Trading School Beginner Level

Finally individual investors can receive education in the art of selling options.

Lesson 5: The Option Seller Lifestyle (You'll love it)

If you just got here, you should start at Lesson 1.

Option selling allows me to have a life, to get out during the day and not have to watch my monitor all day. I can put on my trades and spend a short amount of time monitoring them.

I've tried day trading. I've tried jumping in and out of the market trying to make $1 on this stock, and 50 cents on that one, only to have my head handed to me on a silver platter. The most I made on a day trade was $800. I bought 100 shares of a stock and was waiting for it to move up. What I didn't know what the market was only open for half the day because it was the day before a holiday and the market closed while I still owned the stock. When the market reopened, the stock opened up $8 and I got out. It could just as easily gone down $8. Pure luck. I don't day trade anymore.

My trading style does not require you to be at the computer all day. You don't jump in and out. You don't have to pay thousands in commissions. You don't even have to be home all day. Nowadays you can take your laptop with you. I will email you when it is time to adjust a trade. You can then adjust the trade on your laptop or when you get home. My broker even allows customers to place trades using cell phones. Don't even need the laptop anymore.

Here is a real life trade we did so you can see how much time it will take you to implement my system.

On October 20, 2008 we did an Iron Condor trade using the RUT (index).
Here is the trade:

  • Sell 1 NOV 660 Call at $1.98
  • Buy 1 NOV 670 Call at $1.58
  • Sell 1 NOV 380 Put at $4.05
  • Buy 1 NOV 370 Put at $3.50

The total credit we received was 95 cents per option. Our maximum loss was $9.05 per option. So our max potential return would be 10.5%.

For 7 days we didn't have to do anything. But the RUT was trending down.
On the 28th we made an adjustment. The RUT was too close to our Puts.

  • Buy 1 NOV 380 Put at 14.43
  • Sell 1 NOV 370 Put at 12.33

Total debit of $2.10

  • Sell 2 NOV 310 Put at 4.53
  • Buy 2 NOV 290 Put at 3.18

Credit of $2.70

Also, our Calls had gone done a lot in value so I decided to buy them back to protect our profit. We could have bought these back and sold calls with a lower strike for more credit but we did not.

  • Buy 1 NOV 660 Call at .18
  • Sell 1 NOV 670 Call at .10

Total debit of .08

Again, several days go by without us having to do anything. In fact, we could have left the trade alone and our Puts would have expired worthless. But on November 5, I exited the trade.

  • Buy 2 NOV 310 Put at .22
  • Sell 2 NOV 290 Put at .12

Total debit of .20

We were in the trade from October 20 until November 5. That's 17 days including weekends. We made a profit of $127. That is more than we originally were going to make. Because of the adjustment, we had to increase our risk. If we had not adjusted, we would have lost around $200. Our adjustment not only saved us from losing money but made us more than we expected.

Members of my newsletter that did this trade, actually had to do three trades:
1. Put on the trade Total time: 10 minutes (until you know what you are doing)
2. Make adjustment on 10/28 Total time: 10 minutes
3. Exit trade on 11/05 Total time: 10 minutes

Here's how it would work.
On 10/20, you would get an email that a new trade is on. You log into the website to see the trade and any notes I have made about how to get in. You go to your broker's website and enter the trade either during the day for immediate fill or after hours to be filled the next morning.

On 10/28, you get an email saying we need to adjust and the exact adjustments to make. You log into your broker's website and enter the adjustment trade.

On 11/05, you get an email to get out of the trade. If you choose to do so you log into your broker's website and enter the trade to exit.

During this trade, RUT went from 546 all the way down to 448. That's an 18% move. For an index, that is HUGE. But members did not worry. We had our protection in place. We knew when we were going to make adjustments. And I was watching the situation for them.

In our next lesson I will show you how you can do the trades I do using concrete mathematics and statistics so you don't have to guess which way a stock will move or which options to sell.

Let's Go to Lesson 6