Review of "Quick Cash With Straddles & Strangles" by Matt Morris

Review

"Quick Cash with Straddles & Strangles" is very specific to the author's strategy around Fed announcements and gold. If you are looking for a better understanding of straddles & strangles, especially when selling them, this isn't the book for you.

Course/Book

"Quick Cash with Straddles & Strangles" by Matt Morris.

I found this as a Kindle purchase on Amazon.com. It takes about 2 hours to read in a single sitting.

Overview

The book has 11 chapters, with the naming of each chapter not at all relevant to the chapter's content, so I'm not going to list them here.

The book can be broken into three sections based on my reading:

1. Backstory of the author's trading and his first exposure to straddles
2. Several stories and examples of his straddles and strangles in action around Fed moves
3. The author trying to sell his VIP service

Critique

The book began with a (too) long introduction to how Morris first heard of a straddle. It goes downhill from there. 

The writing is adequate -- not funny, not serious -- with a very "ebook" tone. As an avid reader, I'm comfortable saying that Morris included a lot of "filler material" in this book to expand the size. In reality, he could have consolidated this to roughly 50% the current size and perhaps had a better, more readable book. Instead, the page length vs. actual content results in poor execution.

For experienced options traders, this is not a technical book that will provide you with a deeper understanding of the statistical outcomes of various trade setups. For the new options trader, this book also doesn't provide a good foundation. Instead, the book revolves almost entirely around Morris' single trade setup: buying straddles/strangles to capture potential implied volatility (IV) expansion around gold after Fed meetings.

On the topic of IV: One thing that I quickly noticed was that Morris avoided using the term for almost the entire book. In fact, as somebody that has traded options for quite a while, I had to piece together in the first few chapters that Morris almost exclusively plays vega by going long on straddles/strangles in the runup to a Fed announcement, looking for a larger gold move post-meeting. This is not a bad trading setup in itself -- when IV is low, I often look for setups for long calendar spreads, a short ratio spread here and there, and other approaches to capture IV expansion. However, the struggle here is that this setup seems to be his one-trick pony in the book.

In the final few chapters, Morris finally mentions "IV," at which point I had a heavy sigh of relief. It was like watching an episode of a show where they leave you on a cliffhanger. You know what's going to happen, but you need to see it unfold -- and apparently seeing the letters I-V does that here.

If Morris reads this, I would recommend strengthening the book by renaming it "Straddles/Strangles for Fed Meetings: Return of the Vega" reducing the content specific to that topic, and ensuring the technical concepts, and their terms, are actually introduced and properly used. That would be a decent book.

Rating

Strongly Recommended (for beginners to early intermediate)

Recommended

Not Recommended

How to create an Earnings scanner in ThinkOrSwim

 I've generally used barchart for scanners, but am actively working on building out smarter scanners in TOS. One key scanner is an earnings scanner, which is useful for selling iron condors and straddles/strangles before the earnings release.

TOS already has the watchlist "Upcoming Earnings," which is a great start. However, my earnings trade generally involves me selling on the day BEFORE the earnings release. The Upcoming Earnings default watchlist shows several days of earnings, and looking through them all is painful. (Barchat has the same issue for me.)

In working with the Scan Query, I've found the better way to do this in TOS. It involves creating your normal filters and then using the Corporate Actions study.

For this watchlist, I want to see earnings for this afternoon and tomorrow morning. For that, I setup these filters in "Any of the following":

• Study->Corporate Actions->Earnings : has : an earnings announcement "before the market" : 2 bars
• Study->Corporate Actions->Earnings : has : an earnings announcement "after the market" : 1 bars
• Study->Corporate Actions->Earnings : has : an earnings announcement "any time" : 1 bars

The two last studies are redundant really, but I left them that way just in case the scanner wouldn't otherwise pickup an earnings release that was "during the market."

That gives me this Scan Query:

How to reproduce Finviz patterns in Think Or Swim (TOS)

Finviz has a great feature where it will analyze a chart and automatically show you some basic Technical Analysis (TA) patterns such as Double Tops, Channels, etc. In my effort to consolidate to as few platforms as possible while still being effective, I've wanted to use Think Or Swim (TOS) for automatic TA patterns instead of using TOS for trading and Finviz for those patterns.

I do believe that TA can be effective, but only if I keep in mind that TA works so long as there is no external input into the stock price, e.g., earnings, market-wide up or downturns, etc. That is, to me, TA is more about watching the status quo and riding that more than anything.

Anyway, back to patterns, I found that this can be done using TOS charts and that the analysis is very close in TOS to what Finviz produces.

By way of example, let's chart $DIA in Finviz and TOS.

In Finviz, I'm shown both a channel and a potential double top:

Now, let's reproduce that in TOS.

1. Go to Charts
2. Choose DIA
3. Set your timeframe to D (1 Y : 1 D)

That will give you this:

Now, let's add some software-driven TA in TOS:

1. Click on Patterns (top-right)
2. Click on Classic
3. Choose Channel Up, Channel Down, Double Top, Double Bottom
4. Click Ok

And here you go:

The chart in TOS now shows you a long-term and short-term channel. What I am not seeing is a double to in TOS as shown in Finviz. That's not necessarily good or bad, as software-driven TA really should be more about helping you "zoom out" and check your own TA, but this is a great start!

Also, you will have noticed that you can configure each pattern in the Pattern screen. Play around with those settings! You can increase/decrease the sensitivity of what triggers a pattern to be shown on the chart.

Review of Udemy Course: Options Trading for Rookies: Understand Options Completely

"Options Trading for Rookies: Understand Options Completely" will quickly help you understand the basics of Options trading in just a few hours.

Course

The course is by Kal Zurn and is a paid course on Udemy. It runs around 2.5 hours. It's the most expensive of his courses at $124.99, although I think he runs specials now and then. The follow-on courses are a lot less expensive, usually around $14-$16 each.

Overview

The course is broken into several sections: Intro, Defining Options, Options vs Stocks, Call Options, Put Options, and a "Bonus Section" Vertical Options. (He digs much deeper into verticals in the follow-on courses.)

At first glance, I was a little worried this would be too basic for me. I've been trading Options for a while, have watched a lot of YouTube videos, read several articles, and already took courses on stock trading before this.

Fortunately, I'm glad I didn't skip this course and go straight to his more advanced classes. That's because for each section, he digs into several scenarios; helps better understand Probability of Profit (POP); and, finally, how and when a trade can lose even if the original thesis is correct -- probably the most confusing aspect of Options trading for beginners.

Critique

Overall, a big thumbs up on this course if you have you been trading Options for less than a year, only dabbled, or lack confidence that you truly "get it." Side note: I find it easier to follow a specific track for training in a course format than by clicking through seemingly random YouTube training videos. 

A kind of annoying negative to note however. The volume really varies throughout the sections. For example, let's say he's talking at "volume 6 of 10" in one section, but in the next where he is doing an aside, he may suddenly be at "volume 9 of 10" and you have to scramble to turn down the volume (only to turn it back up in a later section.)

Rating

Strongly Recommended

Recommended

Not Recommended

How to filter on IVR in TOS Spread Hacker

I had a mission of consolidating all of my tools to Think or Swim (TOS) and, knowing that options trading is my main jam, I needed to be able to scan for credit spreads based on IV Rank. Most people will sell spread when IVR > 50% and buy them when IVR < 50%.

My first stab at this was to build a filter in Spread Hacker using: Max Profit, DTE, and Delta (I have since removed that):

That works great. The struggle now is only looking at credit spreads where the IVR > 50%. There is no filter for that in Spread Hacker unfortunately. At first I thought this was a dead-end. But in poking around, I found that you can restrict the filter to a watchlist. Interesting.

Next, I asked myself: Can I create a dynamic watchlist? That is, a watchlist that changes based on real-time criteria? The answer is YES. A dynamic watchlist is known as a "Scan Query" in TOS.

I created a Scan Query using IV_Percentile, which TOS names IVR for some strange, legacy reason. The filters for this Scan Query are very easy. I can't properly show them here because TOS won't show all the filters without scrolling (which is kind of dumb), but basically you need to do this:

1. Create a new Scan Query
2. Delete all of the defaults
3. Add Stock->Market Cap (I set to >= $1B)
4. Add Study->IV_Percentile (I set to 50% <= x <= 100%)
5. For Show, I set to 200.
6. Set the name to be "High IVR".
7. Click Save.

You now have a dynamic watchlist of high IVR stocks. We'll use this to restrict the results of Spread Hacker.

1. Go to Spread Hacker
2. Setup the filters
3. Set Spreads For->Personal->High IVR
4. Click Scan

You will now see credit spreads for high IVR stocks.

My Options Trading Cheatsheet

 This is a work in progress blog. I will edit it as I make changes.

Option	Acronym	Aliases	Leg In	BTC	Pref DTE	Hold to Expiration	Delta	Aggro Delta	Environment
Cash Secured Put	CSP		-	50%	45	Never	.3		Bullish
Credit Put Spread	CPS	Bull Put Spread	No	50%	45	Never	.3		Very bullish
Credit Call Spread	CCS	Bear Credit Spread	No	50%	45	Never	.3		Bearish
Iron Condor	IC	-	No	50%	45	Never	.2	.4	Sideways or inside Defined Channel
Short Straddle			No	25%	45	Never	.5		Stock will move up/down

Using Charting to Maximize Selling Covered Calls

There was a post recently on reddit.com/r/babytheta where OP was lamenting that they seemed to always sell their covered calls at just the wrong time.

That's very common. I have done it (and continue to sometimes).

If we break this down, there are three times you'll sell a covered call at the wrong time:

• Underlying crashes. You sold a CC and then suddenly the underlying starts crashing. Would have been better to sell the underlying in that situation than a CC on it.
• Underlying moons. You sold a CC and then the next morning the premium is 500% higher than what you sold it for. 
• Underlying trends up. You sold a CC and then the next morning the premium is 20% higher than what you sold it for.

Let's ignore "underlying crashes" and "underlying moons," especially the mooning event because that's very unpredictable and so can be thrown out of the discussion entirely. That just leaves the normal reason people get frustrated after selling a CC: the underlying ticks up and you find out you could have sold the CC for higher than what you did.

When the Underlying Trends Up

This is generally predictable, and in fact you did make a mistake. If you are wheeling, doing PMCC, reducing your cost basis, whatever, you need to understand your underlying.

Not everybody is big into Technical Analysis (TA) and that's totally fine, however for most underlyings a quick TA session can have a big impact on your profitability. I'll walk you through charting out what is going on with the underlying and it will be very clear WHY you generally sell a CC at exactly the wrong time.

Sell High, Buy Low

The classic mistake of course is to Sell Low, Buy High. That applies to options just as much as to stocks. Let's use $JPM as an example since I use it for PMCC. (I include screenshots below but you can view the entire chart with dates here.)

Now, let's say you own $JPM with a cost basis of $150. Per the chart, $JPM is currently at $152.24. So we can sell a CC at anything above $150, preferably above $152.24, and, for most, at strike of .3 delta or lower. I like to sell with a 30-45 DTE, but that (and the delta) is specific to your trading plan.

If we look at the option chain for May 14, we see a $160c strike .29 delta for an ask of $2.36 credit. If we wanted to sell the CC right now, we'd likely sell around a $2.27 credit. 

Since the strike is OTM, that means that the $2.27 is pure extrinsic. We can also do a quick calculation of the premium rate, which is just $2.27 / $152.24 = 1.49%.

Going back to our chart, we'll draw a channel around the stock. This is not always accurate. You may chart something at the wrong timescale or just at a bad time and your chart is wrong. That's why not everybody is a fan. That said, again, I think it helps improve our "average case" even if it doesn't get us to the best case.

Per the chart, $JPM is currently trading inside a channel that has an uptrend. This does not mean that $JPM won't break out below or above the chart, go wonky, or whatever, but at least we can see a current pattern. And we can also see that TODAY that if we sell a CC, even if it's a green day, we would likely lose out on profit and likely be assigned on our underlying. Note that $JPM is at the bottom of the channel and is likely going to bounce back up. If we sold a CC today at $160 with an expiration of May 21, $JPM will be ABOVE $160 even at its low point on that day.

If we did want to sell a CC, probably best to sell a $160c Apr 9 or a $170c Apr 16 if we wanted to keep the underlying.

More importantly, we are selling a CC when $JPM is at its lowest in the channel. We will get the least amount of premium possible if we sell in the next week. Honestly, to maximize premium we would want to sell around Apr 27 because that's when it will hit the top of the channel (give or take several days).

We can also see that if we sell around Apr 27 that we could sell a $190c and that the value of the CC would plummet very quickly as $JPM began going down toward the bottom of the channel. We would also want to sell CC's as fast as possible Apr 27 and follow $JPM down to the bottom of the channel, watching the value of each sold CC plummet quickly, we BTC at 50%, and rinse-and-repeat.

Ideas

I'd love feedback, but to me this indicates that:

On the upswing:

• Set your ask above the market ask when selling a CC on an upswing. Let the market catch up to your ask while reducing your risk of assignment (your CC being executed).
• Sell at or below .3 delta.

On the downswing:

• Set your ask at market to ensure the CC is opened.
• Be more open to a higher delta on the downswing.

Poor Man's Covered Call (PMCC) with 3M (MMM)

I've been wanting to try my hand at running a Poor Man's Covered Call (PMCC), and finally bit the bullet. If you aren't familiar, a PMCC is where you a buy a Long-Term Equity Anticipation Securities (LEAPS) and then sell Covered Calls (CC) against the LEAP.

A LEAP is just an option that is far in the future, a year or more.

You can see them when you pull up the options for a security. If you see calls and puts that have an expiration that are one year or further away, that's a LEAP.

The way it works is this:

You buy a LEAP ITM, usually around .8 delta. The reason you want to be ITM is for protection if the underlying goes down in price. You have some cushion to prevent your LEAP from being worthless one morning. You'll see why that's important below.

So you buy a LEAP, which will have very slow theta decay. You then sell CC's against the LEAP, preferably above your breakeven on the LEAP. When the LEAP is coming close to expiration, you sell it back. 

Put another way, you are basically "borrowing" the stock for a year to sell calls against it. You then return the borrowed stock (selling the LEAP call) for a wash. (This assumes the underlying price went up over time to some extent.) And then you keep the premium from the recurring covered calls you were selling.

A few keys things that I've learned:

• PMCC on low IVR stocks, not high IVR. The reason is that high IVR stocks are, by their nature, less predictable. That's why they have high IVR. A PMCC should be more like a highly-predictable revenue stream, not a gamble that a stock will skyrocket in price overnight.
• Do not PMCC on meme stocks. (See above.) There is a high risk the underlying will tank, you'll own a worthless LEAP, and you'll be forced to hold the LEAP hoping the underlying goes up or you'll try to dig out by selling covered calls below your cost basis.

I am running a PMCC on MMM currently. Here is what I have so far (below). I'll run the PMCC until December and then STC the LEAP. My goal is to generate $1873.67 in profit from $3515.00 in capital. That seems extreme, so we will see how this plays out.

Using Excel to Track Stocks

You can use Excel to track stock information. For this, I am using Excel for Office 365, but that just means I'm using the latest version. The features of Excel for tracking stocks have been around for a bit now. (Side note: I have not tested this with Excel Online.)

Using the stock functions, you can track everything from the company name associated with a ticker to the 52-week high and low.

To test this, create a new Excel spreadsheet. Then, in A:1 put "Stock" and in A:2 put MSFT.

Next, after ensuring you have clicked the field A:2, click Data->Stocks.

Excel may need you to disambiguate the ticker:

Once done, notice how Excel expands the ticker to the company:

Now is the fun part! Excel will now provide various functions, including ticker, 52-week high, 52-week low, price, etc. There are 20+ functions provided out-of-the-box! To choose one, go to B:2 and type in "=A2." and you'll see the list of functions available:

Now, you can easily create an Excel spreadsheet that only requires 3 input fields (orange in the screenshot) to track everything you need to know.

One key note, unless you enable Auto Refresh, you'll need to click the Data->Refresh All button when you first open the spreadsheet each day/week/month for review.

Edit Order in TOS Web vs Cancel/Replace Order in TOS Desktop App

Generally I'll do my work in the TOS Desktop App for Windows. However, now and then I'll have TOS Web open so I can monitor things if I'm not actively doing any trading. For example, I may have a swing trade already setup and the OCOs order to STOP LOSS/SELL setup and just let it run.

Today I needed to change the SELL LIMIT ORDER price on an OCO order. I clicked on the OCO in TOS Web and was able to Edit the existing order very easily.

Here is how I clicked into the Edit feature:

And the Edit itself:

Taking Control of My Roth IRA

I decided to shift from using a age-indexed mutual fund for my Roth IRA to more actively managing that part of my investment portfolio. So far it's been an interesting journey as I've been forced to do a lot more reading and research on index funds, mutual funds, and EFTs.

One negative of this new approach is that I'm finding I spend a lot more time reading up on and thinking about that particular account. In return, my goal is a better overall return as compensation for that time investment.

Because the market is still near an ATH, I'm working to slowly buy into some EFTs by taking advantage of a very recent dip.

I'm still working on the overall ratios I want, but I do know that I currently am looking at owning:

• VTI
• QQQJ
• QQQM
• SMH
• TQQQ

VTI is a standard as a "baseline" for a retirement account as it tracks essentially the entire market. I decided to break up QQQ and instead get QQQJ and QQQM. In part, because the fees are lower than in QQQ and my IRA will benefit more from that.

Rather than directly buying each, I decided to use Cash Secured Puts (CSPs) to slowly work into them. There is a very good case that I should simply buy and hold and not worry about overpaying in the short-term since it's a long-term hold. That said, I may wheel some stocks in the IRA because of the tax benefits of the Roth meaning I don't have to stress over capital gains if I sell under a year, so, if the premium is worth it, I'll look at wheeling even the EFTs to slowly work the cost basis down.

Using the TOS "1st trgs 3 OCO" Advanced Order

The 1st trgs 3 OCO advanced order type is extremely simple to use and can add an extra layer of protection to a trade. This advanced order type allows you to buy a security and have 3 OCO orders ready to go right when the trade is filled.

Here is an example of orders placed into a "1 trgs 3 OCO":

BUY +138 JETS @26.64 LMT EXTENDED HOURS
SELL -46 JETS @27.81 LMT GTC TRG BY OCO
SELL -46 JETS STP 25.77 GTC TRG BY OCO
SELL -46 JETS @28.47 TRSTPLMT MARK-.10 MARK GTC BY OCO
SELL -46 JETS STP 25.77 GTC TRG BY OCO
SELL -46 JETS @29.14 TRSTPLMT MARK-.10 MARK GTC BY OCO
SELL -46 JETS STP 25.77 GTC TRG BY OCO

In the example above, I color coded each OCO set. You can see that the sequence begins with me placing an order to buy 138 shares of $JETS with a buy limit order. If the buy is not filled, the sequence does not execute at all. Once filled however, the sequence executes and creates 3 OCO orders.

Each OCO order provides both a STOP LOSS and a SELL LIMIT ORDER to take profit at different prices.

When working through this, I had hoped to create a simpler order where there was a single STOP LOSS and 3 SELL LIMIT ORDERs, but I wasn't able to make it work. (If somebody knows a way, let me know!)