I know this may sound obvious, but other services promise a specific number of trades on a weekly or monthly basis. Once we see a confirmation that an extreme reading has occurred, we want to fade the current short-term trend, because history tells us when a short-term extreme hits, a short-term reprieve is right around the corner.
In our case, we would use a bear call spread.
The Best and Worst Ways to Trade SPY Options Each Week
A bear call spread works best when the market moves lower, but it also works in a flat to slightly higher market. Remember, most of the traders using weeklys are speculators aiming for the fences. They want to take a small investment and make exponential returns. If I lower my probability of success I can bring in even more premium, thereby increasing my return. It truly depends on how much risk you are willing to take.
Take the Jun16 It has a probability of success Prob. OTM of If you are interested in learning how I approach weekly options for income, please give my free webinar on June 8 at 12 p. EDT a look.
Should You Trade SPY ETF Or SPX Broad Based Index Options? - Options Geeks
Click here to participate. Because probabilities are overwhelmingly on our side. So how do I use weekly options?
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Once an extreme reading hits, I make a trade. And this is where the casino analogy really comes into play.
How to Pull in Big SPY Profits No Matter What
Take a look at the options chain below: I want to focus on the percentages in the far left column. Published by Wyatt Investment Research at www.
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You should keep in mind that exercise can be avoided by offsetting the option before it trades in the money. Lastly, another inconvenience of American style expiration is the chance of early assignment. While English style options cannot be exercised till option expiration, American style options can be exercised at any time. I do want to remind you that the only time early exercise becomes an issue is when the option trades in the money and the option has very little time value or premium left. The last and one major overlooked difference between the two types of options is the way they are treated by the IRS.
At times, when liquidity levels are exceptionally strong, I may trade the SPX or the OEX, but I find myself gravitating back to the SPY, since commission rates for options are fairly low and I tend to liquidate options before they trade in the money, eliminating assignment risk the great majority of the time. Overall, it depends on the strategy and how long I intend to hold the position that dictates which of the two derivatives I intend to use.