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

Answer:  You would open the recommended RUT bull put spread when it’s filling for between our recommended price range, let’s say between 48 and 95 cents credit, and then you would hold onto the spread through expiration.  You then would watch the underlying RUT index to make sure it stays above the short 690 put that you sold.   If the RUT starts to pull back and if it gets within 15 points of your short 690 put, you will need to start preparing to roll the spread either down into the same month, or out into the following month.  Right now it’s not necessary to worry about this scenario since there is a very low probability that this will happen.   If you are curious about rolling, please visit the Learning Center at http://www.monthlycashthruoptions.com/LearningCenter.htm  and you’ll see a bunch of case studies on how to do a roll.  In the case that we need to do a roll, we send out detailed instructions to our subscribers on what/when/how to do the roll.

 Question:   My confusion comes from where you say to click down a strike to keep your credit between 48 and 95 cents for people who are writing more than one spread.  At the point where it is necessary to click down to open another spread should I close the existing spread that I have and click down to sell again or just keep the original spread open?

Answer:   You would hold onto all of your existing spreads if you are forced to click down.   Let’s say you are holding the RUT Feb 680/690 bull put spread.   A week later the RUT starts to drop and the RUT Feb 680/690 bull put spread starts to fill for more than our recommended maximum price of 95 cents.  In this case you would click down to the RUT Feb 670/680 bull put spread.  You would also need to put this spread in a different account as the 680 strikes will overlap.  (we do our best to maintain 10 point spreads in our accounts when using the RUT as it provides flexibility when we open the top bear call spreads to complete the iron condors)   In parallel, we would be watching the original RUT Feb 680/690 bull put spread and will need to adjust it if the RUT pulls back too far.

Answer:   It depends on how much cash you plan to invest in credit spreads for the month.   It’s good not to put all of your eggs in one basket, so it’s probably not wise to invest more than 50% of your portfolio in a single, non-directional strategy such as credit spreads.  Let’s say you have a $100k portfolio and decide to allocate 45% of your portfolio to credit spreads for the next 30 days.  In this case you would open qty 45 of the RUT bull put spreads.   If you want to further diversify, which would be good idea, you would open a mix of RUT, OEX and SPY spreads, the underlying vehicles that we primarily focus on in the monthlycashthruoptions advisory service,  using the $45k.  Each RUT spread, which is a 10 point spread because we open RUT spreads with 10 points between the sell leg and buy leg, requires $1000 of maintenance to open 1 spread.  Each OEX spread, which is a 5 point spread because we open OEX spreads that have 5 points between the sell leg and buy leg, requires $500 of maintenance to open 1 spread.  Each SPY spread, which is a 2 point spread because we open SPY spreads that have 2 points between the sell leg and buy leg, requires $200 of maintenance to open 1 spread.   Back to our $45k, we would allocate $15k to the RUT spreads, $15k to the OEX spreads and $15k to the SPY spreads.   Thus, we would open 15 of the RUT spreads, 30 of the OEX spreads, and 75 of the SPY spreads.   One negative of opening 2 point wide spreads is that we open many more spreads for a given dollar amount, so commissions become a problem.  Thus, we do our best to open more 10 point wide spreads, and fewer 2 point wide spreads.

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.

Answer:   Yes, this is a good options trading strategy.  The minute that you feel you want to take your money off of the

 table, which reduces the risk of any type of catastrophic event in the last week of trade, that’s always a good trading strategy.  

Question:  I was not able to invest all of my cash this month. Is this typical?

Answer:  This month was difficult to get all of our capital invested.  Because we were extra careful this month in October waiting for certain economic data to be released, we had to wait through most of October before having the opportunity to open our trades;  and then when we finally did have the opportunity to open our bottom spreads we only had a few days to put our money to work.  That’s just the nature of this business;  some months we’re able to continuously “collect” our credit spread options over a 2 week period allowing us to put all of our money to work, and other months we’re lucky if we get half of our cash invested.

“Today is a good day to fill the RUT July 550/560 bear call spread per the recommendation in Sunday’s advisory, and you might want to consider opening 50% or more of your allowed top bear call spreads (to complete the iron condor – since most of you already have opened your bottom bull put spreads) today since expiration week is nearing rapidly”.

I will send out this type of email typically when we started off the cycle by first opening our bottom bull put spreads that let’s say took 2.5 weeks to “collect” where we were using 20% of our cash on each day the recommended spreads were filling. But since it took 2.5 weeks to collect the bottom spreads we now only have a week left or so to open the top spreads, so we’ll have to accelerate our efforts to open the top spreads; that is as long as our analysis tells us that it’s safe to do so.

For me personally, I usually use 20% of my cash on each day the recommended spreads are filling. Periodically I will “back up the truck” and load up on a single spread in one or two days, but this is rare and I’ll only do this when our analysis tells us that there is a very high probability that this particular spread will expire OTM (out-of-the-money) and worthless. (which is 100% profitable for us)