So here is what I did:

Sell Oct1 11 1145 Calls and Buy Oct1 11 1150 Calls for a credit of .55 each

85% Probability of Profit. 12% Potential Return.

I don’t want to hold these all the way to expiration (Friday). I am expecting SPX to drop after failing to raise above 1100 and will exit the trade with a respectable profit. If SPX breaks above 1100 to about 1110, I will probably exit the trade as well because my guess was wrong.

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

S&P500 is down about 2.5% today. Sitting at 1145.

I am taking a stab at some weekly Puts.

Sell to Open SEP2 11 1070 Puts, Buy to Open SEP2 11 1065 Puts for a credit of .35 each

That equals roughly a 7.5% profit potential. These will stop trading Thursday at the close. The settlement price will be released Friday morning. Same as with regular SPX options.

As long as the SPX stays above 1070, this trade makes money. It has a 90% chance of doing so.

Will SPX drop 80 points in a couple days? Seems unlikely but who knows. Still, I like my chances.

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

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 are trading a flat fee per trade, regardless of the number of contracts, then it does not matter which one you choose.

Advantage: Indexes

Assignment

Indexes are European style options which means you cannot get assigned early. There is no early assignment with European options. ETFs are American style options and can be assigned anytime which can screw up your trade.

Advantage: Indexes

Bid/Ask Spreads

The Bid/Ask Spreads in ETFs are much smaller than in Indexes. Often times the spreads are only 1 penny. Keep in mind though that a 1 penny spread in an ETF is the same as a 10 cent spread in an Index. And if you have a 5 penny spread in an Index that is better than you can get in an ETF.

As a trader you should never be paying the Bid or the Ask. You should be paying somewhere in the middle. So if the spread is 23/24 you should be paying 23.50 or better.

A wide bid/ask spread can hurt you if the market is going crazy and you need to get out of a position immediately. It also takes a little more finessing to get a good price on a trade. Beginners should stick with ETFs for this reason.

Advantage: ETFs

Taxes

Indexes have preferential tax status. 60% of the income is counted as long term, and 40% is short term no matter how long you were in the trade. For ETFs, the tax implications are the same as stock. Since our option selling trades are concluded in about a month on average, the 60/40 tax structure can save us a lot of money.

Advantage: Indexes

Settlement

Most Indexes are settled on the market open on expiration Friday. ETFs settle at the close on expiration Friday. The Index settlement can cause confusion and crazy settlement prices. That is why it is best not to go into expiration. Take your trades off before and save the heartache.

Indexes are cash secured positions. ETFs are just like stock so if you go into expiration short an option you will be required to buy or sell shares of the ETF. An assignment can easily be remedied but it can cause margin calls and other problems.

Advantage: ETFs

Amount of Capital:

With ETFs you can trade spreads with as little as $100. With an Index like the SPX $500 is the minimum. I have heard several traders say that anyone with less than $5,000 should be trading the ETFs, and those with $5k or more should stick to Indexes.

For newer traders with less capital, stick with the ETFs. But I recommend traders start with $10,000. And if you are trading that much or more, the Indexes offer the better bet. As you get better as a trader and your account size grows you may open a portfolio margin account which is margined differently from a regular account. That will really allow you to trade more contracts and the Indexes will allow you to do so without upsetting the market prices with large orders.

Advantage: Indexes

Final Score: Indexes 4 points, ETFs 2 points.

My personal opinion: I stick with Indexes because of the commissions, the tax structure, and the ability to trade more money with a smaller number of contracts. I would rather trade 100 contracts than 1,000 and make $100 per spread than $10.

Smaller traders get eaten alive by the commissions when trading ETFs.  Once you learn how to enter a trade, the bid/ask spread becomes a non issue. Getting out of a position in a fast moving market can be more difficult but it varies from Index to Index. And if you don’t go into expiration with your trades, the settlement will not affect you either.

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

First, thank you for providing a great service. I have been trading options for about a year and have learned a lot from your tips and alerts.

Now, I have a question about position sizing.  I am trading $100k of my funds using your alerts. When you send out an alert I multiply the number of contracts by 10 when putting on the trade. My question is: instead of just multiplying the contracts, can I use a combination of increasing the contracts and/or increasing the width of the strikes?

 

For example, if the alert was to sell 2 SPX 1200/1210 Calls, instead of selling 20 10 point spreads, could I sell 10 20 point spreads? What would be the pros/cons of doing something like this?

It seems to me, if I widen the strikes, then when I need to make an adjustment, I could sell the near strike and buy the next strike as opposed to rolling the whole spread. Is there any advantage to this other than lower commissions and (possibly) better fills? More risk? I feel like I am missing something or not really thinking the strategy all the way through.

Thanks,
Adam

My reply:

How Wide Should Your Strikes Be In A Credit Spread? is a post from Option Selling.
To learn how you too can earn 8-12% Monthly Returns Safely and Conservatively check out OptionGenius.com

For October 2009, OptionGenius.com was  + 2.72%.

Not very impressive is it. But the S&P was down -1.98%.

Trade #4 for the month was rolled forward to November. If I had not rolled it, it would have expired worthless and with a profit. Instead it is now  November Trade #3.

Both iron condors did great in October. I took a more conservative stance this month because of October usually being a very bad month for the markets. And this one did not disappoint.

It started out smooth, then dropped towrdas the end of the month, then reversed and rallied up just as fast as it had dropped.

Can you saw “whipsaw?”

But  both condors did great with no adjustments required. What really hurt was an IWM butterfly that busted my chops. If I had just put that trade on and forgot about it, it would have been profitable, but alas, that’s not how it works, so this trade was a loser.

Regardless, it was a positive month in a year that has been anything but ordinary. The site is still on track for a 50% plus year if November and December work out.

Right now I am up + 36.11% for the year. Which is better than most hedge and mutual funds, and double the S&P.

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

This is following a nice double digit gain last month.

We had four trades this month:

1. SPX, the S&P 500 index
2. RUT, the Russell 200 Index
3.  AAPL, Apple Computer
4.  WMT, Wal-Mart.

I recorded double digit gains on three of these and a 9.5% gain on the SPX position.

Just another day at the office.

OptionGenius.com members can see each trade and any adjustments on the Past Trades page in the membership section of the site. If you are looking for double digit monthly returns, what are you waiting for? Sign up today. I already have one trade for June underway and I am looking for more.

One of my favorite habits is to reward myself after a positive month. To treat myself,  my wife and I go out to lunch at one of our favorite restaurants. Normally it is my favorite, On The Border. But this month, I think we will go out for Sushi. Since my wife introduced it to me I have really started to like it. But I still need here to mix the Soy Sauce and Wasabi together. Someone it just tastes better when she does it.

May Trade 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 just entered a new trade. I have also made an adjustment to a current trade.  Our SPX trade has given us the opportunity to exit one side of the trade. The other side is still doing well.

http://www.optiongenius.com/amember/login.php

So far this month, all three trades are doing very well. And this fourth trade which I added today also looks to be very profitable. This trade is on WMT. Wal-Mart just had earnings last week and the stock is in a well defined range. The volatility of this stock has also been declining meaning that the chances of huge wild fluctuations is declining.

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