About

I have been an active trader now for over 10 years. My original interest was spurred by the beginning of the dot com bubble in 1997 and the growth of on-line trading. At first I dabbled in stocks of internet companies, and quite frankly made a lot of money. I mean, you couldn’t go wrong back in those days. I was young then (well, right now 49 sounds pretty young) and I could put more money at risk.

I retired early (1999) and went on the road as an IT consultant and also did pretty well from an income perspective. I was able to slip in a few trades during the day, but I did most of my research and trade selections at night. I have always been what is called a swing trader (trade the peaks and valleys) and never a buy and hold investor – I just don’t have the patience.

Around 2003 I started to research options. I did a bunch of paper trades and then jumped into live trades later that year – just buying Calls and Puts. My favorites were Apple, RIMM, Google, etc. For the most part I was successful, but I was also very nervous if I could not monitor these trades during the day. I was trading slightly OTM options with 4-8 month expirations.

During that period I was also trading some option spread strategies, such as Straddles and Iron Condors, but I really didn’t know what I was doing and certainly didn’t know how to adjust a loosing trade. I had one Iron Condor that went against me and I couldn’t sleep for 2 nights!

At the start of 2006 I was laid off. While I was actively looking for work, I also had a lot of time to spend looking at other trading strategies. I signed up for a Forex trading course that cost a lot of money and tried that for a while. Talk about high pressure! While I didn’t lose much, I couldn’t stand to see trades go from +$400 to -$400 in seconds. I tried other option strategies – Iron Condors, Calendar Spreads, Straddles, Butterflies, etc., but the one strategy that I consistently made money on was Covered Calls.

During the first few months of 2007 I was considering starting up my own Covered Call service, so I did some research looking at the potential competition. I signed up for a few services, but quickly canceled them during the trial period. Then I found John Brasher’s Call Writer web site. I signed up for his service and soon found out that I could not compete with the sophistication of his ‘real time’ Covered Call and Naked Put tables and research tools.

If you have done any research on Covered Calls, you will see some articles that imply this is a bad trading strategy. The main reason in their argument is the limit on gains for stocks that are on a bull run. While this may be true for a buy-and-hold investor, it does not ring true for a trader looking to hedge risk while maintaining steady gains. You can tell the source of these opinions originate from web sites of traditional thinking investment firms. I don’t mean to degrade or slam that methodology; it’s just not my style.

It’s now mid-2009 and I have been very successful with Covered Calls (and they have taught me a lot), but unhappy with the limitations in markets that are trending downward. I was also looking for ways to increase my leverage without increasing my risk. Since March I had been trading Credit Spreads in my paper account and making a killing! I was unsure if I would be able to trade this strategy in an IRA, so I checked with my broker and found out it was OK.

In July I started to enter into Credit Spreads in my live account, increasing to over 50% of my account in August and 90% in September. I won’t get into any comparison with other strategies – that was a subject of a post in August – but right now, with market volatility decreasing and option premiums drying up, this is the way to go.

So how could I continue with a blog devoted to Covered Calls? It wasn’t right because my heart wasn’t in that strategy anymore, so I decided to create a new blog and to host it myself – giving me a lot more freedom to do some really cool things on the blog. After weeks of searching for a URL and creating a list, my wife and I decided on The Option Guru. Yeah, it might sound a bit arrogant, but the definition of Guru that I like to go with is: “A trusted counselor and adviser; a mentor.”

So on this blog you will be able to journey with me into the world of Credit Spreads and Iron Condors, and maybe a few Covered Calls and Naked Puts thrown in to keep everyone honest. I will share my successes and my failures, my thoughts and concerns – and maybe a few opinions on the world thrown in for variety.

I write because I have to get it out! Enjoy!

- Jeff

  • Vlad

    Hi Jeff, could you send me weekly excel spread sheet, to keep my records. Thank you

    • http://theoptionguru.com/blog Jeff W

      Vlad – Good idea. It’s on my blog’s download page.
      Happy Trading
      ◄Jeff►

  • Bashuc Choudhury

    Hi Jeff, i have seen videos/courses “trading as a business” by David, but most instructions are not doable.. where could i buy “profit tent portfolio” course?please help

    • http://theoptionguru.com/blog Jeff W

      Bashuc – Profit Tent Portfolio is simply the name that I gave to a portfolio’s risk profile diagram when you have a combination of Iron Condors and Double Calendars. All this is covered in David’s Trading Pro video’s (formerly known as Trading as a Business). The diagram looks like a circus tent.
      Happy Trading ◄Jeff►

  • Walter

    Good Evening Jeff,
    Like the blog and the videos on YouTube. I’ve watched most of them and have bought the course. I see you are in Canal Winchester – I am originally from Lancaster and now live in the DC area.
    Keep up the great work..
    Walter

    • http://theoptionguru.com/blog Jeff W

      Thanks, Walter.

      I now love in Baltimore, just north of Lancaster. Love the country living!

      ◄Jeff►

  • http://theoptionguru.com/blog Jeff W

    Derek – if you want to trade options, you need to start your education someplace. I believe the Trading Pro system is suitable for beginners. You get to download all the videos, so you can watch them over and over until you are sure you understand the concept. If you open an account and fund it at TDAmeritrade, you would have access to their training and Tom Sosnoff’s at TastyTrade site (great source of education). Let me know what you decide.
    ◄Jeff►

  • Maya Grosberg

    Hi Jeff,

    I’m the affiliate manager for the WBF Affiliate Network.
    I came upon your website and would like to speak to you about working with us.
    We specialize CPL offers in Binary and Forex.
    We work with the biggest players in these industries, and thus can always provide you with multiple offers for different countries.

    Please add me on Skype mayawebfore or write back to me at mayag@webfore.com so we can discuss this in more detail.

    Looking forward to speaking with you,

    Maya
    Webfore Ltd
    mayawebfore (skype)

    • http://theoptionguru.com/blog Jeff W

      Maya – sorry, I’m not interested in any business partnerships at this time. I prefer to focus on improving my current strategy.
      ◄Jeff►

  • dennis

    Sorry Jeff, I found the answer and signed for the course; it is really good, thanks. But, Where are you; you have been missing for two days??

    • http://theoptionguru.com/blog Jeff W

      Dennis – I’m back now. Sorry for the late response – since the move I’ve been wading through many email and comments. Now you are officially a free thinker.
      ◄Jeff►

  • http://theoptionguru.com/blog Jeff W

    Dennis – I don’t understand the question. ◄Jeff►

  • Andrew Barbeau

    Jeff, I recently discovered your intriguing methods and have started to pursue a similar approach. I am also looking to retire early and safety is the name of the game for me as well. But I have 1 question about the edited studies that you use in TOS. Where exactly do you input the parameters that you have in the download area? The ones you use for macd and stochastics. They are pretty nifty and was wondering about the procedure to apply them. Your vids are great and have been a big help to shake of some of the rust since I had forgone trading on my own for ten years.

    • http://theoptionguru.com/blog Jeff W

      Andrew,

      Welcome back to the club – we missed you. I think you’ll find everything you need in the two videos called Charts and Analysis on my YouTube channel. Here’s a link: http://www.youtube.com/playlist?list=PLnAoQdvapypVU8I_bv1VarmbUoVLaHq6S

      Happy Trading ◄Jeff►

      • Andrew Barbeau

        Jeff how do you sync up the charts in TOS? To have them all come up together?

        • http://theoptionguru.com/blog Jeff W

          Andrew – I use the Grid option for charts in TOS, and I link them so that the symbol I select shows in all the charts. You can see how to do this by going to my YouTube Channel and watching the first video in the Charts and Analysis Playlist at http://alturl.com/u58b6

          Let me know is this helps. Happy Trading ◄Jeff►

  • http://www.facebook.com/jan.hoffman.1297 Jan Hoffman

    Jeff,

    I happened to find your 2010 video,Weekly Option Expiration Strategy Using SPY ETF, at the top of my youtube recommended list today for some reason and found it most interesting. I have been using credit spreads with the monthly expirations and closing out early. I was wondering whether you still find the same good results on these weekly option trades that you showed in the video.

    • http://theoptionguru.com/blog Jeff W

      Jan,

      That very strange that it ended up at the top, but I get a lot of hits on that one and that may be why. My results on this strategy was mixed and I no longer us it. If you watch any of my Daily Scans you’ll see the new technical analysis I use exclusively. I use Weekly and Monthly expirations with this strategy – depends on the analysis and how long I anticipate being in the trade.

      Overall, though, Weeklys are tough to deal with because there isn’t much room for price to wiggle around and a move against you doesn’t have time to recover. As a result I don’t use them that much for my strategy.

      Thanks for asking and Happy Trading ◄Jeff►

  • http://twitter.com/jrvalliant John Valliant

    Have you found a decent replacement for the CallWriter Trade Mangement Calculator?

    • http://theoptionguru.com/blog Jeff W

      John,

      Thanks for asking, but no, I have not. To be honest, I haven’t been looking either. I very seldom do any Covered Calls so finding a replacement is very low on my to-do list.

      I will say, however, that if you’re using TOS, there is a way to build simulated trades that can accomplish almost the same thing in a more graphical manner.

      Happy Trading ◄Jeff►

  • DoSSlar$

    Jeff, 
    Hello from one Nerd to another Geek…stumbled upon your video on Bear Spread call(Vertical) and Bull Put spreads (Verticals) on you-tube..and sat for 1 hour loving you drowning voice, and soaked up all the ‘knowledge” you provided to my nimble brain…(memory chip, getting slower) about 55 minutes….and said..what a elegant teacher with a soothing voice who can put you to sleep,yet the knowledge gets absorbed…Thank you…
    Sath

    • http://theoptionguru.com/blog Jeff W

      Sath,
      Thank you. I’ll take that as a compliment. Although I wasn’t trying to do it, I heard sleep learning is effective.
      Happy Trading ◄Jeff►

      • DoSSlar$

        Yep Jeff…that was a compliment….i followed you instruction on the Bull/Bear spreads and am playing AAPL and SPX for the weekly next week, I wold appreciate your hand holding for some time…i am still not very clear on “closing the shorts” on the Bear Calls or even Bull Puts, capture the profits if the premium drops below 0.5 cent on tos…can you please help me understand that a little further in terms of do i “Buy to Close” on the Bear Call side only the short and let the  long ride till expiration?…this same question applies on your Bull Put side vertical position?..Thanks in advance

        • http://theoptionguru.com/blog Jeff W

          Sath,
          Yes, you would buy back the short strike options when the price drops below $.05 cents. This only happens, of course, when the trade is successful. If it has gone bad or against you – well, that a different story.
          Happy Trading ◄Jeff►

          • Sath

            This is my Bear Vertical Spread for SPY , AAPL is very similar concept.

            Option Chain P/LOpen  P/LDay    PL%           Qty      TradePrice    Mark
            ____________________________________________________________
            SPY120727C138 $49.00 $0.00 +57.65%  -1        .85 .36
            SPY120727C139 ($30.00) $0.00 -66.67%  +1       .45 .15
            ____________________________________________________________
            Can you please walk me thru for exist strategy.

            Q. If the Short starts making money do i just BUY_TO_CLOSE on the SPY120727C138,and
            let the SPY120727C139(long) ride till expiration or BY_TO_CLOSE as a “set” by clicking the
            short&long and making it as a single order?

            Q. If the Short SPY120727C138 P/L is positive, why would the Market price go to 0.05 cent?

            Please pardon my ignorance on pricing, if it because of the Theta on the short.

          • http://theoptionguru.com/blog Jeff W

            Seth,
            The concept, that is sometimes difficult to accept, is the you have a CREDIT spread – meaning you sold a strike closer to the money and bought a strike further out of the money. The net is a credit (money in your account), since the money you collected on your sold or short strike (138) for 0.85 is more than you paid for your 139 strike (0.45).
            Your snapshot shows the short 138 strike is currently at 0.36 – meaning that if you wanted to buy it back you could make a 0.49 profit. If you would sell your long 139 you would lose 0.30. Your net profit, not including commissions, would be 0.19 – or $19.
            If SPY remains below 138 for this week, the value of your 138 strike will drop until is reaches zero Friday at 4 pm. You could enter a Limit order to buy back the 138 strike for 0.05. When it hits that price, your risk is eliminated. (You would keep your long 139 since it’s probably not worth anything) If SPY continues to drop this week, that price point may come very soon, but if SPY hangs close to 138 this week, you may need to wait until Friday. Of course, SPY could move above 138, in which case you have a losing trade and you must decide when to get out by closing the entire spread. That’s the game. Isn’t it fun? Hope this helps.
            Happy Trading ◄Jeff►

          • Sath

            Jeff, here is a “salute” to your simplicity of your explanation and teaching method , you are awesome!, and a good teacher.

            So my next task in hand is to monitor the “Short position” as that is my “core” position and watch it as the underlying SPY degrades (if market goes down), and around the expiration the theta is a “friend” for shorts, and when i feel comfortable with my “profit” margin ,just “BUY_TO_CLOSE” my short position and let the “long”($139) expire, seems looking at your rule base on PPS, it is very clear what the trends could be.  

            at this time i am putting a excel sheet to monitor the P/L, my question on one of your excel sheet you have a column called “Underlying Price Bias” can you please help me understand what is that and how did you calculate or present the value?

            Thank you, for your patience and understanding

          • http://theoptionguru.com/blog Jeff W

            Sath,
            Underlying Price/Bias indicates the price of the underlying at the time I opened the spread and the bias ▲, ▼ or ▬ means my bias is Bullish, Bearish or neutral, respectively.
            Happy Trading ◄Jeff►

          • Sath

            ..so the Bias of trend is based on your settings of the charts and any recent earnings or news associated with the ticker which could have a impact.

          • http://theoptionguru.com/blog Jeff W

            Yes – for the most part.

          • Sath

            Jeff Thanks..made my dough today SPY and AAPL, as planned 

          • http://theoptionguru.com/blog Jeff W

            Sath – GREAT! You’re on your way.
            Happy Trading ◄Jeff►

          • Sath

            >.Playing few GOOG(Bear Call Spread),EQIX(Bear Put spread)currently

          • http://theoptionguru.com/blog Jeff W

            Sath,
            I put on Bear Calls on CMG and PCLN today.
            Happy Trading ◄Jeff►

  • Rwko

    Jeff:
    Just subscribed. 
    I’ve been trading verticals / iron condors for a few years and want to hone and expand my skills.
    I’ve been reviewing all your excellent material & info. ++++
    Question: Can you share the Persons Pivots set-up parameters you use in your weekly Options Expiration Strategy using SPY on You Tube?

    • http://theoptionguru.com/blog Jeff W

      Rwko,

      Welcome, and thanks for the comment.

      Persons Pivots (or PP as it’s know on the TOS platform) is a proprietary indicator. John Person ‘donated’ it to his buddies at TOS for their exclusive use. He does offer it for a fee for TradeStation and NinjaTrader, but I don’t know what the cost is. You can get more information from his web site at http://www.nationalfutures.com/

      Happy Trading
      ◄Jeff►

  • Jteao4

    Jeff, have you thought about doing a podcast?

    • http://theoptionguru.com/blog Jeff W

      J,

      Good question. As a matter of fact, I have. My only hesitation would be a theme – I think I would need one.

      I would appreciate your thoughts, as well. What would you be looking for at the iTunes store that would find me and what I post about? Would they be audio or video?

      I’m also not sure if there is a cost. I prefer free – just a cheap old man.

      Happy Trading
      ◄Jeff►

      • Jteao4

        I would think that you could do a podcast on your option trading experiences and education through real life examples, just like what you do on this sight and have quite a following.
         
        When I’ve searched for podcasts for the purpose of learning options trading I’ve just looked for options trading and find a variety of podcasts.
         
        I asked you about is because I really enjoy your videos. I have listened to the audio of your videos and still get some out of it, but I would think video would be good unless you thought you would enjoy doing audio more. I have an i-phone and find that it’s easy to just download several podcasts and listen/watch at my convenience.
         
        I agree with free – I’m still relatively young, but I wouldn’t have the savings I do today if it were not for being cheap.
         
        Good Day,
         
        J

        • http://theoptionguru.com/blog Jeff W

          J,
          I checked into it last night. I would have to host them on my server and that has a price associated with it, not to mention the learning curve for syndication. The alternative is YouTube which is very easy and simple.

          I have an iPod Touch that works well with YouTube, but the size is way too small for viewing.

          I’ll probably continue to evaluate this when I have the time.

          Thanks for the suggestion.

          Happy Trading
          ◄Jeff►

  • Rhenry031

    Jeff,

    I was doing some research on delta neutral trading and came across the strategy called a Victory Spread.  However, could never find how this spread is set up.  Is this just another name for a more common spread?  Any insight you can give me would be appreciated.

    thanks in advance,

    Rich

    • http://theoptionguru.com/blog Jeff W

      Rich,

      I had never heard of it either until I purchased the Trading Pro System. There are at least 3 videos that address this spread type.

      Basically it’s a short front month strangle coupled with a long back month strangle at the same strike and a ratio of 2:1 – meaning you would sell 1 strangle and buy 2.

      It’s supposed to give no profit at the strike, but nice profits to both the up and down side and take advantage of time decay. I haven’t spent much time with it and when I did, I couldn’t get the same risk profile that David did.

      Happy Trading
      ◄Jeff►

  • Prbjr

    Re: Callwriter.com – I am missing John Brashers service! does anyone know an equivalent way to  get the same data as easily and completely as it was presented by callwriter?

    • http://theoptionguru.com/blog Jeff W

      Prbjr -

      Yes, one place you might check is optionmonitor.com. Another is opening a demo account at optionxpress.com. They have a decent scanning tool but you have to build your own scans. Also,
      thinkorswim (TOS) has a decent scanning tool, but I’m not sure how robust it is if you don’t have a funded account.

      ◄Jeff►

  • Bill

    Jeff,

    Is John Brasher’s CallWriter web site still up?

    Bill

    • http://theoptionguru.com/blog Jeff W

      Bill,

      Looks like he has closed up shop. Many readers have attempted to contact him (myself included) with no success.

      ◄Jeff►

  • Leelee33802

    Do anyone know if callwriter.com gone out of business?  thanks

    • http://theoptionguru.com/blog Jeff W

      Lee,

      I had a call in to My Brasher a few weeks ago. Repeated attempts to get a call back have failed, even though the number(s) are still working. Since it was pretty much a one-man operation, I hope that he is not ill. When I find out, I will post and let everyone know.

      ◄Jeff►

  • Jose P.

    Hi Jeff,
    I recently found your informative site and got the TPS material off of your blog. Must admit I had some hesitation, but wow! … this is really valuable material, so many thanks for your frank endorsements.
    Couple of  aspects still clarifying though, a) In choosing to use a Double C.   vs.  an Iron C. What variables do you consider for each strategy?  DCs are more directional than range-ideal ICs, yet wonder if you’ve developed criteria of conditions,  and b) for DCs TPS ‘s approach is to pick strikes closest to the market, which almost ensures the need for adjustments, particularly with recent huge market fluctuations.  May be deeper wisdom there,  or perhaps it goes back to point a),  matching the right stock with the right spread strategy.  Would appreciate your thoughts.  
    Best for 2012,
    Jose P. 

    • http://theoptionguru.com/blog Jeff W

      Jose,

      Nice job digging into the material! I still think TPS is just an awesome collection of lessons.

      Alright, in order:
      a) I always open with an IC. Double Calendars are only used for adjustments. DC’s in combination with IC’s creates a very wide and high ‘tent’, which is why I call my strategy Profit Tent Portfolio™ – since I frequently end up with one DC which creates the characteristic tent-like appearance. So, if I feel I need an adjustment, then I look for DC’s on underlyings that have a higher IV on the back month strike and are on my A+ list.
      b) David didn’t blindly pick his strikes based on a fixed delta, like I frequently do. He used technical analysis to pick a direction or support/resistance prices and biased his IC accordingly. That’s why he always had 3-4 position/underlyings with different directional bias that helps him to maintain his delta neutral portfolio.

      Do a search in my blog on PTP or Calendars and read up of more of my observations.

      Hope you kick a** this year!
      ◄Jeff►

  • Colbus50

    Hi Jeff, thank you for the site and have found your video donwloads helpful. I also purchased the pro trading system.
    I was studying the SuperPut Strategy and was seeking your thoughts  as to instead of buying stock buy a DITM call, an example using QQQ buy april 42 call for 15 and 57 put for 5. Total cost is then 20 with a locked in gain of 15(57-42), then  to recove 5 cost by selling weekly calls or even put while out of money. Given about 20 week to expiration seems like can collect almost 1 a week with QQQ for a gain then of 20-5 of 15.
    Any comments appreciated.
    Thank you
    Frank
    Dublin, Ohio

    • http://theoptionguru.com/blog Jeff W

      Frank,

      Dublin, huh? I’m not far from you, writing from Canal Winchester.

      To tell you the truth, I have never been able to justify spending very much time on SuperPuts, including your suggestion – they never really worked for me. I have also looked at Covered Calls using Long Calls vs the underlying and those don’t work very good either.

      Why? It’s the decay on the Call over time and if the stock moves in a Bearish over the life of the Long Call it’s a real looser. Better, in my mind, to stick with owning the stock, especially if it pays dividends, or just selling Naked Puts.

      So I actually attempted to prove one way or another, using ThinkBack on the TOS platform, your idea – I just changed the expiration dates. I gave up after 8 weeks of simulated trades, since it was losing money hand-over-fist.

      One of the things I like best about reader comments is it makes me think. I don’t know where this idea came from, but I thought “what if I just opened a Bear Put Debit Spread one strike OTM every week on QQQ and let it ride to the next week, close it and open the following week?”

      The results surprised even me! Over the course of 12 weeks the trades made $343 (not including commissions)! Since I only opened one lot, I never had more than about $50 at risk for any one week.

      I’m going to provide more detail in a post (hopefully this weekend) along with one other what I call no-brainer strategies.

      Thanks for your comment, Frank, and watch for the next blog post.

      ◄Jeff►

  • Burt

    Jeff,

    I really like what I see on your site, and especially the discipline you exercise in trading.  I am a big believer in the power of option spreads as income and have done a good bit of spread trading in the past, but came to realize I do not have the necessary depth of knowledge, nor do I feel comfortable enough with my skills to “go it alone” in making sound and disciplined trading decisions that result in consistent income.

    Being able to mirror trades that a wiser and more patient trader (you!) enters would be a gift.  Your site is clearly an educational goldmine, but do you also provide specific trades that your followers can mirror?

    Thank you.

    Burt

    • http://theoptionguru.com/blog Jeff W

      Burt,

      I do not have the desire to provide people with a pick service. I do, occasionally, provide some trades and some trade ideas on Twitter, but I hardly ever follow up with them on Twitter.

      You should download my spread trading plan and use that to guide you in placing your trades. It takes time to learn this, but you don’t have to know everything to be successful. Start small follow your open positions closely. Write all your observations down each time you look at an open trade or one you are contemplating.

      I keep a spiral-bound notebook next to my computer that I usually fill up 1 or 2 pages each day. Even if you never go back to read it over, it’s amazing how much better you remember if you write it down.

      Keep in touch – I would like to know how you are improving and gaining confidence.

      ◄Jeff►

  • Us271782

    Hi Jeff – found your blog after doing some research for the David Vallieres DVDs.  Do you still recommend them?  Although I’ve traded option for several years, I”ve not made any money (and tried too many strategies) until I accidentally created a ‘PTP’ situation several months back and did fairly well with it.  So I may have found the model that works for me.  I’d like to use the DVDs to fine-tune my trading plan.  I also wanted to ask if you still do the SPY weeklies credit spreads shown in your videos.  I didn’t see any followup blog entry to see how that strategy works over a longer term.   Thanks for  blogging – I appreciate all of the resources on your site.

    Klaus

    • http://theoptionguru.com/blog Jeff W

      Klaus,

      I most definitely recommend the Trading Pro System. Not only is it the foundation of my PTP™, but the additional information contained in the videos has opened the door for me on other spread strategies.

      Right now I am focused on directional trades in my Spread portfolio, such as credit and debit vertical spreads. With the strong correction we are currently in, you can hardly make a bad call.

      I haven’t been doing any SPY weeklys – I have been using other, more volatile underlyings such as AAPL, BIDU, GS, etc., but I’m sure the strategy would still work well.

      ◄Jeff ►

  • Parasuram Geetha

    Hello Jeff, I was watching your unbalanced butterfly video. Your short strike was an ITM put. (AAPL was trading at $338 and your short strike was $340) I do feel stupid asking these questions,since you obviously have worked out the trade. But will you not be immediately assigned if your short strike is ITM? Although the P/L analysis shows a profit, would you have the luxury of time, waiting for the stock to move up? nI chanced upon your site only about 2 weeks ago and I must thank you for your prompt, clear and matter of fact advice, so far. I agree with and endorse all the positive comments I read here. nGeetha

    • http://theoptionguru.com/blog Jeff W

      Geetha,nnThat’s a good question and has been asked before. Let’s think about it.nnFirst: if you look at the Open Interest on any ITM strikes, you will see hundreds and even thousands of contracts that are open. Each contract has two sides: an owner and a seller. If assignment happened immediately, there would not be any “Open Interest”.nnSecond: when the owner bought the contract they paid a premium over and above the difference between the strike and the price of the stock. There are two components to the price of the option. One is the intrinsic value which is the difference between the strike price and the current underlying price. The other is the extrinsic or time value of the option. That is the premium. So if you buy an ITM Call option at a strike of $100 and the and the stock is at $110, you will pay more (premium) than the $10 difference – the further out from expiration the bigger the difference. If the owner chose to exercise the option at that time they would eat that premium and it wouldn’t be a good trade. Most of the time, in this case, the owner would wait until expiration to exercise and the seller of that option would have to take the appropriate action on the underlying.nnThird: Not all people who buy options intend to exercise them, but rather buy/sell Puts and Calls and use spreads for gain. As a matter of fact, a vast majority never intend to exercise. At expiration, if you have short options that are ITM by a penny or more, you will have them exercised – whether you intended to or not.nnSo to answer your question, no, I wasn’t worried about assignment.nnu25c4Jeff u25ban

      • Parasuram Geetha

        Thanks Jeff. I get it now.

  • Rahul

    Hi Jeff,nnI was looking for a good read and I stumble across your blog, Just like what you explained in the introduction video about how people trade and there 30% trades goes in right direction but the 70% take them down. I am an option level 2 player, Buying Just calls and puts, although always worried of assignments and so I play them very carefully.nI want to learn from your way and was wondering if you course makes me also understand the basics of Options like level 2, along with the spread , condor etc. nI would not be able to afford the assignment , and that is my objective since i will a small pool of money to invest.nnI would appreciate your reply.nnThanks nRahul

    • http://theoptionguru.com/blog Jeff W

      Rahul,nnWelcome to the world of options. Congratulations on taking the first step. Now it’s time to limit your risk using option spreads. I personally don’t have a course, and the one that I endorse is really for those that have a good grasp of basic spread strategy. So before you jump into that, here’s a list of To Do’s for you (all free):nn1. Make sure you have a Paper or Test Account to practice in. I don’t know who your broker is but any decent one should offer this. If not, I suggest you open one at http://thinkorswim.com (my broker of choice and all my recent videos use that broker and trading platform).nn2. Go to http://www.theoptionsguide.com/ and go through the Options Basic and then Option Strategies.nn3. I suggest you start with Credit Spreads. You can download my Credit Spread Trading Plan on the Downloads area on the right. Start with that document and get really good at trading them in your Paper Account.nn4. I wish I could recommend a book, but I can’t. My knowledge was acquired from multiple sources – books, YouTube, web sites and TOS videos. Just keep looking and learning.nnLet me if you need anything else and make sure you let me know how you are progressing.nnu25c4Jeff u25ban

  • Ed

    Hi Jeff:nnI hope you can help me. Last Thursday I set up a “weekly” Double Calendar in SPX, based in large part upon the TOS “Analyze / Risk Profile” chart. My shorts where in March4 and the longs in March5. The strikes were 1210 (puts) and 1310 (calls). Provided the market stayed within my shorts, the TOS chart showed an expected rate of return at expiration of anywhere from 10% to 200% (I’m not making this up).nnSince Monday, my positions have gotten hammered, presumably by the fact that volatility decreased significantly. Specifically, up until Sunday evening the TOS chart showed my positions as of today increasing in value by 80% with the market at 1290 (using the “day step”), but in actuality my positions were under water with the market at 1290.nnI’m not sure if my failure was based on not selecting a proper underlying, or strikes, or months (although the TOS chart looked spectacular at the inception of the trade) or failing to properly adjust (or even abandon) my positions when my longs were quickly deflated. In any event, I screwed up.nnCan you offer any suggestions or counsel?nnThanks.nnEd

    • http://theoptionguru.com/blog Jeff W

      Ed,nnI’m always willing to stick my neck out and offer my humble opinion. Let me also say that’s it’s very easy to reverse engineer a trade – don’t take anything that I say personally, but treat it as knowledge to help make you a better trader.nnOverall, the spread strike prices and the strategy is OK. On the other hand, I usually don’t play the cash indices (SPX, OEX, COMP, NDX, RUT) for two reasons: the strike prices are far apart, usually $5; and the bid/ask spread is very high – as I will explain later.nnThe day that you placed this trade was the most volatile since July of 2010. It was a huge spike up and should have warned you about placing a delta neutral trade. Better to have entered a directional trade on that day. The high IV on your shorts (around 19) was good because you collected a lot of premium. You’re right about volatility collapse on our longs. It moved from around 22 then to 15 now. That’s a huge difference for an index. So you paid for a lot of IV and now it’s gone, so you won’t get much when you want to sell you longs. Generally for Calendars you want the back month long IV to be equal to or less than the front month. It it’s not, that’s a danger signal.nnSpeaking of buying back your longs, notice that today (pre-market) the bid/ask spread on the 1210 is .50/.95 and the 1310 is 5.50/7.40. So if I bought a 1310 Call right now, I would pay $740. If I turned around and sold it, I would only get $550. Ouch!nnHaving been devastated more than once on Calendars in similar situations, I am very careful now. I find that Butterflys in some ways offer similar performance without as much danger of volatility collapse. That being said, there are situations where Calendars work much better, such as adjustments on a delta neutral strategy, like the Profit Tent Portfoliou2122. You might want to experiment (in a paper account of course) with Calendars with the back month farther out where the IV will be more stable – but those long options will cost you more. Nothing is free.nnWithout all the details of your trade, I can’t help you much with an exit strategy. Also, expiration is today on your SPX so there just isn’t any way to adjust. Overall, Weeklys are unadjustable because of the short expiration period.nnKnowing when to “hold ‘em” and when to “fold ‘em” is one key to success. I myself am still learning that. Oh great, now that stupid song is going to be in my head all day!nnu25c4Jeff u25ban

    • DoSSlar

      Jeff Hope you had a warm vacation back from Florida, am following you for some time as you may know, like your Theta/Delta, that is the “Family Jewel” of all the Greeks, you understand that with our BUP/BEC stratergy, you are always a winner. Thanks you as always your soothing voice is the key to learning from a Guru. ..thank you

      • http://theoptionguru.com/blog Jeff W

        Thanks, DoSSlar, it’s good to hear from you again and vacation has been wonderful. Breath deep, relax, turns your palms up to the heavens and trade your butt off!
        ◄Jeff►

  • James

    Hello Jeff. I purchased Trading As A Business (now Trading Pro System) a year or so ago. I’ve now decided to dust it off and teach myself how to trade! However, I have one question: after you make an adjustment on a double calendar, do you close out the threaten short option or leave it and add another calendar?nnJames,

    • http://theoptionguru.com/blog Jeff W

      James,nnTrading Pro is a fascinating collection of educational videos, I hope you become fantastically successful using the techniques taught in the course.nnI don’t recall ever splitting up a Calendar spread – never thought of it, I guess. Remember, the strategy is not cast in stone. When I do make an adjustment it’s always on the individual underlying that is misbehaving the most and will give me the biggest effect on my portfolio as a whole.nnThere are times when I may close a single Calendar that has the highest delta or is furthest from the current price of the underlying in order to help pay for the adjustment. It all depends on the affect the decision has on the overall portfolio – of the Profit Tent Portfoliou2122 as I prefer to call it.nnu25c4Jeffu25ba

  • Anna

    Jeff,nnI am glad that I found your blog (I will save it as my “favorite”. I work with options too (just for 2 years) and I love it! nnHowever, I use only the basic strategies: Covered Calls and Naked Puts. Same as you, I do not lose money, but I wanted to know more about Credit Spreads and Iron Condors. Is there any way you can help me?nnP.S. Sorry for my broken English…I am Russian.nnThanks,nAnnannn

    • http://theoptionguru.com/blog Jeff W

      Anna,nnWelcome and congratulations of your progress so far.nnI do occasionally offer coaching/mentoring, but I think that right now you would be better served by purchasing the Trading Pro System that I fully support and endorse. You can get to heir web site by clicking the Trading Pro System image on the upper right of my blog.nnYou can also do a search of my blog using the term “Trading Pro” to get all my posts that reference this course. It’s a very comprehensive series of several (almost 100) videos on using option spreads.nnI have had the course for over 2 years and I still go back and reference the videos weekly.nnKeep in touch, I would be interested in knowing of your progress.nnu25c4Jeffu25ba

  • Todd

    Jeff, I have been following your blog for a few weeks andI really like your work. I’ve been through some of the same paths as you, subscribing to Callwriter and taking the Trading Pro Options course. Most of my trading is in an IRA account, so I am writing monthly covered calls and a few collars. You have started me thinking about changing what I do in my margin account where I have more options of what kind of spreads I can trade. I started paper-trading a few things to get used to the adjustments. I’m just not satisfied with the return I get from monthly covered calls right now. I hit 75% to 80% of my trades correctly, but tend to write conservative ITM calls, so the few loses can really nail my profits. I like the risk/reward of what you do much better, so I am contemplating the change. Thanks for keeping your site interesting and informative. nnTodd – http://bloomingcactus.typepad.com/revtodds_ira_plot/

    • http://theoptionguru.com/blog Jeff W

      Thanks for the comment. I like to mix it up and try different things. Heck, if I did the same thing all the time, all I could write about is trades and returns, pretty boring stuff to most people. I am pretty pumped on the whole Trading Pro strategy and I will continue to write more about that. Just to remind you, all my trading is in an IRA. Most brokers, and in my case thinkorswim, allow defined risk trading, meaning you can trade almost any option and spread except naked short Calls and short stock. Heck, you can even trade Futures, as I do occasionally. Because I can withdraw out of my IRA w/o penalty (except for tax), that’s where a huge majority of my money is right now. Most of my regular savings went towards paying down and eliminating debt with the exception of my mortgage.

      ◄Jeff►

  • http://theoptionguru.com/blog Jeff W

    Love you guys from down under. Thanks for reading my blog. Actually, my wife frequently is sitting next to me working (or playing Farmville) when I am recording. If she make a comment that is worth including, well I do it. She gets a kick out of it too.nnu25c4 Jeff u25ba

  • http://theoptionguru.com/blog Jeff W

    Love you guys from down under. Thanks for reading my blog. Actually, my wife frequently is sitting next to me working (or playing Farmville) when I am recording. If she make a comment that is worth including, well I do it. She gets a kick out of it too.

    ◄ Jeff ►

  • Muddy Farmer

    Jeff, a quick note to your better half for the giggle of the day.

    Watching your video “how to create a combo order in IB TWS” demonstrating a credit spread on SHLD you say: “This puts $700 in my account immediately… I get to keep that amount.”

    Then a pop-up note appears: “No, my wife said she gets to keep the $700.”

    Hoot and a holler! I'm still giggling.

    Keep up the great work. And Mrs Jeff (Mrs Option Guru?): keep up keeping him honest.

  • http://theoptionguru.com/blog Jeff W

    Larry,

    Thank you for the encouragement.

    There are a few issues with doing this – but it doesn’t mean it’s not possible. The first has to do with determining what the limit should be. You can do a theoretical calculation on the price of the option and thus determine the price of the underlying, but since time affects the option price along with volatility, it makes it very difficult to determine.

    The second issue has to do with limit orders associated with stops – called a stop/limit order. On this type of order you are asking that the underlying not be sold if you cannot get x price or better below your stop price. If the stock drops below that limit price, the underlying is not sold. Assuming the objective is to exit the entire trade, you may be ‘stuck’ with a declining underlying.

    Since I have the luxury of being able to trade during the day (some people do not), I prefer to not use any stops except for what I have set in my head or via an alert.

    I hope this answers your questions.

  • Larry Barnes

    Jeff– great site, much useful information, you have done a masterful job! Thank you!
    I REALLY appreciate the time and effort that you spent in your video on using IB to set up and initiate a conditional order for a covered call protection. I have been wanting to know how to do that for quite some time, and your video explains it perfectly. A quick question though: when setting the stop price, you mention that it is best to use a market order for the price of the stock because of the uncertainly of knowing what the buy-write combination might be. Could a limit be used by choosing some amount below your cost basis for the buy-write? In other words, in your example, your cost basis was $15.27. If you wanted to say…. get me out of this but-write if the combination of the stock price and the covered call drops to $14.25, could you enter that price into the limit blank and achieve control over the absolute cost of position exit?
    Again, I really appreciate your site and the abundance of thoughtful and useful information.

    Kind regards,

    Larry Barnes

  • Rich Holmer

    Jeff.
    I found your video on the IB-Excel Adapter to be extremely informative. When I looked for it on the IB website it was gone, but I downloaded it from the CyberXpert website. After install it works great for stocks, but doesn’t work now for options. Do you know if this is because of the OCC symbology changeover, or is CyberXpert no longer supporting the product. Any comments on how to get it working would be appreaciated. I really like the Blog, and look forward to your future announcements.
    Rich

    • Jeff

      Rich,

      Thanks for the comments – having readers that enjoy the blog just adds to my joy of writing it.

      I suspect the CyberXpert will eventually fix the Excel adapter because the have a paid charting program that they sell. The problem is with the conversion itself. The whole process is in 3 steps and won’t be completed until May. I suspect that vendors like CyberXpert are waiting until the process is complete. I have no idea how to fix it, but you can send an email to mailto:support@cyberxpert.com and ask them if and when they are going to update it. I would do that myself, but I not longer have an account at IB.

      Good luck and Happy Trading.

      - Jeff

  • Alan Sherman

    wanted to watch the coaching videos , but cant find where to create a password ?

    • Jeff

      Alan,

      Congratulations on even finding that page! It’s a test page for the future launch of my coaching service. The business plan is still under development, but my plan is to have a section of my actual web site where I will give exclusive access to coaching students of the videos that I will be creating for them.

      - Jeff

  • Oliver

    Jeff,
    Like your work. How do I get this Twitter thing to work though?
    Thanks

    • Jeff

      Oliver,

      Depends on what you mean. If you want to follow me on Twitter, then click on ‘Follow’ and if you have a Twitter account, log in – if not, you can sign up for one. If you want the widget on your blog, there is an icon at the bottom of the box to get the flash code – may not work on non-self hosted blogs.

      - Jeff

  • Wayne Mugar

    Jeff,

    Great site! found you on Call Writer. FYI: Commissions are negotiable at TOS, i pay much lower than your chart.

    Wayne

    • Jeff

      Wayne,

      I sure appreciate your comment and your advice on commissions at TOS. I also heard the same from another reader. Thanks again.

      - Jeff