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!)