Index Spread Options Trading

2013 - Great Annual Return

noreply@blogger.com (fitforlife) — Sat, 23 Nov 2013 19:30:00 +0000

We have had an excellent year trading RUT and IWM bull put spreads. All our trades (Jan-Nov) have expired worthless. Our final trades of the year should expire worthless on the 20th of December. Credit Spread trading is a wonderful way to generate a monthly income. The only times in past years we experienced a monthly loss was when our trades were automatically closed out early due to a market crash. These events will continue to occur in the future. This is why we must always use a contingent stop loss order. This type of order prevents a max loss from being realized.

One Trade per Month

noreply@blogger.com (fitforlife) — Sun, 07 Jul 2013 17:39:00 +0000

Since the market meltdown in 2008 we have only been trading one trade per month using the RUT and IWM indexes. I also have many subscribers who only invest in one trade per month. They do this because they feel all the indexes are related to the total market. By trading only one trade per month they keep their trading fees very low. We chose the RUT and IWM index because it’s not as volatile and does not include the DOW and SPX companies that are in the news all the time.

Also for this kind of investing you must not allocate all your trading capital to this strategy. This strategy is risky and only a short term strategy. I would only start investing a small amount of your capital. Once you build up your options trading account you can buy more contracts. You also want to paper trade in the beginning if you can. This is why I offer a 60 day free trial. I want subscribers to practice submitting the trades so they know how it all works.

2013 Performance

noreply@blogger.com (fitforlife) — Sat, 22 Jun 2013 12:38:00 +0000

Our spread trades continue to expire worthless monthly earning 3% to 8% each month. This trend should continue for the remainder of the year. I like this conservative trading strategy because the monthly income is consistent and allows me to build my capital trading account.

Capital Gains Taxes on Stock Option Index Trades

noreply@blogger.com (fitforlife) — Fri, 08 Feb 2013 02:42:00 +0000

Short-term gains from most types of stock and option investing are taxed at the same rate as ordinary income. Long-term gains on stock and option investments held for more than 12 months are considered long-term and taxed at 15% in most cases. If your tax bracket is below 25% then long term gains are taxed only 5%.
The good news is that the gains from the stock index options trades we are trading are taxed differently than gains on individual stock options and stocks. Gains on our stock index spread trades are considered ITC Section 1256 contracts. This means any gains made in these trades are taxed under a 60/40 rule. This rule states that gains are treated as 60% long-term capital gain income and 40% short-term capital gain income (ordinary income) regardless of how long the investment was held. So when we hold a index spread trade for 30 days (our average holding period), 60% of the profit made from that trade is treated as long-term capital gain income and taxed at 15% or 5%. Please do not take this information as tax advise. Do your own research with a tax advisor like H&R Block.

My Trading Strategy and Goals

noreply@blogger.com (fitforlife) — Sun, 06 Jan 2013 21:47:00 +0000

My 2013 Trading Strategy and Goals

1) Earn consistent cash profits month after month averaging a minimum 3% (2-8%) net monthly return. This is a minimum 36% annualized return. Earn these profits in bull and bear markets.

2) Enter Bull Put Credit spread trades on the RUT and IWM Indexes that have a very high probability of expiring worthless. This is a low risk options trading strategy.

3) Complete Iron Condor trades with Bear Call spread trades to double the return on the required margin capital that only covers one side of the Iron Condor. This is been difficult to do since Obama became president. The markets have been rising each month making Bear Call spread trades risky. Once the markets return to a neutral trading pattern we can start selling Bear Call spread trades.

Benefits of Index Spread Trading

noreply@blogger.com (fitforlife) — Sat, 05 Jan 2013 22:50:00 +0000

Benefits of Index Spread Trading

1) Credit spread trading is a simple, safe, and stress-free type of trade that does not require a great deal of monitoring. You just place the trade, collect the credit, and wait for the options premiums to decrease or expire worthless. Minimum time is required to process and track these credit spread trades.

2) You receive the proceeds of each credit spread trade immediately when your order is filled and you keep these proceeds no matter what happens.

3) The credit spread has two primary advantages as an income generating strategy. First, the position benefits from time decay. Since options decay in value with the passage of time, the value of the credit spread will in turn decay over time. By writing a credit spread, you are selling a decaying asset and receiving a credit or a premium up front. If the underlying market remains stable until expiration, the spread expires worthless, allowing you to keep the premium received. In a sense, you profit from the passage of time.

4) The credit spread also allows you to benefit from market movement. If one writes a bullish credit spread using puts, the value of the spread would rapidly decline as the market moves higher. The converse is true for bearish call spreads. With this flexibility you can inject an element of trend following into your trading program to increase your odds of success.

5) Gains on stock index spread trades are considered ITC Section 1256 contracts. This means any gains made in these trades are taxed under a 60/40 rule. This rule states that gains are treated as 60% long-term capital gain income and 40% short-term capital gain income (ordinary income) regardless of how long the investment was held. So when we hold a index spread trade for 30 days (our average holding period), 60% of the profit made from that trade is treated as long-term capital gain income and taxed at 15% or 5%.

6) Trading capital is only used to support margin requirements when trading credit spreads. Most option brokers allow you to invest your trading capital elsewhere to be used as collateral for spread trading. Trading capital can be invested in closed-end funds that pay dividends monthly and are diversified across munis, preferreds, REITs, corporate bonds, floating rate loans, convertible bonds and other fixed instruments. Between the dividend yield and capital appreciation you can earn 7%-10% annually. Most brokers allow you to margin 100% of cash amounts, 90-95% of t-bill amounts and 50% of the stock amounts like closed-end funds.

CBOE Virtual Trading - Free, Easy and Educational

noreply@blogger.com (fitforlife) — Sun, 19 Aug 2012 16:25:00 +0000

Click the link or the right side of this blog to access CBOE's virtual trading system. This system is free to use by anyone and no brokerage account is needed. Paper trading is the best way to learn how to execute, track and manage stock and option trades. For both new and experienced options traders this system allows you execute trades associated with all the option strategies. I am recommending to all my new subscribers that they use this system during their 60 free trial to paper trade all my credit spread trades. Also, the system CBOE is using is OptionsXpress's actual virtual trading system which is one of the best available on the internet for paper trading option strategies.

Capital Gains Taxes on Stock Option Index Trades

noreply@blogger.com (fitforlife) — Sun, 19 Aug 2012 16:23:00 +0000

Short-term gains from most types of stock and option investing are taxed at the same rate as ordinary income. Long-term gains on stock and option investments held for more than 12 months are considered long-term and taxed at 15% in most cases. If your tax bracket is below 25% then long term gains are taxed only 5%. The good news is that the gains from the stock index options trades we are trading are taxed differently than gains on individual stock options and stocks. Gains on our stock index spread trades are considered ITC Section 1256 contracts. This means any gains made in these trades are taxed under a 60/40 rule. This rule states that gains are treated as 60% long-term capital gain income and 40% short-term capital gain income (ordinary income) regardless of how long the investment was held. So when we hold a index spread trade for 30 days (our average holding period), 60% of the profit made from that trade is treated as long-term capital gain income and taxed at 15% or 5%. Please do not take this information as tax advise. Do your own research with a tax advisor like H&R Block.

New Bull Put Trades expiring in March Posted to Members Page

noreply@blogger.com (fitforlife) — Mon, 21 Feb 2011 13:24:00 +0000

The market rose again in February and our second Bull Put trades of 2011 expired worthless. The markets are rising now because 1st quarter earnings are exceeding expectations. These positive earnings are bringing investors back into the market causing stock prices to rise. We must continue to trade on the PUT side while this bull market continues.

New Bull Put Trades expiring in February Posted to Members Page

noreply@blogger.com (fitforlife) — Thu, 20 Jan 2011 19:36:00 +0000

The market rose again in January and our first Bull Put trades of 2011 expired worthless. There is no indication that the markets will not continue to rise in February so we are going to be conservative again and trade another Bull Put spread.

New Bull Put Trades Expiring in Jan 2011 posted to the Members Page

noreply@blogger.com (fitforlife) — Sun, 19 Dec 2010 16:16:00 +0000

The market is rising again so the call side is too risky. We would have had to close out Bear Call trades a lot these past 4 months if Iron Condor trades were completed. The Bull Put trades are providing a decent monthly return so I am going to start off 2011 is another conservative Bull Put Trade. In 2010 these Bull Put trades generated a 33% annual return. My goal is to repeat this performance in 2011.

New Bull Put Trades Expiring in December 2010 posted to the Members Page

noreply@blogger.com (fitforlife) — Sun, 21 Nov 2010 22:53:00 +0000

The market is still volatile dropping and rising on international news events. One new stock offering also allowed the markets to recover nicely last week. This time of the year is always fun to trade credit spread Put options because the markets rise in December. So I am continuing the trend with a new RUT Bull Put trade to finish the year.

New Bull Put Trades Expiring in November 2010 posted to the Members Page

noreply@blogger.com (fitforlife) — Sun, 17 Oct 2010 20:44:00 +0000

The market continues to rise month after month. Our RUT Bull Put trades have now expired worthless 5 months in a row. If we have completed Iron Condor trades our Bear Call trades would have been at risk and closed out early for a loss. By trading just one side we are still averaging a decent monthly return. When most CDs and fixed investments are earning just 3%-5% for a year we are earning 5% to 8% monthly. This translates to a very high annual return.

New BUll Put Trade Shoud Expire this Month

noreply@blogger.com (fitforlife) — Wed, 08 Sep 2010 11:21:00 +0000

9/7/2010 The markets continue to rise which makes our open trade less risky. With only 10 days left it is now very likely that our RUT and IWM RUT Bull Put trades will expire worthless.

New Trades Expiring in May

noreply@blogger.com (fitforlife) — Sun, 18 Apr 2010 14:22:00 +0000

Our RUT and IWM Bull Put trades expired last week earning 4.2%. The market rose nearly everyday after these trades was filled in March. If we would have completed Iron Condor trades the Bear Call sides would have been closed early for a loss. Iron Condor trading works when markets are not moving in one direction.

With the market continuing to rise due to better than expected 1st quarter earnings we are going to continue trading on the Bull Put side in May. If this market is headed to 12,000 the call side will continue to be risky. Our new trade will be filled if the markets dip on Monday or Tuesday.

MMarch RUT Iron Condor Trade Rolled

noreply@blogger.com (fitforlife) — Wed, 24 Mar 2010 02:18:00 +0000

After we had our roll trade filled the RUT index kept rising. If you were not able to get the roll trade processed and filled please send me an email. By rolling the Bear Call side of the Iron Condor trade we prevented the need to close the Bear Call trade for a loss. However we earned a zero return for the month. In April I am only trading the Bull Put side because the markets are continue to rise.

New RUT Iron Condor Trade Expiring in March

noreply@blogger.com (fitforlife) — Sun, 28 Feb 2010 16:59:00 +0000

We had our RUT Iron Condor trade filled last week. The RUT index moved up and down each trading day last week but ended the week at 628 only 3 points less for the entire week. This is a perfect market for trading Iron Condors and if it continues we will have a very nice 5% return this month.

February Trades Expired March 19th

noreply@blogger.com (fitforlife) — Sun, 21 Feb 2010 18:36:00 +0000

Fortunately our February IWM and RUT Bull Put trades expired worthless because both of these indexes had final closing prices on the 19th well above our short options and our exit strike prices. After dropping below our exit prices earlier in February the indexes recovered nicely. Many subscribers had their open trades closed automatically. Others who did not close their open trade were lucky this month once the IWM and RUT indexes started rising again. Subscription fees have been issued for this trading cycle.

Last Trades for 2009 Expired Wortless

noreply@blogger.com (fitforlife) — Mon, 21 Dec 2009 02:38:00 +0000

Our last trades for 2009 expired worthless last week earning a very respectable 7.5% and 8.7%

I am very pleased with our YTD returns for 2009 and want to repeat this performance in 2010. We had 2 losing months that were more than offset with some winning monthly returns in the 8% range. I am also excited that our returns for 2009 was achieved with only 14 trades for the entire year. This means our trading costs were very low and should not be impacting our annual return percentage very much.

New Trades Expiring in December

noreply@blogger.com (fitforlife) — Sun, 29 Nov 2009 16:14:00 +0000

We have one month remaining. I want to finished with a conservative RUT and IWM Iron Condor trade earning 7.5% and 8.7%. I suspect the markets to fluctuate up and down in December with good and bad economic reports and sales reports from the Retailers.

CBOE's Virtual Trading System

noreply@blogger.com (fitforlife) — Sun, 08 Nov 2009 15:40:00 +0000

Visit the link to access CBOE's virtual trading system. This system is free to use by anyone and no brokerage account is needed. Paper trading is the best way to learn how to execute, track and manage stock and option trades. For both new and experienced options traders this system allows you execute trades associated with all the option strategies. I am recommending to all my new subscribers that they use this system during their 60 free trial to paper trade all my credit spread trades.

Also, the system CBOE is using is OptionsXpress's actual virtual trading system which is one of the best available on the internet for paper trading option strategies.

http://www.cboe.com/tradtool/virtualtrade.aspx

New Iron Condor Trades Expiring in November

noreply@blogger.com (fitforlife) — Sun, 08 Nov 2009 15:36:00 +0000

We now fave filled RUT and IWM Iron Condor trades earning 8% and 17% for a 30 day period. These trades are very safe with 12 days to expiration. The markets were dropping early in the week but recovered nicely and finished up for the week. There is not a lot of financial news over the next 2 weeks so the markets should be less volatile which is perfect for our trading strategy.

October Bull Put Trades

noreply@blogger.com (fitforlife) — Mon, 12 Oct 2009 18:25:00 +0000

Our open Bull Put trade will safely expire worthless this week on Friday the 16th. I really like earning 6% and 4% for a 30 day period trading credit spreads. This is easy money as long as we do not have more market crashes like we experienced in 2008. I will be emailing and posting to the members page a new trade expiring in November this weekend.

September Bull Put Trades Expired Worthless

noreply@blogger.com (fitforlife) — Tue, 22 Sep 2009 15:05:00 +0000

All our Index and ETF September Bull Put trades expired worthless last week earning 8.1% and 5%. The markets rose every week after these trades were filled. I expect the markets to continue rising so we will continue trading Bull Put trades.

August Trades Expired Worthless

noreply@blogger.com (fitforlife) — Tue, 22 Sep 2009 15:01:00 +0000

Fortunately the RUT Index final set was 576.88 so those subscribers who did not exit the call side of our Iron Condor trade were lucky and all their options expired worthless. But since the index did exceed our exit price of 570 earlier in the month many subscription exited the call side for a loss. By exiting early we eliminated any risk of being ITM (in the money) at expiration. Subscribers who also traded the 480/490 Bull Put were rewarded with an additional 5% return. Going forward when the market moves in one direction I will move up a spread trade to earn additional credits like we did this month with our Bull Put trades.