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 as we cannot by law answer them.
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 of any kind and/or any other advice.
3. The editor, publisher and/or any of its associates/ representatives is/are not Hedge Fund or any other fund managers and do not manage anyone else’s money in any fashion.
4. We are great believers in the timeless wisdom that one should spread one’s risk; what is commonly known as “Do not put all your eggs in one basket”. Of course the decision is always yours.
I never dealt or traded options before, nor do I know what they are and how they work. Can I still participate in the service and/or follow the suggestions?
Yes. However, we do believe that one should know at least the basics of what options are and how they are being traded
Where can I learn and/or find out more about what options are, the terminology etc.?
To learn more about options Click Here
How many and what type of suggestions are issued each month for K.I.S.S. Options?
The number of suggestions issued is not based on a monthly basis. 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 which may change with market conditions.
What kinds of suggestions are offered?
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. Debit spreads do not require margin.
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 and therefore risk. It is K.I.S.S. Options’ 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. Strictly for reporting purposes we use $5,000 per suggestion on our Track Record. However, the decision as to what amount(s) to allocate/use is strictly yours. The average number of open suggestions at one time is between 5 – 7.
Is the K.I.S.S. Options service appropriate for an IRA?
To the best of our knowledge you can trade within an IRA but we suggest you check with your broker, investment advisor or tax advisor for verification and details.
How safe is the K.I.S.S. Options’ service?
It is a question of what one defines as “safe”. As the Track Record shows, K.I.S.S. Options success ratio is impressive, but it is not a certainty or 100% “risk free” as would be investing in a Treasury Bill (T-Bill). Losses can and probably will occur. Naturally, past results do not guarantee or reflect future results.
Is there any way statistically or practically to lose all my account in one go?
It all depends on your allocations. If one allocates 100% of available funds to one suggestion and it goes totally bust, then the answer is yes.
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.
What are the advantages of ETFs (Exchange Traded Fund) vs. Indices?
ETFs are more flexible than indices as there is more flexibility as to the width of the spreads if we choose to use 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 are based 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 the SPX (S&P 500 Index). See what is the “Settlement Risk” below.
If one gets assigned on an ETF, one will buy (or sell short) the ACTUAL shares and therefore have a chance to sell (if long) or buy (if short) the assigned shares and therefore a chance to remove the loss (if any) or even make a profit. Since Indices settle in cash that is not possible.
Why is sometimes getting assigned a good thing?
Sometimes you WANT to be assigned and exercised in order to make the most gain. One of the potential suggestions used in K.I.S.S. Options 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 and exercised.
For example: Let’s say the SPX is quoted at 1100. If we suggest a 1150/1160 CREDIT call spread (sell the 1150, buy the 1160), 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 1150.
Now instead of doing the credit spread, if we suggest an ITM debit put spread we can BUY the 1160 PUT (long put) and SELL the 1150 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 1150, so we will be assigned and exercised (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 1140. The 1160 long put option will be exercised $20 (coming into our account) and the 1150 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 for a total of $100 on both spreads (also called 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 requirement(s), you DO NOT have to do that, since THERE IS NO MARGIN requirement.
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 Click Here.
The “SET RISK” is quite 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). -0.26 is a negative number and therefore there is an assignment of $0.26 per “share” or $26 per option contract will be assigned (deducted or debited) from your account. Please note that there may also be fees or commissions involved.
What is “Autotrade”?
“Autotrade” is a service that some brokerage firms offer their clients. For more details Click Here.
What trading strategy does K.I.S.S Options use?
To learn more about the trading methodology Click Here.
Why does K.I.S.S Options trade the Stock Options Markets?
We believe that when options are used properly they are less risky than just buying stocks/shares. Options also offer a larger variety of strategies and flexibility in dealing with all market conditions.
Does K.I.S.S Options ever change his trading strategy?
With the flexibility of options the strategies within K.I.S.S. Options can and will change with the changes in market conditions.
Are the accounts that I set up Margin accounts?
If you wish to participate in Credit Spreads and/or selling naked puts your account will have to be a margin account AND at the correct trading level. Speak to your broker about the details and requirements.
Can you guarantee I will make money?
Trading involves probabilities but not certainties so a guarantee of profits isn’t feasible regardless of how good a track record might look.
What is the difference between Stocks, Commodities, Futures, Options, Forex, and ETFs?
Stocks: A stock is simply a share in the ownership of a company. You can buy hundreds, thousands or millions of shares in a company through a brokerage firm.
Commodities: A physical substance, such as food, grains, oil, and metals, which investors buy or sell, usually through futures contracts. The price of each commodity is subject to normal supply and demand. Examples of commodities are wheat, corn, lean hogs, gold, and heating oil.
Futures: A standardized, exchange-traded contract which requires delivery of a commodity, bond, currency, or cash in the case of stock index. The contract includes the obligation to buy at a specified price, on a specified future date. Futures contracts are traded based on prices moving up and down as a result of supply and demand.
Options: The options buyer has the right, but not the obligation, to buy (call option) or sell (put option) a specific amount of a given stock, ETF, commodity, currency, index, or debt, at a specified price (the strike price) during a specified period of time until expiration (the end of the time on the contract). The seller of the option has the obligation to buy or sell the stock IF the option buyer exercise her/his right.
Forex: Global market where world currencies like the US Dollar, Japanese Yen, and the British Pound are traded and their conversion rates are determined.
ETF (Exchange Traded Fund): A fund that tracks an index or an industry or a commodity (such as Gold), but unlike a Mutual Fund it is traded like a normal stock.
Can you give me an example of a closed trade?
Today we suggested to close the SPY vertical put spread which was due to expire this Friday. We closed it 5 cents below the maximum profits we could have made. However, for 5 cents we removed ALL the risk. Even if SPY shoots vertically up in the next 3-4 days it will no longer affect us.
The gain on SPY is 13.5% before commissions and 11.2% AFTER commissions, based on our assumptions of $5,000 allocated per suggestion and using OptionsXpress commissions’ schedule. We held SPY since July 19, 2010, or less than a month.
The numbers are calculated as follows:
We suggested the SPY spread at a net cost (before commissions) of $2.60 per “spread share” or $260 per contract (options’ contract is based on 100 shares).
We then took $5,000 and divided by 260 (5000 / 260) to get 19 contracts available for this suggestion
19 contracts X $260 per contract = $4,940 in cost (before commissions).
We sold or closed the spread @ $295 per contract. 295 X 19 = $5,605 in proceeds.
5605 – 4940 = $665 gain BEFORE commissions.
Unfortunately commissions amounted to $114. Here is how we got it: 19 contracts X $1.5 per contract X 4 legs (2 to get in and 2 to get out) = $114.
Gain of 665 – 114 = $551 in NET GAINS
665 gain before commission / 4940 X 100 = 13.5% gain BEFORE commissions
551 gain AFTER commissions / 4940 X 100 = 11,2% gain AFTER commissions.
How can I fund my account?
You will need to check with your broker.
Why should I pursue this program?
Trading is not for everyone, and you should not trade with money you cannot afford to lose. What you can receive from K.I.S.S. Options is access to a website that details the suggestions that a veteran trader is making. You will also receive commentary on the markets and the economy, and regular updates to his suggestions. If that sounds like a good opportunity for you in your current financial situation then perhaps you should check and see if any openings are available.