Weeklys_using_the_ichimoku_cloud

Trading Weekly Options With the Ichimoku Cloud Presented by Andrew Keene

Disclaimer “KeeneontheMarket.com” (“KOTM”) is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of KOTM are not acting as investment advisors and might not be

registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory. IMPORTANT NOTICE! No representation is being made that the use of this strategy or any system or trading methodology will generate profits. Past performance is not necessarily indicative of future results. There is substantial risk of loss associated with trading securities and options on equities. Only risk capital should be used to trade. Trading securities is not suitable for everyone. Disclaimer: Futures, Options, and Currency trading all have large potential rewards, but they also have large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don’t trade with money you can’t afford to lose. This website is neither a solicitation nor an offer to Buy/Sell futures,

options, or currencies. No representation is being made that any individual, group, or entity will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. Visit our website below to read the full disclaimer. http://keeneonthemarket.com/disclaimer/

Andrew Keene - Floor Trader @ CBOE 10+ Years - Market Maker in Over 125 Stocks - Active Trader in Futures, FX, Stocks & Commodities - Regular Contributor to CNBC & Bloomberg

A Brief Review of Weekly Options:

What are they, who trades them, and how are they different?

Weekly Review -This is the BEST time ever to trade Options: Markets are Tighter, Penny Wide, and More Liquid that Ever -There are 8700 stocks and 4200 stocks with options. -Of the 4200 stocks with options, there are over 320 stocks with listed weekly options CBOE lists weekly option on indices, stocks and ETF’s CBOE publishes a list of all assets with weekly options Gives traders 52 expirations to trade instead of 12 Weekly index options accounted for 11% of all index options volume in 2011 and this number has only grown over time.

Weekly Review

Who should be trading Weeklys? -

Income traders looking to sell call or put verticals or iron condors on a weekly rather than monthly basis.

-

Catalyst traders. Traders who want to trade events like earnings, unemployment numbers, crop reports, other economic data releases. Using weeklys gives a trader the

cleanest and most efficient exposure to these events.

-

Anyone can trade Weekly Options from Beginner 101 to Expert

Weekly Review

What is the difference between weekly and standard options: -

These Options expire every single Friday, so there is more opportunity to make money

trading. -

I have never been in an elevator and a trader said, “I had the best day trading ever, the market did not move at all” weekly options allow a trader to capitalize on short term movements.

-

As traders, more products mean more opportunity.

-

There are almost 4000 equity options products that do NOT have Weekly options, so cannot trade Weekly options in these names.

Bid and Offer Size Bid and Offer Prices Volume & Open Interest

8

Trading Weekly Options Calculating Expected Moves Using Weekly Options: We know that using weeklys is the best way to trade a catalyst event. This gives us the cleanest exposure to the event and can also help us calculate expected moves in the underlying.

To effectively trade weekly options using the strategies we will discuss a trader first needs to understand how to use them to calculate Measured Move Targets

Lets look at an example on the next slide…

Trading Weekly Options Calculating Measured Moves Example: XYZ is currently trading $30 The XYZ 30 Call is $.98 at $1.02 and the XYZ 30 Put is $.98 at $1.02

The ATM Straddle is $2.00.

Upside Measured Move Target: $30 + $2= $32 Downside Measured Move Target: $30- $2= $28

The Ichimoku Cloud:

How to read our favorite technical indicator in the world

Components of the Cloud The Tenkan-sen Line: Short Term Trend: Similar to 10 Period MA = (highest high + lowest low)/2 over the last 9 periods The Kinjun-sen Line: Longer Term Trend: Similar to 30 DMA = (highest high + lowest low)/2 over the past 26 periods

tenken-sen line

Kinjun-sen line

12

Components of the Cloud Senkou Span A: Future Short Term Trend = (tenkan-sen + kinjun-sen)/2 plotted 26 bars in the future Senkou Span B: Future Long Term Trend: Fib 50% Retracement = (highest high + lowest low)/2 over the past 52 bars plotted 26 bars in the futureSenkou Span A

Senkou Span B

13

Components of the Cloud Kumo “the cloud”: How Hard or Easy it is to Break the Trend Chinkou Span Line: How does the Today’s Price compare to last Month = current bar’s closing price plotted 26 bars back

Chinkou Span Line

Kumo

14

Trading Weekly Options Now that we know how to calculate measured move targets and understand the cloud we can look at some of the strategies using the cloud and weekly options. We will discuss…

 Iron Condors (30-40% Returns if Stock Stays a Wide Range) Iron Butterflies: Make Money if Stock Doesn’t Move at all or only a little bit (200400% Returns) Butterflies Using Measured Move Target to get 500% Returns in Days Calls on the 5 Minute Bar: AAPL, FB, TSLA, TWTR (Double Money in Hours)

Trading Weekly Options Using The Ichimoku Cloud and Weekly Options:

-

I like to use the Ichimoku Cloud for levels of support and resistance. Use the 9, 26, and

Cloud itself for levels of support and resistance.

-

I also like to look at 10 days of data on the Daily Chart to see where buyers came to buy and sellers came to sell.

-

No reason to use the Weekly, Monthly or Yearly chart for Weekly Options.

Trading Weekly Iron Condors:

Using options to generate weekly income on range bound charts

Weekly Iron Condors Iron Condors: A strategy that can be used by weekly options traders to profit if stock stays in a wide range.

We can use weekly options to set up iron condors for weekly income. A trader can use this strategy to profit from range bound stocks.

How do we determine if a stock is a good iron condor candidate?

We use the Ichimoku Cloud…

A stock like EBAY fails to produce sustained breakouts of the cloud, this is a good candidate

Weekly Iron Condors We know that non-trending stocks like EBAY make good candidates but how would we actually trade this setup?

Remember how to calculate measured move targets?

The first thing we need to do is use the weekly options we want to trade to calculate the measured move targets for EBAY.

Let’s see how this is done…

Weekly Iron Condors We wan to look at this weeks EBAY options: EBAY stock is trading around $50.50 The EBAY Jun 6th 50.50 Straddle is trading around $1.40

Using the straddle price: Upside Target: $51.90 Downside Target: $49.10

Using the targets we can set up an Iron Condor

Weekly Iron Condors Trade: The EBAY Jun 6th Weekly 49-48-52-53 Iron Condor for $0.25 Net Credit Risk: $75 per 1 lot

Reward: $25 per 1 lot Breakeven: $48.75 and $52.25

We can see that this trade will profit in a wide range, this trade also offers a 25% return on risk.

Weekly Iron Condors EBAY Trade:

While this trade may not offer a huge reward to risk set up it still provides a trader with a

very good return in a very short amount of time.

If a trader can consistently replicate returns like this over a 1 week holding period they will net a huge annualized return.

Trading Weekly Iron Butterflies:

Fade movements and profit if a stock doesn’t move at all

Weekly Iron Butterflies Iron Butterflies: This strategy differs from an iron condor in the fact that it has a smaller range of profitability but will allow a trader to collect more premium than an iron condor.

We are looking for a similar chart setup based on the cloud, but this trade tends to work best ahead of a catalyst event like earnings, economic, data, or other times of inflated volatility.

Let’s look at the chart of a good iron butterfly candidate…

Weekly Iron Butterflies

•

The Weekly chart is very neutral. Stock is trading inside the cloud and the future cloud is sideways.

•

There are overlapping bars, this tells me there are clear levels of support and resistance.

•

I think the stock wont move much and I want to set up a short premium position.

Weekly Iron Butterflies While this makes it a good candidate there is one more check I can make to ensure it is the best possible set up.

This can tell me that the market makers may be pricing in too much volatility. This also validates the chart set up.

The Weekly Average true range is around $2.60

Weekly Iron Butterflies JOY stock is trading at $57.65 The JOY Jun 6th Weekly Straddle 57.50 is trading at $3.00

Using this straddle price I can calculate my measured move targets: Upside Target: $60.50 Downside target: $54.50

Using these targets I can set up my trade…

Weekly Iron Butterflies Using the Measured Move Targets to Set Up an Iron Butterfly:

My Trade: The JOY Jun 6th Weekly 54.5-57.5-60.5 Iron Butterfly for a $2.20 Net Credit Risk: $80 per 1 lot Reward: $220 per 1 lot Breakeven: $55.30 and $59.70

This trade sets up for a wide range of profitability and takes advantage of the sideways chart

and overpriced straddle.

Trading the 5 Min Bar Using Weeklys and the Cloud:

How to read our favorite technical indicator in the world

Trading the 5 Min Bar Using Weeklys and the Cloud Trading the Opening 5 minute bar: One of our favorite setups involves trading weekly options

on the 5 min bar in fast moving trending stocks like FB, TSLA, AAPL, and TWTR.

We are looking for a break of the cloud to the upside or downside as a signal for an entry.

The following slide show a TOS chart of Facebook (FB) from May 15th. On this day the opening 5 min bar in FB closed below the cloud signaling for a short.

Let’s look at the setup…

Close below the cloud in FB

Trading the 5 Min Bar Using Weeklys and the Cloud Trading the Opening 5 minute bar:

This close at $59.10 provided the short entry signal. I elected to buy the FB May 16th Weekly 58.5 Puts for $0.45

Why did I get short? In addition to the cloud signal I know that FB is generally weak from open to close. I know this because we track the number of up/down days FB has.

Look at the stats on the next slide…

Trading the 5 Min Bar Using Weeklys and the Cloud FB Stats:

Trading Days Up Days Down Days

71 31 39

Average Range

2.17

43.66% 54.93%

Here I see that the stock generally sells off from open to close. Let’s see how this trade played

out.

FB sells off and closes lower on the day, but how did the trade work out?

Trading the 5 Min Bar Using Weeklys and the Cloud Trading the Opening 5 minute bar:

On the close of the bar I bought the FB May 16th Weekly 58.5 Puts for $0.45 Risk: $45 per 1 lot Breakeven: $58.05

As the stock sold off I took the following exits: I sold 1/3 of the position at $0.60 I sold another 1/3 of the position at $0.75 My final piece was sold at $0.90 at around 9:15am CT. It took 45 minutes to double my money

Trading the 5 Min Bar Using Weeklys and the Cloud Trading the Opening 5 minute bar:

We look for these setups every day in our trading room.

We also keep these same statistics in TWTR, TSLA, and AAPL.

Having a general idea of how a stock performs intraday can help a trader avoid too many traps when using the cloud to trade weekly options.

Trading Call and Put Butterflies Using the Ichimoku Cloud:

Setting up massive reward to risk ratios using the cloud and measured move targets.

Trading Call and Put Butterflies Using the Ichimoku Cloud Call and Put Butterflies: These strategies are used for catalyst trading with weekly options. Call

and Put butterflies can provide huge reward to risk setups.

•

Again, we will be using the Ichimoku Cloud and the weekly ATM straddle to set up our trades.

•

Lets look at an example of trading butterflies in a setup I traded in TSLA ahead of earnings

First we look at the chart…

The stock is breaking the cloud to the downside into earnings. This is very bearish price action

Trading Call and Put Butterflies Using the Ichimoku Cloud I know that based on the chart I want to get short. The first thing I did was to calculate my

measured move targets:

TSLA Stock was trading around $200 on 5/7/2014 ahead of earnings on 5/8/2014 The TSLA May 9th weekly 200 straddle was trading at $21.00

Upside Target: $221.00 Downside Target: $179.00

Trading Call and Put Butterflies Using the Ichimoku Cloud Using the downside target of $179.00 I was able to set up my trade:

Trade: Buying the TSLA May 9th Weekly 190-180-170 Put Butterfly for $1.40 Risk: $140 per 1 lot Reward: $860 per 1 lot

Breakeven: $171.40 and $188.60

This trade has a huge reward to risk set up, over 6-1, and a wide range of profitability.

Let’s see how it played out…

The stock falls $22.76 the next day and closes at $182.26 on Friday (the day after)

Trading Call and Put Butterflies Using the Ichimoku Cloud The very next day I was able to sell ½ of my Put flies for $3.45

On Friday with the stock still trading through the middle strike of my butterfly I was able to sell the final half of my spread at $9.00

This trade was very profitable and was successful because the set up combined the use of weekly options and the cloud, we often trade butterflies for earnings.

Weekly Options Summary:

-

Weekly options offer a trader more expirations than standard options

-

Generally these options trade at a lower price than standard options

-

There is little time premium in Weekly options.

-

These options expire on Friday, listed the Thursday before.

-

Weekly options can experience fast, violent moves in delta

-

Can be used to calculate the most accurate measured move targets for event trading (earnings, drug announcements)

-

Weekly options can allow for a trader to profit to profit if stocks stay in a wide range.

-

A trader can use iron butterflies to fade movements in stocks ahead of catalyst events.

-

The cloud can be used with weekly options to day trade fast moving momentum stocks like FB, TSLA AAPL and TWTR

-

Using the cloud and weekly options a trader can set up MASSIVE reward to risk setups using call an put butterflies.

Platinum Membership- for 14 Days     

Both Best Selling E-Books Daily Portfolio Spreadsheet Updates Webinars and Discounted Courses Entries & Exits via Text, Twitter, and Email Live Trading Room with Full Audio for 6 Hours daily

$17

www.keeneonthemarket.com/junepromo