Jump to section: What is OptionSmart.com? Getting Started with OptionSmart Auto-trading Option Trading Technique

1. What is OptionSmart.com?

   a. Basic OptionSmart Features
   b. Direct Benefits of OptionSmart
   c. OptionSmart Policy
   d. Track Record Accounting
   e. Accessibility, login/password, etc.
   f. Payment Options
   
 


2. Getting Started with OptionSmart

   a. Subscription Packages
   b. Publications and Alerts: How to Use
   
 


3. Auto-trading

   a. Partner Brokerages
   b. How the Auto-trading Works
   c. Auto-trading Settings
   
 


4. Option Trading Technique

   a. Option Spread rolls
   b. Key Option Strategies
   c. Black-Scholes Option Pricing Model
   d. E-book "Worry-Free Option Trading System"
   e. Eighteen Trading Rules
   f. Glossary

What is OptionSmart.com?

a. Basic OptionSmart Features

OptionSmart^SM is a think tank coupled with state-of-the-art technologies to deliver high quality option trading signals. That means: superior returns with little downside risk.

You can use our option picks and expertise in your own decision-making as well as in auto-trading with major brokerages. Pioneered in early 2002, OptionSmart^SM is leading auto-trade service that allows you to stay away from trading decisions and save your nerves and time.

We focus on short-term trading because market plays these days are mostly short-lived and the market becomes much less predictable in the long run.

Our key trading vehicles - call/put options and spreads. These powerful and easily adjustable option strategies - until now, exploited only by professionals - are available for everyone. They give you a very good chance (historically, well above 90%) to capture profit opportunities arising from stock market shifts.

We not only offer trading alerts but also publish in-depth Research Notes with detailed pros and cons, suggested market play descriptions and recommended option trading vehicles. In this way, you tap our expertise for your own decision-making. This research is based on our 3-D Option Trading© methodology that takes into consideration not only technicals and fundamentals, but also the market game being played.
 

b. Direct Benefits of OptionSmart

When advances in technology reduced brokerage commissions, execution time and the minimum required investment, the new option trading technique became available to an audience of innovative retail investors.

Direct advantages in time and money:

1. You don't need to put your entire capital at risk. Use only a small fraction. Keep the rest in risk-free bonds. Option trading gives you exciting leverage along with a possibility to capture profits from underlying stock price movements.
2. You avoid "dead money" situations and the necessity to invest for a long time. We bet on short-term stock price changes that are, naturally, much more predictable. Therefore, you can reduce your market exposure any time you want.
3. You can be involved in real-time trading as little as you like. Auto-trading technology gives you the unique opportunity to put your trading on auto-pilot. You can monitor ongoing trading activity in real time and take back full control at any moment.
4. You make your bets on quite foreseeable short-term trends established by large traders. We recognize these trends and show you how to benefit from this knowledge. The point is that large traders use program trading technology and all their market power to support these trends. It would be naive to ignore this real fact of life and believe that stocks are driven only by technicals and fundamentals.

c. Track Record Accounting

Our Track Records include ALL auto-traded picks with actual entry/exit prices reported by optionsXpress. You can find the links to our Track Records at:
http://www.optionsmart.com/SSNL.htm
http://www.optionsmart.com/qqq.htm
and
http: //www.optionsmart.com/sectortrends.htm

The current lists of open positions are available for subscribers at:

d. OptionSmart Policy

OptionSmart Policy and Terms of Use can be found at http://www.optionsmart.com/tou.htm

If you are experiencing a credit card authorization problem, or you find it more convenient and safe to pay by other means than credit card, please let us know at billing@optionsmart.org.

e. Accessibility, login/password, etc.

You can retrieve your user name or password here.
Want to change my email address in your mailing list? Email your old and new addresses to billing@optionsmart.org

f. Payment Options

A: In fact, we have no access to credit card details. There are two options.
1. You can contact our payment collectors - PayPal - on this issue.
2. We recommend to resubscirbe. It is easy. We will refund a prorated amount of your current subscription.
Please do it ASAP to avoid any interruptions in the service.

Getting Started with OptionSmart

a. Subscription Packages

Want to switch to the quarterly/yearly billing? Please subscribe again and notify us. We cancel your current monthly subscription and issue a partial refund. We can't switch you directly because we have no access to your credit card details.
 

Compare Our Services

Momentum PlaysSM QQQQ PicksSM Global ETF PlaysSM Underlying Securities individual stocks QQQQ (NASDAQ-100) tracking stock ETFs and individual stocks Featured Option Strategies buy call/put call/put spreads buy call/put call/put spreads buy call/put call/put spreads Portfolio Diversification high moderate high Avg. Gain per Trade 11% 17% 11% Detailed Track Record Auto-trading buy call/put, call/put spreads buy stock, call/put options, call/put spreads buy call/put, call/put spreads Holding period 3-4 weeks 4-5 weeks 3-4 weeks Avg. Number of Open Positions 6-8 4 6-8 Entry/Exit Email Alerts Complimentary E-book "Worry-free Option Trading System" Recurring Billing Available Periodicity 10-12 picks and Research Notes per month, 1-2 trades per week new picks 2-4 times per month and daily Morning Updates 10-12 picks and Research Notes per month, 1-2 trades per week One Month Subscription Price/ Light Version (30% off) $99.95/$69.95 $99.95/$69.95 $99.95/$69.95 One Quarter Subscription Price/ Light Version (30% off) $269.95/$189.95 $269.95/$189.95 $269.95/$189.95 One Year Subscription Price/ Light Version (30% off) $999.95/$699.95 $999.95/$699.95 $999.95/$699.95

Q: I have subscriptions to both Global ETF Plays and Momentum Plays, I see that there are some duplicate positions and many duplicate recommendations in the newsletter. Will I be receiving duplicate trades via Xecute on OptionsXpress if I subscribe to spread trades on both services?
A: We have three dedicated independent teams of analysts. Duplications happen very rarely. Besides, entry dates and strikes for duplicated tickers (if any) are different. Therefore, your portfolio will be well diversified.

b. Publications and Alerts: How to Use

The detailed Research Notes come with our "Momentum Plays" and "Global ETF Plays" subscription packages. We publish 2-3 Research Notes every week. We release the Research Notes before the market opens and notify you via email.

You can use these picks in your decision taking or/and rely upon our trading alerts. We monitor the pre-selected picks for better entry/exit points and can send our trading alerts via email any time depending on market conditions but most likely before 9:00 am EST.

Trading alerts are included in all our subscription packages. However, auto-trading is not included in Light versions of our subscriptions.

Auto-trading

a. Partner Brokerages

Broker Profile Apply now Auto-trading signup instructions OptionXPress Profile Apply now Open Investrade Profile Apply now Open American Option Services Profile Apply now Open brokersXpress Profile Apply now Open thinkorswim Profile Apply now Open Synergy Investments Profile Apply now Open

b. How the Auto-trading Works

1. Select "OptionSmart" as a service.
2. Your brokerage requests our authorization.
3. We authorize your auto-trading and keep sending trading alerts to you and your brokerage.
4. Your brokerage executes our trading alerts on best-effort basis.

c. Auto-trading Settings

Q: When did you start your auto-trading service?

A: We started auto-trading with optionsXpress.com in March 2003.

Q: How can I auto-trade with optionsXpress.com?

A: If you would like to add additional Xecute services for your account you must add them on your account Xecute settings page. To do this first log into your account, click on the Account tab, and then the Xecute (auto-trade) link. Select OptionSmart as a Publisher. Select a Service. Please note you must have an active subscription for each service to be approved for auto-trading. Other partner brokerages offer similar autotrading settings

Q: What portion of my account can be allocated to each trade?

A: It depends on the service you choose. The allocation tips are:
Momentum Plays^SM

QQQQ Picks

Global ETF Plays^SM

Option Trading Technique

a. Option Spread Rolls

No one can predict the direction of stock prices with 100% likelihood. That's why you need a backup plan to avoid losses. Our option repair technique is called "rolling" an option spread.

Rolling is a great technique to use when you want to hang onto a position you believe in. Rolling a spread refers to the process of closing both legs of an existing spread, and then opening two legs of a new spread using an option of the same type (call or put) at a different, typically more distant, expiration date and/or different strikes.

Let's consider one of our recent trades. On June 19, 2007 we have opened the bearish credit put spread for the TGT (Target Corp) stock, i.e., we purchased 10 Jul07 70 calls and sold 10 Jul07 65 calls. The initial credit was 0.95. We expected to have this bearish spread expire out-the-money. That could give us $950 profit, or a 23.5% return in one month. The breakeven point was 70.95. So, we bet on the event that the price will not go above this mark. Unfortunately, a month later, on July 16th, the stock price jumped on positive corporate news. However, the trend remained bearish and we decided to repair the spread, by rolling.

The first step is to sell the Jul07 70 calls and buy back the Jul07 65 calls. We paid 3.82 for this, or $382 for 10 contracts. The second step was to open a similar spread for August and receive a credit of 2.92 or $282.

This new spread has successfully expired out-the-money and delivered a small 1.9% return in 59 days. Not bad. This is how we avoided substantial losses and saved the position.

You can roll an option spread several times, but if your losses continue to mount, it's time to move on to something else. When the stock moves against you, it's better to accept your losses.

b. Key Option Strategies

BUY CALL WHEN TO USE. You are very bullish on the stock. The more bullish you are, the higher the strike should be. No other position gives you so much leveraged advantage with limited downside risk. PROFIT increases as stock rises. At expiration, break-even point will be option strike A plus premium paid. For each point above break-even, profit increases by an additional point. LOSS is limited to the premium paid. Maximum loss realized if the stock ends below A. For each point above A, loss decreases by additional point. RISK: Limited. REWARD: Unlimited. MARGIN: Not required. TIME DECAY. This position is a wasting asset. As time passes, value of position erodes toward expiration value. If volatility increases, erosion slows; if volatility decreases, erosion speeds up. BUY PUT WHEN TO USE. You are very bearish on stock. The more bearish you are, the more out-of-the-money (lower strike) should be the option you buy. No other position gives you as much leveraged advantage in a falling stock (with limited upside risk). PROFIT increases as stock falls. At expiration, break-even point will be option exercise price A less premium paid. For each point below break-even, profit increases by additional point. LOSS limited to amount paid for option. Maximum loss is realized if the stock ends above option exercise A. For each point below A, loss decreases by additional point. RISK: Limited. REWARD: Unlimited. TIME DECAY This position is a wasting asset. As time passes, value of position erodes toward expiration value. If volatility increases, erosion slows; if volatility decreases, erosion speeds up. SELL NAKED PUT WHEN TO USE. You are sure that the price will not fall. Sell lower strike options if you are only somewhat convinced; sell higher strike options if you are very confident the stock will stagnate or rise. If you doubt stock will stagnate, sell at-the-money options for maximum profit. PROFIT: limited to the premium received from sale. At expiration, break-even point is strike price A less premium received. Maximum profit realized if stock settles at or above A. LOSS: increases as stock falls. At expiration, losses increase by one point for each point stock is below break-even. Because the risk is open-ended, this position must be watched closely. RISK: Unlimited. REWARD: Limited. MARGIN: Always required. TIME DECAY: this position is a growing asset. As time passes, value of position increases as option loses its time value. Maximum rate of increasing profits occurs if the option is at-the-money. BULL SPREAD Call option is bought with a strike price of A and another call option sold with a strike of B, producing a net debit. OR Put option is bought with a strike of A and another put sold with a strike of B, producing a net credit. WHEN TO USE: you think the stock will go up somewhat or at least is a bit more likely to rise than to fall. Good position if you want to be in the stock but are unsure of bullish expectations. This is the most popular bullish strategy. PROFIT: limited, reaching maximum if stock ends at or above the higher strike B at expiration. If call spread used, difference between strikes minus initial debit. If put spread used, net initial credit. LOSS: maximum loss if stock at expiration is at or below A. If call spread used, maximum loss is net initial debit. If put spread, difference between strikes minus initial credit. RISK: limited. REWARD: limited. TIME DECAY: if stock is midway between A and B, no time effect. At B, profits increase at fastest rate with time. At A, losses increase at maximum rate with time. BEAR SPREAD Put option is bought with a strike price of A and another put option sold with a strike of B, producing a net debit. OR Call option is bought with a strike of A and another call sold with a strike of B, producing a net credit. WHEN TO USE: you think the stock will go down somewhat or at least is a bit more likely to fall than to rise. Good position if you want to be in the stock but are unsure of bearish expectations. This is the most popular bearish strategy. PROFIT: limited, reaching maximum if stock ends at or below the lower strike B at expiration. If put spread used, difference between strikes minus initial debit. If call spread used, net initial credit. LOSS: maximum, if stock at expiration is at or above A. If put spread used, maximum loss is net initial debit. If call spread, difference between strikes minus initial credit. RISK: limited. REWARD: limited. TIME DECAY: if the stock is midway between A and B, no time effect. At A,profits increase at fastest rate with time. At B, losses increase at maximum rate with time. SELL COVERED CALL Call option against the stock holding is sold. WHEN TO USE: you are sure that the price of the stock you hold will not fall. Sell lower strike options if you are only somewhat convinced; sell higher strike options if you are confident stock will rise. If you think stock will stagnate, sell at-the-money options for maximum profit. PROFIT: limited to the strike minus the market price plus the premium received. LOSS: similar to that incurred with ordinary stock ownership, only partially off-set by the option premium received. Main loss could be the opportunity loss if the market rises strongly. RISK: unlimited. REWARD: limited. TIME DECAY: This position is a growing asset. As time passes, value of position increases as the option loses its time value. Maximum rate of increasing profits occurs if option is at-the-money.