Here is a trade I just put on in my personal account.

The stock is NLY. The trade is a simple Put credit spread

Sell to Open Oct 16 Puts (.40)

Buy To Open Oct 15 Puts (.26) for a credit of .14 cents per spread.

Trade has a 74% probability of success. And can make 16.2% if left to expiration.

NLY is a financial company but a very boring stock. I love owning this one as well because it pays a little over 10% dividend right now.

So here is how the trade works: If NLY is above 16 on expiration day (right now it is trading at 17.68) I make the whole 16.2% minus whatever commissions I paid to get into the trade. If NLY is below 16 and above 15 I will be assigned the stock if I don’t exit the trade. Again, I don’t mind owning this stock. if NLy is below [...]

Here is a trade I just put on in the personal account.

It’s an iron condor on Apple. It has a 77.43% Probability of profit with 22 days left to expiration.

Sell to Open June 355 Calls, But to Open June 360 Calls

Sell to Open June 310 Puts, Buy to Open June 305 Puts

For a credit of .63

For each contract you do, you get a credit of $63 which is the max gain on the trade. The max loss is $437. So the potential ROI is 14.41%.

My plan for this trade is to keep it super simple. Let it ride until expiration. Look at exiting when up 10% or more. If I get down 15% or so I am going to exit. This is a small position and one I put on because my wife made me. I am teaching her how to trade options and she is coming up with her own [...]

Can I make living trading options?

That’s what everyone wants to know.

Seems everyone hates their jobs and wants to sit back and trade options for a few minutes a day and make a very nice income.

And why not? Heck, that’s what I want. But it is doable? Is there anyone out there trading options for a living?

Answer: YES.

There are many people who trade for a living. But most traders don’t stick to just options or just stock. The ones I know trade everything – options, stock, bonds, commodities, even forex from time to time.

Can you make living selling options?

YES again. If you don’t get anything else out of my emails, I hope you see that making 10% on an option selling trade like an iron condor or butterfly is not that hard. We do it every month. The trick is to manage your positions and avoid loses since not every trade [...]

Why is this trade showing a loss?

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 [...]

Q:  Dear Allen,

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 [...]

Are you a Boomer Trader? You are not alone.

Baby boomers make up the majority of OptionGenius.com members and prospects. And they seem to be the most motivated to learn how to trade quickly. This is a good thing but boomers have to be very careful. There are a lot of snake oil salesmen in the stock/investing/trading world that want nothing more than to take your money to “teach” you some magical trading system that does not work in the real world.

I am glad that you are motivated and taking action to take care of your own money, because no one care about it as much as you do.

The following article is from Forbes magazine.

The Golden Age Of Trading

Emily Lambert, 03.23.11, 06:00 PM EDT
Forbes Magazine dated April 11, 2011

The number of retirees trading actively online is growing.

 Maureen Christensen had put in 32 years as an information technology specialist when in June [...]

Many readers liked the MCD butterfly I posted on Friday. Here’s the link if you missed it:

http://optiongenius.com/blog/mcd-butterfly/

One reader posted an excellent comment that I decided to create a new post about. Here is what he asked:

As of Friday’s close, the 75 fly would cost $3.15 for a BE range of 73.16 76.86. Max profit at the 75 strike (if held to exp day)is approx $180 for a 57% ROI.

With a April/May 75 Calender Call Spread, (with a +1 IV skew),the cost is .83 for a similar BE range: 73.4576.46. Max profit at 75 strike is only $62 (compared to $180 for 75 fly), but the ROI is 75% (compared to 57% ROI for fly).

So here’s the $64 question: given these two ‘range-bound’ option strategies that offers nearly identical BE profit ranges, would it not make ‘more’ sense to go for the 75 Cal, given it’s purported superior Risk/Reward profile, in [...]

Got a question from a member recently:

I have been looking at stocks, and 1 expert says UNP has the highest value in the s&p 500.  It appears to be doing well.
Please look at the calls with me.

 The jan 2012 leap, at 60. I believe is selling at 33, which puts it at 93 and is trading at 93.5.   If you expect it to go to 100 by then , the gain should be 6.5 $ for a 33 $ investment or about 19.7%  over 10 months??  Am I seeing this correctly?? and the math right ???  It appears that the inthe money option is a better value than the out of the money ??
A 7 % move giving a 20 % gain????????

Looking at the 100 call, jan 12, it sells for about 5.80.  If it closes at slightly over 100, you may get a dollar gain ???????  or actually, break [...]

Credit spreads are a very simple trade.

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 [...]

Iron Condors