Never mind that they are most risky than monthly options. But the quick money and high returns are sometimes too hard to resist.

Ok then, here is a trade setup I use. When these conditions are met I trade credit spreads. More details are in the video. And in the members area, I added a video of me looking for, analyzing, and putting on a live trade with real money using this setup.

Click here to view the embedded video.

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

Hope you have a wonderful, happy, and well rested holiday!

Here is an update of the MCD and JNJ butterfly trades I showed you in my last video. Had to make an adjustment to each because of the strong down move in the market which also affected these stocks.

Click here to view the embedded video.

MCD and JNJ Butterfly Trade Adjustments is a post from Option Selling.
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Click here to view the embedded video.

Iron Condor Trading Lesson 3: Risk Management is a post from Option Selling.
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That is the topic is this video. In it I go over how to get started, how to calculate how much money you need to get started, what you can make, and some simple guidelines I wish I knew when I got started.

Click here to view the embedded video.

I Wanna Be A Covered Call Trader is a post from Option Selling.
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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.
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That is the question a member asked me today. His question has to do with why a credit spread is showing a loss when the stock is still above the short strike.  Valid question, and one that I get asked a lot by newbies. Here is the question, the answer, a follow up question, and a basketball example. The question is in blue, and my response is in red.

_________________________________________________________________________________

Now I need to be educated a bit.  I have a question about the very last trade that you placed on April 28th, where you sold 4 May 1310 puts and bought 4 May 1305 puts.  The SPX was at 1355.77 when you placed the trade so I am assuming (perhaps wrongly) that the goal is for it to stay above 1310 and if so we keep the full credit. exactly  
 
I paper traded this along with you and I am not sure if what my position page of my account is showing is really the story on this trade and I would appreciate your input.  In the gain/loss column next to this trade from day one has shown a negative.  I am trying to figure out if that is correct that we really are in a loss position currently or can we not go by that if we are doing a credit spread where the goal I think is for both the puts we sold and bought to expire worthless so we keep the credit.  you would want it to show a profit. I think it did show a profit in the beginning, but as of right now I am seeing a $40 loss. but that is ok because th eoption prices fluctuate so sometimes these numbers are not exactly “accurate”
 
If the SPX is still above 1310 I would think we would be in a positive position since that is what needs to happen at expiration in order for us to win or profit on this trade.  I know that time value has to be factored in but still I would think the trade would be postive at this point unless I am missing something.   I am even wondering if perhaps a negative loss position at this point is really a good thing because we want them to expire worthless, or am I overthinking this and if it shows a negative currently then the trade really is working against us currently.  Yes, if it shows a loss, the trade is not going in our favor it is going against us.
 
 I did not know if the software with options express is smart enough to take into account the strategy that we are using and therefore the gain/loss they are showing is always correct or do we have to do something different with that information to know where we really stand in the trade at any given time?  If the latter is correct then it would be great to see an article or something that explains what modifications or interpretations we have to make to what is reported on our position page for the different types of trades that you make in order to know where we really are at any given point in time.  Please help, I may just be lost deep in the woods but I am confused and need some assistance. the strategy has nothing to do with it. As days go by the options will lose value and the p/l will change but the p/l is showing you what is happening today, you are talking about expiration so if you exited the trade today, you would lose money since it is showing a negative. does that make sense?
 
Don’t you just love novices?  Hey man, I am trying and studying like crazy but sometimes it all runs together and gets overwhelming.
It will take some time, but you are getting the hang of it.
Thanks for any help and clarification you can provide.

Here is his follow up question (in blue) and my basketball analogy (in red)

Very helpful Allen, thank you.  So one final question then.  If the goal is for it to stay above 1310 at expiration so we keep the full credit, and it is above that currently, then why is it showing a loss.  I understand that you are saying that if we exited now it would be a loss, but why is that the case if it is already above where it needs to be at expiration.  I am sure the answer to this is the key for me to understand how it all fits together.  It would seem to me that we are above where we need to be at expiration so we are in a “gain” position and all we need to do is remain there?

Maybe an example would work better.
 
Lakers/Mavericks Game 3.
Mavericks are up 2-0 in the series and they are playing in dallas. (hope you watch basketball and know what i am talking about)
 
You think dallas will win and you bet $100 on the game.
The odds are 1:1.5 so if you bet $100 and you win you will get $150 back.
 
Fast forward: It is half time and the lakers are winning by 10 points – if you were the place the bet now you would get 1:1 odds – bet $100 and win $100.
 
So where do you stand if you want to get out of your bet?
 
Dallas could still win but you have to wait till the end of the game. But if you want a buddy to take over your bet, then you need to pay him $50 because he is taking on more risk than you did.
 
Same with our spread, if you want to exit now, you have to pay up because the trade/game has not gone in your favor yet.
 
If on the other hand, SPX had gone up 100 points, our trade would be showing a profit and we could exit with most of it in tact. We would not get the whole credit because of the time value of the options (there is still a small chance SPX might drop all the way).

Showing A Loss Before Expiration is a post from Option Selling.
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I am pretty new to the option trading and that’s why have to ask this very basic question.
You are sometimes coming with a recommendation  “Will have to hold to expiration”. I would like to get better understanding of the processes that happen at the expiration day.  Could you please explain it briefly or refer me to the right place where I could find this information ?

Thank you

A: On expiration we look for the closing price. This is normally the close of the day for most options, or it can be close to the opening price for index options (the final settlement price for index options is complicated). If you sold an option you know if you want the price to be above or below the closing price.
 
So if you sold a 50 strike naked put, you want the price to close above 50. If it does, the option expires and just goes away.
If the price is below 50, you have to buy 100 shares per option at $50 no matter what the price of the stock is.
 
So three things can happen at expiration:
 
1. Your sold option expires worthless and just goes away.
2. If you sold a naked call and it expires in the money, you will have to sell 100 shares per option of the stock. If you dont have the shares, you will become ‘short” that many shares. 
3. If you sold a naked put and it expires in the money, you will have to buy 100 shares per option of the stock
 
These three outcomes are for regular stock options. For index options, there is no stock transfer they just add or subtract money from your account in the amount the options were in the money.
 
Hope that helps.

How Do Options Expire? is a post from Option Selling.
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Trademonster and Interactive Brokers.

Trademonster is a newer broker but is focused on customer service and growing their customer base by providing lots of trading tools, resources, and education.

Interactive Brokers is a larger broker used by major market players.

OptionGenius members can sign up to autotrade our service through these brokers right away. If you already have an OptionGenius membership just choose a broker and visit their autotrade page for more info on how to set up.

Note: to autotrade with Interactive Brokers, you have to go through a separate company called Global Autotrading. This company charges a monthly fee for autotrading. OptionGenius does not charge any money – it is a free service for our members.

Our other autotrade partners are still doing great for our members.

Eoption and OptionsXpress.

For more information on what Autotrade is and how it works, visit: http://www.optiongenius.com/Autotrade.html

New Autotrade Partners Added! 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

Iron Condors

Iron Condor Philosophy – Lesson 2 Iron Condor Mini Course is a post from Option Selling.
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