Trade

Buy 10 SPY 170 Jul Calls
Sell 10 SPY 170 Jun Calls
Debit: $0.81
Total Cost (inc original trade): $1560
SPY is 167.17 now
New Break even points: 161 and 171

Trade Management – Exit

We will exit if:
SPY hits either of the new breakeven points; or
The trade loses 20% ($312); or
The trade gains 20% ($312)

Profit and Loss Diagram

Chris

A good week for our trades…

The market is powering ahead, assisting our two covered calls on IBM and Microsoft. I expect the Microsoft covered call to expire well in the money at the end of this week, delivering us our planned 3-4%, including the dividend, over less than a month (not spectacular, but these trades aren’t meant to be very exciting).

The IBM trade is well in the money and making a tidy profit. This, too, is well on the way to delivering our nice (40% annualised) but rather dull profit

What is Gamma?

We saw in Part 1 that the Greeks are an important measure of risk to used by options traders to assess the impact in changes of certain variables on the price of an option. In particular we looked at one of these, delta: the sensitivity of option prices to changes in the price of the underlying security.

Unfortunately, again as we saw, the relationship between stock price sensitivity (delta) and the stock price is not linear. For example if a stock moves up, call options will become even more sensitive to further

So if you like something, an article perhaps or a trade alert, please do share with others in your network. At the very least I’d really appreciate it if you could like/+1 anything you, well, like.

What’s more you can keep up to date with the site via these three networks: I tweet/share all newsletters, articles, blog posts and trade alerts from the twitter.com/epsilonoptions, Facebook.com/epsilonoptions and http://goo.gl/Qm4HK Google+ accounts.

And of course please do get in touch via these networks

A few things to go through this week. We have a new trade: another SPY calendar trade and I’ve started a series on the Greeks. Details of both are below.

The previous set of lessons on the Calendar Spread have been turned into an ebook for download. Get your copy from the link below.

All of which are discussed in the new blog. I’ve been posting every day (well, nearly) and plan to do so going forwards – although on days like today when there is a newsletter. I also keep

Introduction

In the world of finance, Greek letters are used to represent how sensitive a financial derivative’s prices are to changes in parameters. Financial derivatives can be volatile and sensitive to factors such as changes in the pricing of the underlying asset.

Each character denotes the of sensitivity of an option’s price to the change in some attribute of the underlying asset, such stock price and volatility. These attributes are components of risk that a trader needs to control if he/she is to manage the risk of their portfolio.

The Greek characters are easy

Think Money magazine’s Spring 2013 has an excellent article on the Calendar Spread. Here’s the link.

Have you been reading Think Money? It’s the quarterly magazine of thinkorswim, the options specialist broker now owned by TDAmeritrade. It’s always full of really good stuff – with, of course, a bias towards leading traders around the thinkorswim platform. Best of all it’s free, even to non-ToS clients.

I recommend checking it out…

Chris

Open Positions

MSFT Covered Call

Original

Here’s the official trade alert for members (if you aren’t a member yet sign up on the form —-> to receive it), but in summary will be buying a $163 June/July spread looking to capitalise on the lack of movement in the market. Any fall in the

I’ve started turning the courses online into ebooks. The first one to be complete is our recent set of courses on the Calendar Spread.

I’ve combined all 3 lessons into one 6 page ebook which you can download by clicking on this image.

Chris

Open Positions

MSFT Covered Call

Original Price: $28.71
Price now: $29.01 (+$0.01 today)
Unrealised Profit: $0.30

IBM Covered Call

Original Price: $198.11
Price now: $197.95 (+$0.50 today)
Unrealised loss: $0.16

Commentary

The DOW finished above 15,000 for the first time in years. However the VIX added 17 points and so we may wait

A particular welcome to those of you who’ve joined recently (an Epsilon Options record: 31 since the last newsletter). This newsletter is mainly a round top of everything that’s been going on on the site: trade alerts, new features, new course material etc

The main news this week is that I’ve started a daily blog. I’ve restricted myself to articles, courses and, of course, trade alerts; I want to give you guys a more up to date commentary on what I think is happening on a day to day (or as close as