold;">RULES</span><br /></span><ol style="font-family: trebuchet ms;"><li><span style="font-size:100%;">Sell out-of-the-money Naked Puts only (premium collection strategy)</span></li><li><span style="font-size:100%;">Sell near term expiration (40 days or less to expiration).</span></li><li><span style="font-size:100%;">Never trade on margin only on actual cash </span></li></ol><span style="font-size:100%;"><span style="font-family: trebuchet ms;">Our stock tracker below shows how to track and identify opportunities across a range of stocks. We carefully watch a small concentration of the best stocks that not only will produce the highest premium returns, but minimizes risk by entering the market when it’s oversold. We also, use statistics to reduce risk by identifying the probability of success before we make a trade decision. We only place a trade when the odds are high in our favor! </span><br /><br /><span style="font-family: trebuchet ms;">We are seeking the best case of green lights all the way across the row. In the case of the Williams %R indicator shown below the overall market is overbought (as indicated by the red cells, bright red is extremely overbought). The higher the number the better, the 50-79 range is shown in yellow for moderately oversold. Bright green (80 and above) is extremely oversold which is our preferred market entry condition! </span><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvXYvXP23DeqEdw019bgSumxnyimaSC7O2t_5W1zTVsnLFvvVQhSB5SwAgN2mqxqtDG8vTCBVtu6QNW9x4HdsUxvLunwyawbwIK14sgCg8MTIlt-FUmeRekvVYKzwMgw8-SpweQnNiCRY/s1600-h/ST_S3-S4+v5+8-29-2009.png"><img style="cursor: pointer; width: 313px; height: 400px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvXYvXP23DeqEdw019bgSumxnyimaSC7O2t_5W1zTVsnLFvvVQhSB5SwAgN2mqxqtDG8vTCBVtu6QNW9x4HdsUxvLunwyawbwIK14sgCg8MTIlt-FUmeRekvVYKzwMgw8-SpweQnNiCRY/s400/ST_S3-S4+v5+8-29-2009.png" alt="" id="BLOGGER_PHOTO_ID_5375264120184787650" border="0" /></a><br /><br /><span style="font-family: trebuchet ms;">Switching the channel to... World Poker Championships. You know the ones where they show the odds of the players poker hand. Seems like the odds are never close between the last two players. There’s always one player with an 85% chance of wining the pot and another sucker with all his money in the pot with only a 15% chance of winning. I don’t know why maybe it’s human nature, but I always root for the underdog with a 15% chance, and guess what? He never wins! Have you noticed? It’s always the player with the high odds in their favor that wins! Well guess what? We get to choose the great hand and we know the odds! </span><br /><br /><span style="font-family: trebuchet ms;">Hummm... If I mix the two themes it kinda sounds like Pete Rose?? Doh!</span></span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com0tag:blogger.com,1999:blog-3094581693539899538.post-65827872470801047432009-08-24T22:40:00.000-07:002009-08-25T01:34:23.281-07:00A Silky Sullivan Finish! - August Trade Results<span style="font-size:100%;"><span style="font-family:trebuchet ms;">If you've never heard of Silky Sullivan you're in for a real treat. Watching this video will also let you know how my August trade turned out. More on the trade later... Go watch the video!<br /><br /><object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/1JTbjGQyJaI&hl=en&fs=1&color1=0x234900&color2=0x4e9e00"><param name="allowFullScreen" value="true"><param name="allowscriptaccess" value="always"><embed src="http://www.youtube.com/v/1JTbjGQyJaI&hl=en&fs=1&color1=0x234900&color2=0x4e9e00" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object><br /><br />Last Monday, Aug 17th, my $25 Put trade on Realty Income (O) looked like Silky Sullivan (on the backstretch) to finish above $25 as it dropped from $26 down into the $23.50 range. However, it was oversold and came roaring back to finish above $25 on Friday, the August option expiration day, at $25.14. Hey a win is a win whether it's by a nose or 41 lengths!<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCU9tBq-K96V5Q3tvOlCtu3x2WFvOS6QfEWXXd0WE78DeRm9Tw_YPGYY1EqFKmasgH90TkAoQL5sZYu_GccFpovDgFGNmDhhqNggbQYPPwir5TRj4XUfpc_4G6UhFLCDklycnRY6jQSpk/s1600-h/Aug09Trade.png"><img style="cursor: pointer; width: 400px; height: 151px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCU9tBq-K96V5Q3tvOlCtu3x2WFvOS6QfEWXXd0WE78DeRm9Tw_YPGYY1EqFKmasgH90TkAoQL5sZYu_GccFpovDgFGNmDhhqNggbQYPPwir5TRj4XUfpc_4G6UhFLCDklycnRY6jQSpk/s400/Aug09Trade.png" alt="" id="BLOGGER_PHOTO_ID_5373798180174466994" border="0" /></a><br /><br />Results: 2.2% monthly gain (26% annualized) and we are back in all cash (who said Finance was boring?)<br /><br />Having our (sell-to-open) Put expire so we get to keep the premium income is our primary goal, but what is our strategy if the stock was below $25 Friday and we get assigned (have to purchase) the stock at $25? Well first of all our #1 rule is to always buy stock in fundamentally strong companies that we would be willing to buy anyways. In this case, because of our 55 cent option income premium our cost basis would have been $24.45 ($25-0.55).<br /><br />Now that we own the stock we can either </span></span><span style="font-size:100%;"><span style="font-family:trebuchet ms;">hold the stock for a week or two and sell it for a profit, or </span></span><span style="font-size:100%;"><span style="font-family:trebuchet ms;">generate income by selling covered calls at or above the $25 strike price while collecting O's healthy 6.5% dividend until 'O' comes back to $25 and we decide to sell it. Either way we continue to generate monthly option income! Fun huh!<br /><br /></span></span><span style="font-size:100%;"><span style="font-family:trebuchet ms;"></span></span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com1tag:blogger.com,1999:blog-3094581693539899538.post-21062498015912962712009-08-15T12:12:00.000-07:002009-08-15T12:22:18.838-07:00Hey, Ho… Killer Content to Go!<span style="font-size:100%;"><span style="font-family: trebuchet ms;"></span><span style="font-family: trebuchet ms;">My lovely wife told me about an interesting <a href="http://www.copyblogger.com/the-ramones/">blog post about the Ramones</a> (we love these guys) and what their style of music can teach you about writing killer content. </span><br /><br /><span style="font-family: trebuchet ms;">I saw the Ramones at the Santa Monica Civic Auditorium in the late 70’s, there’s nobody like this band – they’re true originals! Pure non-stop energy! From the moment they hit the first power cord of their first song they didn’t stop until the concert was over! It went something like this… Joey would give a countdown "1234!", song, 1234, song, 1234… they kept up a non-stop pace for nearly 2 hours without even a pause! Each song was catchy, fun, and to the point. After the concert I was satisfyingly exhausted, and I was just watching!</span><br /><br /><span style="font-family: trebuchet ms;">So I'm taking this to heart on the traditionally boring subject of Finance, let's keep it to-the-point, catchy and fun. Did I mention I like a challenge?</span><br /><br /><span style="font-family: trebuchet ms;">Gabba, Gabba, Hey!</span></span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com2tag:blogger.com,1999:blog-3094581693539899538.post-47714057968932422009-08-09T09:48:00.000-07:002010-05-10T19:18:52.490-07:00August trade is in - Finally<span style="font-family: trebuchet ms;">Up up and AWAY!<br /><br />The market continues to climb the wall of worry. Since the July expiration date I have been trying to sell an out of the money Put on Realty Income (O) for a 2% return that has a 70% or more chance of expiring. With the near-term overbought state of the market as well as 'O' I was waiting for a pull back so I could get in on the $20 strike price Puts. But 'O' and the market just kept climbing which of course lowers the price of a Put and our premium. Possible trades with a Put premium of 2% and a 70% or more probability of expiring did not occur for the $20 and the $22.50 options. However, as O's stock price climbed past $26 the option income planets aligned and I was able to sell the $25 Puts for 55 cents for just over 2% (.55 / 25.00 = 2.2%). By the way, the option symbol for the Aug $25 Put is OTE. With only 14 days left to the August expiration O's price had reached $26.12 which gave it a 72% chance of expiring out of the money (above $25), so I executed my trade for this month.<br /><br />This trade isn't as good as my previous trades, I would have liked to gotten in a week or two ago with a higher premium and at lower strike price, but it meets my criteria. Time will tell if I get my $55 per option contract without having to buy any stock or if I'm required to purchase 'O' for $25 when the market price is below $25. Note that $24.45 is my true break even cost bases due to the .55 cent option premium that I receive whether the price of 'O' is above or below $25 at the close of August 21. This may seem complicated and time consuming to the newbie but once you get some experience it is very easy. I'll soon explain how to run the free online option calculators to show you how easy it is to determine the odds of your trade succeeding.<br /><br />Hope to hear from you! Drop me a comment: http://optionincome.blogspot.com<br /><br /></span>Blaine Watkinshttp://www.blogger.com/profile/04550148648856126830noreply@blogger.com2