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Note on ROI for Feb 2011

February was a 100% profitable month, but it was a difficult month to invest all of our cash in our recommended credit spreads. Most MCTO subscribers invested less than 60% of their cash this month.  The reason was that the market was continuously trending UP on tight candlesticks, below average volume and on relatively low volatility.  Below is the daily and weekly charts for the S&P 500 index showing the non-stop uptrend.  (these charts were borrowed from our Feb 20th advisory)

 

In order for us to open our desired "safe and low stress" credit spreads that allow us to sleep at night, we need a market that has a reasonable distribution of UP and DOWN days throughout the month. The strong DOWN days, for example, allow us to open the bull put credit spreads with strike prices that are near or below certain technical support levels, and this provides us the low risk and low stress trades that we desire.  Unfortunately, we had only two stronger DOWN days during the February cycle that allowed us to open our desired bull put spreads.  Markets don't climb forever and sooner or later this market will revert back to being more choppy and pseudo sideways where it will start to provide us with a more even distribution of UP and DOWN days, and this will allow us to get back to business of "hitting singles" each month.

In general, it's best to play it safe with credit spreads and iron condors as they are highly leveraged and represent a long-term trading strategy. Our goal is to hit safe and low stress singles each month, and if the play isn't there or if it's a little too risky, it's best to get walked to first base and move on to the following month. Credit spread trading is a 12 inning game and what matters is that we avoid the big losing months through robust analysis, patience and conservativeness, and that our returns are positive, targeting 30% to 65% annually, after adding everything up over 12 months.