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When you purchase a call option, the underlying ETF must increase in price or the call option will lose value possibly resulting in a 100% loss for your call option trade.
The video below will explore the ETF option spread advantages listed below:
1. Reduced Cost - An ETF call option spread is created by simultaneously purchasing a call option and selling a call option with a higher strike price. The sale of the call option reduces the cost of the option purchase. Most ETF option spreads cost $600 to $800.
2. The Option Sale Provides Downside Protection - The sale of a call option results in cash being credited to your brokerage account. This reduces the cost basis of the option purchase and provides downside protection in the event the price of the underlying ETF declines in price.
3. Spreads Can Be Profitable If an ETF Goes Up or Down - Depending on the strike price, option spreads can be profitable if the underlying ETF price increases, decreases or remains flat at option expiration. Many of our ETF spread trades can profit if the underlying ETF is down as much as 10% at option expiration.
4. Higher Percentage of Winning Trades - If your ETF debit spread can profit if the underlying ETF price increases, decreases or remains flat at option expiration then you will experience a higher percentage of winning trades compared to ETF directional option trades.
5. Allows You to Maintain Positions During Volatile Markets - The downside protection provided by the sale of a call option to create an ETF spread can help you maintain your spread trade during volatile markets. If you traded option purchases only, volatile price swings in the underlying stock can result in getting stopped out of your directional call option trade.
The video below will explore selecting the type of ETF Spread Strategy to utilize based on an Exchange-Traded Fund's volatility. We will utilize four types of ETF spreads:
Four Types of ETF Spreads
1. Debit Spreads
2. Covered Calls
3. Profit Guard Spreads
4. Married Put Spreads
Profit Guard and Married Put Spreads are initiated by purchasing a put option for downside protection in case the underlying Exchange-Traded Funds declines in price. ETFs with low cost option premiums offer more profit potential for Profit Guard and Married Put Spreads.
Debit Spreads and Covered Calls are initiated by selling call option premium. ETFs with rich option premiums offer more profit potential for Debit Spreads and Covered Calls. Learn the criteria we use to determine if an ETF offers rich premiums.
The video below will look at how a low risk spread trade was initiated for the Internet ETF symbol FDN. The top holdings in the Internet ETF are listed below and include the FANG stocks.
The maximum risk for this spread trade was 3.3% regardless of the price movement of the Internet ETF even if the ETF declined 50% in price. At the same time there is no limit on the profit potential for this spread trade if FDN continues to move up in price.
FDN ETF Spread Trade
1. Maximum risk 3.3%
2. Unlimited profit potential
3. Participate in the strongest stock market sector
Top Holdings FDN ETF
|Facebook Inc A||FB||8.18%|
|PayPal Holdings Inc||PYPL||4.83%|
|Alphabet Inc C||GOOG||4.78%|
|Alphabet Inc A||GOOGL||4.70%|
|E*TRADE Financial Corp||ETFC||2.88%|
If we can identify a market sector moving up in price, we can also profit from purchasing call options on Sector Exchange-Traded Funds which allows us to harness the leverage options provide.
The video below will explore a strategy for selecting low risk entry points for an ETF option purchases. A low risk entry point helps prevent being stopped out of a trade and increases the accuracy of our options trading.
We will also explore our 1% Rule for selecting an option strike price with a high probability of success. Actual ETF option trades will be used to demonstrate how low risk entry points and the 1% Rule can help you become a more profitable ETF option trader.
This strategy generates weekly cash income from the sale of call options on Exchange-Traded Funds. If you collect a 2% weekly payout, you have the potential to collect a 100% cash payout over the course of one year. This can cover the original cost to purchase one hundred shares of the ETF. If you collect a 100% cash payout a lot can go wrong and your trade will still be profitable.
The strategy is easy to implement in a standard brokerage account and you only need a $3,500 trading account to get started. We focus on ETF's that generate a 2 to 3% cash payout each week. This allows us to collect cash payouts over the course of one year, that exceed the original cost basis to purchase 100 shares of the ETF.
The weekly covered call strategy only takes about 20 minutes a week to implement and incurs less risk than a buy and hold strategy. Learn how you can start collecting weekly cash income from this low-risk strategy.
The weekly covered call strategy is working well in the current volatile market conditions with rich option premiums.
This video will explore trade management techniques for trading weekly covered calls. Chuck uses a trade management technique that will allow us to keep our stock/ETF shares in our account so we can collect a weekly cash payout from selling call option premium.
When you generate a 207% cash return on your ETF position, a lot can go wrong and you will still profit:
Today's S&P 500 Index price chart below shows lots of volatility and price swings but no clear price trend. It is difficult to profit from the long or short side in this type of market.
Over the past four years we have experienced a global financial meltdown, severe recession and bear market, high unemployment, increased market volatility and an uncertain economy. This financial turmoil has made it very difficult for the average investor to realize a consistent return on investment.
In the Market Volatility Profit Secrets webinar we will explore low risk strategies that have been performing well in this type of market. For example, using a little known strategy, my Royal Dutch Petroleum trade has a maximum risk of 1.4% over a 21 month period but unlimited upside potential.
The cash dividend strategy invests in dividend paying stocks. We reinvest cash dividends in additional shares of stock which enables us to compound our returns. In this video we will learn how this low-risk strategy has produced excellent returns despite the market volatility and an uncertain economy.
Writing monthly covered calls on high yielding stocks is one of the best overall investing strategies as you get to collect two income streams the quarterly dividend and the monthly cash received from writing covered calls. I like to invest in companies that consistently raise their dividends as these companies have a proven track record of producing profits that enable them to increase their dividend.
I like to reinvest cash dividends in additional shares of stock which enables me to compound my returns. I also reinvest the cash received from selling monthly call options which provides a double compounding effect.
For example, reinvesting quarterly dividends for Mark West Energy stock has reduced my cost basis for the stock to 17.02. Mark West Energy pays a $2.60 annual dividend so my annual yield is 15.2%. Writing monthly call options for MWE has an annualized return potential of about 45.8%. The total annual return potential for this stock is 61%.
In this video we will learn how this low-risk strategy has produced excellent returns despite the market volatility and an uncertain economy.