December Trades - Update

With only 12 days remaining to expiration it is very hard to predict the direction of this market. The trade we opened on 11/23 could quickly become un safe and have to be closed next week. The market is so volatile making it hard to know what direction and how much stock prices will move each trading day. The hedge funds are executing their orders at the end of each trading day causing huge swings in the last 60 minutes. All the news is very bad and every other business article includes a reference to the recession our country is experiencing. The debate is how long and how severe this recession will be.

November Trades Expired Worthless

Our November RUT and IWM Bear Call Trades expired worthless this past Friday earning 3.1% and 5.8%. Our new Bear Call trades expires in 27 days on 12/19/2008 and will also earn 3.1% and 5.8%. If we can get this trade filled early next week before a major drop then we could have a very safe trade that expires worthless. I am only trading one index on the call side this month. Since all the indexes are moving in tandem now it only makes sense to trade one index.

November Trades

The market is projected to continue dropping the remainder of 2008 and into 2009. The cost to short this market (buy put options) is very expensive. In the past we could buy put options for $10 and less each. Now the farthest away put options are $30. This months trade is a RUT Bear Call trade that expires in 27 days. If we can get this trade filled early next week before a major drop then we could have a very safe trade that expires. Also, I am only trading one index on the call side this month. Since all the indexes are moving in tandem now it only makes sense to trade one index. I have received many emails requesting fewer trades so now is a good time to start. Plus we will reduce our trading fees processing one spread trade, or one Iron Condor trade when they are safe, each month.

Bull Put Trades Expiring in October must be Closed

With the markets in the US and now all over the world dropping we must close all our Bull Put spreads. Subscribers who had their trades closed automatically with a stop loss order are OK this weekend. Others have 2 options.

1) If you have the funds buy back the short option you sold on Monday and keep the long option open. The long options will grow in value as the market drops and can be sold for a profit that will more than cover the cost of buying back the short option.

2) Exit the entire bull put trade for a net loss. Unfortunately their are no save trades to roll to and the premiums on Bear Call trades are very low.

The only relief that will might stop the markets from dropping is an interest rate cut next week. Below is a text being included in many market updates this weekend:

Roberts and other market watchers say it's possible that the Fed, and perhaps other central banks, could cut interest rates this week — ahead of the central bank's scheduled meeting at month's end — if the credit markets don't show signs of life. With oil prices well off their midsummer highs and indicators pointing to a slower economy, the Fed's worries about inflation are less than they had been, making it easier to justify a rate cut.

We were in a Bear Market but now it is worse with bank failures and a major credit crisis. The Dow is expected to keep dropping for the remaining of the year reaching 9,000 or lower. The only safe option trades that can be completed are Bear Call Credit Spreads and the purchase of DIA and SPY put options. Iron Condor trades cannot be completed in a market like we are experiencing now. I will be refunding all subscription fees since we are realizing a net loss for a second month in a row.

Update on October Open Trades Expiring in 17 days

The markets continue to be very volatile and challenging to trade. This month we have been trading a solar company stock that is very Bullish due to favorable legislation passed earlier this month. These Bull Put trades are retuning 8% to 9%. Next week we will complete an Iron Condor returning 15%. I rarely trade stocks but this month an excellent trading opportunity occurred that was hard to pass on. At least we are making a positive return while the market decides what direction to take. This financial crisis and how the US plans to stop the failure of more firms is keeping investors on edge.

September Trades Expired Friday 9/19/2008

The past 2 weeks have been very challenging. With the market clasping quickly. We had to close all our NDX and QQQQ Bull Put credit spreads for a loss. Our QQQQ hedge was closed to early for $5 a contract instead of $15 a contract if sold during the last week of expiration. Subscription fees will be refunded next week.

New Trades Expiring in October will be emailed later today and earl next week.

Hedging

We are going to hedging (buying calls and puts) on both sides of our Iron Condors from now on. The best time to put on a hedge is when you get a tip off that the market is ready to get worse or better. This is not easy to do but is practiced buy a lot option traders. I like buying FOTM call and put options that cost $2-$3 per contract like we did this month. Subscribers who held off selling their qqqq to this week recovered a portion of their loss from selling the NDX Bull Put credit spreads. The key is to invest 10% to 30% of your collected credits in these FOTM call and put options. This is just like buying insurance.

Close Strategy

There were a few subscribers who brought back their short NDX put options first. When they sold their long options they were able to cover the cost of closing their short options and prevent a loss. This was one of the adjustment options I posted on the members page for the NDX 1725/1700 Bull Put trade. In order to implement this strategy you must have trading capital available to pay for the short options.

Update on Open Trades Expiring In September (19th)

The markets were up and down again last week. The indexes we have open trades with are hovering and not causing any concerns. All our Bull Put trades have lots of distance and are very safe this weekend. We also have a hedge trade in place in case the market crashes. It would make sense to hedge the call side if the market starts moving up on a consistent basis. But this market continues to go up and down with the net effect of not changing very much. Our hedge on the Put side is very necessary because a market crash could occur at any time causing the market to drop 8%-12% in just a few days. This is also why we should have contingent stop loss orders in place to automatically close our Bull Put trades. We should be able to manually sell the Put options for a big profit after the market drops. The markets will never rise 8% to 12% over a few days but it could over a few weeks. At the beginning of an uptrend we would buy some call options if we have any Bear Call trades open.

We are doing very well collecting multiple credits on the NDX index this expiration period. I really like this index because these 100 companies are making profits and not losing billions due to the credit and mortgage crisis.

Update on Open Trades Expiring In September (19th)

Our replacement NDX Bear Call trade filled this week so now we have a completed NDX Iron Condor trade filled earning 7.3%. These markets are still volatile and very sensitive to news and oil prices but moves in both directions so the net effect is neutral. A neutral effect is perfect for credit spread and Iron Condor trading. Our hedge trade has not changed in value this week but is in place to grow in value in case the market crashes. If the market does not crash but drops 3% or more in September we might be able to sell this Put option the week of expiration to break even or earn a profit.

Trading Capital Allocations

This is a hypothetical example of allocations that conservative options traders might consider:

1) Total Investments: $1,000,000 (IRA’s, Mutual Funds, 401K’s)

2) 10% Amount Allocated to Credit Spread Trading: $100,000

3) 65% of my Credit Spread Trading Account Allocated to new trades each month: $65,000

4) 35% of my Credit Spread Trading Account Account kept in reserve for possible adjustments: $35,000

September NDX and RUT Trades - Allocation of $65,000:

77% to NDX 25 point Bull Put Trade (20 contracts): $50,000 (77% of 65,000)
23% to RUT 10 point Iron Condor Trade (15 contracts: $15,000 (23% of 65,000)

I place all my new orders on the Saturday following expiration Friday. So I would have placed and order for 20 NDX 25 point contracts and 15 RUT 10 point contracts.

The percentages above are averages but very close to my actual experience. Some months when I feel the markets are trading in a more neutral pattern I will use 80-90% of Credit Spread account for new trades. I also use 10% of my collected credits to hedge my trades. I like buying QQQQ or SPY short term puts and calls for $1 to $2 per contact for insurance in case the market crashes or increases by 10% quickly.

Weekend Trade Alert Update - September Trades

The markets moved widely again this week. Our open trades are very safe this weekend even after these big moves up and down.

The good news is now we have a hedge trade in place. Today we had our QQQQ put orders filled when the markets rose. These $2 contracts will be worth $5 to $10 each if the market drops and our stop loss prices are reached. If the market does not crash due to a black swan event these $2 options would expire worthless. Over a 12 month period these hedge trades will expire 6 times (months) and be sold for a profit 6 times. But in the event of a big crash they will increase in value very fast and be sold quickly for a windfall profit that should more than offset any losses incurred closing any open Bull Put trades.

All August Trades Expired Last Weekl

All our Index Bull Put trades expired worthless on Friday the 15th. We earned 4.3% this month on all these trades. So far for all of 2008 (8 months) our total return for all 32 trades is 22.8%. My goal is to finish the year with a total return of 40%. This can be achieved if we earn an average of 4.3% in each of the next 4 months (Sept, Oct, Nov Dec).

Our 2 ETF Iron Condor trades expired worthless on Friday the 15th. I will be refunding all paid subscription fees received during this trading cycle (7/19 to 8/15) next week. We had to close the rollover ETF Bear Call trade for a loss which was not offset by the credits received on the 2 Iron Condor trades.

The weekend I will be emailing and posting to the members page new trades expiring in September.

Subscriber Limit Reached - Fee Increasing To Limit Growth

The Index and ETF Subscriber bases are limited and these limits will be reached later this month. The subscription fee is being increased later this month to $95 to limit this growth. Existing subscribers will always pay the lower fee they subscribed to. I limit the number of members due to the fact that too many subscribers trying to execute the same trade at the same time creates heavy volatility in the option price. I also want to keep the subscriber base at this level to insure I achieve these important goals:

1- Providing the best customer service possible.
2- Making each subscriber feel like the only subscriber.
3- Helping subscribers attain the goal of financial freedom.

Update on Open Trades Expiring In August (15th)

Index 7/29/08 Update: We have 3 Bull Put Trades filled with 18 days remaining to expiration on August 15th. I hope to complete Iron Condors later this week. The new Bear Call trades would not require any additional margin so our returns would double.

ETF 7/29/08 Update: We have 3 ETF Iron Condor trades expiring in August returning 5.3%, 5.8% and 5.8% each. The trades are safer and have more distance than my past trades.The markets are still very volatile and prone to wild 200+ daily swings. Most news continues to be negative and the price of oil continues to move the markets up and down.

All July Trades Expired This Weekl

All July trades expired worthless on Friday the 19th. The Index trades earned 4.9% and the ETF Option Trades earned 5.5%. These trades were very challenging. The markets dropped fast in May and again in June. Then they recovered and dropped again. Trading Iron Condor’s in a Bear Market is not easy but achievable if the trades are conservative. We successfully rolled 2 Bull Put trades to new Bear Call trades that expired worthless. We also rolled 1 ETF Bear Call trade to August for just $1 per contract which is very low. I really like rolling ETF trades because the cost is minimal and you can keep rolling until the options expire worthless.

My August trades will be very conservative with lots of distance. When this Bear Market is over trading Iron Condors will be much easier and more profitable.

Paper Trading Credit Spread Option Trades to Learn

Paper trading using one of the many virtual trading systems provided by option brokers including CBOE, is so important if you have never traded options. This is especially important trading credit spreads, like Bull Puts and Bear Calls and ultimately Iron Condors. These are special strategy trades that must that must be fully understood before trading with your own funds. You must practice entering, closing and adjusting Bull Put and Bear Call spread trades. You must fully understand an Iron Condor trade and the requirements for making sure your broker only applies margin to one side of this 4 legged trade. And most important you must practice closing these spreads and rolling to new spreads when trades go against you.

To get started you should establish a virtual trading account with your broker or just use CBOE’s free system. You must practice all types of credit spread trades like:

1. Entering new trades using the current bid.

2. Entering new trades using limits that are higher than the bids, like ½ of the bid/ask or midpoint. Then shave 5-10 cents off this midpoint.

3. Enter stop loss orders to close profitable spread trades for 10 cents or less freeing up margin for new trades.

4. Practice adjusting Bull Put and Bear Call credit spreads. You should close and roll to new credit spread trades to collect another credit. This is the most important one to practice and master before committing your own funds.

The 4 types of trades above should be practiced many times over for a period of 2 to 3 months. Never enter into one of these specialty options trades using your own funds until you completely understand all the risks. You must have an exit plan and know exactly what to do when a trade goes against you.

Once of the huge advantages you have with option spreads is that you can breakeven when a spread trade has to be closed. This is accomplished by adjusting, or rolling, to a new spread trade to collect a new credit. Sometimes this new credit offsets, or exceeds, the debit you incurred closing your original spread. This is a key risk management procedure that you can master paper trading. Once you complete a few of these rolling trades you will really get excited about trading credit spreads and be able to protect your monthly cash flow so that you are always adding net credits to your account.

New subscribers to my advisory service can play Flash Movie files that illustrate how each of these trades are processed. They also can paper trade for as long as they want. I will extend the free trial of a new subscriber an additional 60 days if they want to keep paper trading.

OptionsHouse - A Very Good Options Broker

A new option's broker,OptionsHouse, continues to have the lowest commissions of all the option brokers. They are charging only $9.95 for each leg of a trade and nothing for each contact. If you trade 10 contracts, 20 contracts or 100 contracts per leg your total commissions is only $9.95 and nothing more. A credit spread trade is two option legs and costs only $19.90 no matter how many contracts are traded. This is a significant savings if you are trading 5 or more contracts. When you are paying only $19.90 per credit spread trade, or $39.80 per completed Iron Condor trade, you can achieve a decent 3% and better monthly return. I am very pleased that this broker has come along because I want my subscribers to earn a maximum net profit on each trade.

I have set up my trading account with this new broker and have started creating Flash movies to illustrate how to order, protect and close Bull Put and Bear Call credit spread trades on the stock indexes.

Trading Career

Trading as a career attracts most investors. At some point, a trader who is profitable will think that this may be the time to become a full time trader. Trading promises a life that is filled with freedom. If you can trade well, you can live and work anywhere in the world without the need to report to anyone, the need to manage anyone, and the ability to break away from routine. You have no boss, no customer, and no working schedule.

A good way to start is to begin devising a plan to pay off all your debts and to save enough money to live for at least 12 months without any income. The sooner you can clear your debts, the faster you will achieve financial independence. It will be challenging to begin a trading career when monthly bills and debt repayment are a constant lingering in your mind.

Successful traders make plenty of money from the market but are extremely careful with their money. Managing your personal finances well is the first crucial step as it provides you the necessary skill to manage your trading account in the same manner. A successful trader will always approach the market with a clear rational mind for maximum gains while minimizing risk and losses.

All June Trades Expired This Weekl

Index and ETF 6/20/2008 Update: All open trades expired worthless today. This is the 5th month in a row that all the Index and ETF trades expired worthless. I want this trend to continue so that we have a decent 30% or better return for the year.

What are the disadvantages of this option trading strategy?

Because I only place two to four trades a month and a majority of them I leave untouched until expiration, my style is a little boring. But that’s what I like………steady……..boring…….income…….month-after-month. The other issue most traders have is the concept itself. It’s not commonly taught to the public and that’s why you don’t hear too many main street investors using it. It’s been used by professionals for years to generate income but not by the retail investors/traders. Once your account grows like mine, you won’t mind the boredom.

Market Conditions - Are they really important?

The beauty of credit spreads is that they work in a bullish, bearish, and sideways markets. It’s amazing that sometimes even when the trade is wrong, we still can be profitable. That’s because we leave ourselves lots of cushion in our trades. Keep in mind that past performance does not guarantee future results, but how else would you evaluate any trading system? Remember, the professionals are option sellers not buyers. That’s why close to 80% of all options expire worthless. My subscribers are the sellers looking for that high percentage trade and income month-after-month.

Update on Open Trades Expiring In June (20th)

Index and ETF 6/15/2008 Update: The markets recovered nicely last week and now the filled June trades should safely expire in 5 days on the 20th. I have posted and emailed new new trades expiring in July this weekend.

Update on Open Trades Expiring In June (20th)

INDEX 6/8/2008 Update: The 3 filled June Bull Put trades continue to be very safe with only 13 days remaining to expiration. We were able to complete one Iron Condor trade last week when the RUT Bear Call trade was filled. This Iron Condor has a return of 6.4%. Even though the Dow dropped 400 points one day last week the Bull Put trades are still safe with lots of distance remaining. I am researching new trades expiring in July later this week after the market settles down from the bad economic news and record oil and gas prices last week.

I am creating new flash movies this month to illustrate how to select and order credit spread trades using OptionsHouse. These movies will be playable from the members flash movie page. This broker is very popular now and continues to add new features. Their fees are the lowest of all the options brokers and my trades are getting filled quickly when the markets cooperate.

ETF 6/8/2008 Update: The 3 filled June Iron Condor ETF trades continue to be very safe with only 13 days remaining to expiration. Even though the Dow dropped 400 points one day last week the Bull Put trades are still safe with lots of distance remaining. I am researching new ETF trades expiring in July later this week after the market settles down from the bad economic news and record oil and gas prices last week.

Update on Open Trades Expiring In June (20th)

INDEX Update: The 3 filled June Bull Put trades are safe with only 20 days remaining to expiration. This weekend 2 new June Bear Call trades have been emailed and posted to the members page. When these trades are filled we will have 2 Iron Condor trades completed earning 6.4% and 8.7% each. These are the returns I expect to when completing Iron Condor trades.

ETF Update: The 3 filled June Iron Condor ETF trades very safe with only 20 days remaining to expiration. I am very pleased with the 9.9% return on the SPY Iron Condor trade this month. I am researching new ETF trades expiring in July next weekend.

Update on Open Trades Expiring In June (20th)

INDEX Update: The 3 filled Bull Put trades are safe even though the markets were down last week. If the markets continue to trend in this one direction we will close these trades early and open new trades. These are the first half of 3 Iron Condor trades I want to complete next week. indexspreadoptionstrading.com

ETF Update: The new trades expiring in June are very safe and have a very high probability of expiring on June 20th. The June SPY Iron Condor trade is earning 9.9% which is the highest returning trade so far this year. etfoptiontrades.com

Selecting Strikes for My Option Trades

I select strikes using two tools:

1. Technical Analysis
2. Probabilities

1. TA- In the case of bull put spreads, I look for support points and lows within the past 52 weeks and start with strikes outside of the range.
2. I use powerful models for probability calculations and look for strikes that have a 90% or better chance of expiring worthless.

My goal here is to simply collect premium month to month. Using FOTM put and call spreads is a way I can do it without predicting the market for the month. In any given month, the market can move higher, sideways, or significantly lower and I still have a profit. In my view I am trading without concern over market direction except for a major crash lower. During a crash my contingent stop loss orders would be triggered and my Bull Put spread trades in trouble automatically closed.

All May Trades Expired Last Weekl

The 2 RUT Bull Put trades and our NDX Iron Condor expired worthless last week. This month we earned 8.7% on the NDX trade. The markets appear to be settling down to a more normal trading pattern of slowly rising. This pattern is perfect for Iron Condor trading when the trades are safe with a lot of distance.

New trades expiring in June will be emailed and posted this weekend. We had one June DIA Bull Put trade filled last week.

Update on Open Trades Expiring This Week (May 16th)

The 2 May RUT Bull Put trades and our May NDX Iron Condor are safe and will expire this week. The 8.7% return on our NDX Iron Condor is the highest return on a trade this year. I will try and repeat this performance with the June trades I will be posting and emailing this weekend.

Benefits of Index Spread Trading

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.

Update on Open Trades Expiring In May (16th)

All open May trades will be expiring next week on the 16th. The markets have really settled down and now seem to heading back down. News around the world is not good and the price of oil and gas are increasing at an alarming rate.

All Open April Trades Expired on the 18th

The 3 April trades opened in March expired on the 18th. The March roll trades expired in the money due to the increase in the market indexes. Refunds (3 months) are being remitted to subscribers who had these roll trades exercised.

All March Trades Expired on Thursday the 20th!!!!!

All 3 Iron Condor trades and our SPX Bear Call trade expired worthless. Even though the markets rose and fell by 200-400 points during the holding period our trades remained safe and have now expired. I am very happy with the 5.8% monthly performance.

I am researching and will be emailing & posting new trades expiring in April this weekend. I also have the Bear Call RUT, NDX and SPX roll trades to monitor and possibly roll again if the markets continue to rise.

Update on Open Trades Expiring In March (21st)

All 3 Iron Condor trades are expiring worthless today. They were executed 3 to 4 weeks ago before the markets started going up and down 200-400 points. These Iron Condor trades are earning 7% this month. This is been one of the highest returning months ever. New trades expiring in April will be emailed and posted on the Members page this weekend.

Update on Open Trades Expiring In March (21st)

The markets are bearish again like in January and could continue dropping. Last week we exited the RUT Bull Put trade and recovered the cost to close this trade by rolling to a new RUT Bear Call trade expiring in April. We have eliminated any risk of a loss if the RUT Index continues to drop. We will exit the NDX and IWM Bull Put trades the same way next week if these indexes continue to drop. We will not incur any losses this month.

The SPX Bull Put was never filled last week for .30 cents and is now canceled. With the markets continuing to drop all new Bull Put trades are very risky.

Update on Open Trades Expiring In March (21st)

With 3 completed Iron Trades filled already this month I want to complete the SPX Iron Condor next week. The SPX Bull Put trade, I am ordering and posting to the Members page this weekend, has an 85% probability of expiring worthless in 19 days. When filled this SPX Iron Condor trade will return 6.4%. The high volatility of the indexes has caused the option premiums to rise to levels I have not experienced in a long time. This is why our completed Iron Condor trades have such high returns. Whenever we can realize a return higher than 5% we are having an exceptional month.

Update on Open Trades Expiring In March (21st)

I am excited that I have 2 orders placed for 2 very safe Bull Put trades. When these orders are filled this week we will have 2 more Iron Condor trades completed with returns of 7.1% and 6.9%. We already have the IWM Iron Condor trade completed and this trade has a 7.5% return.

Update on Open Trades Expiring In March (21st)

All filled and open Bear Call trades are safe and should be expiring on the 21st. I have initiated 2 new trade orders this weekend.

Website and Advisory Service

I began this website and advisory service after years of trading credit spreads in my own accounts. Since I am now a full-time trader, I would be entering these same trades regardless of this website. But after years of my own success, I decided to try to help others obtain financial freedom on their own while hopefully educating them along the way. There are a number of other sites that kick out tons of recommendations every month but never actually enter the trades themselves. That’s why I offer a FREE 60 day trial and even post my track record for you to see the difference in my site.

My Advisory Service is Unique in 3 Ways !

1) You can try my service for 60 days, or 2 full months, before paying any subscription fees. I suggest you paper trade all the trade alerts I email and post to the members page during this trial. If you have any questions about how to process these trades I want you to send me an email. I will do my best to help you including sending you a flash movie with audio instructions illustrating the type of trade or trades being questioned.

2) And if you feel you need a little more time to try my service just send me an email and I will extend your trial an additional 60 days or however long it takes. I want every new subscriber to know exactly what they are doing before they start trading credit spreads and Iron Condors live with their own funds.

3) I reimburse all subscription fees when I have a losing month. This will be a rare occurrence because all my trades are implemented with very strict risk management strategies.

Update on Open Trades Expiring In March (21st)

With the markets projected to be down next week we are only trading Bear Call trades to be safe. If we can get these trades all filled, and the markets starts dropping, these trades will be very safe. The next step will be to open Bull Put trades in the next 2 weeks to double our return. When the markets return to a more neutral trading pattern we will be able to open all 4 legs of an Iron Condor trade like we did the majority of months in 2007 and 2006.

All February Trades Expired Worthless Last Weekl

I am very pleased that the conservative trades this month all expired. These were very safe trades which is why the monthly return was 4.1% ($158/$3,842). This market is still very volatile so earning 4% is OK in my play book. My goal is 5% a month which I can achieve when completing at least 2 Iron Condor trades in a month. This month we had one Iron Condor trade completed.

Auto Trading will be Offered Soon !!!!!

OptionsHouse has been my choice for auto trading but with the market meltdown last month I had to change my priorities. Later this month I will again be focus on auto trading. I just added the OptionsHouse link to my Getting Started page this weekend and a have a meeting with this broker next week. The majority of new subscribers are setting up accounts with this broker. This is why I am including a screen print of all my OptionsHouse orders on the members page. This is the best way I know of to illustrate new trades. Auto trading will be a reality soon.

My Trading and Risk Management Philosophy:

I select strikes using two tools:

1. Technical Analysis
2. Probabilities

1. TA- In the case of bull put spreads, I look for support points and lows within the past 52 weeks and start with strikes outside of the range.

2. I use simple models for probability calculations and look for strikes with around 90% or better chance of expiring worthless.

My goal here is to simply collect premium month to month. Using OTM put and call spreads is a way I can do it without predicting the market for the month. In any given month, the market can move higher, sideways, or significantly lower and I still have a profit. In my view I am trading without concern over market direction except for a major crash lower.

CBOE Virtual Trading - Free, Easy and Educational

Visit the link to access CBOE's new 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.

http://www.cboe.com/tradtool/virtualtrade.aspx

Update on Open Trades Expiring In February (15th)

Only 5 days remain and our open trades are all safe. Even with a market surge up or down next week our trades should expire worthless. The total return for February will be 3.2% ($158/$4,892). I will be posting a few new trades expiring in March later this weekend.

Update on Open Trades Expiring In February (15th)

Only 12 days remain and our open trades are all safe. If the markets start surging up and down next week I will email and post adjusting trades to roll open trades in trouble. We are closing/exiting open trades much earlier now.

Update on Open Trades Expiring In February (15th)

Only 21 days remain, and the markets are not surging up and down anymore. Our conservative trades that are filled and the new trades below are fairly safe. The interest rate reductions and positive earnings reports has lessened investor’s fears of a recession and brought back buyers looking for bargains. The RUT Index and IWM ETF index are the safest index’s to trade this weekend so I have posted 2 new Bull Put Spread trades with returns of 4.3% and 3.4% on the members page.

New Trades Expiring in February

I am only trading new Bear Call spreads this weekend and next week. I feel the markets will continue to drop until the Federal Reserve lowers interest rates and even then the markets might still trade lower. This is a bear market now with sellers dominating the trading volume each day. The only safe strategy now is to trade against this trend. This is why I am only trading on the call side. These new trades are very conservative with smaller returns than in past months. I will try and complete Iron Condor trades for each of these 3 indexes only if the Bull Put trades are safe and 15 days or less are remaining.

For each new trade I will include a screen print of the exact OptionsHouse order ticket I processed today. I am doing this so that the details of the trade are clearly understood. It’s very important that you are selling and buying the correct options. I am also including a 2 point SPY ETF Bear Call Trade. Each point requires $100 in margin so each contract for this trade will require $200. We are trying to get an $8 credit per contract so the return on this trade will be 4.2% ($8/$192). Be aware that you will have higher brokerage fees trading these 2 point ETF’s credit spreads. This is why many subscribers who are trading ETF spreads are opening accounts with OptionsHouse. This broker only charges $9.95 per options leg, or $19.90 per spread trade, no matter how many contracts you trade.

New Risk Management Strategies

The markets are very volatile now and this makes Iron Condor Trading very challenging. My strategy is to make money every month but in early 2008, and probably most of 2008, this strategy will included these risk adverse steps:

1) Exiting open credit spread trades and Iron Condor trades when 80% of the return has been realized. For example if we open a trade and collect $20 a contract we will exit the trade when the debit, or ask, is $4. By exiting a trade early we eliminate any risk of the trade ever becoming ITM (In The Money) due to a market surge. I will be detailing the GTC exit trades we can process with our brokers that will automatically close these trades when 80% of the profit has been realized. This GTC exit trade is in addition to the contingent stop loss order that also automatically closes the trade when the index reaches and touches a trigger price.

2) Immediately after exiting a trade we will enter a new trade. Since our margin is released and we can enter into a new trade expiring in the same or next month. When we enter a new trade expiring the same month we earn an additional credit for the month. When you can enter a new trade 40-50 days away from the next expiration date in the next month you can earn a higher return because there is more time.

The key to steps 1 and 2 is to exit trades early so we eliminate any risk of trades being ITM in the future. This is a conservative strategy that is used by successful full time traders. Leaving trades open to expiration is very risky in a volatile market like we have now.

3) When the markets start a downward trend we will invest a portion of our credits in ETF Put options. Buying Put options when the markets start dropping is like buying insurance. I am creating a tutorial detailing this hedging strategy and will be posting these Put trades in future months. The only folks making money in the markets now are those who shorted the indexes and this is what we will be doing from now on to protect our losses.

Because we will be trading more often you have to use a broker that has low fees. Many subscribers are now using Optionshouse to process all their trades. They only charge $9.95 per leg no matter how many contracts you trade.

For February and beyond (2008) the monthly returns net of trading fees might only average 2%-3% and not 3%-5%. With the US close to entering a recessionary period we must implement these risk adverse steps to protect ourselves from realizing any losses. If we can make money every month when the Dow and S&P stocks are trading at historic lows we are doing OK. Someday in, maybe 2009, the markets will return to a normal, or neutral, trading pattern. This is when we can enter Iron Condor trades and forget about them because they expire worthless month after month.

This is much more material covering these steps that I will be emailing and posting on the members page throughout January and February. I want subscribers who lost money this month to have the opportunity to recover with an improved risk adverse options trading strategy. We all can benefit in the long run from these recent events as long as we modify our trading strategies and manage risk more effectively.

Update on Open Trades Expiring In January (18th)

When the markets drop day after day we have to do what we can to prevent a max loss. We all did one strategy and that was to close out our trades at risk. The other strategy that we did not do and will do in the future is invest a portion of our credits in ETF Put options. If we had done this 2 weeks ago our gains on these Puts would help offset a large portion of our losses. Buying Put options when the markets start dropping is like buying insurance. I am creating a tutorial detailing this hedging strategy and will be posting these Put trades in future months. The only folks making money in the markets now are those who shorted the indexes and this is what we will be doing from now on to protect our losses. In February I will only be trading new Bear Call trades in the beginning. I want to make sure the this market has at least started trading normally and not dropping. If it continues dropping we will be buying Puts, and or debit spreads, to short the market as well as Bear Calls.

Subscription fees collected by PayPal for January will be ((12/22/2007 - 1/18/2008) will be refunded this week. Look for emails from PayPal detailing these refunds.

Update on Open Trades Expiring In January (18th)

Unfortunately it is time to exit all our Bull Put trades and wait for the market to settle down. For those you have rolled to new February trades you have more time for the market to flatten out . There are a few upcoming events that could positively influence investors. In February we will trade Bear Call spreads and probably just short the market as insurance by buying cheap ETF puts.

All subscription fees collected will be refunded via PayPay over the next few weeks because this will be a losing month for many subscribers including myself.

Update on Open Trades Expiring In January (18th)

With only 12 days remaining to expiration our Bull Put trades become risky due to the sudden drop in the markets last week. This caused us to employ risk management strategies this weekend to adjust these trades when the markets open on Monday. We are rolling the January Bull Put trades to new Bull Put trades expiring in February. This strategy buys more time for the market to settle down and maybe rise again. Earnings reports and lower interest rates could positively impact th markets prior to the expiration of these new trades which we want to expire worthless.