We hope our fellow traders and investors are having a successful week trading and investing in the financial markets. This blog posting will be of interest to those of you who trade Iron Condors.
Several weeks ago I found a Facebook group, new to me, which focuses on selling Iron Condors on the SPX. This group was created by Mart Zee and can be found here:
https://www.facebook.com/groups/SPXincome/
Here is a brief explanation written by Mart for his group:
“We primarily trade spreads such as Iron Condors, Bear Call Spreads, Bull Put Spreads, Strangles, or Straddles. Members of the group can follow the trades and copy trade them if they decide to or deem it valuable. We want to post the trades to help others trading options as well as ourselves to carefully evaluate the trade instead of impulsing trading ("When one is teaching, two are learning.").
I hope, this group will be helpful to all members.
The group is closed and as of now limited to 250 members only. New members can be added only if any of the old one leaves the group.”
There might be an opportunity for you too to join this group, but you will need to ask Mart when you try to sign up for membership.
Mart does trades almost every day of the work week, mostly using SPX options. Frequently he also does option trades with other indexes and stocks. I recently asked Mart if a trader could use SPY options instead of SPX options for these Iron Condor trades, and if so, what differences should be of interest to us?
Here’s Mart comprehensive reply:
Important Differences for Traders: SPX vs. SPY
“► SPY pays a dividend and SPX does not. Ex-dividend day is usually the 3rd Friday of Mar, Jun, Sep, Dec, and that corresponds with expiration day. It is important to be alert when trading in-the-money calls because most such calls are exercised for the dividend on expiration Friday. If you own such options, you cannot afford to lose the dividend and must know how to decide whether or not to exercise. SPX pays no dividend.
► SPY options are American style and may be exercised at any time (after the trader buys them) before they expire. SPX options are and can be exercised only at expiration.
► Currently SPX options most often expire on Mondays, Wednesdays and Fridays each week. SPY weekly options only expire on Wednesdays and Fridays. So for those wanting to trade no more than 1 day before expiration, the SPX offers the most trading opportunities.
► SPY options are settled in shares. SPX options are settled in cash (the ITM value of the option is transferred from the option seller's account to that of the option owner.
► One SPX option (same strike price and expiry) is worth approximately 10 x the value of one SPY option. This is very important. SPX trades near $1,200 and SPY trades near $120. Thus, one at-the SPX money call option is an option to buy $120,000 worth of underlying. One SPY option gives its owner the right to buy $12,000 worth of ETF shares. If you trade a lot of options at one time, it may pay to trade 5 SPX options rather than 50 SPY options. That plan saves significant dollars in commissions, but it does mean trading European options and trading an underlying with no dividend. That will not be suitable for every trader.
► Currently the IRS treats SPX index options differently than SPY options. SPX options get special section 1256 treatment, which allows investors to have 60% of the profits made in trading treated at a long term tax rate. So for many the SPX options can offer a tax advantage.”
Thank you Mart! We appreciate all of the information and education that you have been providing to members of your Facebook group, including myself.
We hope you all have continued success!
Trader_Joe
Founder, InvestorsHELP.net
Several weeks ago I found a Facebook group, new to me, which focuses on selling Iron Condors on the SPX. This group was created by Mart Zee and can be found here:
https://www.facebook.com/groups/SPXincome/
Here is a brief explanation written by Mart for his group:
“We primarily trade spreads such as Iron Condors, Bear Call Spreads, Bull Put Spreads, Strangles, or Straddles. Members of the group can follow the trades and copy trade them if they decide to or deem it valuable. We want to post the trades to help others trading options as well as ourselves to carefully evaluate the trade instead of impulsing trading ("When one is teaching, two are learning.").
I hope, this group will be helpful to all members.
The group is closed and as of now limited to 250 members only. New members can be added only if any of the old one leaves the group.”
There might be an opportunity for you too to join this group, but you will need to ask Mart when you try to sign up for membership.
Mart does trades almost every day of the work week, mostly using SPX options. Frequently he also does option trades with other indexes and stocks. I recently asked Mart if a trader could use SPY options instead of SPX options for these Iron Condor trades, and if so, what differences should be of interest to us?
Here’s Mart comprehensive reply:
Important Differences for Traders: SPX vs. SPY
“► SPY pays a dividend and SPX does not. Ex-dividend day is usually the 3rd Friday of Mar, Jun, Sep, Dec, and that corresponds with expiration day. It is important to be alert when trading in-the-money calls because most such calls are exercised for the dividend on expiration Friday. If you own such options, you cannot afford to lose the dividend and must know how to decide whether or not to exercise. SPX pays no dividend.
► SPY options are American style and may be exercised at any time (after the trader buys them) before they expire. SPX options are and can be exercised only at expiration.
► Currently SPX options most often expire on Mondays, Wednesdays and Fridays each week. SPY weekly options only expire on Wednesdays and Fridays. So for those wanting to trade no more than 1 day before expiration, the SPX offers the most trading opportunities.
► SPY options are settled in shares. SPX options are settled in cash (the ITM value of the option is transferred from the option seller's account to that of the option owner.
► One SPX option (same strike price and expiry) is worth approximately 10 x the value of one SPY option. This is very important. SPX trades near $1,200 and SPY trades near $120. Thus, one at-the SPX money call option is an option to buy $120,000 worth of underlying. One SPY option gives its owner the right to buy $12,000 worth of ETF shares. If you trade a lot of options at one time, it may pay to trade 5 SPX options rather than 50 SPY options. That plan saves significant dollars in commissions, but it does mean trading European options and trading an underlying with no dividend. That will not be suitable for every trader.
► Currently the IRS treats SPX index options differently than SPY options. SPX options get special section 1256 treatment, which allows investors to have 60% of the profits made in trading treated at a long term tax rate. So for many the SPX options can offer a tax advantage.”
Thank you Mart! We appreciate all of the information and education that you have been providing to members of your Facebook group, including myself.
We hope you all have continued success!
Trader_Joe
Founder, InvestorsHELP.net
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