Imagine selling a put option with the strike price out-of-the-money (OTM) and then buying another put option just farther (OTM) to protect the one you sold. Because you bought a put option at a higher strike price, it is not as expensive as the one you sold and you immediately get a credit. This particular option strategy allows you to get your profit upfront and is well designed to utilize with weekly options.

As the market trends the way you want it to go, meaning the market is either range bound or rising, the put options expire worthless and you keep the credit as your profit on the trade. If the stock trend is down, then you will break even point is the lower strike price plus the credit you received. This option strategy offers incredible income potential on weekly options if done correctly. But one’s maximum loss is the difference between the strike prices minus the credit received.

The bull put spread is an option spread that is classified as a “Credit Spread” because your profit is given up front. What you received up front is your maximum profit. Since a weekly option here is best executed on a short term basis, the weekly options offer an opportunity to create a weekly income. Not only is this a good opportunity for income, but time decay can and should work for you here. With the short term period of this weekly option play we want the stock to either barely move or move upward. If this happens, our weekly option will continue to erode day by day and work in your favor.

DaveP
San Francisco, CA

If you think about it, risk management is all about losing money. It is not about making money, but focuses upon how we lose money. When is the last time you thought about losing money while you are trading you’re weekly options– or even monthly options? I should clarify a little more what I mean. Other than fearing a loss, when is the last time you thought about losing money?

Losing money is as much a part of trading options as making money but we do not spend enough time thinking about it. We put all our energies and attention on making money and neglect the art of losing money. If we are going to lose money then doesn’t it make sense that proper risk management would also spend time learning how to do it correctly?

This is what risk management is all about. It does not consist of a quick decision of when you are going to get out of a trade at the last moment. Risk management consists of learning how to lose money properly when trading options strategies. If you lose more than you want to then your risk management is either not being followed or needs to be re-evaluated. If you say you don’t want to lose anything, you are being unrealistic.

It is important as a trader to spend time learning how to lose money just as it is important to practice your trades so you are making money. This is what risk management is all about. Since losing money is such a large part of our investing experience, it is something that we should also spend time learning to do properly. This is what risk management is all about.

There are many traders and investors who claim to be accurate in their trades and have a good system in place. This may be true and they may be very accurate and win quite often when the market is favorable to his/her trading system. But what happens when the market changes and the options, or weekly options they are trading no longer come out winners? Often this is when the large losses take place.

Risk Management and Option Trading

Sometimes an investor will get out of an options trade, but not until after the loss is too great. What sense is there in making numerous good option trades, only to lose a large portion of the profit on one bad trade. This is not proper risk management.

For those who need to have it redefined- risk management means the identification and assessment of risks in a trade followed by a coordinated and monitored plan to control the impact of the unfortunate event, if it were to occur. In layman terms here are three simple points to good risk management–

• know how much risk you are willing to take
• monitor your trade
• got out when it looks like you are going to reach your limit

A good trader will define the risk before the trade occurs, not during it. The failure in a trade usually occurs during the monitoring phase. Often a trader will watch the option trade and as it gets closer to the risk point, they will second guess the market and give it “a little longer” hoping it will turn around. As it does not turn around the loss gets deeper and deeper. Exiting from the trade ends up being very painful.

Monitoring your trade is very important but often neglected to the level it should be at. Exiting is a pin point decision foiled by the hesitation of hope in a turn around. I cannot stress the importance of exiting when we are purpose to ext without question. As you look through various websites for a companies trading record, if you see losses, and it doe snot matter if it is 10% or 30%, you may conclude one of two things.

Either those option traders accept the loss level of (10% to 30%) in a trade or they do not have good risk management practice in place.

Similar to a covered call (if one could trade these that way) the calendar put is a nice option strategy. As with the calendar call, a long term put option is being bought here instead of the stock. The calendar put has a low initial investment which is attractive and using weekly options, this strategy can increase the maximum yield trough the life of the trade greatly!

The calendar put option Strategy involves buying one put option (OTM) and further out on the calendar.  Each put option are usually bought at the same strike price. Then, using weekly 0ptions you sell the same strike price option on a weekly basis. This creates a nice income stream and if done correctly can also yield a nice profit.

You make money as the stock remains below strike price of the weekly option you sold, the Put will expire worthless and you keep the premiums. You can then sell another put option the following week.

With this strategy, what happens if  your option trade does not go your way you want it to because the stock rose above the strike price? The trade needs to be unraveled. It is not hard to do. If the weekly option that was originally sold is exercised, all you have to do is sell the long put option originally bought (hopefully at a profit), use the proceeds to buy the stock and turn right around and deliver it at strike price. You should profit from the premium of the weekly option sold, and the uplift in value of the longer term option bought.

You create a very nice weekly income against a longer term position while the market trend is neutral to bearish. Your risk is limited to the cost of your original investment in the long call (minus the profits from sales of shorter term weekly options). Your profit will be the premium from the weekly options sold (minus the debit of your original investment).

Time decay is your friend here and can work to one’s advantage in this type of trade, but timing is important. Obviously time decay will end the life of a weekly option but the timely unraveling of the option strategy is important also. One’s original investment in a long term option will also be susceptible to time decay. So if you are looking for maximum profits, the original option needs to be sold in a timely manor also to maximize on its value.

When you start to put this trade together, if the stock is more neutral, buying closer to (at the money- ATM) long term is a good strategy. If the stock is bearish, a little further (ATM) would be preferable.

Example:

•      The SPY is trading at 118.22.
•      Let’s say you buy a September Quarterly that expires September 30^th with a strike price of 115, the cost is $3.05.
•      So you start out with a debit of $3.05 in your trade.
•      This gives you four trading weeks to sell the 115 Weekly Put Option
•      Presently it is trading at $1.21.

You cannot completely project the value of each weekly option, but if the SPY remained range-bound for that period, you would sell three weekly options for $1.21, ($1.21 x 3)= $3.63

Then, sell the original quarterly option that may have decreased in value now to about $1.20.

Your income ($3.63 + $1.20)= $4.83

Subtract this from your debit and you have your profit potential. ($4.83 – $3.05)= $1.78 profit potential for the trade.

A calendar put is a great way for you to generate a monthly income profiting from range-bound or slightly bearish leaning stocks.

The ability to use our “emotional intelligence” is just as important — if not more than academic. Emotional intelligence includes the emotions and the ability to ask questions. We do not want to spend a whole lot of time defining this type of intelligence but really focus upon the ability to ask questions. Too often we are conditioned in society to look book smart and thus gravitate away from admitting we do not know something. We appear to lack curiosity. It is this curiosity that we need to succeed with weekly options trading.

If ask questions, we are worried about appearing ignorant. It is the exact opposite. When we don’t ask questions, that is when we get into trouble. Sometimes it is not our questions we are afraid of, it is the answers that we get, sometimes they reveal to us how wrong our thinking might be. As a good trader, we must be willing to admit that what we are doing is wrong…or what we are thinking is wrong. Are you willing to accept the truth that your options strategy might not be working correctly? Will you accept the fact that you may not know all about weekly options trading like you need to?

We have been conditioned by society filling us with information and then we are expected to feed that information back out. We often wait for others to tell us what to do. We have almost have lost the initiative to make our own decisions. Where is our curiosity? We cannot be worried about what others think about us, we cannot trade to please people. We need passion and curiosity to learn.

Simply reading about options trading strategies and rules is not going to give you the hunger to trade. You have to have a deep, deep desire to win when you trade weekly options and make money. If we are going to commit to making money trading weekly options, we must be willing to arouse our curiosity and ask questions to learn, as often as possible. If we will passionately commit to winning trading weekly options, we will ask questions, and we will learn how to trade like we need to.

John Mylant is CEO of OptionWeekly.org. He is in high demand as an Investment Trainer. Coaching traders all over the world how to grow their portfolio, he uses Option Strategies that are safe, conservative, and allows for quick steady growth with limited liability. Interested in successfully growing your portfolio using options – safely, efficiently, and quickly? Follow him to start using weekly options to help you grow your portfolio.

Hi John,

I’ve been looking for a service like yours for many years and now I’ve found it.
I started auto trading with your weekly options service on 10-19-11 and have made (8) trades so far. The profit is building weekly. So far I have made a 9.76 % return in about 2 months. I started with $16,602.62. My account is now worth $18225.25

 I’m a small trader who has been trading since the 1980’s and have lost more money than I care to reveal. Over the years I traded futures, options, stocks and even currencies without any success. I lost so much money that I almost gave up. Curiosity got me. “Why is it that so many people make money in the markets and I can’t?” I kept trading, analyzing and blaming the market or broker for my loss.

Through extensive study I found that it wasn’t the market or brokers fault that I lost money but simply my own. I was not considering money management or even thinking about taking smaller profits with less risk. “Why bite off more than I can chew?”

I’m now in a plan that takes small amounts of money out of the market that compounds weekly to take on more positions. If things keep working as I think they will and without additional funding, at some point in time after 30 months or so, I will be able to withdraw 13 to 14 thousand dollars every quarter and still build the retirement of my dreams.

Your’ weekly options service fits my plan to a T. I will be able to build my IRA account and take an income from it in the near future.
My plan is to consistently trade with low risk, weekly options, taking small profits, compounding and cumulating those profits into my retirement account.

I highly recommend to anyone to subscribe to your service. Open up an option account and let you send auto trades to their brokerage account. I think your weekly options service is a service that can’t be beaten. All that I have done is open up an IRA option account and let you do the rest.

Thanks so much!
Sincerely,
Keldon Ellis, TX

Updated Since

Is it true that Greece, in order to borrow money, would borrow it at 108%? That is what Greece is willing to pay out in a year to borrow money today? No one could sustain a promise this ridiculous. This is unrealistic and when the powers that be start setting bond prices at rates like this, when we all know that no payout will ever take place like this…we encourage panic in the markets. It is all unreal. If we are not careful, we can see 2008 panic all over again. We are mirroring the same path as we did back then, but our financial stocks are performing at an even worse rate than they did back then.

Speculation on Greece defaulting on the agreement they had with the European Union in July is what has made the markets unsteady. A lot of this mess is the powers that be attempting to protect their own interests in their own financial institutions. Greece is being bailed out at a debt rate of 108%. Does this really look credible? “European Banks should not raise more capital!” This is the cry of Josef Ackerman chief executive of the Deutchse Bank. This, supposedly, would be too risky to undermine the credibility of the bailout packages. Well well—at 108%, do we call this credible?

We are in a time when we have a whole lot of sovereign countries borrowing more than they can pay back and promising citizens a whole bunch more than they can deliver. So this is the reality of where we are presently and we as weekly option investors must learn to work with what the world gives us weekly.

John Mylant is CEO of EmpoweredInvestingNow.com. He is in high demand as an Investment Trainer. Coaching traders all over the world how to grow their portfolio, he uses Option Strategies that are safe, conservative, and allows for quick steady growth with limited liability. Interested in successfully growing your portfolio using options—safely, efficiently, and quickly? Click here to learn more.

Trading weekly options is becoming more and more popular among personal traders and investors. Using certain types of option trading strategies can help option traders do quite well with weekly options. But there are certain elements of the weekly option that are important to keep in mind if one intends to utilize the best strategy they can find. One of the greatest secrets a trader can learn about weekly options is the power of Time Decay.

If I think of when I grew up in Northeastern Ohio, I remember walking through the woods in the Park system. The ground was always covered with leaves and come fall, when all the leaves fell, spring would bring 3 to 6 inches of decaying leaves that would bring nutrition to the family vegetable garden. Now, decay of these leaves is caused by bacteria and fungi that “decompose” the leaves from what they were. Literally, the leaves decompose, change form, they no longer stay what they were, but their elements break down into carbon-related elements.

After the same manner, weekly options are like the leaves I used to walk through. Whereas bacteria and fungi were the catalysts to breaking down leaves on the forest floor, time is the catalyst that causes the decomposition of the value in the weekly option.

The options are born on Thursday with a certain value and they live until the following Friday where they expire—valueless. They live for 7 days. Each day the options start to decay, we call this (time decay). As they get closer and closer to their expiration they also grow more worthless. Unlike the monthly options, the value of these decay at a much faster rate. Knowing this important trait of a weekly option, we can now ask ourselves this question:

How can I use the extreme time decay trait in weekly options to my advantage to make money?

The secret behind this is to make your profit in the beginning of your trade, not the end. Many option strategies are designed as a debit trade that costs you money up front hoping you will make money later on. These will not work with weekly options because if the trade costs you money upfront, then TIME DECAY is working against you every day now.

Think about it. You have given your money to someone and now you are hoping the markets are good to you and move in your favor so that the value of your option increases. With weekly options, if you are wrong just one day, not only does the value of the option decrease as the market moves against you, but time decay is also playing a big role. Now you have to hope the next day that the market goes in your favor. Not only in the direction you want, but now it has to do even better than when you started so that your option increases in value—but you still have TIME DECAY also working against you. Those are some huge obstacles to overcome if you are interested in trading weekly options.

How would you like to be the person receiving the money instead of giving it?

Let the other person gamble on the markets and you get your profits up front. You let the options expire and use TIME DECAY to your advantage. This is the type of strategy you need to use if you are going to make TIME DECAY your ally. Now you are recipient of the profits while someone else sweats out the market as it is stacked against them.

Join John in taking weekly profits from trading options now!

A long straddle is an options strategy that involves buying a call option and a put option on the same underlying with the same strike price and expiration. The investor using a straddle trade will make money if the underlying either moves up or down in value.

The investor exercises the call option if the value of the underlying rises above the strike price. When the underlying security rises in value above the strike price, the investor allows the put to expire out-of-the-money.

The put option of the straddle is exercised if the underlying falls below the strike price. The call option expires out-of-the-money when the underlying value decreases.

The risk of buying a straddle is if the underlying security does not move in value as expected but rather stays stable or moves very little. With little or no movement, the put and call options would expire out-of-the-money and the investor would lose the option premiums paid for the options.

A strangle is similar to a straddle investment strategy. Instead of the call option and put option having the same strike price, a strangle is a call option at a higher strike price and a put at a lower strike price.

A short straddle is selling a call option and a put option on the same underlying security with the same expiration and strike price. The risk of a short straddle is if the stock moves significantly higher or lower and the buyer exercises the options.

The short straddle is also called selling straddles. The potential profit of the short straddle is limited to the premiums collected for selling the call option and put option. The seller of the call and put options keep the premiums as profit if the stock or other underlying security fails to reach the strike price for either option.

Unlike the long straddle, the potential risk of loss for a short straddle is practically unlimited. Therefore, selling straddles is considered a very risky trading strategy.

The option greeks for straddles are not difficult to understand. The delta of straddles varies depending on the stock price compared to the strike price.

The gamma of a long straddle is always positive. The gamma of the short straddle is always negative. Long straddles have positive vega. Short straddles have negative vega.

The expected profit of straddle options may be less than what an investor first expects when looking for a long straddle. If the market expects a stock to make a big move, the stock option premiums may also rise which makes the investment more expensive.