S&P 500 Sector ETF Momentum Rankings

[lightninboy]

See that 98% PoP? That's a clue that a short option in the green with a high PoP should be rolled ahead because the theta is getting maxed out.

I had doubts about diagonals being a profitable system the first month or two, but now a lot of my diagonals are past the breakeven point and it's looking better.

I quit using MACD because I am a non-directional trader now.

 

[lightninboy]

I start out with a double diagonal with a guaranteed profit no matter what and I try to pencil in an adequate payoff for time far OTM with a generous payoff for assignment and I try to keep both sides going as long as possible, but I never buy back a short option in the red to avoid an assignment because closing a trade at a loss is for losers. As for whether or not to restore a double diagonal after one side is assigned and exercised, I have a list looking ahead to see if I likely have a lot of assignments coming up at the same time in the near future and if it's a good idea to save up a lot of stock buying power so I don't run short I don't restore the doubles, at least not right away, and it's nice to open a profitable-looking double diagonal on a stock I never tried before instead of trading the same old thing all the time at not-so-profitable terms, and I'm not very worried about getting out of the remaining diagonal at a profit eventually.

 

[lightninboy]

4/1/19
-100 MRK to exercise 1 1/15/21 60 call on
-200 NTAP to exercise 2 1/15/21 30 calls on

I let tastyworks work the orders to save me the $5 exercise fee and make me more money and bring my buying power back up right away like they always wanted to do instead of me neutralizing my shares or short shares by exercising my long call or put and waiting that day for the deal to go through.

I figured out how the tastyworks way works by the fill prices on my trade notification emails.

Here's the deal.

I figure my way makes me $1.30 gross profit on MRK call diagonal.
Assigned at 80.5. Short shares bought at 60. $20.50 gross profit on exercise minus $19.20 gross cost basis = $1.30 gross profit on MRK call diagonal.

I figure the tastyworks way makes me $2.61 gross profit on MRK call diagonal.
Assigned at 80.5. Long shares bought at market to neutralize the short shares at $82.97. $82.97 minus $80.50 = $2.47 loss. 60 call sold at market for $24.28. $24.28 minus $19.20 gross cost basis = $5.08 profit. $5.08 profit minus $2.47 loss = $2.61 gross profit on MRK call diagonal.

I figure my way makes me $2.00 gross profit on NTAP call diagonal 1.
Assigned at 66.5. Short shares bought at 30. $36.50 gross profit on exercise minus $34.50 gross cost basis = $2.00 gross profit on NTAP call diagonal 1.

I figure the tastyworks way makes me $2.04 gross profit on NTAP call diagonal 1.
Assigned at 66.5. Long shares bought at market to neutralize the short shares at $69.71. $69.71 minus $66.50 = $3.21 loss. 30 call sold at market for $39.75. $39.75 minus $34.50 gross cost basis = $5.25 profit. $5.25 profit minus $3.21 loss = $2.04 gross profit on NTAP call diagonal 1.

I figure my way makes me $1.90 gross profit on NTAP call diagonal 2.
Assigned at 66.5. Short shares bought at 30. $36.50 gross profit on exercise minus $34.60 gross cost basis = $1.90 gross profit on NTAP call diagonal 2.

I figure the tastyworks way makes me $1.94 gross profit on NTAP call diagonal 2.
Assigned at 66.5. Long shares bought at market to neutralize the short shares at $69.71. $69.71 minus $66.50 = $3.21 loss. 30 call sold at market for $39.75. $39.75 minus $34.60 gross cost basis = $5.15 profit. $5.15 profit minus $3.21 loss = $1.94 gross profit on NTAP call diagonal 2.

So I guess tastyworks knows what it’s talking about. Sometimes I can gain a lot, sometimes I can gain a little, and sometimes I have to end up exercising the long option to neutralize the shares or short shares. It’s called a covered stock order

For example, say a PG 4/5/19 102 call expired ITM with a 1/15/21 80 call as the long call and PG at $103.64.

I figure my way makes me $1.29 gross profit on PG call diagonal.
Assigned at 102. Short shares bought at 80. $22.00 gross profit on exercise minus $20.71 gross cost basis = $1.29 gross profit on PG call diagonal.

I figure the tastyworks way makes me $2.61 gross profit on PG call diagonal.
Assigned at 102. Long shares bought at market to neutralize the short shares at $103.64. $103.64 minus $102.00 = $1.64 loss. 80 call sold at market for $24.80. $24.80 minus $20.71 gross cost basis = $4.09 profit. $4.09 profit minus $1.64 loss = $2.45 gross profit on PG call diagonal.

But suppose the covered stock order didn’t go so well.

Assigned at 102. Long shares bought at market to neutralize the short shares at $104.23. $104.23 minus $102.00 = $2.23 loss. 80 call sold at market for $24.55. $24.55 minus $20.71 gross cost basis = $3.84 profit. $3.84 profit minus $2.23 loss = $1.61 gross profit on PG call diagonal.

The inferior covered stock order way was still better than my way, but I suppose it’s best to have tastyworks do it over the phone, because they know how to set a debit limit for the order.

 

[lightninboy]

I asked tastyworks:
I trade diagonals. Is it okay to use most of my buying power on positions, or should I have a large cash reserve for handling assignments and exercises that may come my way? I could have quite a few assignments coming on the April 18 expiration. Or should I figure that once I put on a debit spread with a locked-in profit I have it secured with the long position and I need not fear assignment and exercise and I should put on as many as I can with my buying power?

The answer was like:
If you get assigned and don't have any buying power left, you'll likely receive a margin call and will have to perform a covered stock order with your long leg like you would have done anyway, so it's not the end of the world. But it would sure be nice if you didn't run out of buying power in the first place.

I think that keeping my account managed to have ample buying power for likely near-future assignments makes me a better trader anyway and I'll tend to keep on doing it.

 

[lightninboy]

After being frustrated about my account taking so long to grow, I figure the long-range goal in double diagonals is when you finally terminate them by exercising the sides off of each other, so you'd better make sure you end up with a good profit on each double and hopefully you can increase the number of double diagonals in your portfolio even if your account balance doesn't grow much. Thus, certain stocks are the best and you should settle for modest short sales to reduce assignments. I am recalculating my records to show net after commissions instead of just show gross, as I want to KNOW that I am earning money in the long run.

 

[lightninboy]

I wouldn't get so freaked out if my account balance would stay steady, but it goes downhill no matter how hard I sell premium. Well, LEAPS options decay in value, so what can you expect? So I thinks I can use my buying power to keep my account full of LEAPS double diagonals and get out at a profit eventually. Then I see that the price of replacing assigned LEAPS diagonals has gotten terrible. The trouble with double diagonals is one side works and the other side doesn't. LEAPS double diagonals are okay when they pencil out, but sooner or later they quit penciling out and then you can't get ahead with them unless you wait forever on them and I want to make money now. I thinks I'll replace assigned LEAPS diagonals with shorter-term diagonals and aim for profits through assignment or through getting the long option paid off by premiums, maybe gradually convert to shorter-term diagonals entirely and not necessarily doubles. If I can't start making making some consistent profits at least theoretically, I'm gonna have to quit trading.

 

[lightninboy]

Since I'm sort of getting back into directional trading and have to know whether to concentrate on put diagonals or call diagonals, I figure a Barchart TrendSpotter is as good as an indicator as any for that.

 

[lightninboy]

I was looking for a good screener for diagonal spread candidates and I think I'll go to Snider Advisors Free Covered Call Screener and run tests on the best-looking stocks (ETFs don’t seem to work as well as stocks) on both the call side and the put side.

 

[lightninboy]

I closed out most of the LEAPS diagonals that were overall profitable so I didn't have to wait on them and freed up a lot of trading capital for shorter-term diagonals and kept the LEAPS diagonals that were overall unprofitable so I can keep a better look at them for a chance to unload them at a profit. Take profits, give losers duration.

 

[lightninboy]

The way I see it, you gotta sell premium on stocks that pay good ITM on the next expiration date, preferably quite a ways ITM, and preferably on both the call and put side if you're inclined to go either way. And this idea of collecting premiums to get your cost basis down is baloney because when you do that your long option goes into the red and makes your account look bad. Get the short options in the red and the long options in the green and get those diagonals assigned away at a profit as soon as possible even if the profit is modest. Generally look at the 20-day MACD and if it's positive be in calls and if it's negative be in puts and select short option strike prices usually defensively ITM, but sometimes it can pay to go OTM (think Accelerator Oscillator and bubbles and whitecaps). As for long option DTE and strike prices, I somewhat go the tastytrade route and buy non-weekly expiration dates at 45 days out, usually farther out, even up to 250 days out, but if you hate long option red ink you might as well try to keep it nearer to 45 days out. My tastyworks options chain is set at default at 16 strikes and I usually buy the farthest strike price showing. I suspect that tastytrade gives diagonals nowhere near the attention they deserve. And what's this "Your debit should be 50% to 75% of the width of the spread"? How many times does that happen in real life?