Calendar Spread – The Option Traders Favorite

The Calendar Spread is an option income strategy used by professional traders to generate steady monthly income. It can also be used by retail traders who have educated themselves on how to properly use this strategy to not only generate cashflow – but to also benefit their overall portfolio.

The calendar spread is a theta trade – an option trade that benefits and generates profit – from the fact that options are a decaying asset. As time goes by, options decay – and the value that was initially in the option that was sold evaporates – leaving cash in the calendar spread traders pocket.

These trades can be built from call options as well as put options. In order to create a calendar spread trade, the option trader sells a near month strike on an underlying vehicle – and then buys a later month at the identical strike. Profit can be made from this trade because what happens over time is that the time premium in the closer month option decays at a much faster speed than the later month option. What is left over at expiration day is the difference of the two – which is what gives the trader profit.

Following is a made up example of a calendar spread place on SPY: Buy 1 Aug 105 call. Sell 1 Sept 105 call.

Now while in the example above the calendar position was created using joined together months, calendar spreads can also be created with a gap between the months.

For example, rather than constructing a calendar spread using Aug and Sept month options, it could be created using a Aug month option and an Oct month option – or a Aug month option an a Nov month option.

Usually this strategy is employed when the person trading it has a neutral outlook on the the vehicle being traded. These trades cal also be used in a more speculative way however – where the trader would place the calendar spread at the strike price he or she believes the underlying vehicle will be trading at on expiration day.

When you talk with some option traders, some will tell you they prefer the calendar spread strategy because they believe they are easier to manage than some of the other strategies like the iron condor, credit spread, or the butterfly spread. Regardless, the calendar spread is a great strategy to learn and have ready to use in your ‘option trading toolbox’.

Want to find out more about the Calendar Spread, then visit David Harms’s site on how to choose the best Credit Spread for your option income trading needs.

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Iron Condor – How To Get Your Life Back

My plan for trading the iron condor when I first got started trading this strategy was to put them and keep them on all the way until expiration.

Then – if everything went well and the trade stayed beneath my profit tent – I’d just them expire worthless and keep all that sold premium in my account.

Back then I believed this was the best way to play the trade, because not only would I not have to pay my broker to take the trades off – I would also be able to keep the entire amount.

But that was a long time ago – and since then – things have changed.

Now, after experiencing too many nights where I couldn’t sleep, a number of very ‘close calls’, more than my fair share of stinging ulcers and even a near hernia, I’ve made a change to the way I trade iron condors.

Here’s what I do now: Right after I put on my iron condor, I tell my options broker (through the use of automatic contingent orders) to buy back both the put credit spread and the call credit as soon as I make the bulk of available profit in each spread.

Here’s an example: Let’s say I sold an iron condor on the index XYZ for a total of one dollar – or around fifty cents each side.

When the put credit spread is worth only .10 – buy it back. And for the call credit spread the same thing goes.

Now a lot of iron condor traders might say this would be a dumb thing to do.

But personally – I completely disagree.

Okay, maybe it’s true that doing this will cause me to make less profit than if I were to just hold the trade through expiration and let the options expire worthless.

But as you will see – that’s not necessarily correct.

Let’s take a second look at the amount of money we are talking about here. Ten cents per side – or twenty cents total. Okay – sure – it’s nothing to sneeze at – but when you step back, get a broader look, and start to take a few other things into consideration – it can actually start to look quite miniscule.

What’s more important (at least for me) – is that by closing my iron condor trade early, I have LOCKED IN FOREVER the majority of the gains on that side of the trade. And no matter what happens going forward – those gains that I’ve just banked CAN’T be taken away from me.

AND – I’ve reduced my risk.

I have also given myself the opportunity to generate ADDED gains from my overall position – without adding any extra risk.

Let me explain:

I’ve found that many times during a trade, the premiums in options can drain quite rapidly. In fact, its possible for a spread to drain the majority of its premium in a matter of days.

Say I put an Iron Condor on XYZ – 40 days from expiration – for a credit of $1.00 – or.50 each side.

Immediately after placing the trade, XYZ heads downward over a number of days.

On the fifth day (just 4 days after I put the trade on), I look at my position and see that I can now buy back the vertical spread on the call side of my iron condor for just .10.

Now, if I don’t do anything and just let the trade continue to play – what I am actually doing is risking that upper side spread margin – for the next thirty six days until expiration – for just ten little dollars of additional potential profit. And that doesn’t really seem that worth it to me.

But – if I instead just spend the ten measly bucks to pull off that upper credit spread – I will LOCK IN the majority of the profit that was available in that spread – and earn a great return on investment in just four days.

Another thing to consider, is if the stock or index we are using abruptly changes direction and heads back up (which of course DOES happen all the time) we really have nothing to be alarmed about since we’ve removed those upper options and eliminated all upside risk.

In fact, if XYZ bounces back up high enough, I could RESELL the same CALL spread that I originally sold – for the same original credit – or maybe even more – increasing my total ROI for the same amount of RISK that I began with.

But let’s just say we didn’t ‘re sell’ any options. Let’s just assume that we closed the trade entirely when our contingent orders were hit. In this case what we’ve done is eliminated risk (good thing) – freed up capital (good thing) – enlarged our return on investment over the number of days we have been in the trade (good thing) – and gotten completely out of the market a while lot sooner than if we had to sit around and wait until expiration day rolls around (and in my opinion this is a good thing too!).

Trading this way lets me take a ‘vacation’ away from the markets until it’s time to put on another trade. It allows me to peel myself away from my trading monitor and get out and enjoy all the other things in my life I’m interested in – without always thinking about how my iron condor is performing – or fretting about what I’ll do if there is a sudden stock market crash.

And being able to temporarily take some time to ‘get away’ from the game – from the iron condor and ‘option trading’ and ‘vega’ and ‘adjustments’ and ‘theta decay’ – to be able to go out and do other things during market hours without always feeling the need to check quotes on my phone to see what the market is doing – and just having the opportunity to fall into bed at night and sleep like a baby without a care or worry about whether or not there will be a huge gap tomorrow morning at the open…

That’s priceless.

Or at the very least they are WITHOUT A DOUBT worth every penny of the ridiculously small .20 cents or so of potential profit left on the table in exchange for getting out of my monthly iron condor trade early – at what is STILL an incredible monthly return.

Ted Nino is an option selling fanatic – especially passionate about trading the Iron Condor , the Credit Spread, Double Calendars, Gamma Scalping, and the Butterfly Spread. Go to his Iron Condor Website to find out more about his ‘Simple Paint By The Numbers Blueprint’ for playing the Iron Condor for reliable monthly returns.

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Vertical Spread – How To Generate Reliable Monthly Income From The Stock Market

A favorite directionless investment method with option sellers is called the credit spread or the vertical spread. One reason it’s so well-liked is because it’s one of the easiest option strategies to understand. Another explanation for it’s attractiveness is that once the trade is placed there can be very little attention needed to supervise it – allowing the credit spread trader to go out and spend their time doing other things rather than sitting in a dark room staring at a trading screen all day long.

The vertical spread is a fundamental element to numerous other option spread strategies including the iron condor, the butterfly spread, the double diagonal and others. It if fairly common for beginning option traders to gravitate to this strategy soon after discovering options and once they have gotten their feet wet with the purchase of straight calls and puts, then covered calls, and debit spreads.

Traders like to sell these vertical spreads because when invested correctly the trades have a good probability of success and can allow the investor to still profit and ‘win’ without having to be exactly right with priced direction and movement. When sold correctly, credit spreads can bring the trader a good monthly return while the individual actually placing the trade could be incorrect with their belief and ‘prediction’ of where the stock market would be heading next.

For example let’s say our trader is bearish on the stock XYZ. XYZ is trading at a recent high and our trader believes that the stock will not move any higher over the next 30 days. So, he sells a bear call spread – a call option vertical spread that benefits in a neutral to bearish scenario.

This trade can win in 3 of 4 possible stock movement scenarios by using this option spread. If the stock drops like our trader thinks it will, the spread trade wins. If the stock doesn’t move up or down – just stays pretty much in the same area as it currently, the spread wins. Even if the stock moves upwards – defying what our trader believes will happen – this spread trade could still be profitable – as long as it doesn’t move above a certain level. So, in each of these scenarios, this trade would be profitable. The only way they would not be profitable is if the stock moves up past the level that has been sold – in which case the trader would then need to either remove the trade for a possible loss – or adjust the trade in an attempt to make it profitable once more.

Learn more about the vertical spread. Stop by Ted Nino’s site where you can find out all about trading the iron condor and what it can do for you.

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Your Stock Picking Guide

What is your stock picking method? Is it successful? These are questions that you need to be 100% sure of if you are going to make excellent returns. People that do well have and method and they stick to it. People generally don’t do well and float from method to method.

A stock picking method that many amateur investors have is relying on recommendations made in the Sunday paper. I think the biggest problem in that is that it isn’t their goal to make you money. It is their job to sell newspapers and this gives them an opportunity to ’sensationalise’ some of the news which may bias they views.

A stock trading newsletter used to be all the rage. People would wait for them to get posted out each month then trawl through the recommendations. I really like them. I love reading why someone else thinks a stock will do well. If I can see their analysis than that allows me to learn from that. They often give updates on previous recommendations, like an ongoing commentary, unlike many financial papers.

A further way of stock picking would be to use technical analysis. Up to now we have only really looked at areas that really focus fundamental analysis for their recommendations. Rather than look at the companies books you look at its charts and make a judgement on where you think the price will go.

If you can learn technical analysis then this will give you an extra dimension to your trading. I would make sure that you either read some books about it or go to a technical analysis course before you start.

You can make money from investing in a lot of different ways but one of the best ways of doing it is by having your stock picking up to scratch. Spend a little time on improving your system and the markets should reward you for it in the long run.

If you really want to improve your stock picking you need to understand your existing system. After you understand this go to Tom’s site where you will learn some new stock picking methods to choose from. By putting in some effort now you will benefit in the long term.

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Guide On Applying A PSBank Savings Account

PSBank is a subsidiary bank of Metrobank and one of the largest banks in the Philippines. It is a member of BancNet, a Philippine-based bank network that links the ATM networks of the forty local banks. It also has basic banking services like online, ATM, phone and mobile banking for its customers.

If you are considering to apply for a new bank account at PSBank, you should list down all requirements and prepare it before going to the bank. Make sure you bring all requirements so that you will have a fast processing of your application.

When applying for a new PSBank account, you can adhere to the following guidelines to experience a smooth transaction or processing of your new account.

1. Before going to the bank, select first which branch is near your house or place of work for you to go there easily whenever there is a problem for your account.

2. Ready complete requirements when opening PSBank account to have hassle-free processing. You should bring the requirements like statement of billing, two 1×1 photo ID and two valid ID.

3. Bring money for initial deposit. For ATM and passbook savings account, initial deposit is P2,000 and P5,000 respectively. For peso checking account, minimum initial deposit is P5,000.

4. Upon arriving in the bank, immediately proceed to the new account desk. Tell the bank officer you want to open a bank account and then he/she will give you application forms; fill it up with the required data completely.

5. Give the initial deposit together with the application forms and requirements to the bank officer for checking and processing.

6. Get your ATM card or passbook to the branch where you open an account after 5 banking days or just ask when it will be available. If you cannot go back again at the bank, you can authorize other persons to obtain your ATM or passbook by giving them your ID and authorization letter.

It is easy to open a PSBank account if you have all the requirements so don’t forget to bring it all. PSBank is one good option to apply for a new bank account. It has many branches and a stable bank.

Gily Tenorio is a personal finance blogger who loves writing on financial management, saving, investing, stocks, mutual funds and make money online. To get more details on how to open a bank account at Bank of Philippine Islands, you can go Free Financial Management blog for more free articles on saving, investing and make money online.

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