FAQ's | Monthly Cash Thru Options
Option Trading

FAQ - Frequently Asked Questions

1.

I am new to options trading, how do I learn about them?

2.

I've never traded credit spreads & iron condors; why should I put time into learning this strategy?

3.

What is your return-on-investment (ROI) track record? And how big are your losses when you have them?

4.

You seem to have excellent, consistent returns;  how do you do it?

5.

I would like to talk to you on the phone, can I call you?

6.

I've seen some negative press by one of your competitors, what is your rebuttal?

7.

Does MCTO auto-trade with OptionsXpress and other on-line brokers?

8.

What underlying index do you use in the auto-trade accounts?

9.

Do you send out a monthly auto-trade report to the auto-trade subscribers?

10.

What's better 90% or 70% probability iron condors and credit spreads?

11.

What if the market crashes;  how do we protect ourselves?

12.

What happens if the market surges-up unexpectedly;  how do we protect ourselves?

13.

Can you recommend a broker who will allow option spreads in an IRA?

14.

When is the best time of the day to place trades?

15.

When are advisories usually sent out via email?

16.

When is the best time to join?

17.

What kind of brokerage account do I need?

18.

Can I reinvest my profits each month?

19.

How much money do I need?

20.

How long is the average holding period?

21.

How many recommendations are given each month?

22.

How are the gains taxed on this strategy of writing credit spreads and iron condors on the SPX, MID and RUT indexes?

23.

Of the trades that you recommend what % are credit spreads and what % are complete iron condors?

24.

How do broad based indexes like the SPX, MID and RUT settle and expire?

25.

How can the settlement price come in so much higher or lower than the index's high or low of the day?

26.

Why do I need multiple accounts to trade the RUT?

27.

I see that you trade the RUT, OEX and SPY, should I trade all three indexes?

28.

How much reserve cash do I need in order to help me get through the 1 or 2 difficult months each year when we are forced to adjust our trades?

29.

How much time each day would I need to monitor my trades?

30.

Where can I go to see all current and past advisories?

31.

When should I do my research and prepare to make a trade?

32.

Do you tell us when to exit a trade?

33.

Would Monthly Cash Thru Options ever trade credit spreads on stocks?

34.

Does Monthly Cash Thru Options employ other options strategies in addition to index credit spreads?

35.

Are your returns based on hypothetical trades or based on actual trades?

36.

Do you trade your own suggestions?

37.

Do you employ stop loss orders?

38.

What market conditions are best for credit spreads & iron condors?

39.

Do I need to be at my computer when the markets open, or can I place most trades the night before?

40.

How are memberships canceled?

41.

How much does the Monthly Cash Thru Options service cost?

42.

How do you calculate the return on investment (ROI) shown in the ROI Track Record Page?

43.

How many underlying indexes should I trade credit spreads on and how should I allocate my capital if I trade more than one?

44.

What % of my portfolio could I allocate to 90% probability credit spreads & iron condors?

45.

What % of my trading capital should I use in a single day?

46.

Can I access the MCTO Website using the Firefox Browser?

47.

I plan to self-manage my account; can I use any broker that handles credit spreads?

48.

I still have a question not found on this page. What should I do?

   
 

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1.

I am completely new to Options Trading.  How do I learn about them?

 

Many of our subscribers started out with little or no experience trading options, and many started here at Monthly Cash Thru Options (MCTO) because we make it easy for the beginner to learn credit spreads and iron condors.  We enjoy teaching, and we tell all and hide nothing when analyzing the markets and building our options trades.  There are about 10 major option trading strategies and we primarily focus on two of them, non-directional credit spreads and a variant of credit spreads called iron condors.  Periodically we'll mix in directional strategies comprising calls, puts and debit spreads when the market presents an opportunity for high probability directional trades.  However, we primarily focus on non-directional credit spreads because they work day-in and day-out and consistently make money.  One recommended approach is to first learn credit spreads by following our advisory.  After about 9 months you'll start getting the hang of it, and at the same time you'll gain some confidence because you'll probably be on track of hitting a 45% or more return for the year.  At this point, we would recommend to take an introductory options course to learn more about the major trading strategies and to dig deeper into the fundamentals of options; and in the mean time, you'll be making a good monthly income trading credit spreads.  Because we are very experienced with credit spreads and we have already worked out the kinks, you won't have to "spin your wheels" for many months or even years and lose money as you learn this strategy.  

The first thing we recommend is to go to the MCTO Learning Center on this web site and start studying the material.  Next, sign-up for a free 30 day trial.  And then after opening your brokerage account, start small with just one or two contracts  (one contract requires $1000 in maintenance; two contracts require $2000 in maintenance....etc).  And then keep following our trades and education until you begin to feel comfortable with this strategy.  Over time as you become more and more knowledgeable and confident in writing index credit spreads, slowly increase your account size and this will gradually increase your monthly income.  As a result, you will soon realize that you've discovered a new income stream that you've never had before.  For more on how to get started please read Getting Started.

For additional options related resources please visit The Options Industry Council's (OIC) website here.

 

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2.

I've never traded credit spreads & iron condors;  why should I put time into learning this strategy?

Please read Top10Reasons.

 

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3.

What is your ROI track record? And how big are your losses when you have them?

 

The Monthly Cash Thru Options annual returns are 50% in 2005, 42% in 2006 and 63% in 2007 and 33% in 2008.  Please go to the ROI Track Record Page for more on our returns.  Another important question one should ask is...when we have losses how big are they?  And how many losing months do we have each year?  Because all index credit spread advisory services will have some losing months each year, this is important information to have and to understand.  A losing month will also translate into a certain level of anxiety for that particular month.  The MCTO team only uses 90% probability trades that help us keep our losses below 10% during our losing months.  Many of our competitors use 70% probability trades, and when the markets are volatile, the 70% approach will have higher losses and usually more losing months per year.   For more information on this topic please read 90percentVs70percent.

 

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4.

You seem to have excellent consistent returns; how do you do it?

 

The Monthly Cash Thru Options team spends a lot of time watching macro level market and investor sentiment indicators, upcoming announcements by the Federal Reserve & Treasury, and big-picture analysis of the DOW, S&P 500 and NASDAQ 100 indexes to continuously monitor the health of the US economy and the prevailing trend of the market.  Armed with this information, along with being patient to not jump into trades too quickly, we can make better informed decisions on strike price selection and the timing of our trades.  Monitoring this type of information is called Market Timing and we believe it's extremely important to help us maintain consistent returns and to reduce our downside exposure when the indicators and overall health of the economy start to look unhealthy.   Most of our competitors do NOT spend enough time, if any at all, on market timing, which impacts the consistency of their returns and ultimately leads to periodic large losses.  For more information please read Why Market Timing is Important.

 

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5.

I would like to talk to you on the phone, can I call you?

 

Yes, call anytime, toll-free at 877-248-7455.  If we don't pick-up please leave a message and one of us will call you back. From outside of the US, call 408-375-9890.  We are located in San Jose, California.

 

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6.

I've seen some negative press by one of your competitors, what is your rebuttal?

 

Please read rebuttal to takedown #8 condor options by monthly cash thru options.

 

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7.

Does MCTO auto-trade with OptionsXpress or other on-line brokers?

 

OptionsXpress no longer does auto-trade. We offer auto-trading through thinkorswim/TD Ameritrade, eOption/Investrade, tradeMONSTER, Autoshares, TradingBlock, and Global Autotrading.   For more information on our auto-trading program please go to AutoTradeProgram.

 

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8.

What underlying indexes do you use in the auto-trade accounts?

 

We primarily open credit spreads and iron condors on the RUT, IWM, OEX and SPY in the auto-trade accounts.  The RUT is the Russell 2000 small cap index;  the IWM is an ETF that tracks at 1/10th of the value of the Russell 2000 index - RUT; the OEX is the S&P 100 index;  the SPY is an ETF that tracks at 1/10th of the value of the S&P 500 index - SPX.  We keep all of the trades in a single account, so multiple accounts are not required when auto-trading.  

 

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9.

Do you send out a monthly auto-trade report to the auto-trade subscribers?

 

Yes, we send out a monthly report to all auto-trade subscribers.  To see an example report please go to AutotradeReport.

 

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10.

What's better 90% probability iron condors like what Monthly Cash Thru Options uses, or 70% probability iron condors that some other newsletters use?

 

Please go to 90percentVs70percent.

 

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11.

What if the market crashes, how do we protect ourselves?

 

We take a two pronged approach to manage our downside risk.  First we actively monitor macro-level economic and investor sentiment indicators allowing us to make better decisions when to get off of margin, reduce our bull put exposure, or to completely avoid opening new bull put spreads during uncertain times, substantially reducing our downside risk.  For more on what indicators we monitor and our approach please go to Why Market Timing is Important.   Secondly, if the underlying index moves quickly, we proactively make adjustments to our trades to reduce our risk and our possible loss.  Please visit the Learning Center and read the case study entitled "what if the market drops unexpectedly, how do we protect ourselves?".

 

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12.

What happens if the market surges unexpectedly, and how do we protect ourselves?

 

Please visit the Learning Center and read the case study entitled "what if the market surges unexpectedly, how do we protect ourselves?".

 

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13.

Can you recommend a broker who will allow credit spreads options in an IRA?

 

OptionsXpress allows spreads to be traded in IRAs and is always a good choice.  Many other brokers could work, but we don't have much experience with the other brokers and how they handle IRA accounts.  Because IRAs are cash accounts and you're not allowed to add additional funds to the account, it's recommended to trade no more than 70% of your account and leave the remaining 30% as cash reserves.  We recommend to hold this level of reserve cash just in case the market begins to surge or drop unexpectedly, forcing us to make adjustments for that month. For more information on why we need to hold cash reserves, please visit the Learning Center and read the entry entitled "what if the market surges unexpectedly, how do we protect ourselves?".

 

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14.

When is the best time of the day to place trades?

 

Anytime during the trading day works.  However, there is more uncertainty about which way the market will move first thing in the morning, so we can usually get higher premiums for the credit spreads that we open within the first hour of trade.

 

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15.

When are the advisories usually sent out via email?

 

We send out an advisory via email every Sunday evening, and we send additional advisories anytime throughout the week as required.  When an advisory is emailed out, we also immediately update the advisory archive that can be reached through the Member Login link.  You will need your login and password to access the Advisory Archive.

 

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16.

When is the best time to join?

 

Any time is the right time.  If you're already an options trader and can be ready to place credit spreads when we recommend them, starting at the middle of the month is a good time because this is when we're usually placing new trades for the following month.

 

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17.

What kind of brokerage account do I need?

 

You need to have a brokerage account that allows you to trade options in the form of credit spreads and iron condors.  OptionsXpress is a good choice and you will need Level 4 trading privileges in order to trade index credit spreads.  For more on this, please read Getting Started.  Also make sure that your broker can execute 4 legged condor trades.  We need this capability when doing adjustments, and we've noticed that some of the low cost on-line brokers that specialize in Options do not offer this capability. If the broker you are considering does not offer this capability, it's strongly recommended not to use this broker and find one that does.

 

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18.

Can I reinvest my profits each month?

 

This is a decision that only you can make.  The traders at MCTO do reinvest most of our profits each month.

 

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19.

How much money do I need?

 

You can start with as little as $1,000 and then slowly increase the size of your options brokerage account as you become more comfortable with writing Index credit spreads and iron condors.  $1000 will allow you to trade 1 contract, which is enough to get started.

 

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20.

How long is the average holding period?

 

Most of our recommended index credit spreads and iron condors last from 20 to 45 trading days.  Some trades could be as short as 10 days.  When we have high volatility in the markets, most of our trades are 30 days or less in duration, which was the case for most of 2008 and 2009.

 

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21.

How many recommendations are given each month?

 

Typically 2 to 4 trade recommendations per month on one to three indexes.  We tend to place trades on the RUT (Russell 2000 small cap index), SPY (an ETF that tracks the S&P500 index), and OEX (S&P 100 index). 

 

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22.

How are the gains taxed on this strategy of writing credit spreads and iron condors on the MID and RUT indexes?

 

Because the OEX (S&P 100 Large Cap Index) and the RUT (Russell 2000 small cap index) are classified as cash settled, broad market indexes options that are traded on these indexes are taxed per the IRS Section 1256 contracts 60/40 rule.  Per the 60/40 rule, sixty percent of the gains are taxed as long-term capital gains which is currently at 15%, and 40% of the gains are taxed as standard earned income.  By placing option trades on cash settled, broad market indexes we get generous tax benefits.  For more information, do a Google search on "IRS section 1256 tax 60/40 rule" and you will find more information on this topic.  Here also is a link to the IRS tax form 6781:   http://www.irs.gov/pub/irs-pdf/f6781.pdf;   Here is another link to a software company that automates the generation of tax forms and they seem have a lot of information on this topic:  http://www.armencomp.com/options-capital-gains.html#index.  Please make sure to talk to a tax professional for all up to date information on this topic; we are not licensed tax professionals and we are not authorized to give tax advice.

 

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23.

Of the trades that you recommend what % are credit spreads and what % are complete iron condors?

 

We try to complete the iron condor for all of our credit spreads each month because we can maximize our return on investment.  However, sometimes we won't like the technicals of the stock market and the underlying index that we're trading, so we will recommend not to complete the iron condor.

 

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24.

How do broad-based indexes like the SPX, MID and RUT settle and expire?

 

The SPX, MID and RUT indexes are classified as broad-based, cash settled indexes, and option contracts on these indexes are classified as European style and AM settled.  The RUT is the symbol for the Russell 2000 small-cap index, the MID is the symbol for the S&P 400 mid-cap index, and the SPX is the symbol for the S&P 500 large-cap index.  Broad-based means that the index comprises 100s or even thousands of stocks. The RUT index comprises 2000 small-cap stocks, the MID index comprises 400 mid-cap stocks, and the SPX index comprises 500 large-cap stocks.  Cash-settled means that when an option contract on the index settles in-the-money (ITM), cash will be withdrawn from your account.  European-style means that option contracts on these indexes cease to trade on the 3rd Thursday of each month, and they can only be exercised on the last business day prior to expiration, which is the 3rd Friday of each month.  AM settled means that the index's final price will be calculated on the 3rd Friday of each month in the morning. The settlement price is calculated by recording the first opening sale price for each stock in the index, and then using these prices to calculate the settlement price.  The settlement price is the final price of the index that is used to determine if option contracts on the index closed in-the-money or out-of-the-money.  One can find the settlement prices at http://www.cboe.com/data/settlement.aspx.  The settlement symbol for the RUT is RLS, and the settlement symbol for the SPX is SET.

 

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25.

How can the settlement price come in so much higher or lower than the index's high or low of the day?

 

Using the SPX as an example, the Friday settlement process takes the first opening tick from each of the 500 stocks that compose the S&P500 index, and because not all of the stocks open at the same time in the morning when the trading floor first opens, the settlement number can come in much higher (or lower) than the high of the day (or low of the day).  For example, if the Asia market is UP and the futures market is pointing up, a bunch of buy orders start to build up in the queue, and when trading on each stock finally opens in the morning, the first tick is usually abnormally high since there could be dozens of buy orders waiting to be processed;  thus, this spiked "first tick" for each stock is what is used to calculate the settlement number, and when all of the first ticks are added and averaged to calculate the SPX settlement value, it can come in much higher than the index's high of the day.  The symbol for the SPX settlement value is SET and can be found at http://www.cboe.com/data/settlement.aspx

 

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26.

Why do I need multiple accounts when trading the RUT? (not applicable for auto-trade accounts)

 

Here is an example of why we need multiple accounts when trading the Russell 2000 index - the RUT in the self-managed accounts.  Let's say we have a RUT 620/630 Bull Put Spread, and the RUT starts to sell-off putting our credit spread under pressure.  One adjustment strategy that we might employ in this situation is to "stay ahead of the wave" and to "click down" a strike and open some new 610/620 bull put spreads to bring in more premium.  (For more on the "stay ahead of the wave strategy", please visit the Learning Center and read the entry entitled "What if the market surges unexpectedly, how do we protect ourselves?")  In parallel, we will continue to watch the original 620/630 bull put spread and we'll close it out if the RUT index continues to drop.  (Note: We only employ the "stay ahead of the wave" strategy if our macro-level, big picture indicators tell us that the economy and the market is "healthy"; for more on the big-picture indicators that we monitor please go to Macro level economic indicators)  The problem that we run into is if we decide to "click down" and open the new 610/620 bull put spread, the 620 leg in our new spread overlaps with the 620 leg in our existing 620/630 spread and the 620s will cancel each other out;  as a result, we'll end up with a 610/630 bull put spread which is now a 20 point spread and not a 10 point spread.  (A 610/620 bull put spread is a 10 point spread because there are 10 points between the 610 buy leg and the 620 sell leg)  Having a 20 point spread is ok if one ends up with one.  However, a powerful aspect of credit spreads that allows us to practically double our return is the ability to open both a "top" bear call spread and a "bottom" bull put spread to create the iron condor; and when we're able to open the iron condor, we only have to hold maintenance for one of the spreads, not both of them.  (One 10 point credit spread requires $1,000 of maintenance, which is held by the broker; an iron condor that comprises both a 10 point bull put spread and a 10 point bear call spread also requires $1000 in maintenance, giving us the opportunity to double our return if both spreads expire out-of-the-money)  But in order for the broker's computer to recognize that our spreads make-up an iron condor, both the top spread and bottom spread have to have the same point spread...for example 10 points.  If they don't have the same point spread, the broker's computer will recognize each spread as an independent spread and the broker will require $2000 in maintenance instead of $1000.  Thus, by doing our best to keep all of our spreads 10 points wide, this gives us the best chance of completing our iron condors.  And in order to keep all of our spreads 10 points wide as we are "clicking up" and "clicking down" our strike prices, we use two accounts so none of our trades overlap in the same account.

 

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27.

I see that you trade the RUT, OEX and SPY, should I trade all three indexes?

 

By opening credit spreads on all three indexes, the Russell 2000 Index - RUT, the S&P 100 index - OEX, and an ETF that tracks the S&P 500 index - SPY, one can add a slight amount of diversification to their credit spread portfolio.  The most diversification is between how the RUT small cap index moves as compared to a large cap indexes, such as the SPY or OEX, since small caps stocks do move a little differently as compared to big cap stocks.  However, when you open trades on two or more indexes you add complexity and additional work, so you have to ask yourself if the slight amount of diversification is worth it.  In general, we subscribe to the notion that the best way to make consistent money in index credit spreads is to focus on one or two underlying indexes.  For traders that are just starting out we recommend to stick with a single index, the RUT, and then to start adding small positions of the OEX once they start feeling comfortable with the RUT, usually after 6 months or so.

 

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28.

How much reserve cash do I need in order to help me get through the 1 or 2 difficult months each year when we are forced to adjust our trades?

 

Usually 25% reserve cash will suffice, but the more the better. A good source of reserve cash is a home equity line of credit where you link your line of credit to your checking account and you link your checking account to your brokerage account.  This will give you enough reserve cash to make adjustments during the 1 or 2 difficult months each year where we'll need to make adjustments.  For more on this, please visit our Learning Center and read the entry entitled "what if the market unexpectedly surges, how do we protect ourselves?"

 

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29.

How much time each day would I need to monitor my trades?

 

About 10 minutes per day, just to see how the market is doing.  Because the "safe zone" for each typical index credit spread is so wide, we usually have plenty of time to watch the indexes to make sure they are not getting too close to our short put and call positions.

 

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30.

Where can I go to see all current & past advisories?

 

We send out 1 to 2 advisories per week via email.  When we send out an advisory, we also immediately post it to our advisory archive that can be found by clicking on the Members Only link on the MCTO home page.  You will need your login and password to gain access to the advisory archive.

 

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31.

When should I do my research and prepare to make a trade?

 

We usually recommend for our subscribers to do their research when the markets are closed.  One to two hours per week is usually sufficient to read the MCTO advisories, study and digest them, and then to make trades when the markets are open.

 

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32.

Do you tell us when to exit a trade?

 

Yes, we will communicate how to handle a trade whether we hold it and let it expire, or close it early before expiration.  Many times we will let our credit spreads and iron condors expire worthless, which means that the trades were 100% profitable for us, the seller - representing a 6% to 10% return for the month.  Sometimes we'll close-out our spreads early just before expiration to minimize our risk during the settlement process and to lock-in our profits.  For the handful of difficult months each year when we will not be 100% profitable, we will most likely be sending out advisories every few days providing detailed instructions on how to maneuver and make adjustments to protect our trading capital from a surging or declining market.

 

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33.

Would MCTO ever trade credit spreads on stocks?

 

No. All of our option trades comprise credit spreads & iron condors on the Russell 2000 Small Cap Index (RUT), the S&P400 Mid-Cap Index (MID), and the S&P 500 Large Cap ETF (SPY).  This strategy has proven over the years to generate a 45% to 65% annual return requiring only 1 to 2 hours per week of effort, and having less stress.  We personally spent a year following a newsletter that traded credit spreads on stocks and we decided that we did not like it because our trades were at the mercy of company specific news.  For example, the CEO steps down unannounced, the CFO is suddenly accused of cooking the books, an executive at the company unexpectedly makes a remark to the press that revenues are slowing down, or an analyst downgrades a different company but one in same industry; any one of these events can suddenly turn $100 of collected premium into a $900 loss.  The strike prices also need to be set very tight around the underlying stock in order to bring in a reasonable level of premium, making it very stressful.  It seemed that just about every day we had one of our credit spreads on the dreaded "watch list".   After this experience, we decided that the credit spread strategy is best done on indexes that comprise hundreds if not thousands of stocks, eliminating company specific risk.

 

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34.

Does MCTO employ other options strategies in addition to credit spreads?

 

Yes.  But the longer answer is that the MCTO Advisory Service primarily focuses on writing Credit Spreads and Iron Condors on the Russell 2000 Small-Cap Index (RUT), the S&P400 Mid-Cap Index (MID), and the S&P500 Large-Cap ETF (SPY).  We focus on this non-directional, income generating strategy because it works day-in an day-out, requires only a few hours of work per week, and it returns 6% to 10% per month.  For more on our returns please visit the ROI Returns PageHowever, we also periodically recommend "bonus" directional trades like calls, puts, debit spreads and butterflies to hedge our income generating credit spread strategy, or to take advantage of macro level cycles of the market.  For example, after the crash of October 2008 most stocks were down 35% to 50% - and the sell-off happened in less than 15 trading days.  Because we only experience a crash like this every 7 to 10 years, we did recommend many long-term, 12 month, straight calls and bull call spreads on high quality companies that were beginning to break-out and show strength. With this said, we only entertain directional trades when we see extreme highs or lows in a stock or index, and then we would watch the technical behavior of the stock or index for many weeks if not months, waiting for certain technical triggers to hit before opening any type of directional trade.  In general, it's hard to make a living trading directionally, and that's why we spend most of our time trading non-directional credit spreads.

 

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35.

Are your returns based on hypothetical trades or based on actual trades?

 

Our published ROI Track Record is real and is based on our recommended trades.  The MCTO team trades at least 65% of our own portfolio using the same recommendations that we offer through this advisory service.

 

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36.

Do you trade your own suggestions?

 

Yes, we personally trade everything we recommend and our trading activity in our personal accounts represents a large % of our personal income.  We generally trade 65% of our own portfolio with non-directional credit spreads and iron condors that we recommend through our service, we keep 20% of our portfolio as cash reserves, and we trade 15% of our money in directional plays, where some of these are included in our service.  For more on why we keep 20% of our portfolio in reserve cash, please visit the Learning Center and read the entry "what if the market surges unexpectedly, how do we protect ourselves?". 

 

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37.

Do you employ stop loss orders?

 

Not for this strategy of writing far out-of-the-money index credit spreads and iron condors.  Because we open each credit spread far out-of-the-money with a very large "safe zone", we usually have plenty of time to monitor our short positions and make adjustments when necessary.  For the Bull Put Spread that has down-side risk when the market corrects, we open our trades below the 200 day moving average which protects us from most market corrections.  For an unusually strong market correction where our underlying index carves down past the 200 day moving average and our short Put positions go in-the-money (ITM), we employ adjustment strategies that give us an excellent chance to make back any dollars that we might lose.  In order to ensure the highest probability that we can make back any money that is lost in a sharp correction, we actually don't want a stop loss in place;  the reason is that we will need to be able to simultaneously close-out our Bull Put Spread and immediately roll-out or down and open a new Bull Put Spread.  The MCTO team has been trading this strategy for many years and have come to the conclusion that stop losses actually work against us when writing far out-of-the-money credit spreads;  therefore, we don't employ them.  In contrast, for most directional options strategies, stop losses are absolutely required to protect our trading capital. 

 

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38.

What market conditions are best for credit spreads & iron condors?

 

The non-directional, income generating index credit spread and iron condor strategy works well in moderately bullish and bearish markets, and sideways markets.  If the market surges or drops hard, (more than 10% in 30 days or less) this is not good for this strategy and we will need to make trade adjustments to preserve our trading capital.

 

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39.

Do I need to be at my computer when the markets open, or can I place most trades the night before?

 

We recommend to place your trades when the market is open.  This will allow you to ascertain the bid & ask prices and allow you to place an order that will give you the best price, if filled.  It usually takes anywhere from 1 to 5 minutes to get filled, depending on how good of a price you are asking for. 

 

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40.

How are memberships canceled?

 

If, for any reason, you do not wish to participate in our system any longer, simply log in to the "Members Only" page with your Login ID and Password. Click on "Cancel Subscription". Fill out the form and Submit.

 

 

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41.

How much does the service cost?

 

The Monthly Cash Thru Options advisory newsletter service costs $85/month for self-managed accounts and $115/month for auto-trade.  This amount is charged monthly to your credit card.  For more information on auto-trading please go to autotrade.  You may upgrade, downgrade or cancel your service at any time.

 

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42.

How do you calculate the return-on-investment (ROI) shown in the ROI Track Record Page?

 

The ROI Track Record Page shows the results that the Monthly Cash Thru Options (MCTO) team personally achieves in their own trading accounts where we exactly follow the MCTO advisories.  When we recommend trades on multiple underlying indexes, such as the RUT and SPY,  we equally allocate our trading capital to each underlying index.  Below is an example of our ROI Track Record Page.

               
Sep-07 RUT 670/680 Bull PS 8/22 to 9/7 .50 to .85 expired profitable    
Sep-07 RUT 860/870 Bear CS 8/22 to 9/4 .45 to .55 expired profitable    
Sep-07 RUT 870/880 Bear CS 8/22 .45 expired profitable    
Sep-07 SPX 1560/1575 Bear CS 9/4 .70 expired profitable    
Sep-07 SPX 1550/1565 Bear CS 9/9 to 9/13 .55 to .75 expired profitable    
Sep-07 SPX 1540/1555 Bear CS 9/11 to 9/14 .40 to .60 expired profitable    
Sep-07 SPX 1320/1335 Bull PS 9/10 .65 expired profitable    
Sep-07 SPX 1315/1330 Bull PS 9/7 .60 expired profitable 9.50% $4,750
               

In this example, let's say the MCTO team allocated $200k to index credit spreads/iron condors for this particular month.  We then allocated $100k to the RUT trades and $100k to the SPY trades.  To interpret the chart above, and using the first two lines as an example, between Aug 22 and Sep 7, we were able to fill the RUT 670/680 Bull Put Spread for between 50 cents and 85 cents credit.  And about in the same time frame, we were able to fill the RUT 860/870 Bear Call Spread, creating the iron condor, for between 45 and 55 cents credit.  Moving over to the next column, we see that for this particular month both underlying indexes, the RUT and SPX, each expired inside their respective "safe zones" and all of our iron condors expired worthless for the buyers and 100% profitable for us, the sellers.  (meaning we kept 100% of the premium that we collected)  When calculating the returns, we first add up the total number of iron condors that we opened.  In this example, the MCTO team was able to "put to work" all of our $200k where we opened 111 RUT iron condors (iron condors on the RUT comprise two, 10 point credit spreads; maintenance for a single RUT iron condor is $1000 less approximately $100 of premium collected;  risk capital was then $900/iron condor; total risk capital was 111*900=$99.9k).  We also opened 72 SPX iron condors (iron condors on the SPX comprise two, 15 point credit spreads spreads; maintenance for a single SPX iron condor is $1500 less approximately $120 of premium collected; risk capital was then $1380/iron condor; total risk capital was 72*1380=$99.3k)   Our grand total risk capital was $200k.   Next, we add up the total premium (credit) that we collected when we first opened all of our iron condors.   For the RUT, we opened 111 iron condors x $100 of premium/iron condor = $11,100.   For the SPX, we opened 72 iron condors x $120 of premium/iron condor = $8640.  Total collected premium was $19,740.  We then subtract out commissions where the MCTO team pays 90 cents/contract, $1.80/spread or $3.60/iron condor.  Our total commission to open our iron condors was (72+111)*3.60 = $658.   Total premium collected less commissions is 19,740 - 658 = $19,082.   Total return in about 30 days was total premium collected less commissions divided by total risk capital = 19,082/200,000 = 9.5%.    Recommendations on exactly what days to open the spreads and what % of one's trading capital to use on a single day is usually not included in the advisories because this is not an exact science. Therefore, the ROI results will vary approximately +/- 2% from subscriber to subscriber because each subscriber has leeway on exactly when to open their spreads, resulting in slightly different fill prices, and the % of their total funds that they use in a single day. 

 

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43.

How many underlying indexes should I trade credit spreads on and how should I allocate my capital if I trade more than one?

 

For options traders that are just starting out, we would recommend to trade credit spreads on a single underlying index and focus on this index for 9 months to a year.  Our favorite index is the RUT and we would recommend to start with this one.  One of the keys to making consistent money with credit spreads and iron condors is to focus on a single underlying index and get really good at understanding and predicting how it moves from day to day.  For traders that are ready and/or desire to trade credit spreads on two underlying indexes, where the MCTO advisories usually recommend trades on the RUT and SPY, we would recommend to split the trading capital 50/50 because the risk/reward/probability profile of the trades on both the RUT and SPY are very similar.  And per the "diversification" argument, if one trades on both indexes, this does provide a small amount of diversification since the small cap (RUT) and large cap (SPY) indexes are not 100% correlated to each other, and they do move at different rates of velocity as compared to the overall market.

 

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44.

What % of my portfolio could I allocate to 90% probability credit spreads & iron condors?

 

Once you gain sufficient experience and knowledge in trading index credit spreads and iron condors, you could allocate up to 75% of your entire portfolio into this strategy, keeping 25% as reserve cash.  In order to get to this point, one would usually need to build up about 1 to 2 years of experience and have spent sufficient time studying the materials and case studies in our Learning Center to have a thorough understanding of the risk/reward/probability nature of credit spreads. For us personally, we generally trade 65% of our own portfolio with non-directional credit spreads and iron condors that we recommend through our service, we keep 20% of our portfolio as cash reserves, and we trade 15% of our money in directional plays, where some of these are included in our service as bonus trades.  For more on why we keep 20% of our portfolio in reserve cash, please visit the Learning Center and read the entry "what if the market surges unexpectedly, how do we protect ourselves?".  The reason that we feel comfortable in allocating such a large % of our portfolio into just a handful of credit spreads is that...1) we are placing our trades on indexes that eliminate company specific risk because they comprise of 100s or even 1000s of stocks; 2) We focus on 90% probability credit spreads and iron condors giving us a very wide "safe zone" and plenty of time to react if necessary and make adjustments on our trades if the underlying index starts to suddenly surge or drop;  3) We have many years of experience trading credit spreads and iron condors and we know how to watch the earnings calendar, economic announcement calendar, other key announcements by the Federal Reserve & Treasury Dept., big picture market sentiment indicators and shorter term technical indicators on the broad indexes telling us when it's the best time to enter trades and close out trades;  and 4) We have many years of experience where we know how to manage our risk through various adjustment strategies, thus giving us confidence to put a large % of our portfolio behind just a few trades.

 

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45.

What % of my trading capital should I use in a single day?

 

Let's first discuss the difference between "% of portfolio allocation" versus "% of cash used in a single day". Percent of portfolio allocation is the % of ones entire investment portfolio that is allocated to index credit spreads.  For investors that have 1.5 to 2 years of experience in trading credit spreads, they could allocate up to 75% of their investment portfolio to 90% probability credit spreads, which is what we focus on, leaving 25% as cash.  For investors that are just getting started, we would recommend to start small, starting with as little as $1000 and preferably no more than $5000 allowing the investor to open 1 to 5 iron condors, and then slowly growing their account over time as they gain experience.

Once the trader has decided what % of his or her total investment portfolio to allocate to index credit spreads, we then need to discuss the % of trading capital that should be used in a single day when our recommended spreads are filling within the recommended credit range.  For example, let's say a trader has allocated $20k of their portfolio to credit spreads, where he or she also has access to $5k in reserve cash just in case we need to make adjustments.  The MCTO team then sends out the first advisory for the May cycle, usually 30 to 45 days out to expiration, recommending a single bear call credit spread.  This is just a starting point, and our ultimate goal is to open the entire iron condor.  A typical recommendation might look like the following:

RUT Bear Call Spread

Buy to open RUT May 560 call

Sell to open RUT May 550 call  - For a credit of 40 to 65 cents.  If this spread starts to fill for more than 65 cents credit, suspend any further fills on it and click-up.

When the market is having an UP day, there is a good chance that this spread will fill for at least 40 cents credit.  When the market is having a DOWN day, most likely this credit spread will not fill for the minimum of 40 cents, so we just wait until the market has an UP day before trying to fill it again. When this recommended credit spread is filling for at least 40 cents credit, we would recommend for the trader to slowly "collect" premium and maybe use 15% to 20% of their trading capital on that day.  We then pause and wait for the next UP day where this spread is again filling for at least 40 cents, and preferably for more, up to 65 cents and we'll use up maybe another 20% of our cash.   If the market continues to climb, and if this spread is now filling for 68 cents, for example, we would suspend fills on this spread, per the directions in the advisory above, and we would "click-up" to the RUT May 560/570 bear call spread and repeat the process of "collecting" premium on the days where it's filling for at least 40 cents, but no more than 65 cents.   Patience is of the essence here where we might have to wait 2, 3, 4 or more trading days before we're able to fill this spread again to use-up another 20% of our trading capital. If all goes well, the market will continue to climb allowing us to "put to work" all of our trading capital before it stalls and changes direction.

Let's say that our strategy is working out as planned and the rally runs out of steam just as we finished opening our "quota" of top bear call spreads and we now start seeing more DOWN days in the market.  The MCTO team is closely watching the technical indicators and the economic calendar, and when the time is right we would send out an advisory recommending to "switch gears" and start opening our bottom RUT May bull put spreads to complete the iron condor.  And even though these newly recommended RUT May bull put spreads are "attached" to the RUT May bear call spreads creating iron condors, thus not requiring any additional maintenance, we still must handle the new bull put spread as a separate trade making sure that we enter the trade at the correct time and select the correct strike prices minimizing the chance that they will get "hit" and go ITM. So assuming that the rally runs out of steam and our underlying index is starting to roll-over and pull back, we would send out an advisory that would look something like the following:

Sell to open May 390 put

Buy to open May 380 put

For a credit of 60 to 85 cents - if this spread starts to fill for more than 85 cents credit, suspend any further fills on it and click-down a strike to keep your credit between 60 to 85 cents.

Repeating what we did above, but moving a little faster since we're running out of time, when the market is having a DOWN day we would use maybe 25% to 30% of our "allocation" on the days that it's filling for between 60 and 85 cents credit. (Because we already spent maybe 2 to 3 weeks watching the market rally and taking advantage of the rally by opening our top bear call spreads, we only have maybe two weeks left to open our bottom bull put spreads so we do need to jump in faster on these)  When we say "allocation", we mean the following: Let's say we opened 20 RUT May bear call spreads using-up the $20k that we allocated to index credit spreads for the month.  We now can open 20 RUT May bull put spreads "for free", since these will complete 20 iron condors and will not require any additional maintenance. So initially, we have an allocation of 20 bull put spreads to fill that will not require any additional maintenance.  Once we fill the 20 bull put spreads, any additional RUT May bull put spreads that we open will require additional maintenance of $1000/spread.

 

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46.

Can I access the MCTO Website using the Firefox Browser?

 

The MCTO website uses Java Scripts, and some older versions of certain browsers do not support scripting.   The MCTO website is fully compliant with Microsoft Internet Explorer, and Firefox version 2.0.0.4 or newer.

 

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47.

I plan to self-manage my account; can I use any broker that handles credit spreads?

 

No, it's recommended to only use the brokers that have a lot of experience with credit spreads. The brokers with the most experience with options and credit spreads are thinkorswim/TD Ameritrade, TradeKing, OptionsHouse and tradeMONSTER. Just about any broker can handle credit spreads when the "skies are blue". However, once or twice a year a storm will come, one or more of our spreads will get under pressure and we'll be forced to roll them in a 3 or 4 legged order; this is when the lesser experienced brokers fail. Thus, it's imperative to only use the experienced brokers that can handle the complex 3 and 4 legged roll trades. Note: We do not recommend to use eOption for self-managed accounts since their web-based platform lacks the ability to directly place 4 legged orders. eOption, however, is OK to use for autotrade since their autotrade group can place the 4 legged orders.

 

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48.

I still have a question not found on this page. What should I do?

 

If you have unanswered questions or would like clarification on any of the materials on this web site, please email us at support@monthlycashthruoptions.com.


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