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Investor Education DayMay 11, 2013

Creating a Portfolio of CreditSpreads and Covered Writes

Dan SheridanSheridan Options Mentoring

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Disclaimer

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charges.Parametersrela$ngtopastperformanceofstrategiesdiscussedarenotcapableofbeingduplicatedInvestors

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Outline

Building a Portfolio Trading the Portfolio Sample $10,000 Portfolio

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Building a Portfolio

Q: What is the trading edge of a portfolio constructedof these strategies?

A: High Probability and Time Decay

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Naked Put

Probabilities and Time Decay

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Resembles a Covered Call?

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Click to edit Master title stylePut Credit Spread

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Click to edit Master title styleSee the Change?

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Click to edit Master title styleBuilding a Portfolio

Q: What is your expected monthly return $10,000?A: 5 percent or $500

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Q: Which Underlyings to Employ?A: Stocks, ETFs, Indices

Criteria: High or low priced Stocks? Stocks you would hold in your retirement account? Stocks with high or low Implied Volatility? Stocks with imminent earnings announcements? Pharma Stocks with FDA trial announcement?

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Click to edit Master title styleWhy is Volatility Higher in May?

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Click to edit Master title styleTerm Structure and Volatility Skew

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Q: How many positions to employ every month?

A: 4-8 Why?

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Q: How much Capital to start with?A: $2000-$5000

Q: Should I start by paper trading?

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Miscellaneous Creating a trading entity?

Taxes and tax considerations? Broker? Commissions?

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Sample $10,000 Portfolio Credit Spreads: RUT, SPY, NFLX $6000

Unsecured Puts: FB, AAPL, JNJ $4000Allocation Considerations: With market at all time

highs, would you put more or less money in covered

write type strategies or naked puts?

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Click to edit Master title styleTrading the Portfolio (Case Study)

Big Picture View How many total trades each month?

How many trades with credit spreads? How many trades with short puts?

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Click to edit Master title styleTrading the Portfolio

Trading Philosophy: Mechanism to buy stock at alower price or strategy for monthly income

Short Put: Assignment risks, Cash Secured Put Credit Spreads: Out-of-the money vertical

spread

Risk versus naked short put Monthly income with higher probability and lower

risk than naked put

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Click to edit Master title styleAAPL 6 mo Price Chart 4-2-2013

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Click to edit Master title styleStrategy of Selling Puts

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Click to edit Master title styleShort Put Risk Profile

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Click to edit Master title stylePut Credit Spread

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Click to edit Master title styleRisk Profile

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Which underlyings? FB, AAPL, JNJ Capital Total? $4000

Capital per trade? $1000-$1300 Which underlyings for Credit Spreads? RUT SPY,

NFLX

Capital Total? $6000 Capital per trade $2000

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Click to edit Master title style$1400 Allocation to JNJ

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Click to edit Master title styleJNJ Risk Profile

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Click to edit Master title styleNFLX Call Credit Spread

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Click to edit Master title styleNFLX Credit Spread $2000

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Which strike to sell with short puts? Delta? 10-30 Use the Delta to pick the short strike Role of Technicals, Earnings, or News? Which strike to sell with Credit Spreads? Delta 10-30 Role of Technicals, Earnings or News?

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Click to edit Master title styleJNJ 6 mo Price Chart 4-2-2013

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Click to edit Master title styleLast 4 or 5 Earnings

Jan 22, 2013 Oct 16, 2012

Jul 17, 2012April 17, 2012 Earnings usually before or after expiration?

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Click to edit Master title styleWhich Strike Did I Choose and Why?

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Click to edit Master title styleCredit Spread - Uptrend?

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Click to edit Master title styleCredit Spread

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Click to edit Master title stylePut Credit Spread Profile

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Short Put -When to initiate the trade? Days toexpiration? 7 DTE? 30 DTE? 50 DTE?

Credit Spreads- When to initiate the trade? DTE? 7DTE? 30 DTE? 50 DTE?

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How to execute the trade? Market Order? Sell Put at mid prices?

Sell Put or Credit Spread on up day or down day? Use contingent orders? Limit orders? Closing the trade as winner or loser?

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When not to enter? Day before earnings?

Major news announcement?Are Fridays easy money because of the weekend?

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How often should I trade? Trade every week or month?

Only trade in same underlyings as long as Improfitable?

If Im profitable, should I go back in next day?

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Plan for short put? Plan for credit spread? How much yield should I target? How to calculate?

Maximum loss? Adjust or not adjust? Plan in a retirement account? Strategy to execute every month?

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Click to edit Master title styleShort Put Plan

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Click to edit Master title styleCredit Spread Plan

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Click to edit Master title styleTrading the Portfolio (Short Puts)

Risk management Contingent orders? What orders should I have in

with my broker?

Does risk management included adjusting strikes?

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Click to edit Master title styleRisk Management Steps?

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C

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Click to edit Master title styleAdjustment Idea

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Cli k di M i l l

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Click to edit Master title styleRolling Up the Strike

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Cli k t dit M t titl t l

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Click to edit Master title styleCredit Spread

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Click to edit Master title styleCredit Spread Adjustment

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Click to edit Master title styleRolling up the Credit Spread

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Click to edit Master title styleTrading Portfolio

How to Diversify? Days To Expiration? Dont enter all trades on the same day Scaling? Start trading with a fraction of your capital

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Click to edit Master title styleTrading Portfolio

Miscellaneous Same Vehicles every month? When to change vehicles? What if I work full time? I dont like sitting at the computer all day! Is increased IV your friend? 3 biggest obstacles to consistent profits? Market,

Discipline, Risk Management

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Click to edit Master title styleSample $10,000 Portfolio of Credit Spreads and Naked Puts

Credit Spreads $6000: $2000 each NFLX, SPY,RUT

Naked Puts $4000: $1300 each FB, AAPL, JNJ

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Click to edit Master title styleNFLX $2000 Credit Spread Calls

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Click to edit Master title styleNFLX Call Credit Spread

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Click to edit Master title styleNFLX Call Credit Spread Profile

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SPY 6 M h Ch 4/2/2013

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Click to edit Master title styleSPY 6 Month Chart 4/2/2013

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Click to edit Master title style$2000 SPY Put Credit Spread

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SPY P t C dit S d

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Click to edit Master title styleSPY Put Credit Spread

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RUT 6 M P i Ch t 4 2 2013

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Click to edit Master title styleRUT 6 Mo. Price Chart 4-2-2013

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RUT $2000 C ll C dit S d

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Click to edit Master title styleRUT $2000 Call Credit Spread

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FB 6 M th Ch t 4/2/2013

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Click to edit Master title styleFB 6 Month Chart 4/2/2013

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FB $1000 Naked Put

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Click to edit Master title styleFB $1000 Naked Put

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FB N k d P t P fil

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Click to edit Master title styleFB Naked Put Profile

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$1300 Sh t P t i AAPL?

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Click to edit Master title style$1300 Short Put in AAPL?

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JNJ 6 M th Ch t 4/2/2013

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Click to edit Master title styleJNJ 6 Month Chart 4/2/2013

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JNJ N k d P t

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Click to edit Master title styleJNJ Naked Put

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JNJ Naked Put Profile

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Click to edit Master title styleJNJ Naked Put Profile

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Portfolio of Credit Spreads and Naked Short Puts 10K Portfolio

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Click to edit Master title stylePortfolio of Credit Spreads and Naked Short Puts 10K Portfolio

NFLX $176 210-220 call spread $1600 SPY $157 148-152 put spread $1700 RUT $934 960-970 call spread $2100 FB $25.42 -3 May 24 puts $1000AAPL $442 Cant do! JNJ $81.46 -1 May 80 put $1400

TOTAL $7800Goal 5% on $10,000 or $500

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20130518 OIC Followup

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