Option Trading Answers to Basic Questions

Option Trading Questions

Option Trading: This week I got an email from a couple of members asking some basic questions on option selling. I was happy that they had the nerve to ask the questions and not just try to figure it out on their own. They had gone through some of the material on the site but it was still over their head.

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

Option Trading Strategies

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. 🙂

If you’re new to our site, you may have questions like “what is option trading?” or “how do I manage my investment options?”, then all you have to do is read what we have for you on our blog section. Follow me on Twitter and check out our products and training section for more option selling training learning opportunities.

21 Comments

  1. michael morneault on October 27, 2011 at 7:41 pm

    Thank you so much for the question and answer videos. Thank you also for teaching us. Do you prefer selling calls and puts over buying calls and puts?

    • Genius on October 28, 2011 at 11:50 am

      Yes I definately prefer selling options over buying them. I am not much of a fortune teller and so cannot pick a stocks direction with any accuracy. Option selling helps me overcome that.

  2. George Leuong on October 29, 2011 at 4:23 pm

    Good answer by Allen,
    Again, it is a good thing that he explains the strategies very well. I enjoy trading with him very much. The recent RUT trade adjustment is just a necessary evil that we must endure when conducting these trades. Allen, please explain to the members how we are making up for our huge losses in the July-Aug trade recommendations. I have a number of friends who have been tracking the trades you recommend for us, and they continually ridicule me about our recent losses. But, I tell them that we cannot win all the time, but that over time, we are coming back! Please write a post to back me on this, as they don’t just take my word for it!

    • Genius on October 31, 2011 at 1:37 pm

      George,

      1. hedging a trade is more than a necessary evil. Sometimes it is the best thing to do. Especially in these volatile times.

      2. Over time our trading style wins out. Sure, in times of volatility there are heavier losses, but that goes for all trading styles. Up until 2007 or so, most option sellers thought it was a bad year if they did not make 100%. Now, we have to reevaulate and tone down our expectations. But this too shall pass. Things will get back to normal – even though there are those who want publicity for saying that it won’t. Option selling is the best way I have found to make market beating returns with just a little bit of work. It is slow, and mostly relaxing. That is not to say that we should not own stocks or diversify into other investments. Option selling should be one part of our overall strategy.

      So when things get difficult, we cut back. In high volatility we don’t trade as large and conserve capital. Money managers do the same thing – when they think stocks are going to drop they get out of the market. We do that when things get volatile. A rough guideline would be to stay away when the VIX is over 40.

  3. ikram khan on February 23, 2012 at 12:46 pm

    hi
    i been subscribing with you for a while now, i really enjoy the education and all the info. you are providing. i have been trading options for about 15 years, i am looking for some other services , and want to know if you would recomend some other advisory service that has good track record.
    i have about i million to trade .
    your help would be certanly appreciated.

    thanks
    ikram khan

    • Genius on February 23, 2012 at 2:48 pm

      Hmm, another good advisory?
      I wish I knew. i would have just given them my money to manage. 🙂

      To be honest, with a million to put to work I would concentrate on learning and doing it myself.
      There are many advisories and it seems like there is a new one every month. (Many of which rip off my site and ad copy which is not a nice thing to do.) Anyway, signing up for 3-4 and getting ideas from them is not a bad idea.

      I get emails from people who are/were members of other services, and I dont want to say anything bad about another company without experiencing them firsthand, but some are very hard to follow (too many trades), others promise one thing and deliver another (get 10% returns when it is more like 2-3% if everything goes right), to others who only give one trade a month. One trade is not bad either, but you have to be comfortable putting all your eggs in one basket.

      Everyone is different. So you will have to join a couple and see which ones you like best.

  4. hobert hampton on May 30, 2013 at 10:56 pm

    I want to sell(and buy) weekly spreads deep in the money options. Is there some reason that this will not work. It looks like there are better premiums that doing the same thing with deep out of the money spreads? I have been putting the trades on a virtual account in the OIC website and it takes the transactions and appears to work well. Please advise?

    • Genius on June 17, 2013 at 11:36 am

      The idea behind selling options is you want them to expire worthless by having them stay out of the money. If you sell in the money options you have to be right on direction. That is not the game we want to play.

      • Will on September 25, 2014 at 12:23 am

        The position selection process is the most challenging for me. I check market and stock trend, then go to the strike list for a prospective stock. Open Interest column shows where the big money traffic is concentrating. I look at option Bid and Ask prices for proximity. If these prices are far apart, low value, or potential loss exceeds potential profit. Near prices I think indicates there is sufficient volatility, and that raises the value of the position …which then results in a prospective spread with sufficient credit and low risk of loss. I finally found one that seems to match what we’re learning. Know that I am a student of cr.spread trading too, and Allen might have a counterpoint to insert. I use TDA brokerage and their Think Or Swim trading platform. I learned a lot from Doc Severson and Bill Polous, before meeting up with Allen.

  5. hobert hampton on June 18, 2013 at 11:33 pm

    Genius,
    I realize that this is note game you are teaching but could this be a viable option to ha you are trying to do? It is so tempting as the premium is so much better. I know that this I contrary to your plan but for the sake o discussion could this work ad how should I set up tetrad so tat I collect the large premium and have close enough bought options to serve as to limit my losses to lets say $1.00 in the margin that I pay with part of the premium and keep the rest of the premium after the buyer exercises his option. I do not think that I need to be correct on direction if I use a straddle? I plan on the option being exercised at expiration as I have gotten enough premium to make (all?) of the trades a win for me as the seller. Please help me figure tis out? feel it in my bones that this can work out well for me.

  6. francis ebenger on July 6, 2013 at 12:19 pm

    do u have a trail period?

  7. gp on July 10, 2013 at 10:06 am

    If a share sells at $10 and I sell a put at a strike of $15 or more, what happens?

  8. George on September 6, 2013 at 12:30 pm

    Why are you advertising (promoting ? ) the Weekly Option System ?
    Aren’t they a competitor ?

    • Genius on September 9, 2013 at 10:24 am

      We could have 100 reasons for promoting or letting someone advertise on our site.
      In this case, Weekly Trading System is our sister site.
      It offers trading on weekly options using a specific system.
      So we do not feel it competes with this site. In fact, it gives trades some diversification.

  9. William Hausman on October 21, 2013 at 1:40 am

    Please, what does “our sister site” mean?

    Does that mean we could just as well enroll with them and profitably use their recommended trades?

    What would be the advantages of Weekly Trading System over OptionGenius, if any? Conversely, OptionGenius over WTS?

    Is WTS a less “advanced” option trading strategy, and thereby possibly less complex and demanding?

    Is there a difference in recommended account size? And difference in “draw-down?”

    Is one more or less profitable than the other, considering risk?

    • Genius on October 21, 2013 at 12:53 pm

      Sister site, means it is a different advisory but owned by the same company.

      Apples to oranges.

      Different styles of trading, weeklies vs monthlies, one strategy vs multiple strategies, etc.
      You can get the details of each on their respective websites.
      Some people choose to be members of both, some prefer one over the other.

  10. Norah. Keffer on October 2, 2018 at 12:35 pm

    Hi. I am a level 1 options trader. I would like to learn how to advance to a level 2. My broker won’t let me go any further until i learn it. What is a quick and easy way to learn? All the programs that i enterd are spreads and others. Please help me.

  11. Susan Songy on July 25, 2019 at 11:18 am

    Can I submit an options position I am in (in Sym) and have someone explain to me what I want to happen? BUy to open 1FDX 20 Sept 165 call
    Sell to 1 FDX 20 Sept 19 185 call
    Max profit $1438
    Max loss -$562
    Est price $5.62
    Est. cost $562
    So I’m new at this, I understand that FDX opened the trade for me in July, now it is in the 176 range. I don’t get how I know when to exit, and I don’t understand what would happen to push me out of the deal. SOmeone tell me what I am hoping will happen, and what I should be afraid will happen. HELP!

    • Ameen Kamadia on July 29, 2019 at 2:32 pm

      Looks like you want FDX to go up in price. If it does then you will make money.
      But this was a debit trade, so you will have to exit it before the expiration trade or else the options will expire and you will lose whatever you paid for the trade. If you do not know how to exit, call your broker for help. And since you do not know how the trade works, you should probably exit anyway and learn that first before risking money.

  12. Allen Blitz on August 1, 2019 at 10:19 am

    How can I tell when a vertical spread, or a plain call/put will expire worthless? I don’t know at this point whether to close a trade before expiration, or just let it expire worthless.

    • Ameen Kamadia on August 1, 2019 at 1:30 pm

      It’s up to you really.
      If you have made most of what you can make and there are many days to expiration, then you should probably take it off. If there are just a couple days left and the trade is way out of the money, then you can probably just let it expire. Of course there are other aspects that can come into play, but the bottom line is, if you think they trade will be fine, let it expire. If you think there might be a risk, then exit it.

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