MCTO Blog » Auto-trade

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

bradrr — Wed, 14 Dec 2011 00:54:21 +0000

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?

Answer: Yes, the Monthly Cash Thru Options autotrade option trading service would only roll 8 contracts of the RUT Dec 670/680 bull put spread into January, if we needed to roll it. The new cash level per trade that you select for autotrading will not affect the existing spreads and adjustments that we make to them. You can change your autotrade cash amount per trade at anytime, even mid-stream during the month, and not impact existing trades.

Alternative investments; credit spread; iron condor; how to trade options; option trading

How to calculate risk capital on index credit spreads and iron condor options

bradrr — Wed, 08 Dec 2010 00:22:23 +0000

Question: I’m a current autotrtading customer with MCTO. I have $20,000 of available cash in my account and I’ve set my autotrade rule to allocate $4K per trade. I see that you recently opened a SPY Dec 108/111 bull put spread, which is a 3 point wide spread. If I’m correct, this spread should require $300 of maintenance. Because I’m allocating $4k per trade, I was expecting 13 of the SPY spreads to show up in my account; however, 14 were openened. Please explain why I got 14 of these spreads instead of the 13 that I was expecting.

Answer: The required cash (risk capital) to open a 3 point wide credit spread is the $300 of maintenance required by the broker, minus the premium that we collected when we first opened the spread. For the SPY Dec 108/111 bull put spread, we brought in about $25 of premium per spread. Thus, the actual risk capital per spread for this case is $300 – $25 = $275. To calculate the number of spreads that would be opened in your autotrade account, you would divide your $4000 cash allocated per trade by $275, which equals 14 spreads.

Question about January auto-trade trades and diversification of the trades

bradrr — Wed, 06 Jan 2010 07:08:51 +0000

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?

Answer: So far we’ve placed 4 options trades in the auto trade accounts for the January cycle. Three, 2 point wide SPY credit spreads and one, 10 point wide SPX credit spread options. We send a maximum of 5 trade alerts each month that uses 100% of your cash, and so far we’ve sent four. (at least our goal is to send 5 auto-trade trade alerts, but sometimes we’re not able to invest all of your cash for a particular month….like in the last 3 months due to how the market has been behaving)

The reason we’re focusing on the S&P 500 index this month is that we’re a little concerned that the RUT might spike-up to play “catch-up”….so we’re under weighting on the RUT and over weighting on the big-cap S&P 500 index this month. Because the US dollar is strengthening, this also will put a little downward pressure on the big-cap stocks that reside in the S&P 500 index, which gives us a higher probability that our top January bear call spreads will expire profitable.

Per the topic of diversification, because these are indexes, they are already diversified since each is composed of hundreds, if not thousands of stocks. The big cap index does move a little differently as compared to how the mid-cap and small-cap indexes move, so this does provide a small amount of diversification, but we don’t want to use all of these indexes just for the sake of trying to diversify. We look at each index as a independent trading vehicle and if the technicals, strike price placement and levels of premium look good offering us a decent risk/reward profile, we’ll open the trade. In the process, if we’re able to open credit spreads on multiple indexes giving us a little bit of added diversification, all the better.