Using Put Call Ratio in Options Trading

Using The Put Call Ratio With Weeklys

put call ratio

Just watched a great little video on the analyzing the put / call ratio (the link for this in our free members newsletter that you can join by clicking here)

The put call ratio can be used a contrary indicator – when everyone is buying puts it’s time to take a look at going long – or making bullish plays. On the other side of the coin, when everyone is buying calls it’s time to take a look at going short.

Having an indicator like this helps because it allows you to measure the amount of put buyers and call buyers and compare that data to past statistics to help in making your trading decisions.

Looking back over the past year, towards the middle of the year everyone was buying puts and what happened? The market has gone straight up since then.

Now, call option buying is starting to dominate and while it might not be time just yet, we are starting to look for the signals to ‘roll over’ and tell us it’s probably time to go short.

When using weekly options this type of indicator and data can be used to help establish longer term option trading positions that weekly options trading can be an important part of like our weekly medium term calendar and diagonal back spreads as well as of course covered call type plays and longer term leap option positions, both to the long side and the short side.

Be sure to join our free options trading newsletter to learn more about how we use the put call ratio in our trade selection and weekly options trading strategies along with a lot of other very cool option trading strategies that can be used to help generate consistent income.



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Breaking Options Trading News – Seen This Yet?

Brand New Options for the RUT

option chain

For those of you who might be trading options on the RUT (the Russell 2000) Index, over the last week or so there has been a big change with the weekly option chain.

Up until just recently the RUT had new weekly options issued every Thursday morning except for the third Friday of the month when the regular normal monthly options would act as the weeklys for that particular week.

If you wanted to place one of these shorter term trades you would need to wait until every Thursday morning – or you would need to wait until the regular monthly variation came along to trade that.

Using the monthlies in this way was the only way to trade an option with a time frame of say 3 weeks – or 2 weeks. There was only one opportunity each month to make that kind of trade – or utilize an option with this ‘in between’ type of time duration – in a particular strategy like an iron condor, credit spread, calendar spread, etc.

But now, there are multiple shorter term options available – currently going out about 4 weeks or so.

Instead of just the current weekly option and the normal monthly option, we now have one with 2 weeks left of life to trade – as well as one with 3 weeks until expiration – and another with 4!

It seems as though the good people at the CBOE are keeping busy adding new and unique trading products for us all the time.

This is a feature that I did notice recently with the SPX as well as some of the other heavily traded index and stock underlings such as AAPL. But it was just over the last week or so that I noticed it in the RUT (my favorite index to trade).

Ultimately what this means for us option traders is more flexibility. Now, with this new addition, instead of being stuck with using the regular monthly or longer term LEAPS to build out our weekly options trading positions with – we now have various selections to choose from – allowing us to super fine tune a position to give it the best opportunity to perform and accomplish exactly what it is we want it to.

For example – up until now if I wanted to trade a weekly diagonal spread where I sell a short term option and purchase a longer dated against it for protection – I would have to settle for whatever was available – which was the weekly and the regular monthly or longer term option with more than a month left until expiration.

Now I can sell that weekly, but when I go to choose my long option to purchase against it, I have the 2 week option to choose from as well as the 3 week and/or the 4 week. Each of these will have different purchase costs as well as different Greek values and will each build a slightly different version of the diagonal spread – allowing me to ultimately tweak and select the one that will most closely give me the trade I am looking to make.

This is a great addition to our weekly option trading tool box and I can’t wait to see what they come out with next. In fact, if there is a suggestion box I would like to suggest a version of the RUT similar to the SPXPM – where the options remain European but don’t expire until Friday at end of day.

weekly options windfall


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SPX Options – New and Improved


For all you weekly option traders who have been trading and/or following the SPX options – there are some new ‘happenings’ with this particular options trading vehicle which are pretty darn cool if I do say so myself.

First, some quick background for those of you who may not have traded this particular index before.

Up until very recently the SPX regular monthly option contract traded up until Thursday of expiration – then settled at the open the following Friday morning. This is typical of European settled indexes such as the RUT, DJX, SPX and others.

What we weekly option trading investors like about the European settled indexes in that they can not be assigned before expiration like the American style options can. Instead the settle our as cash after expiration day. The American style of options – which most stocks and many ETF’s consist of – CAN be assigned before option expiration – which can cause a lot of problems to traders who have on option positions. This is why many – if not most – prefer trading the European style.

However, the down side to European options is that they settle on the morning following their last trading day – which creates overnight risk. If the underlying being used were to gap at the open from where it closed the night before – it is possible that option traders who carried open positions overnight could get burned and suffer trading losses.

Recently however, there have been some changes made to the SPX options that fix those concerns and gives options traders who want to use this underlying the ‘best of both worlds’.

Up until this point the SPX options have been the most popular options product for over 20 years. In 2005 weekly options were added to the SPX giving traders the ability to trade them on a weekly basis.

In October of 2011 there was a new SPX contract introduced called SPXPM which instead of settling on Friday morning at the open of the market – settle on Friday afternoon at the close just like the majority of other options and weekly options trading products.

But – unlike most if not all of the ‘other’ option contracts that settle on Friday at the close – the new SPXPM option contracts were still considered ‘European Style’ which meant that they could not be assigned or ‘exercised’ before their expiration date leaving the trader with actual stock. This is a huge benefit to traders because now they don’t have to worry about the overnight risk they would be forced to take previously – AND – they don’t have to worry about being assigned if one of their positions – or legs in a position – were to ever go ‘in the money’.

Some other interesting things about the SPXPM options:

They are are all electronic.

They are traded at the c2 exchange – the new all electronic portion of the Chicago Board of Options Exchange (the CBOE).

They now have 7 weekly option expirations which are all available for trading.

These new changes and additions are great news for option income traders – those who trade the regular monthly option strategies as well as those who trade the weekly options strategies.

Many of us who utilize strategies such as iron condors, butterfly spreads, calendar spreads, the credit spread and others have disliked the overnight risk that comes along with index options like the SPX, RUT, and other available ‘European Style’ contracts.

This new type of contract allows us to ‘have our cake and eat it too’.

Now we just need to get these same type of changes and added benefits applied to the other European Style indexes  – for example the RUT.

To learn more about the SPXPM options and the recent changes visit the CBOE

To learn some very easy to implement and simple to trade option income strategies that can be used with these new option contracts (including weekly options trading strategies) join our complimentary no cost option trading newsletter by CLICKING HERE

weekly options windfall

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Weekly Covered Call Hybrid Trade

An interesting option income trading strategy – that can be used with both monthly and weekly options – is a hybrid between a straight call or put option play – and a debit spread trade.

Perhaps the two easiest strategies to grasp when someone first starts to trade options is straight call and put option buying – and the concept of selling premium. In fact, the covered call strategy is one of the first trading strategies that investors learn when first getting started in trading options – and the strategy we will be looking at in this post is very close to that type of trade.

The idea behind this strategy is to first have a basic opinion about the stock you will be trading options with – you need to have an opinion regarding if you think it will be heading up or down. If you have ‘stock move targets’ – or in other words you not only have an opinion on the direction – but also to where on the chart you think it will move to. Continue reading

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New SPX Option Trading Product

There is a new SPX option trading product that just got approval for traders to utilize.

These are 5 Year SPX options – called ‘Super LEAPS’ – which have a length of life of 5 years long as their name implies.

As options continue to grow in popularity and trading volume with options continue to increase – there has been a lot of interest and ‘request’ or ‘need’ for this type of option trading product by individual investors, hedge funds, insurance companies, and such. Traders have been wanting an option product that is longer than the traditional 2 to 3 year length LEAP option – and these new ‘Super LEAPS’ fit the bill.

Continue reading

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Option Volatility Tools & Tricks

With everything that is currently happening in the markets and in the world – it seems as though this could be a good time to take a look at different ways to trade volatility – not only as a way to hedge trading positions that we might already have on – but also as a way to take advantage of potential rises and declines in volatility levels through the use of various option trading strategies – like iron condor trades, calendar spreads, credit spread plays and numerous weekly options trading strategies.

The traditional way to use options in regards – or in response – to volatility is to use them as protection for our investment portfolios.

The most basic example of this is a retail trader who might own some shares of stock and who might be afraid of a market decline which we know and have seen can happen so suddenly and to such a great degree in this more volatile market environment.

In a scenario where a retail trader might be looking for some sort of insurance against a decline – they can simply buy a put option. Buying a put option will allow the trader to ‘sell’ their stock at a certain level – which is whatever level they purchased the put option at – regardless of what happens.

For example – let’s say that Grampa Joe owns 100 shares of XYZ stock at 80 dollars – and due to numerous factors both in the news and the market – Grampa Joe wants to protect his 100 shares from a potential crash or big sized decline.

What he can do is simply purchase the 75 Put option – either a short dated option or a longer dated option (for example a LEAP option). What this will do is allow him to sell his 100 shares at 75 either before or at the expiration date of that option.

So, if there were a sudden crash and the price of XYZ stock fell to 40 dollars per share – rather than realizing a 50 percent loss in his stock position – Grampa Joe can take advantage of the put option that he bought at 75 – which is like his ‘insurance policy – and he can sell out his stock for 75 dollar instead.

The other thing to consider now that the weeklys are available – is that weekly options can also be used as shorter term insurance vehicles.

This is just one of the many option trading tools that can be used having to do with volatility – and perhaps the most basic.

In an upcoming post we will get into more complex and what I consider much ‘cooler’ option trading tricks and tools for trading volatility. Stay tuned…

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Some Cool New VIX Trading Tricks

A lot of traders have heard of the VIX and i’d be willing to bet that most of us option income traders use it. If we don’t trade it – we take a good look at it to get an idea of the ‘temperature’ of the market while trading our core strategies like the calendar spread, credit spreads, iron condors and more.

However, what a lot of option traders don’t realize is that there are numerous VIX products. In fact, there are 20 to 25 of these VIX related trading products available.

Some of these new VIX related products that are actually seeing a lot of trading ‘action’ is the VIX on Emerging Markets, VIX on Gold, VIX on oil, on Brazilian stocks, and more. These are products that basically ‘track’ the volatility for each of these individual indexes.

What these types of trading products can do is help traders get an idea of what the ‘sentiment’ is on each underlying. It can assist the trader in better tracking the underlying and then helping them to choose the appropriate trading ‘tool’ or trading strategy that best fits the current ‘Volatility’ environment that exists.

For example, let’s say that an option trader takes a look at the Volatility index on a particular ETF and notices that the VIX for that underlying is at a 52 week low point. That could indicate to the trader that should perhaps look for an option strategy that would benefit in a steady to rising volatility environment – such as putting on a weekly calendar spread or double calendar.

Another interesting development is that the CBOE is now tracking the volatility on 5 individual stocks – AAPL, GOOG, GS, IBM, and AMZN – which could be considered sort of ‘benchmark’ stocks that a lot of traders follow. This will allow traders – both of equity and options – to start looking at trading these stocks in a different way. Rather than just looking at price movement and where the actual stock is trading at – we can now start to look at these options from another angle – or dimension – the ‘volatility dimension’ and start to consider making trades or adjustments to trades based on that.

An example of how this could be used is for example let’s take AAPL and it is trading along and we own shares of it. Now, along with keeping up with the normal price chart for our position, we can also keep track of the volatility levels – and if say for example we come to find that the volatility level on AAPL is reaching some new longer term lows – that might be an indication that we might want to consider either hedging the position or maybe even selling off part of our position in anticipation of an upcoming corrective move.

You can learn more about these new VIX tools at the CBOE

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Weekly Options Continue To EXPLODE

This week our Free Options Income Trading Newsletter (you can join this for FREE by CLICKING HERE ) showed a great little video on weekly options, how they are continuing to explode in popularity and 3 different ways to trade them.

The weekly option trading vehicle has really taken off recently – actually since they were first introduced just a year or two ago – and they continue to soar in volume as retail option traders take to them.

The CBOE is showing that sometimes ten to twenty percent of the overall volume of options that are being traded are in the weekly options products – showing that these shorter term options are being really well received and used by not just professional traders but the retail crowd as well.

Individual investors are using these trading vehicles in a variety of different ways – just about any type of option strategy that be used with regular monthly or longer term dated options – can also be used with the weekly product.

This includes being used as calendar spreads – or variations on the calendar spread, more like diagonals. Also covered call trades where the weeklys are being sold against stock that is owned. Vertical spreads are being used – butterfly trades – even short term iron condor like trades.

There is also plays being made with the weekly option around earnings reports, product announcements, news events, FDA announcements, etc – where traders are making both long and short direction trades.

For more on how to learn a VARIETY of DIFFERENT option income trading strategies that can used with the weekly options, be sure to join our FREE option income trading newsletter by clicking here.

To Learn More Join Our FREE Options Income Newsletter by CLICKING HERE

weekly options windfall

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A Better Calendar Spread?

‘Timely’ Options Strategy

An option income trade that we have recently been ‘testing’ in our weekly options trading lab with good success – is the weekly options calendar spread – or the ‘compressed’ calendar spread.

The calendar spread is an option income trading strategy where the trader sells a short term option and then purchases a longer dated directly behind it at the same strike price.

Before weekly options came to be, option traders would usually sell a monthly option (front month option that expired in roughly 30 days) and then buy an option at the same strike price behind it – one that expired say two months away – or even 3 or 4 months away.

The way this trade makes money is through the difference in time decay between the front month option and the longer dated option. Options lose value at an accelerated rate the closer they get to expiration – so in a calendar spread the option that is being sold – the front month option – loses value at a much faster rate than the longer dated option that is purchased behind it.

When this method is applied to weekly options – the returns can be extraordinary. When using these shorter term derivatives, the options that are being sold are experiencing their FASTEST rate of decay as they are in the last week of expiration.

In addition, using the these options instead of the monthly options for this options trading strategy, option traders can now put this trade on every single week – four times a month – or potentially 52 times a year – where before we could only place them once per month – or 12 times per year.

Lastly – calendar spreads perform best in lower volatility environments – where volatility rises. Right now, the VIX is at ridiculously low levels – and over the last month to two months we have been experiencing extraordinary results with a specific weekly options calendar spread strategy that you can see how to learn more about by joining our free options income trading newsletter / website through the link below.

To learn more join our free options income trading newsletter by clicking here


weekly options

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More SPX Weekly Options Fun

SPXPM Weekly Options

A fairly new weekly options trading product that was recently introduced is the SPXPM options.

Before this new SPX trading product was introduced, option traders could either trade the SPX options – which are not electronically traded and that have an ‘awkward’ Friday morning settlement – or the SPY options, which are a tenth of the size of the actual SPX and have an American Style way of expiring that could potentially wind up causing the option trader to find themselves with a bunch of unwanted stock.

Here’s a great video on the basics of this cool new CBOE SPX trading product…

Some of the highlights of this new SPXPM weekly options trading vehicle are:

1. These new options are electronically traded giving weekly option traders fast and accurate ‘point and click’ access to the SPX market. Many option traders consider this method to be far superior to the old school pit method.

2. The Settlement method for the new SPXpm options are settled at the close of trading on Friday just like most options on stocks – rather than at the opening print like the SPX and RUT options. I think most option traders would agree this is far superior as well as these options can be played right up to the closing bell and we know exactly where the options will expire – and if they will be in or out of the money. With options that trade on the opening print – no one ever knows where the opening print will be at – and in cases where there is a news event or some other type of market moving event – option traders could (and have) get burned with options that were out of the money at the close the previous day – but suddenly at the opening print because of a big opening move or opening gap – are suddenly IN the money and options positions are at a loss. The new SPXpm options will now keep that from happening.

3. Cash Settled Remains the same. Most options that expire  on the close of day Friday have been American Style options – which means that if they are in the money they can be exercised which would cause the option trader holding the position to suddenly find themselves either long or short a ton of stock that they never wanted. The SPXpm options – just like the SPX and RUT options – are Cash Settled – meaning that there is no exercise of stock possible. The positions are simply settled at the end for cash in the account.

4. An advantage of trading SPXpm options versus trading SPY options include both the cash settled aspect touched on in the previous point – and also the issue of size. SPY is one tenth the size of the SPX and SPXpm – meaning that you could trade the same amount of capital with many less contracts saving a lot on commissions.

If you like to trade option income strategies on the SPX or RUT – be sure to check out these new SPXpm options as a great potential alternative way to trade the SPX.

And if you haven’t already, be sure to join our free option income trading newsletter / website to discover how to learn a ton of unique option income trading strategies that can be used with weekly options as well as standard options on a variety of stocks and indexes including these new SPXpm options.

To join our free option income trading newsletter / website click here

weekly options windfall

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Posted in CBOE, CBOE Weeklys, Weekly Options, Weekly Options Equities, Weekly Options Strategies, Weekly Options Trading, Weekly Stock Options | Tagged , , , , , , | Comments Off on More SPX Weekly Options Fun