A Day Spent with “Think or Swim”

Many of you who use “ThinkorSwim” (TOS) as an online broker are familiar with the free Options seminars hosted by TOS affiliate “OptionPlanet”. Yet how many of you have attended one of these seminars rather than just think about it?

On Saturday August 15th, 2009 I made sure to make my way to Foster City by 9:00 AM to see first hand what these were all about. I attend the Options for Traders presentation. The seminar itself is a seven hour ordeal, from 9:00 AM to 4:00 PM. When I first arrived to the hotel hosted event I was shocked to see a pretty big turnout of folks that had made their way over just as I did. Being twenty-one I can surely say that I was the youngest attendee. After grabbing some complimentary coffee the seminar was ready to begin.

Joe Mazzola, a man in his early thirties, presented the seminar. Mr. Mazzola who has been trading for twelve years, ever since he was twenty-one, also runs “SwimCoach”. Another TOS tool focused on teaching investors complex option strategies and answering live position related questions, for a small monthly fee of $50. With a bachelor degree in Economics and an MBA in finance Mr.Mazzola takes a more fundamental approach when entering option positions, rather than a technical one.

The class began with an overview of the current market situation, specifically the S&P 500. In Mr. Mazzolaʼs opinion the S&P 500 is a little overbought for the time being considering the comparatively weak economic data and easy to beat earning targets. He proceeded to explain to the folks who are inclined to believe in a coming inflation to follow the CPI (Consumer Price Index) and PPI (Producer Price Index) as they are direct reflections of inflation. We then began to get into the meat of options trading. We skipped the explanation of calls and puts and dove right into the world of vertical spreads. Stressing the benefits of limited losses and limited gains, Mr. Mazzola went on to explain that buying options was inferior to selling them, “This is because you want to benefit from
time decay” he explained. He recommended trading highly liquid securities, minimum volume of 400-500 and 1 million a day for options and stock respectively. This is because the bid/ask spreads are often tighter and you are more likely to be able to get a fill in-between the two. Another word of advice was to sell the spreads 30-45 days prior to expiration, due to an accelerating time decay, and to buy them back 4-10 days prior to expiration, in order to avoid an expirations weak disaster.

Probability of success was another key theme. Although TOS provides a tool for calculating the percentage of an option expiring at least .01 in the money successfully, Mr. Mazzola explained another simple equation which would merit results for selling positions successfully. Max loss divided by the difference between the two strikes. “When selling options you want a percentage between 55%-75% of success, no more no less. This is because the greater the percentage the smaller the payout or vice versa” he said.
Example:
-1 @ 12 Strike = +$.60
+1@ 13 Strike =  -$.25
Credit = .35
Max loss = .65
Probability of Success is =     (.65)/(1.00) or 65%

After all this it was finally time for a break. We were given fifteen minutes to grab a drink and go to the bathroom before beginning the seminar again. When the seminar began again Mr. Mazzola stepped down and gave the stage to a sales person of“Investools”. A platform which is used to help investors pick fundamentally sounds stocks with technical timing. This took two and a half hours to present. It was definitely the most wrenched thing to sit through that day. While the old folks awed at the platform and smiled at the ground breaking idea of selling covered calls on their stock, I sat there with my face in my hands grumbling to myself. I was disappointed to see that the concepts of fundamental analysis which were presented, only pertained to the platform. The importance of P/E ratios and balance sheets were never articulated but merely expressed as functions the platform offered and how to find them. Unless you are willing to pay the $299 upfront cost and the $29 monthly subscription fee to use the platform, the information was completely useless. When it was finally time for lunch, the presentation finished. We were given an hour to eat.

After eating my ten dollar chicken wrap that the hotel had sold me I returned to my seat and waited for the seminar to begin. I watched Mr. Mazzola answer pupils questions. When the seminar began again we moved on to another options strategy. The Iron Condor. This is a strategy that benefits from range based trading and sideways movement. Mr. Mazzola explained that an Iron Condor was nothing more than selling a put spread as well as a call spread to create a range in-between to profit from. He stressed the fact that this strategy should not be used on volatile stocks such as AAPL, but on sideways ones such as WMT. We went through different scenarios for using this method and how to adjust it, if it begins to go wrong. “Layering your trades is the secret. If your stock becomes too bullish you sell a second put spread closer to the money and another call spread farther out” he said. He continued by showing us how this looked on a chart. Many people were not familiar with this aspect of the platform, so he finished by answering pupils platform based questions.  Going over the platform was the final aspect of the seminar.

Overall I found the seminar to be decent. I would recommend it to new options traders who are not yet familiar with the TOS desktop platform, nor complex options strategies. The are some good beginning concepts that are taught, as well as some good information about the platform. The “Investools” presentation was the disappointing aspect. I felt as if I was taking part in a live infomercial. Besides that I felt Mr. Mazzola was very professional and experienced, and I thank TOS and OptionPlanet for providing the seminar free of charge.
Written by Greg Magadini