So you want to trade options? You want to get rich quick? You want to be like that guy from Wolf of Wall Street(not Leo, every man wants to be Leo already). If you’ve answered yes to all three of these questions you’ve undoubtedly dabbled (or at least wanted to dabble) in cheap weekly options. There is no quicker way to make or lose a fortune than in high risk/high reward option plays. Below we are going to breakdown when these might be the right choice, and how to play them without blowing up your account.

Here are 4 “lotto options truths” to keep in mind before we dive in:

  • First off, I don’t recommend playing these on every position, and if you do I would suggest not building yourself a portfolio full of them. While it is fun logging in to your account and seeing a 50% increase, I can assure you the opposite is not quite so fun.
  • Secondly, these are typically always going to be front week plays or at most following week. What does this mean? This means that you need your move and you need it now. If there is a delay, the theta burn with eat your position alive.
  • Thirdly, only risk what you are willing to lose. With the high theta burn and large gamma risk, if you get choppy price action or price action moving against your position, they will become doughnuts in the blink of an eye.
  • Lastly, if the terms “Delta”, “Gamma”, “Theta”, or “Vega” are literally Greek to you, I would suggest doing a bit of studying on the mechanics of options before diving in head first. These are important terms when understanding how an option is prices, and how it will act in comparison to the underlying asset. I can do a basic review in the future, so shoot me a note if that would be worthwhile.

So if I am looking to play a high risk option, how do I go about it?  These are going to be quick plays, so MOMO, snap backs, or playing stocks for a bounce all would be decent set ups. I typically don’t play  lotto’s for earnings as they don’t offer great risk/reward in my opinion. These setups are the same whether option or common stock, but with lotto type options you can’t afford to be wrong or late. The above mentioned theta risk is inflated in lotto type plays, and this is only exacerbated by the fact that these will always start OTM or out of the money. You don’t necessarily need to get ITM or in the money to profit, but if you go the wrong way you have no safety net of any real intrinsic value attached.

After I’ve identified a stock and an expected move, you then have to take a look at the options grid and see how the different options are being priced, and what might make sense. Typically, I am looking for something with a high delta, at a realistic strike. The higher delta means that for movement in your predicted direction, you will get paid more. For example: if a call option has a delta of 1.00(sometimes noted as 100), for every $1 increase in the underlying stock, the call option will increase by $1.00 all else being equal. The other Greeks also come in to play here like gamma which will affect the rate of change in the delta, but you get the idea. So when looking at a lotto call for example, I want a high delta. Why? Because I want to get paid. These are high risk high reward remember, so if I get my move I want to get the payoff. A large majority of these will expire worthless so the winners need to win big for you. This is also where I define my risk. When you’re buying lotto plays, the chances of salvaging much of your buy in can often be low, so I will only buy what I am willing to lose outright. This helps not only curb large losses, but it also helps me manage my positions without large emotional swings. Manage your risk up front the best you can and it will go a long way towards success.

Let’s use an example from the room this week. I wanted to play $CHK for a bounce, but wasn’t too confident that I would get my move with some pending market weakness and overall choppy markets. I knew if it did bounce, it should have some legs as it recently came down hard from a swing high(good), but it had yet to break out of the bull flag pattern that I had it in(not so good). I could have waited for it to break out to the upside, but positive price movement and strength in oil lead to jumping on it now instead of waiting. If I would have waited for it to break out to the upside, I would have also likely had to move up at least a strike to get a similar set up which meant going to 8’s, and that didn’t leave me with much upside against the prior swing high of $8.20.


They don’t call them lotto’s for nothing after all! So with $CHK trading at 7.03 and 8 days to expiry or DTE, I picked up a handful of the Dec 23 7.5 calls for .11 each. You will note the large delta and gamma which means that these options will explode with positive price movement. Yes, they will also bleed out if I don’t get my move. You will also notice the small price tag attached to each contract. If these got to zero tomorrow I won’t be elated, but I won’t lose any sleep over the loss either.


Here’s what I ended up with, and you can see what I mean by keeping size small on a play like this. This was as of close on 12/15.


Here is the same position, only one day later. The interesting move, and why our position is now worth less lies in the Theta. Above we had a large theta of -16.11, and now the theta is -14.57. This is the time value, and what is working against you with short duration options. Remember my saying that you need your move and you need it now? We got a 2% move in the underlying asset, and lost money day over day because of the Theta decay. Let’s also look at the Delta which increased for two reasons. The main reason that Delta increased is that the underlying asset moved in our favor, but the Vega also moved slightly which will increase the Delta as well. This also brought the Gamma along with it and we saw a large increase there. If the underlying asset would have stayed flat day over day, we could have expected a lower Delta as the time decay would have brought it down as remember that as expiry all out of the money options have a Delta of zero.


As of now we are about even on the position, and all of the same rules apply moving forward. My typical goal for these lotto’s is to sell half of my position for a double, and let the other half “ride free” so to speak. This not only covers your costs for the initial purchase, but it also takes the pressure off and lets you manage the position knowing that you have already made your money back. I will do another post next weekend detailing how this ended up, and if $CHK brought me a present or a lump of coal for Christmas.

I hope you have a great week of trading, and send me a note in the room if this was worthwhile or if you would like to see something else discussed.

Mathew Waterfall


Good morning traders and welcome to our weekly swing trading newsletter for the week of Dec 12, 2016!

Don’t hesitate to email us at anytime with any questions about any of the swing trades listed below. Or, if we get bogged down private mesage Curt in trade room or direct message him on Twitter. Market hours are tough but we endeavor to get back to everyone after market each day.

My primary seven swing set-ups this week are:


You can use a number of instruments to trade oil such as FX $USOIL $CL_F CL $USO $UCO $SCO and more…. I am using $UCO for the long (by the way $UWTI AND $DWTI are being resurrected so I am very excited to be able to trade these again soon) and I am currently looking at a number of small cap and mid cap oil plays. Oil is in an obvious break-out (and since last report doing well).

The important thing with oil is to watch the Fibonacci levels, trend lines (diagonal and horizontal), your moving averages and your trading widths (margins / pivots). I can’t discuss the algorithm here but I can refer you to Epic the Oil Algo twitter feed for various public posts.

Widths / trading range pivots – Because oil is in a break-out you want to take your long positions at the bottom of the yellow lines and I as I mentioned in the last swing newsletter I WOULD NOT short oil in an uptrend at the top of the yellow lines. Wait to short it when it is in a confirmed downtrend – and now is not a confirmed downtrend. So right now I am looking for an entry long at a lower yellow line at 51.91 with a stop at 51.63 and I would exit before 54.43. See orange arrow. If that fails support and my stop gets hit then I will look at a long at next orange arrow down at 49.56 with a stop at 49.16 and I would exit before resistance at 51.90. If this also failed (the second entry arrow) oil is in a downtrend and levels would have to be looked at again to re-adjust.

If crude happens to get up over current resistance at 54.45 I would take a long position with a stop at 54.29 and if it works I would simply hold until crude finds its new trading range and reevaluate in a week or more but keep the stop in place. You can also move the stop up a bit as crude trades up in this instance.

Fibonacci Levels – As with last newsletter, because oil is in another break out I wouldn’t be comfortable taking a long or short position based on fib levels because they are skewed. Wait for this break-out to back-test and then look at the levels next Sunday night update.

MA – Oil is trading way above its MA’s so there is no concern here with long positions – but take the range pivots in to consideration first. When these become a possible issue I will advise.

Crude oil, swing trading chart

Orange arrows represent chart support for long trade in crude oil.


So last week I said;

Here again I cannot share the proprietary algorithm components of Rosie’s algo but I can share with you the publicly posted data. Rosie predicted in July that Gold would hit this range but also warned of a 90% chance that Gold would have to hit the bottom of a quadrant on her charting. That would put Gold near 1133.00. I am waiting to see if this occurs and I will take a long trade in $NUGT at that time with a normal swing stop of about 4% and then if uptrend confirms I will scale in at 3 stages. Initial order 2000 shares the 5000 then 10000 then 20000 adding at pullbacks.

The idea in swing trading is to catch the trend reversal and then scale in when confirmed.

Good thing I waited! Price has downtrended since. It isn’t at my preferred 1133.00 so I am going to watch – if it starts to take off upward I will start to nibble with long positions with tight stops. No particular level that I would do that – just if it started to move for any more than a day and it looked like it had momentum. Then slowly enter. BUT THE PREFERRED play is to wait for that 1133.00 WHICH COULD COME QUICK NOW.

Watch Rosie the Gold Algo twitter feed for intra-day updates that may occur.

Gold, Swing Trade

Gold Swing preferred target is 1133.00 ish for long trade.


Silver is in exactly the same position as Gold – wait for the Gold confirmation before entering IMO. Use the same scaling principals. Watch SuperNova Silver twitter feed too.

I have always said that Silver will hold up better in a downtrend, but it doesn’t mean you take a long position yet. Sure, it came up a bit since last week, but the idea is to catch the tren reversal and scale in to it for a large gain over time.

Silver, Chart

Silver is in same positon with me as Gold. When Gold goes Silver wll go. $SL_F $SLV $USLV, $DSLV



Last week I wrote:

I am going to enter a long position in $UVXY or $TVIX for a short term swing (less than 10 days hopefully) at as close to 12.20 as I can get – if I can’t get that I am looking at 12.77.

Considering the geo political environment I won’t be shorting the $VIX unless it gets really extended to topside – which it is not right now.

So it came down to my price target and I didn’t take a trade – I watched. Then it spiked and I would have had a short term gain. Now it’s sitting back at my buy target area and I am going to watch.

If it starts upward I will likely take a trade long in $TVIX or $UVXY and exit by ratcheting up my stops as it goes. Where exactly where I take that trade? I don’t know. But I’m getting more confident with it because of two reasons.

1. At the end of day Friday the there was $VIX insurance buying even while $SPY was spiking at end of day and $XIV (which is the opposite of $VIX) wasn’t moving like it normally does when there is a $SPY spike. Now, $VIX isn’t determined by $SPY but it is a signficant factor. So when they move in this way it is time to pay attention.

2. ALSO, the CNN fear and greed indicator is near all time highs for greed. If you study it out there is a correlation – when greed is this high 9 times out of 10 there is a spike in $VIX because if nothing else investors start taking out insurance.

Now, if the $VIX does spike, and the spike is signficant I will short the $VIX because that is always easy money – but that is something that has to be determined on an intra level and I can’t give you levels here on a swing alert.

$VIX, Swing Trade

$VIX Swing trade


Last week I wrote this:

I really like this swing as a low float energy play. But you have to set a stop at 4% or so and be ready to ratchet up stops as it gets closer to 8.00. This stock has a history of serious gains when oil gets in to break out mode.

Well… that worked out well. There was a really nice spike right that day for a great gain and it is trading this morning again for a nice gain.

The way to play this one now safe is to watch the oil trading chart and support levels I gave you. Wait for oil to hit one of those two support levels I show on the oil chart and play it exactly like you would oil as I wrote above. And, if oil gets up over that overhead resistance I outlined you can then go long $SGY vs. oil. Either way, if you take a long position at a support set your stop at about 4 – 5% and if you get lift ratchet your stops up as you go. There is no way to give you levels up if it goes – just ratchet up stops at your comfort level.

$SGY Swing trade alert worked well. 7.12 to 8.70 ish and 8.12 now.

$SGY swing trade

$SGY Swing trade alert worked well. 7.12 to 8.70 ish and 8.12 now.


Last week I wrote this:

This is a wash-out snap-back swing that I really like. It is up in premarket today but I believe there is a lot of room here. My timeframe is 3 months and I expect a lot of that gap fill to come in to play at 29.83. It has resistance at 22.87 but I don’t think it will hold. One of my favorite swings right now.

So this one didn’t do as well, but I am holding and I will enter with more of a position if it gets back up off it’s feet and starts trending up. Like I wrote, my time-frame is 3 months so I will be patient.

$JUNO Swing Trade

$JUNO Swing Trade


I wrote this last week:

This IMO opinion is a fantastic opportunity – but it does have its risk. You wll have to research the company on your own and make a determination for yourself. But if you find after your research that you think it’s a decent hold for a month or two it is one of the best swing plays on the market at this price IMO. I’m looking to add today to my position.

Well this one worked out well too, I am currently adding in near the 2.90 level. A mid term hold for (3 – 6 months) and I expect close to 50% gain on it. But it is high risk so set stops.

$JUNO Swing Trade

$JUNO Swing Trade

Other Swing Trades I am Looking in to:

Casino stocks: $WYNN $MPEL $MGM $LVS – but I can’t say right now that I will. I am also watching retail and tech for long positions, but not quite ready. Will update on this soon.

This comment from last week remains the same:

That’s about it for this week. I am waiting for the market inflection to settle down and a little more of the indices to settle on the other side of this Trump trade before scaling in to any indices plays and the like. But as I said I am running about 40 charts on plays I am looking at and hope to start adding some of those for next Sunday!

Have a great week and if you have any questions email anytime!

Best of luck.


Article Topics; Swing Trading, $JUNO, $SGY, $CBMX, $USOIL, $GOLD, $GLD, $SILVER, $SLV, $SPY, S&P 500, $DXY, $VIX

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