I answered their questions via email, but decided to go a little bit more in detail in a video. So here it is..

Click here to view the embedded video.

I want to thank the members who sent the email and I hope they got their answers.

Keep the questions coming. If you have a question, I bet dozens of others have the same question. So ask away. The worst I can do is not answer.

Answers to Basic Option Selling Questions 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

Hi,Like most people I have various accounts. The account in question is what I normaly “traded” out of. This is not my retirement account but an account to hopefully help build wealth not preserve. Historically I’d say I only used 5% of it toward option plays (and not whole 5% in one position) since I usually was naked and a 100% loss was possible. I haven’t been trading much of anything lately but do you feel your strategies are designed safe enough to utilize 100% of this type of account? I guess what I’m asking is once somebody says yes they are utilizing risk capital would you suggest devote entire sum to these type of plays or should some percentage still be in other growth tactics? Asking because I’m trying to simplify my life at this point, not make it more complicated.-Paul

I am not licensed to give specific advice. But I would think that you should not put 100% of your money into anything. Especially if you are un familiar with it.  What I tell new members is to paper trade for a couple months, then start small. Once they get the hang of th etrades and the ups and downs, then they can add more capital to the trades or even do their own trades.

I would suggest the same for you. I use these trades for a large part of my income but I do use other trading strategies as well.
 
Allen

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

Monthly result: Gain of 16.3%

Anytime you can make 16% without doing any work – it’s a good thing. This month the markets behaved so nicely that all I had to do was put the trades on. That’s it. They were never in trouble, I never had to worry about adjustments, and I made a very nice, market beating return.

Option Selling at it’s finest. Too bad every month is not like this. But then it would be too boring and everyone would want to be an option seller.

August 2009 Trading Results is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

I usually respond the same way every time.

“I don’t know.”

If I could predict the market I wouldn’t be here blogging, I would be out enjoying my billions.

Believe me, I have tried to learn how to predict the markets. That’s what technical and fundamental analysis is – an attempt to understand and predict market direction.  In the end, I gave up.

I cannot predict market direction. The pundits on TV and radio can’t do it, all the blogs and gurus online with their fancy explanations, charts, candles, lines, and waves can’t do it with any regularity and neither can the folks on Wall Street.

So why bother?

Why not trade in a way where it doesn’t matter which way the market moves?

Makes sense to me. And that is why I love option selling.  It does not matter what is going on in the market, what news comes out or doesn’t, the premium I sell loses value everyday, and I profit.

Let me give you an example. This month I have a McDonald’s (MCD) trade on. I want MCD to stay within a range. A couple days after I put the trade on, MCD moved higher and almost out of the range. So I adjusted the trade and made the range bigger.

That day a member emailed me with news that there is a rumor going around the MCD is going to raise its dividend. That might be why it went higher. And if the news about the dividend is correct, it might go higher still.

This member wanted me to know that this trade was not a good idea. He was warning me to what could happen. Thanks to this member, who had my best interests at heart, I began to worry about this position.

What if he was right and MCD shot up higher?

But after a while I calmed myself down and realized that it was not in my hands. If MCD went higher I would evaluate the position, adjust if possible or in the worst case scenario take a small loss. But the odds were on my side.

As it turned out, MCD has behaved fine since and the trade is right in the middle of the profit zone. Let’s hope it stays that way.

But my point is that it does not matter if the dollar is stronger or weaker. It does not matter what oil or gold do. The markets still move in ranges and if you play the ranges, 8 times out of 10 you will win. And those wins allow you to make much higher returns that you will in a savings account, a CD, a money market fund, or a mutual fund.

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

It’s about a guy in a bar that gets mistaken for a hit-man. This guy then goes to find the person who is going to be killed and tries to save her, ultimately falling in love and dodging the killer throughout the book.

Anyway, there was one conversation the killer had with the hero that was interesting. The killer tells the hero,

” Good guys finish last, Tim” and the hero responds,

“Maybe not if they stay in the race.”

To me that sounds like adjusting option trades. When we get in an income option trade we want the underlying stock/etf/index to stay right where it is. It can move up and down as long as it does not stray too far from where we want it to be.

Sometimes though, it does move, and it hurts our position. That’s why we adjust. And the philosophy behind adjustments is to stay in the race. If we can stay in the trade and give the underlying enough time to come back to us, we have a greater chance of making money.

So with the adjustment we are giving our underlying more room to move around, and we, as the good guys are still in the race.

Otherwise we would have to exit at a loss. Adjustments give our underlying the ability to move around and eventually come back to us.

The down side is that adjustment cost money. They lower our potential profit as well. So sometimes in hindsight, it is better not to adjust. But you just never know, so I say it is always better to adjust and make a little, than take a risk, not adjust and risk losing a lot.

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

by John Summa,CTA, PhD

 While there are certainly many viable options-buying strategies available to traders, options expiration data I obtained from the CME covering a three-year period suggests that buyers are fighting against the odds. Based on data obtained from the CME, I analyzed five major CME option markets - the S&P 500, eurodollars, Japanese yen, live cattle and Nasdaq 100 – and discovered that three out of every four options expired worthless. In fact, of put options alone, 82.6% expired worthless for these five markets.

CME Data
Based on a CME study of expiring and exercised options covering a period of three years (1997, 1998 and 1999), an average of 76.5% of all options held to expiration at the Chicago Mercantile Exchange expired worthless (out of the money). This average remained consistent for the three-year period: 76.3%, 75.8% and 77.5% respectively, as shown in figure 1. From this general level, therefore, we can conclude that for every option exercised in the money at expiration, there were three options contracts that expired out of the money and thus worthless, meaning option sellers had better odds than option buyers for positions held until expiration. 

Figure 1 – Source: CME Exercised/Expired Recap For Expired Contract Report

We present the data as options exercised versus those expiring worthless. Figure 2 contains the actual numbers, showing that there were 20,003,138 expired (worthless) options and 6,131,438 exercised (in the money) options. Futures options that are in the money at expiration are automatically exercised. Therefore, we can derive the total of expired worthless options by subtracting those exercised from total options held to expiration. When we take a closer look at the data, we will be able to spot certain patterns, such as how a trend bias in the underlying affects the share of call options versus put options expiring worthless. Clearly, however, the overall pattern is that most options expired worthless.

Figure 2 – Source: CME Exercised/Expired Recap For Expired Contract Report

As for call options, a primary bull market trend helped buyers, who saw 843,414 call options expire worthless compared with 587,729 expiring in the money -clearly a much better performance by option buyers than put buyers. Eurodollars, meanwhile, had 4,178,247 put options expiring worthless, while 1,041,841 expired in the money. Eurodollar call buyers, however, did not do much better. A total of 4,301,125 call options expired worthless while just 1,378,928 ended up in the money, despite a favorable (i.e. bullish) trend. As the rest of the data in this study shows, even when trading with the primary trend, most buyers still ended up losing on positions held until expiration.

Data Shows That 75% or More of Options Expire Worthless is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

Makes sense. If all our money was in one stock and the company went out of business, we would lose everything. Just ask the people who worked at Enron.

Search online and you will find millions of articles about how to diversify. Gold bugs will tell you to buy gold stocks and gold bullion. Conservative financial planners will tell you to buy bonds. Stock brokers will tell you to put your money into stocks but in different industries. Others will tell you to buy commodities and futures.

That’s all great when the market and the economy are doing well. But what happens when the economy is down or even when it is going sideways – very little growth but no decline either?

When the economy is up:

• Stocks go up.
• Companies buy supplies and so commodity prices go up.
• Money flows to the stock market so bond and CD issuers have to pay higher yields.
• And gold does whatever it wants.

When the economy is down:

• Stocks go down
• No one is buying commodities so supply increases and prices go down
• Money flows out of stocks to bonds so yields come down. Plus the government will lower interest rates to spur the economy and that will cause yields to go down further.
• And gold is still doing whatever is wants.

When the economy is sideways:

• Stocks don’t move much at all.
• Commodities don’t move much at all
• Bond and CD yields are decent but nothing to write home about.
• Gold actually goes down.

So how do you diversify your portfolio in bad or so-so times?

You could buy real estate. Real estate normally goes up 4% a year. And you can rent out the real estate if you don’t mind tenants. But real estate is not very liquid and you’d probably have to borrow money to buy any. Real estate to me, is a business, not an investment. The people I know who are doing well in real estate treat is as their business. Those that want it to be a passive investment either get sick of the headaches or never learn to turn a profit.

My suggestion would be to Sell Options as a way to diversify your portfolio.

An option is a decaying asset. When you sell options, the value of the option deteriorates everyday. Thus you make as time goes by.

Options make money in up, down and sideways markets. So no matter what the market is doing, as an option seller – you won’t care.

If you talk to a financial planner, they will probably tell you that options are very risky and that only professionals use them. That used to be true. It’s not anymore. Options are gaining in popularity with new records being set every year for the amounts of options being traded. It is also true that your financial planner has probably never traded options and will not make any commissions from you if you begin to trade options.

Normally if your investments generate a return of over 10% a year, your financial planner will say he did a great job for you. And you might be happy with 10% a year. But with Option Selling you can earn more, a lot more. In fact, many option sellers aim to earn 10% a month – not a year. Heck even if you only did half that and earned 60% a year, that would be pretty good don’t you think?

I can’t cover everything about option selling here, but I can tell you that it should be something you need to look into to diversify your portfolio.  Even if you only use 10% of your total portfolio, it would increase your overall returns dramatically.

There are plenty of websites that will teach you about option selling. My favorite is OptionGenius.com – mainly because it’s my own website. Just imagine: 10% monthly returns working just 5-10 minutes a day.

Diversify Your Portfolio By Selling Options is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com