Saturday, January 26, 2008

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.

Sunday, January 20, 2008

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.

Sunday, January 13, 2008

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.

Tuesday, January 8, 2008

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.

Sunday, January 6, 2008

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.