Case Study of the Week

This case study is based on actual trades using the strategies taught by the team at Options Money Maker.  Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.

We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind.  We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself!  These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.

 

Case Study

One of the key strategies we teach our clients is the use of a good-til-canceled (GTC) order.  Many people believe that because of their busy lifestyle and work schedule that they simply don’t have the time to invest in options trading. Options Money Maker teaches basic principles and strategies that simply do not require you to sit in front of the computer all day.  This is illustrated with a current RUT Call credit spread that many of our investors chose to open.  This position was opened with a $5 spread at strike prices of 1145/1150 when the index was trading at 1110. There was 4 weeks until expiration and the credit received for this position was $1.50.  The logic behind this position is that we believed that the directional bias of the index was down and a Call credit position takes advantage of a move lower.  We want the index to close below 1145 at expiration and then we would realize the full $1.50 credit received. In reality, we generally do not allow the positions to go all the way to expiration. As time value decays the value of the credit, we close the position prior to expiration once we have a reasonable profit. In this case, we advised our investors to place an order to close the position for $.80 which would be a $.70 profit or 20% on cash at risk. By consistently making quick profits like this, reclaiming our cash and entering the next position, we take advantage of the power of compounding.

What happened next…?

One of our clients relayed a story that illustrates the automation that can be used once you have a logical position in place such as the Call credit spread described above. He called this experience his own frequent flyer ticket program. While on a 3 hour flight to meet a business client the following scenario unfolded.  He had purchased his plane ticket for $350, had a comfortable flight and while the plane was taxiing to the gate, his phone dinged a message. His GTC order for the RUT Call credit spread had filled at $.80 due to a fairly sharp downward move in the index. He had purchased 5 contracts of the spread and had a profit of $.70 times the 500 shares represented in the 5 contracts which totaled a profit of $350 not including commissions. He called this his own free ticket, frequent flyer program and he did not have to redeem any of his miles!

What Happened Next…?

Our client went to his meeting, had a successful day and knew that when he got on the plane to go home the next day that the ride was free! That evening he looked at his charts to begin evaluating a potential next position that he could execute prior to boarding the plane for the return trip home.

Some of our investors chose not to simply create the Call credit spread but to also add a Put credit spread to the position to create what is referred to as an Iron Condor.  Look for more on that strategy during a future Options Money Maker Case Study. There is no right answer.  Do what you think is best for your account and never look back!

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