Saturday, November 23, 2013
We have had an excellent year trading RUT and IWM bull put spreads. All our trades (Jan-Nov) have expired worthless. Our final trades of the year should expire worthless on the 20th of December. Credit Spread trading is a wonderful way to generate a monthly income. The only times in past years we experienced a monthly loss was when our trades were automatically closed out early due to a market crash. These events will continue to occur in the future. This is why we must always use a contingent stop loss order. This type of order prevents a max loss from being realized.
Sunday, July 7, 2013
Since the market meltdown in 2008 we have only been trading one trade per month using the RUT and IWM indexes. I also have many subscribers who only invest in one trade per month. They do this because they feel all the indexes are related to the total market. By trading only one trade per month they keep their trading fees very low. We chose the RUT and IWM index because it’s not as volatile and does not include the DOW and SPX companies that are in the news all the time.
Also for this kind of investing you must not allocate all your trading capital to this strategy. This strategy is risky and only a short term strategy. I would only start investing a small amount of your capital. Once you build up your options trading account you can buy more contracts. You also want to paper trade in the beginning if you can. This is why I offer a 60 day free trial. I want subscribers to practice submitting the trades so they know how it all works.
Saturday, June 22, 2013
Our spread trades continue to expire worthless monthly earning 3% to 8% each month. This trend should continue for the remainder of the year. I like this conservative trading strategy because the monthly income is consistent and allows me to build my capital trading account.
Thursday, February 7, 2013
Short-term gains from most types of stock and option investing are taxed at the same rate as ordinary income. Long-term gains on stock and option investments held for more than 12 months are considered long-term and taxed at 15% in most cases. If your tax bracket is below 25% then long term gains are taxed only 5%.
The good news is that the gains from the stock index options trades we are trading are taxed differently than gains on individual stock options and stocks. Gains on our stock index spread trades are considered ITC Section 1256 contracts. This means any gains made in these trades are taxed under a 60/40 rule. This rule states that gains are treated as 60% long-term capital gain income and 40% short-term capital gain income (ordinary income) regardless of how long the investment was held. So when we hold a index spread trade for 30 days (our average holding period), 60% of the profit made from that trade is treated as long-term capital gain income and taxed at 15% or 5%. Please do not take this information as tax advise. Do your own research with a tax advisor like H&R Block.
Sunday, January 6, 2013
My 2013 Trading Strategy and Goals1) Earn consistent cash profits month after month averaging a minimum 3% (2-8%) net monthly return. This is a minimum 36% annualized return. Earn these profits in bull and bear markets.
2) Enter Bull Put Credit spread trades on the RUT and IWM Indexes that have a very high probability of expiring worthless. This is a low risk options trading strategy.
3) Complete Iron Condor trades with Bear Call spread trades to double the return on the required margin capital that only covers one side of the Iron Condor. This is been difficult to do since Obama became president. The markets have been rising each month making Bear Call spread trades risky. Once the markets return to a neutral trading pattern we can start selling Bear Call spread trades.
Saturday, January 5, 2013
Benefits of Index Spread Trading
1) Credit spread trading is a simple, safe, and stress-free type of trade that does not require a great deal of monitoring. You just place the trade, collect the credit, and wait for the options premiums to decrease or expire worthless. Minimum time is required to process and track these credit spread trades.
2) You receive the proceeds of each credit spread trade immediately when your order is filled and you keep these proceeds no matter what happens.
3) The credit spread has two primary advantages as an income generating strategy. First, the position benefits from time decay. Since options decay in value with the passage of time, the value of the credit spread will in turn decay over time. By writing a credit spread, you are selling a decaying asset and receiving a credit or a premium up front. If the underlying market remains stable until expiration, the spread expires worthless, allowing you to keep the premium received. In a sense, you profit from the passage of time.
4) The credit spread also allows you to benefit from market movement. If one writes a bullish credit spread using puts, the value of the spread would rapidly decline as the market moves higher. The converse is true for bearish call spreads. With this flexibility you can inject an element of trend following into your trading program to increase your odds of success.
5) Gains on stock index spread trades are considered ITC Section 1256 contracts. This means any gains made in these trades are taxed under a 60/40 rule. This rule states that gains are treated as 60% long-term capital gain income and 40% short-term capital gain income (ordinary income) regardless of how long the investment was held. So when we hold a index spread trade for 30 days (our average holding period), 60% of the profit made from that trade is treated as long-term capital gain income and taxed at 15% or 5%.
6) Trading capital is only used to support margin requirements when trading credit spreads. Most option brokers allow you to invest your trading capital elsewhere to be used as collateral for spread trading. Trading capital can be invested in closed-end funds that pay dividends monthly and are diversified across munis, preferreds, REITs, corporate bonds, floating rate loans, convertible bonds and other fixed instruments. Between the dividend yield and capital appreciation you can earn 7%-10% annually. Most brokers allow you to margin 100% of cash amounts, 90-95% of t-bill amounts and 50% of the stock amounts like closed-end funds.
Sunday, August 19, 2012
Click the link or the right side of this blog to access CBOE's virtual trading system. This system is free to use by anyone and no brokerage account is needed. Paper trading is the best way to learn how to execute, track and manage stock and option trades. For both new and experienced options traders this system allows you execute trades associated with all the option strategies. I am recommending to all my new subscribers that they use this system during their 60 free trial to paper trade all my credit spread trades. Also, the system CBOE is using is OptionsXpress's actual virtual trading system which is one of the best available on the internet for paper trading option strategies.