Owen Trimball

Is Binary Options a Scam? Read This and Decide

Is binary options a scam or not? That is the question. Now for the answer. What I’m about to tell you is my honest assessment of the value of binary options trading. But first, for those who don’t know, let’s define exactly what binary options are. Once we’ve done that, we will then assess their worth in comparison with traditional options trading (sometimes called “vanilla options”). We will do this based on a “return on risk” principle.

Finally, we’ll draw some conclusions based on our observations and in the light of other ways of risking capital for a return.

What are Binary Options?

Binary options have three main elements:-

1. You need to predict a future outcome to be realized within a specified time period – anywhere from 1 minute up to more than a week away.

2. During the period before expiration, no adjustments can be made, nor can the options be sold early for a profit or stop loss. Profits or losses can only be realized at the time of expiration. They are also absolute and final.

3. If the outcome is realized, you receive a profit on what you risked – usually about 70 percent. If the outcome is NOT realized, you lose most of, if not all, your invested capital on that trade.

In summary, the reason why they are called “Binary Options” is because the results can only be a win or a lose. This is final and absolute. There is nothing in between. Hence the term “binary” (meaning “twofold”).

Binary options can be traded over a range of commodities, indices and currencies. Currency pairs (forex) seems to be the most popular, as they trade 24 hours, 5 days per week and are very liquid.

Is Binary Options a Scam?

The answer to this question is really one of perception. If you’re one of those people who can consistently pick winning outcomes and can do with for an overall profit, or have a proven binary options trading system that does this, then I’m sure you will be waving the flag for binaries.

But let’s run a few numbers. We’ll assume a generous profit of 75 percent for wins and 100 percent loss for losing trades.We’ll also start with $1,000 capital and each trade will risk $100.

On a given day, you place 5 trades on anticipated outcomes for currency pairs within a 5 minute expiration period. Your first 3 trades are losing ones – you’re now down to $700 capital. Then your next 2 trades win and at 75% profit, you make $75 on each. So you’re down $300 to begin with, then up $150 – an overall loss of $150.

Let’s say that you’re better at picking winners and you win 3 and lose 2 trades. You’ll be up by $225 ($75 x 3) to begin with and you’ll be very happy at your new account balance of $1225. Then you’ll lose the last 2 trades and be down $200. So your ending balance for the day is $1025 – a profit of just $25, for risking a total $500, in 5 x $100 trades.

If you’re really good and win 3 out of 4 trades (or 75% win rate), you’ll make $225 on the wins and lose $100 … a net result of $125 profit.

How confident are you, that you can achieve an 75 percent success rate, bearing in mind that you can’t close out a position if it temporarily goes into profit – you have to wait until expiration for the result?

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Looking at it Another Way

You could say that trading binary options where the profit is 70 percent and the loss 100 percent, is like betting on the favorite in a horse race, where the win dividend is $1.70. The only difference is, that in this “race” there are only two horses – one is called “Up” and the other “Down”.

If one horse in this “two horse race” was far superior to the other, then you would feel confident of a win. That would be like saying that the odds of the currency pair being above where it presently is, in five minutes time, is very high.

Is Binary Options a Scam if you Have a System?

So here’s the thing – at 70 percent profit, can you devise a trading system whereby one winning trade will “pay” for all previous losing trades and then some?

You could employ a trading strategy whereby, after each loss, you increased your bet by an amount where the winning bet would “pay” for all previous losses and then some. But at only 70 percent profit, you would need to increase your bet by a minimum 2.35 times the previous one in order to win overall.

So now you need to decide what your first trade amount would be. For example, after 3 losing trades on a starting bet of $20, your 4th trade would be $261. But if you had started with $100 then you’d be risking $1300 on your fourth trade.

I suspect you’d be feeling a little jittery by then! If you started with only $2,500 trading capital and you lose this one, then your next trade will need to be more than your entire starting bank. If you’d started with $50,000 then you might not be so concerned … yet.

If you’re only starting off with $20 for your first trade, you then have to ask yourself whether the investment of time and patience, waiting for the right trade setup and realizing profits at 70 percent, is worth it to you.

Conclusion

So is binary options a scam or not? Looking at the above numbers, my conclusion is that, considering the absolute and inflexible nature of binary options in comparison to traditional options, it would not be a preferred trading instrument for me. There are so many more opportunities with traditional options.

Even if I was going to implement a money management system as described above, then I would be looking for a much higher dividend payout than $1.70 for a win. I would be better off picking the eventual winning horse in races only paying above $5.00 for a win, or a minimum $2.00 for a place and doubling my bet each time until it pays.

At least then, my chances of profiting without wiping out my entire capital would give me more losing opportunities before the winning trade saved the day. But then I’d have to be good at picking winning horses.

David Valllieres and XTR ProTrader

The XTR ProTrader signals and education service by master trader, David Vallieres, would have to be one of the most exciting new services for options traders that I have seen.

David has been trading stocks and options since he was a young man in the 1980s. Later, David did very well in another enterprise and decided to invest his capital in stock market education. Accordingly, he hired one of the top CBOE traders to train him in the advanced techniques that the professionals use, to consistently profit in the options market.

Since then, David has produced a number of training courses, one of which is still very popular and relevant, even though it was produced in 2008. More recently, he released a course about the Three Legged Box strategy, which he claims is one of the best strategies available for retail investors today.

But his finest work is undoubtedly the more recent XTR ProTrader signals and education membership. The “heart and soul” of the service, is to provide daily updates on what the US markets, primarily the DOW and the S&P500, are about to do, giving members the opportunity to trade them profitably.

These indexes can be traded a number of ways, including DOW e-mini futures, index options, ETF options on the SPY or DIA, or if you have a forex account and trading platform you can spot trade the SPX500 and DOW30 CFDs there.

Until recently, the focus has been primarily on short term trading opportunities, but since mid November 2016 a new feature has been introduced – monthly income trades that take advantage of the one certainty with all options contracts – time decay (theta).

But there’s much more to the membership than signal alerts. Read on to find out what else you get.

=== You can take a test drive of the full membership for just $7 for 21 Days ===

What’s in the XTR ProTrader Membership?

Once you become a member, you’re given access to:

1. Daily Trade Alerts which you can receive via Twitter, text messages to your smart phone, or by email. These include 3 legged box spread alerts, if you choose to add them, plus “private trade ideas” for XTR ProTrader members only.

2. Video Training Courses by David Vallieres – in areas such as binary options trading, option volatility, Inverse Box Spreads, the “option ladders” strategy and the new “Ultimate Profits” course . . . and more.

3. Briefings and signal updates – these are provided at the beginning and end of each trading day. They include a forecast of which way the market is about to go, based on David’s unique spreadsheet method for determining accumulation and distribution in the market. These signals are great for trading index based futures or options, index based CFDs, “in the money” ETF options on the SPY or DIA, or even binary options on the SPX or Dow Jones index.

4. A forum-like “comments” area where all members can have their questions answered by Dave, or contribute to discussion on topics of interest with other members. It’s almost as good as private mentoring and now includes questions and answers on his “Trading as a Business” type trades (see below for more details).

5. Video tutorials on how to find your way around the membership area and get the most from it.

6. Tradingology’s latest training products – for example, David recently released his “Ultimate Profits Trading Course” covering 40 years of research – free to members.

7. Access to over 2 years market comments & updates – this is “the vault” where you can back-test all the forecasts and learn from the commentaries.

8. **NEW** “Monthly Income” Trade Alerts – watch a master trader enter and adjust trade positions on index related ETFs, per the “Trading as a Business” course (also called the “Trading Pro System“) – using signals from XTR. You’ll learn a lot just from just following this alone!

What Makes the XTR ProTrader Service So Special?

Firstly, it uses a system that David calls “chartless trading”. What this means is, that you can confidently predict what the market is about to do without looking at price charts for your analysis.

Interpreting price movement charts can be a rather subjective exercise. What you “see” in the chart may be different to what I see. But this service uses another method of forecasting entirely.

In short, using a spreadsheet, David can tell whether the buyers or the sellers are about to win in the upcoming trading session. Chart analysis and pattern recognition may be subjective, but numbers never lie. The numbers are unbiased, impartial, without emotion and objective – and deadly accurate. So much so, that one trader wrote:

“XTR ProTrader can measure supply and demand in the market like nothing else with uncanny accuracy”.

Having signed up for a monthly membership myself, I can appreciate first hand why the XTR ProTrader signals and education membership has a 98% retention rate.

Trial XTR ProTrader and Enjoy Full Membership Rights – just $7 for 21 Days.

This Video Explains the NEW “Trading as a Business” Style Monthly Income Strategy Alerts

The video below takes you for a tour of the membership site

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Gold ETF Investing – 10 Facts You Should Know

Gold ETF investing has come back into focus for many investors this year thanks to the soaring price of gold bullion in 2016. Gold is actually up about 20% so far this year which easily trounces broad markets in the time frame, while there has been quite a bit less volatility too.

This is in stark contrast to how the yellow metal had been performing for much of the past few years, as gold was mired in a serious bear market, pushing the commodity far lower than the S&P 500 over the trailing five-year time frame.

But with questions about future interest rate hikes and inflation hitting the market now, gold is definitely making a resurgence, putting gold ETFs into the spotlight once more. However, gold ETFs remain widely misunderstood by many investors out there and there are still several myths and misconceptions about investing in this space.

So for investors thinking about buying into this soaring market, it is important to know the following 10 facts about the gold ETF and gold mining ETF world in order to make sure you get the right type of exposure, and understand some of the most important details about investing in this market:

GLD Isn’t Everything in the Gold ETF Investing World

Most investors who think of gold ETFs go right to the big dog in the space, the SPDR Gold Trust. This ETF has over $35 billion in assets and a great daily trading volume, making it an easy pick for most.

However, there is another great option for investors out there that can get the job done, the iShares Gold Trust (IAU) . This product still has a robust volume and an impressive $8 billion in assets, but it is often overlooked despite its cheaper expense ratio, coming in at 25 basis points compared to GLD’s 40bps fee.

But in addition to the expense differential, there is another key factor to note. GLD trades as 1/10 of an ounce of gold while IAU uses a 1/100 scheme. This may not sound like a big deal, but it actually makes GLD have tighter spreads between its bid and ask which can be important for traders.

So, traders and very large investors should probably stick with GLD as their preferred vehicle, but long term investors and those buying in smaller quantities would probably be better served by buying IAU instead. The expense ratio difference will really add up over time, and especially if you aren’t doing a whole lot of trading.

Futures vs. physical

Most commodity ETFs simply offer investors exposure to futures contracts tracking the commodity. But because precious metals have a relatively high ‘value-to-size’ ratio and are easy to store, investors have the option of either buying physically-backed ETFs like GLD or IAU, or purchasing futures-based funds like DGL and UBG.

Futures-backed funds can be more expensive and they also may suffer from futures curve issues (such as contango), though this can also become an asset (backwardation) in certain market environments too. Over the past year though, DGL has underperformed GLD and to me it probably isn’t worth it given the physical exposure options and the lower holding costs. Better to get the real thing in this case, and especially since most commodities don’t offer up the option at all.

gold etf investing

The only saving grace is the issue of taxes. DGL may have a lower short-term capital gains tax rate than gold ETFs that hold the commodity thanks to their structure as a ‘commodities pool’. However, this may result in a K-1 at tax time, so there are some potential headaches with that approach too. For me, it seems like physically-backed is so rare in the commodity world and it gets rid of so many problems, that you might as well go for it in the gold world.

Gold Mining ETF Holdings Secrets

There are also a few ways to invest in gold miners if you do not want the gold bullion products directly. Among the most popular is to convert 401k to gold IRA or even more so are GDX and GDXJ which are both from Van Eck. GDX zeroes in on the gold mining industry and holds companies across a range of market cap levels while GDXJ focuses on small cap securities.

While GDXJ is definitely more volatile, most investors may not know that there are actually some similarities between the two funds. The top holding in GDXJ finds its way into GDX, while all of GDXJ’s top five holdings are in GDX, granted at a much lower allocation level.

So if you are thinking of buying GDX and GDXJ for ‘complete’ gold mining exposure, think again, as you are bound to get some overlap.

Additionally, it is worth noting that silver companies actually make up a decent portion of both ETFs.

In fact, for GDXJ, two of the top five holdings have ‘silver’ in their name (AG and PAAS), while GDX has Silver Wheaton in its top ten holdings too. So both might not be as pure as you are thinking either, something to note if you are getting into the precious metal ETF space.

Another Way to Invest in Gold with ETFs

Two often overlooked ways to invest in gold include products that utilize hedging techniques. In essence, they invest in broad markets, but use gold as a sort-of hedge in order to mitigate risks.

A great example of this approach is GHS from REX. This ETF invests in both the S&P 500 and it takes a long position in gold futures contracts, making the ETF designed to outperform broad indexes when gold is soaring. This technique can also act as a bit of a hedge, since gold and broad markets generally have low correlation levels as well.

gold etf

Gold Exploration ETF: The Final Frontier?

For investors who don’t like the idea of leverage but still want to roll the dice, then the gold exploration ETF market may be for you. This segment of the ETF world is arguably the most volatile thanks to the companies that it holds.

These companies don’t produce gold, but are on the lookout for gold fields and deposits around the globe which can be recovered at a profitable rate. They are sort of like what the E&P market is for oil, making them highly leveraged to the price of the underlying commodity.

As you might expect, these are top performers in bull markets, but can be sluggish if we enter a bear market scenario once again . However, they are perfect for risk takers who do not want to delve into the leverage market (more on that below).

Leveraged Gold Mining ETFs Are an Insane Long Term Investment

Investor interest in the triple leverage market has been rekindled thanks to some absurd performances for funds in this space. Year-to-date the triple leverage gold ETN UGLD is up over 60%, while mining triple leverage funds have been even crazier, with NUGT adding over 300% in the time frame and JNUG, tracking junior gold miners, soaring by over 425% so far this year.

However, even with these great performances, all have been horrendous when taken from a long term look. All three are lower by at least 40% over the past three years, with the mining funds posting losses nearing 90%.

gold mining etf

So while it might be tempting to buy-and-hold these given how they have done in 2016, the longer term chart suggests extreme volatility and big losses, proving once again that leveraged funds should be short-term trading tools and nothing more.

Some Broad Precious Metal Funds Are Basically Gold ETFs

There are a couple of ETFs out there—DBP and GLTR in particular—which bill themselves as broad precious metal ETFs, but is that really the case? Not really if you look to their underlying holdings, as these both put the majority of their holdings in gold.

GLTR puts nearly 60% of its assets in gold, leaving under 30% for silver, and roughly 11% for the duo of platinum and palladium combined. Meanwhile, DBP is even worse, as this ETF puts over three-fourths of its assets in gold and has the rest in silver.

So, just because something says it is a ‘precious metals ETF’ it doesn’t mean that it isn’t a gold ETF with a slight bit of diversification on top of it.

GLD Holds More Gold than The ECB

The level of investor interest in physically-backed gold ETFs is staggering. GLD owns enough gold to put it into the top ten holders of gold in the world, ahead of countries like the UK or India, and even the European Central Bank too.

And if you add other gold ETFs to the mix, gold holdings easily surpass one thousand tonnes on the ETF front, making exchange-traded funds a force in the gold world.

Gold ETFs Probably Help Boost Prices

Given this massive supply of gold held by ETFs, it probably shouldn’t be too much of a surprise to note that gold ETFs probably help boost prices in the underlying metal . That is because, at least in Q1, according to the World Gold Council, the main change in gold demand was from gold ETFs.

gold etf investing

As you can see in the chart above ETF demand year-over-year was over 300% higher and was the primary difference when compared to 2015 numbers. Jewelry and technology were both lower showing that the bulk of the increase in gold demand was from investing, and specifically from ETFs.

So for at least part of this year’s gains, gold investors can thank ETFs!

Don’t Buy Gold ETFs for the Apocalypse

Some investors complain that gold ETFs aren’t useful because you can’t take physical delivery in the main funds like GLD or IAU (unless you are a massive investor). They say that one of the main reasons for owning gold is protection against an economic calamity and the ability to use gold as a bartering mechanism.

Investors should just think of gold ETFs as trading tools that can offer up exposure to the bullion market in a very liquid way. Without gold ETFs, the buying and selling of gold by the average person would be a laborious task and would involve high premiums and markups too. But with gold ETFs you can easily trade gold back and forth in seconds with minimal costs, so just think of these as easy ways to trade gold, and not part of a doomsday protection plan.

Bottom Line

Gold ETF investing is a bit more complicated than you might think at first glance. But hopefully this list of key facts allowed you to get a better handle on the market, and find more information on the best gold ETF option for your needs in today’s investing world.

How to Profit Like a Pro Trader

In trading, timing is critical. Especially in this connected world where news and information fly at the speed of light… and your competition is a giant, faceless investment bank with a high-frequency trading desk that makes millions of bogus orders in a second.

So there’s little wonder traders feel like they have to set up house in front of their computers to nail the perfect entry or exit point.

This idea, which as you’ll see is another Wall Street scare story, even works to keep people out of the markets. After all, people have lives, careers, families, and much better things to do with their time besides being glued to a computer terminal.

I hate that Wall Street pushes people around like this, so today, I’m going to show you how to trade with total confidence and have all the time you want to enjoy life on your terms.

No – the solution isn’t to buy a smartphone and trade on the go, although you could if you really wanted to.

What I’m going to show you are three simple orders, just a handful of words, that you can use with your broker or trading platform to get perfect entries and exits every time without being chained to your electronics.

Even better, these orders can actually slash your downside and boost your profits, too…

The Way of the World Today

In times past, a trader would actually pick up a phone and call a human being at a brokerage house, who would take an order to buy or sell at such and such a price, and then relay that to another human being sitting (or, more likely, standing) on the floor of a stock exchange, almost always in the same country.

That created a fairly high barrier to entry, but in the decades since, technology – the great leveler – has lowered those barriers and more and more people can trade more easily.

There are so many opportunities to trade today, all over the world, every hour of the day.

That’s why the myth that you have to be connected to the markets 24/7 has been perpetuated. If everyone knew how easy it was to trade, the whales would have much stiffer competition.

I’m going to show you what it takes to be that competition. You can use the order types I’m about to show you to set specific entry and exit points, even sell at the price you want. After all, knowing when and how to get in and out of your trades can mean the difference between a fat stack of cash or a pocketful of lint.

You can step away from your computer and put your smartphone in your pocket and still be secure in the knowledge that you’re going to get exactly what you want, provided the trade goes your way, of course.

It’s really easy. Let’s get started.

No. 1: The Limit Order

A limit order is an order to buy or sell a security at a specific price (limit) or better. In the world of options, you would use this order to limit the price you pay to buy or sell an option – either to open or close an options trade.

Here’s an example…

Say you’re looking at a September $35 call option with a bid price of $3.50 and an ask price of $3.40. You believe the stock is poised to go higher, but your strict money management rules tell you that you can’t spend more than $3.50 per option contract (remember that one contract lets you control 100 shares of the stock).

You already know that a market order leaves you vulnerable to whatever the current price is or what the market maker prices the option for… so you’re stuck with whatever price they fill you at the moment they decide to give it to you. And in a fast-moving market, where prices are constantly running amok, this option premium can easily pop up from $3.50 to $3.70.

Now you may think a mere 20 cents more for a trade isn’t an issue. But it is, and a big one, too. Here’s why I caution against chasing the trade.

Think of chasing an options trade like speeding on the road… You may feel pretty comfortable exceeding the speed limit by, say, five miles per hour. After all, it’s only five mph, right? But you may soon feel compelled to push the speed limit by 10 mph… 15… 20 mph… and, next thing you know, you’re flying down the road, putting everyone’s lives at risk, including your own.

I know this may be a bit dramatic, but the critical thing is to stick to your discipline. The more and more you chase after trades, even if just by pennies, the more you place your money – and your money management rules – at risk.

But if you place a limit order for $3.50 or better instead, you will not spend any more than $3.50 to get your trade filled. What’s “better” is that you can’t spend over $3.50, but you can certainly spend much less. For example, you may get your trade filled at $3.40 or $3.30. In this case, any price lower than $3.50 is better. So you will either pay your specified price of $3.50, or you will pay a “better” price that is anything lower than $3.50.

Let’s look at an example of how a limit order looks on an options order form. Remember that the example I used is simply to show you what a limit order looks like – this is by no means a recommendation. LimitOrder

Here, we’ve got an example of using a limit order to enter or open an options trade, whether it’s a straight call or put or a “loophole trade.”

You can also use the limit order when you are trying to close an options trade.

Let’s say you own that September $35 call at $3.50, and the stock price drove the value of the call option to a bid price of $5.00 and an ask price of $5.20. You can use a limit order to exit your position and lock in your profits at a specific price or better – just as you would use a limit order to open a position.

No. 2: The One-Cancels-Other, or OCO, Order

A one-cancels-other (OCO) order is in fact a pair of orders where, if one order is executed, the other order is automatically canceled. This is a type of limit order that allows you to manage your options trades – whether you’re in front of your computer screen or not. An OCO order allows you to manage your position at any time for the duration of your trade (until expiration) without having to physically be there when the option hits your target or limit price.

Using an automated trading platform, this order allows you to have your account electronically place one order and cancel the other automatically. This type of order is primarily used when you have open positions but you can’t be in front of your computer to manually enter and cancel orders.

We’re going to look at an example of an OCO order on an options order using the AAPL October $110 calls for $5.00. Remember, these examples are to show how each order type looks and are not trade recommendations of any kind…

Now let’s say that you want to double your money on these calls, but you don’t want to risk more than 50% of this trade. This means that you’d want to have a limit order to close and a stop order to preserve your capital.

In this case, you’d want to sell the option to close at $10.00 or close (stop out) the order at $2.50. You would place the two orders simultaneously on one order ticket. If the stock trades at $10.00, the account knows to automatically sell-to-close your position at $10.00. And it will automatically cancel that $2.50 stop order.

It also works the other way in that if the computer automatically sells the position to close at $2.50, it will also cancel the other $10.00 sell-to-close order.

This is an example of what that looks like:

One Cancels the Other

No. 3: The Contingent Order

This is hands down one of my favorites. Here’s why…

A contingent order is where you initiate two or more transactions at the same time (such as buying a stock and selling a call option at the same time). Like everything we’ve discussed here, this type of order allows you to be in two places at one time. So you can tend to all the things in your life and still have some control over your open options positions.

how to profit The basic premise of using a contingent order for your open options position is that you can sell-to-close your options when the stock hits a specific price.

Let’s say that you’ve got an October $40 call option you’ve been sitting on and that the price of the stock when you opened the options trade was $43.50. If you have an options risk graph, you can use it to anticipate the theoretical value of your option if the stock price moved higher. And if you don’t, then you can at least place an order to sell that call option “contingent” upon the stock hitting a higher price.

You would place the order through your automated trading platform as an advanced order type – specifically a contingent order. You would set the contingent order price to be triggered at the last or latest trade so far that day at “greater than or equal to” the price you specified.

When the latest or last trade so far in the day (not the last trade of the day at market’s close) hits the price you specified or higher, the order to sell your position will be executed as a market order – since not even computers know what the price will be ahead of time.

You can place a contingent stop order as well. If you feel that a support price on a stock will get broken and cause the stock to drop big time, you can place a contingent order to sell your position contingent upon the stock’s trading price. It will trigger on the last price at “less than or equal to” the price you specified.

This is what a contingent order looks like on an options order form…

contingent order

Again, this type of “time”-based order entry or exit can be used for anything; I just wanted to show you an example of why you might want to use it for a pending announcement.

How to Plan Your Trade and Trade Your Plan

Over time, you will come to appreciate one type of order over another. A lot of it will be dictated by your personality type, how busy your life is, and whether you have the time you want or need to monitor your positions throughout the trading day.

So you’ll want to find the order types that bring you the best results and hang your hat on them as part of your overall trading process, making them part of your (all-important) plan. This will give you an even higher likelihood of success because you have taken care of the planning aspect of trading.

And I want to say just one last thing…

I love spending time in front of my screen, collecting and analyzing data, and of course trading. But even if you’re like me – in front of your computer watching, in real time, what’s happening in the markets and every price fluctuation – you may want to consider using these auto-executed orders.

Now, it may be challenging to see an option getting close to your stop price without closing it too early, but chasing a trade can cause you to not only lose money, but miss out on future gains.

That’s why having your trading plan in place ahead of time, knowing when to take your money and run, and setting up your automatic trading platform can make your life so much easier – and so much richer.

Earnings Report Definition

So what’s a good earnings report definition and why is it important for options traders? An earnings report is something that is required by corporations law and is the way that publicly listed companies report their earnings to shareholders.

These report typically include an income statement, a balance sheet and statement of cash flows for the quarter, as well as year to date. The notes to the report also include an analysis of company activities and financial condition, along with various risk disclosures and other matters which may affect shareholders’ interests.

Some countries such as the USA, require earnings reports on a quarterly basis, while others may only want it semi-annually. Either way, when an earnings report hits the news, it can often (but not always) trigger a dramatic reaction by the market to that company’s share price.

Most companies in the USA file their earnings reports in January, April, July and October.

When analysts look at earnings reports, they’re most interested in certain financial ratios such as “earnings per share” (EPS) and “price-earnings ratio” – and these help them decide whether to buy, hold or sell the shares in that company. Since analysts tend to work for large fund managers and brokerage firms, their combined decision making can often have an impact on the share price.

Using Earnings Reports for Options Trading

So how can our understanding of an earnings report definition help us to trade options more effectively? Well let’s think about it. We would most likely be interested in an option trading strategy that relies on large and sudden potential moves in the price action of a company stock. Since earnings reports can be the trigger for these, we simply apply the appropriate strategy as we see the report date pending.

One such strategy is called the Options Straddle. This strategy involves the simultaneous buying of the same number of both call and put option contracts, at the same strike price and with the same expiration date. The strategy relies on the underlying share price moving significantly before option expiration date – so much so, that the “winning” position will more than compensate for any loss on the “losing” position and realize an overall profit. I have personally taken straddle trades which have realized 100 percent profit and many, more than 50 percent.

You simply put on the straddle position about three weeks before the earnings report comes out and wait for the market reaction to it. You need to do it before the report, because options implied volatility tends to increase as the earnings date approaches. You can read more about it at our options straddle page.

Another strategy that works well with earnings reports is are Victory Spreads. These are explained in detail on one of the videos in the very popular Trading Pro System.

Daily Profits in Just 4 Hours Each Day

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Jamie McIntyre and the 21st Century Academy

In motivational circles, Jamie McIntyre is known as “The 21st Century Educator”. From $150,000 in debt, Jamie McIntyre turned his dream to become a self-made millionaire into reality. Today, he is eager to share his success and does so under the banner of what he likes to call a “21st Century Education”. From a concept that Jamie started, this idea of “21st century education” has now come to the ordinary Australian. It’s about finding a new perspective to life and financial freedom.

He believes this type of information has not been made widely available, keeping the majority of the population constrained to a job and almost like slaves to the banks. Jamie McIntyre is passionate about ensuring the average person becomes financially educated. If you would like to learn how to excel in the 21st Century and create an extraordinary quality of life, including how to make money while you sleep, to free up your time to do other more important things than working for someone else 9 to 5, then read on as it may amaze you to learn just how much success people are having.

Jamie McIntyre – Millionaire Investor and Mentor

From the bottom rung of the financial ladder, Jamie McIntyre made his vision known. All self-made millionaires can describe their direction towards success and this direction is driven by specific goals. So when Jamie told himself that he wanted to be a self-made millionaire one day, he had his goal clearly defined despite the tremendous odds against achieving it. Jamie McIntyre aimed high and reached high.

As a successful entrepreneur Jamie first realized that in order to get to the top, a different approach is required. His focus shifted from the ordinary to the most opportunistic situations. With the different challenges he faced, he learned that changing his mindset would help him climb the hill faster. Self-made millionaires find opportunities in doubts and optimism in hesitations. Jamie McIntyre definitely applied the best financial strategies to reach his goals.

As a student of 21st Century Education, he knew that the shift in mindset is not so easy. While Jamie knew he had the talent and skills to be successful, he also appreciates the saying that “Rome will not be built in a day”. The desire to get ahead and to improve gave him the initiative to learn under the most successful self-made millionaires in the world. Under these leaders, Jamie shaped himself and developed the concept of 21st Century Education.

At his apex of his success, Jamie McIntyre developed a new passion to share what he learned and make a difference in the lives of other people. So when he built his multi-million dollar educational organization, Jamie transferred his success to people who are also hoping to find the right fit of success for them. Jamie continued to travel all around the world and in Australia to conduct seminars and training session on creating the best possible quality of life, reaching one?s potential, financial achievement and financial freedom, and making an a lasting impact.

Having achieved success as an entrepreneur, Jamie McIntyre is now a sought after educator, although in more recent times, some of his programs have become controversial. His seminar content has been reviewed as some of the most relevant material that this century needs. His insistence on dynamic learning transcends what typical college students learn in classrooms. His highly effective program has been recognized as applicable to people of all ages and from any financial circumstances.

Jamie’s own investigations led him to believe that there must be a secret formula, some little known strategies, that make all the difference between the average person working a 40 hour week for their wage that is barely enough to make ends meet, and those elite few who have more money than they could ever need. He was determined to find out what that difference was, and to achieve absolute financial freedom.

Figuring out what the average 95% of the population are doing and doing the opposite is what will set a rich man and a poor man apart. The ordinary and the common create the financial failure for most people. Thus, Jamie suggests that there must be another way.

Within less than 5 years Jamie had succeeded. He became a self made millionaire while still in his twenties! He was then nominated for Young Australian of the Year in 1999 for his financial achievements. He decided this information should be widely available to everyone and co-founded 21st Century Academy. He has now educated more than 165,000 average Australians and New Zealanders, and now people world wide from the United States, UK, Europe, India and Asia. With today’s technology and the way the internet has revolutionised business, anyone can be next no matter where in the world you live.

Jamie explores the idea of people’s professed attitudes to money. Finding how money works for you and your life is just as important as other things that contribute to your well-being and happiness. Those who profess that they are not interested in money are usually the ones who end up working hard for it. If you aspire to a better quality of life, your focus should shift from just working for money to how money should work for you. The right attitude towards money reflects not only your financial success, but also how you want to live your life.

Jamie McIntyre believes that much of the valuable information and strategies he learnt to turn his life around, especially financially, isn’t taught in today’s education system, because many industries and systems profit immensely from people being ignorant of these things. So he has created a free 3 hour DVD which he will send to anyone who is interested, called “What I Wish I Had Learned in School, But Didn’t”

You cannot be truly wealthy if you don’t know how to be satisfied with what you already have. It starts with how you feel inside. The more grateful you are for your small successes, the more you will feel wealthy. Realizing that being “wealthy” does not necessarily mean already having a lot of money or financial assets is actually the first step in achieving financial freedom.

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Why the Option Delta is Crucial When Picking Trades

If you want to trade options that have the best chance of giving you 100 percent return on investment then finding a stock that’s going to make a move is the key. Stocks that trade sideways are fine for non-directional trades, but if you’re a directional trader then you probably like to predict which way a stock will move, and by how much, then start trading options accordingly.

As important as it is to find a stock that moves, it’s even more important to make sure that your option is going to move when the stock does.

So how can you find out ahead of time if your options are going to make a move in price? There’s only one number you need to know.

Let me show you what I mean …

All you have to do to find the one number that will tell you how an option will move is master this formula:

Simple, right? Luckily, your broker will do all that for you. Here’s what you need to know …

This formula is used to calculate “delta.”

Delta is one of the options “Greeks” that comprise an option’s premium or value. It is considered by many to be the most important component of an option.

Delta can be used in a couple of different ways when you’re trading options. I’ll show you both of those and illustrate how paying attention to delta can help you when determining which option to buy.

But first …

What is the Option Delta?

In simple terms, delta is a numerical value given to each option that shows how much that option’s premium will move with the next $1 move in the stock.

Deltas are either a positive number (for calls) or a negative number (for puts). Call options will have a value of anywhere from 0 to 1.00, while a put option has a value anywhere from -1.00 to 0.

Here’s a quick example: take a stock trading at $50 with a call option that has a delta of .60. That means when the stock goes $1.00 higher, that call option should go up $0.60 in price on the delta component alone. On one contract, that means an increase of $60, since one contract grants control of 100 shares.

With a put, take that same stock at $50. If you look at a put option that has a -0.60 delta, that means when the stock drops in price by $1.00, the put option price, on the delta component alone, should go up $0.60, or $60 per contract.

Mind you, the delta will work against you by that same amount should the stock move against you. For example, if you have a call option with a 0.60 delta and the stock drops $1.00, that call option should drop that 0.60, or $60 on the contract.

Two Ways to Use the Delta When Trading Options

The first way to use delta is to figure out how much you can expect the option price to move in relation to a $1.00 move up or down in the stock.

Here’s a quick example using Monsanto Co. (NYSE: MON) at a closing stock price of $90.83 on Oct. 19, 2015.

These MON options have a delta of 61.06%, or .61. The option premium is $3.65, so how many .61 moves will it take to make another $3.65 and double your money? Roughly six. So just off the delta alone, you can guestimate a six-point move higher should get a double on the option, right?

If only it were that simple!

As we’ve talked about before, options have a time decay component called theta. Another component is vega, or the implied volatility factor. Many things affect these factors and the pricing of options. Each day that goes by and each change in the price of the underlying changes the dynamics of how an option is priced.

Another thing to keep in mind is the rate of change in the delta, which is represented by the gamma. It shows how much the delta number changes with each dollar move in the stock. If the gamma is 0.05, that means the delta should increase by $0.05 for every dollar move.

A positive gamma, and a higher one at that, means the option could double faster than a six-point upwards price move in the stock.

The delta will increase as the stock moves in your desired direction. The higher the delta, the closer the option will track the stock.

Another Way to Look at the Option Delta

The delta value of an option plays a direct hand in determining that option’s profitability. An option’s “moneyness” (that is, whether it’s in the money, at the money, or out of the money) directly impacts the delta value.

More specifically, the delta tells you the probability of the option ending up in the money (ITM) at expiration.

Here’s what I mean …

The highest delta you can get on an option is 1.00. An option with a delta of 1.00 is pretty much the closest thing you have to a 100% chance of the option ending up ITM.

At the money (ATM) options typically have a delta of .50, meaning it has a 50% chance of being ITM at expiration. Of course, that means there is a 50% chance it ends up out of the money (OTM) as well.

I feel if I start out ITM, I should end up there, and the intent is to have it end up more ITM. If I start out on an option as close to .70 and it increases and goes closer to 1.00, my option should be increasing in price at an accelerated rate.

Why is this view on delta important? If you start out with the purchase of an OTM option and say it has a delta of .25, that means there is only a 25% chance this ends up ITM. When the option’s “moneyness” goes from OTM to ITM, that means the option should be increasing in value.

The option can go from OTM to ATM, and the option should be increasing just on the delta component, but it is not a guarantee.

On my straight directional options trades, I like to look for an ITM option with a higher delta in the sweet spot of .70 to .75.

I want the underlying stock to move within 30 days. Because I need the stock to move quickly, and I want to make a higher amount of money on each dollar move in my direction, the ITM options with the higher delta pay out better than those that are OTM when things work. They also allow me to protect my capital because I am able to recoup more of my option premium in the event the stock trades flat.

Source: moneymorning.com/2015/11/11/this-number-is-crucial-to-trading-options-successfully

Why an Options Trading Plan is Essential to Success

People who trade without creating their options trading plan first are putting themselves at a serious disadvantage. Like any business, having a plan is essential to success. There is an old adage that traders are told to live by that goes, “Plan your trade and trade your plan.” Others say, “Fail to plan and you plan to fail”.

There should be a follow-up to that one that says, “Stick to your plan no matter what.”

You would think that last adage is implied in the first one, but beginning traders always seem to get something in their head that makes them change their original trading plan. Even more experienced traders veer from time to time.

I can speak from my early days of trading experience when I say changing your plan mid-trade ALWAYS ends up reinforcing one lesson: that you should have stuck with your original trade plan all along.

Every master trader has learned, probably the hard way, to build a simple, effective trade plan and stick to it no matter what. It’s pure gold.

I’m going to show you how to do just that using a case study straight from Money Calendar.

When setting up a trade, there are some things traders should have in mind that need to be done before they invest their first dollar. First, you must determine what kind of trade you want to make, which will most likely be decided by what kind of trader you are.

Since the majority of my trades are directional, I will focus on how to build a directional trade in the following example. But keep in mind that the underlying principals will work no matter what kind of trade you want to make.

For our purposes here, we want our targeted stock to make a move up or down, so it’s important that we first make an assessment of the upcoming, short-term market direction.

You can use whatever tools you have at your disposal to make this determination, including any number of indicators (as we’ve talked about recently, the simple moving average is a great way to assess direction). I use Money Calendar, which gives me a calculation of how many of my top 250 stocks are showing the 90% probability of making a higher or lower price move.

Next, you’ll assess how far you expect the stock to go and by what time frame. This will help you audit or manage your trade effectively. For our example here, let’s assume your research indicates a three-point move higher in the underlying stock within the next few months.

Naturally, you’ll want to buy call options with an expiration date a couple of months out.

But before you do, make sure you do one thing:

Determine Your Risk Ahead of Time

Before you buy your call options on the underlying stock that you expect will see a three-point move in the next few months, you have to determine your risk.

Some traders calculate their max position size using a percentage of their trading account. Typically, traders do not risk more than 2% of their trading capital on any one trade. Many traders risk far less. For Money Calendar trades, the rule is that we never risk more than $500 per trade. Whatever method or number you choose, just be consistent so that you can easily determine your position size for each trade.

Consider this example:

You have a $25,000 account and do not want to risk more than 2%, or $500, per trade. If the option contract you are considering is priced at $2.50, that means you can buy no more than two contracts. This assumes you will risk the full 100% invested on the trade. That, of course, is up to you.

If you want to buy more contracts without taking on more risk, all you have to do is use a stop loss on your position. For example, if you adhere to a 50% stop loss, then you could take on a position size of four contracts. Four contracts at $2.50 = $1,000 invested on the option trade (four contracts x 100 shares x $2.50 = $1,000), but your 50% stop loss will ensure, assuming you absolutely stick with your plan, that your risk remains at $500.

Once you determine your risk, you can buy your call options.

And what happens next is absolutely crucial:

Stick to Your Options Trading Plan

Now you’ve zeroed in on your stock, selected your call option, determined your risk, and placed your trade. The stock moves in your expected direction, jumping three points higher, and your call option is now showing a profit.

But you’re excited at the prospect of your option showing gains, and you want MORE! So you hang on to the option because you have more time till expiration.

Then the stock reverses on you and goes back to break even. Or worse yet, a loss.

You had an assessment ahead of time showing you that a three-point move was all the stock had in it. You built your trade with that knowledge and/or expectation ahead of time and could have had the chance to follow that plan.

It’s important to take profits when you hit your predetermined profit targets, especially with options. Remember, the fixed-time nature of options means that, at some point, time decay will begin to work against you, and your option will begin to quickly decline in value.

Let’s take a look at a specific example using a recent trade from Money Calendar.

Case Study: NFLX

Here is the process for a trade on Netflix Inc. (Nasdaq: NFLX). I used Money Calendar for the week of Oct. 19-23 and saw a whole week of green, signifying a bullish week.

My assessment on NFLX was for it to move higher by at least five points, as it has done nine out of the last 10 years (90%), according to Money Calendar’s data.

And I was able to determine the amount of time it would take because Money Calendar showed me it made these price moves over a 13-day period.

The action to take was as follows:

We targeted November Week 1 options that expired Nov. 6.

The limit price for this trade was $2.50. That means if you have a $500 risk threshold, you would be able to buy two contracts.

Here was the exit plan for this trade:

Here is a chart on what happened over the life of the trade:

You can see that the first three days after the trade was placed on Oct. 19 were all down days.

Some traders would think that is NOT the way they want their trade to start. They may fear even more down days to come and sell the options in a panic to eliminate further decline and be able to sleep at night.

But we didn’t panic – we did our homework, created a great trade plan, and placed a good trade based on historical data from Money Calendar.

We built our trade with certain expectations of what the stock could do and we stuck to your particular risk tolerances (for our Money Calendar trades, no more than $500 per trade) when we placed the trade. And if the prepared trader who builds his or her trades ahead of time with both “what ifs” assessed (what if it goes higher and what if it goes lower) did not want to have the full 2% at risk, they wouldn’t have put this trade on in the first place.

But, having agreed ahead of time to the known risk, we stuck to our guns and rode this out to a 100% ROI on Oct. 28.

Source: http://moneymorning.com/2015/11/05/why-your-trading-plan-is-pure-gold/