A credit spread strategy known as a bull put spread offers traders all the benefits of put selling while taking on less risk. To initiate a bull put spread, the trader sells a put option and simultaneously purchases another put option on the same underlying asset with the same expiration date but a lower strike price. A net credit is collected, and while you generate less income than you would by selling a put alone, the purchased put acts as insurance against big losses.#-ad_banner-# Today, I want… Read More

A credit spread strategy known as a bull put spread offers traders all the benefits of put selling while taking on less risk. To initiate a bull put spread, the trader sells a put option and simultaneously purchases another put option on the same underlying asset with the same expiration date but a lower strike price. A net credit is collected, and while you generate less income than you would by selling a put alone, the purchased put acts as insurance against big losses.#-ad_banner-# Today, I want to look at a specific bull put spread trade in Yahoo (Nasdaq: YHOO). Because we may be obligated to buy shares of the underlying stock or ETF with this strategy, it is important that we are quite willing to own the shares at the strike price of the put being sold. Therefore, I’ll take a moment to discuss why I am bullish on YHOO. Yahoo owns a 23% stake in Chinese e-commerce company Alibaba, which filed for an initial public offering this week that could turn out to be one of the biggest in history. Alibaba handles more online transactions… Read More

Starbucks (Nasdaq: SBUX) has stalled out following an 85%-plus run from its October 2012 low to the November 2013 high. For more than eight months, the stock has traded in a roughly $10 range between $80 resistance and $70 support. The first upside goal is a recovery to the channel top at $80. If shares can break above that resistance, we could see a $10 jump to $90. The $80 target is about 13% higher than recent prices, while the $90 target represents a 27% move. But traders who use a capital-preserving… Read More

Starbucks (Nasdaq: SBUX) has stalled out following an 85%-plus run from its October 2012 low to the November 2013 high. For more than eight months, the stock has traded in a roughly $10 range between $80 resistance and $70 support. The first upside goal is a recovery to the channel top at $80. If shares can break above that resistance, we could see a $10 jump to $90. The $80 target is about 13% higher than recent prices, while the $90 target represents a 27% move. But traders who use a capital-preserving stock substitution strategy could make up to 190% returns on a move to that level. One major advantage of using a long call option rather than buying a stock outright is putting up much less capital to control 100 shares — that’s the power of leverage. But with all of the potential strike and expiration combinations, choosing an option can be a daunting task. You want to buy a high-probability option that has enough time to be right, so there are two rules traders should follow: Rule 1: Choose a call option with a delta of… Read More

You don’t have to be a billionaire guru to benefit from this strategy — you just have to act like one. You say you wouldn’t touch them with a ten-foot pole? You’re not alone. In a 2011 survey, securities broker TD Ameritrade found that more than three-quarters of “buy and hold” investors have never bought or sold stock options. The reasons? “Too risky,” according to a third of the respondents. Twenty-five percent said they “don’t need them,” and another 23% admitted they “don’t know how they work.” Yes, stock options can be risky, but so is investing in Apple (Nasdaq:… Read More

You don’t have to be a billionaire guru to benefit from this strategy — you just have to act like one. You say you wouldn’t touch them with a ten-foot pole? You’re not alone. In a 2011 survey, securities broker TD Ameritrade found that more than three-quarters of “buy and hold” investors have never bought or sold stock options. The reasons? “Too risky,” according to a third of the respondents. Twenty-five percent said they “don’t need them,” and another 23% admitted they “don’t know how they work.” Yes, stock options can be risky, but so is investing in Apple (Nasdaq: AAPL). And, no, stock options are not necessarily “needed” by everyone — only those investors who want to reduce exposure to market volatility, preserve capital and, yes, generate income. Take Warren Buffett, for example. #-ad_banner-#The King of Buy and Hold first bought stock in Coca-Cola (NYSE: KO) in 1988. At the time, Buffett said he expected to hang on to the shares of this “outstanding business” for “a long time.” Today, Coca- Cola is Buffett’s largest holding. As of September 30, the Oracle owned 400 million shares of Coca-Cola, valued at $15.2 billion — a fifth of his equity portfolio. Read More

Commodities have dramatically outperformed the broader market so far in 2014. The iPath DJ-UBS Commodity Index Total Return ETN (NYSE: DJP) has risen roughly 10% this year, while the S&P 500 is up just over 1%. But not all commodities have kept pace. Coal prices have suffered from the fracking boom, as natural gas inventories rose and prices fell. Market Vectors Coal ETF (NYSE: KOL) is down 9% in the past year. And coal producer Walter Energy (NYSE: WLT) has fared much worse, declining roughly 60% in the past 52… Read More

Commodities have dramatically outperformed the broader market so far in 2014. The iPath DJ-UBS Commodity Index Total Return ETN (NYSE: DJP) has risen roughly 10% this year, while the S&P 500 is up just over 1%. But not all commodities have kept pace. Coal prices have suffered from the fracking boom, as natural gas inventories rose and prices fell. Market Vectors Coal ETF (NYSE: KOL) is down 9% in the past year. And coal producer Walter Energy (NYSE: WLT) has fared much worse, declining roughly 60% in the past 52 weeks. Yet, the death of coal has been greatly exaggerated, as it still accounts for the majority of electrical power generated in the United States. (My colleague Dave Goodboy recently took a look at the fuel’s near-term prospects.) And while coal as a commodity isn’t getting much love from investors at the moment, we can use an options strategy to generate an attractive level of income or buy shares of this beaten-down stock at a major discount. As you can see on the one-year chart, WLT has dropped from $20 a share to new lows near $7. Read More

After lagging behind the broader market for more than a year, SPDR S&P Metals & Mining (NYSE: XME) finally hit bottom in June and has bounced more than 30% from those lows. Cliffs Natural Resources (NYSE: CLF), a major supplier of iron ore, fell from $100 a share in 2011 to below $20. Shares hit a 52-week low of $15.41 in July, around the same time XME’s uptrend began. CLF then rallied 88% to a high just below $29 in November before selling off. Currently trading near $18.70, CLF has support… Read More

After lagging behind the broader market for more than a year, SPDR S&P Metals & Mining (NYSE: XME) finally hit bottom in June and has bounced more than 30% from those lows. Cliffs Natural Resources (NYSE: CLF), a major supplier of iron ore, fell from $100 a share in 2011 to below $20. Shares hit a 52-week low of $15.41 in July, around the same time XME’s uptrend began. CLF then rallied 88% to a high just below $29 in November before selling off. Currently trading near $18.70, CLF has support at $16. The $20 level is a long-term price pivot point and represents resistance CLF must overcome on a monthly closing basis to reverse the downtrend. #-ad_banner-#If you are comfortable holding on to this inexpensive stock for a potential recovery, then selling puts could allow you to collect income while you wait to get into CLF at a 17% discount. Cash-Secured Put Selling Strategy While the typical investor might use a limit order to buy a stock or ETF at a designated price or lower, the options trader can do one better by selling a cash-secured… Read More

My years in the military have allowed me to see the world in a totally different way. While deployed overseas I tracked IED locations, went on convoy missions and gathered intelligence from local villages. I learned the importance of analyzing data to forecast what was likely to happen in the future, and I used this data and information to determine the level of risk our soldiers were dealing with. The typical mission was scheduled to take seven days, but always ended up taking longer due to roadside bombs and the occasional unruly hostile who decided to shoot at us. This… Read More

My years in the military have allowed me to see the world in a totally different way. While deployed overseas I tracked IED locations, went on convoy missions and gathered intelligence from local villages. I learned the importance of analyzing data to forecast what was likely to happen in the future, and I used this data and information to determine the level of risk our soldiers were dealing with. The typical mission was scheduled to take seven days, but always ended up taking longer due to roadside bombs and the occasional unruly hostile who decided to shoot at us. This has opened my eyes to see the bigger picture. Not just in the military, but in everyday life. I believe my experience assessing risk in the military allows me to think outside the box and take a different angle on a problem or situation. In this case, it’s the financial markets. #-ad_banner-#Today, there is an onslaught of different investing techniques and strategies. And when I was first introduced to them, I found myself, like most, overwhelmed. That’s when my training came in handy, and I immediately looked at the market from a different angle. I was instantly drawn to a… Read More

One of today’s most exciting investment themes revolves around the electric car market. At the center of this trend is Tesla Motors (Nasdaq: TSLA), which is becoming a commanding force both as an auto manufacturer and a dynamic growth stock. In 2013, the company delivered 22,477 electric vehicles to customers. Tesla plans to boost that number to a half-million vehicles per year by the end of the decade. That ambitious plan has not gone unnoticed by investors, who have driven the share price up more than 650% from the beginning of last… Read More

One of today’s most exciting investment themes revolves around the electric car market. At the center of this trend is Tesla Motors (Nasdaq: TSLA), which is becoming a commanding force both as an auto manufacturer and a dynamic growth stock. In 2013, the company delivered 22,477 electric vehicles to customers. Tesla plans to boost that number to a half-million vehicles per year by the end of the decade. That ambitious plan has not gone unnoticed by investors, who have driven the share price up more than 650% from the beginning of last year to the stock’s peak in February. #-ad_banner-#But while the electric vehicle market looks like an exceptional growth industry, shares of TSLA now appear vulnerable. The stock is trading at more than 100 times expected earnings for this year — and this despite a nearly 30% drop in just the past two months. Although I consider TSLA to be far too risky for investors right now, that doesn’t mean we can’t participate in this industry. In fact, today I have an income trade directly tied to growing demand for electric vehicles that should generate more than 39% per… Read More

RadioShack’s (NYSE: RSH) brand may be recognizable, but the same cannot be said for its stock. Shares of the once-popular electronics retailer fell from $24 in 2010 to 20-year lows below $2 currently.#-ad_banner-#​ On the one-year chart, the August low was eclipsed by the January low, but volatility did not make new highs. A bullish divergence like this is often a sign of price stability, and RSH rebounded 38% into its March high. The bounce in February and March gave way to selling pressure and new lows below $2. But again, we did not see… Read More

RadioShack’s (NYSE: RSH) brand may be recognizable, but the same cannot be said for its stock. Shares of the once-popular electronics retailer fell from $24 in 2010 to 20-year lows below $2 currently.#-ad_banner-#​ On the one-year chart, the August low was eclipsed by the January low, but volatility did not make new highs. A bullish divergence like this is often a sign of price stability, and RSH rebounded 38% into its March high. The bounce in February and March gave way to selling pressure and new lows below $2. But again, we did not see new highs in volatility. Technically, RSH has traded in a channel from $4 to $2 since mid-2012. An upside breakout targets a move to $6 once a price base has finally been made. Traders should watch the $2 level on a weekly basis for support. If you are comfortable holding on to this inexpensive stock for a potential recovery, then selling puts could allow you to collect income while you wait to get into RSH at a 12% discount. Cash-Secured Put Selling Strategy While the typical investor might use a limit order to… Read More

Capital preservation and minimizing losses should be the most important objectives of any investor or trader. Warren Buffett is credited with the saying: Rule No. 1: Never lose money Rule No. 2: Never forget Rule No. 1 #-ad_banner-#Oftentimes, investors are drawn to options because they think of them as a way to limit risk while still offering huge potential profits. This is true in theory, but the reality is a different story. An option is a wasting asset. It has a limited lifespan, and every day that it draws closer to expiration, its value erodes as the chances of… Read More

Capital preservation and minimizing losses should be the most important objectives of any investor or trader. Warren Buffett is credited with the saying: Rule No. 1: Never lose money Rule No. 2: Never forget Rule No. 1 #-ad_banner-#Oftentimes, investors are drawn to options because they think of them as a way to limit risk while still offering huge potential profits. This is true in theory, but the reality is a different story. An option is a wasting asset. It has a limited lifespan, and every day that it draws closer to expiration, its value erodes as the chances of it being profitable diminish. This is known as time decay. There are two types of options, and you can be a buyer or seller of either: A call option gives the buyer the right but not the obligation to buy shares of the underlying stock at an agreed upon price (the option’s strike price) within a certain period of time. The seller of a call option (also known as the writer) sells the right to the buyer for a payment known as a premium. In doing so, the seller assumes the obligation to deliver the shares at the strike price… Read More

Shares of energy producer Encana (NYSE: ECA) have been moving steadily higher since January. In fact, while the S&P 500 Index is only up about 2% for the year, ECA investors have enjoyed a gain of 18% on their stock position. And this doesn’t even include the $0.07 dividend the company paid to investors of record on March 12. #-ad_banner-#Of course, one of the challenges with a runaway stock like ECA is that it is difficult to jump on board once it has already begun to trade sharply higher. Investors who buy at… Read More

Shares of energy producer Encana (NYSE: ECA) have been moving steadily higher since January. In fact, while the S&P 500 Index is only up about 2% for the year, ECA investors have enjoyed a gain of 18% on their stock position. And this doesn’t even include the $0.07 dividend the company paid to investors of record on March 12. #-ad_banner-#Of course, one of the challenges with a runaway stock like ECA is that it is difficult to jump on board once it has already begun to trade sharply higher. Investors who buy at new highs risk purchasing the stock at a peak, only to see the price pull back. But investors who decide to wait until the stock pulls back could find themselves on the sidelines while potential profits are missed and the stock continues to trend higher. Selling puts for income is a good way to participate in a stock that has established a strong bullish trend, while avoiding the risk of purchasing at the peak of that trend. By selling puts against the stock, we commit to buying shares if the stock pulls back below the strike… Read More