Adjusting Option Income Trades

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A really effective options trading method that we have used numerous times now – and which include utilizing the new weekly options that are available – is to find ways to combine them with longer dated options within the same strategy. You can use them (the weekly options) with various dated options – either the regular monthly options – or even with much longer dated options, for example two month out options or even much longer dated LEAP options. You can also use this technique with various option strategies, for example credit spreads, debit spreads, ratio spread, calendar spreads, and all the other ‘go to’ monthly trading strategies.

While you can initially construct trades using the weeklies, what we have round to be very effective is to instead use them as hedges to the trading positions through out the duration of the trade.

Let’s use an example where we place a ‘normal’ monthly income trade – like an iron butterfly or credit spread. Let’s say that during the trade the underlying stock or ETF continues to move against our position until we reach a point where an adjustment can – or should – be made.

However, at the point in the trade where the adjustment can be made – we find ourselves on a Thursday just prior to a holiday weekend – where the stock market is going to be closed on the following Friday – and then of course we have several days (the weekend) where the market is going to be closed as it always is anyway.

Now, normally we could / would adjust this position using our normal ‘monthly’ options – which are the options with the same expiration date as the rest of the options in our position.

However, now – with the availability of the NEW weekly options – we COULD instead utilize the new weekly options that are available – providing us with a number of potential enhancements to the trade.

1. The theta decay in these weekly options will be much greater (faster) potentially allowing us to not only hedge our position as we need to over the long holiday weekend – but also realize more profit much more quickly since the weekly options are decaying at such a higher rate.

2. This type of hedge – or option adjustment – can be cheaper to put on – as the weekly options we are dealing with are cheaper to buy / trade then the longer dated options.

3. This could be considered more of a ‘band-aid’ type of a play – or in other words – it can act as more of a ‘temporary’ hedge and adjustment. For those of you who trade options I am sure you will agree that many times when a trading position reaches a point where an adjustment is necessary, you go ahead and make the adjustment – only to find that almost immediately the underlying turns back around creating a scenario where if the adjustment had never been made at all your position would have been just fine – if not better than where it now stands due to the adjustment. Well, using weekly options can significantly reduce the ‘pain’ in these types of situations.

Now some could argue that using weekly options in this way is not ideal – due to things like: you may not be able to get as much distance from where the stock or ETF is currently trading at – or at least not as far as you might with a longer dated option. But to that I could say: yes but the shorter weekly options will decay at a much more rapid speed and if you place the hedge properly it could be possible to quickly snatch up a nice fast ‘payday’ from the position in an extremely short period of time – and then get completely out of the position (the hedged ‘adjustment’ position) where if you were instead using a longer dated ‘monthly’ option it is very likely you could get ‘stuck’ with that trade for a long period of time.

Bottom line is that this is a simple method that makes a lot of sense – and one which we have used with great success in our option trading and will continue to use and explore. Again, this a strategy that can be used with pretty much ANY option income trading method including iron condors. Of course, you just need to make sure that the underlying you are trading have weekly options available to use.

To learn more about this way of trading (and other ways as well :) join our free option income trading newsletter

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New Variation On The Iron Condor Trade

New Iron Condor Trade

This month we mixed it up a bit with our ‘favorite’ monthly option income trade.

iron condor risk graph

We usually put these trades on using the criteria found in our main sites resource area – and we usually don’t move much from that recipe – which is a large part of the ‘plus’ of doing these trades. They are, in a large part, a ‘brainless’ option monthly income trade. Just rinse and repeat.

Iron Condor – Mixing It Up

This month however, we backed up a bit and revisited some older iron condor trades we used to do – similar to our current version – but a bit longer term and with some tweaks to risk management and where we set our profit target and exit points.

So far, this trade has worked out beautifully – much like how our regular condors do – however the tweaks we’ve made have added some padding to our profit potential – where we could actually make almost twice what we used to be able to make (if we want to work the trade longer) – and it has also provided the ability to make more adjustments and over a longer period of time if needed.

Options Trading Photographic Evidence

Since this months trade was different than normal, we’ve documented the entire trade from beginning to end – and we will be posting the videos of each step – from selection, to entering, to managing, choosing and setting up adjustments, to closing out.

Join our newsletter by clicking here and stay tuned.

This is an options trade that we will continue to trade and tweak – along with our other monthly iron butterfly trades (and others you can learn more about in our resource area – as well as the cboe.com :) – and we invite you to come along for the ride.

Join us by clicking here

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credit spreads

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Market Crash Options Trading Put Adjustment

For information on trading Iron Condors, including how to properly enter, exit, manage andADJUST these trades - CLICK HERE

Put Adjustment Used During The ‘Flash Crash’ Last Week When The DOW Fell 1000+ Points. To Learn More About These Adjustments Join Our Free Newsletter.

New post in our newsletter on an iron condor butterfly put adjustment that was made during the big ‘flash crash’ last thursday.

Screen shot above (as well as others in our free email trading newsletter) detail how the purchase of a cheap way out of the money put option as insurance made a significant difference as the 1000 point drop ‘crash’ in the market occurred.

What normally would have been a big loss for this type of trade instead turned the position positive by over 20%.

Sometimes these types of little talked about option trading adjustments prove useful for the shorter periods of time such as a few days to up to around two weeks of time as the longs being purchased are continually working against the position. However in a situation like Thursday where the vols went through the roof – you can see how well it helped this position.

To learn more about these types of adjustments sign up for our free iron condor email newsletter by clicking here

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Iron Condor – Vertical Spread X 2

There is a vertical spread on either side of the iron condor strategy. Or, put another way, iron condors are actually just several vertical spreads – or credit spread – put together into one option trade.

The ‘Latter’ Iron Condor Adjustment.

The ‘Latter’ Iron Condor Adustment. To Learn More About This Adjustment
along with other Iron Condor Adjustments CLICK HERE

There are two different types of vertical spreads. There is the debit spread which as it’s name implies takes a debit from the traders brokerage account when it is placed. Then there is the credit spread – which also as it’s name implies – gives the option spread trader a credit into their account when the trade is initiated.

The iron condor spread is comprised of two credit spreads – one on either side of the risk graph. There is the bull put credit spread positioned below where the current stock is trading at – then there is the bear call spread placed above the current stock or index or whatever other underlying is being used as the trading vehicle.

Here is a visualization of the trade – which as you will see could also be described as two separate credit spreads (vertical spread) :

Sample:

1 Long 600 RUT Put
1 Short 610 RUT Put

1 Short 690 RUT Call
1 Short 700 RUT Call

To learn more about this option income trading strategy including how to correctly manage and ADJUST them – sign up for this FREE option income trading newsletter by CLICKING HERE

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Option Income Trading System

Video detailing an options income trading course where one can learn more about how to successfully trade various option strategies – like the credit spread, ratio spreads, iron condors, calendar and double calendar trades, and more.

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Iron Condor

If most traders would be honest they would admit that they don’t have a clue where the stock market is headed. Maybe it’s going up – maybe it’s going down. Perhaps – and quite likely – it’s going nowhere at all and will basically just stay channeling along here in a range.

But the point is – I don’t really worry or care. And the reason I don’t care is not due to the fact I am not invested in the marketplace – I am. I put substantial dollars into the marketplace every single month.

The reason I don’t care which way the market is going is for the reason that I use an investing means – a trading system – that can generate some serious income – consistently – irregardless what the market does.

What is this technique?

It’s called the iron condor.

This option trading strategy is one that can take advantage of the fact that the underlying that is being used – or even the stock marketplace in total – will likely be contained within a price range during a specific length of time – in particular the next 30 days or so – and this will happen most of the time.

For illustration purposes – let’s say that a trader makes a decision to set an Iron Condor Spread on the index XYZ. He determines to place this trade thirty-five days at a distance from expiration for the reason that many traders think that the shorter range of days to expiration day will produce better odds of this strategy working out successfully.

So 35 days from expiration day, our trader puts on the trade, which is really just two independent credit spread trades (or vertical spread trades) distributed either around, at, or beyond the probability price mark which has been established as the outer area for which the underlying being used should remain contained within. For this example let’s say that one hundred forty dollar credit is brought into the account.

Now then, as long as the underlying remains inside this risk price range for the period of time the trade is on (which the probabilities are telling us they should) our non directional option trader should get to keep that 140.00 dollar intake – and then set himself up to do the exact same thing the next month – month after month after month.

And – depending on how these trades are originally set up, it is possible that they can be positioned with a likelihood as high as 80% to 90% of success – which means that most of the time these trades will work out just fine.

However, a crucial point that needs to be mentioned is that due to the way these trades are constructed – during the one or two problematic months that WILL occur during a year – it IS possible to lose a higher percentage on a bad trade then what is typically made during a normal ‘good’ month. Therefore – to trade this strategy successfully for the long term – it is VITAL that the trader putting these trades on know how to properly manage them and ADJUST.

To learn more about how these types of trades – including how to properly set them up, manage them, and ADJUST – CLICK HERE

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