If you have
questions that are not addressed below, please contact
us and we will answer your questions as quickly as
possible and to the best of our ability.
Please be aware of
the following important points:
1. All questions
regarding margin and/or account allocation and/or any questions concerning
your trading account are to be addressed to your broker.
2.
The editor, publisher and/or any of its
associates/ representatives is/are NOT a registered and/or licensed
investment advisor, and do NOT provide individual investment advice and/or
any other advice.
3.
The consensus from the brokers we spoke with
is that the allocation of funds designated for this service should be around
70% - 80% of available cash (70% being more conservative). The reason is
that should you go into a losing position using margin, you need some
cushion. The brokers feel that a 20% - 30% cushion is sufficient in most
cases. Of course the decision is always yours. Speak to your broker
and/or investment advisor.
1. How
many and what type of suggestions are issued each month
for OptionsMaximizer?
The number of
suggestions issued in any given month can vary. We
do not limit the number of open suggestions however the
average is between 5 - 7 open suggestions at any one
time. The average length of time for an open
suggestion is about 60 days.
Suggestions will include, but are not limited to, the
following: buying options, credit or debit call spreads, covered
calls (either via a longer term option or the shares),
credit or debit put spreads and/or naked puts to reduce the cost
of shares or ETFs (similar to covered calls except that
the shares are purchased ONLY upon assignment.)
Note: If a
credit call spread is suggested and later a credit put
spread is suggested (or vice
versa) on the same underlying (index, ETF, stock)
it may be considered an iron condor and therefore one
suggestion since no additional margin is required by
most brokers. Talk to your broker for more information and/or
details.
2. How many and
what type of suggestions are issued each month for
IncomeMaximizer?
Similar to
OptionsMaximizer, above, except suggestions include only
covered calls or covered writes.
3. How much should I allocate for trading?
This is something you need to
discuss with your broker and/or investment advisor as we
cannot give you any advice regarding this. It
is common knowledge that it is prudent to diversify
one’s investments. It is SmartOption’s general
view and/or opinion that one should not use more than
10% of available funds allocated for each investment
and/or trade and/or strategy. For reporting purposes
only we use $5,000 per suggestion on our Track Record.
The average number of open suggestions at one time is
between 5 - 7.
4. Is
the OptionsMaximizer or IncomeMaximizer appropriate for an IRA?
To the best of our
knowledge we understand you can trade within an IRA but
we suggest you check
with your broker, investment advisor or tax advisor for verification and
details.
5. How
safe is the OptionsMaximizer and IncomeMaximizer?
It is a
question of what one defines as “safe”. As the
Track Record shows, OptionsMaximizer and IncomeMaximizer success
ratios are impressive, but it is not a certainty or 100% “risk free” as
would be investing in a Treasury Bill (T-Bill). Naturally, past results do not guarantee
or reflect future results.
6. Is there any way
statistically or practically to lose all my account in
one go?
It all depends on your
allocations; see
# 3 above. If one allocates 100% of available funds
to one suggestion and it goes totally bust, then the
answer is yes.
7. Is
there a specific date that I should subscribe to receive
the next suggestion?
You
can subscribe at any time and you will receive the next suggestion.
8. Are
there alternatives to subscribing on-line?
Yes, you can
set-up a wire transfer or direct deposit or mail a bank
draft/certified check. Contact us for details at
info@wise-options.com.
9. If
I decide to cancel my subscription do I get a
pro-rated refund for the unused portion of the subscription?
We do not offer pro-rated refunds. Refer to the Disclaimer
for more information.
10. What
are the advantages of ETFs?
ETFs are more
flexible than indices as we have
more flexibility as to the width of the spreads. The other HUGE advantage of
ETFs is that they are traded like stocks. Assignments
are done with
shares (not settled
in cash like the indices)
and on the ETFs closing prices
at the closing
of the third Friday of the
options’ month. Therefore, there is no risk of the
UNKNOWN "settlement price"
such as the “SET” price for some indices. If
one gets assigned on an ETF, one
will buy (or sell
short) the ACTUAL shares and therefore a chance to sell
(if long) or buy (if short) the assigned shares and
another chance to remove the loss (if any) or even make
a profit.
11. Why do I want to get assigned?
Sometimes you WANT to be assigned
in order to
make the most gain.
One of the
potential suggestions used in OptionsMaximizer is "In
The Money" (ITM) debit spreads. Basically they work
the same as credit spreads except that one has
to PAY up front for the spread and there is NO
MARGIN REQUIRED. The
maximum gain on an ITM debit spread will
usually occur when BOTH positions
(legs or sides) of the spread are assigned.
For example: Let's say the SPX is quoted at
1400. If we suggest a 1450/1460 CREDIT call spread
(sell the 1450, buy the 1460), let’s say for $0.50
or $50 per spread, the margin required for each
spread is 10 X100 – (0.50 X100) = $950. The maximum
profit potential is $50 per spread (before
commissions), or about 5% return, and of course the
SPX must be settled (SET) BELOW 1450.
Now instead of
doing the credit spread, if we suggest an ITM debit
put spread we can BUY the 1460 PUT
(long put)
and SELL the 1450
PUT (short put)
for $9.50, or $950 per spread, with NO MARGIN
REQUIRED (this is strictly on a cash basis). To make
the most money on this, the SPX needs to settle
(SET) BELOW 1450, so we will be assigned
(in cash, since it is an
index) on BOTH put
options (in other words they both remain ITM when
the spread expires).
Let’s assume the
SPX SET at 1440. The 1460
long
put option will be
assigned $20 (coming into our account) and the 1450
short
put option will be assigned for $10 (money going out
of our account) for a NET INCOMING of $10 per share
or $1,000 per spread (10 X 100). Deduct the $950
cost and you end up with a $50 gain, the same as the
credit spread.
Taking it one
step further, we could suggest to open an ITM call
spread as well (assuming $50 per spread), therefore
creating a DEBIT Iron Condor. We now also
have a $0.50, or $50 per spread, potential profit on
the call side (total of $100 on one Iron Condor).
Now, if one has to, or chooses
to close one side UNLIKE the CREDIT spread where you may
require closing some (or all) spreads on the other
side because of margin, you DO NOT have
to do that, since THERE IS NO MARGIN requirement.
12. What
is the "SETTLEMENT RISK"?
Settlement
determines the value at which the options are valued at the end of the
contract. The OEX/XEO settlement
price is the CLOSING price of the third Friday of the options month
contract. The SPX (and most other
major indices) carries with it what I call the “SET RISK” (the
symbol for the SPX settlement price is SET). Basically the SPX
(and most other major indices) finishes
trading on the Thursday prior to the third Friday of the month, and the
next morning (third Friday of the month) it is being valued for
settlement (assignment price) based on a formula. For more info on
how the SET is calculated, go to
http://www.cboe.com/Products/indexopts/spx_spec.aspx
The "SET RISK" is
simple: We have no idea, nor do we have any control as to what the SET
price is going to be. Since the SPX stops trading the Thursday before
the SET is established, we are totally at the mercy of that SET.
Index iron condors or credit
spreads are a perfect example where a position that
looks good on the last Thursday prior to expiration,
can be wiped out by the "SET". Sept 19/08 and
Oct 17/08 are very good examples of this risk.
Between the July 2003 and May 2007 option months, the biggest gap
between the Thursday closing and the SET price the next morning was
14.84 ABOVE the Thursday closing and 12.76 BELOW the Thursday closing.
The average gap between the SET and the prior Thursday close
for that time period was
4.26
points. However, on Friday September 19, 2008 the SET price was 73
points ABOVE the Thursday's (Sept 18, 08) closing.
On Friday October 17, 2008 the SET price was 24
points BELOW the Thursday's (Oct 16, 08) closing.
The difference
between the short call or the short put and the settlement price
determines the amount you may be assigned (you will have to give
back or pay) against your option. If the difference between the
short call and the settlement price is POSITIVE (call - SET), the call options
expire worthless and there is no assignment. If the difference
between the short put and the settlement price is NEGATIVE (put -
SET), the put
options expire worthless and there is no assignment.
Overall profit
or loss = premiums received (credit) – premiums (or
assignment) paid
(debit) - commissions = profit (positive number) or loss (negative number).
Here is an
example: The SPX settled at 1300.26. The short call is 1300 and the
short put is 1180. Since the SPX settled above the short put, the
puts expired worthless (1180 - 1300.26 = -120.26). However, it also
settled ABOVE the short call, which means it penetrated that option
by $0.26 (1300 - 1300.26 = -0.26). Here is the
calculation: 1300 – 1300.26 = -$0.26 (notice it is a negative number and therefore there is an
assignment) per “share” or $26 per option contract will be assigned
(deducted or debited) from your account. Please note that
there may be fees or commissions involved.
