Tag Archives: trading

Forex Trading

Calendar Spread – A Must Have Strategy For Every Option Trader

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The Calendar Spread is an option cash-flow technique that is loved by both pro option traders as well as the retail crowd to create a consistent monthly income.

The calendar spread performs best and kicks off income due to the nature of the trade. This is a theta trade – an option strategy that takes advantage of options decaying value. As the days tick by heading towards expiration day – the time premium in the options lose their value. This in turn is what creates the profit for the calendar spread trader.

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.

Here is a hypothetical example of a calendar spread trade: Sell 5 Nov 60 call. Buy 5 Dec 60 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.

Ideally the the calendar technique is used with stocks or options that are trading in a range without a lot of movement. However, they can also be profitably traded in trending markets as long as the strikes who were bought and sold are near where the underlying ends up trading at expiration.

When you talk with some option traders, some will tell you they prefer the iron condor and 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’.

To watch more about the calendar spread technique, click over to this training website for gobs of free trading videos, illustrations, and reports on how to properly enter, close, handle and adjust the calendar spread strategy to produce a steady monthly source of income.

Forex Trading

Iron Condor – Good Lordy, Watch Out!

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The iron condor spread has two faces – and thankfully for us option traders, neither face belongs to Babs. But then again, it’s almost just as bad (almost)

See, usually when new option traders first catch wind of the iron condor trade, they completely flip out – believing it’s the greatest thing since sliced bread. I know I did. Once I wrapped my head around the method I simply couldn’t believe such a trade existed and that no one had ever told me about this thing before. I was convinced this was a holy grail type trade that left very little possibility for losses. Heck, it was just like they all said – it was like being the casino. Just spend a few minutes every month slapping one of these things on and the let it sail to victory – month after month after month…

Of course, new option traders go gaga over this strategy – and who could blame them. It seems to be a trade that’s almost too good to be real.

The problem – is that it is too good to be true.

But it doesn’t have to be that way.

See here’s the deal: The iron condor actually IS a pretty incredible trade. It CAN take very little time to manage. And it CAN produce some very consistent and truly outstanding and impressive returns.

It’s that most new option traders don’t take the time to really learn and understand this strategy. If they did, they would become aware that the trade has two faces – or two sides if you will – and one of those sides can be quite dangerous – that if is not managed and handled correctly can deliver some pretty ugly losses to a trading account.

It all boils down to the risk to reward ratio of these trades. They have a high probability of winning many small trades – but just ONE loss can completely DESTROY a trading account. And if the one trading these birds don’t realize and fully understand this – and more importantly how to properly manage these trades and how to make effective iron condor adjustments – before long they will get creamed and blasted out of the market possibly with a huge, unrecoverable loss.

The key to winning with this strategy is to understand that the the iron condor does have a dark side – but as long as a trader has the proper knowledge to manage those tantrums and fits that are occasionally thrown by the iron condor – and know how to make effective iron condor adjustments, this trade really can turn out to be all that it’s cracked up to be.

To be taught more about the iron condor strategy, click over to this training site for stacks of free education videos, samples, and reports on how to aptly start, remove, negotiate and adjust the iron condor strategy to yield a ongoing monthly source of income.

Forex Trading

Does The Iron Condor Strategy Actually ‘Do It’?

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The iron condor strategy. This strategy profits when the stock or index being used does NOT make significant moves. Of course options traders try to utilize strategies that can take advantage of movements in the market. A lot of times there is not big movements in the market or the underlying being used so the options being traded expire worthless. Iron condor traders love this type of market environment as it is the ideal situation to pull profits from the markets.

You can imagine the iron condor strategy trade as a purchased strangle and a sold strangle. A “strangle” is where a trader buys an an out-of-the-money call as well as an out-of-the-money put option. Strangles’ premiums are less than those of straddles due to the fact that the contracts are out of the money. Another way you can look at the iron condor strategy is to think of it as two credit spreads placed at the same time – a put credit spread and a call credit spread. The long calls or puts above and below where the short options are placed at are the wings.

For example, let’s take a look and we find that the SPX is trading at around thirteen hundred and so we buy the jan call option at 1375 bringing in right around $245, and at the exact same time we buy the january put option for $4.38. As long as you have chosen a broker that is options friendly – you just need to make sure that you have the funds available to margin the difference between to the strikes. In this pretend scenario, in order to do this spread one would need somewhere around $1320.00.

The calculation would be:

Thirteen hundred seventy at $2.50

1355 @ 4.50

What this shows is that that the credit you bring in is about two dollars.

$15 dollars minus $2 dollars = Thirteen – then times this by one spread (100 contracts) equals about $1,320.00 dollars.

If the underlying finishes the trading cycle below the sold options, the trader gets to keep the entire credit which can translate to a great return in a short period of time.

This example described is one of the wings of the iron condor spread trade – and it is the call spread side of the trade. To construct a fully placed iron condor, one would need to add a bull put spread – which is a put credit spread – below where the underlying is trading at.

Iron condors are great trades and be traded consistently with very profitable results – and some traders use this strategy as their only trading strategy to pull income from the markets. Of course, however, there are potential risks with this strategy – just like any trading strategy.

Knowing which stock or index to use – as well as knowing how and when to properly place, exit, manage and adjust the iron condor is essential. Managing and adjusting these trades are a major part of experiencing success with this type of trading. Not having a solid grasp on how this trade works – or not having a plan in place for what you will do if one of these trades ever moves against you (which it will eventually do) could wind up costing significant losses. Ask me how I know!

To discover more about the iron condor option strategy, visit this training website for heaps of free trading videos, illustrations, and reports on how to fittingly put on, close, supervise and adjust the iron condor strategy to produce a ongoing monthly earnings.

Stock Trading

Making Profits with Penny Stock Picks

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Penny stock picks are a fantastic opportunity and are ideal for some people. There are many people who call it a big gamble, but if you have your head on straight then you could have a shot. A share which is priced less than 5 US dollars and belongs to a company which has a market cap less than 200 million is a penny stock pick. Penny stocks prove to be a good choice for advanced and experienced investors since there are several risks involved. One should follow many guidelines in order to minimize their risk when one is trading in penny stocks.

Since this investment is risky, there is a chance to make a lot of money if you know the right advice, which I’ll share with you now. When you begin with penny stocks, you must first really research the company you want to buy very well. This is due to the factthat there are not many historical records of any firm financial performance. Becoming an expert in the basic financial statements is a must to become an expert at penny stocks. In the event of one starting their investing journey, one should initiate with large and mid cap stocks.

Getting knowledge of certain factors about penny stocks is a wise idea. While trading in penny stocks can prove to be a profitable venture, it can end up poorly if you don’t know your stuff. Thus understanding the mechanics behind market capitalization, money flow, share holdings, and other such features is needed.

A very important tip when one is trying to find the lucrative penny stock picks is that, one should be capable to recognize the penny stocks that should be avoided and rejected. For instance some such stocks include ones which are not traded on any of the significant US stock exchanges, companies which might be having an annual revenue which is less than $10 million among others are unwise alternatives.

A company which depicts a healthy cash flow and does not have severe debt proves to have good penny stocks. Moreover a company which has a very low multiple of their cash flow would be a good penny stock pick. Lastly, one should not have a very substantial allocation of these penny stocks in their portfolio to minimize the risk factor. The basic idea is to have a basic understanding of the business and a good administration of profit and loss.

Don’t miss the great opportunity to have a good investments with the help of penny stock picks and penny stocks to buy.

Forex Trading

Vertical Spread – How To Generate Steady Monthly Profits From The Stock Market

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The vertical spread is one of the more popular strategies among option traders. Along with being one of the easier option trading strategies to understand, another reason newer option traders in particular gravitate to this strategy is that it can require very little time to manage it while it is on. Another way to put it, is that credit spread sellers don’t need to be glued to their computer screens all day watching every tick of the market in order to generate consistent income with this trade.

A core trading strategy that is found within many of the other option trading strategies like the butterfly trade which is constructed from a vertical spread and a debit spread, and also the iron condor which is built from two separate credit spreads placed on either side from where the stock or index being used is trading at.

These trades are popular due to their high probability of winning. When placed and traded properly, it is possible for vertical spreads to provide the trader with consistent income month after month – without the trader having to be right about market direction. Basically, those who trade this strategy just need to be correct about one thing which is where the stock or index being traded will not go.

Let’s create an imaginary trading scenario to illustrate. Imagine that a trader believes that a particular stock will be heading down in the short term. Because he is bearish on this stock, he sells a bearish credit spread called a bear call spread which benefits from bearish move.

This vertical spread 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.

To watch more about the vertical spread option strategy, click over to this training website for slews of free training videos, samples, and reports on how to fittingly enter, remove, oversee and adjust the vertical spread strategy to produce a consistent monthly profits.