Here’s a question from a member about how to choose the  right option broker and my response:

There is something that has me wondering.  If you do a trade such as Iron Condor that has multiple components (4) or a vertical spread (2) can you change or adjust just one or two of those components?  You’ve talked about adjusting one side of an Iron Condor by using a butterfly I think.  Anyway, it made sense to me.  But how does the broker know, when you do the adjustment, that you are adjusting a particular trade and not putting on an additional trade.  Maybe it is different depending on your broker.  I actually did the aapl iron condor that your wife put on, just for fun and because it looked like a sure thing.  I called my broker, Etrade, to ask how I’d make an adjustment with the butterfly if it came [...]

OptionGenius is pleased to announce that we have added two more brokers to our autotrading program.

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 [...]

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 [...]

Here is a question that comes after reading Lesson 2 in my 9 Lesson course on selling options.

When you say, to buy back the option before, the expiration date, don’t you incur additional costs, that reduce your profits even further ?

Good question. In some trades like the Calendar spread you have to buy them back because you don’t want to get long the option. But in an iron condor or credit spread, you can wait and let the options expire. If you buy them back you incur commissions plus whatever you are buying it back for.
 
In many cases it is a question of risk vs cost.  if there is a lot of time left before expiration, you are probably best buying the trade back in case there is a move against you and you end up losing money. On the other hand if you let it expire you can save a few dollars and maybe 1 or 2% points on the trade. 
 
So lets say you it will cost you $20 to buy back a trade, but if the trade moves against you, you could lose $1,000. Do you take your profits or hope for that last $20. Even if the trade moves just once against you in 4 years, you still lose money.
 
Make sense?

Here is a real life example.

On October 12, 2009  I did a credit spread on AAPL. I Sold the Nov 165 Puts and Bought the Nov 160 Puts as protection for a credit of .50 on each spread. There were about 40 days to expiration.

On this trade if the puts expired worthless I would make 11.11% before commissions. (Credit of $50 divided by max loss of $450 per spread = potential return of 11.11%) 

Well AAPL just had earnings yesterday and the stock shot up to about 200 today. This morning, I was able to buy back the credit spreads at .07 each.

So I made .43 per credit spread in 8 days.  That is 9.5%

Why did I buy the spreads back? I could have let them expire worthless. If I did i would make another .07 per spread. But there is still 31 days left to expiration. So I decided to make my profit and money and look for another trade.

Who knows? Maybe AAPL will settle down and I will sell another credit spread on it this month for more credit. Or maybe I will do something else. All I know is that I don’t want to risk losing $450 per spread (anything can happen and APPL could drop in price) to make another $7 per spread.

Yes I did pay the commissions by buying the spreads back. But on each spread I paid $2.50 in commissions.  $2.50 going in and $2.50 coming out which is a total of $5 in commission per spread. So instead of mkaing $43 per spread I made $38 per spread which is still 8.44%.

(That’s why having an option friendly broker is so important. I pay $1.25 per option with no trip charge. If you are paying $10 plus $1 per option or some other crazy commissions then you ae playing a game that is stacked against you. Get a better broker.) 

In my opinion, take off your spreads when they are close to worthless if there is alot of time left. Take your profits. Everyday your money is out of the market is a day you cannot lose it.

This is not to say I never let my spreads go to expiration. Sometimes I do, but not too often on a highly volatile stock.

Not all brokers are created equal.

In order to trade for a living or even trade profitably, you must have a good set of tools. One the tools that is essential is a good broker. With so many to choose from, there is no excuse for having a lousy broker.

As option sellers, we need to have an option friendly broker. This is a broker than either specializes in options, or considers option traders a very important customer base.

By using an option friendly broker you will get

better commissions
better margin requirements
better prices on your orders
better software/platforms to trade on
better information
and better education

How do you tell if your broker is an option friendly broker?

If your broker advertises on national tv, it’s probably not an option friendly broker.
If your broker is a household name ( they have their name on a stadium), they are probably not an option friendly broker.
If your broker’s [...]

I recently released a new trade where the credit for the trade was 1.75 per option spread. I then got the following email from a member and I thought I would share it and my response to help others that may have the same question

“Hi Allen,

Just going thro. this new RUT trade. The credit  on this trade (0.55) is far less than want u wrote(1.75). If this is not a typo from ur end, will it be still profitable to go for it at. 0.55.?

Thanks”

Here was my response:

NO.
 
It was not a typo. I placed this trade 50 days from expiration which is a lot of time, plus there are two sides, the calls and the puts. .55 might be acceptable if you were doing only one side – either call or put but not both.
 
You are not getting good prices.  Even if I do the trade right now, I still get [...]