Another Free Trade and Updates

Option trading profit: The last couple free trades, PCLN and OIH worked out nicely. Good gains in both. So here is another one.

IWM Option Trade

Sell May 65 Puts, Buy May 63 Puts for a credit of .28 each spread. Get out if you are down 10-15% of the margin. if it goes well, either let it expire or buy it back at .05. I prefer to buy it back because it is 45 days from expiration. Normally you do not want to sell option credit spreads with this much time but with the volatility so low, either you move closer to the money or you go out farther in time to get a decent return.

Option trading profit

This option trade has a potential profit of 16%. This is an interesting trade because IWM is the etf for the Russell 200 index. Earnings season is coming up and that will affect IWM. Also IWM is at a 52 week high. How long can it keep going up? The talking boxes on CNBC have been calling for a correction for months now. A correction would kill this trade.

But the system I am developing is telling me this is a doable trade so I thought I would post it. I am posting the more controversial trade signals to establish a track record.

I am not using real money on this trade and neither should you. Paper trade only.

If you have any questions, pleases leave your feedback in the comments section below and check out our blog section for great options selling tips and strategies

13 Comments

  1. Marty Pegelow on April 5, 2010 at 12:25 pm

    Too close for me. With 46 days to go too much could happen. I would look at 64/62 or even 63/61. 63/61 for $o.17 would return around 9% with less risk. Bottom line is, I’m looking for a correction also. It’s like spring tornados, you know it has to come, the question is when. I don’t want to be standing out in the middle of the field when that ausume train sounds starts to sneak up behind me.

  2. jim obrien on April 5, 2010 at 12:55 pm

    i entered this trade credit spread .26

  3. Belony on April 5, 2010 at 1:04 pm

    I have no comment it.

  4. sd khalsa on April 5, 2010 at 2:00 pm

    trying to get filled at .28 on sim. 64/61 would be nicer but adx is strong and 65 is very near projected support for april may is higher using person’s pivots. downside is a lot of time left on this one but it is certainly moving in the right direction and we can always bail early for probably a small loss i like it thx

  5. Joseph McNeil on April 5, 2010 at 3:05 pm

    I do not like this trade. What is free about it? The best it can do is $.63. The risk if it turns down is $1.37. Too close to ITM. Risk/Reward is 2.17 if it goes against you. Breakeven is 64.37 everything below 64.37 to 63 is a loss. Just my analysis.

  6. Xueren Zhang on April 5, 2010 at 8:17 pm

    I did quite a bit of spy and iwm credit put spreads ( April iwm 62-60,spy 110-108,113-111) whenever the market was consolidated.They are all going to be expired.This is a very powerful upward market for now.Iwm can be corrected,but 65 is a support.Today it reaches a new high,and I may wait for a consolidation to sell 63-61 with more contracts.It seems to me higher ROI is not important.I would rather to spend more for less ROI,but safer.Neverthless,Iwm 65-63 is doable,but needs constant attention with higher level of stress.I am wondering that if 65-63 is working,why shouldn’t we go for rut 610-600 with similar gain?

  7. Xueren Zhang on April 5, 2010 at 8:43 pm

    iwn 65-63 or rut 610-600?

    For $2000 margin requirement,

    1.sell to open 10 iwm100522p65 and buy to open 10 iwm1000522p63 for a credit of $280.00.

    2.sell to open 4 rut100522p610 and but to open 4 rut1000522p600 for a credit of $220.00 ( spread is creently selling for 0.52 ).

    #1 trade is a lot higher ROI,but #2 is lower ROI with double investment.

    Which one this community of friends will go?

  8. Stoyan on April 6, 2010 at 5:47 am

    I’M afraid GENIUS is making a blunder on this one ie going against
    too many trends.

    • Genius on April 6, 2010 at 10:33 am

      We will see. This was a trade that popped up on my radar. I will not be doing this with my own money. This trade is controversial in that it might win it might not. It is risky, but that is why there is a 16% gain potential. But then again, most people did not like my earlier trade in PCLN either (which as posted on the blog).

  9. Jon Rodgers on April 6, 2010 at 11:12 am

    This is as good a trade as you will get in this market. The short term TA signals are up, so putting on a spread away from the market is good.

  10. Ezduzit on April 6, 2010 at 12:35 pm

    I agree with those who say the 65 strike may be too close for comfort. It may work out as the Genius suggests, but I prefer the 63/61 strike combination that is further out of the money than the 65/63

    The lower risk/lower reward trade is more appealing to me than the higher risk/higher reward trade. My preference is to hit a lot of base hits that seldom require managing the position.

    The 63/61 strike combination is more apealing to me for the reason that it is a safer position with a lower probability of requirng management than the 65/63 trade.

  11. David Strauss on April 6, 2010 at 1:48 pm

    I am always happy when my fellow option writers make money which is about 75% of the time, and sometimes higher after repair strategies are implemented.
    I just sold a lot of credit call spreads on BAC, sold May 16 calls and bought May 17 calls for a credit of 65 cents, my shares jumped from my entry point of $15,- to above 18,-. So I made a share profit, but have to repair my call spreads. I am thinking of buying back my losing ITM spread for about 5 or 10 cents, and rolling up and forward, and enter a new credit call spread, selling the 17 calls, and buying the 18 calls, or selling the 18’s further out, and buying the 19s calls. I invite your support or constructive criticism, but please comment. Good luck to all of you! David S. from Vancouver, British Columbia

  12. Stephen on April 6, 2010 at 6:35 pm

    If you think 65 is too close to the money,why not move further out of the money and sell the May 62 cash secured put for your $0.28?

    Percentage return is less, but probability of trouble is also less…

    Steve

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