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Index Option Trader - Options Trading Strategy |
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| Item ID#: |
997568 |
Seller Area: |
CO
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Views: |
534 |
| Seller ID#: |
393920 |
Item Location: |
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Expires: |
expired |
| Price: |
$Unspecified |
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This item has expired
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Welcome to Index Option Trader
Learning the ins-and-outs of options trading can be a
daunting and very time consuming experience. We've spent years studying
and monitoring the equity & options markets, as well as the
elements that drive market movements.
Through
the application of advanced fundamental and technical analysis, we have
devised a simple method to garner profits through trading options. We
take the guess work out of the trade, and perform the research for you.
You may have heard that options are "wasting assets" since time, when
you purchase calls and puts, is always working against you. Our
strategy actually takes advantage of time decay, putting time in your
favor instead of the other way around, as common with 'basic' calls and
puts.
Index Option Trader - Strategy
The
core Index Option Trader strategy is primarily centered around monthly,
market neutral, index option credit spreads on major index products
such as the SPX, SPY, and QQQQ. This is known as an Iron Condor, which
is a type of options spread trade that involves simultaneously buying
and selling multiple options contracts in order to profit from a
'neutral' market movement. Iron Condors are sold at a net credit to the
traders account, meaning that funds are deposited into the account once
the Iron Condor is filled.
Here is a visual representation of the profit & loss chart:
As
you can see from the image above, if the price of the underlying
instrument (index) stays between, in this case, 40 - 50 by expiration,
the net credit to the account is kept. In the case that the underlying
rallies or falls outside of the two 'strikes', then the position
experiences a loss.
For more information about credit spreads and Iron Condors, click here.
Each
month in the Trade Report, the range of the Iron Condor is issued in
the Trade Report. The trades parameters are based upon our own
proprietary models that incorporate technical and fundamental analysis
as well as various other factors that impact index option positions. To Learn More Click HereWhy does this strategy only cover just index options?
We
choose to trade index options over stock options for a variety of
reasons. Index options are much less volatile than individual stock
options. A stock can move +/- 10% in a given day, whereas an index
probability of doing so is extremely rare (and would constitute a
crash). We primarily only trade european style, cash settled index
products so that A) there are no shares to buy, and B) My short
options, as part of the strategy, cannot be assigned before expiration
day.
I've never traded options or credit spreads. Will I be able to trade your setups?
Many
of our subscribers started with little or no experience trading options
or credit spreads. Consequently, we provide very detailed and precise
strategies that our members have no problem entering and exiting.
However, we strongly recommend paper trading and educating yourself on
our strategies to the point where you feel comfortable before ever
actually making a live trade. We also recommend checking with your
options broker to make sure you are approved to trade credit spreads in
your account.
What is a credit spread?
The
spread is constructed by buying one stock option and selling another of
the same type (call or put) in the same expiration month but at
different strike prices. The option that we sell is more expensive than
the option that we buy, thus resulting in a net credit (deposit) to our
trading account. The advantage of this spread is that in order to
profit, we don’t need a directional move in the stock. Instead, we
profit from time erosion.
Aren't complex options spreads risky?
Every trade has inherit risk, but my strategy encompasses a favorable
risk to reward ratio (max gain to max loss, usually around 1:1 - 1:2)
and is also limited risk, limited profit. Now you may be thinking
limited profit? Yes! Limited profit, limited risk strategies enable us
to put on higher probability trades each and every time.
How much should I allocate each month to each trade?
We
recommend allocating anywhere from 5-15% of your total account size per
trade, depending largely on your tolerance for risk. In the rare event
that an adjustment is issued and you cannot get filled and your
position takes the max loss (as defined in each month's Trade Report)
you will have only lost 5-10% versus losing 10%+ if you allocated more.
This is proper money and trade management. We firmly believe in capital
preservation and proper money management techniques.
How many different positions do you recommend each month?
We
usually issue between 2-3 different positions each month (starting
November 2007), sometimes more depending on the current market
conditions. For example, we will issue a trade on the SPX and SPY, as
well as a position on the QQQQ, or the RUT. You can choose to trade 1
or all of the recommended trades. The choice is yours depending on how
much capital you would like to commit and how many simultaneous
positions you would like to be in.
How do we know when to exit a trade?
A majority of the time we will just let the options expire worthless on
the expiration date. In the case of a drastic market movement in our
favor or against us, we would send out an email alert stating to exit
the trade, or make an adjustment to the trade. One of our main concerns
for our clients is capital preservation and disciplined money
management. Due to this, at times we might even exit a trade
prematurely just to take the risk off the table or book a profit on the
trade. If you ever feel uncomfortable in a position for any reason,
it’s important for you to exit a trade without waiting for an email
from us. We have the same goals: keep our losses small and our profits
large.
How are index option spreads taxed?
The
IRS defines a non-equity option as "any listed option that is not an
equity option." According to the IRS, non-stock options include debt
options, commodity futures options, currency options, and broad-based
stock index options. A broad-based stock index is based upon the value
of a group of diversified stocks or securities (ten or more). Standard
and Poor's 500 index (SPX) is one example of a broad-based stock index.
Generally, capital gains from stock or stock option investments held
less than one year are considered short-term and those held longer than
one year are considered long-term.
However,
according to the IRS, under the marked to market system, 60% of a
capital gain or loss may be treated as a long-term capital gain or loss
and 40% may be treated as a short-term capital gain or loss, even if
the position was held for less than a year. The ramification of this
rule is that capital gains or losses considered to be long-term have
lower marginal tax rates than short-term capital gains or losses, and
index options on broad-based indexes qualifying under the 60/40 rule
have a more favorable tax treatment over options on equities considered
short-term investments. We strongly recommend consulting your tax
advisor for more details on ITC Section 1256 contracts.To Learn More Click Here
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