Question: We are less than 2 weeks from options expiration for our RUT and SPY Feb bull put spread options, the DOW is UP today almos 200 points, how about if we were to open some Feb bear call spreads today and bring in some premium.
Response: I would wait a touch longer before jumping into the bear call spreads, if at all. For the RUT, it would be wise to set our short call at 650 or higher, which is the Jan high. It’s pretty easy to get burned on the top spreads…so we need to be careful.
Question: But it’s interesting to notice with today’s market that even though the DOW is up almost 200 points, NASDAQ 30+ point, and S&P 500 is up 16+, the Call options on these indexes aren’t moving up much. Why isn’t there much premium on these call options?
Response: A lot of it comes down to supply and demand and currently there are few speculators that want to buy calls on the major indexes, and rightly so since we might still be in a correction, so the premiums that they are willing to pay are low. Premiums are low anyway for OTM calls, especially when we’re down to the last 10 days of trade or less before expiration. We know that it’s difficult to push a boulder uphill and if we ‘re able to move it, it will move slowly; however, if we let go it will start to roll down the hill quickly and momentum will build as gravity takes over. Because the stock market is similar to a boulder on a hill, we can charge the speculators more for Puts because there is more potential to make money on them if the market has a correction, versus the lower premiums that we are able to charge for the Calls.
Question: If for some unfortunate reason we let a spread expire in the money, will the broker PUT the index shares to us, or because of the nature of the spread, will they only take the entire Maintenance?
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January 13th, 2010 in
Russell 2000 Index RUT,
S&P 500 index,
Trading tips for iron condors and credit spreads,
credit spread adjustments | tags:
bull put spread,
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options adjustments,
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options trading blog,
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S&P 500 index,
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Question: I have been reading the FAQs on your site. When reading the: What % of my trading capital should I use in a single day? I ran into a problem. It advises filling a Bear Credit Call for May in two tiered steps as follows :
Buy to open RUT May 560 call
Sell to open RUT May 550 call - For a credit of 40 to 65 cents.
Then it goes on to say: 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. But are you not then overlapping this new spread with the previous one and thus opening up a 20 point spread of May 550 / May 570 ? The May 560s will cancel each other out. Would this then require trading in 2 separate accounts ?
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Question: Have there ever been any issues with not having enough buyers and sellers to fill our index credit spread positions? I would assume at some point with enough people trading your ideas there would not be enough volume to fill suggested positions…am I wrong in thinking this?
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Question: What if the unemployment number this Friday really disappoints and the markets tanks? Any chance we could still grab some additional premium on the bottom with the 50 day SMA right at 600? Maybe a 600/590…..right now it only has a .20 natural spread. But a decent pullback on Friday would add some $to it.
Response: Absolutely. I think we should pick up some premium within 2 hours from when the unemployment numbers are released this Friday. If the market rallies, let’s open some bear call spreads, and if the market sells off, let’s open some bull put spreads. Once the market moves, it’s my guess that the market will stabilize rather quickly as investors/traders/money mangers await Q4 earnings that start to come out next week. I’ll send out an advisory tomorrow, Thursday, with my thoughts on strike price placement.
Question: If it appears that we can still get into the RUT Jan 670/680 Bear Call for a decent premium, would you suggest doing so; or is the 670 more than obtainable by expiry with small caps catching up? According to TOS it looks like the 670 has a 94% chance of expiring worthless. Not a bad % w/ 6 trading days left. What do you think?
Response: I think I’m going to wait for the unemployment number to come out on Friday. I believe there is a reasonable chance the number will be good, possibly showing the first positive jobs growth in 23 months, and the market could have a strong UP day giving us one last opportunity to bring in some premium on the top spread. I’m hesitating to bring in more RUT 670/680s and would prefer to click-up and bring in some 680/690s.
Question: I am a little confused by the number of options trades placed in my auto-trade account for January. I had assumed that you would place about five trades per month and these trades would be for different indices. When you place three trades for one index and one trade for another index, does this mean that you are not going to place trades in the other indexes you usually trade for the current month?
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2009 is complete and we successfully brought in a 92% ROI for the year. We usually achieve between 45% and 65% annually, but because volatility was elevated throughout the year, we were able to bring in a higher return than normal. Because implied volatility (VIX) most likely will remain elevated through at least the first half of 2010, we probably will have another above average year….as long as we continue to do detailed and thorough micro and macro level analysis to give us the highest probabilities of avoiding losing months. For more on the December trades and returns please go to http://www.monthlycashthruoptions.com/ReturnOnInvestment.htm.
Question: I’ve had a difficult time opening the recommended December RUT (Russell 2000 index) and SPY (S&P 500 index) credit spread options and would like to bring in more premium in December if possible. Please give me your thoughts about possible December strike prices that I could consider opening.
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Question: I am enjoying my new membership, all of your updates and excellent narratives. I have a few questions: Why do you send out the trades in the last week before expiration knowing that they probably will not get filled? AND do you ever make trades the week before expiration? I usually start looking for RUT trades the week before expiration…for example, I was filled on the 510/520 bull put spread for $1.10, the week before last months expiration.
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