Weekly Income Alert – May 30, 2025

Welcome, everyone, to Weekly Income Alert. I’m Marc Lichtenfeld.

So glad you’re with us. I know we have some new people in the room as well for the first time. So welcome to all of you, including Judy three fifty who’s here for the first time. We also have AP seventy five from Jacksonville, Guy Bai all the way from Taipei, Taiwan. So great to see so many of you from all over the place.

So here’s how we’re gonna do it. Just a couple of housekeeping things first, and then we’ll get right into the trade.

You’ll follow along with me. You’ll see exactly what I’m doing. Then before I hit submit, I will send the alert to everyone, and then I’ll go back and hit submit myself. But once you see my trade locked and loaded, feel free to go ahead and place the order yourself. So a couple of things I wanna get to real quick. First, just market conditions for those of you who’ve been with us since the beginning. We have our first trade expiring next Friday.

And right now, the Russell’s, it’s getting a little too close for comfort. We’re about 25 points above our short strike price. So it’s a little tighter than I would prefer. I was kinda hoping for a face-ripping rally yesterday when there was news that the International Trade Court was stopping the tariffs, although that obviously has changed in the last twenty four hours.

But, you know, one good rally should put us in a pretty good place. So as we get closer next week to expiration, if I if I, you know, decide to close out the trade early, I will send out an alert. So, you know, keep your eye on your inboxes and your phones for that because we wanna make sure that if I do, send out that alert that that we get out. And and the reason we would do that would be to, cut losses or to grab a a small profit if I’m concerned that the Russell will continue lower.

I may I may wait until expiration. You know, we’ll see what happens because next week, the options really start to decay pretty quickly as long as those, as long as they’re out of the money. That decay is gonna happen very, very rapidly with just five days left to go. So we wanna try to let it decay as much as possible, so I will be monitoring it closely.

Our other trade, which expires on the thirteenth, is in good shape right now. Nothing to worry about there.

So two things two really important things, though, to go over.

One is about today’s trade. So as you know, options, typically expire on Fridays, and and stock options mostly the third Friday of the month. As you know, we’re often trading weekly options here, so they tray they expire on Fridays at the close.

Index options have this this weird, anomaly, this with this strange little thing where index options, the monthly option, which is the option that expires on the third Friday of the month, they actually expire at the open. So the opening price on Friday is the final price as it relates to our options. Now you can’t trade it on Friday.

So you have to trade if if you’re gonna close out the trade, the last trade has to be Thursday afternoon.

Here’s the thing. This week or this week’s trade, which would expire June twentieth, which is that Friday, Thursday is Juneteenth, the holiday. So the market is closed. Therefore, the June twentieth options will actually expire Wednesday afternoon.

Again, the Friday opening price will be the price that determines whether an option is assigned or not. But if if we’re gonna make a trade, if we’re gonna close that opposition, the last possible time to trade this particular option will be Wednesday, June eighteenth. And I’ll remind you of that, no no problem about that. I will I will make sure you’re aware of that, as we get closer.

But I just wanna put that out there because we will be trading the June twentieth options today, but the the, last time to trade it will be Wednesday afternoon, June eighteenth.

One other important thing. So, tonight, I leave for the Oxford Club’s wealth wine and wander tour. And if anybody who’s in the room is gonna be on the trip, let me know. Put it in the chat.

But what that means is that Anthony Summers is actually gonna be on the live stream with you the next three weeks. Now Anthony is very, very, familiar with the system that we’re using. Not only is he familiar, he helped design it. He was the one who back tested it.

He knows this system extremely, extremely well. So he’s gonna walk you through for the next three weeks, on the livestream. I’ll still be making the trade recommendations. He and I will be communicating, but, he will be the one on camera for the next three Fridays walking you through this.

But like I said, you’re in very, very good hands. He and I worked extremely closely together on this and building this, so, that’s not gonna be a problem at all. So I just wanted to make sure you had all of that.

We’re gonna and, also, we are gonna get to your questions. It’ll be after the trade. So, if you have questions, I’d actually say hold off, and let’s do the trade, and then I’ll get to your questions. Because if you put the trade in if you put in your questions now, it’s gonna kinda keep scrolling up, and I might miss it. So let’s get to the trade. So I am going to share my screen.

Let’s do this.

Alright. I am let’s see. Just making sure you guys can see this.

Looks like you can. Alright. So this is, for those of you who are new, this is, on Schwab’s website. You can use, you know, any broker’s website. You can use their trading platforms.

If you’re new, each broker handles it slightly different. There might be slightly different terminology that, actually, the the symbol might be different, for Russell two thousand. On Schwab, we, it’s dollar sign r u t. I saw somebody in the chat earlier said, do I trade IWM? No. That’s the ETF. We are actually trading the index itself, and there’s there’s an important reason for that.

One is that index options have a better, better, tax treatment. Index options are are are taxed sixty percent of the capital gain is a long term gain, whereas an ETF is a hundred percent a short term gain, which is what this would be. So, so the index options are are much better from a tax treatment standpoint.

So we are trading the, the index itself, not the ETF. You can trade the ETF if you want to, and and you just adjust your numbers accordingly, but, this is this is also what worked best when we back tested it because we did back test it with the various indexes, the various ETFs, and and this is exactly the Russell two thousand index is what worked the best. So we’re gonna put in the dollar sign RUT. Now on your broker, it might be RUT. It might be dollar sign RUT. It might be something different. Some people ask is it RUTW?

On some brokers, that is the case when we’re trading the weekly options, but, again, this is the option that expires on the third Friday, so that is considered the monthly option. So you would not need the w, on that. So we’re going to, we’re going to and under strategy, it’s considered a vertical put spread. Not every broker uses the word vertical, so as long as it’s a a spread, an option spread, a put spread, you should be fine. So we’re gonna click on vertical put spread.

And down here under order type, I’m gonna switch it to net credit.

So right now, Russell is trading at twenty fifty eight.

So we remember, we are gonna sell to open at the higher strike price, and then we buy the lower strike price, and that is what gives us the credit. Okay? So, we already have June twentieth, it auto filled already.

So we are going to sell the nineteen ninety put, and we’re gonna buy the nineteen eighty put. And right now that gives us a credit. The midpoint is at two.

If you are new, I wanna emphasize this. You wanna try to get your trade in between the spread. You don’t wanna trade it at the market. If you trade it at the market, you would only get about a dollar sixty. That That you can see here the credit because the bid is eighteen ninety.

The ask is seventeen thirty so that you can see what the credit is at the market. So we wanna do the credit at the midpoint because we’re gonna get more money if you trade it at the midpoint. And and pretty much market makers are gonna try to get every penny from you that they can. And if you trade at the market, they’re just, you know, it’s it’s not the best price available.

You you’re not always gonna be able to get exactly at the midpoint.

So what I typically will do is I will put a limit price, just slightly lower than the midpoint, and it just increases my chances of getting filled. So, right now that credit is at two zero five. I’m gonna I’m gonna bring it down to two dollars.

Okay. So what this means is that if this trade is executed at two dollars for every spread that we sell, we are gonna instantly get two hundred dollars. And our maximum loss, if the trade completely goes against us, if the, if the Russell two thousand is below nineteen or is at or below nineteen eighty on June twentieth, then we could lose eight hundred dollars. So the way you figure that out is it’s the difference in the spread, which is ten points, and you multiply that by a hundred because options are traded in in hundred unit contracts.

So that’s a thousand minus your credit. So we would get, two dollars I’m sorry. We we would get two dollars. So your maximum loss is a thousand minus two dollars, and, so the maximum loss is eight hundred.

Hopefully, that doesn’t happen. We don’t expect that to happen. Again, our back test, the win rate was eighty six percent, so I’m not particularly worried. And, again, we can manage the position.

So, like, we’re talking about next week, if, the index continues to go a little bit lower, we can exit the position without taking the maximum loss. You don’t have to take the maximum loss if you exit early. But the the idea of the strategy is to try to let it get to expiration and expire worthless, and then we keep all the money. So, I’m gonna preview the order.

Okay, and here you can see, I’m just gonna, here you can see the estimated amount is two thousand.

I’m sorry, two hundred. Two thousand would be nice. Two hundred Estimated total, one ninety eight after fees. So I’m going to now so you can go ahead and place that order. I’m just gonna go ahead and actually send the order to everyone.

Okay. So I am sending this out to everyone. I’m just double checking it. Sell to open the Russell two thousand, June twentieth twenty twenty five nineteen ninety put. Buy to open the Russell two thousand, June twenty twenty twenty five nineteen eighty put. Price limit, two dollars.

Alright. I sent that to everyone, so now I’m gonna place my order.

Alright.

And that is that. So we placed that order, and now we are back here. Alright. Let me see. I’m kinda getting lost a little bit here in the technology.

Sorry. I’m thinking I’m having a little bit of a problem here.

Let me see. Did you guys lose me? Can you hear me?

Alright. I think we may have a oh, you can. Okay. Great.

Thank you. Thanks for letting me know. Yeah. I was seeing something strange on my screen. Sorry about that. That was weird. Okay.

So let’s get to the questions.

Can’t hear me when you turn the rest. Yeah. Sorry. I have my monitor over here on this side. So when I’m reading questions, and and when we when I thought I was having a technical problem, so I’ll I’ll move this, the microphone in a little bit. Sorry about that.

So Jay Ship says, I’m wondering what the average income is from each trade. The reason I’m asking is that my premium from last two trades about a hundred and ninety two dollars. The an eighty four percent win rate. I’m having trouble understanding how the math works. So keep in mind that’s a great question. Keep in mind, right now, we’re in a period of low volatility. So the option prices are gonna be lower.

Over the course of the year, there’s gonna be times when volatility is a lot higher. We’re gonna be making three, four, five hundred dollars on a trade. There were times they were they were not often, but there were times where we were making a thousand dollars on one spread. So, keep in mind, you know, right now, market’s been pretty strong. Volatility is low, so the option prices are gonna be low.

As we go, go into the future, volatility is gonna change. If volatility goes higher, then we’re gonna make more money. So right now, it’s just a period where prices are kind of low.

At Schwab, I don’t have the net credit options. That’s John m eighty five. So if you, if you’re if you’re putting in a spread and you you simply put in the that you’re shorting the nineteen ninety and buying the nineteen eighty, it will be a credit, because the nineteen ninety is more expensive. You’re selling the more expensive put. You’re buying the cheaper put. So that will end up as a credit. So as long as you can set it up as a credit, it will be a net credit.

Cedric c says, what are some other indexes we could trade?

So you could trade the S and P. You could trade the Dow.

You could I mean, the you know, there are lots of indexes. You could trade sector indexes if you wanted to.

That being said, when we did back test the the system with lots and lots of different indexes and ETFs and sectors, the Russell two thousand was what worked the best, that had the best track record, both win rate and, you know, the total amount that was earned. So that’s why we’re sticking with the Russell. Also, you know, the Russell’s a little more volatile typically than the S and P five hundred and the Dow, and even the the Nasdaq one hundred. So the fact that’s a little more volatile is gonna give us a little more juice, you know, a little more premium when we’re selling these spreads. So that’s why we like the, the Russell two thousand.

Let’s see. What about a bear market? Isn’t there or isn’t the risk for this trade then higher? Yes. Absolutely. In a bear market, you know, this is a this is a bullish strategy.

We are are selling puts, and buying a put a little bit lower. If the market goes down, then this if it goes down enough, then, yes, this trade would become a loser. In the event of a bear market, we can do the opposite. We can sell call spreads.

So if you believe that the market’s going lower, you can sell a call spread, which is exactly the opposite. Now there will be times where we do this, but I’m not gonna be flip flopping each week, you know, just kinda given my take on the market and where the market’s going in the next three weeks. That’s really, really hard to do. What we found in the backtest is the put spreads worked really, really well, you know, through all kinds of markets.

Markets can be volatile. Markets are going to go down, but this strategy works selling put spreads really, really well.

But, again, there will be times where we make a change. If if it’s we’re clearly in a bear market, if, you know, markets are trending lower, you know, there there there could be plenty of reasons why we do that. But generally speaking, we’re buying these I’m sorry. We’re we’re selling these put spreads, which is a bullish, a bullish stance.

That being said, we are we are placing these puts, you know, several percentage points below the market. So, you know, you can make a lot more money if you if you sold the options right at the the current the current price. If the strike price, the income you would generate would be a lot higher, but a lot higher chance of losing money too because it would just have to go down a little bit, and you’d be in the red. So this way, we’re putting our, our strike prices, you know, kind of further down, further away from the current price. So there does need to be a drop for our options to end up in the money, which in our case is not a good thing because we’re sellers. So we want them to stay out of the money and deteriorate.

Why can I not get net credit to drop down, Steve? I don’t know. You’ll have to talk to Schwab about that. Any questions about why something’s not working with the broker, you’d have to talk to them and and get some help.

But, again, if if the term net credit isn’t as important as if you are able to place a spread trade and you have the sell strike higher than the long strike, you’ll have a net credit. That’s that’s, you know, how it works. Before, I I don’t know when they started putting in net credit as a choice, but it used to be you would just you would just set up the trade, without using the term net credit. In fact, if you’re using thinkorswim on Schwab, which is a trading platform, not their website, I don’t believe there’s a net credit option.

You just set up the trade, sell the nineteen ninety strike by the nineteen eighty, and it generates a net credit. So, that drop down isn’t as important. And even if even if it says net debit in there and then you set up the trade the way you wanted it with the nineteen ninety as a sale and the nineteen eighties of buy, it’ll show you that it’s a credit. It’ll it’ll change.

Rick says, overall, the purpose of that trade was so the trade the purpose is to generate income. So that’s what we’re doing here in weekly income alert. So we are selling put spreads, which put money in our pocket immediately.

And then in three weeks, if those options expire worthless, which is what we want, we just keep the money. If they expire in the money, so if the market comes down and those strike prices are now in the money, then we owe money. We have to settle the trade and money will come back out of our account. But this these trades have a very high winning percentage in our back test. Again, we’re selling them out of the money to increase our chances of of keeping all the money. So it’s to generate weekly income each and every week. Put money in our pocket every single Friday.

You said to trade the monthly, I have six twenty AM and a weekly six twenty. I would trade the weekly.

Interesting. Okay. So if you trade this the weekly I haven’t seen this. If you trade the weekly, you might have a PM, Friday afternoon expiration, in which case you would be able to trade it on Friday.

But as far as I know, the index options, I I have always seen AM expirations when it’s the monthly option, and June twentieth is the monthly.

So, when I when I brought up the Schwab platform, the website, I did not see a weekly option for June twentieth. I only saw the monthly. So the trade that we executed today is the one I was talking about. We’ll have a a morning expiration on June twentieth with the last trading day will be Wednesday afternoon.

If you traded the weekly, then you have until Friday.

So, that will, that will give you an extra day.

Saucy Jim says that I’m not yet filled.

What’s the max you can make? It’s the net credit. Yes, Joseph. It it is the net credit.

So what we’re what we’re doing, what this strategy is is lots of small wins. Right? You’re you’re you know, this is not the the trade that’s gonna generate a two thousand percent winner. You know, you’re not buying a option on a penny stock and and watching that stock go through the roof.

This is generating income every single week, in in small increments, you know, per spread. If you if you’re trading more spreads, then you can you can make more money. But, you know, do keep in mind, the risk and and and what you could lose. So never invest more than you can afford to lose.

So, yeah. So the net credit is what we’re generating every week and just, you know, putting money in the account every single week. That’s the goal.

Alright. Let’s see.

Not feeling confident executing the trade on my phone as the parameters presented are a bit different. I’ll have to try again next week in front of my computer.

Yeah. Do what you what you feel comfortable with, and you can always, you know, reach out to the broker, if you need someone to kinda walk you through things. I’ve found, usually, the the reps at the various brokers are pretty helpful. In fact, my my daughter, had to do something with Schwab for the first time and had to call them, and she said they’re really helpful. So, I I’ve found Schwab’s customer service to be pretty good and Fidelity’s as well. So, don’t hesitate to call your broker or chat with them online. They’re they’re usually pretty good about, trying to help you, you know, get to exactly what you want on the website and help you figure something out if it’s not if it doesn’t look exactly the way you’re expecting it to.

Did the back testing so this is from Dave. Did the back testing show that selling Russell options inside the expected move delta twenty five yielded an eighty six percent win rate? The expected move delta would be around delta twenty.

So, we did not backtest using deltas. We backtested using standard deviation, and so that’s what we, did. So the trades that we’re typically making are gonna be one standard deviation from the current price.

We did not backtest with Delta.

Beth, am I calculating this correctly? I make two hundred dollars on one thousand investment, meaning I make twenty percent on my investment in a three week time period. Yes. Absolutely. That’s exactly the way to look at it. If the trade works out as we expect it to, then, yes, you’d make twenty percent on, on your investment in three weeks. So, if we can consistently do that and and keep losses, infrequent and to a minimum, then we’re gonna do exceptionally well.

Leonard said he hasn’t been filled yet at two.

Just see. Is this trade better at a dollar ninety five or two zero five? So So it’s better at two zero five because we’re collecting the money. So we want we want that price as high as possible.

So, yeah, two zero five is is definitely better.

Not sure if you can get it at the moment. We’re seeing some people saying they haven’t been filled at two yet.

Because we all put ourselves below the mid at two in this case, doesn’t the market adapt and rip us all off? Seems that’s what happened.

It can happen. Absolutely. It can happen. So market makers do see all these orders coming in.

And, you know, when when when we have a trade, let’s say, at the Oxford Club that we are, putting in a stop or or a limit price, yes, the market especially on something that’s not very liquid, something that doesn’t trade a lot of shares or a lot of contracts. The market makers see that, and they and they may adjust their price to try to to try to rip people off.

With the spread, I don’t it it may happen a little bit. I don’t see it happening a lot because there there are two components to it. So far, it hasn’t been a problem. So far, we have been filled, right at at our price that we wanted.

But, certainly, they they see the orders coming in, and they may adjust the price. But keep in mind, you know, with the option, there there are a lot of factors at work here. If the Russell starts to move, then that option price has to move, and and the market makers may not be able to kinda hold that price where they want it in order to collect an extra nickel from you. But, again, that is one of the reasons that I do typically put my limit price slightly below the midpoint is just to increase the chances of getting filled.

But, yeah, the market makers can play games.

I I think it’s it’s less frequent less frequent with index options because, you know, the indexes are so liquid. Options are so liquid. I think it happens more with small caps and with infrequently traded options.

Joe said, I’m sure you’ve addressed this before, but how do you determine your strike prices? So, basically, as I mentioned, it’s, it’s roughly one standard deviation. A standard deviation is a measure of volatility.

Typically, a stock or an index will one standard deviation means there’s a sixty eight percent chance that, that the, index or stock will, be within, this envelope that is one standard deviation away.

So that’s how we do it. And, you know, sometimes I I will adjust a little bit one way or the other depending on the liquidity of the option. I don’t want to trade an option that only has two contracts of open interest. You know, I want there to be some liquidity. So I will move things a little bit. Usually, I’ll move it, a little bit further away from the strike price to, again, to give us a better chance of staying out of the money.

But, you know, when you’re trading it, if you wanna try to make a little bit more money, you might wanna move it closer. But, again, remember that that means you have a better chance of, of the option finishing in the money, and we want it out of the money. So anytime I make an adjustment, it usually will be, you know, further, further down and further away from the strike further away from the current price to increase our chances that, this option is a winner. This trade’s a winner.

So John says my order went in as a limit debit rather than a credit. What are the implications? So if you got filled at a debit, that means that you probably, reversed it and are long the higher strike price and short the lower strike price, and money came out of your account, and that’s not what we want. We don’t want that at all.

So I in in in that case, you know, I I if you make a mistake like that, I’d get out of the trade and, and reenter it, the correct way because, the trade’s all all wrong. You don’t want it that way.

So John says I’m seeing mid one eighty five, one ninety not filled yet. Yeah. Just leave it open. You know, that that could change as, as the day goes on.

One thing I do wanna mention, we wanna have our trades as good till canceled, not, I’m sorry. Day only, not good till canceled. Let me make that clear. We want the trade day only, not good till cancel.

Good till canceled means the trade will be open, you know, all next week, what have you. We don’t want that. We only want, this trade to be filled today, because, you know, options decay, and we only have three weeks to go. And if we didn’t get filled today, but we did get filled next week, then that probably means the Russell has come down a bit, and we’re it’s a little bit closer to our strike prices, and we don’t want that.

We want our price where the Russell is today. And if we don’t get filled, that’s okay. There’s always another trade, but, you know, we wanna make sure that we’re getting a good price for for our options. So, so keep it at the two dollars and, and have it good to the day.

And very often, you’ll put in an order, not just on this trade, on any trade with a limit price and, you know, you don’t get filled right away. And then an hour, two hours, even in the afternoon, you do get filled. So be patient. And if we don’t get filled, then, you know, we just move on to the next trade.

That’s not a problem.

Should we hold until notified by you to close the spread? Yeah. So the the goal is just to let it expire worthless. So, for this particular trade, June twentieth, if it all works out, then this trade expires worthless. We keep the money. We have a the first trade we made expires next Friday.

So, yeah, we’re we’re hoping that, we’re not have gonna have to make any moves next week, and we just let it expire on Friday and keep all the money. That being said, like I did mention earlier, if I feel like we do need to get out of the trade early, then I will send an alert, at some point during the week. So I will definitely let you know if if we don’t wanna let it, go to expiration.

Wouldn’t this is a great question from Ken Hurst. Wouldn’t trading one week out instead of three weeks capture time decay better and lessen the risk? Absolutely, it would, but you would generate much less income. Right?

Because there’s less risk. Remember, in the options market and and any any financial market, you get compensated for risk. So we’re trying to, you know, find a balance between keeping our risk as low as possible, and generating some income. So we could, you know, we could, do put spreads using leaps and and or, you know, options that expire in December if we wanted to, but that and and we’d make a lot more money, upfront, but our risk would be much, much higher.

You know, so the flip side is true if we’re trading one week options. So, yeah, our risk would be lower, much lower, but we would get paid much, much less. So we’re we’re trying to kind of find that that sweet spot where we’re generating enough income that it’s worth it and that it is generating positive returns, but our risk is fairly low.

So but that’s a a really, really good question.

Let’s see.

Jim says on Interactive Brokers, I have an open bull puts, like, open a buy bull put spread sell nineteen ninety by nineteen eighty at two dollars. Is that okay?

Yeah.

I’m just a little concerned about the the phrasing you mentioned. Hopefully, it’s just hopefully, it’s just the way that that you wrote it and not the way the order was placed because you’re not buying the put spread. You’re selling the put spread because it’s a net credit. But it sounds like you did it right. If you saw if you’re selling the nineteen ninety and buying the nineteen eighty, then that should be correct. But you’re technically, you’re not buying that spread. You’re selling it because you’re getting a credit.

So Ned says the Russell’s going up, so it’ll be difficult to fill at two. Yeah. That’s possible. We could also get, get another drawdown at some point during the day. Doesn’t mean what’s happening right now is a straight line.

So, again, keep it, you know, keep that limit where it is. Again, you know, you can do you can do what you want. If you decide you wanna lower your limit to increase your chance of getting filled, that’s up to you. But our official recommendation is keep it at two. I wanna I wanna try to, get, two hundred dollars on this trade and a twenty percent return on investment.

So JDS is a really good question. Schwab shows four levels of options, covered, long long spreads, and short uncovered. I’m currently only approved for covered, but these are all spreads. Correct?

Yes. These are spreads, so you would need to get approved. It it’s really not that difficult. If you are already approved for, covered calls, it shouldn’t be a problem to get, to get approved.

Just, not sure if you’ll have to refill out the form or not or just, contact a representative to find out, what you need to do to get approved for the higher level. But it should it should take a day or so. Let’s see.

Would I consider demonstrating trades in this service using two or three additional index funds like the Dow or S and P?

I’m not sure. That’s that’s a good question. Let me think about that because I don’t want I don’t wanna confuse people.

You know, the the idea is that we’re trading the Russell.

It’s it’s it’ll be the exact same process, exactly the same. You would just be a different ticker symbol.

So I I don’t wanna I don’t wanna confuse people and and have them think that that’s what I’m doing. You know, some people tune in late. Some people, you know, don’t stick around for the whole thing. So if they just happen to tune in at that exact moment, they might think that that’s the trade and and run-in to do it. So I’m a little hesitant to do that, but it’s it’s exactly the same. You just, you know, on Schwab would be dollar SPX for the S and P five hundred, for the Dow. Not sure what what they use for the Dow, but it it wouldn’t be hard to find out.

Joe says, let’s keep it simple while we start. Absolutely. Yeah. I do wanna keep this as simple for, you know, I know some of you are are very expert options traders. I can tell by some of the questions asking about Delta and things, but there are a lot of people who are doing this for the first time. So I do wanna keep it as simple as we possibly can. And then, you know, as the weeks and months go by, you’ll all be much more familiar with things, and then we can start, you know, making things a little more intricate.

Emily says I was not approved at Schwab. I don’t know what they wanted to see in the application, but they want me to paper trade for six months.

Interesting. So that could be if you said that you have no options experience or, you know, no trading experience. That could be one of the reasons.

Hard to say. As far as paper trading, I don’t know how I I don’t know if if they’re asking you to paper trade on their system or if if you could say, well, I have been paper trading. I’m not sure how that would work. You definitely, might wanna contact them and find out exactly what you need to to do to get approved, in order to trade this way. And, by the way, if you are brand new at this, you know, paper trading it for a few weeks is not a bad idea at all just so you kinda get familiar with how the market works, how the how the trades are working. You know, you can watch them, every day and see exactly how that’s working.

Let’s see.

Schwab won’t fill mine even below the mark price and told me it’s because this is only in a couple of markets, and it’s hard to fill.

That’s k c y twenty three. Are you sure you had the the dollar sign r u t? It’s the Russell two thousand index. It’s not an ETF or, some other some other ticker because, you know, the Russell two thousand index should be pretty easy to fill.

Will you ever roll your put spreads down and out to avoid an in the money position?

Yeah. I mean, basically, that would just be closing it out. And, so I let let’s say we we had to close it out on Tuesday.

Basically, there’d just be another trade on Friday, so it wouldn’t technically be what you’re talking about where you’re you’re just, you know, kinda rolling it over like that, but it would it would be similar. We we we would be closing it and then putting on a new trade on Friday.

Let’s see.

Oh, this is interesting. Jay Ship said Schwab initially declined me, so I called them and they gave me a test over the phone. I couldn’t answer any of the questions, but I explained what I was planning to do with this method, and a day later, they approved me. Alright. That’s great insight, j Ship. Thank you for sharing that. And, also, for anybody who is new, we do have, an options master class on the website.

So definitely check that out, and that might help you answer some of their questions as well, if if you if they do give you a test. So Casey y says, came back with it and said, yes. It was only three or four places that do spreads. I’m not clear what it means by three or four places.

Again, this is this is a the Russell two thousand index. It’s traded, you know, by every broker.

These these options are liquid, so I’m not exactly clear what the issue is and what they mean by only three or four places trade it.

So you’ll have to go back to Schwab and and and find out exactly what that means.

Kathy says Russell has climbed almost fifteen points. That’s why the fill price has gone down for the puts. That makes sense. Again, we’ll we’ll see what happens, the rest of the day.

And, you know, one thing you could do again, this is not the official recommendation, but if if the Russell’s gone higher, you know, you can move your strike prices a little bit higher and then see if you can get filled at the limit. But, again, you know, any any advice that I’m I would be giving it, you know, in the future about this trade, whether to close it out, whether to let it expire would be about the strike prices that I have recommended. So if you do, if you do go rogue and do it on your own and adjust the strike prices, just keep in mind that I will not be making recommendations specifically about your strike prices and how to handle that.

I’m not allowed to give personal advice. So if you say, hey. I I sold the two thousand and nineteen ninety put spreads. What should I do?

I can’t tell you. I can I can only talk about what has been officially recommended?

Oh, let me see. Says, I’m not quite sure to what a paper trade refers.

So paper trade basically means you’re you’re literally doing it on paper. You’re, you know, writing it down, saying, okay. I bought this. I sold this, and and keeping track of it.

Now I know on Schwab’s Thinkorswim, platform, you can basically do it electronically. So you can see in real time, you know, with real execution, you’re not getting filled. You know? There’s no money at stake, but you would see, you know, if you place an order, would it get filled or not?

And it and it keeps track of your profit and loss. I don’t know if you can do that on their website or not.

So so, you know, there may be official ways of doing this with the broker, or you can just keep track of it yourself and say, okay. I I bought this. I sold this. Oh, today it’s up, forty five dollars, you know, and then the next day, it’s down a hundred dollars, and and you just kinda keep track.

And then, oh, we closed out the position, and I I netted a hundred and twenty dollars. And that that’s all paper trading is. It’s, it’s basically trading, but you’re not using real money, and you’re you’re watching to see what would happen if you made those decisions in real time. And and the the thing about paper trading is, you know, you have to be honest.

So, you you know, when you write down the trade or you enter it in, you know, onto your computer somewhere, you know, you you you don’t wanna do anything to make yourself feel better and say, oh, well, I’ve I I wouldn’t have done that. I would have done this, you know, in hindsight. You because when there’s real money at stake and there’s real emotion and you hit that button, you know, it’s for real. So when you, quote, unquote, execute that paper trade, even if it’s just writing it down on a piece of paper, that, you know, that’s the trade that you made and stick with it.

So you can see how you actually performed in real market conditions. That’s that’s pretty important.

Edison says, can you keep can you recommend a way to keep track of these trades?

So, I mean, you can do it, well, your broker will certainly do it for you. So that’s, you know, that’s the the easiest thing. You’d you’ll just look in your brokerage account, and you’ll see all the all the times you’ve traded the Russell two thousand index. All the trades will be there, and it’ll show you, what each position has done.

And so now keep in mind, it will show you what I’ve seen is it’s gonna show you individually. So it’s not gonna show you the spread necessarily. So we sold the spread for two hunt for two hundred dollars. If we’re up a hundred dollars, it’s not gonna say we’re up a hundred.

It might say, one of the puts is up two hundred and the other put is down one hundred. So there’ll be a a profit and a loss on each put in each position. And so, you know, the difference between those is your profit and loss on the entire position. But your broker definitely has it, or you can put it in a in a rough in a, Excel spreadsheet.

That’s a a real easy way to do it. And then there’s other, software out there that, you can keep track of those kinds of things. There’s one and you have to pay for it. It’s called TraderSync.

But that, you can take it right from your brokerage account into your into this platform, and you can put notes in there.

And and there’s all kinds of things you can do in there. But, again, you have to pay for that.

And, there there’s lots of things like that that you can do. But the easiest thing is just just log on to your broker’s website and and look for your Russell two thousand index option trades.

A tally says, are all these trades held until expiration? That’s the goal.

Might not always happen. Again, we’re talking about the first trade that we made a few weeks ago expires next Friday, and, the Russell is, you know, a little a little closer than we would like it to be to the prices. And so depending what happens next week, we may exit them, but the goal is to hold them till expiration. Yes.

Trade is telling me I don’t have enough cash buying power. I have fifty thousand dollars in cash.

Well, if you’re trading one spread, that shouldn’t be an issue. So I would definitely talk to your broker, because one spread, all you need is a thousand dollars, buying power. That’s all you need.

So I reckon that’s a great question. Can this be assigned?

Really, really good question. So when you’re trading an ETF or a stock, an option can be assigned. So if you’re selling puts, that means that put that can be put to you. You have to buy the stock or the ETF.

If you’re selling a call, then the stock can be called away from you. With an index, it there is no thing to be put to you. You cannot be forced to buy the index, or or or to sell it. So what happens is the, the you’re on the hook for the cash difference.

So in other words, if we if the Russell two thousand falls below our long put strike price, we are on the hook for a thousand dollars. K? The the the most that will come out of your account is a thousand dollars per spread.

And but remember, you’ve you’ve kept the credit. So if it’s two hundred dollars, you’ve kept two hundred dollars, so it would be eight hundred. But, basically, if it’s assigned, you’re just on the hook for the difference for for, basically, the intrinsic value, what they call it, of the the put. So if a if a, if, let’s say, the the Russell went all the way to nineteen hundred, the market crash went to nineteen hundred.

So your short put is ninety points in the money. So you would owe, nine thousand dollars.

I’m sorry, ninety thousand dollars. But your long put is I’m sorry. It’d be your long put it it would be nine thousand dollars. Your long put is eight thousand dollars in the money, so the difference is only a thousand dollars.

So so that assignment would happen simultaneously, and you’d only be on the hook on the hook for a thousand dollars. So if something’s assigned, the the most you can, be assigned the the most cash that will come out of your account is the difference between the strike prices times a hundred. So in our case, the spread is ten points wide. The most that can come out of your account is a thousand dollars.

If you’re trading a five point spread, so if instead of buying the nineteen eighty puts, you bought the nineteen eighty five puts, So that’d be a five point spread. It would be five hundred dollars. If you sold the if if you bought the nineteen seventy, that’s a twenty point spread. So the most that would come out of your account would be two thousand dollars.

So that’s how it works. So so the most that will come out is, the difference between the two strike prices times one hundred.

Let’s see.

I got filled at a dollar ninety four. If you don’t get filled on this spread, am I on my own to manage it?

Great question. So, like I said, technically, I can’t give personal advice, but I know that there are gonna be people who are in the position.

So we will certainly address it. We’re not gonna leave you hanging. You know, if if you like I said, if you totally go rogue and do something, you know, that’s a a completely different trade than something I recommended, then, then I pretty much can’t help you. But, yeah, on something like this, I’m not gonna leave you hanging. So we’ll we’ll certainly discuss it, you know, throughout the weeks.

Thinkorswim list two different twenty June options. One is listed as AM. So, that’s Richard d. So as I mentioned earlier, I hadn’t seen that before.

So, I did trade the AM option. So for our our purposes, it’s the AM. If you prefer the PM, and be able to actually trade it on that Friday, you can. But for our purposes and official recommendations, it will be the AM option and, which means that the last trading day is Wednesday next month.

Usually, it’ll be Thursday, but next, next month, Thursday is a holiday.

Maria b. Assignment. Russell only gets assigned the day of the close and not earlier. Is that correct?

Yes. Actually, thank you for reminding me. That was another key point I wanted to mention earlier about why we’re trading index options versus the ETFs. I mentioned the tax advantage, which, again, on a capital gain, if you’re trading index options, sixty percent of the capital gain is taxed at your long term capital gain rate, while an ETF, a hundred percent will be at your short term capital gain.

So so you don’t get that lower tax advantage.

But Maria brought up a great point.

Index options assignment is European style, which means they can only be assigned at expiration. An ETF is American style and can be assigned at any time. So if the market falls and our options are in the money and you have you’re trading IWM, which is a Russell two thousand ETF, if you’re trading that, you could be assigned at any time.

If you’re trading the Russell two thousand index, that cannot happen. It can only happen at expiration.

So market absolutely tanks, falls off a cliff on Monday, and you have the Russell two thousand, you know, our options wouldn’t be in in great shape, but we’d have two weeks for them to come back. And, and if they did, then no harm, no foul. Whereas if you if you own the ETF, there is a chance that you could be assigned early. So that is another reason that we trade the index option rather than e ETF so that we don’t have to worry about getting assigned.

And when it comes to being assigned, and I’ve talked about this before, when options are in the money, it doesn’t happen a lot that you get assigned early. It it usually does happen at expiration, but it does happen sometimes early. It’s happened to me on a covered call years ago. I was I was shocked, and and I wasn’t that far in the money either.

It was it was a couple of points, and, you know, whoever whoever I’d sold the call to, decided to exercise. So they, I I had to give up the stock. So it can happen. So, you know, do keep that in mind if you are trading an ETF instead of the Russell.

This is a great question from Emily. If you have to close the trade, can you close both puts at the same time? Absolutely.

Just like we executed the opening trades at the same time, you would do the same. You would say buy to close the short position, sell to close the long position, and, and you’d put it in there. And that’s one of the neat things about trading spreads, and it didn’t used to be like this. And many years ago, you’d have to place the trades individually, separately.

And now, you know, almost all the brokers allow you to enter it as a spread so that it’s only executed if both positions are going to be executed. So you’ll never if you enter it as a spread, you’ll never just have a long put position or just a short post. It it’ll it’ll always be together. And so then, yes, you can close it, and you should close it, at the same time, same way.

Is it always a thousand dollars per contract, or does the amount owed fluctuate?

If we keep the ten point spread, the same if it’s always a ten point spread, then it’ll always be a thousand dollars. The only time that will fluctuate is if we widen or tighten the spread. And remember that the net credit will will change, obviously, week to week.

So, so the, the max loss will change. But if the ten point strike is the same every week, then the maximum that would ever come out of your account, on assignment is a thousand dollars per spread. And, again, if, you know, if you kept if you sold a credit for two hundred dollars, then you’d lose eight hundred. If you sold it for four hundred dollars, you’d lose six hundred. So, so that will change. But, yeah, a thousand dollars if if we’re doing a ten point spread.

This is a bull spread. What was your basis for being bullish over the next three weeks? So it’s not a a bullish, point of view. It’s this is what worked in the back test is is the bull put spread pretty much worked throughout, you know, throughout our backtest period, even when when markets were down.

Again, you know, we are placing the the spreads out of the money, and so that’s what work. We we can change it up. Like I said, if if we get into a a a bear market, we certainly can. But I’m just going with what the backtest showed us, that these bull spreads, you know, this far out of the money, three weeks up you know, three weeks till expiration were the best combination of variables that had the best results as far as the win percentage and total return.

You know, lots of those things can be tweaked and changed if you wanted to, and we experimented with all of them. But that’s what, that’s what worked the best. And, actually, next week when Anthony is on, Anthony was the one who conducted the back test. So a lot of these questions will be really good for him because he can really get into the the nitty gritty of the back test and what was tried and, and and perhaps what I’ll ask him to to have some of the results, with him in case, you guys are asking about that.

But, he’ll be really good at that because, basically, that’s, you know, that was a bit that’s a big part of his job is is backtesting these systems that we come up with.

Was your testing on one option or more per week?

Kinda doesn’t matter because the the results will be the same. It you know, if if we’re selling one put spread and we made two hundred dollars, if we sold ten and we made two thousand, you know, the overall return total return’s gonna be the same. The the return on investment, the, you know, the maximum loss obviously would be higher the more, but that’s pretty much gonna be the same. I don’t remember offhand if we used one spread or or ten, but I I I don’t think that was an important point.

What really is the name of this strategy, vertical credit spread or bull put spread? Both, basically. So, you know, Schwab calls it a vertical.

I think Schwab was calling it a vertical put spread, and we’re selling it for a net credit. So you can call it a net credit spread. You can call it a a bull put spread.

By saying it’s a bull put spread, that implies that it’s a credit spread. Because if you’re bullish, then that means you’re selling the higher strike and buying the lower, and that would be a credit.

Let’s see what else we got.

Jeff says, yeah. Didn’t you say earlier, that advantage to trading index options that they aren’t assigned but settled in cash? Yeah. That’s exactly what I was talking about earlier. So, if if we’re we end up in the money at expiration, then, yes, it’s just a cash assignment, and you you don’t have to buy an index, buy a stock, buy anything. It just just, you know, the thousand dollars per spread comes out of your account.

What’s the difference between buying a bull put spread and selling the bull put spread at a credit of two dollars? So, technically, you’re you can’t buy a bull put spread for a credit. So what makes something a bull put spread is that it’s selling the higher strike and buying the lower strike.

That’s what makes it bullish because if the market goes higher, then your options expire worthless and you keep all the money. So that’s a bullish position.

So you can’t technically buy a bull credit spread because the only way it can can be a a a credit put spread would be by selling the higher strike, buying the lower. You could buy a, a call credit spread, but, we basically, when no. I’m sorry. That’s not it’s not right. You you if it’s a credit spread, you’re selling it.

That’s how it works. If it’s a debit spread, you’re buying the spread.

Now, you know, we’re kinda getting into, into linguistics a little bit technically. You know, you executed a a a bull put spread or a net credit spread. It it kinda doesn’t matter if you are claiming you bought it or sold it.

It it if you’re just talking to somebody, but, technically, you you’re selling a credit. To get the credit, you have to have sold it. Basically, it’s it’s selling the spread versus buying it. So, yeah, and we’re kinda getting to semantics a little bit. But How do I know if there’s a gain or loss if I close out the first May sixteenth trade?

So you have to go to your broker’s site, or or go to your account, and you’ll see exactly what each spread is is worth and and the gain and the loss on that I’m sorry. What each option each put is worth and the gain or the loss on it. So if one one option is now worth fifteen hundred dollars and, you’ve lost fifteen hundred dollars and the other you’ve made seventeen hundred dollars, then the put spread, has made two hundred dollars.

So, you know, go to your broker site, look at your account, and you’ll see what the those individual puts are worth and just, you know, some quick math and to see, what the the win or loss is. And and and and it’ll show you, you know, the profit or loss for each option.

I just don’t think they show it for the spread itself, so you’ll just have to do some quick subtraction.

Interesting. IBKR made me build a bear put spread and then sell to open. So, again, this is a bull put spread that we’re that we’re trading. We want the strike that we’re selling to be higher than the strike that we’re buying. That’s what makes it a bull put spread. A bear put spread is the opposite. We don’t want that, and that would not be for a credit either.

So Fitz says, so you make two hundred dollars that meet. At the end of the weeks, you get two hundred dollars. Technically, you get it today. Technically, that money hits your account today, but you have to keep a thousand dollars in your account in case the trade goes against you. So you can’t just take the two hundred dollars, close the account, and and and run.

So the two hundred dollars hits your account today. And then at the end of the three weeks, if the option has expired worthless, then, then nothing happens that your account is two hundred dollars higher. If if we take a loss, then money comes out of your account at that time.

But, yeah, the money hits your account today. You don’t have to wait for three weeks. You have to wait for three weeks till till it’s officially, a gain, and and the account is closed and, I mean, the the position is closed and nothing else has happened. But, that’s, you know, that’s the account. The money hits your account right away. So as long as you have the money in you have other money in your account to, to be able to, handle assignment if if the trade is a loser, that thousand dollars per spread, then, then, yeah, you can do whatever you want with that money.

Alright.

Alright. One last question. Mike says, what’s the difference between the weekly and the the six twenty weekly, six twenty AM? So, again, the six twenty AM means that on Friday, June twentieth, the option expires at the opening. The open price of the Russell two thousand will be where it expires.

We and, typically, on an AM expiration, the last trade will be Thursday afternoon, like, right at the close. But Thursday, June nineteenth is Juneteenth, so it’s a holiday. So for that trade, it will be the last trade will be Wednesday, June eighteenth at the close. The weekly options close the expire on on the afternoon of Friday, June twentieth.

And the trade that I entered today was the AM option, not the the Friday option. If if you if you did the weekly, that’s not a problem. Just you’ll have an extra day to close out the trade. But any recommendations I’ll be making will be about the, the the morning option.

And if we have to close it out early, I would have to close it out by Wednesday afternoon, June eighteenth. Alright. So we’ve gone over an hour, so I’ve gotta run. But, if you have any other questions, definitely send them in, and, and come ready for your questions with back testing for Anthony next week.

He’s I know he’s gonna do a great job. He knows the system backwards and forwards. So, have a great week, everyone, and I will talk to you soon.