What is “Stansberry Alpha?”

By Travis Johnson, Stock Gumshoe, June 27, 2014

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[what follows was originally published in 2012 and 2013, it has not been updated (the pitch for the service remains similar, presumably the strategy does as well) but is being brought up to the top of the page because so many readers are asking about it this week.]

It appears that Porter Stansberry is pushing for new subscribers to his Stansberry Alpha options trading service again, the first time he’s pushed very hard for this since the Winter. The spiel this time is that Porter is FURIOUS that brokers are making it tough for people to follow his strategy, and that therefore those people are angry at Porter, so he’s releasing a new special report on how to follow his strategy in more detail, and how to get broker permission.

I’ve written about Stansberry Alpha before, but it was only in the Friday File and that was way back in December — that previous ad of his gave more clues about the specific strategy, and I assume that hasn’t changed, but I thought folks might be interested in seeing how the logic of it works so I’m re-printing that Friday File piece from last December here for everyone.

Porter does not share any hints or clues about the next company that he will use as a “Stansberry Alpha” Trade, but I run through the example of Chicago Bridge & Iron below (using numbers from last December) and he has said that his focus is on companies with blue chip assets that he’s very comfortable with buying — stocks that he thinks have very limited downside, in his opinion, and by way of example (and proof of success) he mentions having recommended similar “Alpha” trades in Intel, Microsoft and Wal-Mart since the service began about eight months ago. So whatever he’s choosing next is likely to be a “blue chip” type company, and, as you’ll see in my comments below, he’s essentially taking the risk of the stock cratering and using the money he receives for taking that risk to make a bet on the stock climbing — in effect, a “double down” of a bet on one underlying stock.

What follows has not been updated in any way since it first appeared on December 12, 2012:

Here’s how Porter has been pitching this new trading service, which is priced at $2,500 a year:

Porter Stansberry’s ALPHA* Strategy

“A Little-Known Secret of the Options Market that’s so Profitable… We’ve Never Been Willing to Share It…

“*ALPHA has been called “The Single Greatest Investing Secret” in the world’s markets. It allows investors to earn far more than normal stock investments, while actually taking less risk. Most academics will tell you it’s impossible. But the proof is right here…”

You can see the whole presentation here if you’re interested, I won’t go into every detail because he’s not teasing a specific trade on a specific stock this time around, he’s teasing a strategy that he thinks he’ll be able to recommend monthly, over and over, to profit from an “anomaly” in the markets. I’ll just share a wee bit here to give you a taste:

“Alpha is a critical anomaly that could hand you 50% to 100% gains — over and over again — with less risk than almost any trade in the world.

“This anomaly cannot be explained by the “efficient market hypothesis” ….

“I love buying world-dominating, capital-efficient businesses at deep discounts… what I call “no risk” prices.

“I’m talking about companies like Intel, Johnson & Johnson, Exelon, and Hershey.

“These are the kinds of solid stocks you want to grab when the market irrationally sells off… which it does every so often….

“… what if there was a way you could make 50% to 100% gains — every 12 months or so — on safe, conservative stocks like Hershey?

“What’s more… What if you could make these big gains, while taking LESS risk than a regular shareholder?”

So you can see why people are asking — sounds pretty awesome, right?

He does go on to describe the strategy in very general terms, and to say that it’s best for those who already have a decent pile of capital to use (he says $25,000 is a decent minimum account balance) … and that you’ll need approval from your broker, and some brokers won’t let you use this strategy. It’s some kind of options trade on the big, “blue chip” stocks (though he doesn’t use that term, I don’t think) that Porter often recommends in his regular newsletter (and in some other relatively conservative letters, like Ferris’ 12% Letter), but it is apparently not just the selling of puts, which he has tried to build newsletters around before. Here’s a bit more:

“Selling puts is still a great strategy today. You can pile up lots of single- and double-digit returns. You can inch your way to a great year….

“But here’s the thing: You won’t hit home runs just selling puts right now.

“To make outsized gains on a single trade, you need something else… You need an edge in the market.”

That edge? Well, he hints at it with talk about his first recommendation, an “Alpha” trade on Chicago Bridge & Iron (CBI):

“As a shareholder, you could do well. I’d estimate the stock could climb 20% or so in the next year alone.

“But an anomaly in the options market allows us to literally grab 18.5% in guaranteed income right now… While potentially banking 100% gains on CBI in about 12 months….

“You see, like with selling any put or call option, the Alpha trade gives you upfront income.

“In this case, the CBI Alpha trade hands you 18.5% in guaranteed income up front… to do with as you wish. You never have to return this money.

“But in addition to this upfront income, the Alpha trade also offers you a potential 108.6% return on capital by January 2014.”

OK, so I can’t tell you exactly what Porter is recommending on this CBI options trade — CBI options are already pretty liquid, so there isn’t a single options contract that stands out as getting a vast amount of interest, but it sounds very much like he’s recommending you both sell puts and buy calls at the same expiration, with presumably different strike prices to create some income.


And no, you’re not going to generate 20% returns (or 18.5%) in a year with this strategy unless you’re using margin to cover your put selling – you can’t consistently make that kind of money from a great company if your put selling is backed by cash, particularly not if you have to use some of the income to generate more upside potential.

But still, I think this is what he’s doing — he must be using some sort of margin calculation, figuring what your broker will require you to hold in cash to back up the puts you’re selling and then considering that amount (and not the margin that you have tied up in the puts) to be your investment. That’s fine if the margin doesn’t get called, but if the stock falls by 20% because the CEO is bribing the President of Mexico and stealing money for his drug habit (wild example, I suspect nothing of the sort from CBI) then there is a downside risk that has you using that margin account.

Here’s an example, with some guesses as to the kind of trades Porter could be suggesting:

CBI does have LEAP options trading for January 2014, and all of the ad language talks about returns in a year, so I assume he’s doing these kinds of long-term options with these trades — both to give you some real put selling income and to provide more time for a call option to play out and become profitable. So you could, for example, sell a put option on CBI at $35 and get income of about $2.20 for that … so that’s $220 for each options contract of 100 shares.

Then you could buy a call option on CBI for some upside exposure at that same expiration, but if you want net income to put in your pocket right now you have to spend less than $220 on it (we’re ignoring commissions to make it simple) — so let’s say you buy the $60 call options for $1.60. That’s $160 per contract, so your net income is $60 per paired contract.

What happens to the stock? It’s at $45 now, if Porter’s right and the stock goes up by 20% this year it would get to the mid-$50s, and both contracts would expire worthless, you keep your $60 and that’s it.

If the stock falls below $35, which would be a loss of more than 20%, you have to buy it (or buy back that put option you sold, and do so at a loss). If it falls below $34.40 at expiration, you’ve lost your net income of $60 and more.

So if I’m right about what Porter is suggesting, this is really just a bullish strategy to leverage your returns without committing your full capital to a position in the stock — and if you’re right about the stock doing really well you’ll make tons of money because of the leverage of those call options and the fact that you offset the cost of your call options by selling puts.

This is presuming that your broker will let you sell a put backed by margin and only set aside a portion of the cash to cover that margin, which, as Porter said, not all of them will do — and you can’t do it in a retirement account, because those accounts can’t use margin.

How much capital would it take to do this? Well, for each contract of CBI you would need the capacity to buy 100 shares of CBI at $35 to back up your sale of the put contract, so that’s $3,500. If your broker makes you set aside 50% of that you need $1,750 in cash, if he requires 20% it’s $700. I have not done this kind of trade, but I’ve seen margin quotes in that neighborhood from “regular” brokers so that’s a decent guess.

So that’s how the income numbers start to look impressive — if you start with the assumption that you’re only “investing” the $700, then $60 in income plus the potential upside from the call options (if the stock does well) sounds pretty awesome. And it’s probably a bit more than $60 in net income for the kinds of trades he’s suggesting, since he talked about 18.5% “up front” income … maybe because his recommendation has impacted the options prices, or because I guessed at the wrong contracts prices for my example.

Do keep in mind, though, that if CBI dropped to $20 for some reason (it probably won’t fall quickly by 50% or more, which is why you’d want to consider this … but “probably” is an important word) you’d have to buy it at $35, so even though your broker might have only made you commit $700 you’re still on the hook for an additional $800 from your margin account (total of $1,500, to cover buying 100 shares of the stock at $3,500 and selling it right away at $2,000). And if CBI turned out to be a scam and went bankrupt over a weekend — which, again, is extremely unlikely — then you’re on the hook for $3,500, which makes the $60 in income seem like little comfort. That’s why Porter talks a lot in the ad about doing this with the “world-dominating, capital-efficient businesses at deep discounts” that he thinks are at “‘no risk’ prices.”

And if you can get your head around that, sure, this might be an impressive strategy to juice your returns beyond basic put selling by using your put selling money to buy calls. So instead of buying the stock, you just promise to buy the stock at a lower price for a year … and then, with the money you get for that promise, you place a bet that the stock will go even higher that year. The “anomaly”, presumably, is that the put options for a stock going down by 10-20% will earn you more money than it will cost for the call options on a stock going up by 20% (or whatever the percentage is he’s using, that I don’t know). If you can indeed get a 20% margin requirement on those put sales you can certainly generate 10-20% income with this strategy with a lot of relatively volatile but strong companies — just look at the companies you are really, really confident in, see what you can earn by promising to buy the stock at a 10-20% “discount” to today’s price, and use maybe 1/2 or 1/3 of that income to buy a call option if you’re really excited about the prospects — you’ll get income and upside exposure, and you’ll also get a pretty solid chunk of somewhat hidden downside risk from your margin exposure (or a much smaller income number if you back up the put sale with cash, as you’d have to do in a retirement account).

Second example? OK, try Intel (INTC), another of the “world-dominating” stocks he mentions and one I happen to own personally. Say you’re absolutely certain that it won’t go back down below $18 again (it’s at $20.75 now) within the next year, and you’re willing to back that certainty up (and maybe would be buying the stock, no questions asked, if it fell to $18 anyway). You sell an $18 put on INTC for January 2014 for $1.40, or $140 for the contract of 100 shares. You have to have $1,800 to back up that sale, let’s say you get a pretty friendly margin requirement of 20% so you actually only have to set aside $360 in cash (20% of the $1,800). That’s a nice return of almost 40% if you ignore the fact that at least some of the margin commitment is real money at risk. Then use less than half of that to buy a call option, we’ll say the January 2014 $25 strike price for a bit under 60 cents. So that gets you a net income of 80 cents, or $80 per contract. A bit more than 20% of the $360 in cash that your broker will set aside.

If the stock falls to $17, you’re losing money … or, if you think of it philosophically, you’re spending $18 a share to buy Intel and it’s worth more than that and dammit, you don’t care that the stock market, for an irrational time, thinks it’s worth only $15 because Congress is fighting and Spain has defaulted and the whole market has crashed by 25%.

If the stock rises to $28, you don’t have to worry about that margin risk you took and you’ve booked profits of better than 100% of the cash your broker set aside (the original $80 of income, plus the $25 call option is now worth $3), and since the put option expires worthless that cash the broker set aside is just quietly returned to your regular balance. It is neat and tidy, and as long as you’re really comfortable with the margined put selling — and stick with companies where you can be 99% certain that you can get out of these trades if you want to trigger a stop loss, it certainly could be a decent way to generate both income and upside gains in a rising market. As long as you stick with companies that are big, that have a lot of options trading, are reasonably valued, and are stocks you understand and want to own…. and as long as you’re either willing to suffer heavy losses if the entire market falls by 20-30% over the coming year, or able to monitor these trades pretty closely and sell (buy back your put options) to take your lumps with stop losses on the way down.

I’m guessing that he’s keeping the price of the newsletter high because it’s an options strategy, so once you get more than a couple hundred people following this kind of strategy closely you get to impact the market enough that none of your subscribers would be able to get the prices you recommend on the options … at least not in that week following the new recommendation when most people are likely to be excited about it. And that’s really all I can do, so do keep in mind that ALL OF THE STUFF ABOVE IS MY GUESSING — I don’t know for sure that this is Porter’s strategy, nor do I have any personal experience using this kind of strategy.

P.S. We also had a long discussion about this following a reader question over the winter, you can see that long thread here if you’re curious.

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54 Comments on "What is “Stansberry Alpha?”"

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Myron Martin
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August 5, 2013 12:27 pm
Excellent explanation of a complex strategy Travis; but it is hardly a safe strategy for the average small retail investor. Maybe that is why some investors who got “burned” at some point by some S & A recommendation are so down on them. Sometimes what isn’t said or disclosed would provide a more balanced picture. In 2 decades of investing I have never found an analyst who is 100% correct at all times and in all markets. Investors need to be defensive against their own GREED and not get taken in by cleverly written ads that may not be appropriate… Read more »
AR
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AR
August 5, 2013 12:32 pm

You are correct, his strategy is a buy a call and sell a put. His “amazing” high % return, as you mentioned, is because he is using 20% as collateral so his returns are based on the premium amount rather than full amount at risk…

Pok Sonetirot
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Pok Sonetirot
August 5, 2013 12:37 pm
I have been using that strategy for year. I already made 27% gain of my total portfolio this year. It call Synthetic long stock (assume at same strike price). However you could adjust strike price of each pair of call or put to suit your need. It works 95% of the time and 100% of the time during bulls market. I do not need SB to pick stocks for me. I could pick and pair I want. I agree go with the Blue ship stock where chance to stock crash is minimum. If stock do move lower, I could use… Read more »
sonetirot
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sonetirot
June 30, 2014 2:06 pm
I have used all those strategy for a long time. It do work and you do not need SA to show you. Synthetic long is great (like buy house with no money down or getting cash back). I think it would work with experience option trader that know how to work around it. I did make a fortune selling PUTs. Synthetic option ( same strike price or even different strike price between long call/short put). Chance to lose money is very low as long as price movement is not too drastic down ward. Even you are losing on naked put.… Read more »
Kevin
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Kevin
August 5, 2013 12:50 pm
I’ve read through the “Alpha” teaser and newsletter info that Porter and his people advise AGAINST using margins for trades. With a put sell, the broker is to set aside enough cash from the account to cover 100% of buying the stock should it drop to the put price, and this is done with stocks you either want to own anyway or would not mind owning — so you get a good stock at a good, low price. Also, the put sell and call buy prices are NOT the same, and the time frame is 1-3 months so as not… Read more »
Pok Sonetirot
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Pok Sonetirot
August 5, 2013 1:09 pm
I think their strategy would work most of the time. The only time it would be really hurt if the whole market crash like 2008. However you need to prepare how to get out when market going against you. Sample I expect Dominion (D) trade~$60 at this time to get it approve for LNG export soon. So I bought combination of Jan 14 60 CALL / Sell Jan 55 PUT cost $.90 If it got approve for LNG export by year end, it may go much higher. If not it may drop 10% to $54. So I lost about $1.90… Read more »
Paul
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Paul
August 5, 2013 1:49 pm

Sounds very Savvy. As Travis mentions in the article – if you have a ‘service’ like Stansberry telling you which puts/calls to sell/buy – then those particular puts/calls are often priced out of the price range recommended. I tried Options Hotline once – had that issue…so I asked for a refund.

dbrawner
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dbrawner
August 5, 2013 2:22 pm

Kevin,
You are exposed to a lot of risk with that strategy if D collapses below the 55 put.
You could theoretically lose $5500 per contract (albeit the stock needs to go to zero).
I’m not sure I follow what the advantage is to buying a call and selling a put at the same strike versus just buying the call? The naked put carries the same risk as buying the stock.
Looks like excess commissions to me…

Kevin
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Kevin
August 5, 2013 2:51 pm
As I understand it, the put and call use different strike prices: the call buy well above current stock price and the put sell well below the current price. The risk is minimal if the company is a solid one that you want to own anyway (at a lower than current price). As I understand it, the options usually expire unused after the short 1-3 month time frame freeing up the set-aside money for re-use, giving you the difference between put sells (income) and call buys (expense), less commissions. I believe the real purpose and benefit of “alpha” is in… Read more »
Steve
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Steve
August 12, 2013 7:47 pm
Selling PUTS can be rewarding and great fun. Some of these may even be sold for a gain of 5-8% for 30-60 days. Here is some wisdom from previous painfull experiences: don’t hold short puts during earnings reporting time, and regardless of how much “Fun” it is, always be sure that you can afford the worst case scenario. Bad news may come at any time, but on the quarterly earnings report day, there is always the chance of bad news. A high beta, high volatility stock can easily crash 20% – 50% on worse than expected earnings, or heaven forbid,… Read more »
Dave Chance
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Dave Chance
August 17, 2013 8:45 am
I can understand your pain and have been there myself. When I have had several rather large losers, it has generally because I failed to follow one of the cardinal rules in writing puts: I wrote them for the large premium alone, rather than that they were first rate companies that I would be happy to own at the strike price, if put to me. I have also failed at times to consider the quarterly earnings date, which, as you note, can cause a big swing in the option’s price. I have been more consistent in observing the above of… Read more »
Bob Dannegger
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Bob Dannegger
August 17, 2013 10:37 am
I’ve been trading options for about 3 years, including covered calls, selling puts, and many other option strategies. I’ve also bought and sold many stocks. I can’t say that I have been all that successful since I took advice from many gurus, but I recently started following the advice of Tom Sosnoff. Tom has been trading for 30 years, many of them as a market maker before being one of the founder/developers of Think or Swim (TOS), one of the best if not best trading platforms available. He sold it to TDAmeritrade for $600 million. He now has a website… Read more »
Michael Hassan
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August 17, 2013 2:14 pm
Thanks Bob, That was a succinct and enlightening letter. I just started with selling puts and covered calls and the concept is interesting and thus, easy to overlook the risks. Can you tell me what would happen with your current trades if the market swooned 15-20%? Can you monitor your array of plays such that you are not too exposed to such a macro- event? WIth the puts, you’ll end up owning lots of stocks at lower than the prices, you thought at the time, were reasonable however, unless you have some kind of balancing mechanism, it may take years… Read more »
Bob Dannegger
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Bob Dannegger
August 17, 2013 7:24 pm
Michael, I only gave a brief overview of some principles that Sosnoff espouses and I’m far out of his league, but I’ll try and answer your question about my current trades and what would happen if the market swoons. Actually though I’d prefer to see a 20% or more swoon since I’m about 80% in cash. The reason is that with IV so low and many stocks so high I don’t want to buy or sell most of them because the premium is not that great. Also I closed out a lot of trades this week that freed up some… Read more »
Thane Walton
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Thane Walton
August 17, 2013 5:04 pm
Bob… thanks for the great info. I’ve had a TD Ameritrade account for almost 20 yrs (back went it was Waterhouse, then TD Wat., then TD Amer). I always freely admit I’ve lost a lot more money with options than I’ve made. The one consistent money maker has been selling options instead of buying. My horror story was selling YHOO puts during the dot com bubble, and having them put to me PRIOR to expiration. That can be done with options. My question is how to utilize tasty trade? IV is not a concept I’ve bothered to study and learn.… Read more »
Bob Dannegger
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Bob Dannegger
August 17, 2013 7:49 pm
Thane, see my latest post to Michael. Although selling puts is a good strategy, I think it is better to diversify your strategies since selling puts as well as covered calls is not the only way to make money in options and they are unlimited risk trades. If you don’t understand IV and Theta you shouldn’t be trading options until you do. Since you have a TDA account and have free access to Tasty trade I suggest you start watching his shows. They are all archived and he has a youtube channel as well. Almost every one of the show… Read more »
Elliott
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Elliott
August 19, 2013 12:18 am

For thr record its Black-Scholes which has been around for forty years. IMHO you’re a newbie whose been having fun in a rising market. My advice is to quit while you’re ahead because much smarter guys have lost lots trying to make easy money. You’d be better off buying high quality dividend paying stocks at times of market weakness. Just my educated opinion.

jloewen
Irregular
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jloewen
August 5, 2013 12:55 pm

I tried his ploy with Intel, and it sank. Probably I shall be put the stock. Yes, I get it for a lower price than if I had just bought it, back then when I sold the put option. But the call I bought will expire worthless, which is $ I lost. Simply selling puts would have worked better in this case at least.

Pok Sonetirot
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Pok Sonetirot
August 5, 2013 1:15 pm

James.
You could minimize to loss or even come out gain buy close out your PUT position and sell lower strike price PUT. The price you get from selling lower strike put may be higher than current lost of on intel put option. I did have INTC option also. That what I did earlier. However later on I close it out since there are more other fish (different stock) in the pond and on the up trend. I rather use my margin power on other stock.

Frank
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Frank
August 5, 2013 1:24 pm

James put it correctly. If you are put, then you lose on the call also! By the way, it is hard to get the trade you want easily even if you try to get in as soon as the advisory hit your box. Some trades end in 2015. If the majority of the trades work out, it is still OK.
As someone above said you can pick your own trades, why pay $1000? It is your choice!

MJ
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August 5, 2013 1:58 pm
Travis – thanks so much for exposing this latest ruse from the WalMart of Wall St info brokers. SIA in this case. Mark Ford and the PBL have been doing the exact same thing for a “special price” of $900. I wanted to learn options so I bit. Luckily I was able to back out and get my $ back. Then PBL starts another round of the same program trying to sell me before I even complete the training course. Now I see this from SIA this week and I call “BS” on both of them. I wrote you before… Read more »
dbrawner
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dbrawner
August 5, 2013 2:05 pm
This strategy sounds like a calendar spread. Sell the front month and buy a back month at the same strike. If you sell an OTM front month call let’s say the SEP (assuming a long bias) and buy a back month, say NOV; then you have the probability of the front month (short option) expiring or at least dropping in price due to theta, while the back month (long option) has time for the underlying to appreciate and the option price to rise. Depending on the prices and volatility spreads, the position can be placed for a credit or debit.… Read more »
Ron
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Ron
August 6, 2013 3:56 pm

If you’re talking about the CBI option, It’s not a Calendar (expiration months are not different) “Then you could buy a call option on CBI for some upside exposure at that same expiration”

Jeff Tatus
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August 5, 2013 3:56 pm
Travis… I enjoy reading the Stock Gumshoe and will soon be coming into some money. I appreciate your research and due diligence on other companies selling information. I bought some “stock buying” advice from what I thought to be a reputable company. Could you please contact me via e-mail and tell me what I need to do for you to expose these people? They sold me a service in December of last year that had been sold at least 6 months prior and all the positions they were recommending were already purchased and the prices went up. Had I purchased… Read more »
john
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john
August 5, 2013 7:30 pm

Sounds like a total waste of my time with too many variables!!

baygreen
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August 5, 2013 8:47 pm
You are right on Travis and the risk is really not there plenty of time. LIKE the 2 big players on the oslo market with SDRL LEAP FOR 2015 ALMOST 3 MIL OPTIONS NOT SHARES THEY PLAYEd ON April 18 under FARMINTON NAME , THAT IS A LOT OF SHARES WHEN YOU DO THE MATH THEY ALREADY CLEANED THE CLOCK ONCE WITH IT AND NOW THEY ARE CLEANING THE OTHER HALF I BET THEY DO IT AGAIN BUT FARMINTON IS OUT OF THE BAG THEY WILL USE SOME S. AMERICAN TO TAKE THE PUBLICITY, THEY ARE STRONG WITH THE NEWEST… Read more »
Patrick
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August 5, 2013 9:03 pm

Good discussion, Very informative. Thanks

Michael Hassan
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August 5, 2013 9:53 pm
I purchased a stock option subscription from the Motley Fool and if you want to make extra money on your stocks and learn options at the same time, this is the way to go. Their service is excellent. I would much rather have MF in my corner than Stansberry, however, as mentioned getting the premiums they suggest are available is difficult. For example, today MF recommended we sell a put and get a $4 premium. 29 minutes after receiving the alert, the premium was down to $3.20. An hour later it was down to $2.25. This is what happens when… Read more »
Dick
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Dick
August 6, 2013 1:32 am

This strategy is good if you’re very bullish on the stock; you get exposure without cash drain.
You’ve got to keep tight stops on the stock however. I made good money on IAG, INTC and BAC but lost a big deal on CLF playing this game.

Ron
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Ron
August 6, 2013 3:54 am
For Jeff Tatus: Options trading can be learned by hiring a mentor/coach, or buying a service that lets you trade with them real time (CBOE, Better Trades, etc) so you can see the trades and learn the rules concurrently. When you feel confident in a particular type of option trade, you can start to select your own stocks or use a stock screener (Finviz, Yahoo, etc) that suits your type of trade. You can learn the language of options using free education videos, webinars, and text which are available on stockcharts.com and cboe.com, to name two. Once you know the… Read more »
Tzvi Yisrael
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August 6, 2013 3:04 pm

Also for Jeff Tatus:
I use optionshouse.com but there is also trading.Just2trade.com

paperplays
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August 7, 2013 3:20 pm

Do You think this stratagy will work on a smaller scale or do you need the leverage to make it ? If I could see it on paper maybe I would understand better. Can you join a group of investors and invest say 10,000 ?

Ron
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Ron
August 7, 2013 5:54 pm
The process is the same no matter how much $$$ you start with: 1. Educate yourself by going to free websites above and read tutorials, watch webinars. 2. Pick an options oriented website as listed above and open a free virtual account. 3. They will give you “monopoly” money to play with so you can make trades as if it was real. 4. When you are ready, fund your account and start trading. Generally speaking, the more expensive the stock, the more expensive the option. If you are comfortable buying $25 stocks, you will probably be comfortable trading options on… Read more »
Eucharist
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Eucharist
August 11, 2013 12:45 pm

Hi, I appreciated the above very informative and helpful information.
Anyone has an opinion / experience with Chuck Hughes option trading service?

Thanks in advance for your feedback,
Eucharist

Ron
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Ron
August 12, 2013 5:24 am
I think you will learn more with Motley Fool Options service. They go slow and explain every trade in excruciating detail, but you rarely You will probably earn more with real time traders like Markay Latimer or Bill Corcoran of Better Trades. These folks go live for 2 hours twice a week, but your subscription is more expensive than Hughes. I traded live with Bill in a seminar two weeks ago and watched him close a trade on AAPL that he bought the previous week for $7,000 and closed in the seminar for $39,000. Once you learn the rules of… Read more »
Eucharist
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Eucharist
August 12, 2013 6:04 am

Thanks Ron,
Can you give me the site link for Markay Latimer or Bill Concoran of Better Trades to check more on their subcription?

Thanks once again, Eucharist

AllanRob
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AllanRob
August 12, 2013 1:12 pm

Options trading is not a game for the uninformed neophyte. It is a very sophisticated market ploy where you can make good $$ or lose your a** if not well versed in it. Options are basically derivatives. For the average Joe, better to stick to market trading with an honest broker, or if on your own, be guided by a service like Gumshoe`s highly informative bulletins.

Ron
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Ron
August 12, 2013 6:20 pm
No argument with AllanRob. Options trading is not for the uninformed neophyte. That is exactly what I was when I started learning about options about 10 years ago. I also have a trusted broker who buys his company’s preferred mutual funds for my account. I am satisfied with his very conservative approach to risk management and investing for the long run in that part of my portfolio. But I am a lifetime student, and enjoy learning new things, so I take a small amount of my earnings to use in other ventures, one of which is options, and find that… Read more »
Carolyn
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Carolyn
August 12, 2013 10:34 pm

If any of the stockgumshoe brigade can give me some advice. I got caught up in the exuberance of the covered call strategy and now find my stock is about to be called away. the stock price and hence call value is well above the strike price. What to do? Amateurs like me should have an exit strategy but alas not me.

Michael Hassan
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August 12, 2013 10:43 pm
Hi Carolyn, I”m relatively new at options but I believe I know the answer to your question. You sold a call on your stock and received a premium. The way to unwind that position is to buy a call back again. It could cost you more money to buy it back (now that the stock has risen) but if you feel confident you can overcome that loss by holding the rapidly appreciating stock, then do so. If it costs too much, you can sell another call on your stocks, further out in expiration to help pay for the net credit.… Read more »
Myron Martin
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August 13, 2013 8:20 am
I have done quite well with covered calls and expect to experiment with small commitments to PUTS on more expensive stocks I want to own, but it is certainly not a strategy for amateurs. Some good examples have been given about how much it can cost you if you hit a bad streak, even professionals consider a 75% to 90% win rate as exceptional, so the first thing you need to know is that chances are high you will have some losses. If you are lucky you may have several winners to start, which may embolden you to take risks… Read more »
Michael Hassan
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August 13, 2013 12:11 pm
Hi Myron, I’ve tried 3 options services and you are correct, I can’t say Motley Fool is best, only that from what I have learned by spending $5,000 with others, which included education, hand holding, recommendations and detailed alternatives should you not like or be able to effect their original recommendation, I consider them the best and I can’t imagine what any other service could do better. That is not to say there aren’t others but after my experience with the others, I’m hard put to see how MF could improve or meet my needs better (and my needs are… Read more »
rew
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rew
August 15, 2013 2:58 pm

As others have said, the “alpha strategy” is to sell a put at one strike and buy a call at a higher strike. Hardly an original idea. That often works fine in a bull market like we’ve been having. But wait until the next crash (there’s always another crash). Suddenly the calls will be worthless and people with 20% margin will start getting assigned on their puts. You’ll hear the cries of anguish from a state away.

Robert P
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August 17, 2013 9:43 am

A fun game until you are naked puts in a stock that melts down. Have made pretty good money overall, but roasted a few times such as once on a sharp Tesla correction and recent bad news from Cree. Key is diversification and position sizing, not too much on any one bet. One additional point – on an option two months out, the premium you are collecting erodes painfully slowly, so you are sitting under guillotine a long time to collect your premium. There is decent premium on options a month out and even on some weeklies.

M Q
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M Q
August 17, 2013 11:10 am
Perhaps the following may help: they are my personal rules, and work for me. They may not work for you. A. Treat options trading as a business, not a hobby; B. Create your own spreadsheet with which to calculate for example the break-even points, net cost of the stock if it is assigned to you and maximum profit possible on a spread trade, and check each trade before you trade. C. Never trade on margin. D. I prefer to write options because then time decay works in my favour. I buy options only if the stock has fallen a lot… Read more »
M Q
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M Q
August 17, 2013 11:43 am

One error in my previous text re the covered call. Should read: ” the stock will be called away at a profit to you and you will also have kept the premiun on the covered call you sold”. MQ

Tony
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Tony
September 2, 2013 12:38 pm
To me the key question with a service like Stansberry Alpha is whether you pay a service a very high fee or whether to do it on your own. I have concluded that you can do it on your own and learn from your mistakes. I am relatively happy from my results in writing puts and covered calls. My put win rate is about 75%, and I would like to improve it. As mentioned by others, I have been burned by earnings announcements, even when they were good but the CEO decided to temper expectations. Would anyone recommend a good… Read more »
balkwill
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balkwill
September 22, 2013 2:29 pm

http://www.media-server.com/m/p/hbn93pt7 = S&A’s webinar on Alpha Anomally

carl
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carl
September 22, 2013 3:04 pm

S&A webinar on Alpha Anomally = http://www.media-server.com/m/p/hbn93pt7

teagle
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teagle
October 2, 2013 12:39 pm

All this options stuff is way beyond me, but I got interested in CBI because of the anticipated 20% gain this year. So … I bought some on August 8th and am up 17% already. Thank you Travis.

farhangp
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farhangp
May 17, 2014 11:08 am

Porter stansberrys average services performance has consistently underperformed the market. Discussion closed. He is not even rated by Hulberts Financial digest which rates more than 150 newsleters. the best consistent one has been Navellier,s newsletters. navellier has outferformed the market on average of 300% of market performance over long periods. my only issue has been his drawdown in a Bear market like in 2008.

Bob
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Bob
June 29, 2014 12:01 pm
Yes, Stansberry Alpha buys calls and sells puts. He’s done reasonably well in this bull market. When the next big crash comes, and those puts are in the money and the calls are worthless, there will be a lot of tears. As with all put sellers Stansberry blows hot and cold on margin. He uses margin when calculating his unreal returns. But then of course he tells you to make sure you have enough cash to buy the stocks at the strike price of the puts, so when the crash comes he can tell you it was your own fault… Read more »
Bob
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Bob
June 29, 2014 12:33 pm

I should add that Stansberry likes to sell close to the money puts and buy well out of the money calls so that the put sales more than pay for the calls. This of course means that if the stock doesn’t go up quickly the calls quickly wither away in time value while the stock only needs to go down a modest amount to have the puts in the money and in danger of being assigned.

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