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.