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Frequently Asked Questions

While you are new to Investing Daily’s Velocity Trader, and before you post questions on our forum, please read through these FAQs.

If you have a question about getting started with options trading, you can be sure that many others have had the same question before you!

How do I log into the Velocity Trader website?

For general account questions and login instructions, and to control the messages you receive from Investing Daily, see Managing Your VT Account.

Can I get VT trade alerts as texts on my smartphone?

For general account questions and login instructions, and to control the messages you receive from Investing Daily, see Managing Your VT Account.

How do I contact Investing Daily to manage my Velocity Trader account?

For general account questions and login instructions, and to control the messages you receive from Investing Daily, see Managing Your VT Account.

How can I get an overview of Velocity Trader?

You’ll find Jim’s excellent, easy-to-read overview of options trading in the Options Strategy Lessons. (For instructions on logging into the website for the first time, see Managing VT Your Account.)

Jim recommends buying four types of options in Velocity Trader: calls, puts, call spreads, and put spreads. All of these are fully explained in the lessons and videos.

Velocity Trader recommendations will either be short- or long-term trades, and they’re all released on Tuesday mornings.

The short-term trades are usually closed in just a few days, whereas the long-term trades may remain open for a few weeks or even months. Because most trades will only be open for a few days or weeks, you will usually be able to roll your gains from one trade right into the next one.

Only 40-60% of Jim’s trade recommendations will be winners, but that’s all it takes to achieve huge success. That’s because the gains on the winners are designed to dwarf the inevitable losses on some trades.

For you to achieve success, it’s important that you place an equal amount of money in each trade. Don’t try to guess which ones will be the winners.

Your Velocity Trader membership includes eight video tutorials custom-made for Velocity Trader members. You can learn at your own pace and take time to familiarize yourself with the strategies we will be using to collect “instant cash.” There is no pressure and we want you to feel comfortable with every aspect of your service.

  1. Introduction to Velocity Trader. Jim explains how his working-class background taught him the importance of thrift, hard work, and careful investing. Coupled with his amazing educational background – including the fact that both of his parents were teachers – these traits led him to his success today. You’ll learn how Jim developed his practical method for predicting market turns, and the secret that he and the big financial firms used to profit through the recent recession. He’ll also go over the basics of how to get started with options, including how to choose a broker and how to secure the trading permissions you’ll need.
  2. The Basics of Options for Velocity Trader. Jim walks you through all the details you’ll need to know about options to begin using the Velocity Trader Topics include how options work, the basics of put credit spreads, and initial strategies.
  3. Method #1: Seasonality. The next five videos discuss the different methods Jim employs in his Velocity Trader The first method is seasonality, or the cyclical patterns of stock movements. He’ll give you all the details on how to spot them, and how to take advantage of them for increased profits.
  4. Method #2: Momentum. In this video, Jim discusses the importance of Momentum when it comes to options, and how to catch stocks that are already moving and aren’t slowing down anytime soon.
  5. Method #3: Max Pain. In this third instructive video, Jim explains how to stay on the side of the market makers – those people who manipulate movements to crush retail investors. By learning more about this aspect of Jim’s strategies, you’ll be better able to avoid losses and gain profits.
  6. Method #4: MACD Charts. This video provides an overview of exactly how you can use technical indicators (like the Moving Average Convergence Divergence indicator) to find optimal trades. Jim also reveals some of the secrets behind the powerful “double barrel” profit signal.
  7. Method #5: Special Situations. Jim describes how you can use several event situations – such as shareholder votes and buyouts – to make additional profits. This video also includes an approach to handling the four guaranteed events that take place every year: quarterly earnings.
  8. Making Your First Trade. The moment you’ve been waiting for! In this final video, Jim provides a detailed review of how to read the trading instructions he’ll be sending twice each week. He also provides some tips on opening and closing trades, and an overview of how to make the most out of his Velocity Trader

How do I choose a broker?

Before you can take advantage of options, you’ll need authorization from your broker to trade them separately from any other authorization you may have. The fact that you have a stock brokerage account does not mean you are authorized to trade options. You must request an options authorization separately.

The good news is that getting authorized for options trading usually means less than five minutes of work on your part. Keep in mind: You are not applying for a mortgage here. Your broker will want to know that you have experience trading options and that you understand the risks involved. But they are not going to audit your background, test your knowledge or check your financial history.

If you already have a stock-trading account, simply request an options upgrade from your broker. Some brokers let you upgrade online; others require you to fill out a form and send it in. In either case, the broker will take a few days to process your request and inform you what options trading level you have been assigned. A higher-level authorization gives you more capability for trades.

Options brokers define different trading levels based on the risk of the options’ strategy. A higher-level authorization gives you more capability to trade different options strategies. If you are authorized to trade options spreads, your broker will require you to sign a margin agreement, because an option spread includes the sale of an option that could be assigned early against you (meaning you would have to buy the stock) and is not directly “covered” by stock you already own.

If an option you have sold is assigned, a margin account empowers your broker to temporarily buy the assigned stock – just long enough to sell it – even if the cost of the 100-share stock purchase is more than your account size could normally handle. Some brokers (e.g., Fidelity and thinkorswim) even allow “limited” margin in IRA accounts for the sole purpose of handling involuntary early assignments.

For example, if you sell a 50/45 put spread, an involuntary early assignment on the $50 put would require that you buy 100 shares of stock for $50 per share ($5,000 per contract) and deliver them to the buyer of the $50 put. If your account size cannot afford to hold onto this $5,000 purchase, your broker will require that you immediately sell the 100 shares of stock at the market price, with a fail-safe minimum price guarantee by the lower strike put you had previously purchased as part of the put spread. Even though your broker requires you to complete a margin agreement in order to trade option spreads, it doesn’t necessarily mean that you will need to use it.

If you don’t currently have a broker, please see Comparing Options Trading Brokers: Which One is Right for You? for a list of some brokers that are highly rated by Barron’s Magazine. (We at Investing Daily receive no compensation for recommending any of these brokers and simply offer this tool to help our new members get started.)  The brokers we see mentioned most often by experienced Velocity Trader members are TD Ameritrade’s thinkorswim, Fidelity, E*Trade, and Interactive Brokers. When trading options, you can either phone in your orders and speak to a live broker or you can input the trades online yourself using the broker’s website.

You’ll need to have at least Level 2, and ideally a Level 3 option trading approval to profit from the Velocity Trader strategies. 

Here are a few tips to help you answer the authorization questions:

Investment Objective

Your best chance for a high trading level authorization is if you put down “speculation” as one of your objectives. Selling put credit spreads at an appropriate position size is no more speculative than buying shares of stock, but brokers seem to think all option trades are speculative, so you will want to state “speculative” for the sake of your broker’s policy guidelines, not because you actually intend to trade speculatively.

Trading Strategies

The more strategies you check off, the better your chances of getting full authorization. Feel free to check off all of the strategies listed even if you don’t initially plan on trading all of them.

Trading Experience 

Don’t be shy when answering this question, but honesty is the best policy. The more years you say you’ve been trading stock and options, the higher your trading level authorization will be.

Net Worth

Higher is better, but again honesty is always the best policy.

Jim talks more about this in his training videos.

How much money should I fund the account with to get started with Velocity Trader?

While this is a personal decision only you can make, Jim recommends starting with at least $5,000 to $10,000 allocated to following Velocity Trader. This amount would allow you to buy one contract in as many as 20 positions while maintaining a cash cushion for trade adjustments in the future. 

I only got approved for Level 1 or 2, but I want to trade spreads. What do I do?

Several of the trading platforms, including Think or Swim and OptionsExpress, allow you to do “paper trades” as a way to practice options trading using fake money.

Paper trading is a great way to increase your trading experience (and confidence!) so that you can reapply for a higher trading level than you were initially granted.

Read more about paper trading here.

How do I communicate with Jim Fink and the other Velocity Trader members?

As much as we would like to talk to each one of you individually, federal regulations prohibit subscription companies like Investing Daily from giving personalized investing advice – that’s something a licensed financial planner or stockbroker would do.

At Velocity Trader, the best way to communicate with Jim Fink and the other Velocity Trader members is through the Stock Talk forum. This is where experienced and novice members come together to learn from each other and help each other out.

A Stock Talk posting form appears at the bottom of all website alerts and articles. If you have a question or comment pertaining to one particular alert or article, please post your question at the bottom of that alert or article.

If you have a question about trading options in general, the answer can probably be found by searching using the white Search bar in the website’s upper right. If you don’t find your answer, the Forum lets you begin a discussion about a particular topic or join in other ongoing discussions.

Please be sure to read all of these “Frequently Asked Questions” before posting any questions. Many of the questions that novice options traders have are already answered in the FAQs.

What are options?

Stock options are derivatives. They derive their value from an underlying “something else” — typically the value of a stock or stock index.
 
Each option contract represents the right to buy or sell 100 shares of that underlying stock at a certain price on or before a certain date. Compared to stock, they are very inexpensive.
 
What’s an option contract?
 
An option contract represents 100 shares of the underlying stock, but option prices are quoted on a per-share basis. Consequently, if you sell one option quoted at $1.00, you will receive $100 per contract ($1.00 * 100 shares).

What’s a call option?

A call is an option contract that grants the buyer the right, but not the obligation, to buy the shares of a company at a set price (the “strike price”), for a certain period of time.
 
The seller of the call option is obligated to sell the stock at the strike price if the call owner decides to exercise. If the stock fails to rise above the strike price before the expiration date, the call option expires worthless.
 
You buy a call if you think the stock price will rise, and sell a call if you think it will not rise.

Options on individual stocks and ETFs are “American style” and can be exercised at any time before the option expires.

What’s a put option?
 
A put option is a contract that gives the buyer the right, but not the obligation, to sell the stock underlying the contract at a predetermined price (the strike price).
 
The seller (or writer) of the put option is obligated to buy the stock at the strike price if the put owner decides to exercise.
 
If the stock fails to fall below the strike price before the expiration date, the put option expires worthless. You buy a put if you think the price of the underlying stock will fall, or sell one if you think the price will not fall.

What is a “long” position?

When you enter into a trade by buying a contract, it is sometimes referred to as a “long” position.

What is a “short” position?

When you enter into a trade by selling a contract, it is sometimes referred to as a “short” position.

For example, a 50/45 put credit spread, where you sell the 50 put and buy the 45 put, can be characterized as “being short the 50 and long the 45 put.”

What does it mean to “open” or “close”?
 
Instead of simply placing a “buy” or “sell” order as you would for stock trading, options traders must choose among “buy to open,” “buy to close,” “sell to open,” and “sell to close.”

“Buy to open” is the opening of a long call or put position in option transactions. In this kind of order, the option position is not held short in the account during the transaction.

“Buy to close” is the closing of a short position in option transactions. “Buying to close” means taking an opposing position from the short position in order to close out exposure to the position. The new long position’s performance should net out with the short position’s.

“Sell to open” is the opening of a short position in an option transaction. “Sell to open” means that the option investor is initiating or opening an option trade by selling or establishing a short position in an option.

“Sell to close” means that you want to sell the option in order to close your existing long position.

 

What’s an expiration date?
 
The expiration date is the date the option expires, stops trading, and is subject to automatic exercise if its settlement value is in-the-money. For individual stocks, the “regular” expiration date each month is the third Friday of the month, and the settlement value is the closing price at 4:00 PM Eastern Time. Some stocks also have “weekly” options that expire on other Fridays. Most index options stop trading at Thursday’s market close and are settled based on opening prices on Friday morning (AM settlement) rather than closing prices on Friday afternoon (PM settlement). VIX options stop trading at Tuesday’s market close and are settled based on opening prices on Wednesday morning.

What does in-the-money (ITM) mean?
 
A call option is in-the-money if the share price of the stock underlying the option is ABOVE the strike price. A put option is in-the-money if the share price of the stock underlying the option is BELOW the strike price.

What is intrinsic value?
 
The intrinsic value is the in-money portion of an option’s premium. A call option has intrinsic value if the share price of the underlying security is ABOVE the option’s strike price and equals the share price minus the strike price. A put option has intrinsic value if the share price is BELOW the strike price and equals the strike price minus the share price.

What’s a strike price?
 
Every option has a strike price, which is the price of the underlying stock at which the call option owner has the right to buy the stock, and the put option owner has the right to sell the stock. For example, if IBM were trading at $190, you could buy one call option expiring in a couple of months to buy IBM at a strike price of $195. This option could cost $3 per share or $300 per contract, composed entirely of time value. Subsequently, if IBM were to release better-than-expected earnings, the stock could rise to $210. Your call option gives you the right to buy 100 shares of IBM at $195 even though the stock would cost $210 to buy in the open market.

 

What’s the option premium?

The option premium is the total price of an option and is the sum of the option’s intrinsic value and time value. For example, if IBM was trading at $210 and the IBM $195 call was trading at $18, the call option premium would be composed of $15 in intrinsic value ($210 – $195) and $3 in time value ($18 – $15). Although intrinsic value is always predictable, calculated as the difference between the strike price and the share price, time value is unpredictable because it varies depending on traders’ expectations of the underlying stock’s future price volatility, which can change. For instance, anticipation of an upcoming earnings report or an upcoming decision by the FDA on drug approval can inflate an option’s price—even if intrinsic value does not change—simply because the time-value component increases.

What is meant by time value?

The time value is the portion of the option price that exceeds the intrinsic (in-the-money) value, and is based on traders’ expectations of the underlying stock’s future price volatility. Implied volatility is market neutral and is based on an equal likelihood that a stock will rise or fall by a certain percentage over the next 12 months. The higher the expected percentage price move up or down, the more time value. If a stock is trading under a call option’s strike price, the call option has no intrinsic value and its price is composed entirely of time value. The closer you get to the expiration date, the less time value will exist because there is less time for the stock to move in the desired direction. Time value declines based on the square root of time. For example, an option that expires in 40 days will have twice as much time value as an option that expires in 10 days, since the square root of 4 is 2. This continual reduction in time value is called time-value “decay” and is what sellers of options depend upon for profit generation.

What does the options ticker symbol mean?

Although there may be differences in how brokers present option ticker symbols, invariably the option symbol always focuses on the same core information.

Here is how one option quote might look for a September $195 call option on IBM:

IBM160920C195

IBM is the stock ticker symbol
“16” is the expiration year 2014
“09” is the expiration month of September
“20” is the day of the month the option expires
“C” signifies that the option is a call
“195” is the strike price

 

I can’t figure out how to place the trade myself online. What do I do?

To get started with online options trading, you can see step-by-step videos for placing a call debit spread trade using three different platforms on our broker tutorials page.

Even if you use a different broker, the videos will help you get an idea of the process.

Your broker will be eager to help you learn, so reach out to them directly.

I am trying to enter a trade, but I can’t find the right option ticker symbol on my broker’s order entry page. What do I do?

Contact your broker to find the correct option ticker symbol for their platform.

How do I start making money with options?

The best way to get started is to watch all of the introductory and training videos on the Velocity Trader website. (For instructions on logging into the website for the first time, see Managing Your VT Account.)


I didn’t get a trade alert in my email. What should I do?

Sometimes Internet delays cause trade alert emails to be delivered after the market opens, so it is always faster to check the Alerts tab on the VT website—click here.

Another possibility is that the trade alert was sent, but your email program marked it as spam. To ensure that you are receiving email alerts, click here to read how to whitelist emails from Investing Daily.

In addition, please check your Notification preferences here on Investing Daily and make sure that on the Notifications tab “Issue Notifications, Trade Alerts & Flash Alerts” is check-marked.

What if I’m on vacation, not well, or otherwise unable to monitor my existing positions?

Jim’s advice for people on vacation is to close out any vulnerable positions until such time as one is able to pay attention and trade again.

For example, if you are traveling without internet access at the beginning of June, prior to leaving you should consider closing out your option positions expiring in June. Upon your return, you may consider re-opening these June positions if they still make investment sense, or if they were rolled in your absence you can consider opening the later-dated rolled positions if they still make investment sense.

I’m ready to go further with my options trading. What other tools do you have?

The Velocity Trader Trade Table

All trades are sortable by date, by name, and you’ll be able to switch views between open and closed trades, so you’ll always be able to find the most up-to-the-minute information.

Seasonal Velocity Scanner

This amazing software application is unavailable anywhere else. You will find the download and instructions for the Seasonal Velocity Scanner.

With this software, you can quickly look up a stock selection’s ten-year price history and find out its value in a seasonal context. If a certain stock usually gains in value during a certain time of the year, the Seasonal Velocity Scanner will give you that information.

Please note that the Seasonal Velocity Scanner is only compatible with PCs, not Macs.

Options Glossary

When you are new to options trading, the specialized vocabulary can feel bewildering. Don’t worry – your fellow Velocity Trader members have mastered the lingo and you will too. Just keep this link handy: Options Industry Council Options Glossary. You will also find this link under the Resources tab on the Velocity Trader website.

Options Toolbox

As you get more comfortable with options, you’ll enjoy exploring the many tools collected in our Options Toolbox. We have compiled numerous types of calculators numerous calendars that augment Jim’s trading explanations analytical tools paper trading simulators and more, from sources as diverse as the Options Industry Council, University of North Carolina, Yahoo, Trade Monster, RTT News, Barron’s, and more. Have fun!

I have more questions. Where do I post them?

If you have general questions about options trading, they’ve probably been asked and answered many times before. Use the white Search bar in the website’s upper right to see if the answers are available.

If not, you can post your questions here.

If you have a question about a particular trade, post the question in the Comment section at the bottom of the article that is focused on that trade.