Weekly Income Alert – May 23, 2025

And good morning! What’s good Weekly Income Alert nation? I’m Marc Lichtenfeld. Thanks for joining me.

We’re gonna get right to it.

I know there are a lot of you here waiting for this next trade.

It’s great to see so many of you here. We’ve got Steve in Georgia, HW in Florida, Burgi in Ecuador, Buenos dias, Burgi. Always great to see so many people here, in the chat room.

As I always mentioned, if you have questions, and I and I will answer questions, I suggest waiting until after I’ve placed the trade, you know, after I’ve I’m done sharing my screen. That way, it won’t get lost. If you post it now, the only way I’ll see it is if I scroll all the way back through the chat. So if you wait until I’m done sharing my screen, it’ll be, you know, kind of the first thing I see.

So, we’ll get to that. One thing I did see, one question I will answer quickly that I saw posted a little bit earlier was if you missed the last week’s trade, should you do it now? And that’s a really good question. And so I’m always gonna recommend if you miss the trade on Friday, that trade is gone.

Don’t trade it on Monday. Don’t trade it on Tuesday. Just wait until the following Friday because option prices can move so much that, you know, whatever the recommendation was on Friday, it it might be very, very different if the trade was made on a Monday instead. So, you know, the good thing about weekly income alert is there’s always gonna be another trade. Every Friday, there’s gonna be another trade, another opportunity to make money. So, don’t worry about it if you miss it, but just wait until the following Friday.

So before I get to the current trade, I will just talk about market conditions real quick, because our current trade, the one that we made last week is actually in the money, which is not good. That’s not what we want when we’re selling out of the money puts. We want them to stay out of the money so that we collect the income. So the market has dropped.

It was, it was down.

But then this morning, the president posted on social media that he is going to put a fifty percent tariff on Europe and that Apple is gonna be singled out for a twenty five percent tariff, which I don’t know how that is possibly legal, how the president can single out one company for a tariff. So that makes no sense to me at all. The fifty percent tariff on Europe is a different story, and the market’s reacting negatively to it as expected.

I did for those of you who are Chairman Circle members or subs also subscribe to technical pattern profits, I did put out an alert this morning where I talked about general market conditions and from a technical perspective. And and remember, the technical perspective does not it’s not anticipating presidential tweets or or social media posts. But from a technical perspective, short term, the market was sitting right on support, and a break of that support would have been is a little concerning.

Longer term on a on a weekly chart, though, it’s pretty positive still. So, you know, right now, today is a down day, but I’m still reasonably optimistic that the trade we made last week is going to be alright, that that it’s gonna finish, out of the money, and we’ll collect the we’ll we’ll just keep the premium. And that same thing for this week. We’re gonna stay the course this week with the selling out of the money, put spread.

So let’s get to it. I’m going to share my screen.

Just bear with me for a second. Actually let me just check the chat, make sure everything everything is going alright.

So Keith fourteen twenty said you’re not getting the alerts.

So if you can maybe reach out to the moderator, to Rachel, just click on the moderator tab on the upper right and she might be able to help you steer you in the right direction to make sure that you get the alerts. Alright. So I am going to share my screen now.

Alright. Let me make sure.

Alright.

So you can see actually, let me just make sure this is working. Okay. So you can see, this is my Schwab page, and remember to every every broker can be a little bit different, but we I already went to trade and then options. So I’m at the options page, and I’m gonna go to for Schwab, you have to put in a dollar sign before r u t. Again, with the other brokers, it might be a little bit different. Sometimes it’s just r u t.

So we’re putting in dollar sign r u t. Now the strategy is a spread. Remember, we’re selling put spreads. So here, when you click on the strategy, you’ve got two leg spreads, three leg spreads, combinations.

We keep it very simple. It’s a two leg spread, and it’s a vertical put spread. So we’re gonna click on vertical put spread, and then it comes up with a default. So here’s where it gets a a little weird on on Schwab.

So we’re trading an option that goes out three weeks from now, which is June thirteenth. You can see here that the default is June twentieth. That’s the monthly option. In order to trade the weekly, now if you click on the drop down here, it only shows you the monthlies, July eighteenth, August fifteenth, September nineteenth.

So to get that weekly expiration date, you have to click here where it says r u t, and then you’ll see r u t w. Now if you are with a different broker, you might just have to enter the ticker r u t w. So every again every broker is a little bit different, but the w stands for weekly. And once you click on the weekly, then you’ll see all of the weekly expirations.

So we’re gonna take the June thirteenth. That’s gonna be the expiration date. And you’ll notice that because we’ve already chosen a spread as our strategy, when we change the expiration, it automatically changed the expiration on the long put because we’re selling one put and we’re buying another. So it automatically changed it for us because when you’re trading a spread, they’re gonna be the same expiration dates.

So now we have to decide on the strike price.

So down here you see it says net debit. We want a net credit. So we can either select net credit down here, or when we change the expiration prices, you’ll see so when you the expiration I’m sorry. When you change the strike prices, and the and the prices change, it’ll end up as a net credit. Here’s what I mean. So at right now, the Russell’s at twenty thirty. So I’m gonna sell the nineteen sixty put, and we’re gonna buy the nineteen fifty put.

Okay. So when we did that it changed here down to net credit automatically because we’re selling the put, Let’s say the midpoint’s twenty four forty five, the midpoint of the long is twenty two twenty five, so that’s a credit automatically. So it changed it to net credit.

So now this is really important. Remember, the spreads can be kind of wide here. So when you sell a stock at the market, you’re selling it at the bid. So the bid here is twenty four thirty.

When you buy a stock or or an option at the market, you buy it at the ask, twenty two fifty, or twenty two twenty now. But it’s pretty wide, and usually when that spread is is pretty wide in between the bid and the ask, you want to get in between the bid and the ask. There’s usually no reason to pay the market. So if you did that, if you sold at twenty three ninety and bought at twenty two thirty, that’s, that’s a pretty big difference between selling at twenty three eighty five and buying at twenty one fifty five.

So you you would not get as much money as you could is if you do it at the midpoint. And Schwab, and I think most of the other brokers make it pretty easy for you to show you where that midpoint is. Now there’s no guarantee you’ll get filled at the midpoint, but that’s a a pretty good guide for where you should go, where you should place your order. Now if you remember last week, you know, markets were up, and so volatility was down.

And so we got a dollar seventy eight, was the official entry price on our spreads. We collected a hundred seventy eight dollars. But today, because markets have been down and especially this morning, volatility is up. So we’re gonna get a little bit more money.

So as of right now, it looks at about two fifteen, two hundred fifteen dollars is the midpoint.

So when volatility increases, it’s not great for our previous, you know, bullish positions, but it is good for the current position that we’re entering because we’ll get a a bigger credit. We’ll make more money. So that’s positive.

Okay. So right now the credit, it’s kind of vacillating between two twenty, two thirty. You can see it it keeps changing.

So what I’m gonna do, and this is what I did last time, on the limit price, I’m gonna change the limit and make it a little bit below the midpoint. Now if what’s nice about the way the brokers work is, you know, they send your order, and if you can get the better price, you will.

So if we put in a limit price of two twenty, let’s say, and the midpoint is two twenty five, and that and that trade is available, there’s a a buyer and a seller willing to trade it, you’ll get it.

But if it’s not, then you’re telling them that you can go down to two twenty.

And so that’s that’s something you can do. And and I recommend putting it a little bit below the midpoint so that you can, in fact, have a better op better chance of getting filled. Now one question that I had, that a lot of people asked is Schwab has something called a walk limit, which is let me see if it’s on this screen.

I can’t remember where the walk limit was. I have seen it before. Maybe it was only available on thinkorswim.

But a walk limit basically is where the broker will change your limit.

It’ll it’ll if you’re selling, it’ll bring it down. If you’re buying, it’ll bring it up at regular increments that you decide. So you could say, alright. Every ten seconds I don’t get filled, drop it by five cents. And so and and, you know, to an ultimate limit of, let’s say, two dollars. So every ten seconds, if you’re not filled, it brings your limit down, perhaps increasing your chances that you get filled. I don’t I’m not gonna do that, because I don’t like when things are out of my control.

So I I wanna if I’m not filled, I wanna cancel it and do it myself, you know, put in a new number. But, if if that’s something that you wanna do, feel free. Again, I I think it may only be available on Schwab. I haven’t heard about it anywhere else, and I only actually learned about it very recently because it’s it’s not something that I ever do.

So, again, we have, it’s it’s kind of Vaseline bouncing back and forth between two fifteen, two thirty. I’m gonna set the limit at two twenty.

I think that should give us a a reasonable opportunity of getting filled here, and we can certainly check for the the session is over.

So I’m gonna review the order.

So we are selling to open one Russell June thirteenth nineteen sixty put, and we are buying to open one Russell June thirteenth nineteen fifty put.

Estimated amount is two twenty.

We’ve got some fees and commissions, and this is the estimated total amount. Now before I enter this order, I wanna be very clear what your risk is. So when we’re trading a put or trading a put spread with, ten point spread between the strike prices, the maximum loss is a thousand dollars minus whatever you receive for the put spread. So if we receive two twenty, then our maximum loss would be seven eighty. So if the market goes to zero or or any or if the market goes to nineteen fifty or below, then we, would lose seven hundred eighty dollars at expiration.

And it and you cannot be assigned, the option before expiration on an index. With a stock, you can. With an index, you cannot. So nothing unexpected is going to happen in the spread.

You know, it’s it’s completely in your control. If you wanna get out of it early, you can, but nothing is gonna be forced upon you, before expiration.

So I’m gonna go ahead and place this order now.

Order has been received, and now we’ll we have to wait and see what happens. So I actually did not this is bad on my part. I did not put out the order in the alert like I said I was going to, so I apologize for that. Let me do that really quick.

Alright. Sorry. Just putting out this trade for everyone.

All these fields to fill out. Alright. Now it has been posted.

Let’s see if we got filled.

See. Nope. It’s still open as of this moment. So we’ll we’ll hang in there and and wait to see.

Last time, it it took a little bit to it took a little bit to get filled. It took a few minutes, so I’m not too worried. If, if at the end of this session comes back and we still haven’t been filled, I may send out another alert. It won’t be you know, live in a broadcast, but I’ll send out another alert if I need to change the limit.

But usually wanna be patient. As you saw when we were watching, it was bouncing back and forth between two fifteen and two thirty, so I I think it’ll be okay.

Alright. So let’s get to some questions.

Let’s see. My order type says limit let’s see. I just lost it there. Where did it go? Limp my order type says limit spread. Is that okay?

Yeah. I believe so. That should be fine.

I haven’t seen that, but, yeah, I think that’s that’s fine. S Kirby says they’re filled at two fifteen. Okay.

You mentioned earlier we shouldn’t make last week’s trade later, like today, for example. How does that make sense? Last year, we cashed in or I think that last week, we cashed in a hundred seventy five on the trade. If we’re doing the same trade now, we cash in around four hundred forty, and we’d have one less week of risk.

Yes. But right now that, put spread is in the money. So if nothing changed between now and two weeks, you would get, you would be assigned or, you know, you would lose money ultimately. That’s why it’s worth so much more.

So we’re the the strategy here is we are selling out of the money put spreads with the idea that we’re collecting the income and that if they finish out of the money like we expect, nothing happens. We just take the money and move on. We don’t wanna we don’t wanna be so close to we don’t want the strikes to be so close to the current price. We’ll get paid more for that for sure, but you’ve you’ve gotta be certain that the market is going up.

You know, this way we’re doing we’re giving ourselves a much larger margin for error. You know, the market can still go down from where we are, you know, where for you know, in today’s trade, the market can the Russell can go down sixty points, seventy points even, and we’ll be totally fine.

Whereas if you took last week’s trade today, you know, the market is right there at our strike price. So you you’ve gotta be darn certain that the market is going higher and that those puts will finish out of the money. So, yes, you can always the closer you get to the current price, the the strike price the the closer the strike price is to the current price, the more money you’ll make for sure, but your risk of a loss is much higher. So we’re I’m willing to accept less money upfront for a lower chance of a loss.

That’s my goal is to have, a greater percentage of winners than losers and accept less money for it. Just, you know, everything in the market, you get compensated for risk. So if your risk is higher, you’ll get compensated more. You know, same is true with dividend stocks, typically.

If you’re getting a ten percent yield, your risk is higher. With an option, if you’re selling an option and you’re getting paid more, it’s because the risk is higher. So, you know, I’m trying to walk that line where we’re still making, you know, decent money, but having a lower chance of, of of a loss. So, for example, we could go way out of the money.

I could sell, you know, put spread in the eighteen hundreds instead of, you know, nineteen fifty, have a a very, very low chance of getting assigned and and incurring a loss, but the amount that we would make would be tiny. So, you know, there there is, kind of an equilibrium that we’re trying to achieve here. And and, again, everything that I’m doing is based on the back test that we did and and where we saw this eighty eighty six percent win rate, and and generating decent numbers. And so, you know, if we can collect two hundred twenty dollars to make, to to and risk seven hundred eighty dollars, you know, that’s that’s better than a twenty five percent return on investment.

So if we can hit, an average of twenty five percent return on investment, every three weeks, then, you know, we’ll take that all day.

Let’s see.

I just saw one. I’m on Fidelity. There are several differences I’m unable to resolve. I do not have a vertical put spread strategy.

I do have calls and puts or spreads. That work? Trade type, I have cash margin. So, yes.

That totally works. You do a put spread, and then just as long as the sell is, above the the sell strike price is above the long strike price. That’s fine. Totally works as far.

You have cash and margin.

Which should I select it? That’s up to you. It depends on whether you wanna have this backed by cash or backed by your marginable securities. So that is totally up to you. That’s not something I can answer for you.

Had trouble getting into this room. What is RUTW?

RUTW, the w is, signifies that it’s a weekly expiration. So options expire, typically on the third Friday of every month. Those are called the monthly expirations. And some options, not every not every stock, not every index, has weekly expirations.

Russell has those weekly expirations, and so, for many of the brokers, you need to put the w at the end of the symbol in order to find the weekly expiration date. So that’s what the RUTW means.

Let’s see.

Alright. Somebody got filled at two twenty. Great.

The previous oh, somebody’s reporting. Ask Kirby, the previous RUTs put spread is now just out of the money. Good news. Again, we have two weeks. So, you know, one of the things that with with these spreads, the, you know, really the the important thing is to be patient.

It it’s really designed to just place the trade, collect the money, and wait three weeks, and hopefully just move on and and keep the money. That’s really it. So every time the market, you know, moves up or down, I’m I’m not worried too much about it. As I said last week, there may be times where I get out of a position early, but the general the general, strategy is going to be to wait for three weeks, and and see what happens, because, you know, right now, markets are are pretty good. I mean, we had you know, I’m not talking about the last couple of days.

But generally speaking, you know, since, we’ve been in a bull market for a while. We’ve had some significant drops. We had a big drop in March, but we’re in a pretty good market. So I’m pretty comfortable that over three week periods, the market’s not gonna drop considerably to where we’re out of the money or in the money. And if that changes, I will alter the strategy. But generally speaking, we’re we’re looking at selling the put spread, collecting the money, waiting three weeks, and moving on. So, it’s good news that we are back out of the money on last week’s trade, but, I’m not gonna I’m not gonna be worried too worried about it until we get to, you know, closer to expiration.

Yes. On the thinkorswim platform, you can just use RUT, and we’ll give you the weeklies. That’s true. Thinkorswim is the trading platform for Schwab. That’s actually what I usually use to trade. I think it’s great, but I know not everybody is on Thinkorswim. And, the I use the website to demonstrate because it’s a little more universal for what other people might be doing.

Is this the correct symbol for the RUT RUT FTC Russell IDX?

RUT is the correct symbol. So, yes, that’s what we are trading. And like I said, you may have to have the w in there. And then, like I said, Schwab, to start, you have to have the dollar sign to find it, the dollar sign r u t. So, again, every every that that’s one of the problems with indexes. They’re, every broker kinda does it a little bit differently.

K. Donna says, hi, Mark. Will you tell us about managing the risk and how we exit the trade? Sure.

So as far as managing risk, you know, I showed you how much you, you could potentially lose on the trade, which was the thousand dollars minus whatever the net credit is. So in this case, if we’re filled at two twenty, seven hundred eighty dollars is the most you can lose. So as far as managing risk, I would say, you know, only trade as many contracts as you are comfortable losing the entire amount. Because we could wake up the next morning and there’s a stock crash, you know, market crash, and our spread is deeply in the money and it doesn’t come back.

So, you know, always assume the worst that if this trade doesn’t work out, it’s going to be, you know, the the maximum loss. Okay. So that that then you position size accordingly.

Once that’s the case okay. So now we know max loss in this trade is seven hundred eighty dollars.

How do we manage the position going forward? So like I said, the goal is to hold it until maturity for three weeks at that three week mark.

If the trade is, the spread is out of the money, we don’t have to do anything. The it just disappears. We keep all the money. If the if the index is between the two strike prices, then depending on where it is, we may have a a small gain or a small loss, because let’s say, you know, we traded the, the nineteen sixties, nineteen fifties. So if it closed at nineteen fifty eight, that would mean our short position is two points in the money, but the long position is completely out of the money.

So it it it all depends on on where it is between the strike, where how much you you could lose or even potentially gain if it’s if it’s pretty close to, to the upper part of the spread.

If, you know, if markets are absolutely tanking and we’re we’re deeply in the money, probably won’t take much action because if if we’re like I said, if the max loss is seven eighty and if we’re down six, seven hundred dollars on the position, I don’t I don’t see a reason to to cut the trade short where there still could be a rebound.

If it’s close to expiration and we’re down a little bit, let’s say I don’t know. Let’s say it’s Wednesday and we’re down two or three hundred dollars, yeah, then we have some decisions to make.

And and that’s where I’ll be looking at the markets, trying to trying to give my best guess as to will we get some kind of a rebound in the next day or so? And and certainly, if there’s ever any action to take, I will send that trade out right away, let you know we’re gonna unwind this early.

But, again, the the the the goal is to hold it three weeks, let it expire, but, yeah, there will be times where we’ll we’ll cut the trade early if, if things are changing.

Let’s see.

Now that our first trade is in the money and if for some reason the market continues to go lower, would you recommend we buy a put to defend and hedge against our credit spread, so you don’t continue to lose money? That’s a really interesting question from Alejandro.

Probably not. I’m not a big fan of hedging and and having a losing position and then taking another trade to try to defend that position. You know, generally speaking, if if I don’t like that position anymore, get out of it. You know, I’d rather cut my losses short than add another trade that’s gonna incur an additional cost, and and and try to hedge it.

I I typically don’t hedge. And the way I hedge is with a stock, you know, with a stop loss, or or just, you know, just getting out of the position that’s not working that I I’ve lost faith in. So I’m I probably will not be recommending another put. And and also, you know, if markets are falling, that put that we would be hedging with has now gotten more expensive because markets are falling.

So another reason not to do that.

Okay. So AJ Max says, I made a mistake on last week’s recommendation and sold a call and bought a call instead of a put. Do I need to do anything before the June six option expires?

So I can’t give personal advice on trades I don’t recommend, but, basically, you took a bearish position.

So, I mean, that you’re probably in the money right now.

So congratulations. Sometimes that works out where you make a a mistake and and the trade works out. So I can’t tell you what to do since because that would be considered personal advice.

Typically, what I will tell people if they have made a mistake is get out of a a position and, you know, because that’s not the trade that I I’ve recommended. If you’re comfortable in the trade and you you wanna see it out, then, then so be it. But generally, you know, anytime if if I ever make a mistake in a trade, even if it’s working out, I usually just get out because that wasn’t that wasn’t my intention. That wasn’t my, you know, the reason that I got in. And so, so that’s that’s how I personally handle, you know, mistakes. Sometimes they’re called fat finger mistakes when you hit the wrong you hit the wrong, button on your keyboard.

That that’s that happens sometimes. You’ll see that in, like, on it used to happen on the floor of the exchange where, you know, somebody would buy a billion dollars worth of stock instead of a million because they hit the wrong key or, you know, something. They call that fat finger mistake.

So this is a good question from Mike.

On the one hand we can make two twenty dollars in three weeks, on the other hand we risk a thousand to make a max of two twenty. Horrible. So actually you’re risking seven eighty because you’re keeping that two twenty no matter what happens. So even if if the that you had the thousand dollar loss, you still keep that two twenty. So it’s it’s seven hundred eighty is the loss. How do we reconcile these two ways to look at these trades?

Basically, is because we expect to win way more than we lose. If we were if we were if we were selling puts at where the the strike price was close to the current price, that would be difficult because that, you know, at this point, it’s it’s kind of a coin flip. But we’re selling puts that are are, you know, reasonably out of the money, so there’s a pretty good chance that the market is not going to fall to those levels.

So we expect to win way more than we lose. And then, like I said, there will be times where if we lose, it’s not gonna be the full loss either. We can we can manage that loss. So, so that’s that’s how it is. And and, you know, the back test again showed a really, really strong winning percentage, eighty six percent, using the strategy that I’ve been doing three weeks out, and then, you know, picking these put spreads that are out of the money.

Are you going to trade it yourself every week? That’s from Wesley s. Yes. I will be.

I’m trading it with you every week. You can come here, see exactly what I’m doing in real time. It’s my money on the line just like yours. So if you guys take a loss, I’m taking the same loss.

But I’m hopefully gonna be making a lot of money with you guys.

Was a stop loss assessed in back testing to manage risk on these trades? No. It wasn’t. We wanted to see worst case scenario. What happens if we take the max loss when we do hit a loser? So that’s that’s what we how we did it.

Let’s see.

What is the dollar amount? A thousand dollars. So you do need a thousand dollars for every one contract that you’re trading because you have, the the difference between the strike price is ten points, and remember that a, an option represents a hundred shares or a hundred units if it’s an index. So yeah. So you need a thousand dollars, you know, behind that trade, whether that’s cash or marginal securities.

Again, you won’t lose the full thousand if it loses, you know, if you have the max loss because you’ve gotten a credit. So whatever that credit is, it’s a thousand minus the credit. So in today’s case, it was two twenty.

Mike said I joined late. Sorry if you said it. Are we doing nothing with the first trade that has gone in the money now? Yeah. We’re we’re doing nothing right now. Plan is to to hold it for three weeks. And, again, that could change depending on market conditions, but right now we are holding it.

Kenneth said I have sold I have two contracts. If trade goes against me, that would be seven eighty times two. Is that correct? That is correct. Absolutely. So you just take the max loss times the number of contracts.

Mark, I have to play the IWM because Russell is not available on Merrill Lynch. My question is, do I have to close those, or do I let them expire? So if it works out, then, you know, if it’s a profitable trade, yes. You can let them expire. But I’d I want you to know something that’s really, really important. If you are trading ETF, ETFs and indexes are different even though the ETF is based on the index. So index options are traded what’s known as European style, which means that they can only be exercised at expiration.

So that’s why I like trading these because even if the puts become in the money, nobody can put it to us. Right? We we can’t be forced to settle the position early. It can only happen at expiration.

With an ETF, that’s different. ETFs and stocks are trade American style, which means they can be exercised at any time, up until expiration.

Usually, they are not. Even when a stock or an ETF option is in the money, usually, they’re not, but it can happen and it does happen. It’s happened to me.

Not often, but it happens. So do be aware that if you are short a put on IWM and it’s in the money, you could be on the hook for having to settle that position, which, you know, could be thousands and thousands of dollars. So again, another benefit of trading the index if you can do it. So that, you know, the the ETF has those additional risks. They’re not likely to happen, but they they can happen.

What other index options using European style could be traded this way if any? Great question, Ken. Yeah. The, S and P five hundred, pretty much all the index options operate that way too. Also, let me let me reiterate another benefit of trading index options versus ETF options.

Index options have tax benefits.

Whereas, if you trade an ETF or a stock option and you make money, you get taxed at your at the short term capital gain tax rate, which is your ordinary income tax rate. With an index option, forty percent of the gain is taxed that way, but sixty percent is taxed at your long term capital gain, tax rate, usually about fifteen percent. So on a ten thousand dollar gain, you would save about a thousand dollars, slightly over a thousand dollars trading an index option versus an ETF or a stock option. You’d save about a thousand dollars in tax. So another benefit of trading the index options.

Jackie sees the option symbol r u t w.

Again, depending on the broker, it’ll be r u t or r u t w, and the w means that we’re trading the weekly expirations, not the monthly, which is the third Friday of the month.

Next week, it will be it will not be the week.

It’ll be the monthly option because next week is May thirtieth. Three weeks out will be the June twentieth expiration, which is just the regular monthly expiration. So we will not be using that w at the end of RUTW next week.

But this week, we are.

Let’s see.

Am I correct that we can exercise the play, but the buyer of the index cannot until the expiration date? No. That is not correct. Again, with index options, they cannot be exercised until expiration date, at expiration. That’s the only time index options can be exercised. And also with an index, you wouldn’t want to exercise them because it’s it’s it’s involves a lot of cash, so that’s not something you would wanna do.

Joe g d at great questions. Is there a benefit to using a day trade versus good till canceled? Yes.

Basically, these trades, I only want them executed today. I don’t want them executed on Monday.

We’re going further. GTC means good till canceled, and that means it’s open indefinitely, although brokers usually have some kind of a a time limit. It might be thirty days, sixty days, whatever their particular policy is. But, generally, it will stay open for a while. I only want these trades executed on Friday, because so much can change by, you know, Monday. So I I really only want it done today.

What do r e r l s said where do what do I put for the order type? I don’t know if you missed, the, the demonstration, but you will put if it’s an option on, on Schwab, it would say vertical put spread. And other brokers that might say, put spread or spread, and then enter the, the position the way I’ve described it. If for some reason your broker doesn’t describe a spread, I think I think most brokers have spread as as an option that you can do. But if for some reason it doesn’t, you can always just enter the two individually, and just make sure that the that you’re getting a net credit of two dollars and twenty cents. That’s that’s a little bit complicated, but I I think almost all brokers have the option to label it as a spread trade so that you can, in fact, determine the limit price for the, the trade.

Keith says I don’t have a limit choice. Should I choose net credit and then enter two twenty as a net credit? Yeah. If there is no limit, which kinda surprises me, I wonder who your broker is, but if that’s the case, yeah, put two twenty as as your price, and that should work as a a limit.

Let’s see.

So Dave says assuming eighty win rate on ten trades, if we make two hundred dollars on eight trades and sixteen for sixteen hundred dollars and lose eight hundred dollars on two trades for sixteen hundred dollars, how will this be profitable? So back test our win rate was a little bit higher, but also keep in mind that volatility is kinda low right now.

You know, there’s plenty of times we’ve had in the back test where, you know, we’re making three hundred, four hundred dollars. There were times when when volatility was nuts, where we were getting a thousand dollars for a trade. So, you know, over the course of time, these kind of numbers will work themselves out where we’re making more money at certain times, and and and that’s gonna make up a, you know, a big part of it where you’re generating some pretty big numbers, and, and all the eventually all the all the credits, all that eight, eight and a half times out of ten that you win are gonna add up. So I’m not worried about that at all. And, again, also, the back test was with a, taking a full loss, the maximum loss possible.

That is not always gonna be the case.

Let’s see.

I’m trading on thinkorswim. RUT is coming up as Russell two thousand t r USD. I’m not sure, but I think I have the right ticker. Yes.

RUT is the right ticker on thinkorswim. That’s absolutely right. Win rate is assured to be eighty six percent. No.

It’s not assured to be eighty six percent. It that was the back test. That’s, you know, what how it worked historically.

As they say, past performance is no guarantee of future results, but, you know, obviously, I’m confident in it. I’m trading my own money with it, doing this, using this strategy according to the back test. We’ll make adjustments if we have to if if market conditions change in a meaningful way. But, yeah, I’m right there with you guys trading at the same way.

Catherine says, can you briefly explain your choice of strikes? Yeah. That’s a great question. So in the back test, what we found was what worked most was, one standard deviation away from the current strike. And a standard deviation is, if I remember my my college math correctly or maybe it was even high school, is, basically a a sixty six percent chance of of of a the the stock or the index staying within a range.

So, interestingly, it was, you know, the the win rate was eighty six percent even though the standard deviation is is about sixty six percent.

So, theoretically, two out of every three times the index should be within, you know, it should be above that strike price.

And and don’t forget that standard deviation also is to the upside too. So it’s it’s a six you know, sixty six percent, chance of a move, you know, within that that band up and down from the strike price. So, that’s how we, you know, we tried with higher standard deviations, lower standard deviations. We tried with a a whole variety of different ways of determining the strike price, and, and what we found was that that one standard deviation, had gave us the best win rate.

If I have to close, how do we do it? Close each one individually, or they close as a spread, close both together? Yeah. So if we close and, again, I will give the instructions, if we decide to close it, but you would do it as the spread. So you would buy to close the strike that’s short, and you would sell to close the strike that’s long.

But, you know, very often with the brokers, you can just kinda click on it, and there’s usually, like, a a button that says close the position.

And you can set a limit, but, that a lot of the brokers I know think or swim does that. They they can make it very, very easy for you to just close out the position without having to even have those individual instructions. But, yeah, you would you would do buy to close and sell to close.

Marketers so far out, why don’t you buy more contracts to generate more money? Great question. It’s all about risk management. I am always preparing for the worst possible scenario.

So markets completely tank and, you know, and and we we take a big loss. I wanna make sure that it’s not gonna be a devastating loss. So that that’s basically why. The more contracts you take, the more money you you make, but the the higher risk, you know, the more the more you you could lose if it goes against you.

So, you know, whatever you’re comfortable with, you know, I always recommend if when you’re trading, trade with an amount that if the trade completely goes against you, that you’re not gonna lose any sleep over it. So, you know, if you’re trading with a stock and you have that twenty five percent stop loss, you know, position size so that if you get stopped out at twenty five percent, you’re you’re not gonna lose sleep. If you’re speculating with options and buying calls, assume a hundred percent loss and then determine what you’re, what you’re comfortable losing. With this, you know, we’ll determine the maximum loss and then determine how much you would be comfortable losing on any given week.

You know, for some people, it’ll be just be one contract, seven hundred eighty dollars. Other people, they may say, hey. I I can handle losing seventy eight hundred dollars or seventy eight thousand dollars. I mean, everybody has a very different tolerance for risk, but whatever your tolerance is, make sure you’re picking a number that if you lose, you’re not losing sleep.

Yeah. You can be disappointed. You can be angry. I get I get upset every time, a trade goes against me.

No doubt about it. But there’s a big difference between being disappointed and and annoyed, and being stressed and losing sleep. So that’s really really important. So however you decide to do it, make sure that you’re not gonna lose sleep if the trade goes against you.

That that’s the biggest thing I can talk about as far as position sizing and managing risk.

What do you think of placing a good till cancel order, buying the spread at a cost of a penny?

I don’t love it because you’ll still get charged fees for it.

So, you know, if I don’t know. If it was in the within, like, the the the first few days and and the market just ripped higher and and you could get out of the position?

Maybe. But, you know, if if I don’t think you’d want that order filled on expiration day or the day before expiration.

It would just be easier just to let it expire, keep the full amount, and and not have to deal with any of that. You know, I I I would prefer not to incur those fees.

Yeah. This is a great question from Hans X. If I wanna risk two thousand dollars minus the credit, what’s the difference between two spreads of ten or one twenty dollar spread?

Great question. So from a loss perspective, the, there would be no difference.

So you’d be risking the same amount. If the spread was wider, then you would be generating, greater amount of income because the put that you sold would be I’m sorry. Back that up. The put that you bought would be further out of the money and therefore cheaper. So, so you would make more money, trading the twenty dollar spread, but, the, you you know, for for everybody, if you’re doing it with one spread, then, then the amount per spread that you could lose would be higher. But, you could certainly do it that way if that is your comfort level.

So that’s a great question.

Are you looking to trade SPX index in the future, or will you continue to play to trade only RUT? Great question.

Right now, we’re only trading RUT. If we we are exploring, we’re continuing to innovate with this system. We’re looking at, SPX. We’re looking at other things.

So if the data shows us that, that this this is a an effective way to trade, then it’s certainly possible we will be adding different different types of plays, to begin, in the future. But to begin with, we we are sticking with one thing. We wanna get everybody on the same page, comfortable with trading, you know, the kind of the same thing every week for a little while. And then at some point, we will likely introduce some other aspects to the system, but it it’ll be it’ll probably be a a few months.

Did you back test using iron condors?

We did not. We’re trying to keep it really, really simple. Just a vertical spread, keep it really, really simple.

Let’s see. Are you recommending trades weekly? Do you hold to expiration, or do you close early if the underlying price runs up? David ninety nine. We are recommending trades weekly, every Friday, right here, ten o’clock, right here live.

Do you hold till expiration? That’s the plan.

We may close out early. If we’re if we’re taking a loss, I don’t anticipate closing early if we have a gain because we wanna keep the full amount of the credit. Now like I said, if if markets just absolutely ripped higher, and and that trade was, you know, so so deep out of the money and and the and the the amount that we could close it for was was negligible, I don’t know. Maybe maybe we we would close it early, if if if we still had, you know, a couple weeks before expiration.

I’ll never say never because trading is is fluid and and there’ll always be some exceptions. But generally, no. Generally, I am not looking to close them early because I wanna keep that full credit.

If if things go against us, then we may close things early. It it’ll all depend.

Alright. Let’s see.

So I’m just looking at some of the questions scrolling back up, see if I missed any.

Can you reference Fidelity? So I don’t trade on Fidelity, so I’m not super familiar with their platform or their website.

So I don’t I it’s not something I’m very, very familiar with as far as trading options, but it shouldn’t be that different. Especially the website shouldn’t be that different from Schwab. And and with any of the brokers, you know, if if something isn’t making sense, if if you’re seeing something that I’m showing you on the Schwab site and you don’t see it on the Fidelity site, give them a call. You know, they’ll be happy to help you and and walk you through the trade. You know, you tell them, you know, I’m trying to do this and this.

I can’t find it on the website. Can you can you tell me where it is? Or, you know, they they tend to be very helpful. You can also chat with them online.

So, you know, don’t hesitate to call your broker if, if you need help with their particular site.

Let’s see.

If you could buy back the put you sold for less than the put you bought, why wouldn’t you?

Because if we did that, then we are still if we buy back that put, it might still end up being a gain, but we want that maximum credit. Right? That that to to make this work and especially as as as some of you pointed out where we’re selling, you know, these spreads and generating less income than we’re risking, each week.

We wanna maximize the amount of money that we’re generating. So if we’ve sold a spread for two twenty and we have the option, to to buy it back and let’s say we’ll make, I don’t know, a hundred and twenty on it, yeah, we we we booked the gain, and and that’s still, you know, on a percentage basis, a really nice gain. But we want all you know, we we wanna collect as much money as we can. And for the for the system to work over the long haul, we want those gains need to be there, you know, the the big gains.

We’re we’re not gonna be able to make this system work nickel and diming it. You know? We’re we’re, what’s that expression about, you know, picking up nickels in in in the street in front of a steamroller or something. Because there there are gonna be times where market just goes completely against us, and and we do take some of those losses.

So, we wanna make sure that the gains that we’re collecting are the biggest that we can. And it’s just like when you’re trading and speculating. You know? If you’re if you’re trading stock or trading options, you’re gonna have you’re gonna have losses.

And so when you have those gains, you’re not gonna you’re not gonna, you know, grab a a gain for, you know, a dollar on a stock or, you know, five percent on a stock or or ten percent on an option, you want the that option to go up a hundred percent or, you know, sixty percent or you want that stock to go up ten, twenty percent, because, you know, you have to have those wins offset the losses. And so the best way to do that is by keeping all of the money that we can when we can do that with the with the net credit. So, so I don’t anticipate getting out of things too too early, especially when we have a win.

Penny wise, pound foolish. Exactly.

Fidelity works very similar to what Mark is using. Just get some experience using their order page to avoid making any silly mistakes. Yeah. And and, you know, one of the things you can do too is just practice placing the order.

Hit review order, and then just don’t hit submit if you’re not quite comfortable yet. But you’ll see the review order. You’ll see exactly the order, how it how it’s listed, make sure that you got it right, that you’re comfortable with how it’s working.

So you can certainly do that. And some brokers even offer paper trading. I know Schwab on Thinkorswim offers paper trading.

So others made too. So if if this is brand new for you, paper trade it for a few weeks, see how it does. And and and that and when you paper trade, you know, it’s not just writing it down on a piece of paper. You’re actually placing an order on this, you know, pretend account.

And so you’ll get the feel of actually placing that order in real time, and, and and you’ll get comfortable with it that way. I I think that’s one of the great benefits of of thinkorswim for, people who are are new to a a specific strategy.

Saucy Jim filled at two twenty.

Great. He bought all of them. Nothing left for anyone else. Well, that was a little selfish, Jim, but but you gotta do what you gotta do.

Alright. I think we have gotten to pretty much okay. I was late in the room. How are you feeling about the June, twenty thirty twenty twenty trade right now?

Yeah. Just to review, I’m feeling okay about it. Obviously, the market went against us. We, you know, a few minutes ago, we were still, out of the money, which was good, but but it’s pretty darn close.

But, we have two weeks to go. And, keep in mind, Monday is holiday. Markets are closed, so that’s gonna add to a little bit more decay, which is good for us. We want our options to decay.

So I’m I’m I’m feeling fine about it. Again, if I change my mind, if I think we need to cut a loss, I will certainly let you know. I’ll put out a trade. And and and that may not be just on a Friday. Keep in mind, new trades will be on Fridays.

But if we have to get out of a trade, that could hit your inbox or your phones if you have text alerts, which I highly recommend. That could happen anytime. But, again, I’m not anticipating that happening a lot. So don’t feel like you have to be glued to your phones in your inbox waiting for an alert from me.

Kind of like I was talking about with, the, the ETF options, it can happen where you get assigned, but doesn’t happen a lot. That’s kind of how I feel about closing out trades early. It can happen. I’m sure it will happen occasionally, but I don’t think it will happen a lot. So Friday is really gonna be the day that, that we’re doing, you know, the overwhelming majority of our trades.

So Kenneth says, why not weekly trades instead of every three week expiration trade? Great question. Two reasons.

One, most importantly, the three week time horizon was what worked best in the back testing. So, we were going with the data. But, also, you’ll you’ll, make less. The the amount of income you would collect, is less because part of an option’s price, especially out of the money, is time, is that time element, the time premium. So three weeks isn’t a lot of time, but it’s a lot longer than one week. At one week, I mean, that time decay is is very, very rapid.

So there’s not a lot of time premium if we’re selling the put. And, you know, if we were buying an option and and, you know, I could be zero, DTE options and, you know, people who wanna speculate with an option on a really, really quick price move, that may make some sense. But, you know, we do wanna keep, collect as much money as we can, and so having a little bit longer than than a week helps with that.

When execution occurs, is the last price on the position at the bid or ask for each of the legs of the spread?

Is the last price on the position at the bid? No. So it shouldn’t be. So if you if you put the order in between so if you have your limit price in between, it should not be at the bid or the ask.

The bid or the ask or or if you trade it at the market. And, usually, with most options, and especially these Russell two thousand options, you wanna be in between because the spread is too wide. You won’t make nearly as much money. I think when we were looking I don’t remember exactly now, but I think if you just, sold the spread at the market, I think it was maybe around a hundred forty, hundred fifty dollars instead of two twenty.

So it’s it’s really important that you get in between that bid and the ask.

If you see the spread trade, if you get filled, you know, immediately after, the last price should be, the prices that you got filled on on each option. But, obviously, you know, it’s gonna move pretty quickly, so you may not actually see your trade listed as the last price. But, theoretically, that’s how it would be.

Let’s see.

Ron says, not sure if I’m missing something. You mentioned that last week’s trade is barely in the money. Excuse me. I’m seeing currently at four fifty, and we traded for a dollar seventy five.

Excuse me. Correct. So there’s a difference between the trade being profitable and the options being in the money.

So right now, the options, so I don’t have a screen up to see exactly where the Russell is, but let’s assume the Russell is in the money right now.

If it’s the Russell if the options are in the money, that means that the index is trading below our first strike price, our short strike price. That’s in the money because those puts are in the money, which for us is negative because we have a bullish position and the index came down, and we want our puts to expire out of the money. So that’s what that means. So, I know it can be confusing when we’re trading puts when it’s in the money, out of the money.

For puts, if you’re selling puts in the money, no good. We want it out of the money. We want our options to be out of the money so that they expire worthless.

K. Al says if you buy back the put you sold so I think we answered this question. Why wouldn’t you do it if you could close close to the due date? Again, you could take the money and run, but I wanna let I wanna get the maximum, net credit that we can and let it expire.

If, you know look. If it’s getting real close, if we’re close to being, you know, at the money or in the money and, and it’s close to expiration, then it may make sense, and and and maybe we’ll do that. I’m not gonna say, like I said, that we’ll never do that. It may do that.

But, you know, if it happens a week after you place the trade, I wouldn’t do that. I wanna make sure, that these options are decaying and that we’re collecting as much as we possibly can.

For a smaller account, is it okay to trade a less widespread like nineteen sixty, nineteen fifty five, risking only five hundred dollars. So you should do whatever is best for you, however you need to manage your risk. Understand though that you’re going to collect less money because the nineteen fifty five put will that you’re buying will cost more than the nineteen fifty that you that you would have otherwise bought, which is a little further out of the money, so that’ll be cheaper. So you’ll collect less, but you’ll risk less. So, again, you know, whatever is gonna be best for you and however, is going to allow you to to have less stress in the position. And and look and and it could be a great way to get started too.

You know, start with with that kind of a trade if you want to. And then as you get more comfortable or as you start making money, then maybe you start widening out the the spread to, to the ten points. Again, totally totally up to you.

Can you explain why next week’s trade is going to be a monthly option? Great question. So right now, we are trading strikes that are three weeks out. So next week will be May thirtieth.

So, the calendar, what’s what’s, let’s see. So three weeks out from that will be June twentieth, thirteenth. Yeah. So the week after that is June sixth.

The week after that, June thirteenth. So three weeks out is June twentieth. So that’s how that is gonna play out. So, generally speaking, we’re we’re gonna be looking at that three week, time horizon when we place these trades again because that’s what worked best in the backtest.

So, it’s not gonna be that different, but, and I’ll show you next week when we place the trade, in the drop down menu.

Remember this week, we went to the, we had to go to RUTW to get the weeklies. This time, or next time, we won’t have to. It’ll just be right there. Again, just in Schwab in, if you’re on thinkorswim, it’s not gonna be a difference. If you’re on other brokers, it may or may not be different.

Yeah. Joe says typically the third week of each month is the monthly option. So, yeah, it’s not that it’s not that we’re targeting a monthly option necessarily. It’s just that it’s just every three weeks. And so once a month, we’re gonna be trading the monthly instead of the weekly.

Alright. Oh, wow. We’re past an hour. I didn’t even realize we’re past eleven o’clock. So let me wrap it up.

Thanks everyone for watching. If you do have other questions, feel free to send them into the mailbag. Just put weekly income alert in the subject line so that it it comes to me.

And, great to see you all. Have a fantastic weekend. If, you know, it’s Memorial Day, so I hope it’s a meaningful weekend for, for us. And, I look forward to being right back here with you next Friday at ten o’clock. Alright. So thanks again, and we will talk to you next week.