November 3, 2008
Paper Trading Credit Spread and Iron Condor Option Trades
Paper trading using one of the many virtual trading systems provided by option brokers, and now 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.
I paper traded for six months using OptionsXpress’s virtual trading system before using my own funds. This is the system now used by CBOE so new traders no longer need to apply for a brokerage account to paper trade using a virtual account.
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 one half 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 break even 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.
By: Brad Griffin
About the Author:
I paper traded for six months using OptionsXpress’s virtual trading system before using my own funds. This is the system now used by CBOE so new traders no longer need to apply for a brokerage account to paper trade using a virtual account.
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 one half 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 break even 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.
By: Brad Griffin
About the Author:
Brad Griffin is an Accountant and CPA and has been Investing in the U.S Stock Market for 30 years and the options market for the past 5 years. I am now sharing my knowledge and success trading options at my website
Index Spread Options Trading Service.
Filed under Non Fiction by Administrator
October 23, 2008
Option Credit Spread Trading - Limited Risk with Limited Profit
I started trading options in the late 90’s. After selling my first option and collecting an immediate credit I and became an option seller for life. I became a student of option selling strategies and started selling covered calls on stocks I brought and owned. I was doing OK collecting premiums month after month until a few of my stocks tanked and my losses over a 2 month period wiped out 6 months of profits. My mistake was picking not so good stocks for this covered call option selling strategy. So I became a student again and discovered an option trading strategy that is truly amazing.
Selling Option Credit Spreads on the broad based stock indexes was my new strategy. My goal was to collect premiums each month using OTM (Out of The Money) options spreads, specifically Bull Put Spread and Bear Call Spreads on the SPX index. I was choosing spreads that were very far OTM so that I had a greater cushion which reduced my risk.
Selling spreads is more akin to waiting for the big move to occur and it rarely does. Time decay is very relevant because despite being a spread, the spread does have a significant rate of decay in the last week or two. The beauty of this strategy is that you do not necessarily need to sit on top of it all the time. If your strikes are 40-60 points OTM and the SPX is up 1.20 today, you gain nothing by checking the quotes every minute. You can just check in the morning and at the close at your leisure as long as you are sufficiently OTM. When the market starts moving closer to your short strike, some due diligence is required. With credit spreads you want the position to expire worthless or buy back for way less that you sold it for.
The goal is to collect premium month to month. Using OTM spreads is a way to do this without predicting the market for the month. In any given month, the market can still move sideways, lower or higher and your positions will still be profitable. You are trading without concern over market direction for a major crash lower.
Today I employ a very safe and conservative Iron Condor credit spread trading strategy. My strategy with iron condor trading is to leg into the trade by selling the Bull Put Spread first for .20 – .25 cents. This is only a 2% – 2.5% return but the trade is very safe and the short strike is usually 60 points or more away from the current index price. I will then complete the condor by selling the Bull Call Spread later on for another .20-.25 cents, but only if the trade is safe. Safety is the key to my strategy with a goal of earning on average a 3% return each month.
By: Brad Griffin
About the Author:
Selling Option Credit Spreads on the broad based stock indexes was my new strategy. My goal was to collect premiums each month using OTM (Out of The Money) options spreads, specifically Bull Put Spread and Bear Call Spreads on the SPX index. I was choosing spreads that were very far OTM so that I had a greater cushion which reduced my risk.
Selling spreads is more akin to waiting for the big move to occur and it rarely does. Time decay is very relevant because despite being a spread, the spread does have a significant rate of decay in the last week or two. The beauty of this strategy is that you do not necessarily need to sit on top of it all the time. If your strikes are 40-60 points OTM and the SPX is up 1.20 today, you gain nothing by checking the quotes every minute. You can just check in the morning and at the close at your leisure as long as you are sufficiently OTM. When the market starts moving closer to your short strike, some due diligence is required. With credit spreads you want the position to expire worthless or buy back for way less that you sold it for.
The goal is to collect premium month to month. Using OTM spreads is a way to do this without predicting the market for the month. In any given month, the market can still move sideways, lower or higher and your positions will still be profitable. You are trading without concern over market direction for a major crash lower.
Today I employ a very safe and conservative Iron Condor credit spread trading strategy. My strategy with iron condor trading is to leg into the trade by selling the Bull Put Spread first for .20 – .25 cents. This is only a 2% – 2.5% return but the trade is very safe and the short strike is usually 60 points or more away from the current index price. I will then complete the condor by selling the Bull Call Spread later on for another .20-.25 cents, but only if the trade is safe. Safety is the key to my strategy with a goal of earning on average a 3% return each month.
By: Brad Griffin
About the Author:
Brad Griffin is an Accountant and CPA and has been Investing in the U.S Stock Market for 10 years and the options market for the past 5 years. I am now sharing my knowledge and success trading options at my website http://www.indexspreadoptionstrading.com.
Filed under Non Fiction by Administrator
October 7, 2008
Tips For Earning Money By Day Trading
Before you start investing your hard earned money, you need to really stop and assess your capabilities. Be aware that when you engage in any trading strategy your investment is always at stake. Don’t gamble with your money – plan it out the smart way. Successful investors are successful for a reason. They strictly followed a trading system and stuck to it, regardless what was going on in the stock market.
Today, there are thousands of people who are doing quite well for themselves using day trading. Using profit making techniques, day traders buy and sell stocks. It’s not that simple, of course, because you have to buy as well as sell at the same time.
The More You Know
Even if you don’t have a background in trading, almost everyone can understand the basics. Buy low, sell high, follow trends, and protect your investments. More advanced traders will have full knowledge of the history of exchanges for that given stock and choose a proven stock picking strategy.
Trend Following
In a nutshell, day traders assume that if a particular stock is steadily rising it will continue to rise, and likewise, if a stock is falling it will continue to fall. This can be measured over a prolonged period of time. Thus, traders will purchase rising stocks and avoid falling ones. Don’t worry about having to map up the trend lines on your own. Today there are lots of both free and paid software that are specifically designed for day traders. To find such software you can simply type “day trading software” into your favorite search engine.
Pay Attention To The News
The news has a very profound impact on stock trading. If a particular company has sent out a press release that they have invented a new technology or have acquired another company, its shares may surge. A great way to stay on top of the news for any particular company is subscribe to that companies RSS feed on Yahoo Finance, or to use the Google News Alerts (where you can get Google News to email you news based on certain keywords as it comes in).
Scalping
This is also called spread trading. Usually completed in 12 hours or less, small quantities of a given stock are purchased then the original buyer turns around and sells his shares for a miniscule higher amount than they were purchased for. Not anything to cry home about, but still a good, quick trade.
Covering Spread
This is a kind of leapfrogging of stocks. You buy stocks at the minimum bidding price and sell stocks at the so called asking price. At the end of the day, you will have the same amount of stocks, except that you will have stocks in a higher rated company.
By: John Morris
About the Author:
Today, there are thousands of people who are doing quite well for themselves using day trading. Using profit making techniques, day traders buy and sell stocks. It’s not that simple, of course, because you have to buy as well as sell at the same time.
The More You Know
Even if you don’t have a background in trading, almost everyone can understand the basics. Buy low, sell high, follow trends, and protect your investments. More advanced traders will have full knowledge of the history of exchanges for that given stock and choose a proven stock picking strategy.
Trend Following
In a nutshell, day traders assume that if a particular stock is steadily rising it will continue to rise, and likewise, if a stock is falling it will continue to fall. This can be measured over a prolonged period of time. Thus, traders will purchase rising stocks and avoid falling ones. Don’t worry about having to map up the trend lines on your own. Today there are lots of both free and paid software that are specifically designed for day traders. To find such software you can simply type “day trading software” into your favorite search engine.
Pay Attention To The News
The news has a very profound impact on stock trading. If a particular company has sent out a press release that they have invented a new technology or have acquired another company, its shares may surge. A great way to stay on top of the news for any particular company is subscribe to that companies RSS feed on Yahoo Finance, or to use the Google News Alerts (where you can get Google News to email you news based on certain keywords as it comes in).
Scalping
This is also called spread trading. Usually completed in 12 hours or less, small quantities of a given stock are purchased then the original buyer turns around and sells his shares for a miniscule higher amount than they were purchased for. Not anything to cry home about, but still a good, quick trade.
Covering Spread
This is a kind of leapfrogging of stocks. You buy stocks at the minimum bidding price and sell stocks at the so called asking price. At the end of the day, you will have the same amount of stocks, except that you will have stocks in a higher rated company.
By: John Morris
About the Author:
For more great day trading related articles and resources check out http://tradinginformer.info
Filed under Non Fiction by Administrator