The following is from a Barrons article by STEVEN M. SEARS

Butterfly Option Trade on Sprint

IF THE FEDERAL RESERVE can print money, so can you. All you need is a little cash, and a ton of nerve.

Consider Sprint Nextel (ticker: S). The $4 stock is a dog; it has declined 12% in the past three months, and yet trading volumes are surging, demonstrating that distressed equities – what institutional investors call penny stocks – are incredibly alluring in this market because of the potential to make double- or triple-digit returns on small price movements.

If you want to make a potential 500% return on one trade, Credit Suisse advised clients Tuesday to position for Sprint to move to $5 by January.

The bank told institutional clients to consider a “call fly” that entails buying January $4 calls and January $6 calls, and selling twice as many January $5 calls.

With the stock around $4, [...]

The following is from a Barrons article by STEVEN M. SEARS

A STRADDLE FOR GE

SHARES OF GENERAL ELECTRIC (ticker: GE) have been a disappointment for much of the 21st century.

The stock has lost half of its value in the past five years, and it’s gone nowhere in the past three months.

But there is a way to bring back that loving feeling for a stock that was a Wall Street darling under Jack Welch’s management during the 1990s.

All you have to do is use a simple options strategy to kick-start returns by taking advantage of unusual options pricing.

GE’s options implied volatility remains elevated even though the company recently reported third-quarter earnings. Normally, implied volatility, which is the most critical component of options pricing models as it deals with how likely a stock price is to change in the future, declines after earnings.

Yet, concerns about GE’s earnings power are so widespread, especially ahead [...]

I often get asked by members which are better to trade, Indexes or ETFs. “Should I trade SPY or SPX, IWM or RUT, QQQQ or MNX?”

The answer is, it depends. But I do have my preferences.

Liquidity

Both ETFs and Indexes are very liquid.  As I write this the At The Money Call in  SPX has an open interest of 45,000 contracts. The SPY At The Money Call has an open interest of 85,000 contracts. So both are very liquid. Major hedge funds though trade the indexes because they trade directly with the market makers.

Advantage: Even

Commissions

Commissions play a role because the SPX is ten times larger than the SPY. So if you want to trade $1,000 credit spread, you can do it with a 1 contract spread in SPX or a 10 contract spread in SPY. If you are paying per contract, the commission to trade SPY is ten times larger. if you [...]

This article is from cnbc.com.  http://www.cnbc.com/id/39418129

Not only does the article tell the story of how the trader did it, but also gives you the trade he is in right NOW.

One thing I want to point out is that this trade had very little risk for this trader. Why? Because it seems that the trader was bullish on the stock and thus would have bought the shares had they gone down. So basically he would have gotten a discount on them as well as have the ability to buy them below what their “value” was.

Fun With Options: Trader Pockets $455K on Walgreen

Published: Wednesday, 29 Sep 2010 | 9:53 AM ET by Jeff Cox

Some (options) guys (or girls) have all the luck.

Nick Ut / AP

Well, at least one of them has had a tremendous amount of good fortune lately by playing long and short positions against each other on drug store chain [...]

Ok so GLD has continued to drift higher. It hit the upside breakeven of the calendar today and then pulled back a few cents. Time to add the adjustment. I added the 128 Oct/Nov Calendar in the same amount of contracts as the original. This doubled the amount of money in the trade.

Here’e the graph:

After Adjustment

 Notice the breakevens have moved to 123.61 and 129.59 on the upside.

The amount of money I have in the trade is now $2990 and so far I am down $85 since the trade has been opened. I am still looking to make 10-15% on the trade.

If GLD pulls back to 126 I will be sitting pretty. If it continues to advance I will make a move  when it gets to 129-129.50. And the adjustment I will make is to take off the first calendar – the 125 Oct/Nov. That will then reduce the amount [...]

Good news!

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 [...]

Part Four: Iron Condor Trading Strategy

There are as many iron condor trading strategies as there are iron condor traders. Everyone has their own preferences and style.

To create your own iron condor strategy you have to first choose the underlying. You don’t really need an iron condor screener or software program to find suitable candidates for you. Stick to Indexes and ETFs at first. As you become more experienced you can move into stocks.

Indexes and ETFs have the benefit of being composed of several companies and so the news, good or bad, of any one company will not affect the price as much. Pick one that you feel is relatively stable. Some good candidates are: SPX, SPY, RUT, IWM, DIA, QQQQ, NDX, MNX, XLE, XLF, and RTH.

Step two in creating your own iron condor strategy is to decide how far out from the money do you want to go. The farther [...]

Part Three: The Risk of the Iron Condor Spread and How to Mitigate it.

So far we have talked about how the iron condor has great probability of success and can generate a decent return month after month.

In this section we are going to talk about what happens when things go wrong.

Most traders say that iron condor options trading is a conservative strategy. Others say it is very risky because you can lose a lot more than you can make.

It all depends on how you set up the condor spread. You can choose strikes that are way out of the money and that give you a 95% probability of success or you can choose strikes that are close to the money and give you a 40% chance of success. The closer your short strikes are to the money, the more your iron condor becomes a butterfly. A butterfly is also two [...]

Part Two: Philosophy of the Iron Condor

Incase you missed Part One: http://optiongenius.com/blog/iron-condor-option-trading-mini-course/

Stocks move up and they move down. Very rarely do they move in only one direction for an extended period of time. Since most of the time, stocks trade in a range, why don’t we make money from the range, instead of trying to determine if they are going up or down?

That in essence is the philosophy of the iron condor spread. No need to determine which way the market will move, because within a 30-50 day time period chances are that the market will stay in a range. Over time, it may move in one direction. But in a short period of time it probably won’t.

So let’s sell options that are far out of the money, which have very little probability of hurting us, and make money by selling time. As days go by, the options lose value, [...]

Iron Condor Option Trading

In this multi-part mini course, I plan on explaining the major facets of the Iron Condor Option Trade. First I will go over the basics of the trade, the philosophy, the risk, putting the trade on, and possible adjustments

Part 1: Iron Condor Spread Basics

The iron condor is an option trading strategy that uses two credit spreads.

The strategy is simple: Sell credit spreads out of the money: both puts and calls thus creating a “box”. As long as the underlying, stock, etf, or index stays within this box, the trade makes money.  Since you are selling options the trade results in a credit, and this credit is the maximum amount you can make on your iron condor trade.

When you place an iron condor trade, you will be selling the condor. In most circles this is considered a short iron condor. I myself do not know too many traders [...]