How do you handle a sudden increase in volatility (VIX) when trading index credit spread and iron condor options?

If volatility suddenly increases, e.g. caused from a spike in geopolitical tensions in the Ukraine, the value of the credit spread options that we sold would increase in price, thus causing a drawdown in our accounts.  Drawdowns, which are defined as temporary and unrealized losses, happen often with credit spreads.  More importantly, however, is that our sold options (the short calls and short puts) stay out of the money (OTM).  As long as our credit spreads / iron condors stay OTM and Read the rest of this entry »

How many credit spreads are opened for a certain dollar amount of maintenance held by the broker?

Question:  Can you tell me a rule of thumb as to how many option contracts is open per dollar per trade?  I”m trying to figure out for an accounts size of X, how many options contracts will be open for each trade. This will also help me understand how much commission I will be paying.

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Why did you close out the March bear call spreads this month? What were you watching that told you this market was going higher?

Question:  When the market was pulling back from Feb 25 through Feb 27, 2013,  you decided to start closing the March bear call spreads.  This turned out to be a good call.  What were you watching that helped you make the decision to get out of these trades early?

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Question about how to calculate the ROI on a typical bull put credit spread and bear call credit spread

Question:  I see that the monthlycashthruoptions autotrade service opened up the SPY 139/141 bull put spread for 12 cents credit and the MNX 257.5/262.5 bull put spread for a credit of 30 cents. You stated that each had a potential ROI of 6.3%.  How do you calculate these ROIs?  I’m with eOption and I do see that my MNX spread was filled at .26/.56 and the SPY was filled at .18/.30.

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How to calculate ROI returns of index credit spreads and iron condor options

Question:  I’m a new subscriber to MCTO and I’m puzzled about something.  I was just looking at the ROI for the June 2012 trades. You show a total of 10.5% return for the June cycle,  but when I look at the individual trade details none of the trades returned anything close to 10.5%; most were between 5% and 7%.  So, I don’t see how you average 10.5%.

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Question about how to avoid early assignment on SPY credit spreads or iron condors that have gone in-the-money ITM

Question:  I read your FAQ section and learned a lot about credit spreads, iron condors and how to adjust them.  Thanks!  I have a question about your rolling method. When you roll deep in-the-money (ITM) credit spreads to the following month, how do you deal with the risk for early assignment? I understand there is still time value in the premium so it should not happen but it could happen for one of the ETFs that you trade such as the SPY.

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How to calculate return on investment ROI for credit spread and iron condor options

Question:  I am wondering how you go about calculating the percentage return on a credit spread or iron condor option trading strategy? I’d like to be able to do this but don’t know how to calculate it. My goal is to learn how to trade options and then analyze the risk & reward.

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Question about setting autotrade amount per trade and how it impacts existing trades for Option Trading

Question:  If I increase my autotrade option trading amount to $10,000 per trade, but already have qty 8 of the RUT Dec 670/680 Bull Put Spread that was placed in my account when my autotrade amount was set to $8,000/trade, should I expect the autotrade service to know to handle only 8 contracts, for example if we were forced to roll the RUT Dec 670/680 bull put spread into January?

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Question about strike price distance between short put & call for a SPY or RUT iron condor option strategy

Question:   It seems that the inside short legs of the RUT iron condor that we opened for December span 20% (e.g. 790 short call and 660 short put). The % distance between the short legs for the SPY iron condor span only 12% (131 short call vs 117 short put), so theoretically one side of the SPY iron condor (i.e. one of the credit spreads)  is more likely to go ITM (in the money);  is this the case, for these alternative investments?

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Question about how credit spread and iron condor options on the RUT, and on other indexes that trade European style, settle and expire

Question:  I see that you closed out 1/2 of our RUT Feb 840/850 bear call spread position on Thursday, the week of expiration, in our autotrade accounts.  Can you please explain why you closed out this spread even though the underlying RUT index was trading safely near 834?   The RUT index seemed to be safely below our short RUT Feb 840 call.  

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