INVESTMENT & TRADING:

Wheel of Fortune

Nick Fosco

July 18, 2015

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WHEEL OF FORTUNE STRATEGY

- Monthly income generation.

- Annualized returns of 10% to 40% per year.

- Is a foundational basic option strategy.

- Requires

HOW DOES WOF STRATEGY WORK?

- Contract to SELL you stock at specific price.

- You receive Premium for the duration of contract.

- Think of it in terms of Real-estate.

- You contract with tenant to:

- Sell them the property at a specific price.

- Within a defined period of time.

- And for a specific premium.

HOW DO OPTIONS WORK?

- In Option terms:

- Sell equity at a specific strike price.

- Within a defined expiration period of time.

- And for a specific option premium.

Option Premium = Intrinsic + Extrinsic

- Intrinsic impacted by Delta or Directional

move of underlining stock’s price.

- Extrinsic impacted by Theta or Time left in

contract and Vega or Volatility in move of

underlining stock’s price.

HOW DO OPTIONS WORK?

Option Premium = Intrinsic + Extrinsic

- Delta ranges from 0% to 100%.

- Option strike price with 0.50 Delta (50%) is

set = Stock Price. (At The Money; ATM)

- Option strike prices with 0.50 Delta have intrinsic

and extrinsic value. (In The Money; ITM)

- Delta is also a proxy for Probability of Profit.

- Probability of Profit (POP) = Probability of

making at least 0.01$ on the trade.

- 20% Delta = 80% POP if Selling option.

OPTIONS GUARANTEES

1) At expiration Time goes to ZERO.

2) At expiration Volatility goes to ZERO.

3) At expiration Delta goes to ZERO for

OTM options.

4) At expiration Delta goes to 100% of ITM

options.

Therefore: At expiration Extrinsic value is

GUARANTEED to go to ZERO.

Q: Do you want to be a buyer or seller of

Extrinsic value?

PREMIUM COLLECTION STRATEGY

Covered Call (a.k.a Covered Write) Covered call combines short call with stock ownership.

Best choice for stocks with dividends.

Premium from call reduces stock cost basis.

Limits gain on short term basis but reduces cost basis forever.

Continue strategy long term for ongoing cost basis reduction.

Typically do monthly and use OTM Call options.

Aggressive: Look for strikes with .30 to 45 Deltas. (55% to 70% POP)

Conservative: Look for strikes with .20 Deltas. (80% POP)

Goal is NOT take have stock Called away from you.

Short Put (a.k.a Naked Put) Bullish bet that underlining will stay above your strike price.

Time and Volatility decay work in your favor.

Goal is NOT take have stock Put to you.

WHEEL OF FORTUNE MANAGEMENT

Covered Call (a.k.a Covered Write) Start with this if getting dividend.

Stock has to have options that trade with some volume.

Initiate trade with 40-45 day duration.

Exit if Call premium drops to 0.05$ or less.

Roll to next month when 10 to 5 days is left.

Be careful on dividend risk. If dividend is greater than remain

premium, stock will be called from you.

Short Put (a.k.a Naked Put) Start with this for non dividend stocks.

Best to start when stock is at low price range and volatility is at

high end of range.

Same entry and exit conditions as noted above.

BREAK TIME:

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HOW MUCH MONEY CAN YOU MAKE?

HOW MUCH MONEY CAN YOU MAKE?

HOW MUCH MONEY CAN YOU MAKE?

HOW MUCH MONEY CAN YOU MAKE?

HOW MUCH MONEY CAN YOU MAKE?

How does this different from

Dollar Cost Averaging?

HOW MUCH MONEY CAN YOU MAKE?

HOW MUCH MONEY CAN YOU MAKE?

HOW MUCH MONEY CAN YOU MAKE?

HOW MUCH MONEY CAN YOU MAKE?

HOW MUCH MONEY CAN YOU MAKE?

HOW MUCH MONEY CAN YOU MAKE?

HOW MUCH MONEY CAN YOU MAKE?

HOW MUCH MONEY CAN YOU MAKE?

WHICH SYMBOLS ARE GOOD?

Price as market close 7/17/15 (Aug 15 exp: 35 days)

Symbol % IV Rank Price

First OTM CALL Premium

% Month Return

Yearly Estimated

Return Dividend Yield %

Div. Frequency

WMT 58 73.39 75 0.61 0.83% 10.0% 2.7% Q

FXE 55 106.47 107 1.08 1.01% 12.2% 0.0% 0

SPY 0 212.48 213 2.35 1.11% 13.3% 1.9% Q

DIA 14 180.54 181 2.01 1.11% 13.4% 2.1% 8

QQQ 5 113.59 114 1.41 1.24% 14.9% 0.9% Q

IWM 0 125.76 126 1.88 1.49% 17.9% 1.3% 3

SLV 50 14.23 14.5 0.36 2.53% 30.4% 0.0% 0

TBT 40 48.33 49 1.31 2.71% 32.5% 0.0% 0

UNG 19 13.86 14 0.56 4.04% 48.5% 0.0% 0

USO 39 16.99 17 0.7 4.12% 49.4% 0.0% 0

GREK 58 10.34 11 0.62 6.00% 72.0% 1.3% A

TWTR 68 35.67 36 2.38 6.67% 80.1% 0.0% 0