Case Study Of the Week

This is a series of actual case studies associated with following the investment strategies of the experts from Options Money Maker.  We take a consistent and conservative approach to utilizing credit spreads, debit spreads and other combination spread protocols to routinely make high percentage returns  at much lower risk than other investment strategies. 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 helpful supplement to your education.

Case Study

A very successful strategy of Options Money Maker is the vertical credit spread.  This case involves a Call Credit Spread, which is a downward bias position, on the index SPX.  The position was established when the index was trading at 2080. It was created by buying to open the 2125 Call with 3 weeks to expiration and selling to open the 2120 Call. This provided a net credit of $1.50 with a total risk of $3.50. This credit spread utilized the classic safeguards of our  techniques. We built in time for the position to make a profit by using expiration dates that were 3 weeks out.  We also built in “forgiveness” in case the index moved upward, by selecting strike prices that were 40 points from the current trading price.

This position was opened on Monday and a Good-Til-Canceled (GTC) order was set on Tuesday to close the position for $.80.

A week and a half later, the SPX had moved up 45 points and was trading at 2125. This move, resulted in a current mark of $2.90 so we had a “paper loss or drawdown” of $1.40.

The three questions that we routinely ask as we evaluate our positions are:

Do we have a profit in the position?- After holding this position for one and a half weeks, the answer is no.

Do we have price pressure on this position?- Very slight because despite a 40 point increase in the index, we had built enough buffer into the position to allow for that type of increase and still be very close to “at the money.”

Do we have time pressure on this position? – Very slight because there are still one and a half weeks until expiration. There is time to develop choices on our continued strategy of managing this position.

Option 1- Patience is a Virtue- Since we were not yet in the expiration week, many of our clients chose to do nothing and waited for the downward bias indicated on the charts.

Option 2- Buy Some Time- Some clients were not inclined to wait but wanted to “buy some additional time.” They rolled the position out two additional weeks to allow for more time for the index to decline, take our position out-of-the-money and create a profit.

Option 3- Roll out and up- In addition to buying more time, some clients also chose to increase the strike points to take the position out-of-the money and increase the likelihood of a timely profit.

Here is what happened… SPX declined to 2015 with a week left until expiration rewarding all clients regardless of which option they chose above. A decline in the index benefits everyone in this example because the vertical call credit spread is a declining bias strategy.

There was no one right answer in this case.  The decision each trader makes is based on their personal views and attitude towards risk.  This case study points out the need to learn how to think like a trader versus just following a set of rules.

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

The Hall of Fame New York Yankee catcher Yogi Berra once said, “When you get to the fork in the road…take it!  That is the kind of simple flexibility that we at Options Money Maker like to teach in regards to options trading. An example is a recent position we established using the index RUT.  With 3 weeks to expiration, we believed that there was a downward bias tendency using all of our key charting indicators. For that reason we chose to establish a Long Put Vertical Spread which is a downward bias position.  We wanted to lower our risk, so we chose strikes that were significantly in-the-money.  The selected strikes were the 1145/1150 with the index trading at 1125.  This position had a net debit of $3.50 which meant that the potential profit on the $5 spread was $1.50.  Establishing an in-the-money position lowered our risk in a number of ways. If the index moved upward, we could close out the short Put for a profit and then manage the long Put in a number of ways. If the index moved downward, we can exit the position for a profit and reinvest our capital in a new position.

What happened next…?

RUT made a pretty strong move upward to 1145 allowing our investors to close the short Put of the spread for a nice profit.  We recommended doing this when the various chart indicators seemed to show a downward bias as the next move.  That would provide us with the best chance to benefit from having a long Put since that leg improves at the rate of its Delta as the index moves down.

What Happened Next…?

The next day RUT made a significant move downward as anticipated and was trading at 1132.  This allowed our clients who held the long Put position to close that position for a second, nice profit. In essence, they made money on the move up and then made money on the move down. They saw the fork in the road and took it! Not all of our clients chose to work this position. Many chose to do nothing since there was still nearly 3 weeks to expiration. They were able to close their original spread for a profit. They only received one profit rather than two but were very content to make some money and move on to the next opportunity.

It is great to have choices! There is no right answer.  Do what you think is best for your account and never look back!

Do you have the kind of confidence and comfort that our investors do?

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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

If you thought last week was chaotic, how about another week in the market of 500 point swings in the DOW in one day, gloom and doom from the “talking head experts”, predictions of market meltdown…all makes most investors feel like they are dangling off a cliff. What did the Masters at Options Money Maker do this week?  We simply guided our investors through another week of making money and taking advantage of market volatility and the cyclical ups and downs. We know the market moves up and down…it has just done it more frequently and more dramatically in recent weeks.

Case in point…our investors opened a Put Credit Spread on SPX with 4 weeks to expiration at strike prices of 1845/1850 when the index was trading at 1900.  We received $1.20 credit and this position was an upward bias position.  A profit is created by either a move upward in the index or time decay from being “out-of-the-money” or a combination of the two. A review of the charts indicated that the index was at a natural point of support and that a move upward was anticipated next.

What happened next…?

The market reacted to more news and the SPX moved down 90 points to 1810 over the course of only a couple of days.  This unanticipated move was going totally against the reasons we opened the position.  Did we panic and close the position for a loss? Absolutely not! We had built 4 weeks until expiration into this position, allowing for adequate time for many cycles to occur during that period. We relaxed, did nothing and waited because we had the luxury of time and the peace of mind of management techniques to adjust this position if the market continued on a downward path.

What Happened Next…?

The SPX moved from 1810 to 1905 in just two days totally reversing the “paper loss” in the position and placing our investors back in a situation where their position was significantly out-of-the-money again.  Now we simply wait for further time decay to occur to allow us to close the position for a profit. Patience is a virtue in trading as long as you know what to do and when to do nothing.  It is very difficult to be patient when you don’t have the knowledge and tools to succeed in a fluctuating market.  As a result, many investors trade on emotion and end up losing money on a regular basis.

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