Think or Swim Chat Today – Stress Testing Trades

The chat is about to begin, I’ll post my notes but these things move pretty fast so I’m not always able to get everything. I’m also just posting things that I think are significant, so I recommend if you want more detail listen/watch it on the chat archive at the Think or Swim site.  They now are archiving the video as well!  So, though it’s not live it’s still incredibly valuable as a recording.

These notes may be Think or Swim specific in some areas but hopefully are standard enough to be available at most brokers.

Today’s chat was basically about how to trade in market like this one (volatile, unpredictable, holiday weekend.. yada, yada, yada..) And, what they we’re saying is that this not a bad time for covered calls and naked puts (naked puts — only if you want the stock anyway.  I have a post coming up about naked puts).

Covered Calls

1. Show Covered Return column on Trade Tab.  “Covered Return” is the return you would get if you sold that covered call every month (annualized) — not the return for this particular month
2. Find a stock that’s been under a lot of selling pressure or reached a level of support.  Also, look for a reasonable level of volatility.
3. Buy the nearest OTM call in the nearest month with at least 20 days to expiration

Naked Puts

1. Same criteria for covered calls above but check the “covered return” for selling naked puts instead.  It may be significantly higher and/or the trade may end up costing you less since you’re not buying the stock but tying up capital in case you’re assigned.
2. If you’re not assigned you get to keep the premium — love that!
3. If you are assigned then you got the stock at cheapo price and the premium you received pays for part of the stock — not a bad deal if you ask me..