Not sure what the difference is between a butterfly, a condor, or a mouse?

(Hint: there is no strategy called “mouse”)

In this video I open up one of my personal trading accounts to show you 4 trades that are all of a different strategy. We have a naked put in oil futures options, a butterfly in Berkshire Hathaway, an iron condor in LVS, and a straddle in LVS. All four trades are doing well.

Watch the video to see how they look on the risk graphs as well as how they are made up and work.

In the optiongenius portfolio we do not do naked puts or straddles, but we do a lot of iron condors and some butterflies. In times of low volatility with the VIX below 30 these non directional strategies work wonderfully. In high volatility markets, they can work as well but with adjustments and a quicker trigger finger to take profits quickly.

Click here to view the embedded video.

Option Strategies – 4 Strategies You Can Trade is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

Click here to view the embedded video.

Free Tool For Finding Trades is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

Now it is possible to sell options inside your IRA and many people do. I do not recommend it for the most part. Why?

Because it is still more riskly than just owning a bunch of boring dividend paying stocks. If you are an OptionGenius member you can see how I invest my own funds and the allocation. But in my retirement accounts, I am mainly invested in stocks. I do sell covered calls and sometimes some puts, and the occasional credit spread/condor/ or butterfly. But those are the exception.

I use my normal trading accounts for the bulk of my option selling trades.  Several reasons.

1. I like to take the gains out to live on and enjoy. Can’t take your profits out of an IRA and I want to enjoy my gains now.

2. The gains can be offset by any losses you may be carrying on your income tax.

3. You could use portfolio margin if you wanted to lever up and go for bigger % gains.

4. I don’t want to wait for some government mandated age before I retire. I want to do it much sooner and I cannot do that if my money is tied up and I cannot touch it.

Just some food for thought.

How To Invest For Retirement is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

But there is a sector that is doing well.

Fast Food. Well not exactly fast food, but whatever they call the sector that is lower than the sit down meal with the waiter.

Take a look at CMG – Chipotle.  And PNRA – Panera Bread.  and MCD – McDonalds.

All doing well, all at 52 week and all time highs.

Why? Well run businesses with pricing power. But also because they are growing by building more stores, mostly overseas.

All 3 of these are in my retirement accounts and will stay there for years to come.

These Stocks Continue To Go Higher is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

You sell one option, buy another for protection and hope that your sold option is not in the money on expiration day.

In other words you sell the 100 put and hope the stock stays above 100. Or sell the 150 Call and hope the stock stays below 150.

And since credit spreads have such a high probability of profit, most traders make money with them most of the time. But when they lose….. ouch. Credit spreads are not very forgiving when you lose.

I learned this firsthand. I had been trading credit spreads in Apple, FXI, and Google. Doing well for several months in a row. But then there was a drop, and all the gains I had made, plus a lot more was wiped out.

It takes a while to recover mentally from a loss like that. I was reminded of this event when a member emailed me his credit spread horror story yesterday which he gave me permission to share with you.

Keep in mind that this member has been trading for 17 years so he is not new to the game.

“I now try to follow a strategy I read last year in the book of Proverbs from the Bible, of all places:  it says:
” … whoever gathers money little by little makes it grow.” 
(Proverbs 13:11).
 
I was shooting for 1 or 2% per Week with Weekly options.  It does not souund like a lot and takes a long time – but after 1 year, it is 50 – 100% for the year, which is great.   It is like your 5% per month strategy.  Making a little money on lower risk option credit spreads over and over again adds up over time.

Yes whatever you do – NEVER CHANGE your Strategy if it has proven to work.   – and NEVER get greedy.  When you make your 5% or so – get out.  Do not try to get more.  Every time I do that, I end up loosing the 5% and then loosing even more.  I just lost $3,500 on a NETFLICKS Credit spread 2 Friday’s ago (a weekly position), in the last 45 Min, when NETFLICKS spiked up 8 points in  that final 45 min after being flat the entire day.  I went from a $200 gain to a $3,500 loss – all in that 45 min – going into the close (Expiration Friday). I was so devastated.  it will take me months to recoup that  – as soon as I get up the nerve to start trading again.

Urgh, I was so, so destroyed by that one trade.  Prior to that trade, I hade made 29 out of 30 trades over the past 3 months – all making about $150 each (ie, “little by little”).  Then BANG – all gone in 45 min.”

So as I mentioned, credit spreads can hurt if they go against you. Add the high gamma of weekly options and you can be broke in a few hours. I know that weeklies have become very popular. But they are very risky.

Before you play the weeklies, I would suggest you get good at the regular monthly option trades and know exactly how and when you will adjust or exit. Once you have some consistent winners, then try the weeklies.

Weeklies are not the holy grail they have been made out to be.  Use them with caution.

Weekly Options Credit Spread Horror Story is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

From what I can tell, LVS hit the resistance, and fell back into the channel.

Why? Well fundamentalists will tell you it is because LVS missed on earnings. Actually their earnings were pretty good but below analysts expectations so the stock took a beating.

Was that it? Or was it a technical move – LVS hitting its head on the ceiling of its trading range?

Who knows? But it was fun to play. Congrats to all those that got it right.

As for my trade, it is still doing ok. I don’t get into trouble until LVS goes below 145. Even then, I am happy because I will get to buy the stock at that price, which is the lower end of the range. I want to keep LVS long term and trade around it, so i plan to sell the shares when LVS gets to the upper end of the range again. (If I am forced to buy them at 45.)

Another way to play it would be to have enough shares to sell to offset the short options.

Say I had 500 shares, and then sold 5 45 puts. If LVS goes lower and it tooks like it will be below 45 at expiration. I can sell my 500 shares at close to 45 and then have to buy them back at 45 at expiration because of the puts. This keeps me in my position. Or I can just buy 500 more.

So at first glance, the trade might seem risky, but things are not always as they appear.

What LVS did is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

Work for all you get
Give away the first 10%
Invest the next 10%
Live on the rest
Account for every penny

Thanks to member George A. for sending these to me. He notes that these habits are taken from Chapter 4 of a book he is now reading Trend Trading for a Living by Dr. Thomas Carr. Keep in mind that these are habits written for stock daytraders.

I agree with all of them except with maybe number 1. I don’t use too many technical indicators in my trading and so this does not apply. But I do like #5 a lot – do not trade at the open. I have made this a rule for my own trading. I learned this the hard way after many losses. Now I wait until 10am central (1.5 hours after the open) to enter or adjust. I don’t mind getting out of a trade at the open to take profits. But otherwise the open is too crazy and often not a good indicator of how things will play out during the day.

There are many other rules that I follow and members of the www.optiongenius.com site can access these rules in the Resources section of the member’s area.

Successful Trading Habits is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

OptionGenius.com has just reached an autotrade agreement with the broker OptionsXpress. We are already autotrading with eoption.com but adding a second broker to the mix gives members more options (Pun intended). Many of you probably already have accounts at OptionsXpress.

I’ve written about autotrading before but in case you don’t know what it is, autotrading is where a broker executes trades for you in your account on your behalf. So if I send out a new trade or a trade alert and you are on vacation, or at work, or driving the kids to school, etc you don’t need to worry about missing the trade. The broker will take care of it for you.

OptionsXpress is a very friendly option broker and has recently bought Optionetics so they are very strong in the educational component as well.

I hope this will be a long and happy relationship for all involved.

For more info on autotrading and what you need to do to sign up, please visit:

www.optiongenius.com/Autotrade.html

Now Autotrading with OptionsXpress is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

 When the holder of an option wants to exercise the option he/she notifies his/her broker. The broker will notify the Options Clearing Corporation (OCC) of the event.  After this, OCC fulfills the rest of the contract and then selects a firm that happened to be short the same contract.  After notifying the firm, this group will then carry out the obligation as specified by contract.  They will choose a customer who was short the option for the official assignment.  (The customer can be anyone from a random person, to a first-come or even first out basis)  The customer is then assigned the exercise, which requires that he or she complete the obligation.  Remember that the person is not actually buying the call—on the contrary he is buying the stock at the stated strike price. 

 Take a moment to consider who the OCC really is.  The Options Clearing Corporation (OCC) was first opened in 1973 and is currently the largest equity derivative clearing organization worldwide.  It is a clearing firm that works with commodities, commodity options and security futures.  They play the part as guarantor to each of these contracts, and try and make sure that all contractual obligations are completely fulfilled, as they are essentially clearing these deals and taking responsibility.

 This organization operates under the watchful eye of the Securities and Exchange Commission (SEC) as well as the Commodity Futures Trading Commission (CFTC).  The OCC clears put and call options on regular stocks, stock indexes, foreign currencies, interest rate composites and single-stock futures, as well as other types of equities.  It also works with futures contracts.  This organization is controlled by a board of directors.  Most of the revenue is made from clearing fees that come straight from its members.  The OCC cooperates with all of the top exchanges in the United States, including the American Stock Exchange, International Securities Exchange, NYSE Arca, Chicago Board Options Exchange, the Boston Stock Exchange and the Philadelphia Stock Exchange.

 With American style options, assignment can happen at anytime. With European style options, assignment can only take place when the option is about to expire. Many traders, especially newer ones are afraid of getting assigned stock when they sell options.

 Unless the option is in the money and there are only a few days left to expiration assignment is not something to worry about. Even if a trader is assigned stock, either long or short, the trader can turn around and exit that position in the market.

If you sell a covered call, you own the stock and sell a call against it. In this case, you want your stock to be called away (sold at the stock price) since that results in the highest percentage profit.

 On the other hand if you are interested in buying stock at a certain price, you can sell a naked put option at the price you would be happy buying the stock and if the stock gets to your price, you will be “put’ the stock – which means you will have to buy it at that price. You also get a credit in the amount you sold the option for. So you get a discount on the stock as well.

 When trading index options, it is good to know that these are cash based and so there is no stock involved. If you are “assigned” your broker will just take the money out of your account.

How Does Option Assignment Work? is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

As part of the firm’s forecast of a “new normal” in the slow-growth economy, Gross, co-CIO at the largest bond management firm in the world, said returns probably will be half of the normal 8 percent or so annualized profits to which investors have become accustomed.

“We should expect less as opposed to more—new normal as opposed to old normal,” he said in an interview. “We should expect that the private economy is delevering on a global basis. That means consumption and household income growth will be less than it has in prior years.

 “And that means ultimately in terms of risk assets, whether it’s stocks or high-yield bonds or even bonds themselves that those types of returns will reflect a slower rate of growth. In other words, instead of 8 to 10 percent in terms of return for risk assets, you should expect 4 to 6 percent. Reduce your expectations.”

With the 10-year Treasury note yielding just shy of 4 percent, Gross said that number would work as a realistic expectation for growth.

“A company like Pimco hopefully can produce something beyond that because that’s our historical track record and that’s something investors look for us to do.”

But he cautioned that investors “looking to send their children to college or retire on those types of returns, that’s going to be a stretch. You just have to reduce your expectations.”

Jack Bogle, founder of the Vanguard funds group, was less pessimistic about market returns, though he’s troubled by the inability of Congress to come up with reforms to the financial system.

“We ought to be able to get from these earnings levels maybe earnings growth of 6 percent and total returns from stocks a little bit over 8 percent, and I think that’s a reasonable forecast,” he said. “The fundamentals of stock returns ought to be about 8 percent and 4 percent in the bond market. When you compound those numbers of 10 years, that’s almost 100 percent for stocks and 50 percent for bonds. That’s a big difference.”

Experts say: Stock & Bond Returns Will Be Below Normal for Years is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com