As goes January, so goes the rest of the year

The opening line of today’s Opening View from Schaeffers Research – as goes January, so goes the rest of the year – Opening View: Battered SPX Facing Technical Hurdles

As they state and I had in recent posts the SPX (SPY) is facing some major technical resistance to the up side, which is why we placed a Bear Call Spread on the SPY last week. The option spread is doing well especially after a weekend of no trading (we like when the market doesn’t trade, more time value off our trade). In Schaeffer’s article this morning they are also pointing to some bullish tendencies in the market this morning. This is OK our trade is safe for the time being as we have two levels of resistance to go through and since the markets are having a difficult time trying to push past this first level of resistance I suspect the second level will be even more difficult, especially if the saying holds true – “as goes January, so goes the rest of the year”

Disclaimer for High Probability Credit Spreads

I love trading high probability credit spreads. However there is one caveat that one should know about credit spreads. Although there is a high probability of a profitable trade there is always a chance to lose and in the case of high probability credit spreads the capital loss can be extensive. Now this video explains that; however what is not explained in the video is that trading credit spreads, as with any other trade it is not a set it and forget it trade you need to continue to monitor the trade and it is rare that if you follow the rules that you would have a total loss of a trade. as this video explains you need an Adjustment Plan. Well the easiest adjustment plan is that when the trade breaks your line of resistance or support the trade is broken and you need to get out of it and close the trade before maximum loss In some cases you can leave the bought part of the trade open to even regain some loss or even make it profitable again.

Credit Spread Options Adjustments

www.sjoptions.com Learn about the importance to adjustments with option trading. Credit Spreads can be especially dangerous if you do not have an adjustment plan.

Iron Condors with Dr. Duke

An iron condor trade is the use of 2 credit spreads, a bull put and a bear call, on the same underlying security. It can be used very successfully to produce consistent monthly income. This strategy profits when the security trades between the two credit spread positions at the time of expiration. It is best used during sideways or slowly trending markets.

I found a blog today that has very good information on iron condor trades as well as market analysis – Dr Duke’s Iron Condors

Selling Options

Todd at Harvesting Dollars has a good explanation of selling options. He has tried this technique but it sounds like from his comment he has not been successful.

Here is his comment to his own post – “Selling covered calls is one way to generate passive income, but for me personally it was more trouble than it was worth. Option prices are based to some degree on volatility, and if you sell covered calls on volatile stocks you’ll earn more but you also have more of a chance that your take a hit on you stock value. I’m sure a lot of people have been successful with this strategy, but I never spent enough time to master it and therefore do not recommend it to others.”

So I say to you Todd, yep you just haven’t spent enough time searching and learning to sell options appropriately, which is fine. You just need to know where to look…LOL.

Trading credit spreads is selling options and it is an easy way to generate the somewhat passive income your reader was looking to make. It truly is not passive because you still need to be actively trading to make the money, but it is money making money vs someone doing physical labor to make money like working for the man!

Anyway good post on selling options! Be sure to check it out –>Stock Options Basics, Part 3 Selling Options

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