Weekly Income Alert – August 15, 2025

Welcome, everyone, to Weekly Income Alert. I’m Marc Lichtenfeld. Glad you are with us. I know we have some more new people today, so we’re gonna have the extended session.

For those of you who are new, typically, these sessions will go about a half hour, maybe even less, because there’ll be less and less questions. But since there are so many new people today, we might go for the full hour. So that’s fine. If you do have questions, save them till we get to the q and a because if you put them in the chat now, I probably won’t see them.

The way this works, we do a little bit of housekeeping at the beginning, then I place the trade. You’d see exactly how I do it, Then we go to the q and a and, and answer your questions. So if you have questions about, like, things with your broker, so for example, if if what I’ll be showing you is is on Schwab. And if you’re on Vanguard or Fidelity and you don’t see the the exact same layout or or they’re doing things a little bit differently, sometimes the verbiage is a little bit different, my suggestion is you can you can ask in the chat to, hey, anybody on Vanguard?

Anybody on Fidelity? Because we do have lots of people who have been trading with me for weeks now and are you know, know the the process, and they can probably help you out. If you don’t get an answer from one of our members, then definitely reach out to the broker. You know, broker specific questions are are often best answered by the broker.

If you have not been approved yet to trade options or if you, if you did not get approved, here’s what I recommend.

Go to our frequently asked questions and our welcome materials and and study up on those. It’ll take you an hour at the most. But make sure you really understand what the the process is, what the strategy is, and then go to your broker. Again, this is only if you have not been approved, meaning they not that you haven’t applied yet, but you they said no. And and then call up your broker and say, I know what I’m doing.

I understand this. Fire some questions at me, and I can answer them and then approve me. And very often, they will do that. If if you can prove to them that you understand what you’re doing, to understand the risks, then very often you can get approved that way.

So, if if you did not get approved, just make sure, you know, study up on the materials. It’ll be worth the hour, so that you understand. And speaking of that, you know, I I had this thought, when I was thinking about this strategy. And this strategy is really when you think about it, you’re acting like an insurance company.

And what I mean by that is someone who buys a put on a stock or the market, in this case, the Russell two thousand, is buying insurance. Right? They’re buying insurance against their portfolio. They’re buying that buying insurance that the market doesn’t go down, just like you buy your homeowner’s insurance that you, don’t have a fire that destroys your house or that a storm doesn’t come through being in Florida.

That’s always on my mind. And you you have that insurance. But here’s the important part.

Like a smart insurance company, all insurance companies then offload most of their risk to a reinsurance company. Right? They buy insurance.

So you’ve got someone is buying insurance from us. We’re selling them that put at the higher strike price. That’s the insurance. We are selling them the put as the insurance company.

But then, like the insurance company, we’re buying insurance from a a reinsurance company. We’re buying the put at the lower strike price, ten points, so that if a cat five storm blows through and everybody loses their house, well, we’re not gonna be on the hook for most of it. Right? We’ll we’ll take a small loss just like your homeowners insurance company would, but they’re not gonna blow up their entire company on this storm.

And if a cat five comes through the market, we’ll take a loss, but it’s not gonna blow up our entire portfolio. So that’s exactly what we’re doing. And you think about this kinda model, this insurance model, it’s pretty profitable. I mean, there are a lot of skyscrapers throughout every major American city and throughout the world that have the names of insurance companies on the top of those skyscrapers.

This is a model that works. And this is basically what we’re doing. We’re selling insurance to those people who are worried that the market’s gonna fall, and then we’re buying some reinsurance a little bit below that to make sure that our risk is managed. That’s essentially what we’re doing.

So, if you think about it in those terms, it gets a lot less confusing, and and those puts are the insurance policy. So we sell the put, we sell the insurance, and then we buy one a little bit lower, to buy that reinsurance.

So, let’s go and take a look at the market. Let me see where is my there we go. Okay. Sorry.

I’m just, getting my Schwab account pulled up. And if you are new, remember, I am trading this with you. So, these are actually the trades, and let me share my screen. I did not load up the trade in the broadcast part because the market was moving a little bit.

I wasn’t sure where we’re gonna be selling yet, where we’re gonna be selling this credit spread. So, once I have it loaded up on Schwab, it will take me a little bit of time to write up that those instructions real quick, but let me get this started here.

Alright. Hopefully, you can see that. Great. So oh, real question.

Sorry. Real real quick before we get to this, I forgot to mention, kind of important. We are now ten for eleven because if you remember, today’s spread, it expired in the morning. This was a little bit different. They usually will expire in the afternoon. Today’s spread expired in the morning.

So the opening price of the Russell was the official price. So the spread expired worthless. We kept the entire credit. Congratulations.

We’re now ten four eleven. So really, really great news. If you own that spread, you don’t need to do anything. It just expired, and you keep all the money just the way we plan.

That’s what we try to do every single week.

Regarding next week’s spread, so we’ve got the twenty eighty, twenty seventies.

And as of this morning, before the market opened, they were worth about ten cents. And I and I’m sure several people ask, well, should we just close it out, take the money? And I looked at that, and I decided I’m gonna I’m gonna hold on to it, try to let it expire worthless. The market would have to fall the Russell would have to fall about nine and a half percent in a week for us to run into trouble with next week’s spread at twenty eighty and twenty seventy.

Not impossible. I mean, market can can fall hard.

You know, we we could get several days of of two, three, four percent moves if something really scary and nasty happens. I don’t expect that to happen. A ten percent move in a week is not common, not impossible, but it’s not common. But for right now, I’m gonna leave it be, and, and we’re gonna try to let that expire worthless.

The August twenty ninth are the twenty one fifties, twenty one forties, and though those are, very profitable at this point, the there’s no reason to take it off. We still have two weeks to go. I wanna let that decay a little bit more. So that’s where we are with that.

Alright. So let’s trade the spread. Let me see where the markets are trading right now.

We’ve got Russell at twenty two eighty five.

So I’m just doing a little bit of math here.

Sorry, just give me one second.

Okay. So, alright.

When you go to Schwab at least, the symbol is dollar sign r u t. Now with the other, with the other brokers, you might just see r u t w. You might see r u t I’m sorry. You might see r u t or r u t w.

It might be dot r u t. Every broker’s a little bit different when it comes to the index. With a stock, it’s uniform. With indexes, sometimes they have it a little bit different.

So we’re gonna put in dollar sign r u t because this is on Schwab.

And so here you can see now, these are the defaults on Schwab.

We wanna go to the spreads. So two leg spread and vertical put spread. Now on other brokers, it might say credit spread. It might say just plain old put spread, but we wanna do a put spread or a vertical put. And then again on Schwab, we want it to be a net credit.

Now on the default so on the default here on Schwab, you’ll see it’s actually not a credit.

Oh, and it’s also giving us the wrong expiration date, so we need to change that. So on Schwab, if you click on the expiration date for RUT, it only gives you the monthly expirations, which is the third Friday. But we’re trading the weeklies because we’re trading three weeks out. That’s our our kinda prime spot to trade these. So we have to scroll down to RUTW, which is why on your broker, the symbol might be RUTW.

If you put RUTW in Schwab, it doesn’t work for some reason. You have to do the process side, the dollar r u t, and then go to this drop down menu.

Now you can see there are a lot more a lot more, options here, expirations and everything.

And the reason also that we wanna put it we wanna make it a vertical, put and and we wanna trade it as a spread so that it all happens at once and that we won’t get one leg of the spread traded at, you know, where one gets executed and one doesn’t. It it can make exiting the position a lot harder if we need to get out early. So if you do it as one, you know and and I’ll show you as we enter the limit price.

If we don’t get that limit price, it’s not like you’ll there’s a chance that you could only sell the put or only buy the put. You’ll only get filled as a complete trade, both legs, if you do it this way, where you’re entering the trade as a spread. So we’re gonna do the September fifth. That’s the expiration date.

And we are going to do let me take a look real quick before don’t fire off this trade yet.

I wanna take a look at this price.

Okay.

I got the Russell Twenty two ten.

Alright.

We’re at twenty two eighty three on the Russell.

So why do I have a debit? I did this before, and we had a problem. Let me see. Twenty two eighty three.

We’re selling the twenty two ten, selling the twenty two hundred.

Someone said nine five is more than three weeks out. Did I get my calendar wrong? Let me see. One, two, three.

No. That’s three weeks out. September fifth is three weeks out. Alright.

So why am I why do I have a debit here?

What am I doing wrong? Somebody somebody tell me. You guys helped me out of this the last time. I’ve buying twenty two hundred.

Oh, I have twenty two twenty. This is exactly what happened, and I did have my eyes checked. Thank you. Thank you for, letting me know that.

Okay. Now you can see here the credit, is two ten, two zero five. It’s changing.

So we would be buying the Russell September fifth twenty two hundred and selling the Russell September fifth twenty two ten. Now if you’re new, this is really important.

Typically, when you sell an option or a stock, you sell at the bid or at the limit price.

So, the bid is nineteen twenty. When you buy, you buy at the ask or if you set a limit, that’d be the ask price here is seventeen seventy.

This the difference between the bid and the ask is only a dollar fifty. The midpoint is two ten.

So we want the midpoint or close to the midpoint when we are trading spreads. We never wanna trade these spreads at the market because you will not get a fair price, and you’ll collect way too little money in order to in order to somebody says emergency market is still reverse. Sell should be higher.

Yeah. It is. I got sell to open twenty two ten, buy to open twenty two hundred, credit is two ten.

You’re still wrong. The sell strike should be higher.

It is twenty two ten, twenty two hundred.

So the order type is net credit. We want it to be a net credit. That’s really important.

Okay. So as I was saying, so the credit, you want that to be in between the bid and the ask. And when you put that limit price in, that it’s going to, it’s gonna make sure that you’re getting a fair price. And what I typically do is I’ll put the the limit in a little bit below what I’m seeing as the midpoint just to to give me the opportunity to get filled if I if I if the trade doesn’t go off exactly at the midpoint, which it it doesn’t always.

The other thing too that’s really important is when you put these orders in, if you don’t get filled right away, it’s okay. Sometimes it takes a few minutes. Sometimes it actually can take a few hours depending on what the market is doing. And very often we’ll see, you know, the market will come down, then it’ll it’ll bounce or vice versa, within the day.

So there’s a a decent chance that we’ll get filled at at a certain point, if you if you put the limit price in, you know, at a at a reasonable amount close to the the midpoint.

So, right now, we’ve got a credit of a dollar ninety five. I would like to see that go up to two. Usually, I I make it a little bit lower than the than the midpoint, but it was trading two ten, two fifteen before. I’m gonna I’m gonna try to hold out for two dollars.

So I’m gonna put my net credit as two dollars. Again, remember, you might not get filled right away, so hang on and wait. If something changes, if the market goes against us and we don’t get filled, one of two things will happen. We simply don’t get filled this week, and, and and and we don’t make the trade.

Or I would send an alert out later in the day. It wouldn’t be a live broadcast, but I would send an alert, explaining that, you know, we’re changing the price, and here’s the new price. But I would like to try to get filled at two dollars. So, let’s do this.

I’m gonna review the order here, two dollars.

So you can see here, here we’re buying, selling to open the twenty two tens, buying to open the twenty two hundreds, the midpoint’s two zero five, estimated amount is two hundred because I’m putting my limit price at two dollars, little bit of commission, and then I can place the order. So you guys go ahead and place the order. I’m gonna set up the trade here because I did not put that in for today because I wasn’t sure exactly where that was going to happen.

And then when we’re done, I am gonna show you how to close a trade. Even though we’re not gonna be closing one today, I wanna show you how to do that, so that you know how to do it. And and if we do close a trade on a broadcast, which we have done once before, then I’ll certainly show you that, on a broadcast, but there may be a time where, let’s say, on Monday, we we decided to close it, and that would not be a live broadcast. So, I wanna make sure you guys understand how to do that.

So start getting those questions ready.

And if anybody looks like some people are getting filled to two zero five.

Excellent. Glad to see it.

Alright. Let me just check my work here. So it’s open Russell, September fifth twenty twenty five, twenty ten put. Buy to open Russell, September fifth twenty twenty five, twenty two.

Hundred put, limit price two dollars. Alright. I’m submitting that to so this will be broadcast everyone.

Trade was posted. Now I will go back into Schwab and place my order, see if we can get filled.

Alright. Great. So I’m gonna stop sharing my screen for just a second.

And now let me reset my Schwab screen to so that I can show you how the how the closing position would work.

Okay. So let me share my screen one more time.

Okay. So these are the positions that are in the account. So let’s say and we’re not doing this for real. This is just a demonstration.

Let’s say we wanted to close out next week’s positions.

So I could go to my positions here in this little menu right here, and I could say close positions.

Now it gives me the option of just this one position or all the positions. Now importantly, you would wanna make sure you’re closing both positions in the leg. You don’t ever wanna have just one position open because if you close especially if you close your long put position, then you’re exposing yourself to huge risk. Right? Again, it’s like the insurance company without having reinsurance.

If you close out your cell, well, then you’re you’re you don’t have huge risk because you just have the put that you’re long, but, if you’re closing out that cell and, and there’s still money left on the table, then you’re leaving money on the table. Right? We we wanna let these expire worthless to collect all the money that we can. So I would select both of these.

These are both legs of the trade. I’d hit close selected, and then it would be exactly the same situation here, as we just showed you. So you’ve got buy to close, and it automatically populates the right things when you’re closing the position. So it is it does populate the right expiration and the right ticker I’m sorry.

The right strike and the right buy instructions and sell instructions that go with those strike prices.

So you’d see here, if we were to close this, there’s a ten cent debit. So that would mean if we traded this, ten cents or ten dollars would per contract would come out of our account, when we close this. And that’s what would happen if you’re closing, credit spread early, then your money is coming out of your account because you’re short. So now you’re and you’ve you’ve collected the maximum that you can collect.

So now in order to close it early, you have to pay some back a little bit, and so that would be a ten cent debit. You click review order and then place your order. So that’s how closing it works. So it’s really, really simple, and that’s why it’s really important also to do it at when you enter the trade, to do it at the same time so that you’re not kinda scrambling, especially if, you know, markets are are falling and you, you know, it’s hectic and you wanna make sure you get out, and you’re not putting in one order.

Alright? Buying to close, then selling to close on a separate order, and and you’re momentarily even if it’s momentarily, but you’re momentarily exposed to only one side of the trade, which is not what we want. We want those we want these trades completed both entering and exiting as one trade. Just makes life a lot easier and takes a lot of risk off.

So and, you know, one of the the things that’s important about this strategy is managing the risk and keeping risk as low as possible. It’s a conservative strategy, and so we wanna keep it that way. You know, we’d never wanna make a mistake where we’re entering into this conservative strategy and then, and then somehow opening ourselves up to a lot of risk. So, that’s how you would close the trade.

And with that Okay. Let’s get to your questions. Phil says, what about the limit in this example?

So in that example, the midpoint was ten cents. So, again, you could change your limit to whatever you wanted. You can make keep it at ten cents. You can make it five cents. You can make it a little bit higher, but you could you could change it to whatever you want. Like I said, when I enter it for myself and and in these, you know, in these presentations, I usually will make it slightly, if I’m entering the trade, I’ll make it slightly lower than the midpoint. If I’m exiting maybe slightly higher for two reasons, one, to increase all of our chances of getting filled, because, you know, the markets are gonna move and and wanna try to get as many people filled as possible.

If, you know, if if we put in two dollars as our limit and the market’s at at two zero five, you’re you’re probably gonna get filled at two zero five. You’re you’re probably not gonna leave too much on the table. You know, there’s a lot of orders coming in at once.

There’s there’s decent liquidity.

So it shouldn’t be a problem, but I I do wanna try to make sure everybody gets filled. But you can, you know, do what’s right for you. If you wanna move those limits a little bit, you can. I wouldn’t do it too much.

You know? If we’re putting in a a two dollar limit, I wouldn’t make it a dollar seventy. You wanna make sure you’re getting paid adequately for, for the the trade you’re taking. If you are trying to get out and you’re, you know, the markets are tanking and you’re you’re kinda panicking, you know, and you just want just wanna be out.

I just want you know, sometimes that happens.

Just like just get me out of this trade, then you could put your limit a little bit higher. But like I said, generally, these are are liquid. We’re trading big index, options.

So, you know, you don’t have to you don’t have to move that limit too far from the midpoint because the midpoint really is, you know, pretty much what’s fair in the marketplace.

So Mike h y l says the bid ask was huge before we started trading. Is that normal? Yeah. I mean, these spreads typically do have pretty wide, spread spreads between the bid and the ask.

It very often is two dollars, each way. And so that’s why getting in the in the midpoint is really important because you never wanna trade these at the bid and the ask at the market because, yeah, you you won’t get anything close to the right amount of money for the trades. I think when, when I was doing the example, it looked like I think it was a dollar fifty versus, like, two dollars. So very, very big difference there.

So, yeah, spreads are are are wide, but that kinda doesn’t matter because these typically get filled between the bid and the ask. If I mean, you know, at the midpoint, if you’re trading, you know, some small cap stocks or some stock options that don’t have a lot of liquidity, then it’s it’s a lot harder to get filled in the midpoint.

But with with these index options, it’s not hard at all.

J j p Nelson. Can we move the strike price if we think the market might be close at that point of time, say, like, six percent lower the current price? So if I understand the question, I think you’re saying, can we change it now, not in not once we’re in the trade? So if you were worried about the market falling hard, yeah, you could move the strike.

You’re gonna get paid a lot less, for it because because right now we’re taking on about a three percent risk, meaning that we’re taking on risk that the market falls three percent. If you are taking, that risk to six percent, well, then you’re gonna get paid less because it’s less likely that the market will fall six percent than it is three percent just like, you know, an insurance company. If you’re insuring a house that’s on the ocean versus a house that’s twenty miles inland, chances are the house that’s inland is going to have lower insurance premiums because there’s less of a risk of damage from a storm.

So, if you’re talking about can you change it during once you’re in the trade, you would have to exit the trade possibly at a possibly at a loss depending on where the market is, and then reenter the trade at a lower strike price. So we we don’t do that. Basically, if if a trade’s going against us, we’re gonna manage that trade. So we’re either going to get out of it early and and just be done with it and, or, you know, we’ll we’ll let it go and see if if we can capture that premium.

Because, again, just because it trades against us today doesn’t mean that, we’re, you know, we’re necessarily gonna lose money. So, for example, on the trade we just put on, the twenty two tens, twenty two hundred, let’s say that the market tanks next week and we’re at twenty two thirty.

Our spread will be at a loss at that moment.

But if the market never gets down to our strike, those options will eventually decay and and will keep the maximum profit. Again, there there’s no way of knowing for sure if that would happen, but what I’m saying is just because a a a trade is against you today doesn’t mean that you’re guaranteed to lose money if if it never gets down to your strike. So, you know, understand the market the market falls next week, This trade we put on will be in the red, but doesn’t mean it will stay that way unless at maturity where our at our strike or lower. So, you know, those options will start to decay, which is exactly what we want.

Peter said last week, I mistakenly entered a net debit. What should I do to reverse this? So you would you would close it out exactly the way I showed you, you know, with that hypothetical closeout of the credit. If you enter into your, your broker’s website, you know, to close the position, it should automatically populate the the proper way to do that, and then, you can, you know, just enter the trade.

I mean, make sure it’s worth it. If if you, you know, if the if you’re gonna get ten cents back out of, you know, two dollars, it might be worth just hanging on and and seeing what happens because the most you’re gonna give up is ten cents. If if it’s, you know, if it’s a a meaningful percentage of the of the, the amount that you paid for it, then, you know, that’s different. And and what’s meaningful is is gonna be different to everybody.

I would say if, you know, if you can get twenty to twenty five percent back of of what you mistakenly paid as a debit, then that might be worth it. But, again, everybody’s situation will be a little different.

WMP says the August fifteenth spread on Fidelity will expire at the end of the day. That’s if it’s the weeklies.

So, again, we enter the monthly. So for those of you who are new, index options have a weird thing. So when when you’re trading stock options, they expire at the end of the day no matter whether you’re trading options that are called the monthlies. Monthly options expire on the third Friday of the month. You can trade the weeklies, which expire every Friday, and some options have, you know, daily options also expire at the end of the day.

Index options also have those weeklies, but on those monthly options, the options that expire on the third Friday, they have two sets of options, options that are called the weeklies that expire at the end of the day and options that are called the monthlies, which expire at the open on Friday.

So and and they’re also known as AM or PM options.

So the AM options so that’s what the trade that we entered, for today’s August fifteenth expiration.

We did the AMs. And and when I put on the trade, I, you know, I talked about that pretty clearly.

So that will that meant that that expired at the open today, so those options are are gone.

The the the trade’s basically closed, and we keep all the money. If you put in the weekly trade instead, then, yes, it it will expire at the end of the day, and, and you should also, be pretty good to go unless the market just absolutely craters in the next, few hours. But, the weeklies do expire at the end of the day. The monthlies the AM monthlies expire at the open on Friday, which means the last chance to trade them is at the close on Thursday. So keep that in mind.

Ron fifty six says, how do you determine your strike price? So when we did the backtest, we found that the most effective strategy was about a three percent, about three percent lower than the current strike. Now it’s not always gonna be exactly three percent.

Sometimes it will sometimes it will, sorry. I was reading something on on thing, got distracted. So it will not always be three percent. Sometimes it will be due to liquidity. So for example, when I put on the trade today, I knew that the twenty two hundreds had a ton of open interest. And so where I can, I like to have more open interest, more liquidity, just gives us a better opportunity to get filled, and to get, to get a fair trade, you know, to get a fair price on that?

Also, when and if and if I have to kinda if I have to move off of, like, that exact three percent number, I will usually move a little bit lower, just slightly lower. I’m not going from three percent to five percent, but I might go, you know, ten points or five points below that strike. You know, every every trade’s gonna be a little bit different. It’ll it’ll depend a little bit on the market as well, but I’m taking into account the open interest and volume as well as, just to, you know, kind of erring on the usually on the side of caution.

Not always. There there have been times where I have chosen the slightly higher strike price getting a a little bit better, credit, a little higher credit, when I was I was, you know, fairly confident that the market was gonna go our way. But, again, I’m not moving it much. It’s it’s not like, if if twenty two hundred was the three percent mark, I’m moving it to twenty two fifty or or even twenty two thirty.

It’s it’s usually you know, very, very small increments.

Do you ever roll the trade for additional credit before expiration?

I don’t because I am trying to let them expire worthless. So, basically, we’re doing new another trade every Friday anyway. So if I have a trade that is, you know, like like the the one next week that expires next week where you have a ten cent credit, I’m not gonna close it out and just put on another one for several weeks later because I’d rather just try to let expire and and we’re gonna put on you know, we’re putting on one today. We’re putting on one next week. So I don’t do that. You know, you certainly could do that, if you wanted to, but, I’d rather try to keep as much of each trade as humanly possible.

My trade has been rejected five times by E Trade. So with things like that, you know, talk to your broker, find out what’s happening. If chances are that there’s, you know, something that you either you’re missing or, that that you’re entering wrong. So, definitely talk to your broker. You know? With specific broker questions, it’s always best to to talk to the broker.

Mother Medusa says, I still show the eight fifteen trade open in my account. Isn’t that the one that was supposed to be morning?

It should be.

So, yep, talk to your broker, find out why, it’s possible. It just hasn’t settled yet.

But, yeah, I would talk to the broker.

Kate says, for today, I put in weekly, r u t w. Should I have just done r u t?

As long as it’s working for for r u t w to get the September fifth expiration, that’s fine. Like I said, on on Schwab, on their website, you have to do dollar sign r u t and then scroll down to the r u t w on that drop down menu. But if you are able to enter r u t w on your broker site, as long as you get that September fifth expiration, that’s fine. No problem at all.

So this is an interesting question. Ron s one, what are your thoughts about setting the strike price for this play at three percent of the underlying RUT that has spiked over five percent just this week alone, higher stock stock price over the past three months. Aren’t we assuming this spike is sustainable and represents a new accelerated uptrend? It’s been a pretty wild week.

So that’s a really good question.

And, what are your thoughts about setting the strike price of this play at three percent? Actually, let me make sure I understand it, of the underlying so if I understand the question, I think you’re you’re saying should we be having a tighter spread because you know, a a a shorter, percentage, a smaller percentage because the market’s been so strong. You certainly could, and you’ll get a much higher credit, but, I don’t want to because, you know, there’s also market noise. A market doesn’t have to be weak, to to fall three percent over three weeks. It it can just be some market noise.

So, you know, we know market scope over the long term, and we know in the back testing that the back testing results were this this trade worked eighty six percent of the time. But I don’t wanna make that too tight because, I mean, you gotta have some real strong conviction. You know where the market’s going over the next three weeks in order to to tighten that up and, you know, make it a a one percent, one and a half percent, dip. Again, you’ll get paid more for it, but you’ve gotta be right.

Kafka has a great question. What is a walk limit?

So a walk limit is a an order type. I know they’ve got on Schwab. I think they have it on most of the brokers where you can basically say if I don’t get filled right away or within a certain time frame, change my order by this amount. So for example, you could say, you know, we we put in our limit price at two dollars.

You could say, I’m gonna the walk limit would be, you know, my limit price is two dollars. If I don’t get filled in ten seconds, thirty seconds, a minute, whatever your time parameters. If I don’t get filled in ten seconds, lower my limit by five cents. So So then ten seconds later, your new limit’s a dollar ninety five.

And then ten seconds later, your new your new limit is dollar ninety, and you can put a floor on that. So you could say, walk limit ten seconds, five cent increments, minimum dollar eighty.

So you could you could certainly do that. And and or a a better way to do that, if if we’re putting in our limit price at two, maybe do walk limit two fifteen dropping down to two dollars, and that might be a way to to get filled at, at a better price.

I don’t know if that everybody has access to that, and, it also is a little bit slightly more complicated. It I mean, once once you look at it on the screen, it’s it’s not that complicated at all, but, I’m not doing it just because it it does make it a little more complicated for people, especially people who are new. But it’s it’s kind of a cool a cool order type and and certain certainly one that didn’t exist when I was first starting out years ago. So it’s it’s kind of a neat way to place an order and and maybe get slightly, higher premium.

Stevie Ray says, please show your order sheet again. Having trouble with a strike date of September fifth. So, yeah, let me get that started again.

Okay. So this is the order type. Now this was this was going back to when it was, when I was showing the example of of closing the spread. So, actually, let me let me go back and and see if I can change this so that it looks more like the, what we actually entered.

Alright. This is not correct again.

My eye is deceiving me again? Oh, I have the wrong, that’s why.

Okay. So this is what the order looks like again. So you’ve got sell to open, r u t w in in Schwab’s case, September fifth twenty two ten put, buy to close I’m sorry. That should be buy to open.

Buy to open, RUTW, September fifth, twenty two hundred put. Right now, the credit’s a dollar ninety. And then if you wanted to change your limit price, you could move it up to two dollars, which is, which is what we did. So this is what it looks like.

Tim says thanks for the discussion on walk limits. Looking forward to trying in the future. Yeah. I I think it’s a pretty cool way of trading. I haven’t used it much myself. So if anybody does use it, I’d be interested to know how often you do get filled at the better price, and, I’d be interested in your experience with anyone who has used it because I really haven’t.

Alright. Let’s see.

Can I comment on the overall market? CNBC has mentioned several times this week that the market is getting frothy. Yeah. They’re right. I don’t always agree with CNBC, but they’re right. The market is frothy. But, you know, valuations are very high, but markets can stay frothy for a long time.

And, you know, right now, I would say the market is pricing in rate cuts, which will certainly be good for the market or at least they should be. It would be good for housing.

So, I think that’s a lot of what’s going on. I I have a another service called Technical Pattern Profits, and I I put out an alert today. I’m not sure if it’s hit yet. But, basically, what I’m talking about, where I talk about the markets and and, I mean, we’re near all time highs.

We we hit all time high Wednesday, and I don’t see any I don’t I certainly don’t see anything technically that really worries me other than we’re we’re a bit overbought, but, nothing out there is is really scary. Doesn’t mean the market can’t come down, certainly can, but there’s nothing out there that has me super concerned both from a technical standpoint and, a fundamental standpoint, really. I mean, again, stocks are overvalued, but so what? They they often get overvalued and stay overvalued for a long time.

So, you know, that only becomes relevant kind of an an an until until the markets fall. And, you know, once they start falling, then you could say, okay. Well, a PE of if the S and P has a PE of thirty, is it really gonna stop at twenty five or, you know, is is it gonna stop at twenty, you know, at that point? But right now, valuations certainly can stay elevated for a while.

You’ve got pretty good economic conditions. I mean, inflation’s a little bit higher than than the Fed would like. So that’s gonna make you know, everybody’s expecting this Fed rate cut in September.

I personally don’t think they should, but I think they probably will. I’ll be talking a lot more about that on Oxford Income Live. For those of you that are Oxford Income Letter subscribers, that’s in, two weeks, I believe.

But, right now, I don’t see anything that really, really concerns me. Again, doesn’t mean the market can’t come down. Doesn’t mean we can’t have a a little bit of a reset.

You know, we’re heading into kinda the the dog days of summer, on the a lot of kids are back to school already, in certainly in the south in, I believe, in the Midwest, they’re about to. Northeast, tends to go back to school around Labor Day, and so that’s when you get a lot of kinda Wall Street taking, you know, the end of summer vacation so things can get a little quieter in the summer at the end of the summer.

And when that happens, noise can certainly happen in the market. It might not be meaningful, but markets can can jump or they can can drop, you know, a meaningful amount because there’s less participants, often at the very end of the summer. And and the ones that are participating, at least in the institutions, are very often the junior traders and the the junior analysts because their bosses are all on the beach and in the Hamptons. So, you know, end of August, early September is usually not the best time for the market. But, again, I’m not seeing anything out there that that has me especially concerned. Right now, the the market’s pretty strong. And and last year, the market was was pretty solid in August and September as well.

How much money is required for this option, and would it be five times the amount if you bought five options? Yeah. So every one of these trades, the requirement in the account is a thousand dollars per contract. So if you were trading five contracts, it’d be five thousand dollars. And keep in mind, that’s the maximum loss minus the net credit. So if if we got two dollars, for this trade, so two hundred dollars per contract, your maximum loss is a thousand dollars minus the two hundred, so eight hundred. And the the mechanics of that is you make the trade today, you get that net credit, two hundred dollars, two hundred dollars in your account.

Market crashes.

Market goes down to the Russell goes down to fifteen hundred, a thousand, zero. Doesn’t matter.

Anything below our strike price of twenty two hundred at expiration.

We’ve sustained the maximum loss, which is a thousand dollars minus that two hundred, but a thousand dollars is now coming out of your account.

So let’s say you have a thousand dollars in the account. You get that net credit, two hundred dollars.

Now you have twelve hundred in the account. We sustain a maximum loss. A thousand comes out of your account, and you’re left with two hundred dollars. So you’d lose eight hundred.

And so yeah. And you so you need a thousand dollars per trade, to make the trade, and that’s because the strike prices are ten points away from each other. So it’s every option represents a hundred units. So ten times a hundred is a thousand.

If you were trading twenty point, differences in the strikes, you would need two thousand. If you were trading five points, you’d need five hundred. So we’re typically doing ten points, so it’s gonna be a thousand dollars per contract per trade.

So Rohan says this is about the trade that we closed one day early on August seventh. If I sold it at two eighty five for a debit, I bought it for two twenty five. How much is the total loss? I’m trying to figure that out. So you lost, sixty cents on the trade.

So I I I think you have this the the I I believe you have the the kind of verbiage a little bit, backwards. So you you sold the credit. You sold the spread for two twenty five. You bought it back for two eighty five.

So you lost sixty cents per, per contract or so you lost sixty cents on the trade, which comes out to, sixty dollars on the, on the whole thing.

So that’s, that’s how much you lost there.

Can you buy four more options to this trade?

Yeah. You can you can trade as many as you want, for sure. Just, you know, make sure you’re doing if you’re if you’re doing four more, make sure you’re selling four and buying four. You never wanna have that imbalance.

Suppose we missed the August seventh alert to close. Did it expire worthless?

I don’t think so. I think I can’t remember offhand. I think it expired in between the strikes, if I remember correctly. So you would have taken a small loss there.

On Fidelity, my order won’t submit using the net credit.

Anthony. Right on it. Thank you, Anthony. You’re probably buying the higher strike and selling the lower strike. Needs to be reversed. Thank you for hand on that, Anthony.

VT says reward to risk is negative.

Yeah. So the way this strategy works is we’re hitting singles.

We’re we’re not trying to hit home runs here. We’re trying to collect, you know, a few hundred dollars per contract each week.

And, again, going back to the back test, we had an eighty six percent win win rate, so we continue to do that. When we do take a loss, it will probably be bigger than the net credit, you know, on any given week.

So I think when when we took the loss and we got out, I think we took a six hundred dollar loss, if I remember correctly.

So, you know, that ate up a couple of weeks worth of of the credit. No doubt about it. But we’ve also closed out ten out of eleven winners. So over the long term, this strategy works and generates income each week.

There’s gonna be weeks where their losses there’s there’s gonna be some streaks where we hit loss where the market doesn’t cooperate, and we lose two or three weeks in a row. But if you’re doing this week after week, month after month for a year or longer, the income is gonna pile up. And that’s basically the strategy. So, you know, this is on any given week, if the market tanks, yeah, the the loss will be bigger than the credit for sure.

Again, we can manage it. We and and we have in the past. We did try to, limit the loss, so the loss that we took was not the maximum loss.

But, you know, we will be trying to manage these. That being said, keep in mind, I am not gonna bail on a trade the minute the market has a little bit of a downtick.

You know, I I especially if there’s plenty of time left until expiration, I wanna give it a little bit of time to to bounce back. I wanna give it time for that those options to decay.

So, but we will be managing these trades if the market goes against us. So, not every trade that is a loser will be the maximum loss. I don’t expect the majority of them to be, as a matter of fact. But, that is that is important to understand that the that we’re making less than we’re risking on any given week, but the win percentage should be fairly high so that we’re we’re collecting income. You know, the the net income over the course of the year should be quite strong.

Dave seventeen said, when do we make the big money that was advertised? So that’s a a really good question and a fair question. So right now, volatility is quite low, because the markets have been so strong. We’re at all time highs.

So, again, think of this as insurance.

You’re insuring a driver with no tickets and no accidents, and it’s a, you know, a a forty year old woman. I I think they probably have the best rates. So the premium you collect is gonna be a lot lower than if you’re insuring an eighteen year old kid who’s had two fender benders and a speeding ticket.

When the market falls and volatility increases, that’s when the risk is higher, and so that’s when these options get pricier. So if we have a a situation where the market falls, our current positions, it’s not gonna be great for our current positions, but new positions are gonna be worth a lot more. So right now, we’re selling spreads for about, two hundred dollars, you know, two points, two hundred dollars. When the market falls, that’s gonna increase to three hundred, four hundred, five hundred.

You know, when things get really hairy, that’s when the money’s gonna be really big. So, keep in mind, right now, things are really good in the market, so the premiums are much lower. When things get scarier and markets fall, that’s when we’re gonna be able to collect much, much higher premiums. It’s just that right now, the VIX is in the teens, the low teens.

When the you know, when we have those explosions in the VIX, that boosts options premium. That’s when we can sell these credits because the demand for insurance is gonna be a lot higher. So that’s when we’ll be able to to get those higher credits.

Frankie, one is a great question. Is there an ETF that trades similar credit spreads?

So there is the, Russell e, two thousand ETF is IWM.

I don’t recommend trading that. I recommend trading the index for two important reasons. Very, very important reasons. The most important is an index option cannot be assigned early.

Okay. The only time it settles is at expiration.

With an ETF option or just just like a stock option, they can be exercised at any time. Doesn’t have to be at expiration.

So if you have if you’ve if you sold the credit spread on IWM, the ETF, and the market falls, it could be exercised. And not only could it be exercised, only one leg of it could be exercised. So you could have sold the put, on the ETF, and that gets exercised, and you have to come up with either the ETF or you’ve gotta go buy it, you know, at that strike price even though it might be higher than the current strike price.

Doesn’t happen often, but it does happen. It’s happened to me, not with the spread, but it’s happened to me where I have sold a covered call or or sold a naked put, and it was exercised before expiration when it was in the money.

That cannot happen with this, an index option when you’re trading the Russell. So that’s a really, really important reason. The other reason, it’s kind of a nice reason to trade the index options, is there’s a tax benefit. If you make a profit on a stock or, or ETF option in a short term, so less than a year, which these obviously are because we’re only holding them for a few weeks, you get tray you get taxed at your ordinary income tax rate.

If you trade an index option, sixty percent of the gain is taxed at the long term capital gain. Forty percent is still at your ordinary income tax, but that long term rate is gonna be fifteen percent or or maybe slightly higher if you’re in a high income bracket.

So it’s it’s a pretty big tax advantage to trade the index options versus the ETF or the the, or any stock option. So that’s a really nice to have, but but the really important thing is that you can’t get exercised early. So, so that’s that’s really critical.

Alright. Let’s get to one more question.

What type of spread account do you need? I have a regular spread and margin account, but it won’t go through. So you need level three options approval at most brokerages. At Schwab, I believe they call it level two because they start at zero.

But if you can trade spreads, you should be able to trade it. So, yeah, call Schwab because that doesn’t make sense. If you can trade spreads, you should be able to do that.

Let’s see.

I’ll try to get to one more scrolling back up here.

K. Yeah. Somebody asked if the option can can be exercised early. It cannot.

VT says, in low volatility, shouldn’t we be doing buy sell calls? I understand that’s not the strategy, but could we do that in parallel?

So basically, you’re describing a debit spread, assuming that the market is going to go up, and then you would sell that for a profit.

You could, but, again, that’s not the strategy, and and we haven’t tested that. I’d I couldn’t tell you how well that will perform. We’ve backtested this, and and the whole idea was to generate income, and and not speculate on needing the markets to go up. Because if you buy a debit spread, you need the market to go up, because the only way you can make money is to sell it at a higher price.

Here, we don’t if we’re we’re selling the spread, we don’t need the market to go up. We just need it to not go down to our strike price. Market can stay flat. It could go down.

If we’re at a three percent threshold, we it can go down two point nine five percent, and we’re fine, and it’ll expire worthless.

So, you know, this this whole strategy and and a lot of income strategies I’m obvious obviously, you’re buying a dividend stock, buying a a bond or what have you. It’s nice when it goes up.

But a lot of income strategies are based on selling something and collecting that income, and then there could be a situation where, the market changes and you have to buy it back at a at a higher price. But but, usually, the goal is is to generate that consistent income rather than hoping that the market goes up and we can sell it later at a profit. You can certainly speculate with options, and and spreads and and a lot of smart traders do.

There’s nothing wrong with it. It’s just not the strategy that we’re doing because I don’t wanna have to bet on the market going up. I’d wanna bet on it not dropping down to our strike by expiration in this short period of time. And like I said, the the back test, you know, back that up.

We tried all kinds of strikes and, and and expiration lengths, and this is what consistently worked the best. And so far, we’re we’re off to a great start. We’re ten out of eleven, so, I’m gonna stick with that until until it stops working, basically, which hopefully won’t be for quite a while. So that will do it for us this week.

Thanks so much for watching. If you have other questions, feel free to to send them into the mailbag mailbag at oxford club dot com. Again, if it’s broker specific, talk to your broker. They’ll be happy to help you.

But, anything about kinda how to how the trade works, any anything that’s not clear, certainly feel free to email me, and we’ll try to get that answered, for you as quickly as possible. And, great job everyone on closing out another trade, and we will see you next week. Have a great weekend.