Weekly Income Alert – June 20, 2025

Good morning.

Hopefully, you all got to enjoy, those of you who are fathers, Father’s Day this past weekend. I know I did.

I happen to be a pretty big scotch drinker, so I got a very nice blended scotch from my wife that I’m still enjoying.

But, overall, it’s been a really good week for us in the portfolio.

If you got the update on Wednesday, you know that our position was closed out because of the holiday yesterday.

So we already closed out another win in our portfolio.

So that’s three in a row.

Hopefully, you’re excited about that.

And right now, it looks like the market is still moving in a pretty good direction even though we had some freak-out last week because of the situation in the Middle East.

As expected, things have kinda normalized in the market. I’m actually gonna share my screen real quick.

Probably hear my, whoops, my daughter in the background.

So, yeah, we still have a pretty solid trend line here.

And, you know, again, we’re pretty much going to stick with the strategy as is unless we have a very clear reason to change course.

So, I mean, you know, as you can see, I mean, things are pretty much still, you know, very much following an upward trend.

Let me delete this here.

I just marked some of our short put, strike prices just to kinda show how we’re following along this trend right below, but just far away enough that, you know, by the time you see some pullback action, it doesn’t quite ever closes out.

So, you know, overall, I think that this has been working out very well for us, and we’re gonna continue to do that. There’s still some concerns about how things could, work out as far as Iran and everything going on over there, but I think it would be best for us to just continue with our puts, credit spreads.

I mentioned last week that one thing we could do if the market really went against us was switch to a call spread strategy, which would basically be done in the same way, but with calls to the spreads.

Right now, again, doesn’t seem like we need to do that, so we’re just gonna go ahead and implement our strategy as usual.

So right now, we’re looking at, roughly twenty one twenty on the Russell.

So three percent below that.

Let me go ahead and calculate that real quick. That would be about twenty fifty six. Let’s say twenty fifty five.

So we’re probably gonna go with that as our short, strike on the puts. So let’s go ahead and open up Schwab and see how we’re gonna set up this trade. And then afterwards, I’ll also go over Fidelity. So I’ll share my screen in a second.

Okay. So just as a reminder, the strategy is on the Russell, and in Schwab, you want to, as you can see here already, you want to put in the dollar sign then r u t.

It’s not going to show RUTW here, so if you type that it’s gonna come up as basically kinda like an error. I’ll just show you real quick because I know that comes up a lot.

Right. So you just wanna go ahead and put r u t w.

Okay?

And here we’ll switch to vertical put, and here is where you would be able to choose RUTW if that’s the option that we’re trading.

So we’re going to be looking for options expiring three weeks out, so that would be on the eleventh of July, which means that we gotta look at the weeklies. So let’s go ahead and click on RUTW, and then July eleventh, And then we said roughly three percent below where the market’s at now. That’s about twenty fifty five on the short put.

So the short put is the put that has a strike price closest to the current price of the index, and the long one is further out, which in this case would be below twenty, twenty fifty five.

So we’re going to go with ten dollars below that strike price. That’ll be twenty forty five.

The short put is what we’re selling, and then the longer put is what we’re buying.

So that’s why it’s called the short, short put. We’re selling or shorting it, and the long one is a long position because we’re buying it. K.

Here we’re gonna make sure that it says credit, not debit.

We are trying to gain income from this trade, so you wanna make sure it says credit.

Okay?

That’s another thing I saw come up in some people’s, chats last week.

And when we choose a price to trade, for the position, we wanna make sure it’s pretty much right between the bid and the ask. So that’s gonna be this number here.

And to help get filled, we may go a little bit below that number.

So, for example, right now, it’s kinda floating between two fifteen and two ten, so we may just go with two ten in this instance.

K.

Yeah. It’s yeah. It keeps going between those two, so we’re gonna let’s just go with the two ten.

K. So that means that we are trying to get roughly two hundred and ten dollars per a single spread trade from this, and our capital at risk is the difference between these two strike prices. So that’s ten dollars times a hundred because an option represents roughly, control over a hundred of whatever the underlying stock or index or ETF is. So that’s ten times a hundred is a thousand.

So that’s a thousand dollars, and then we’re gaining a credit two ten.

So our actual risk is about seven ninety, and then the two ten is what we’re trying to gain. So two ten over seven ninety is twenty six point six percent. So that’s roughly what we’re expecting to get from this trade as a return.

So if it expires worthless in three weeks, we keep all of that.

If it, if we either get out early or if we something happens and, you know, the trade goes against us, we know what our max loss and our max reward is in this instance.

So the seven ninety is our max possible loss, not including fees and things of that nature, and that’s per spread rate.

And then, again, you know, chances are we’re gonna end up keeping all of this premium if our strategy continues to work as possible. But if you get out a little bit early or for, you know, a couple cents, before expiration on these, then you’ll probably still keep a significant portion of this net credit.

So at this point, you got everything filled out.

Review order.

And you would, at this point, go ahead and place the trade.

Now another thing now before people do it, another thing I’m gonna do is show this in fidelity, but I do wanna go back because I wanna show people, Hold on a second.

Where’d it go? Okay, here we go. Oh, it all restarted on me. Let me go back. Yeah.

Everything just restarted on me, but I just wanted to show, where you see you see how it says full quote?

This is not the right trade.

Twenty forty five.

This is where, people were asking where you would see volume and open interest.

So, obviously, we wanna make sure that there’s a good amount of volume on these trays so you guys can all get filled.

But, this in Schwab is where you would look to see that.

Okay.

You wouldn’t unfortunately, it doesn’t just automatically pop up, so you do have to do that. I already looked at this earlier, so, you know, I see that there’s plenty here.

But, that’s how you’re gonna look that up if you wanna see how much volume or open interest is in that trade. Okay?

So I’m gonna go ahead and put in the details for this trade into, trade alert, and then I’ll go over how to do this in Schwab I mean, in, Fidelity.

So let me go ahead and set up that trade alert.

I’ll just leave it on the screen for now.

Just give me one second.

Okay. We got the July eleventh.

And we said, two ten would be the limit.

Okay. So I just sent that trade alert through.

I see some of you went for the twenty, fifty, twenty, forties, which if you that’s what you wanna go with, that’s fine.

Also, I see one person before I get into the Fidelity, how to do it at Fidelity. Someone said you use three percent and Marc has referred to one standard deviation.

Yeah. So I, think it was about two weeks ago. I went over where the three percent is coming from is basically in our back test. We, were looking at the average weekly return on the Russell, and then we wanted to look at a statistical analysis of that to see what would be the best percentages below the index to trade these credit spreads.

And we looked at one standard deviation below, which basically meant about three percent below the index. So that’s where the three percent is coming from. So it is the same thing.

And the number does technically change over time, but we found historically that it almost always averages out to about three percent. So I’m just using that as a default, but, you’re right. Marc was referring to the standard deviation. That’s what he was referring to.

Okay. So let me, explain the difference between limit debit and credit. Right. So for credits, we’re trying to gain income from these trades. So a credit means that we’re gonna get a credit in our account until the trade actually closes out, and then we receive the income.

A debit would imply that we’re spending money on the trade versus getting money from the trade. So we just wanna make sure that when we select order type, the work credit is in there, whether it says net credit or limit.

If you you if you do debit, you know, you’re not doing this the trade the correct way.

Okay. So let me go ahead and open up Fidelity and get that started.

Let me switch screens.

Okay. So this is Fidelity, And, if you’re in Fidelity and you’re used to opening up the trade option I mean, just try the option to trade symbols for here.

You see it has a dot instead of the dollar sign that we saw in Schwab.

So we’re gonna go ahead with that option chain.

So here you can either do custom and set it up this way, buy to open well, not sell to, open buy to open.

You can put in a little bit more manual details here. They’re gonna be puts, the expirations.

Okay.

But as you can see, these are already showing the weeklies in addition to the monthlies.

So you don’t have to worry about the w like you do in Schwab here.

K. So we’re gonna go with July.

We said twenty fifty five.

Wrong way.

K. You see here it says net credit.

Wanna make sure that’s right.

Midpoint between the bid and the ask.

Same as Schwab is about two ten, and then you would go ahead and preview trade, execute trade.

So it’s not super complicated in Fidelity either, but, you don’t have to worry about the w for the weeklies. It’s a dot instead of the dollar sign.

And, here you could individually set up each one so that it creates the net credit trade for you.

K. Here it’s actually convenient that it shows you the max loss.

So, you know, I was just calculating it for you in the up per previous trade, but it shows you right there.

So that makes it a lot more easy.

Okay. Now let’s see some of these questions.

Still not filled.

I mean you could just give it some time if you’re not filled by you know, the end of the day.

You can you can keep the trade open by either putting in a good till cancel order or, you know, if it’s canceled by the end of the day, you can always try again on Monday and, you know, choose a different midpoint or excuse me, a different limit price based off the the midpoint of the bid in the ass. I usually like to make sure that, that I prefer to use a a cancel order by the end of the day, but that’s a matter of preference.

You could do a good till canceled, because if it’s not filled today, I probably would personally change the the limit price on Monday or whatever to see if I can get filled. But we’re gonna be tracking these based off, you know, the the limit price we set on on Fridays when we do these trades.

So if we don’t get filled, we’re just not gonna count that trade in our portfolio.

K?

So, you know, what you guys wanna do, individually, you know, is fair game.

But as far as how we’re tracking it in the portfolio, you know, this is our limit price.

And if we don’t get filled, it won’t be in the, portfolio.

We may still roughly look at the trade knowing that some of you got filled and and, you know, kinda comment on how it’s doing, but it won’t be in the track record officially.

So okay. Let me see other questions.

Tastytrade. I’ve never used Tastytrade.

I don’t have an account with that, so I’m not sure what you would need for that.

I’m sure I’m sure you can reach out to them and ask, but, most brokers, it depends on how they kind of list the different tiers.

But most of them you need a what’s called tier two for certain types of options or tier three.

So sometimes they’ll start with tier one, tier two, tier three.

Sometimes they’ll start with tier zero, then tier one, tier two. So that’s kinda where it’s, different between brokers. But if you either go on a website or if you contact them, I’m sure they can tell you which one you would need for a tasty treat.

Calculation or breakeven would be nice.

Yes. So earlier, I mentioned, the max loss and the potential reward on this trade if everything expires worthless.

If that’s the calculation you’re referring to, I did that earlier on but maybe you missed it but basically we’re expecting two ten in credit and seven ninety is our max loss on the trade so that ends up being roughly a twenty six percent return if everything goes our way, everything expires worthless.

Give or take if, you know, if we get out early and, you know, close the the spread, you know, by paying a couple cents or something like that, you know, maybe we would have a little less of a return, but that’s the expected, return.

And so far, that’s been working out for our past trades.

So it’s usually, twenty to somewhere in the twenty to thirty percent range for these weekly spreads. Well, weekly trades, I should say.

The spreads themselves expire every three weeks.

My trade for six twenty has not closed with Schwab. Is there a reason?

Thought it would end on Wednesday.

Oh, right.

So and I tried to be nuanced on how I worded it in the update. So the trade itself, the expiration date is today, but the trade the the last day to trade it was Wednesday because yesterday was a federal holiday.

And today, you can’t trade it because it, goes based on the the morning price.

So that’s that’s what we were trying to say that the the trade is effectively official at that point.

You can’t get out of it.

You can’t try to sell it.

So it didn’t quite expire on Wednesday, but that was the last trading day.

So the trade is basically done with. So whatever happens, happens. And we’re we’re good. So we are going to close it out for another win.

But if we wanted to, we couldn’t have traded it today or yesterday.

Wednesday was the last day to do that.

When will portfolio section be populated? With the new trade right.

So we have someone that, after I send out the trade alert or Marc sends out the trade alert, they will go in and fill in the portfolio, and they will get the trade, at the price that we got filled at. So until that happens, you’re probably not going to see it, but someone will, update that shortly if we get filled, relatively soon.

Otherwise, I’ll you know, we’ll we’ll definitely let you know if we we didn’t get filled, but it hasn’t been an issue yet. So we will keep monitoring it.

Are you saying that you have not been filled at two ten yet?

No. I’m I’m only saying that in general when people make these trades, sometimes they’ll say, oh, I haven’t been filled yet. And, you know, sometimes if it’s not immediate, you just need to wait either a few minutes or maybe an hour. I mean, the the the options themselves, the prices are going to change a lot. So if you don’t immediately get filled, it’s not the end of the world.

The question is if you don’t get filled by the end of the day, what do you do? And at that point, you know, we’re not gonna change the limit price that that we issue in the trade alert. But if you wanna still be in the trade and you decide you wanna change your limit order or you want to, or if you set up a good till cancel or whatever the case may be and your trade is still trying to get filled by Monday or whatever, you know, we’re not gonna keep tracking the trade if we didn’t officially get filled ourselves.

So Marc is trading these in his actual account in his actual brokerage account, and that’s what we’re basing our fill prices on in the portfolio.

He’s on vacation right now.

So right now, he’s not trading these, but that’s where we get to fill prices.

And if he’s not actually filled, it’s not gonna be in the track record. So that’s what I that’s all I mean by that.

See, now I just canceled.

You need to have a margin account to do spread. That’s what happens when you ask for a higher level to trade.

Yeah. So you’re gonna want, to be in the right tier to make certain kinds of trades, and that’s something that you apply for with the brokerage account. It it’s just like a little, questionnaire or survey.

It usually doesn’t take very long for them to put you into the right tier if if you answer the questions the way they wanna hear.

You know, sometimes it could be a little delayed depending on I I mean, they do have someone personally look over the the application, but it’s it’s like a very short survey. It’s not a it’s not like, you know, applying for a mortgage or anything.

So usually, it’ll take a a few days.

You know, so I last week, I was having problems, and I they didn’t get back to me in a reasonable time. But depending on which brokerage account, you wanna make sure that you look up what tier you need to make spread trades and then, apply to be at that level.

Will you please go over the July third trade? Yeah. So, let me open up.

Hold on one second.

Yes. Our July third trade has strikes at twenty forty and twenty thirty.

So, here I I’m I’m just putting the short strikes for different trades.

That’s what these lines are.

So as you can see, you know, we’re fairly clear as far as, where the index is right now from our strike.

And this is July third. So, I mean, it would have to fall all the way down to here for us to feel like we may have a problem. And even then, that doesn’t necessarily mean that we’re gonna hit our max loss or anything like that.

It just means that, you know, we may not keep the maximum credit or it depends on exactly the situation. But, you know, the we’re not we don’t necessarily have to worry that we’re always gonna lose, the max loss in these trades if we can avoid it. But, basically, you know, right now, it looks like everything is fairly clear as far as the trend line.

Even if we had a bit of a let me go ahead and put a k. Even if we did have a bit of a pullback, assuming it stays within this range, we should be fine.

If we do see a breakdown here let’s get some stuff on here.

K. That’s not k. Hopefully, you can see that. That’s not necessarily that far down. Right? It’s about four percent.

But, you know, again, that’s not typically what we see on a weekly basis as far as a move.

So doing the strategy, we tend to be clear more times than not. So I’m still not worried about it. I mean, it can look like that’s not far, way down, but, you know, that was also the case, you know, here and here and, here, and and it it didn’t hit our strikes. So right now, I think that we’re doing very well on that trade.

And if it does start to really strongly pull back sometime next week, you know, maybe we will consider getting out early or getting out at a price that we can keep a good amount of our net credit. But, otherwise, the game plan is to just let it expire and to keep that maximum credit so we can move on and keep making more trades.

July eighteen AM or day.

The trade was for July eleventh, so I just wanna make that clear.

I know this this comment was maybe ten minutes ago, but in case there’s a confusion, I just wanna make sure it was July eleven.

What is mechanics if we had to close out early?

Right. So that would consist of, basically, when we create the trade, it’s a, spread.

So while there’s two parts of the spread, the, the the option that we’re selling and the option that we’re buying, they still operate together as a single trade. So we would be buying.

So it’s a net credit, meaning that we’re we’re selling more than we’re paying for the other option.

So instead of, simply exiting the trade by selling it, we would actually be buying it effectively, but at a really low price. So we would be keeping most of the money we made when we sold the spread, and what we’re buying back would be less than what we gained from that net credit.

I’m still sharing my Okay.

So at what price does Russ have to stay above to make some money?

If I understand the question, I think you’re saying not so how much are we going to keep if, let’s say, it’s below our short strike, but it’s not below our long strike? And, that will obviously depend on where exactly the index is and, how much time we have until expiration, as well as the volatility at the time that that we are looking at the index.

But overall, as long as it’s not the long our long put, we probably can keep some portion of our credit.

Again, it still depends on other factors because, you know, the pricing of these options are based on volatility and the likelihood of where the index will be at the expiration date. So it’s hard to know all that in advance, which is why once it starts to get close to the short strike, that’s when you want to start, you know, thinking about what you wanna do next.

You don’t wanna necessarily wait for it to completely go below it.

And we haven’t really had that happen yet. But, overall, it’s it’s not a worst case scenario.

Like I said, you’re not necessarily going to immediately lose your max loss or max capital at risk, but we can start managing the trade once it’s getting close to our short strike, especially if, let’s say, we have only a week left in the options, from expiration.

If we have, let’s say, two weeks left, you know, things could probably bounce back up. We probably don’t really need to worry about it quite yet. But if we’re in the last week and the index is really close to our strike price on the short put, you know, we might try to manage to trade to, minimize either a potential loss or just to keep as much as the credit as possible, and we’re still gonna walk away with a win in that case.

What effect would changing of stock positions in the index have on this move?

You mean the, the the the component members of the index?

That’s not really something we focused on in the back test. I I don’t really think that it would have much of an effect, so it’s not something that would affect our strategy.

It’s an interesting point that I think I would consider maybe looking into if when these, when the index is kind of rebalanced and and new members are added, whether or not there’s a unique effect that we can maybe exploit.

So I’ll definitely look into that. But as of right now, I don’t see it affecting our strategy at this point.

It hasn’t in our back test, so, I wouldn’t worry too much about that.

Do we have a trade closing on six twenty seven?

Yeah. We do.

It’s the, twenty twenty, twenty thirty put credit spreads.

Unable to show seven eleven date in my Schwab account.

So, again, you have to make sure that you once you select the dollar sign RUT and start creating the spread trade, there’s going to be a toggle bar for each option that’ll say RUT.

You have to select RUTW and then you’ll see weekly options as well.

What do you monitor to see if the trade is in trouble?

Basically, just the the price of the index and the overall trend line.

There’s really not much else to focus on unless it’s something like an event happening in the market or geopolitics like the last week or two that could affect the markets in general, not just the Russell.

But aside from those kind of events, the trend line and price of the index itself is what we’re gonna look at.

And if everything’s moving in the right direction, then we we don’t have to worry if things do move against us. And when I say move against us, I don’t mean just a short, you know, I don’t mean that, you know, the market came down two, three percent over, you know, a few days, and then it goes back up.

I mean, that’s just part of normal market action. I mean, like, a significant, turn down that breaks the trend and everything.

That’s really when, you know, we wanna reconsider things.

And if it’s significant enough that we think that the trend is shifting entirely and we’re gonna be in a, you know, bear market or in a downtrend for weeks or months, then we could maybe switch to a call spread strategy.

But right now, there’s really not anything that we’re worried about or thinking about.

Just the normal put spread strategy is what’s been working and what we’re gonna continue to do for now.

What is the definitive indication the trends been filled on Schwab? You’ll you’ll get a notification. You’ll get a confirmation.

If if not on on there’s like a mailbox sort of thing in your brokerage account, but if if not, you should have at least gotten an email that says it was confirmed. And if the trade hasn’t been confirmed, you want you may wanna make sure that either you actually executed the trade or maybe it just hasn’t been filled.

But you should have gotten an email that that at least said that you executed the trade and that has been confirmed.

For Fidelity folks, retirement accounts need to be specifically approved for spreads. Yes. That is that is true.

Yeah. Yes. Similar to the whole tier situation for a normal account.

If you have a retirement account, it’s kind of the same thing. You you need to be approved for making spreads in that kind of account.

Is it advisable to be filled at the limit price, or can we be filled above your limit as it is a credit? You can you can go above if you choose that.

That’s up to you.

You know, the the reason that we suggest one, we, you know, we wanna use a limit order just to make sure that we’re not going completely off the rails.

But the reason why we say to go slightly below the midpoint is just to increase the chance of getting filled. But if you can get filled higher and and collect a bigger premium, you know, that that’s great.

You can definitely do that. That’s entirely up to you.

These strikes are closer to current price than for the other trades.

Is this a change in methodology and if so, why?

So there were a couple instances where we went a little further out.

We did, like, maybe five percent below just because of what was happening in in the Middle East, which, I mean, in my mind, there’s always something happening. So not to diminish the seriousness of the situation, but to me, a a lot of that feels like it gets priced in often because there’s just constantly this concern of things there going nuclear.

And as we saw, the market kinda didn’t have a strong reaction to it.

But just to be a bit conservative, we went more like five percent below the index at the time.

And then there was another instance where the option that we wanted to go with didn’t have a lot of volume, so we went a little below that to get an option or get a spread that had better volume. So it’s not so much a change in methodology as kinda outlier situations that happened back to back, but again, in general, these will tend to be three percent roughly below where the index is, the strike price or the short strike price.

If things change, let’s say Marc, you know, goes a little further out, that’s to his discretion. If anything, that’s just being a little more conservative, and it’s I it probably would be based on something he’s seeing in the market that would make him feel that he should do that.

But in general, the default is three percent, based off our back test.

When is the sell income realized? So when the trade is officially closed out at expiration.

So that’s why it’s called a credit now. It’s accredited to your account, but you don’t you can’t withdraw that money yet. You know, it it the trade is still open.

So once it expires or we close it out early.

But once it expires, which is the game plan, hopefully worthless, then that’s when, it would no longer just be a credit.

It’ll be income in your account. If we pay more than two ten, are we making more on the trade?

So you’re not paying your it’s a net credit. So if you’re collecting more than two ten on the trade, then, yeah, you’re you’re making more income potentially.

If you’re paying two ten, meaning that it’s a debit that you selected and not a credit, that’s a problem.

That that’s not what we’re doing here. We’re doing credits or credit spreads.

Okay. So you should be collecting income.

The net income should be excuse me. The net credit should be you making more on selling the short put than how much it costs to buy the long put.

So it’ll be a net credit, not a debit.

You may you may have just been miss speaking when you said that, but I just wanted to clarify.

We’re not really paying the two ten.

We’re getting a credit of two ten. But, yes, if you gain more if you your net credit is higher than two ten, you are making more on the trade.

We only selected the two ten just to make sure it was gonna be filled. I see some people got filled at two fifteen.

So, you know, some people got more, but at least we know at two ten, people should be getting filled.

And I I see a good amount of people also said that they just went with the twenty fifty, twenty forty spread.

It sounds like it was pretty much the same price that people were getting filled at, so good trade either way.

Since standard deviation varies with volatility, why did we not attempt to vary the three percent below market for our short strikes? So in our back test, as you said, it did vary. It wasn’t it wasn’t three percent every time, but it did tend to average around it.

So, for example, it might be two point eight six percent, three point one percent, you know, etcetera.

And, you know, ultimately, when you select these strike prices, they’re gonna be in increments of five dollars.

So it it’s not like we can get any more precise, in in most cases by choosing, let’s say, like, a three a three, like a twenty fifty seven strike price or something like that.

So the three percent is still a very solid rule. There are gonna be instances where if the market becomes extremely volatile, that number should change.

But in our back test, it still looked like it didn’t deviate very strongly from maybe upper three, you know, three point something percent.

Because the average we’re looking at isn’t just over, let’s say, four weeks of volatility. We’re looking at over the course of a year or over the course of a six month downtrend or something like that. And so that’s why averaging out, it tends to be about three percent. In a down market, I would expect more volatility because that’s just how fear plays itself out in market action.

Usually, things are more volatile going down than up, but it it hasn’t shown significant results to deviate from three percent even in a down market.

Like I said, sometimes we may do something like, let’s say, five percent or if we think that there’s a pullback or something we wanna avoid in an uptrend.

If we’re in a down market, we’re going to be flipping the strategy and doing call spreads.

So in that case, we still found that the three percent roughly three percent rule worked well.

So it’s not that it could never change because the math is what we’re going on. It’s just that as a general rule, that’s what’s been working. But you’re right that volatility is an important factor.

And if the math does change and we’re noticing that, okay, we really need to go with more like four percent, five percent, We’ll definitely do that. That that’s that’s the fundamental, methodology that we used in making the strategy, and so we will change if the data changes.

So right now, three percent has been working, and that’s also what the backtest showed us over the past over a year, year and a half.

How did the two weeks of expiration to sorry. In your back test, how did the two weeks to expiration test go?

So the thing about the expiration dates we’re choosing is that if you choose dates that are closer, the credit that you’re gonna gain is probably gonna be a lot less.

You have less time to be in the trade, so there’s a lower chance of the trade getting executed.

Since there’s a lower chance, you know, it’s, basically less valuable at certain strike prices.

So if we go with a trade that, we made in the past that we’re still in, and you look at it a week later and look at how much that spread is worth, it’s going to be a lot lower than what you collected when you got into the trade.

Now that’s good for us. We want it to expire worthless. We want it to lose, basically, it lose value so we can keep everything we gain from selling the trade.

But if we had tried to sell at that price instead, which was a lot lower, now our risk and reward doesn’t look as attractive anymore.

We have more max loss and lower max reward.

So in our back test, we did look at two weeks, and it just did not seem worth the risk being taken.

And then when we did three weeks, it just seemed like the sweet spot.

Because we also don’t wanna go too far out. We don’t wanna be in the trade too long.

So, you know, if we did four weeks, five weeks, the premiums might be higher, but that’s because there’s a higher chance of the trades being assigned, and we don’t want that. So the three weeks just happened to be a really good sweet spot balancing all of this.

But we did try other things in the back test, and like I said, this was just the sweet spot.

What happens if we did not get the alert on our six twenty trade and did nothing with the trade until this morning?

Well, you don’t have to get I I think you’re talking about the update that I said. I mean, if if you saw the, the update, I said that there was nothing you had to do. There’s no action you had to take.

It was just letting you know that, technically, the the last day to make any sort of trade was Wednesday, but you didn’t have to take any action. The update, made that clear if you ended up finally seeing it.

How do you figure the profit or loss on a trade?

So your profit is going to be the net credit, which is the difference between how much the short put is worth, which we’re selling, and the long put is worth, which we’re buying.

So if we’re selling the short put for five hundred dollars, I’m just throwing that out there, and we’re buying the long put for two hundred, our net credit is three hundred dollars. Okay?

That’s our max reward assuming that the trade expires worthless, and we don’t have to put in any more money to close it out. We get to keep that whole three hundred dollars.

And I’m not factoring in trading fees or anything. Just three hundred dollars in net credit.

The max loss is the difference between the strike prices of the two options, which we’re almost always going to be doing ten dollars.

That’s just that’s what we did in the back test.

That’s that’s it’s just kinda easy, and it works, and, you know, there’s really not much of a reason to deviate from that.

So you should pretty much just expect that a ten dollar difference in the strike price, and since an option basically gives you control over a hundred of whatever the underlying asset is, whether it’s a stock or index or or ETF, it’s gonna be that ten dollars times a hundred, so it’s a thousand dollars.

So it’s a thousand minus what you got for the net credit.

In this hypothetical, I said three hundred, so your max loss is seven hundred dollars and your max reward or profit is the three.

So then you can say, okay. Well, my return would be, three hundred over seven hundred, which means your max profit is about forty three percent.

And that’s assuming again that you it expires worthless and you don’t have to put any additional money into closing out the trade.

So Fidelity actually shows what the max loss is in addition to the net credit.

Schwab just shows the net credit, but, again, you just subtract that from a thousand since we’re always doing the ten dollar difference in the strikes, and that’ll be your max loss.

Okay. I see someone said they got filled at two twenty five. So, you know, even better. That that’s a a higher premium.

How does this affect taxes? Yeah. The I mean, these are, short term trades, so they’re gonna be yeah.

Someone mentioned short term capital gains. So, yeah, these are short term trades, so they’re gonna be, taxed accordingly.

If we were doing long positions over a year, you know, it would be a a different tax situation, but this is a short term strategy.

So that answers my concern. I’ll stick with two percent on puts and about five percent on the calls. Yeah.

I mean, I think that’s probably what would likely happen if the market did switch on us and we were in a downtrend and we did start doing call spreads.

We probably would maybe do something like five percent.

But I do wanna make clear, in our back test, we we still basically did three, and it worked out very well.

So, you know, we we really may not need to be that conservative.

But, you know, it’s kinda natural to wanna be in a downtrend, you know, just to be a little more conservative.

So maybe five percent on the higher end away from, the the current price of the index might be something we go to. But, again, we wanna be data driven in how we do this. So, you know, I know three percent can sound kind of arbitrary, but that is based off the back test data.

And then when I say five percent, that’s that’s kinda just adding in a bit of conservatism.

But in general, we do wanna stick to being data driven. So, you know, again, if we’re in a downtrend and we start doing call spreads, we’ll look at the data and and it you know, if it doesn’t say we need to switch to five percent, we may just stick with the three.

But, you know, don’t be too surprised if we do bake in a little bit of, you know, conservatism and and go a little further out, especially if, you know, there’s market events that are making people jittery and volatility is super high.

Yeah. We are at eleven o’clock now. I still see a few other questions, but, let me just I see one more. Let me just why did we choose a weekly option versus monthly? So, again, basically, we’re always choosing options that are expiring three weeks out.

So in this case, the option that’s three weeks out is a weekly option.

The monthly options only trade on the, excuse me, only expire on the, third Friday of each month, aside from if there’s a federal holiday or or exceptions like that.

So we can’t always trade the monthlies if we’re targeting three weeks out. So right now, three weeks out happens to be the second Friday of July, so it’s not a monthly option. It’s a weekly option.

So, yeah, I think for now, I’m gonna go ahead and just wrap this up. You know, continue to ask questions, and we’ll try to answer them.

If not in the chat, you can always email.

You know, next week, Marc will be back. And you may occasionally see both of us.

Since we both worked on this strategy, I think it it might be helpful if, you know, both of us weigh in on on certain questions or things like that. But, but, you know, Marc will be taking back the reins next week, And, hopefully, he’ll be telling us about another closed out win.

So, hopefully, you guys enjoy today. Enjoy the win that we’re closing out, and enjoy the the weekend.