Trader Ideas Forum
for Monthly Income Machine Members

Welcome to the Forum. This is the members-only place investors meet to discuss potential trades they’ve spotted, etc. (No sports or politics, please!) I’ll be looking in and commenting, too.

381 Responses to “Idea Forum”

  1. Quick question about stop orders and OptionsXpress.

    I’m aware of Lee’s advice that stop orders should not be done using GTC, but rather placed manually each day after the open, when trading has settled down.

    I noticed that OptionXpress now has a contingent order option where time-of-day is also a criteria. On my recent IBB stop order, I was able to setup a contigent stop using my calculated MRA but it was set to only trigger between 10AM and 4PM.

    Lee: do you consider that type of stop order to be safe in GTC form ?

    • Using the “time of day” order contingency is fine.

      Not all brokerage firm order platforms allow this option, but when it there by all means the investor can use it to avoid being caught in the stop loss order opening minutes trap.

  2. Hi everyone,
    I am just curious how you all dealt with the big down day on Thursday?
    Did somebody got stopped out? Rolled any positions?
    Since the VIX went up significantly, it was expensive to buy back threatened positions.


    • Using the “time of day” order contingency is fine. Not all brokerage firm order platforms allow this option, but when it there by all means the investor can use it to avoid being caught in the stop loss order opening minutes trap.

  3. Looking at the P&L graph for this WYNN trade, hmm, it is somehow unbalanced.When I punch in 10 contracts on each side, then I have a overall negative Delta of 40. I could just buy 40 stocks of WYNN to balance it or get down with the contract number on the call side.
    10 puts and 5 calls would balance it nicely.

    Lee, or anybody else, do you have some thoughts on this?


  4. Hi everyone,
    I have my eye on another MIM trade.
    WYNN just bounced off a weekly resistance.
    ER is on Oct. 24
    The setup I have in mind is:
    WYNN170915C145/155, $0.27 credit, Delta 0.08
    WYNN170915P105/95, $0.34 credit, Delta 0.08

    I see the next support on a daily chart at around 115
    What do you think?

  5. Hi everyone,
    I did my first MIM trade today. Here the specifics.
    Iron Condor on Netflix. Next ER is Oct. 16
    NFLX170915C215/230, $0.46 credit, 10 contracts, Delta 8, 18% distance.
    NFLX170915P150/135, $0.48 credit, 10 contracts, Delta 7, 17.5% distance.

    Please comment on this . . . Whatever it is 🙂


    • As shown, the IC meets all trade entry criteria.

      Technically, delta of “8” should be shown as .08 and delta “7” is expressed as .07. Keep in mind the delta values represent current likelihood of finishing at or in the money at expiration expressed in percentage terms, i.e. .08 = 8%.

  6. Hi everyone!
    I have a margin question.
    When I roll e.g. the call side of an Iron Condor by establishing an new call spread for the next month, how does this work with the margin?
    Does the broker now require margin from both sides?
    In other words, can an Iron Condor have the wings in different months?

    • Check with your brokerage firm. Usually, if the two spreads are in different months, it is not counted as an Iron Condor in terms of single margin eligibility.

  7. Just joined – hello everyone.

    I’ve been with OptionsHouse for a while. They were bought by (or merged with) TradeMonster a bit ago and I do not like the new interface. However, OH has been bought by ETrade and we’ll be using their interface in Aug. Trying to decide whether to go with ETrade or switch to TOS or possibly TastyWorks. Opinion anyone?

    • Think Or Swim is currently on our options-friendly brokerage firm list.

      E-trade, while certainly a reputable company, has not been options-friendly up until now.

      We have received some client praise for relatively new brokerage TastyWorks, but have not yet formally evaluated them for platform, advantageous margin requirement for Iron Condors, responsiveness to phone calls, etc.

    • I use TD Ameritrade and while I love the thinkorswim platform, I’m already seeing that with a small account such as mine, you need to minimize the commissions as much as possible. I’ve been considering moving the account to Tastyworks, Lightspeed, Interactive Brokers (on the approved list), or Placetrade.
      I have an unfunded Tastyworks account, and their commission structure is hard to beat. No base charge, $1/contract to open and no charge to close.
      Unfortunately, TastyWorks doesn’t have a screener that works the way I would prefer, but if you use the conforming spread service, it wouldn’t matter.

    • Hi everyone,
      I am almost finished reading the “Monthly Income Machine” and would like to know how this works with the Conforming Spread Service.
      I read through the explanations and also have a sample downloaded.
      My question is, how long does it take to get the service activated.
      In other words, if I pay today for the service, can I get the list for next week already?
      I’d like to start as soon as possible.

      • The “Conforming Credit Spreads Service” begins immediately once an investor has subscribed. Reports are based on Friday closing prices and are distributed to subscribers on Saturday so Lee has an opportunity to review the raw screened data, edit if necessary, and add his commentary where applicable.

        Customer Service Manager

    • I have been evaluating several brokerages:

      TD Ameritrade – Think or Swim (great platform, horrible fees, but you can call and try to negotiate lower fees I hear). – still waiting to get an ACH setup as I had to mail them paperwork. $3 per leg + .15 per contract options pricing which is pretty nice. Note, they make you build each leg out by hand and charge $3 per leg in and out as a ticket charge (not a combined ticket charge across the entire trade like other brokerages). This may be a good place for Iron Condors with the .15 per contract.

      Schwab – a bit cheaper than TDA but much worse platform. Good for $4.95 stock trades, I use it for short selling and for my long options currently.

      Tasty Works – LOVING them so far. $1 (+ .10 per contract fees) with no ticket charge and NO CLOSING charge. They also have a sleek platform which WARNS you when you are doing stupid things and clearly explains your break even conditions when submitting a trade. I can see this being my main brokerage if they keep up the good work. Signed up and got funds transfered in less than 2 days all electronically too.

      Quick comparison of a 10 contract Vertical open and close:
      TD: $37.85
      Schwab: $36
      Eoption: $20 ish
      Tasty: $22

      10x Iron Condor (40 contracts in and out)
      TD: $75
      Schwab: $63
      Eoption: $38
      Tasty: $44

      Obviously as you get into higher contracts the prices will vary. I think Tasty’s platform and vision is worth the little extra over eoption. Haven’t tried Interactive Brokers yet as they look like they have a complicated fee tier and I hear their platform is clunky and hard to use, but they may have the cheapest if you do really high volume.

  8. SELL -10 VERTICAL GOOG 100 21 JUL 17 1015/1020 CALL @.32 LMT
    SELL -10 IRON CONDOR NVDA 100 21 JUL 17 190/200/125/115 CALL/PUT @.77 LMT

    I have NOT checked these for resistance.

    NOTE: Avoid Tesla, as earnings are expected 8/2/17

  9. Lee,
    Suppose you are looking out an extra month and find a particularly inviting spread that meets all criteria except that there is an earnings report expected to come 2 days before expiration. Would it be acceptable to enter the trade if you planned from the beginning to close it out a week or possibly two weeks before the earnings? Thank you.

    • It’s fine to use a stock-underlying conforming spread with an earnings report due prior to expiration so long as you are SURE to exit from the spread before earnings report comes out. Keep in mind, too, that as out of the money options (ours, in other words) approach earnings report date, the option tends to hold its premium better than if there were no looming earnings report. We, of course, like to see our option spreads losing value.

  10. SELL -10 IRON CONDOR TSLA 100 16 JUN 17 395/415/315/295 CALL/PUT @.66 LMT

    Meets 11% requirement for < 10 trading days,
    Check resistance.

  11. I’m excited to join the group. I’ve received the book and read through it once. I received TD Ameritrade’s approval for margin and spread options (my past broker, Scottrade, is great for some things, but not options) and am now going through the book again. Other than Lee’s Conforming Credit Spread Service, has anyone found a better platform than thinkorswim for scanning for potential candidates? It gets me started, but still requires a lot of manual labor. Has anyone tried tastytrade?

    • Tonight I found:
      SELL -5 VERTICAL GOOG 100 16 JUN 17 1015/1017.5 CALL @.25 LMT
      For the more aggressive:
      SELL -5 VERTICAL GOOG 100 16 JUN 17 1012.5/1027.5 CALL @.67 LMT
      Anything I missed?

      • I think the book says strikes should be 15% from current price or a little closer for for fewer days. Looks like you are around 5% based on 6/1 close of 966.95

        I’m new at this so I might be wrong.

        • 15% for stock-underlying credit spreads; 12% for EFT- and Index-underlyings. This is a very dangerous trade entry rule to fudge on.

          Strongly recommend requiring that all the trade entry “rules” be observed if going to place an order, but distance-from-underlying is the most important risk control element of the “Machine”

          • Thanks Bob & Lee. I must have set my slices wrong. I am glad you caught that. Still trading on paper, and was posting these for that type of feedback. It is appreciated.

    • SELL -10 IRON CONDOR REGN 100 16 JUN 17 535/550/425/410 CALL/PUT @.80 LMT
      NOTE: PUT side is not below resistance

    • SELL -10 VERTICAL PBYI 100 16 JUN 17 60/45 PUT @.40 LMT
      NOTE: Not below resistance.

    • Lem

      I’ve been using OptionsXpress but I’m moving (gradually) to ThinkorSwim/TD. Both meet Lee’s definition of “options friendly”. I’ve become comfortable with OptionsXpress so for me, the move to TOS has been gradual.

      I agree with you … there can be quite a bit of work in finding the right spread candidate.

      I have looked briefly at TastyTrade but don’t have any particular wisdom to share.

      Thank you for sharing those possible spread positions.

    • I have an acct at TastyTrade and their platform is very good and easy to use. There is a ton of information there as well, highly recommended…

    • I have looked at a web site called power options where they have many videos about how to use their system, among which there are 1 or 2 about vertical spreads. I have not tried it yet, but it is one of the many things on my list of thing to do. Please let me know if you check it out and/or try to use it.

      • I haven’t checked that one out. I did try a free trial of “Option Party”. I find their name memorable, but less than inspiring. You can’t set up the parameters exactly, but you can set them so that they give you ideas that should get you close. On the plus side, they email the ideas to you in real time. On the minus side, because you can’t set screens for the specific MIM data, you still have to manually check the over/under %, the earnings, and the delta, etc. so its more of an idea generator than a screener. It did lead me to a couple good ideas.

    • Hmmm! My reply to this seems to have wound up at the bottom somehow. Perhaps the moderator can move it????

    • Good day Lem, What are you using as your scan criteria in TOS and what else are you looking for? Be specific.

      • I’ve been using the spread hacker with Lee’s criteria. However, TOS combines delta for a spread in some way that I don’t understand. There also doesn’t seem to be a way to set the % out of the money. You can get somewhat close by playing with the PL/margin and probability of profit.
        Being a cheapskate and someone who likes to tinker, I wanted to build my own scanning system, but I think the conforming spread service is probably the way to go.

  12. Lee,

    Is it better to go out a month in the search for premium in low volatility or increase the margin spread between strikes? Doesnt doing either of these lower your actual return since you are risking more margin or going 2 months out to find the premium instead of same month?

    Is the return with in these scenarios? I would love your insight into this. Thanks


    • As I see it, there is no “right” answer to this question. Whether to go for a larger net premium by widening the distance between strike prices, or going for a larger net premium by using the month after the current expiration month, is an issue of maximizing profit vs minimizing risk.

      So long as the choices ALL meet all the trade entry rules of the “Machine,” the investor chooses among conforming spread candidates for varied and personal preferences.

      For example, considering a choice between two conforming spreads, I do not look only at % return potential. Often, I opt for the tighter distance between strike prices at the expense of greater net premium because I tend toward the very conservative, i.e. I favor risk minimization over profit maximiaztion.

      And make no mistake about it: most of the time increasing profit potential means increasing risk potential, and vice versa.

  13. Lee,

    You mention in your book waiting for the stock market to open to force out the low overnight bids. What time EST do you put in your stoploss?


  14. Lee,

    When selling covered calls what delta do you like? I know you mention sell @ a price you are comfortable but what if the premium isnt there at that price after a big drop in stock price? Do you have a minimum premium you will accept for covered calls?

  15. Lee,

    In your taxable account do your personally do European Indexs for tax advantages or American style or a combination. I understand its a personal decision with pros and cons but I figured I might as well emulate success.

  16. Lee,

    When do you decide to do a Iron Condor if for example you does a bull put spread? Is it if the stock is only trading range bound or will he do regardless of the chart if the stock meets all the other rules? When to do the Iron Condor part has me a little confused because there was no rules to when to do it other than same rules as bear and bull spreads.

    When only uses 50 -75% of your margin does that mean you wont spend more than that each month on credit spreads? If so what do you do with the remaining margin?

    Since it is said diversification is not important is it ok to do spend 50% of your margin on 1 trade with 10 contracts and the rest on another with 10 contracts? Is there a suggest max margin percentage per trade?



    • Jon,

      The Iron Condor, whether both spreads established at the same time or first one and then the other one later, is a very desirable position. This is because at an options-friendly brokerge firm it can provide twice the rate of return on a single margin deposit, and do so without increasing risk. Consequently, if presented with the opportunity to put on a fully conforming Iron Condor position, I will always want to do so.

      Most of the time it is not possible to establish the IC as a 1-step process, because BOTH spreads of the IC must fully conform to all of the trade entry rules. So the IC is usually a 2-step process wherein one of the spreads is fully conforming and can be entered. Them, later after a move in the underlying, the second spread needed for the IC comes into conformity and the trade can be done.

      From the standpoint of margin, it make no difference if the trade is a 1-step or a 2-step one.

      Re: % of account funds used as margin. We recommend holding at least 25% in reserve. This is in order to have funds available to use as margin if a particularly attractive spread candidate arises during the month, and to be sure funds are available to handle the occasional (but inevitable) losing trade.

      As for diversification, there is no “rule” here. Credit spreads are essentially non-directional so diversification is not an important objective as it can be with outright single long or short positions is stocks or options. That said, I personally like to have both bull put and bear call spreads working (so long as each conforms to all the entry rules!) so that if there is a very strong market-wide move (most often a market swoon), at least some of my positions will be profiting from it.

      There is also no “rule” for spreading margin among multiple positions or concentrating it in one or two positions. (Interestingly, Warren Buffett is said to favor focusing on the best-of-the-best rather than attempting to maintain a large number of smaller positions.)

      • So Lee am I correct in assuming that as long as the bear call spread and bull put spreads confirm to the rules do an Iron Condor or leg into a Iron Condor each time essentially? Would you feel comfortable if someone had 2 trades with 25% in reserve if one was a bull call spread and the other was a bear call spread?

        What is your opinion on Options on Futures? I know you never mentioned and it probably for good reason but I just heard about that and apparently you can do credit spreads on them.


      • Lee,
        Can you please clarify something about entering an Iron Condor? Let’s say I’ve established a bull put spread that meets entry criteria, one of which is distance – say, it is 15% away. The underlying moves and makes a bear call spread enticing, in that it now meets all the entry criteria – it is 15% away from the underlying.
        However, the distance between the short strikes on the two spreads is now 25%. That is much less than 30% if entry criteria were established at the same time.
        Is this still within the rules?

        • What you have described is a perfect example of a 2-step Iron Condor. The key to an Iron condor using the “Machine” trade entry rules is that EACH of the two spreads must INDEPENDENTLY meet all the criteria for a credit spread, including distance from the underlying.

          In 2-step Iron Condor, only one of the spreads meets all the requirements, so the investor establishes that spread and then later establishes the other spread when and if price movement in the underlying brings that spread into full conformation.

          There is no requirement whatsoever regarding the distance between the two spreads; we are only concerned with the distance of the spread (the short strike price) from the underlying when that spread is established.

  17. I recently bought MIM.I’m having a hard time finding trades that meet all of the requirements. It seems that any strike price that is 15% higher or lower than the stock price doesn’t have any value.
    Approximately how many trades to you find that meet the criteria in a typical month?

    • James, the optional “Conforming Credit Spreads Service” reports every week identify scores of credit spread/Iron Condor candidates that meet all of the entry criteria of MIM.

      You – and any other member of our SaferTrader community – should let Customer Service ( know you would like a complementary copy of the most recent Friday report so you can see the stock-, ETF-, and Index-underlyings that conform when the markets are screened for good spread candidates.

  18. Hello,
    Is there anyone who has been consistently profitable (years) using MIM who would be willing to do give some specific coaching in real time entry selection?
    Thank you,

  19. I am just beginning with the MIM methodology. I was just thinking about the application of the Iron Condor in this method. With a regular stand alone credit spread, if we assume a MRA of 2x the credit received, a trade that hits the stop loss will cancel out the profit of two winning trades. With an Iron Condor, even if one side hits the stop loss you still have the profit from the other side to offset some of the loss. Also, the return on margin for the successful Iron Condor trades will be approximately twice that of a stand alone credit spread trade. This tells me that the Iron Condor that meets all of the requirements of a MIM trade will produce better results over time than a stand alone credit spread trade. Am I thinking about this correctly?

  20. Hi Lee
    In the MIM book you specify an example of calculating the MRA for a bear call spread:
    the net premium = 0.45$ X 2 = 0.90$.
    The price at wich the stop is placed is at the net premium of 1.35$ (accounting for the premimum received).
    My question: Is this exact calculation applies also for a BULL PUT spread?
    In a bear call spread the position might be threatened by a rising underlying price while in a bull put spread the position might be threatened by a falling price of the underlying – should the net premium of the spread increase in both cases?
    Is the correct order to use in order to set the stop order is “STOP CONTINGENT ON SPREAD PRICE” ?

    • I agree with your article regarding weekly options and their use, advantages and disadvantages. The one area I have found these to be best suited is short term swing trades using known parameters such as moving average violations, etc. Not much use for income generation.

  21. Hi Lee,
    After reading your important “white paper” titled “Options Entry Mistakes” I have few remaining questions:
    1. Do you always enter trades with limit oreders rather than market orders?
    2. Regarding the time of setting up the orders – is there a difference between setting up a limit entry order when the market is open in comparison to when the market is closed? personally I find it easier to examine the market and set up trades on weekends but am afraid to get bad “fill” prices because of low liquidiy and wider bid-ask spreads.

    • Ram,

      Yes. Suggest investor ALWAYS enter a new position on a limit order, not a market order. At our required distances between the options of the spread and the underlying, there is often a relatively wide bid/ask spread and as a consequence, “fills” on market orders can therefore be quite different than the investor’s expectation.

      With a limit order, if you are filled it is guaranteed to be at your specified price or better.

      NOTE: the above relates to ENTERING a position.

      When placing a STOP LOSS order, the reverse is true. You want to be certain of exiting from the position if your trigger price is reached or exceeded. A regular stop loss order is by definition a market order, i.e. it will be filled if the trigger price is hit.

      If the investor incorrectly used a limit stop loss order, and the price gapped past his trigger price, he would NOT be filled and his loss would get larger and larger as the market moved against him since he would still be in the market.

      Thus, we exit from a position going the wrong way using a standard stop loss order. When the trigger price is reached or exceeded, the order to exit from the position becomes a market order and you are out… even if the fill price is quite different from your trigger price.

      2. It is perfectly safe to enter a limit order (when establishing a new spread position) before or after the market opens for trading. Since it’s a limit order, as discussed above, you can only be filled at your price or better with a limit order so there is no need to fear a bad fill.

  22. In the “Entry Criteria” list of the MIM, there is no specific criterion addressing the parameter of implied volatility of the underlying stock.
    Since we are SELLING options – shouldn’t we choose higher implied volatility stocks in comparison to low volatility ones, given all other parameter are equal ?

    • Volatility is addressed via the delta trade entry requirement. Delta measures (estimates) the likelihood an option (in our case, the short strike price of the spread) will finish at or in the money. More importantly, it does this by providing a mathematical estimate of how much an option will move per point move in the underlying. Hence, implied volatility is automatically incorporated into the derivation of the delta value for an option.

      Volatility is but one parameter an investor can use in choosing among a list of conforming credit spread candidates. Maximizing net premium, preferring this month vs. next month’s expiry, distance from underlying, bull put vs. bear call, need for a specific spread in order to complete a 2-step Iron Condor are other considerations that may outweigh volatility among conforming spread choices.

      Much depends on the investor’s comfort level with increasing profit potential vs. reducing trade risk.

  23. I’m looking at NUGT as a candidate for a MIM trade, but I have my doubts. This is an ETF — DIREXION DAILY GOLD MINERS INDEX BULL 3X SHARES NEW. I can find some qualifying spreads and the open interest looks good, but I’m questioning the volatility. What are your thoughts about using this 3X ETF for MIM trades?

    • The 2X and 3X leveraged ETFs cannot be used with the MIM trade entry values for distance and volatility. This is, of course, because of the leverage being employed for the ETF. When there is a change in price of the underlying, the effect on a leveraged option’s price is much greater than on an ordinary option.

  24. Hypothetically, if you had $100K to apply to the MIM strategy, is it practical to commit $20K to each of 5 different positions and to replace each with a new trade soon after it is closed? Or, would you try for more or less diversification? Same question regarding a $500K account?

  25. ?? Last use/comment was 5/13/2016… I know because it was my comment/reply to a community member comment.

  26. I’ve been looking at ALXN and the Jan 150/145 bull credit spread. The trade meets all of Lee’s requirements with strong support about 164 & the low 150’s area, delta of .0677 & Black Scholes probability of .978. Question is about credit. When I looked at trade last week, using the last trade the credit was .40, today it’s showing a credit of .30 My order bar shows the natural at +0.10 & the mid at -0.25? Price seems to jump all over the place. What is realistic price to get filled at??

  27. I’m trying to figure out what Ming’s input to this forum has to do with Lee’s Monthly Income Machine principles. Any thoughts?

  28. Wrong on the BIDU and lost. I did not see that the earning was actually released after the market had closed after Friday, so when I realized, it was already too late and trade had already been filled to start it off with a gap up. I’m making too many rookie mistakes the past few months…

  29. Entered a November Bear Call Spread for BIDU. Earnings is over, Williams%R overbought and crossed down below 10 for signs of continuation, all other rules are good.

  30. No bio stocks for me for now until things calm down.I’ve entered NFLX Nov Puts so far.

  31. VRX down 20% today, volatility is high == high premium. anyone considering a bull put Oct 30 expiration?

  32. Lost the VRX trade thanks to Hillary and the Democrats. =(

  33. Thanks Hacsi for letting me know about AVGO, as this was not on my list of stocks and has since been added. =)

  34. Hi Ming,

    Top of VRX there are other two stocks I’m currently watching on my chart:

    CTRP: 2 possible postions
    – CTRP Oct-23-15 50/55 Put Vertical @ 0.45 Limit
    – CTRP 10 Oct-23-15 45/55 Put Vertical @ .67 Limit

    AVGO: 1 possible postion
    – AVGO Oct15 100/105 Put Vertical @ .25 Limit

    Reasons: Price above 200 SMA, William%R oversold, no earnings prior to expiration for October contract

  35. Here’s one stock I’m currently watching on my chart:


    Reasons: Price above 200 SMA, William%R oversold, no earnings prior to expiration for October contract (the Monday after expiration)

    Waiting on: William%R to cross back up above 90 after closing. Once this happens, I will start looking for strike prices that meets all rules for order entry.

  36. Hello,

    I hope you’ve all had a good month. All options expired worthless for me. =)

  37. Here are the stocks I entered my orders on for 8/25/15 trading day:


    The following also confirmed but didn’t enter due to my buying power limit:

    LMT, V

    Best of luck!

  38. Hello,

    Below is the list of stocks on my watch list of ones that might confirm for trade entry on the chart side. I’m mainly only waiting for the crossing of WilliamsPercentR to go back above -90 and of course, meeting all other rules. None of these have earnings report prior to September expiration and all for bull put spread (price above 200 SMA, therefore only bull put spread for me)



  39. I have set up Lee’s system on thinkorswim and got in a couple trades today on paper money. Lee talks about setting a MRA of 2x the premium as a safety net in case the trade goes the wrong way. Does anyone know if there is a quick way to monitor that on TOS? Do I need to pull up that option in the option chain every day and recheck the premium? Thanks in advance.

    • The “2.0 x premium” stop loss order refers to the net premium collected when the credit spread is first established. The purpose is to try to prevent a large loss if the underlying begins to move strongly the “wrong” way. That stop loss order would not change each day because it is based on the original, up front premium.

      So, for example, let’s consider a credit spread with a net premium of $0.28 credited to our account. IF we decided the maximum loss we were willing to sustain if the trade went the wrong way would be 2.0 x $0.28 = $0.56, our stop loss order would be to exit from the spread if the net premium reached $0.84. If we were stopped out by the net premium reaching $0.84, our loss on the trade would be $0.56… taking into account the $0.28 we made up front.

  40. Fell:

    ThinkOrSwim is $1.25 per option and I beleive IB is $0.70 per option but have been told their platform isn’t so great.

  41. Just bought the book and subscribed to the service, and excited to begin paper trading Lee’s method. Hopefully, I will be confident enough by end of year to go live. I will probably start with $3-4000 and small lots, so OX minimum commission of $14.95 would kill me. They require 10 contracts to get to $1.50 a contract, and I’m not there yet. Can someone recommended a brokerage that will allow me to do spreads and iron condors in small lots (2-4 contracts perhaps) with reasonable commissions? Also, would there be a problem in doing my research in OX and making the actual trades in a different brokerage (can I expect the numbers to all be the same from brokerage to brokerage)?

  42. Thanks Ming!


  43. Response to Palmer-

    Yes, you are correct, I’m simply using the same criteria as Lee for the base, along with what I’ve learned from Lee’s white paper for the William %R and 200 SMA which I’m using as my must also have rule:


    Using Overbought/Oversold Williams %R with Monthly Income Machine

    1. Identify potential trade that meets ALL Monthly Income Machine entry “rules.”

    2. Favor the trade especially if/when Williams %R signal is given by reaching the necessary 10 to 0 or 90 to 100 point indicating extremely overbought or oversold, respectively.

    3. Consider the potential trade even more desirable if the signal puts you in the market in the direction of the then general trend as measured by the 200 day Simple Moving Average.

    4. Set your Maximum Risk Amount (MRA) that will trigger corrective action, just in case.

    5. Smile!

  44. Hi Lee!

    You have made some recommendations for options friendly brokers…my issue is that I need a brokerage that will train me on their platform. Makes no difference what I know if I place trade incorrectly. Which of your recommendations will provide some training?

    • All “option-friendly” brokerages provide various degrees of training on their platforms. Usually that involves articles and videos. My own favorite – and it is because I use them for my accounts – is OptionsXpress which offers extensive article/video training as well as a “practice” account you can use to enter orders, etc. without actually risking any funds.

      In addition OptionsXpress and the other options-friendly brokerages will be happy to answer any questions you might have either by email or telephone.

  45. I can find several stocks that fit the criteria however the options are so thin in volume and OI I’m passing on those for the sake of not being able to exit soon enough in the event of a move against me. Looks like Ming is doing very well and would be interested in your scanning criteria should you chose to disclose that. Unless, it’s simply Lee’s criteria along with your W%R 90 cross. Rick, how far out are you writing the spreads? Watching $AAPL sink and will look to sell the put vert on a rebound.

  46. Lee,

    Your thoughts please on trading futures options. In particular the S&P 500 emini options (/ES.)

    Using the in the Machine book I have been successfully trading the /ES options.

    What I like about the e-minis is that they trade (almost) 24 hours day, are very liquid, minimu bid/ask spreads, the strikes are spaced 5 points apart ($250.00) and it’s relative easy to find a spread that’s > .25 wide with deltas of .08 or less.

    Your thoughts?


    • The liqudity (volume, hours traded, tight bid/ask spread are all desireable attributes of the S&P futures contract (ES).

      The principles of “The Monthly Income Machine” are also applicable to the futures options contracts. However, the fact that the futures options are much more leveraged means the 12% “distance from underlying” requirement of the “Machine” may be insufficient for futures options. Similarly, the trade management recommendation of the “Machine” regarding setting risk at 1.5 to 2.0 times net premium received up front may not hold for trading futures options credit spreads.

  47. Haven’t posted for awhile, but have been trading. I have yet to lose a trade this year if the below (extra reason for entry) also confirmed for the position.

    There has been a lot of conforming trades for entry due to the recent pull back in the market, below are the ETF conforming trades:

    SELL -10 VERTICAL DIA 100 AUG 15 156/144 PUT @.25 LMT

    SELL -10 VERTICAL DJX 100 AUG 15 156/140 PUT @.30 LMT

    SELL -10 VERTICAL IBB 100 AUG 15 315/310 PUT @.30 LMT

    SELL -10 VERTICAL IWM 100 AUG 15 109/101 PUT @.25 LMT

    SELL -10 VERTICAL MDY 100 AUG 15 240/230 PUT @.30 LMT

    SELL -10 VERTICAL OEX 100 AUG 15 800/790 PUT @.25 LMT

    SELL -10 VERTICAL RUT 100 AUG 15 1100/1090 PUT @.52 LMT

    SELL -10 VERTICAL RUT 100 AUG 15 1090/1080 PUT @.37 LMT

    SELL -10 VERTICAL RUT 100 AUG 15 1080/1070 PUT @.35 LMT

    SELL -10 VERTICAL RUT 100 AUG 15 1070/1060 PUT @.35 LMT

    SELL -10 VERTICAL RUT 100 AUG 15 1060/1050 PUT @.25 LMT

    SELL -10 VERTICAL RUT 100 AUG 15 1040/1030 PUT @.32 LMT (odd one, and likely interest will no longer be at .32 cents after open)

    SELL -10 VERTICAL SPX 100 AUG 15 1825/1815 PUT @.30 LMT

    SELL -10 VERTICAL SPY 100 AUG 15 182/171 PUT @.26 LMT

    Extra reason for entry on all of the above orders: Price above 200 SMA line for Bull Put Spread entry, William%R went below 90 being oversold and came back up above 90 for signs of continuation.

    Caution: Greece outcome pending this weekend.

  48. Just entered this 1 Step Iron Condor trade for June 15 IBB:

    SELL -10 IRON CONDOR IBB 100 JUN 15 385/390/285/280 CALL/PUT @.55 LMT

  49. Two Bull Put Spread orders I just entered for Monday:

    SELL -10 VERTICAL RUT 100 MAY 15 1160/1155 PUT @.27 LMT

    SELL -10 VERTICAL VRTX 100 MAY 15 92/88 PUT @.30 LMT

    Extra reason for entry: Price above 200 SMA line for Bull Put Spread entry, William%R went below 90 being oversold and came back up above 90 for signs of continuation.

    Best of luck!

    • Sorry, that RUT trade is not at least 12% away, not sure how I got that number as I use a spreadsheet to calculate that.

  50. Has anybody made consistent income from using the strategy and rules of this book? How much did you make?

  51. Lee – below is something you wrote on the 7 Feb 14. My question: If I buy an OTM VXX – say June 15 27 Call @ .99 – is there a way of having some idea of what it will be worth if the VXX traded at 27?

    Many thanks

    (3) We can protect against a “flash-crash” in the overall market that is triggered by International, war scare or other really major surprise developments by routinely holding some long VIX puts. VIX will spike in value when the markets receive a jolt that dramatically increases fear in the market, and the resulting gain in VIX price will help or completely offset any negative effects on existing bull put credit spread positions the investor holds

  52. 1 Step Iron Condor Setup as of 4/14/15 Closing:

    SELL -10 IRON CONDOR IBB 100 MAY 15 420/425/310/305 CALL/PUT @.90 LMT

    • Previous order did not get filled, entered new 1 Step order as below:

      SELL -10 IRON CONDOR IBB 100 MAY 15 405/415/315/305 CALL/PUT @.57 LMT

      To break it down, each side of the Vertical order are:

      SELL -10 VERTICAL IBB 100 MAY 15 315/305 PUT @.32 LMT

      SELL -10 VERTICAL IBB 100 MAY 15 405/415 CALL @.25 LMT

  53. Two 1 step Iron Condor setups for APR 15 Options within 10-6 day Sweet Spot as of 4/8/2015 closing:

    SELL -10 VERTICAL ISRG 100 APR 15 572.5/575 CALL @.67 LMT
    SELL -10 VERTICAL ISRG 100 APR 15 447.5/445 PUT @.77 LMT

    SELL -10 VERTICAL NDX 100 APR 15 3875/3870 PUT @.60 LMT
    SELL -10 VERTICAL NDX 100 APR 15 4790/4795 CALL @.37 LMT

    *Note* I’ve been realizing while I’m able to locate conforming setups the night before, the interest tends to drop off at times, a good amount right after open at this point for April 15 Options. Hopefully this is not the case again and I’m able to get something filled before it drops below 6 days prior to expiration rule.

  54. 1 Step Iron Condor setup for 10-6 days sweet spot:

    SELL -26 IRON CONDOR NDX 100 APR 15 4790/4800/3950/3940 CALL/PUT @.85 LMT

  55. Another conforming trade:

    As of Friday, 3/27/2015 Close

    Bull Put Spread APR 15

    Short Put 101
    Long Put 95

    Extra reason for entry: Price above 200 SMA line for Bull Put Spread entry, William%R went below 90 being oversold and came back up above 90 for signs of continuation. Price bounced off support level of $117.

    • Trade was not filled, and now the ordering of the Delta looks really odd, plus not so good news recently. Personally, this stock should be avoided in my opinion.

  56. Another conforming trade:

    As of Friday, 3/27/2015 Close

    Bull Put Spread APR 15

    Short Put 51.5
    Long Put 47

    Extra reason for entry: Price above 200 SMA line for Bull Put Spread entry, William%R went below 90 being oversold and came back up above 90 for signs of continuation. Price bounced off support level of $60-$61 range.

    • Trade was not filled, entered a new order as below:

      SELL VERTICAL ISIS 100 APR 15 53.5/45 PUT @.25 LMT

    • Establishing Iron Condor:

      SELL VERTICAL ISIS 100 APR 15 74.5/82 CALL @.25 LMT

      Note: ThinkorSwim has the ability to display Prob.ITM, which for the short 74.5 Strike, it is showing 8.31%. Delta however is showing .10 or 10%. I believe I’ve read somewhere on this form where Lee stated both are the same, just different way to calculate it. I’ve emailed Lee for further confirmation if Prob.ITM can be utilized instead as it would determine the validness of this position.

      • Just wanted to update I ended up not entering this, and just decided to stick with using only Delta as the requirement, which seems safer as it is usually few percentage points lower than Prob.ITM provided by ThinkorSwim platform.

  57. Just found this conforming trade if anyone’s interested:

    As of Friday, 3/27/2015 Close

    Bull Put Spread APR 15

    Short Put 100
    Long Put 85

    Reason for entry: William%R went below 90 and came back up above 90 for signs of continuation. Price bounced off support level of $114.

  58. I am looking at this week’s conforming credit spreads and the NFLX condor looks really tempting. I’ve made money and lost money on NFLX due to wild swings. How do others determine whether the risk is worth the reward? It looks like the return could be 10-15% (we’d have to see how it opens Monday).

    While I’d love to put a lot of capital into this trade and pull out 10% in a month, I don’t want to lose all of my capital on the announcement of NFLX global expansion or massive user shift to a new or expanded application (AAPL TV, etc).

    • Hello Alexander,

      I’m in this iron condor trade, entered end of last week. No earnings report, and it’s doubtful they will announce anything to really jump the price prior to the APR expiration. I first entered a Bull Put Credit Spread due to Williams%R was in oversold and came back up over the 90 line, price also was finding support at the 200 SMA line. But saw that Bear Call Credit Spread is also conforming, and hey, Iron Condor is what we’re targeting, so entered both.

      • Well… that’s odd… on the TDAmeritrade website, it is showing NFLX won’t have earnings report until 4/20… But on the ThinkorSwim platform today… it says now says 4/15. Not sure why TDAmeritrade has different information in 2 areas. In this case, how can I even trust information being written from them? What does it say on other’s broker in terms of their next earnings call?

  59. I believe many of us who bought Lee’s book and signed up for his service are simple folks who are looking for a relatively safe way to generate some income. I also believe Lee’s way of framing his entry conditions are designed such that one need not worry too much about implied volatility or theta decay etc. He must have worked hard to make things easy for us simple folks to follow. In this context, this forum is probably best served by keeping to that spirit. Those who may have read and mastered McMillan’s or Natenberg’s books on options may want to google for other forum where more skilled and sophisticated traders debate about the benefits of neutral delta hedging or using double diagonal calenders in their trading. Us children gets frighten quite easily when we go nearer than 8 deltas.

    • I agree…I love the simplicity of Lee’s safe techniques for those of use who want steady safe income…

  60. Hi Lee. I really enjoyed your book.

    Concerning your entry criteria of collecting at least $0.25 per spread, do you also take into account the return on capital (credit / max loss)? For a 1 or 2 point spread, $0.25 is a decent ROC, but as you go wider, the return may not be enough to be worth your time. So do you target a specific ROC?

    Also, I’m finding it difficult to locate spread opportunities that give a reasonable ROC. Is this normal? I’ve been targeting underlyings with a high IV percentile in order to get more premium, but it’s still hard to find good candidates. Do you experience the same challenge?


  61. Hello everyone,

    I think The Monthly Income Machine is an excellent strategy, both for generating income and for managing risk. I also think the bi-weekly service for conforming spreads is a great tool. I would, however, like to bring up a point that I seldom see discussed completely, the Theta decay curve.
    When many of us think of the theta decay curve vs time, we think of that familiar precipitous drop that begins at around 30 days to expiration and accelerates right to expiration. But this curve is only valid for ATM and near the money options. It is NOT valid for OTM and especially far OTM options.
    The theta decay curve for OTM more resembles a straight line (not completely straight). The maximum rate of theta decay occurs much further from expiration. The more OTM the option, the earlier the max rate of decline. I’m talking about 60, even 90 days before expiration.
    In addition, the far OTM options see their theta curve REVERSE DIRECTION and head back up just before expiration.) I wonder what this would do to weeklies!)
    Any comments are welcome. Thanks, Lee for a great strategy!

    Frank Rollo

    • I guess my comment would be why worry about theta decay that far out? It’s probably not appropriate to think about a credit spread that far out from expiration.

      • Doug,….you stated:

        “I guess my comment would be why worry about theta decay that far out? It’s probably not appropriate to think about a credit spread that far out from expiration.”

        I think you missed my point. You seem to be incorrectly stuck in the mode of thinking that far OTM options have rapid theta decay in the last 30 days before expiration…THEY DO NOT. Only ATM or near the money options have that rapid theta decay in the last 30 days.

        Far OTM options will have nearly equal theta decay amounts from 90 days out to 60 days out as they will in the last 30 days.

        So, my point is that it is totally appropriate to sell credit spreads using the same Machine criteria but much further from expiration. Just buy them back when your target profit has been made.

        Lee, could you please comment?


        Frank Rollo

        • I’ve been giving some thought to a previous statement I made…..

          “sell credit spreads using the same Machine criteria but much further from expiration”

          I think I am wrong to suggest that….if I want to sell a credit spread much further from expiration, I cannot use the same Machine criteria. I’d probably have to choose the short strike based on theta, not delta. The delta would probably have to be much larger, the premium would have to definitely be larger.

          Now the strategy is no longer the Income Machine, but a totally different strategy. But this line of thinking gives me ideas I’d like to investigate (delta-theta ratios to begin with). I guess I had better learn how to use Excel.

          I apologize for rambling, but this forum provides me an outlet to discuss option theory. If I try to discuss this with others, their eyes glaze over with disinterest.

  62. I have to thank you for the efforts you have put in penning this website. I really hope to view the same high-grade blog posts by you later on as well. In truth, your creative writing abilities has encouraged me to get my own, personal website now 😉

  63. Lee,
    I have signed up and started getting your Conforming Credit Spreads recommendations. I want to make sure that I understand how to interrupt the information you are providing. As an example.

    >In your 10-10-14 recommendation list you list GOOGL 522.97 Dec-20-2014 Bear Call 605/610(Pink). Further down the page you make a recommendation for the GOOGL 522.97 Dec-20-2014 Bull Put 425/415(Green). Am I correct in assuming that these two legs could be combined together to form an Iron Condor?

    >Also in the list you recommend Bear Calls for LVS but do not list any Bull Puts for LVS. Am I correct in assuming that there is no conforming spread for the LVS Bear Put.

  64. Lee,
    Recently I have been stopped out on two separate occasions due to large swings in the price of the vertical spread legs. On both occasions I had stop-limit orders based on your 3 times the credit received recommendation. Granted these are volatile stocks – nflx and lnkd. I checked with trading desk customer service and they showed me the actual trade history and the wild swings. Because of this I no longer use stop-limit orders but instead I monitor the buy-limit mark price of the original credit spread. When the total Loss hits 3 times my original credit I put in a buy order to close it. However I do keep a buy-limit order in all the time set at $0.06 so it will close at a profit when most of the intrinsic value has been dissipated. This method eliminated the wild swings that you never see on a monitor screen but can cause you to be stopped-out with a very bad loss.

    • Dennis, As you noted, we do recommend the investor use stop point in order to control the risk on a spread going the wrong way. Risking 2 times the net premium collected (which means exiting from spread if unfavorable move brings net premium to THREE times net premium collected) makes sense.

      However, we do not recommend the use of a stop-LIMIT order, because if an unfavorable move occurs and the premium gaps past the stop limit trigger price, the investor’s stop-limit order does not get filled and the loss can continue to mount. This is discussed also in some detail in the white paper: A plain vanilla stop loss order will get filled in this situation, although the fill will typically involve fill price “slippage” beyond his trigger price.

  65. Sorry corrected some errors from my last post….

    Hi Lee,
    I have just finished the book and loved it by the way.
    I have a question i was hoping you could help me with, when you say your MRA is x3 credit received how do you deal with situations when buying back a position would cost x2 credit received immediately?
    For example if i sold a credit spread on the RUT at the moment at 1020/1030 the credit received would be 0.45 as shown in the bid quote. But the ask quote is 0.75 so if i understand it correctly it would already cost me almost x2 credit received to exit the trade even before it moves against me, am i reading this correctly, it does not look like it would take much of a move to be x3 credit received and force me to exit. On SPX some quotes already have an ask three times the bid on a credit spread so you could not trade them i guess?
    Hope this makes sense.


    • We deal with “net premium” on the entire spread, not the bid or the ask on individual strike prices. Personally, I always use the midpoint of the spread to establish my entry price and/or my stop loss trigger.

      So if I establish a spread when the midpoint bid ON THE SPREAD is 0.30 and the midpoint ask is 0.50, my order is placed at midpoint 0.40 for entering the spread itself (premium on the short strike price – premium on the long strike price = net premium).

      Similarly, my stop loss order for the spread would be if the “net premium” reached $1.20. If that were to occur, my loss on the trade would be $1.20 – $0.40 = $0.80… which is 2X the net premium I received up front.

  66. Lee,
    Can you tell me if the Bid/Ask spread of each strike is of any value in determining the candidates for your weekly service? It seems to me that in the event the underlying goes against our position that a large Bid/Ask spread will reduce the amount of credit received and increase the closing cost causing a double-whammy.

    • Liquidity is always a factor in selecting a credit spread (or most other investment instruments) from a series of candidates. As you noted, a wide bid/ask spread is disadvantageous inasmuch as you typically will get a less than ideal order “fill price” when the bid/ask spread is wide.

      However, we – as discussed in “The Monthly Income Machine” – set our minimum acceptable liquidity criterion based on the average daily volume of the underlying (must be 1,000,000+) and the amount of open interest on the options being considered.

      Of course, the individual investor may well wish to add additional considerations, such as bid/ask spread interval, when deciding upon which conforming candidates he will actually select to place orders for. (See “white paper at ”

  67. Dennis Arkwright Reply 13. Jun, 2014 at 11:38 am

    Can you tell me when do you do your analysis – at end of Friday market close or during Friday when the market is still open?

    • If you are referring to the optional “Conforming Credit Spreads Service,” the screening for conforming spread candidates is done after the close on Fridays.

  68. Rick,

    The easiest way to determine expected movement is simply take the Straddle price x 0.85 +/- the current underlying, to get the expected range. Use the Straddle in the expiration month (or week) where you plan to trade.



  69. Dennis Arkwright Reply 21. May, 2014 at 10:02 am

    Lee in your book you mentioned that we can use the Delta value of the short option as an indication that we need to either close or roll the spread because it is going against our position. Since a Delta of 0.500 is At The Money, what Delta do you use as an indication that the position needs to be either rolled or closed because it is now going against our original spread.

  70. Hi Lee. In previous posts you’ve recommended that “underlyings whose option chain uses strike price intervals of $1, $2.5, or $5 employ spreads with legs up to $15 apart.” What interval would you recommend when option strikes are only $0.50 apart (e.g., SPY)?

    • Recommend that whenever the option chain for an underlying reflects strike prices $5 or less apart (so, that includes $0.50), use spreads whose long and short strike price intervals are between “adjoining” and $15 apart. And, when the option chain strike prices are $10 or more apart, we can have spreads with intervals between the legs of up to $30.

  71. Lee,
    I noticed that the 8% probability of the short strike being in the money does not always have a Delta less than .08. I have an option to display “Probability of Being ITM” in Thinkorswim platform. It seems to me this would be a more accurate representation of that probability. That being said is it OK to use this feature instead of the Delta value requirement? e.g. a stock has a probablity of being ITM of 8.3% and the Delta is 0.093 at short strike.

    • Actually, the probability of the option being -in-the-money at expiration, and the delta value, are essentially exactly the same metric. The difference in the values you noted is due to the fact that there are several ways to calculate delta (i.e. in-the-money probability).

  72. Lee,

    I recently spotted a conforming credit spread on a pharmaceutical company with only 5 days till expiration. While this seems like found money given the short time till expiration, something seems fishy that insiders might be the buyers of the short options juicing the premium based on an announcement they know is coming. What has been your experience on companies like this with too good to be true premiums on these spreads? Is there a meaningful chance that insiders are spiking the options, or is it more likely something like institutions hedging portfolio risk? Thanks, Tim

    • This is a late reply but I got burned by this a couple of months ago…… the reality was that while not publicized the company was waiting on a governmental approval from their largest selling drug from the EAU. It was BIIB and I even called the company and asked and they told me they were waiting. I thought I would see what happened…. what happened was an immense gap up costing me a lot of money.

      Beware drug companies since they always have drug approvals in the pipeline.

      • With stock underlyings, it is of course possible for a unscheduled comment or announcement to trigger a substantial knee-jerk reaction move. While we can avoid the most common of dramatic overnight moves (surprise earning reports), there is no way to predict unscheduled comments by the company.

        There are tactics we can use to minimize the impact of such occurrences:

        (1) Focus more on ETF and Index conforming credit spread candidates. While they typically provide less premium at the same distance from the underlying than stock-underlying candidates, they usually are significantly less likely to make a really major overnight move.

        (2) Purchase “insurance” on the conforming credit spread by buying 1 or more extra long options. While this would obviously reduce the profit on a successful trade, it would help offset the negative effect of a strong adverse move in the underlying. As with any insurance, we have to pay for it, we hope we don’t use it, and we are glad to have it if trouble strikes.

        (3) We can protect against a “flash-crash” in the overall market that is triggered by International, war scare or other really major surprise developments by routinely holding some long VIX puts. VIX will spike in value when the markets receive a jolt that dramatically increases fear in the market, and the resulting gain in VIX price will help or completely offset any negative effects on existing bull put credit spread positions the investor holds.

  73. Ok, so I’ve now read Lee’s book and got my account approved for spreads.I use Schwab and put on a couple of small credit spreads today to get a feel for this process. I usually do ITM options so the smallish net credit was a bit strange.

    First thing I noticed was I need a new broker. The Schwab process was much too cumbersome and there are no Greeks.

    I’m looking at Options Express (which I know Lee uses)and Think or Swim, and wondered if others have some thoughts between the two.

    My initial thoughts are that OpEx seems more user friendly but has higher commission rates, while TOS seems to have a higher learning curve and I’d have to download their software onto my machine.

    Any thoughts?

    • Hi J,

      I’ve been trying to “scale up” lately – trying to do 6 or more spreads per month and 20 contract spreads (10 short/10 long). The commissions definitely add up! To me, saving a few dollars per spread is important.
      For what I do, the 2 brokerages you mention appear to be almost identical, $24.99 versus $25.00 (assuming I’d qualify for “active trader status”). Unfortunately, I’m using the “no longer recommended” brokerage and did not have a stop in place for my NFLX put spread this morning which sort of makes worrying about commissions silly.

      • WEll, here’s a coincidence. I just received a note from a member of the community pointing out “You should look at They only charge one commission for a credit spread or an iron condor, not 2-4 like many brokerages.”

        Please understand that I am NOT recommending this firm, nor warning against it. I simply have had no experience with it. For example, don’t know if they permit stop orders directly on credit spread net premium, whether they only require margin on one spread of an Iron Condor, etc.

        That said, if one’s prime focus is commission rates, it may make sense to look into this brokerage (and let me know what you find!)


    • Hi J,
      I finally ended up using the Thinkorswim (TOS)platform with my Ameritrade account. TOS is very detailed and does have a pretty good learning curve. However it has so many great features I think it is the best platform for trading options. There is a browser based options trading platform available through the Ameritrade web site called “Trade Architect”. Through TOS I have gotten my commissions down to $1.50 per strike, so on a vertical spread the commission is $3 per contract. On an Iron Condor it would be $6 per contract. With a minimum $25 credit received on a vertical spread the commissions amount to 12%. An idea to overcome these commissions is to bump up your minimum required credit for each spread to $.28 so it covers the cost of commissions. Of course you can’t always do that.

    • I find it interesting that I don’t see any mention of TradeKing. I use them and I love their web platform and research. From my research, that’re easily the lowest fees/commissions for this strategy or just about any trading really.

  74. How much attention to you give to the trend? For example if the market is in a confirmed up trend is it still safe to open a call credit spread if it meets all of the entry rules?

    • Tom – I’m not an expert so would like to hear Lee’s take on this, but this is my thought in terms of an equity (not sure about the overall market as you asked): If the equity you’re trading is in an uptrend, the call premiums and deltas are likely going to be higher so you’ll need to go further OTM to meet the entry criteria. From this standpoint I think it’s not much more risky to hit the MRA. Lee?


      • Tim is correct. You will see that sometimes you need to be substantially further than 15% away from the underlying in order for the credit spread to “conform” to the entry requirements. This situation often is the result of a strongly trending underlying leading to higher than acceptable deltas at the 15% minimum.

  75. Hi,
    I’ve only been trading credit spreads for a short time so, apologies if this is a dumb question.
    I opened a put spread on DDD and it’s been successful. I could let it expire (though my broker gives me a warning and a very high risk score alert when I do that). I thought maybe it would be less stressful to close the spread. As expiration approaches I’ve seen both strikes settle to bid:0.00 ask:0.05 and they stay that way, also the bid sizes stay fixed at 0.
    I would like to exit the trade for .02 or .03 but can’t seem to get my orders executed, it’s like the minimum exit is .05 (market) and they’re just not accepting anything else. There is plenty of open interest and the ask size is always in the hundreds.
    I’m curious about why the order won’t move – should I be be exiting the legs separately or am I just expecting to low of a price.

    • I kind of answered my own question. It seems that exiting the spread this close to expiration and so far OTM makes the long leg of the spread pretty undesirable, no one wants to buy it and it’s holding up closing the spread. (At least I think that’s what is going on). The long leg has no risk to me and apparently no value so if I can’t sell it, it’s not a big deal, it can expire.

      Doing a buy to close on the more risky short leg for a small amount is possible and removes the risk situation. So that’s what I did.

      • Yes, when we are very close to expiration and far, far out of the money, there will be practically no interest in buying such options, even for pennies. Consequently, if for whatever reason you are uncomfortable holding a position until it expires, you can cover (by back) the short and let the long option expire normally. That does remove all risk – no matter how remote – from the trade.

        Another reason to consider exiting only from the short when it is down to $0.05 or less, is that commission on exiting from the long may make the trade “uneconomic.”

  76. I’m curious how my fellow Safer Traders estimate how much the underlying will move based on current market conditions? For example, this evening (Sunday 12/1) the SPY sits at 181.00. The December 2013 contract (19 days until expiration) is showing an IV of 13.56% for the ATM puts and 11.02% for the ATM calls. I have been using a strategy called “Measured Move Target” to make an estimate of how much the market thinks the SPY will move in the next 19 days. The Measured Move Target concept is explained in a number of places on the Internet including a recent article in Futures magazine located here: .

    In essence the method adds the price of an ATM call and ATM put (i.e a straddle) to come up with a dollar amount. E.g. the Dec13 SPY has an ATM Call theoretical value of $1.79 and a ATM Put theoretical value of $2.37. Add those two values together to get $4.16. The MMT method then subtracts and adds the dollar amount to the underlying price (181.00) to come up with a range of prices above and below the underlying. In this case $185.15-176.84.

    The other method one can use is to use the IVs of the ATM puts and calls using the square roots of the IV and days left in the contract to come up with an approximation of what a 1 standard deviation move would look like. That method is also well documented online. In all cases it seem that the guesstimate a what the market thinks the price movement could be considering IV, days remaining, etc. is not within the Safer Trader’s entry criteria. For example when using the MMT method on a number of examples whether SPY, AAPL, ES, etc. the upper and lower price limmits always have Deltas of more than 10.

    Still it’s nice to know just how much of a move the underlying could move based on current conditions. What methods do you folks (Lee ?) if any. Or do we forget all that and simply use the Safer Trader entry criteria and forget the rest?


    • Rick, starting at the end of your comment, I hope you were being whimsical when you indicated one can “forget” about issues other than entry rules. Of course, we need to manage our trades which as a practical matter means exiting from a trade when MRA is reached (with or without a “roll.”

      As to the main part of your message, I think what you may be looking for in terms of estimating the relationship between the underlying and the price of an option in the future, is discussed in the white paper:

      Hope this helps!

  77. Again if you have the HP 17BII+ or buy an app called “17BII+ Financial Calculator” by RLM Tools and you can program short routines to help speed up your calculations when trading. Here is one I wrote to use the SOLVE function in the app / HP17BII+:
    The routine assumes commission per leg to be $1.50 so you can change it to suit your brokerage. Capital if the buying power and Permium is what you collect. Once you have input all these simply press the ROC% button to get the net return in % for the amount you have risked. This way you can quickly determine if the trade meets with your expected return before you put it on. Hope this ise useful.

    • Realized there were several typos:
      Capital is Buying Power and Premium is what you collect. Hope this helps.

  78. Thought I share this with fellow safertraders. If you have a HP business calculator like a 17B II+, you can use the BUS->%CHG function to speed up your checking of MIM compliant strikes. Enter the LAST stock trading price into OLD, set 15% into %CH for stock options and then press NEW for the qualifying CALL strike. For the PUT strike change the %CH to -15. Make sure these strikes meet the delta requirement. Hope you find this useful.

  79. Hi Joe, from what I understood of the article “Credit Spreads – Managing Headline Risks” , the only way to avoid a large and irrecoverable loss due to a major market-wide event going against your trade is to place a contingent stop on the underlying GTC. Even this is susceptible to slippage however, so risking a 20% margin of your account to make 4% doesn’t seem worth it. Trading the “machine” could work for years without a major event but when it happens it could take out a very large portion of your account. Am I just being paranoid?

  80. Hi all, can anyone explain to me how to place a stop on the underlying for a spread? I’m using thinkorswim, but I’d imagine other platforms are similar. Thanks for the help!

  81. Hi Lee, others, just joined up and excited to have a plan to guide me with so much experience and insight behind it. So far my biggest concern is with the potential for loss should the underlying stock “jump” the stop I set. This shouldn’t happen with the earnings and merger rules in place, but shouldn’t doesn’t mean it won’t.

  82. Hi Lee or anyone who can answer this question I am finding it dffucult to find and index trades that meet both the 10% OTM and .25 cents rule. It seems that when I go that far OTM the delta is near 2 and the premiums are closer to .20 on a ten point spread. So I end up with and ROI of 2%. I have looked at the RUT and SPX. Am I missing something here? I calculate my 10% this way: RUT at 1100 so my short put is at 990 and short call at 1210. Is this what you intended?

    • Terry,

      It is very important to keep in mind that the focus of “The Monthly Income Machine” is NOT to suggest which credit spread to use when the investor is interested in a particular underlying or class of underlying.

      Rather, it is to identify candidates that, at the time of the screening, do meet ALL of the entry criteria for a “Machine” trade, i.e. to identify the very high-probability available candidates for this month and next month no matter what the underlying.

      As it happens, in today’s (Friday 11/1/13) screening report, there are four Index credit spreads that fully conform at the moment: NDX December 3040/3025 bull put spread, and RUT December 960/955, 960/ 950, and 960/945 bull put spreads.

      [for further information about the optional subscription service – “Conforming Credit Spreads Service” reports – distributed every Saturday, see

      • Hey Lee, I am a little confuse, I thought one of the entry rules is the trade must be 6-10 days from expiration? With that being the case how can you evaluate a trade for Dec expiration that is 45 days away. It would seem that non of those criteria will apply by the time you are ready to put that trade on. Or maybe I am missing something here. I was looking for trades to put on for the Nov 15th expiration that conformed to the rules and could not find any. Did I miss something?

        • No, we are not limited to trades with 6-10 trading days remaining. Conforming trades can always be found using the current option month AND the next option month.

          The “6-10” days period simply defines what I sometimes call the “sweet spot.” It is the sweet spot in the sense that because there is so little time remaining before expiration, the entry rules allow us to be closer to the underlying than when there is more time remaining.

          While the sweet permits less distance from the underlying, the trade-off is that the premiums are usually smaller – which we would expect since there is less “time value” in the premium.

  83. Lee, two questions:
    1) Do you have any tools such as excel or something like that does come conditional programming and show whether a design trade is compliant to the rules.

    2) Can you outline how to compute the price of underlaying using delta’s to use in contingent stop order?

  84. Lee, in using the Machine, are we ignoring implied volatility totally? With such low IV% these days won’t putting on a trade that eventually have and IV expansion lead to problems?

    • Volatility is indeed an important element of option (and underlying) investing.

      The “Machine” takes it into account in several ways, both direct and indirect.

      As you know, delta values – derived from the Black-Scholes model – estimate the amount of movement in an option to be expected per $1 movement in the underlying.

      In addition to that “textbook” definition of delta, the value is also used as an estimated probability of an option finishing at least $0.01 in-the-money. Delta is essentially a volatility consideration and is employed in our entry rules criteria.

      Keep in mind, too, that volatility is a link between the distance-from-the-underlying rule and the minimum premium rule. At the required % distance of the short leg strike price of a conforming credit spread from the underlying, the value of the premium is very much determined by the volatility of the underlying.

      That said, we control primarily on “distance” because that protects us from a lot of sins in terms of unexpected developments that can shift volatility quickly and significantly.

      Bottom line, in terms of properly employing “The Monthly Income Machine,” once the minimum conditions for entry (the conforming spread entry “rules”) are fully met, and a MRA has been established, the investor may well wish to consider additional factors in choosing among available conforming candidates.

      These additional factors might include such considerations as current trend, proximity to support or resistance levels, diversifying between call and put spreads and of course any additional volatility measures the investor wishes to consider.

      • Thanks Lee.

        Does it also mean that if I find strike in say Facebook that is 15% away but Delta comes in at 0.09, I should pick a strike that is further out whereby Delta is 0.08 so long as I can collect $0.25? I’m concluding that what you are teaching us is to err on the safe side. Would I be correct?

        • Henry,

          Under the entry criteria (“rules”) for identifying conforming credit spread candidates, a spread whose short option has a delta of .09 is disqualified… even though it’s “close.” The reason, of course, is that overriding an entry rule is up to the investor, but in my opinion is the beginning of the slippery slope that will lead to more losing trades.

          In your example, I would happily move out further in strike price (and to a more conservative trade) so long as it does meet ALL the entry rules of which minimum premium is one.

          Which is to say: “The Monthly Income Machine” is geared to the investor who is more focused on controlling risk than maximizing profit, e.g. I personally am happy to incur less risk even though it may reduce profitability somewhat.

  85. Hi Lee,

    A reaction to your post about trading SPY vs SPX. You say that the transactioncosts are the same for both but since you get a better fill on the SPY you prefer that one. Last week I sold a 159/158 PS in the SPY and I got received $4 and my transactioncost were roughly $2 so that’s half of the profit. How can you prefer the SPY when the cost for trading far OTM spreads are so high?



    • If I understand this correctly, you only received $4 net premium for the put spread. If that is so, it explains the problem. Such a net premium would not conform to the rules of “The Monthly Income Machine.” In addition to the distance rule, the spread candidate must produce a net premium of AT LEAST $0.25.

      Thus the minimum conforming credit spread will produce a net premium of $25. Against that, the commission you indicated of $2.00 is basically reasonable while $4 net premium with a $2 commission clearly would not be sufficiently attractive as to warrant a trade.

  86. Hello fellow safertraders out there. This is my 1st post on this forum. I wanted to get some feedback on something I do and see what others think about it. I’m always afraid of another “black swan” event ruining an account and destroying months of built-up profits in one day. So what I do is when I do credit spreads on indiv. stock s I do not do any bull put spreads, only bear call spreads. This way if we have another flash crash(which no one can predict) the account isn’t wiped out. Thoughts on this??

    • I thought the idea of using spread as opposed to selling naked should guard against being wiped out in a Black Swan event. That is unless your position sizing is disproportionately large.

      • I agree that the spread will protect against maximum loss to your account unless you’ve place a large portion of it towards your margin. But this fact concerns me as I’m finding an 8 or 10% return on margin is meaningless unless you have a large portion of your account tied up in that margin. In this case a black swan event could cause the underlying to jump your stop and could potentially wipe out a large portion of your account. Am I missing something here?

  87. Lee,

    When exiting a credit spread (before expiration) is it better to use a stop, limit, or stop limit order? I understand the difference between the three but am never sure which might be best when exiting a credit spread. Thanks

    • When EXITING from a position on a stop because investor’s MRA (maximum risk amount) has been reached, I recommend that the stop order be a “plain vanilla” regular stop order, not a “stop limit” order.

      The reason is this:

      When exiting on a regular stop order because the trigger price has been reached, the order becomes a “market” order and will be filled as quickly as possible at the best possible price that moment. The actual fill can be at, above, or below the trigger price depending on the bid/ask situation at the moment of execution.

      If a stop order is placed as a “stop limit,” even though the trigger price is hit, the order can only be filled if the broker can do so at the trigger price or better. Sounds good, except if the market is moving quickly, or there is a wide bid/ask spread, the order may not get filled at all and the loss can become greater and greater as the investor is still in his position even though the trigger price was reached much earlier.

      As for ENTERING a position, the situation is different. When entering a new position I would use a limit order, not a market order, especially in a fast-moving market.

      • Hi Lee,

        Question : the options you sell are way OTM but and in most cases will never be reached but since your stop is at 2 times the premium you sold the room for the undelying to move is way smaller. If I see that the S&P since April went from 1535 to 1690 and back to 1560 up to 1710 back to 1630 and up to 1735 I can imagine you got stopped out a lot. Am I right or am I overlooking something? I am also curious to hear about the results so far from other members.



        • One correction: in your discussion you mention the stop being 2 times the net premium received.

          Remember that the 2 x net premium calculation represents the maximum loss the investor is willing to risk – not the stop order. If one uses the 2 x max loss figure as the MRA, the actual stop is at 3 x the net premium received.


          net premium received = $0.30
          Using MRA of 2 x net premium,
          Maximum acceptable loss = 2 x $0.30 = $0.60

          Therefor: stop loss trigger price is $0.90 (if we exit with net premium at $0.90, and we collected net premium of $0.30 up front, our loss is $0.60. Note that the actual stop order trigger is exactly 3 times the net premium collected when using a MRA of 2 x net premium.

          Bas, you are correct in your observation that it is quite possible to be stopped out at the MRA only to have the underlying subsequently turn back in your favor causing you to wish you hadn’t used a stop.

          However, we strongly recommend that you nevertheless use a stop reflecting a maximum loss of 1.5 – 2.0 net premium collected. This is because credit spread investing requires a very high percentage of winning trades with the average profit being relatively small, and the inevitable occasional losers being small losers. Otherwise, even a few losers can wipe out all of your profits.

          For example:
          Assume 8 out of 10 successful trades at 15% distance (which our distance and delta requirements suggest is a very reasonable assumption).

          Assume the 8 winners produce the minimum acceptable premium of $0.25 each
          Result: the 8 winners produce 8 x $0.25 = $2.00 gain

          Assume 2 out of 10 losing trades at 15% distance

          Assume the 2 losers produce (based on a MRA of 2.0 x premium received) 2 x $0.25 = $0.50 loss on each losing trade.

          Result: the 2 losers produce 2 x $0.50 = $1.00 loss

          Net result – $2.00 gain – $1.00 loss = $1.00 net gain for the account.
          Allowing an underlying to get anywhere near the credit spread strike prices is VERY dangerous because if it moves in-the-money, the large loss can kill all the profits (and more) from the successful trades.

          To see it for yourself, just run through the “losing trade” calculation in the above example, but assume the losses average just $1.50 each… and when underlyings are knocking at the door of the short strike price, I can assure you that the net premium will often be much higher than $1.50!

          Bottom line, it is far better to take some small losses that would have turned out okay if you had not used the MRA stop, than to experience a couple of big losses that greatly drop the value of your account.

  88. Lee,

    When calculating the minimum premium I’m not sure whether I should use the “bids and asks”, the “marks” or the “last” values. When the spreads are wide it can make the difference between meeting the minimum or not, assuming I can place the order for better than market.

    • Jeff,

      I recommend using the midpoint between the bid and ask. The “last” price tells us where the market “used to be.” In a slow-moving market that value can be far from the current prices at which buyers are willing to buy and sellers are willing to sell.

      In our “Conformings Credit Spread Service” program, we use the midpoint between the bid and the ask for all calculations because that is the best indication of where the market is “now.”

  89. I am new to credit spreads and to your method. You state to exit spread at 1 1/2 to 2 times initial spread. You also advise that you like to use a price on the stock for your stop. My question is what if the 2x credit is reached way ahead of the resistance line on the stock. Do you stay with the position until resistance is broken?

    • Benny,

      The 1.5 – 2.0 recommended MRA refers to a MAXIMUM Risk Amount the investor is comfortable with on every conforming credit spread position. Accordingly, a support or resistance point penetration as a signal to exit from a trade with a loss is only used when it would provide a SMALLER loss than the MRA. We would never recommend remaining in a trade past the MRA point regardless of the location of a resistance line.

      In other words, resistance lines are very useful for setting stops that cause you to exit from a trade BEFORE the MRA is reached, hence reducing even further the risk on the trade.

  90. We are experiencing a classic example that an oversold – or in the current case, an overbought – market can continue substantially longer than one might suspect. That’s why, no matter how “logical” a position seems, we must always use a MRA to guard against a large loss in the event of an unexpected headline event or an amazing run in one direction.

  91. Hi Lee,
    Thanks very much for your previous reply. I understand the merit of placing a contingent stop on the underlying rather than the options (to avoid being stopped by wild swings in premiums) but is there a way to calculate the expected price of a spread at the stop level placed on the underlying in order to limit potential loss to a specific dollar amount such as 2 times the credit received for example?
    Thanks for your reply.

    • Lee. Please disregard my previous question. Didn’t realize you already addressed the issue of contingent stops. Sorry about that.

  92. The RUT is undergoing a major annual reconstitution this week culminating with big changes on 6/28/13.
    The RVX is around 22 today. I’m afraid of holding onto my RUT ICs through this
    Has anyone traded these during past years?
    Should I close them out now?

    • Wow.. First time I’ve heard of this. I’ve also have a July and August IC on the RUT. Volatility seems to have dropped down to around 19% from the highs earlier in the week. Will be interesting to see what happens today (Friday).

  93. Hi Lee,
    If I close one leg of an iron condor and roll to the next month is the required margin still limited to one leg of the iron condor for as long as the two legs are both not expired, or will I be required to have separate margin for each leg since the expiration months are different? (assuming the use of an options friendly broker). Thanks for your reply,

    • To receive the major benefit of a single margin supporting 2 spreads – an Iron Condor – the bull put spread and the bear call spread must (1) involve the same underlying, (2) be for the same expiration month, and (3) must have the same interval between the strike prices of the long and the short positions of each spread.

      Such spreads are entitled to a single margin because it is impossible for both spreads to end up in-the-money at expiration and therefore should be entitled to a single margin. If the broker requires a margin on each position of an Iron Condor meeting the qualifications I outlined above, you need a different broker.

  94. With a low volatility environment, is anyone finding opportunities without breaking the rules. I can’t find enough premium without breaking the delta rule. Any ideas?

    • Mike,

      Not sure why you are having any difficulty identifying fully conforming credit spread candidates. Today (6/15/13) our optional weekly Conforming Credit Spreads Service has identified 35 spreads that meet all the entry “rules” as of yesterday’s closing prices. I have just sent you a sample copy of the report.

      • Lee,

        I’m a new Monthly Income member and would also like to see a recent issue of your weekly Conforming Credit Spreads Service. I don’t subscribe to the service (yet) but would be interested in learning more. Do you find that your weekly recommendations are mostly stocks, ETFs, a mix of both?


        • Hi Rick,

          First, the “Conforming Credit Spreads Service” is not a “recommendation” service. Rather it is a compilation of all credit spread candidates that meet all the trade entry criteria of “The Monthly Income Machine” as of the market close on Fridays. Which, if any of them, a subscriber chooses to establish is a function of his own profit objectives, risk tolerance and is of course subject to whether or not the candidate still conforms when the investor is contemplating placing an order.

          The weekly reports are an effort to identify all potential spread trades that meet all the trade entry “rules” and typically the reports identify candidates from among all three underlying categories: stock, ETF, and indexes.

  95. Hi Lee. I am interested in finding out more about your contingent S/Loss. I noticed the in the forum April 2012 you said you were writing a white paper on the subject. Can you put the link in here for that please. Also are there any other traders out there from Australia would like to connect with other people trading Lee’s strategy…

  96. Lee,

    Wondering if you have any thoughts or defense
    against a flash crash. Such as the one that occurred on May 6, 2010.

  97. Lee, I’ve not traded the RUT before and am confused regarding its ticker symbol. Depending on where I search, I may find RUT, but do not find monthly options. For instance Google finance only lists Dec options for RUT. I’ve also been referred to IWM when searching for RUT. This is an embarisingly simple question, but I’ve not traded options on indexes only on stocks to this point. Thanks.

    • The relationship between RUT and IWM with respect to their option chains is the same as with stock underlyings. Depending on your brokerage firm, the price data for the RUT (index) are quoted, and then usually there is a place to click to see the option chain for that index.

      If you are having difficulty finding the option chain at your brokerage, the simplest, quickest approach would be to give their Customer Service a call and ask how to get to the option chair you want.

  98. Hi Lee,

    I’m nearing the end of your book, and have a question concerning closing out a spread.

    When the MRA has been reached, the book only presents the option of closing out both the short and long positions of the spread. This confuses me, as it seems like there are several good reasons to hold the long position indefinitely(expire worthless, provide profit, indemnify a roll-up).

    Was this strategy simply left out for brevity, or is there a reason that we should we always close out both positions of a spread together?

    • Keep in mind that when talking about premium, we are always referring to the “net premium,”… the difference beteen the short and long member of the spread. Reaching the MRA means that the NET premium has now risen (moved against us)such that the if we get out of the entire spread now, our loss is the maximum amount (MRA) we were willing to lose on the trade if it went against us.

      That increase in the net premium has taken place because although both the short and long legs of the spread have moved up in premium, the short strike price has moved up more than the long strike because it is closer to the market.

      Also remember that the ONLY two purposes for the long leg of the spread is to provide some protection if the underlying moves against us (it will be going with us during an unfavorable move, but not as fast as the short leg goes against us), and to keep the margin relatively low because of this long leg (without the long leg, you would have a “naked short” position with unlimited risk, hence a large margin requirement).

      Since we know we have to take action with respect to the short leg to keep the net loss from exceeding our MRA, our only real decision is whether or not to exit from the long.

      In my experience, it is usually a losing proposition to keep the long leg. If we keep it, we have a long option position that is constantly losing value due to time decay. Even if the underlying continues to move in our favor with respect to the long option, we would constantly be fighting the time decay and we would lose the battle unless the underlying SURPASSED the strike price of that long option before expiration. If we keep the long and it doesn’t move above the long strike price it will expire worthless. If it does expire worthless out loss on the entire spread is going to be greater than our MRA. If we take what we can get for the long now, when we are exiting from the short option, we will have limited our loss to the MRA.

      Bottom line, I would exit from both legs of the spread if the MRA is reached, rather than holding on to the long leg in the hope that its premium will move up enough – and do so fast enough – so as to provide more premium than I could get right now. Most of those times over the years when I’ve “kept” the long in hopes of making back the loss on the short leg, I have regretted doing so.

    • Hi MIM traders, A WARNING!
      In Lee’s white paper on contingent stops he states that “the trader should calculate the stop and place it as a working order. If the delta changes the contingent stop should be altered”. I placed a NFLX trade, fitting all MIM criteria, and placed a working contingent spread as described. In my attention to the math and processes I forgot to watch my delta and alter it appropriately. My contingent stop would have worked find for the trade at its initial delta of 5. When the delta climbed to 13, and I did not alter my contingent stop, it cost me 4x what I had planned for. ‘THOSE WHO IGNORE HISTORY ARE DISTINED TO REPEAT IT’! Mike

      • Thanks so much for the in-depth response Lee.

        I think I was confused about closing out the long leg, and whether or not that would provide premium.

  99. Does anyone use point and figure charts in their technical analysis? If so, in what manner? Can anyone point me in the right direction to learn more about this tool?

  100. Lee, pretty sure I know the answer but maybe not. If you are in a spread and the market opens up down big and you have a bull put on do you still honor your x2 premium stop?

    • My own trade management practice is to treat my MRA as a point which, if reached, I MUST take action… exit with a relatively small loss, roll into a more distant spread, etc. I would recognize two instances in which I would consider exiting from a position before my MRA is reached: (1) if a big, unfavorable move in the underlying breaches a significant chart support or resistance point that represents a strong signal that there is now a trend that – if it continues – would threaten my spread; (2) if there is a strong move in my favor and I would like to free up margin by taking a nice profit and re-deploying those margin funds in another attractive, conforming position (see

  101. I opened an April NFLX Iron Condor 2 weeks ago, at the time there was no news on when earnings report would come out. My trade has been performing well and today NFLX announced earnings will be reported on April 22. April options expire on the 19, so earnings are not in the same month my options expire. Will the implied volatility leading up to earnings affect my April options or the May options? Should I get out of this trade now, or wait and see what happens, I am still comfortably within MAR. Also, NFLX has been squeezed for some time now, would it be smart to possibally enter a straddle heading into earnings? Any thoughts?

    • Mike, my suggestion would be to rely on your MRA unless you see a significant penetration of major support or resistance that would threaten your April position. Generally, it is not productive to enter and exit credit spreads on the basis of talking head forecasts, rumors, etc. The exception, of course, is an earnings report. We should never establish a position if there is an earnings report after you have the spread and prior to option expiration.

      An earnings report just before expiration will affect your options in that they will typically lose premium more slowly than usual. Of course, so long as they ultimately expire out-of-the-money, you will get the full premium nonetheless.

  102. Opened up position NFLX 215/225 bear call .65 premium this morning. Met all rules at the time. Just passing it along in case someone might be interested

  103. The hardest thing for me is when I open a spread I think I need to baby set it. Need to relax.

  104. Hi, was wondering in everyone’s experience with spreads with one expires worthless the most with full profit, bear call or bull put? Thanks

    • Hi Lee, Our ground rules advise not to participate in a trade if an earnings report is due within our chosen timeframe. Frequently an earnings report is known or reported by other than the company of the stock. Can you comment on the reliability of predictions of the earnings reports. If there is a predominance of opinions regarding the meeting or not meeting predictions is it sensible to sell the option based on those predictions. Example: aapl has an earnings report due in April, general concensus is that it will fall short of last years earnings, May call meets all criteria except ‘no reports’, is it sensible to sell the call? Thanks, Mike

      • Mike, you are right about not establishing a position if there is an intervening earnings report being a “rule” (as opposed to a recommendation).

        I strongly advise SaferTraders not to override this “Machine” requirement because the cost-of-being-wrong is simply too high.

        When the analysts, pundits and talking heads turn out to be wrong in their earnings report guesses, we have the classic “eanings surpise” which can tank a stock to the downside, or launch it into orbit, overnight. We’ve seen this occur recently in both NFLX and AAPL following big earnings surprises.

        Of all the “headline” risks to a credit spread, the earnings surprise is probably the most dangerous… and is surely the easiest to avoid.

        Bottom line, if an investor trades on his outlook for an earnings report, he is speculating – which he has a right to do if he so desires. But he is not making a conservative income investment by any stretch of the imagination.

  105. Can’t wait to get the book so I can start trading the Safe Trade way

  106. I just wanted to return to the question of Iron Condors once more and provide an example to see how YOU would handle this situation. A Bear Call spread was established on XYZ conforming to all entry criteria of the Monthly Income Machine. The same day I placed this Bear Call spread, I also could have placed a conforming Bull Put spread on XYZ to establish an Iron Condor. However, for the last 2 weeks, XYZ has been going up consecutively, so I decide to wait for a 2-3 day pull back before initiating the Bull Put spread of the Iron Condor. A week later, the underlying continues going up and I find that now there is no more conforming Bull Put spread due to the 7 days of theta decay. Because I wanted to leg in, I essentially missed the opportunity of establishing an Iron Condor and only have the original Bear Call spread. After running into this hypothetical situation where I lost the opportunity to form an Iron Condor, I would consider making a rule from now on stating that “after entering one of the conforming spreads, I wait a maximum of 3 days for a pullback, and if it doesn’t happen, then enter the other side of the Iron Condor anyway as long as it conforms to all entry rules.” Again, this is just a hypothetical, but please tell me how YOU would handle this due to the fact that you mention in the Monthly Income Machine that you usually leg into Iron Condors as opposed to placing them at once.

    • Andrew’s question is a very interesting one because it is as much philosophical as it is technical.

      It’s a given that we lust for conforming Iron Condor trades because the doubled ROI potential (at options-friendly brokerage houses) with no increase in risk is most desirable.

      Usually, however, we are not offered both the condor-requisite conforming bull put and bear call spread simultaneously, except with very volatile underlyings (although this week’s Conforming Credit Spreads report did surface some all-at-once Iron Condor opportunities).

      Instead, the usual situation is that when most investors are piling into one direction, giving us one conforming spread, the other one needed for the Condor does not offer enough premium.

      Consequently, most our Iron Condors come into being as the result of “legging in,” i.e. first establishing one spread in the direction of the trend, and then adding the “other” spread on profit taking or a correction that does not reach the MRA of our existing spread.

      Either way, all-at-once Condors or those we leg into, the final Iron Condor gives us the same opportunity for doubled ROI with no additional risk.

      Andrew’s question poses the hypothetical situation of which way to go when offered an immediate Iron Condor opportunity. Should the investor grab it, or delay a bit in hopes that a counter trend move that inevitably follows will provide the chance to establish the “missing” Condor spread at an even better premium or a more distant strike price? Even a counter-trend move does not assure a conforming trade in the needed second spread.

      If the retracement in underlying price occurs, but not quickly enough, the effect of time decay may result in insufficient (non-conforming) premium even though the underlying price is moving toward the strike prices at the required distance. In that regard, Andrew’s suggested 3-day maximum delay guideline, if trying for a better Iron Condor than the one available now, makes sense.

      Each investor resolves the question based on his Iron Condor priorities. Is he willing to risk waiting for a more favorable Iron Condor vs. the certainty of establishing an all-at-once Iron Condor now?

      Essentially, it’s a “bird in the hand vs. two in the bush” dilemma. Should we seize the all-at-once Iron Condor opportunity when it is there, or delay a little in the hope (but not the certainty) that we can achieve an even better Iron Condor by legging in later?

      Since there is no assurance that we will have that opportunity for a better “other spread,” and thus risk having no Iron Condor at all if we delay, I would tend to take the all-at-once Iron Condor if offered. That is because my priority is to be sure to HAVE the Iron Condor, rather than attempting to maximize the profit in a Condor I don’t yet have.

      • Lee,
        Thank you so much for the thoroughness of your response. I notice you mention that it’s usually easier to get the first leg of the condor where all the demand is (in the direction of the trend)…. and this is probably true for most securities. However, if you take a look at a couple index option chains like RUT and SPX, the trend and momentum is obviously to the bullish side, and one would think that you should be able to sell a conforming spread on the call side, but it is not the case. In my own situation, I was able to place a put spread on the RUT, but no conforming call spreads (even in April) are available. It could be b/c $1000 is a very illustrious number for the RUT to reach, thus there isn’t much demand… or it could be the fact that buyers know that bulls take the stairs and bears fall out of the window, which would explains the rich premium in the puts vs. the calls. I’m sure in a stock like NFLX or AAPL, it’s much easier to sell both legs of the iron condor than on index options.

        – Andrew

  107. I am new to this strategy but am not new to trading options. I am interested in how others manage stops especially when entering trades in low volatility environments. I had an April bull put spread 82.5/75 on in FFIV for 0.25 credit. I am using a 2 times credit for stop. Today the premium hit 0.75 so by rule I closed out the trade. However, I still felt very comfortable with the trade and where the stock was trading. I feel like many times closing out at the stop is premature especially when there is a good support zone between the price and the short strike. Not sure how to combine the 2 times credit stop with good technical analysis to avoid locking in a loss too early. Would appreciate any thoughts.

  108. Having trouble finding any stock spread trades that are at the $.25 minimum that the short leg is 15% from the underlying price. Also, not any in the indexes either that are 12% away. Any examples or am I miscalculating?

    • Hi Billy,

      I know NFLX has conforming spreads for March and RUT has conforming spreads for April, only the Put side at this point for RUT. NFLX has the minimum 15% distance requirement and RUT has the minimum 12% distance requirement. For March, you will not find any conforming Index spreads due to the current low volatility. Don’t worry, IV will pick up soon enough and inject options with more premium.


    • Hi Billy,

      Andrew is correct. Overall market volatility is well below average, probably because investors are standing aside awaiting outcome of sequester. Meanwhile, as Andrew noted, there are conforming spreads for March as of 2/22/13 close on NFLX, and there are many, many April stock and index underlying conforming spreads, including RUT and OEX. In fact, the 2/22/13 “Conforming Spreads” report lists more than 40 candidates for March/April expiration.

  109. Mr Finberg I am a new member t this forum, reading the prior comments I notice the premiums disucssed here are approximattely 2% ret , which is nowhere near 8% as mentioned in your website?

    • Hi Pete. Welcome to the SaferTrader community. I am not sure what you are referring to with respect to people talking about 2% return, but to address your basic question: 8% return on margin (monthly) is, of course, in no way a guarantee, but it is most definitely a reasonable target.

      After you receive the book and have had an opportunity to become familiar with the process, you will see why an 8% return on margin in a single month is indeed a reasonable objective for a conforming trade.

      Here’s a preview: Assume we establish a credit spread that conforms fully to the Monthly Income Machine requirments, and the spread involves 2 strike prices, $5 apart, with a $0.40 premium. This is a VERY typical conforming spread.

      Now assume that all goes well and the options expire worthless because the underlying stock, ETF or Index failed to reach our spread’s stike prices prior to option expiration.

      With that outcome, we will have collected, and will bank, $40 premium on $500 margin. That, of course, is 8% return on margin… in about one month.

    • Thanks for the reply, I was referring to the previous posting of .25 credit on a $1000.00 margun is more like 2.5%..

      • Hello Pete,

        I would just like to add my $0.02 in addition to Mr. Finberg’s response. I would just like to mention that when I first read the book, I had the exact question you had re: earning 8% a month vs. 2.5%. Although an 8% return will show up occasionally, it will be hard to come by these days due to the unusually low implied volatility of the market place, making premiums quite cheap. These days, you will be more likely to find 5% returns that conform to the Monthly Income Machine, but worry not because Implied Volatility cannot stay this low forever and will eventually go up again where finding 8% returns (while obviously conforming to the entry rules of the Machine) will be a common phenomenon. Also, remember that if you are able to place an Iron Condor where each side of the IC (again, both sides conforming to the Machine rules) provide you with a 4% return, that is a total 8% return on margin employed. Hope this helps.

  110. Hello Mr. Finberg,

    I noticed that on the Conforming Credit Spread sheet from this Friday’s close, you have an AAPL Bear Call spread listed as a conforming candidate. However, based on my own search, I found that AAPL 400/390 Bull Put spread would conform to all the rules. I am wondering why you chose not to include it in the list of conforming spreads?


    • Our screening process requires a closing net premium of at least $0.25

      Our data source had the March 400 put at $0.63 and the 390 at $0.41, so even though it was very close to the required value, the program eliminates it.

      That said, an investor could certainly legitimately consider that spread and
      place an order with his premium being at least $0.25 and have a “conforming”

      • Mr. Finberg,
        Certainly if I chose the long strike just one strike further out (400/385 Put Spread), which would give me a 2 intervening strike width, it would surely provide nearly $.30 which would be conforming to the Monthly Income Machine. Although I didn’t state this in my previous message, what I was trying to get at is to see if you purposely left out a conforming AAPL Bull Put spread due to the fact that it has been trending down. In the book, it doesn’t really specify whether to eliminate conforming trades if they are against the prevailing trend or whether all conforming spreads are okay to place even if the underlying is dropping like a rock, as in AAPL’s case. Would you address this please?


  111. Hello,

    New to the forum here and wondering about something. Do you all just let the spread run to expiration or do you implement something like … closing it at 90% of premium to free up the margin for redeployment?


  112. Lee,

    How do I upgrade my subscription from the biweekly to the weekly updates?


  113. SPX is my favorite index to trade for monthly income. However, I am finding that trying to follow the 12% rule (12% above/below current price) makes trading this index next to impossible. Instead, I have been using the Delta and making sure my strikes are not outside of .10/-.10 for a trades in the 80% or higher probability range. What am I missing in my calculations?

    • Rebecca,

      The relatively low market volatility during recent months has indeed made it difficult to use the index options for “Machine-approved” credit spreads. Remember that the point of “The Monthly Income Machine” is not to provide specs for trading a particular underlying’s spread, but to identify spreads -whatever the underlying may be – that do conform to the entry rules and therefore provides the investor with a stong candidate for a successful trade.

      That said, please note that the SPY (the ETF for the SPX) does meet the entry criteria as of Friday’s Conforming Credit Spreads Service report. Specifically, take a look at the March 132/117 bull put spread.

      In addition to the fact that it conformed to all entry requirements based on Friday’s close, the SPY does offer some advantages over the SPX: it is far more liquid and, as a consequence, has a much tighter bid/ask when you enter or exit the spread. Also, the last trading day of SPY is the same as expiration day (third Friday of month) whereas the SPX ceases trading on the Thursday before the 3rd Friday and you must exit before the end of the Thursday trading or risk a major overnight development and being unable to exit on expiration day.

      • WOW! Thanks for such a prompt response, Lee! Now that you pointed it out to me, I see that I have been attempting to make the underlying confirm to my “wishes”. I will take a look at SPY right now and hopefully be ready for a Monday morning trade. Thanks again.

      • Hi Lee,

        I finished reading the book cover to cover this week and am reading through the forum to get more details on the system. I noticed in an answer to Rebecca about conforming spreads, you mentioned the following “Specifically, take a look at the March 132/117 bull put spread.” In the book, Mr. Finberg, you mention that the width of the strikes should at most have 2 intervening strikes between them…. with SPX that would be a width of $15 dollars since SPX options are $5 apart, however, SPY options are $1 apart and following the rules, the width of a credit spread on SPY should be no more than $3…. the spread you mentioned in the SPY (132/117 bull put) is $15 apart, which would conform to SPX, but not to SPY since it has many more intervening strikes than 2. If you can address this, I would appreciate it.

  114. I am interested in the conforming spread service. How do I subscribe.

  115. I have question about the minimum premium needed for a conforming spread.

    The book says that 25 cents is the minimum acceptable. I assumed that the minimum mattered because it limits how much margin you risk for the premium.

    Surely then, the 25 cent must relate to a given spread interval, say $10.

    The spread screener report for 1/18 certainly shows spreads that are above the 25 cent minimum, but the spread intervals (i.e. margin at risk) vary widely and are sometimes $15.

    So my question is: isn’t a 25 cent premium on $15 of margin equivalent to 16 cents of premium on $10 of margin ?

    Maybe I’m missing the point of this.


    • Dave, the “Machine” requirement for premium is that it be $0.25 AT A MINIMUM. The individual investor can, of course, determine whether a trade offering the minimum premium meets his objectives relative to margin, etc. or if he should pass on it and use a spread on a different underlying.

      Regarding spread intervals. Again, the Conforming Credit Spreads Service reports the FIRST conforming spread for an underlying. So long as he stays with the “short” option strike price that meets the distance-from-market requirment and is therefore reported as conforming, the investor can use a wider interval by employing a more distant “long” option in the spread. Keep in mind that while widening the spread is fine in terms of the “Machine,” a wider spread will not only offer a larger premium, but it will require more margin, and will widen (move against you) more quickly in response to an adverse move in the underlying.

      Re: Option Chain strike price intervals and distance between spread strike price legs. We recommend that underlyings whose option chain uses strike price intervals of $1, $2.5, or $5 employ spreads with legs up to $15 apart. For underlyings whose option chain uses strike price intervals of $10 or more, we recommend using spreads whose legs are no more than $30 apart.

      • Hi Lee, Thanks for your excellent advice you provide to us rookies. In your note to Dave you state that widening the spread will generate a larger premium, more margin, and will move against you more quickly in response to an adverse move in the underlying. What am I missing? The theta of the more distant long leg choice will be lower, which I thought would mean it would move against you slower? Thanks, Mike

        • Hi Mike,

          Let me see if I can answer this one for Lee…. the farther away the long leg is from your short leg within your credit spread, is smaller the Delta on your long leg. That means that if the underlying is moving against you, the short leg will be moving more against your per dollar move of the underlying than the long leg moving for you. I think an illustration will give this answer more meaning: you have an XYZ 600/575 Bull Put Spread. The 600 short strike has a delta of .08 and the 575 long strike has a delta of .03. Then XYZ (the underlying) move down by $10(against your bull put spread). The result: the short leg will increase in value by approximately $80 (against you) while the long leg will increase in value by approx. $30, widening the spread by a total of $50. Had your long leg been closer to the short leg, say the 595 long put, it would have had a delta of .06 (instead of .03) and the $10 move of XYZ would have increased your long leg by $60 instead of by only $30 and the result would be that the spread would increase against you by only $20 ($60 increase of long leg – $80 increase of short leg). I hope this helps and if Lee would like to step in to provide additional details, please do so.

  116. Hi Lee.
    I was looking at the newest conforming spreads sheet and have a question. If im reading it right, iffy at best, it says to put on the 80-95 lulu put spread. If this is a good ” short” in the first place. whyb go so far out to protect it ? also, wouldnt the margins be $15 so youd be using a lot of capital for 31 cents
    Thanks, Paul Perlin

    • Paul, when using the Conforming Credit Spreads Service, or manually identifying conforming spreads, we are always dealing with using strike prices that give us the best opportunity considering the trade off between distance-from-the-underlying and premium.

      The first consideration is that the short leg of a spread needs to meet the distane-from-underlying entry criterion. For stocks, other than during the “sweet spot” period, we are talking about the short leg of a spread being a MINIMUM of 15% away from the current underlying price.

      If the next strike price in the option chain has a premium that would give us a conforming ($0.25 minimum) net premium for the spread, we can use that strike price as the “long” leg of our spread. But it is also okay to use a more distant long leg in order to gain a larger premium – so long as we don’t go beyond the rule for distance between legs of a spread. (With underlyings whose option chain has strike prices less than $10 apart, we can use spreads with up to $15 between strike price legs. With underlyings whose option chain has strike prices $10 or more apart, we can use spreads with yup to $30 between strike price legs.

      As noted whenever I review this rule, keep in mind that as you increase the distance of the long leg from the short leg, two things occur in addition to increasing the premium: the margin on the spread will be higher; the spread will move against you faster when the underlying makes an adverse move.

      In short, widening the legs of a conforming spread to gain premium is within the groundrules of “The Monthly Income Machine,” but as always there is a trade-off between risk and reward.

  117. Hi Lee,

    Hope your holidays were great! Just rec’d the conforming spreads ( list for the friday close and I have a couple of questions.

    1. On the Apple spread the premium you show is $.43.
    On my Think-or-swim platform it shows $.05 Saturday am.
    Is this kind of variance to be expected? Or was AAPL volatility smashed overnight?

    2. I show SINA earnings on 2/14 while the expiration is 2/16.
    Wouldn’t this prohibit the trade?

    3. If the list came out Friday a.m. and was actionable on Friday,
    wouldn’t it be more useful for us?

    I appreciate the response and appreciate your patience with
    some of these initial questions.


    • Bill:
      1.Re-read Lee’s e-mail; I think he covered your concerns on AAPL
      2.IBD has SINA earnings to be reported 2/27.
      3. I like Friday close report so I have the weekend to sort through everything.

    • Bill,

      AAPL stock experienced significant trading activity to the downside during the Friday after hours (4:00 – 4:15) period that was not reflected in the options. Interestingly, the following day, the “closing” options bid/ask values were changed. These source data inconsistencies are common and unavoidable in their entirety. In order to minimize them, we will run hour analyses much later so long as we can get the Conforming Spreads lists to you before noon on Saturday.

    • Re: SINA, the data service used for Conforming Credit Spreads reports show SINA next earnings report as 2/25/13, well after options expiration day.

      Checking various websites does indeed produce different dates! OptionsXpress, for example, shows “next earnings report date” as 3/5/13, also saferly past options expiry.

      The point to be made here is that it is necessary to check that the conforming trades as reported in our Conforming Credit Spread Service still conform when you are considering placing an order. As noted in the report itself, it may not conform due to market movement subsequent to the report, or due to vagaries in the source data at the time the report is prepared.

      Bottonm line, while not every identified conforming spread will be doable at any given moment, there should be enough opportunities surfaced in each report to provide SaferTraders with viable candidates much more quiickly (and completelt) than likely with manual start-from-scratch evaluation.

  118. Just looking over the complimentary conforming spreads list that Lee emailed.

    The OEX 550/540 Jan13 PUT spread is listed as a candidate but today, the 550’s open interest is only 345 .. which I had believed would rule it out as a candidate.

    Have I mis-understood the minimum 750 OI rule ?


  119. lee,
    My name is Paul Perlin. I just subscribed,havent got the stuff yet but have a few questions. I was a floor trader at CBOT for 47 years living on the ” edge” which, im hoping, is what selling premium gives you. A few questions 1} is there one place that lists all the white papers so i know i have them all 2]I looked at the Coforming Spread newsletter and noticed that there were only 2 iron condors and a lot of plain credit spreads- is this normal?3} is the Credit Spread Screen, mentioned in the forum the same as the Conforming Spreads letter? 4] do you have any other services/
    thanks,PAUL perlin

  120. I placed 4 vertical credit spreads. 3 worked out, the 4th was a bearish call spread that didn’t. For, I sold 2 170 calls and bought 2 175 calls. Due to a rally, I closed the position at a loss. I am not totally sure how to calculate the loss. I think the formula is (short call + long call + premium received)/amount at risk. In my case I ended up with ( -256.13 + 27.87 + 63.87 )/1000 = -16.4% The numbers include fees and commissions. Is this correct?

  121. Lee, what is the status of the spread screener?

    • The new subscription service (The Monthly Income Machine Conforming Spreads Service) to begin accepting subscribers on Saturday 12/22/12.

      The Service will list conforming trade candidates with twice monthly (Basic Service) or weekly (Premier Service) reports.

      The program begins with report based on Friday 1/4/13 closing prices.

      NOTE: Suscriber must be a current, registered owner of “The Monthly Income Machine” book.

  122. I notice that many credit spread/iron condor traders use a 30 point spread between their sold options and the bought options instead of the 5 point or 10 point as we use. Can you explain if there is any benefit. I can’t see any as the margin would be higher and we want to exit the trade before it gets to our sold strike.

    • The reason we are using spreads – having a “long” leg in addition to collecting a premium on the short leg – is to provide some “defense” for our position. During an adverse move, the long leg will be working in our favor to reduce the net negative effect of the adverse move in the underlying.

      The further away from the market the long leg is, the less beneficial effect it will have during the adverse move. In fact, if you look at an option chain you will see that a strike price can be so far from the underlying that investors judge that strike reaching in the money status to be so remote that they are unwilling to pay anything at all for that option strike price.

      This fact serves to illustrate the fact that the protective value of the long leg of a credit spread is very much dependent on how close it is to the short leg.

      Just as you pointed out, as you widen the distance between the legs of a credit spread – i.e. make the spread riskier – the reduced protective value of the increasingly distant “long” let is reflected in a higher margin requirement on the spread. Also, when the legs are wider apart, a smaller adverse move in the underlying can push the spread premium up to your MRA (maximum risk amount). In other words, you would be forced out of a position by a smaller negative move.

      However, “The Monthly Income Machine” does encompass spread legs that are $30 apart. Recall that our spread can have up to two intervening strike price legs. That means in the case of underlyings whose option strike prices are $10 apart, we can have a $30 spread. For example, if XYZ has available strike prices of 100, 110, 120, 130… we could use a 100/130 spread (2 intervenings) and be in conformity with the rules.

  123. I did a little analysis of this months possible trades so far assuming the winners are already closed out at the 75% profit or that they will close at the 75% profit. I placed 6 trades with all having $10 spreads and 4 of the 6 were successful or 10 credit spreads successful and 2 not. The companies I used are CMG, FFIV, LNKD, CRM, AMZN and AAPL. I placed the trades 25 days from expiration and all conformed to the rules. I used an allocation amount of $24,000, just to make the results more real.

    Here are the results.

    CMG Put & call 4 * 2 * 100 * .26 = $208
    FFIV Put & call 4 * 2 * 100 * .26 = $208
    LNKD Put & call 4 * 2 * 100 * .26 = $208
    CRM Put & call 4 * 2 * 100 * .26 = $208
    amzn Put 4 * 100 * .26 = $104
    aapl Put 4 * 100 * .26 = $104
    Total $1040

    amzn call 4 * 100 * .75 = $300
    aapl call 4 * 100 * .75 = $300
    Total $600

    Net profit $440
    Net profit % 1.83% for the month

    From my perspective there are two ways of looking at this, on one hand 1.83% isn’t much to get excited about but on the other hand the rules worked it was a positive gain for the month with NO LOSS. Which I am learning that the “no loss” is the important part.

    I did notice that credit spreads that were on the other side of some support or resistance lines did better. Like in Lee’s book. By only using positions that had a technical advantage might have increased your overall profit results.

    Lee, I know you said that 8 of 10 trades go well, but for beginners that kind of follow the rules blindly is this month kind of typical? Does more experienced safer traders use technical analysis and increase there return percentage?

  124. Thanks for the clarification Lee. I’m seeing some potentially conforming trades at the moment on FAS, TNA and UPRO. The Deltas and Distances are in place, for example. However, I’m deeply suspicious about the fact that these are all 3x leveraged ETFs, so even though the Deltas may be conforming, I wonder if the risk is actually larger than the Deltas would suggest.

    Do you have any thoughts about these leveraged ETFs, are they something you would avoid?

    • It is true that the 3X ETFs are, by definition, more sensitive to movements in the underlying ETF components. However, the option delta calculation incorporates historic volatility into the calculation, so I would expect the resulting delta values to be as useful as they are for regular 1X underlyings. But, to be on the safe side, I will check into this further just to be sure!

      • I can see that the Delta criterion would probably remain unchanged, but shouldn’t the minimum distance criterion be trebled for a 3X ETF like FAS?

  125. The Dec 2012 expiration month doesn’t have good premiums and with much bad news hanging over our heads, this may be a good month to not place any MIM trades.

  126. Lee, what guidelines for the liquidity screening can you give?

    • Glen, I recommene, and it is one of the “entry rules” that the options being employed in our credit spreads have an “open iknterest” of at least 750 when there are 25 to 10 trading days remaining prior to expiration.

      Just as we have a mimimum requirement for price of the underlying, I also want to see a minimum average daily trading volume for the underlying. When I am screening for candidates, I filter out all underlyings with less than 1,000,000 shares/day trading volume. Note that in the “white paper”, the list of stocks from which I draw my “usual suspects” all had average daily volume of >1,000,000/day at the time of writing the article.

      The point of these entry criteria is, of course, to establish a reasonable baseline with respect to ending up with reasonable liquidity (and associated narrow bid/ask spreads) when I either enter or exit from a spread.

  127. I think to hedge your IC , even if it means taking in less credit, by buying an extra long put or call, you have a wider area that the underlying has to travel in regards to threatening your short options which could give you higher probabilities of success. All comments Please. Lorenz.

  128. Been trading for income for about 8 months now and like the Monthly Income Machine model. However I have a hard time finding qualifying trades. I make about 15-25 high prob trades (non MIM) per month but I would like to share thoughts on MIM methodology trades. I don’t see much being shared here. Feel free to contact me as I’d love to discuss/share individual ideas, thoughts and suggestions. Thanks!

    • Bill,

      For me, it’s not so much that trades are hard to find but the opportunities can be fleeting. Especially in a relatively low volatility environment. Also, I may have to accept less return on margin to satisfy my premium targets by widening the spread. A typical month will include 2 – 4 spreads/IC’s to manage. Position size and the percentage of portfolio committed are a function of individual risk appetite.

      • I try to generate enough positions to yield about $6k per month
        in profits. My position size is small, typically 6-20 contracts
        not exceeding max risk of 2.5% of portfolio on any single trade.

        I am now trying some further out IC’s (Jan 19 exp) because they afford me wider wings in these uncertain markets. I do not plan to
        hold to expiration but sell once I achieve about 80% of my potential
        gain perhaps about a month prior to exp. I am looking for 12-15%
        Delta’s on the strikes and about a 25-30% return on margin.

        I am also beginning to use weekly’s now that they are much more liquid but still do most trades with about 30 days to expiration.

        I have had a couple of months with slight draw downs but overall am averaging about 4k and feel I can do better just haven’t got it down right yet. I need to get more disciplined on closing trades when they go against me and approach the short strikes… can always get back in if the trade still makes sense.

        Trading can challenge all of your weaknesses so the only choice is to eliminate them or overcome them. The fight goes on.

        Thanks for your comments Phil and good trading.

        • Bill, I appreciate your feed back on position size. I struggle with knowing how much to place on any particular position. Depending on the size of your account you may have to use a larger percentage of your account to make it worthwhile.

          I back tested the further out ICs with basically the sames MIM rules. In my back testing, it doesn’t work out well because often the underlying would move toward one of the legs and not enough theta was bleeding out during that time frame and my trade would hit the MRA. The 25 trading days out is a good time frame out because the time value starts to leak out rapidly even if the underlying moves in your direction. But I would be glad to see your back testing results.

          I made a mistake this month on placing a trade on CMG right after a earnings report and gap down and for only .22 on the call side. It filled the gap quickly and put me in the hurt. I rolled up and got hurt gain. I placed this trade knowing that there is a likelihood of it filling the gap. I also paid for a lesson in why you need to get the minimum .25 premium. With that small of a premium the chance of it hitting your MRA is increased. Bill is right about trading exposing your weaknesses.

    • Also new to options trading and finding conforming trades difficult. Found that with a bull put spread on the SPX my position P/L varied over 2.5% of total maximum loss with the SPX trading only 30 points lower from when I began, and then jumped to delta neutral very quickly. Was surprised is this IV or what??

  129. Lee,
    Base hits and homeruns. I tend to relate subjects to sports when explaining something. I would compare credit spreads to base hits in baseball. While getting on base is important and essential to winning the game, home runs help too. I’ve been comtemplating using straddles around earnings announcements (home runs). Do you have any advice on going for the occasional home run or should I forget about the big-gainers and focus solely on consistent income from writing spreads? I think I know what your answer will be, but I wanted to get your thoughts on the subject.

    • Hi Mike,

      Good question! Answering it really comes down to defining the investor’s objectives. If the plan is a risk-adverse technique to generate a stream of monthly income, trading around earnings reports is – as you certainly expected me to say – absolutely out. Credit spreads are inherently a “singles” game, played defensively, because you must have a high degree of successful trades.

      I have nothing against seeking extra base hits, including homers… but that’s a different ballgame, played with different equipment.

      If we’re talking about using spreads to play the game, going for extra bases calls for debit spread, not credit spreads. (“The Monthly Income Machine” is not designed for debit spreads.)

      Interestingly, while I advise against using weekly options for credit spreads (not enough premium), the weeklies are quite good if an investor insists on trading the earnings report — specifically because the premiums (which you will be paying rather collecting when using debit spreads) offers a cost advantage since you are a “buyer.”

      For real home runs, your best bet is probably outright purchase of out-of-the-money calls or puts depending on your directional bias. Thats’s where you will find the maximum leverage.

      But, as is hammered at in the book and “white papers,” you shouldn’t completely close your eyes to the statistical reality that most outright buyers of options lose money over the long run.

  130. A number of SaferTraders have commented on the p;otential effect of the upcoming election on credit spread/iron condor investing. I’ll add my two cents to the cnversation.

    The underlying concern I’m sure is the question “is there significantly more risk when trading credit spreads in an election month?

    No guarantees, of course, but I would say, “no.” For the marekts to make a mega-move in response to a “headline event,” the event typically has to be unexpected in the exteme… a “surprise” development like a war, a major terror attack, a shocking geopolitical event. In the case of our election, with polls consistently forecasting a close election, I find it hard to see how we can have a really significant “surprise” outcome.

    • While we must keep those in the path of Sandy in our thoughts and prayers, it seems to be that the market being closed for a couple of days gives us sellers of credit spreads a time decay boost withing any risk. Am I correct in my assessment?

      • Yes, more important things than trading going on right now. But, your statement is correct. Expiration dates have not moved so theta is still working in your favor for OTM credit positions you have in place. However, potential trade set-ups are also being eroded, denying opportunities. Works both ways.

    • Hi Lee,

      Im just starting out with Safertrader and finding that a disproportional amount of commissions are being paid in relation to profits made. There is not as many brokerages in Canada that offer credit spread abilities and allow them in retirement accts. TOS charges $3 for 1 contact. 30 dollars for 10cts . 60 buck round trip. and a few hundred profit?????????
      Thank’s for the knowledge, no-hype trade with confidence approach. Lorenz Vancouver Canada.

  131. I ran the ‘special screener’ list again today after the week’s close and we’re still hitting on 100%. Yee haw, I am liking what I see.

    Would be nice if the forum were more active, though I guess everybody has something better to do. I’m really excited because this is all new to me and well I guess the new folks can identify…

    Wondering what everyone thinks of November expirations as being disqualified because of the election. Seems like that carries a lot more weight than a companies earnings…what say you experienced ones who have been through an election year?

    • That’s a good point about the election. I would have guessed that something like that might be a market-moving event.

      I’m also excited about the stock screener.

      • David, I’m starting to think that the market may like it either way as long as it’s over, right?

        Haven’t heard from any of the long timers, so I guess we’re just gonna find out, eh?

    • Did anybody run the expired results for the ‘special screener’ for October? Just curious what anyone thought.

  132. Is it just me as I’m a newbie here, or are the ‘special screener’ picks for October 100% on? I just ran a scan on the entire list and every spread is headed in the right direction. (Tues 10/9/12 5:30am ET)

    So, now the question is, Lee, When and how do we get more access to that ‘special screener’. I’m loving it.

    • Albert, what is the special screener. Have I missed something major?

      • Hi Rebecca,
        I’m so happy someone read my post!

        Anyways, on September 14, there or abouts, Lee sent out a list via email from a test he was running with a ‘special screener’ which he says is under development to help find promising underlying stocks, indexes and ETF’s for the month’s option purchases.

        I think it’s called SaferTrader Credit Spread Screener. Well, I ran the results from the entire list after the fact as I was not set up and ready to trade yet. (I’m a newbie). That was the morning of October 9th and based on my observation, 100% of the picks were working in the correct direction and doing quite well.

        So, I’m hoping we get a lot more access to that screener, because it looks quite promising to me and answers my biggeest challenge, which is finding the good trades. I’ll be running another check on the same list after market closes today. (Fri 10/12)
        Hope this helps.

    • Albert, we hope to have the SaferTrader Credit Spread Screener Service ready by year-end.

  133. Fellow Traders,

    The importance of setting and sticking to exit rules for each trade cannot be stressed enough. Even though my entry criteria is even more conservative than Lee’s, I just went through a 4 month stretch with a win rate of just 64%. Without strict adherence to maximum loss rules, this run could have easily wiped out YTD profits or worse. Discipline when enforcing exit rules will help mitigate the effect of the statistical anomalies that will occur.

    • Yes. Yes. Yes. Phil could not be more on target.

      Correct entry is the critical first 1/2 of the success equation; sensible risk control is the second – equally critical – second half.

  134. Lee,
    I’m very excited about the spread screener you are working on. I found a trade within 10 minutes of opening the spreadsheet. Within a few days I collected 80% of the premium received and was able to close the trade. I can’t wait to find my next trade. Do you have a rough estimate on when the screener will be up and running. Thanks.

    • Hi Lee

      I have observed that on the time I had to do adjustments, unless I roll it to the next month, I will certainly take a loss.

      On the other hand, rolling it up/down and out to next month would normally prevent me to take a loss.

      My plan is to avoid a loss, and just take a lesser return or even breakeven, so rolling seems to work (except if there is a big drop).

      My observation also is that if I just do trade adjustments thru rolling to the next month on the last week, this seems to prevent me from taking a loss.

      of course this is only a few months experience for me so am not sure if this is true most of the time. The risk will be if the stock crosses beyond the short leg which and for some reason I can not rollout, then I will really take a big hit.

      I know this is not the procedure you recommend. What is your experience about this?

  135. Hello. I have noticed that I can get filed with RUT instead of NDX, SPX even though the mark price is met. I am wondering why. Is it because RUT have higher open interests? Do you also have same experiences?

    • You are certainly right about the SPX being relatively difficult to get filled. It is not as heavily traded, and you can see this in the relatively wide bid/ask spread. I have found it much easier to get specific fills using the smaller ETF contracts (SPY, IWM, etc.)

      There are pro’s and cons to using the larger index vs.the corresponding smaller ETF options contracts. You may want to check out It covers a number of the beneifts and drawbacks of each.

  136. Lee

    One of your recent emails mentioned a 2nd Edition of the MIM book. I think I have the 1st edition.

    What’s different in the 2nd Ed ?
    Is there any reason for owners of the first book to read the 2nd Ed ?

    • David,

      As you probably know, when it becomes necessary to print additional copies of a book, the choice is between a new “printing” or a new “edition” – the latter is defined as a new edition if there are significant changes.

      The changes in the 2nd edition of “The Monthly Income Machine” are NOT changes in the entry criteria or trade management techniques. The book has been expanded to include some explanations of items not covered in the 1st Ed such as why we recommend NOT using weekly options for credit spreads, as well as attempts to clarify sections where readers have indicated they still had questions. We also updated the examples to refer to more recent trades, market-wide headline developments, etc.

      Bottom line, it is not necessary to read the 2nd Edition if you have already absorbed the material in the first edition. But if enough 1st Ed. owners want the 2nd, too, I’m sure we can work out some way to handle that at low cost.

  137. for bull put spread, if market is above short the day before exp. we let expire worthless, or buy spread back early. I got that part. Now what do i do if market is between breakeven and short? Also if i am not using stop, how do i exit if market is just above my long, or just below on thursday? looking for the mechanics of buying back spread day or 2 before expiration in these 2 situations. using 2 point spreads with .40-.60 premiums.

  138. Does anyone have experience with Fibonacci Retracements? I think the use of these with credit spreads could be very powerful. Any tips or recommendations on good books or websites would be very appreciated. Thanks

    • Hi Lee

      I am worried about flash crash, big drop in price with big jump in volatility especially with the current market volatility. Is there a good way to protect our iron condors against these?

      • Hi Noel,
        A quick method to have additional downside hedge for your IC is to buy additional OTM Put. In the event of a flash crash, volatility will shoot up and and at that moment, the premium for these puts will increase in % dramatically. The objective is to have these OTM Put value increase to affset the loss from the Bear Call Spread of the IC.
        My practise is to use about 10% of the premium collected from my IC to long these OTM PUT. I would buy the same expiration as IC and it will not cost you so much for the near term.
        However, in the event of Flash Crash you might need to unwind your trades for the Long Put Hedge and Bear Call Spread at risk.
        Do experiment and do some volatility simulation tests to validate the effectiveness of this method.
        Hope this helps.

      • Hi Noel,

        Let me add my 2 cents to this issue of sudden “flash crashes.”

        Obviously, there is always the possibility of a really big move up or down – especially “down.” You never know when the Republic of Last Tuesday might suddenly attack and neighbor (or us)or when a too-big-to-fail bank or country might fail, etc. These are “headline risks” that we cannot prevent, but can deal with.

        Frankly, this issue is always one in the back of my mind when establishing a credit spread, so here’s my take:

        1. The biggest “risk” in terms of potential huge move is on the downside. For that reason, I personally tend to favor bear call spreads if I am choosing from among similar trade candidates.

        2. The risk is greatest – by far – with an individual stock where a disasterous stock-specific event can hit the newswires. In such a situation, a 12-15% drop happens fairly often. However, a one-day drop of that magnitude is very, very unlikely for a major index. In fact, to my knowledge no “flash crash” of that size has ever occurred in the SPX, NDX, DOW, RUT, etc. If one is really overwhelmingly concerned about such an occurance, he should focus his trades on indices, and do so on the short side.

        3. Keep in mind that the last “flash crash” (which actually wasn’t headline-driven at all) resulted in further tightening of the circuit-breaker exchange policies put in place to short-circuit overreactions by stopping trading for brief period to allow for cooling off.

        4. Also keep in mind that SaferTraders are exhorted to always have an MRA (maximum risk amount) in force on every trade, backed up by an actual stop order in the market. While this will not guarantee that you will be filled at your stated stop price if the market takes a sudden swoon, it will assure that you are at least taken out of the market.

        5. Finally, one of the associated risks to your account profitability is the risk of “paralysis,” i.e. an unreasonable fear of remote possibilities that preclude taking any positions at all in the market.

        Also, as mentioned by another FORUM user, one can use an unbalanced bull put spread when he wants to use a bull spread – one that has extra long options compared to the number of short options in the spread. (The downside here – there’s always to sides to a issue! – is that the cost of the extra longs can mitigate some or most of the potential net premium potential of the spread.)

        Again, considering that there has not (to my knowledge) ever been a sudden drop of 12-15% in a major index, if we want to bring defense against such a possibility to the top of our list of considerations, by all means focus on bear call spreads, on indices, and be sure you have a stop in place once the market opens each day.


  139. I have been checking for stocks or indexes that meet the requirements this week with no luck. Does the earnings season mess up the premiums? This is my first month and would appreciate any clues on a stock or index.

    • Hi Pat, one of the entry requirements that Lee has in his book is that you do not want to trade stock options during announcement or earnings months due to the chances of a large move. So, patience is a virture! You might look a little further in time.

  140. CPR for my MAR!
    I have been paper trading this system for some time and have been very successful with fake money, my problems began when I started trading with real money (imagine that.) My first 3 live trades hit my MAR of 2x premium received, forcing me to exit the trade. What makes this so frustrating is that seemingly as soon as my stop loss is triggered the stock turns right back around only to expire worthless. I am asking for any advice on technical analysis. If anyone can recommend any tips, websites or books to improve my timing and confidence it would be greatly appreciated. I know this strategy can eventually lead to financial independence; however, I can’t sustain too many more of these losses to my account or my psyche. Thank you in advance.

    • Hey Mike,
      It is hard to give you any input when we don’t know your actual trade data. It sounds like to me that maybe your condor is not wide enough.(trying to gain too much premium and not using 10 deltas). the other is timing. Are you making sure that you are trading in months without announcements, dividends, conference call, etc? Like I said it is hard to advise when you tell us so little about what you did. Wish I could help more.

    • Hey Mike,
      it is impossible to help you with your trade with what you have told me. I need to know more about what you traded and your strike prices etc to be able to even begin to know how to help. Based on what you said the answer would be so general and vague that it would not help you.

  141. Team MIM:

    What is everyone’s take on good credit spreads out there for JUL 21st expiry (21 more shopping days to go – don’t forget 4th of July doesn’t count)? Also, can anyone give some good advice on what websites will tell you exactly when the next earnings reports will come out. I apologize for my lack of knowledge on the subject, but there are a lot of websites out there that will tell you when the last earnings report was out, but they will not say exactly when the Q2 earnings come out. It appears a lot of the white pages stocks’ Q1 Ern Rpts last came out on APR 23rd…so does that mean JUL 23rd for Q2, which is after the JUL 21st expiry date on JUL options or could they come out before then?

    • I good site for general information is At the upper left hand side of the screen type in the ticker symbol of your stock. When the next page loads click on “Company Events” on the left hand side of the screen. At the top of the next page will be a list of “Upcoming Events.” If earnings are due soon it will be under this list. Another method is to find out when the last earnings was, it will be 3 months later. Every company has its own unique earnings date every 3 months.

  142. Lee,
    from a SafeTrader perspective, how many trade should I have .. if I have e.g. a 200K account? 10 trade with 20K seems to me not enough diversification. 40 trades with 5K (at risk) seems to me too much, because I believe I can’t find that many good trades (and it takes a lot of time). I like the ETFs and I would probably put 60-70% of the capital in 5 – 8 ETFs and 25%-30% in 10 Stocks related trades (with 5k each) .. Whats is your thought process on diversification?

  143. Hi Lee,
    When I hit the confirm and send key to place a trade with my brokerage firm, it tells me the cost of the trade including commissions. This is normal and fine, however, it also says along with the commissions “possible dividend risk” Here is my question: since I am not actually owning the stock outright, rather purchasing and selling options, I do not understand what dividend risk I am incurring and how this affects me? Can you shed some light?

    • As you know, there are no dividends paid on options themselves.

      The “dividend risk” you are referring to is most likely the risk that comes with being short a stock after a dividend declaration, but before the ex-dividend date.

      If you are short a stock and the ex-dividend date passes, you are the one responsible for paying whatever dividend had been declared.

      The reason your brokerage is highlighting dividend risk when you place an option order is because there are some circumstances where your option can “turn into stock” via exercise. But, if you are trading credit spreads, and doing so the “machine way,” you should never find yourself short the underlying stock. If you are not following the rules, however, it is possible to end up short the underlying stock (obviously, this does not apply to cash-settled options like the RUT and SPX).

      Here’s how an options investor can find himself short the underlying stock:

      1. Long a put that expires. If you are long an American-style stock or ETF put (exercisable at any time), and it expires in-the-money, it is automatically exercised. That means you sell the stock at the strike price of your put. You are now short the stock. If you hold the short stock position after the ex-dividend date, you are responsible for eventual cash payment of any dividend that had been declared.

      2. Long a put that is exercised early. If you are long a put that is in-the-money, and you decide for some reason that you want to exercise it and intentionally be short the stock, rather than just selling the put and taking your profit, you will be liable for paying declared dividend as noted above.

      3. Short a call. If you are short a call that is in-the-money, or close to in-the-money plus a big dividend has been declared, the person who is long that call might decide to exercise it before expiration (early exercise) if the value of underlying plus the dividend he would be entitled to exceeds the strike price. If he does do an early exercise, you are then in effect short the stock and will be liable for the dividend as of the ex-dividend date.

      (Note: this does not happen with a covered call position, because you have the stock to deliver and are therefore not placed in a “short” position).

  144. Lee, Thanks for your quick response to my question about 200 SMA, you are awesome! Your 200 SMA W%R setup truly is the holy grail, I’ve never seen it fail. My question is about other technical indicators. Should we pay attention to other indicators such as Keltner Channels, Bollinger Bands, MACD, and the big money (Chaikin Money Flow) etc. At what point do we risk paralysis by analysis? My question is which indicators should we pay attention to and which indicators should we ignore?

    • Mike, As you note, there are more technical indicators than you can shake a proverbial stick at. Any and all listed in your question can be employed to try to further validate a potential trade entry, but only the entry rules suggested by the “machine” are required by the technique. Again, as you pointed out, with any investment technique, the problem of “paralysis by analysis” is ever-present.

  145. You mentioned in a previous article that a good technical setup is using the 200 day SMA along with the Williams %R indicator. Since our trades are only about 30 days in length, shouldn’t we use a 30 day SMA? I guess my question is what is the advantage of using a 200 SMA over a 30 SMA?

    • The issue of how much previous data to use for technical analysis – whether chart analysis or hybrids like the Williams %R moving average filter discussed in the “Holy Grail?” white paper – comes down to an issue of “sensitivity.”

      Generally, the shorter the time period of the moving average filter (or chart pivot points), the more signals being delivered will turn out to be bogus. Extending the time period tends to reduce – but, of course, not eliminate – the likelihood of false signals… and if extended too far, may well give a signal too late to be useful for “monthly income” investing.

      With respect to Mike’s question, the objective is to use a time period for the SMA (simple moving average) that strikes a balance between over- and under- sensitivity.

      There is no “rule” for the relationship between the moving average time period being used and the time horizon of the contemplated trade, but there is a relationship.

      I come down this way: since the usual life of a “machine” trade is between ½ and 2 months, I want to look at about 6 months of prior data – and I use this for both moving averages and, when looking at a chart to note support/resistance, recent highs and lows, etc., I use a 6 month chart. So, for my Williams %R moving average filter, the popular 200-day SMA fills the bill. There’s nothing magical about that time frame, but in terms of sensitivity of the signals, I think 30-60 days previous data is too little, and 1 year or more is too much.

      So Mike, suggest you begin with the Goldilocks “just-right” 200-day, but in any case use a SMA of more than 60 days and less than 1 year.

  146. Lee, when we have only 10 days left to trade before expiration, is it ok to go to a higher delta to get the minimum .25 premium. This assumes the chart is flat or trending in our favor

    • Tom,

      The orthodox answer is that the current delta value already takes into account the reduced amnount of remaining time.

      The “rules” do allow for accepting a trade slightly closer to the market during the wind-down period of option life (which in effect does allow for a somewhat higher delta), so given your satisfaction with the short term trend being in your favor at the time, you might wish to go ahead and bend the rules, SLIGHTLY. But I would suggest you not give an inch on whatever MRA you had originally decided upon.

  147. Hi Lee, In your book you mention that you recommend to use “contingent orders” on the underlying stock or index rather than “stop orders” on the options themselves.
    I want to define a “contingent order” but I am having trouble to determine the stock price based on the Delta. In other words, what I need is to be able to determine what will be the approximate stock price that will put my short position with a Delta of 25. With this info I can set up my “contingent order” based on delta.

    What other ways do you recommend us to define the “contingent orders” stock price?

    Thank you for your support, Regards

    • This has now come up several times in the past month or so. Hope to have a detailed article on the specifics of using contingent orders for protective stops out to everyone this weekend. Thanks for the reminder, Felipe!

      • Lee, April19 you mentioned that you’d get us an article on Contingent Stops. Anxious to read it when posted.


  148. Aloha Lee and all:

    I have been lucky this year and my account is up 80% so far mostly from short-term option trading. So I worry about paying a lot of taxes….

    I would like to trade the index options for the favorable tax treatment (60/40 rule) such as NDX, RUT and SPX. However the spreads are usually wide in these index options compared to the corresponding ETFs. Psychologically, I cannot trade them because of the perceived higher costs. May I have your advise? Thanks.

    • Aloha Hal.

      I have found this issue a vexing one as well.

      Most investment advisors recommend that an investor focus first on profitability and only secondarily on the tax consequences.

      I agree with this general philosophy and, in the case of the index vs ETF options, feel there something of an advantage to the ETF’s even though they lack the tax benefit of the 60/40 rule.

      If you have not done so yet, suggest you read over the article “SPY vs. SPX Options: Pros and Cons of ETF vs. Index Options” (

      Bottom line, the wide bid/’ask spreads that seem to come with SPX, NDX, etc. make market entry and pre-expiration exit (if necessary), more difficult, i.e. reduces profitability. I also don’t like the fact the indices have their last trading day falling on the day before option expiration.

      On the other hand, the indices do have the benefit of lower transaction (commission) costs dollar-for-dollar of total position value, in addition to the potential tax benefit.

      It comes down to which issues are more important to you in your situation. But as noted, unless your accountant strongly favors the tax benefits in view of your overall tax situation, the narrower bid/ask spreads and ability to act during expiration Friday give the edge to the EFFs in my opinion.

    • Looking forward to closing out April options, thanks to Lee for the coaching. Does anyone have any May positions they are considering?

  149. Lee, you mention the sweet spot of option trades to be 10 to 13 days. Are you refering to calendar days, or trading days. Thanks, Shami

  150. I am in AMZN currently with one week before expiration week. Looking great so far. I am exactly in the center of the risk graph.(Sweet)! I was wondering if anyone has ever traded the same stock or index two months in a row? For example, it looks like AMZN might be a good candidate again. Anybody got any good possibilities on the radar for the April trade? Let’s share what we see and it will make it a lot easier for us all.

    • Ron,

      I agree that we can add our ideas for April and that way it is easy to share ideas and learn. I just joined safertraded community and trying to learn.

      I do like AMZN for April expiration, trying to paper trade…

    • Ron,
      I too am new to this type of trading. In the last three months I have traded some of the same stocks consistently and the trades have worked out well. Bidu has been a good Iron condor trade. IOC has been a good call spread, and Wynn has been a good call spread. If anyone else would like to contribute April ideas it would be welcomed. Surly if we all add a couple of ideas monthly we would all benefit.

    • Thanks for the response Mike. I will check them out! I am seriously looking at an APR IRON Condor (150/160/100/90) with Netflix (NFLX)I am going out 10 points wide on the wings to get the premium of 0.70 with a distance of at least 15% from the underlying (102.16/138.22) away from FRIDAYs underlying stock price $120.19
      Let me know what you have going on.
      Keep in mind that this is what I am looking to do and not telling you what YOU should do. Trade at your own risk. Nuff Said!

    • There is an inexpensive way to screen and filter option spreads that meet the Safer Trader criteria. First go to and set up two screens. One for a bull put spread and another for a bear call spread. ( I also set up one for a naked put) When setting up these screens the only additional filter I place other than the site’s original data is a 95% probability. You can then filter by expiration month and take the raw information, check the delta values, use personal judgement, and go from there. For whatever reason I can’t do the same scan on the condor screen. By the way the site is free but you have to register.

      • Frank,

        I have looked at this site. Could you please tell me exactly how to add the 95% probability filter to their standard filter?

      • Frank,

        I have looked at the site. Could you please tell me exactly how to add the 95% probability filter to the search. I have gone to the custom screen, but am more confused.

  151. Lee, I have a quick question for you. When looking for candidates to trade I will sometimes find that there will NOT be the minimum 0.25 premium at the 12% or 15% distance requirment. However the Delta values at this distance is very low ( like 0.03 or less). Could you explain the relationship of a very low delta to the premium. If your got closer than 15 -12% to the underlying strike price you could still have a delta at 0.08 or less and still get the required premium. Since you have the ability to adjust the trade if it gets close to your Short position, please help me undestand. In short, can a low Delta trump distance from strike price?

    • Ron,

      As you know, our focus with the “Machine” is to line up as many factors as possible in our favor, since we need a high percentage of reasonably meaningful premium winners to offset the occasional losing trade.

      Distance from the underlying, minimizing headline risk, premium, mathematical odds (delta), trend identification, degree of overbought/oversold status, and support/resistance points all work together and play a role in the rationale for the entry criteria.

      That said, in my judgment they do not play an EQUAL role. Distance is the most important factor contributing to the safety of your position.

      With respect to “distance” compared to “delta” keep this in mind: if a major unexpected development (stock specific or general market) occurs delta will typically move further – proportionally – than the underlying will.

      This is because delta is a mathematical estimate of how likely the universe of investors believes the underlying will move from where it is now given the amount of time remaining. The tendency of investors to overshoot the mark (elation or depression) is a well-known attribute of market action.

      That’s why we use delta as a verification factor and don’t simply enter spreads on the basis of delta alone.

      My recommendation to “safer traders” is to only reduce the distance factor when the time remaining to expiry is less than about 10 trading days, and then reduce only a small amount… 2% points at the most.

      • Hello Lee,

        Thanks for the valuable advise. Recently I too face difficulties in fulfilling all the criterias of the ‘machine’. Since I feel uncomfortable in moving my strikes closer to the underlying, I adopted 2 methods to squeeze the 0.25 credit as required;
        1. Move further out from the expiration. I used to trade 10-13 days to expiration now I have to do it about 20-22 days to expiration.

        2. I will have to adjust the strike distance ($4-$5) between the short and long legs of my spread to get more credit and meet my personal ROR target of about 5-6%.

        I have still yet to try legging into the IC trade as per your mention to see if it will help in achieveing the overall premium target.

        Thanks again for sharing with us the ‘machine’. 🙂

        • NeodX is spot on with his observations of methods of dealing with low volatility periods. This is also covered in an email we sent on 1/28/12. (If any of you missed that email and want to review it, let Dorrie know ( I am sure she can get a copy to you).

  152. Lee, I just finished studying your book. It is EXACTLY what I was hoping for. You have given all of the rules necessary to execute your trading strategy. And you did it with just enough additional information to enable a proper discussion of your rules. I have read about a dozen books on option, and attended many, many hours of classroom instruction. The best of them were all theory…excellent, but not NEARLY as practical as your book. You have performed an enormous service to “the slightly above” average investor (I think that the average investor needs to spend a significant amount of time to get comfortable with options before he will be able to invest confidently).
    If you would now write a follow up book on money/portfolio management as it applies to your strategy, I could die happy!
    Thanks again! (and Dorrie is a great customer service manager!)
    Rich B

  153. Hey Lee,
    just read your book and looking forward to trading. I have been paper trading another options system successfully. I am looking forward to your system because it is more conservative and uses 85 to 90% probabilites verses the other systems 75% (using deltas of .25). The other system works but you have the higher probability of adjusting more to stay profitable. I want simple, conservative, and profitable, what I call SCP. Thanks again, and I will keep you posted.

  154. Hi Lee, In looking for candidates that meet criteria, how often should we recheck our list of possibles that have not met criteria of premium presently. Do you think it is sensible to recheck on a daily basis. As time passes and we lose premium, is it reasonable to think that in a day or a few it may increase in premium enough to meet premium criteria? What do you think? Shami

  155. Challenging low volatility environment recently. Have only gotten one good fill on a BIDU PS which has already been closed after capturing ~70% of the profit potential. Melt-ups can be difficult for this type of trading. Must remain disciplined to the entry criteria. No need to get into a bad trade just to be in a trade.

    • Would like to leave a brief comment regarding Phil’s observation about not forcing a trade (i.e. one that doesn’t meet all the entry criteria) just to be in a trade: Amen!

  156. Hi Lee, purchased your machine product. Great entry criteria. What tool do you use to go through your watchlist?

    • Hi James,

      There are many processes for screening possible credit spread and Iron Condor trades, whether for stock-based spreads or “basket” products like ETF’s and indexes.

      My own process is spelled out in the article at

      I also will use my brokerage (OptionsXpress) screening tool where one can enter a minimum price,a volume constraint, etc. to get a list of stocks that meet some of the “machine” requirements, but it is still necessary (and desirable) to go through that list for conformity with other entry criteria (e.g. distance from the market, earnings report date, premium, etc.)

      Incidentally, don’t open any brokerage account for options without contacting me first; SaferTrader community members are entitled to a $100 bonus if referred by SaferTrader.

  157. Lee,
    With the same delta on the short call(0.06) and short put (-0.06), the resulting leg is not equidistant from the current underlying. It seem that the Call Spread is always further away to the underlying price as compared to the Put Spread.Is this a concern or should I adjust further to maintain an almost equidistant?
    Even though delta has priced in many things, I am still uneasy about having a skewed IC 😛 Do advise.

    • A credit spread that is equidistant from the underlying in terms of delta might superficially seem to be ideal. “Superficially,” because I believe the strongest conclusion one might draw from that condition is that the consensus of market participants is that they don’t expect the underlying to do much of anything in terms of a strong move in either direction.

      If that is indeed the case, it is not likely that you will be able to meet the percentage distance-from-the-underlying, within the entry requirement for minimum premium. After all, what good is delta equidistance if the premium on the spreads at the right distance away are too paltry to justify even minimal market risk?

      This is why I suggest that delta be used as a confirming criterion when the other entry rules have been met, and that the delta of the INDIVIDUAL call or put spread we are entering meets our delta requirement. What normally happens – at least with my trades – is that I am first able to enter the bull put spread or bear call spread, and then if the market moves sufficiently away from my Strike Price, it may well put the desired opposite leg of the iron condor within reach of all the entry criteria including its delta. Otherwise, I’m content with one or the other – just so long as EVERY spread I enter meets ALL the entry rules.

      Finally, keep in mind that delta is a moving target and will rise and fall as the underlying moves and as time passes and/or volatility changes. Its significance is most useful at the time you enter the position. But money management – more so than the accompanying delta rise – takes precedence in deciding if it is prudent to exit from a spread going the wrong way.

  158. I put on a bear call spread on the SPY on Oct. 3rd and it has steadily gone the wrong way since. How long do you hold a position when you see from day one that it’s going against you?

    • Kevin,

      This is a VERY important issue – to you, to me, and to every investor in the markets whether using The Monthy Income Machine or not.

      There is no one-size-fits all answer to your question, so I’ll offer the rationale and answer that I employ in my own trades, and that you might want to consider too.

      First, recall that the philosophical foundadtion upon which The Monthly Income Machine (and all credit spread strategies) rests is that we seek a relatively small dollar amount of profit, in a relatively short period of time, WITH A HIGH DEGREE OF PROBABILITY OF SUCCESS. These numerous small wins in a short period of time add up to a high ROI if all goes well.

      Now the entry rules of the “Machine” are geared to, and mathematically supported by, things “going wel” about 80-85% of the time – following all the entry rules, of course (although, of course, that cannot be guaranteed by any human being).

      An 80% winning percentage means we must be willing to accept roughly 2 out of 10 losing trades.

      Since the 8 expected winners will be relatively small, it is CRITICAL that the 2 expected losers not be so big as to wipe out the gains of the wins and leave us with a net loss.

      Hence, we have to limit the dollar loss assocciated with the potential losers that inevitably will occur.

      So the investor needs to set a risk limit on every trade. That’s the MRA (maximum risk amount) that should be established for every trade. I use this: if the trade goes against me by 1.5 to 2 times the premium I received, I act to limit further risk. Please review pages 48-55 of the book for a discussion of trade managment.

      Also, you might want to read the white paper blog: Account Money Management or Account Death,” at this link:

  159. Lee,
    I consider myself a successful spread trader as I rely on the income trading produces. My rules for entry/exit were developed through expensive trial and error and I’m amazed how close they are to yours. I agree with your sentiment that there is no consistent success without unwavering discipline to the trading rules proved to be important. My experience is that I find plenty of monthly candidates for spreads, typically on the PUT side. Like you point out, I always look to maximize my margin but a good fill on the CALL spread to complete the condor is not nearly as common. I hope your audience has the perseverance to give the methodology in your book a chance, it works.

  160. Hi, Lee,

    I just read your report

    It’s useful for me. However I still have a question that will you only do credit spread not iron condor. When you do the credit spread you will still follow monthly income machine’s criteria to entry or we can get close to resistance or support? Please kindly advise. Thanks!

    • Hello Frank,

      I am always on the lookout for an iron condor because of the big margin advantage, but most of the time I turn a credit spread into a condor when the market moves in the direction I want (away from my current spread) and I get the opportunity to put the other spread on because of that. I do want BOTH spreads to meet the entry criteria though when I enter them.

  161. lee,
    is there a formula for converting the stop loss mra of 2x the premium received
    to the equivalent stock/index price?

    resetting mra based on premium price each morning is not an option for me at this time.

    I hate to go off without a stop loss
    working for me.

    • Hi Tom,

      Tough question. I usually use contingent stop based on the underlying stock or index price when my stop is based on a violation of a support or resistance level that would occur before my MRA was threatened. Otherwise, I use a stop on the options themselves that I enter after the market opens each day. (Strongly advise against a good-till-cancelled stop on an option because you can (and often will) get knocked out of an option position on the opening even if the underlying doesn’t move at all.

      Have contacted some friends with very strong math credentials to see if they are able to produce a formula for estimating the price of the underlying has to be in order to trigger a stop on the option spread at a specific option spread value. That’s a tough one because delta keeps changing both as the underlying price moves AND as time passes, so you’ve got two indpendent variables operating. Will let you know if I find an answer!


  162. lee,
    so would you place your 2x stop loss order on each leg of the iron condor, a separate call and a separate put order,
    a 2x stop loss on the whole ic?

    Also, would you do that for spx or rut, as
    their bid/ask prices are pretty wild and
    you will probably stop out quickly because
    the bid/ask price might have ticked there
    (like on the open), while the actual last
    price did not get near your stop loss limit
    order? but they filled it anyway?

    • 1. Suggest you view each part of the iron condor as separate trades for purposes of risk management. Accordingly, I would set my MRA (maximum risk amount) independently on each spread.

      2. You are correct to be concerned about option order stops being filled on the open before the underlying has actually begun trading, the result being terrible fills. This is a SERIOUS issue, but is easily handled by using “CONTINGENT orders” (option stop orders which are triggered only when the underlying STOCK or INDEX reaches your predetermined stop price).

      When you do have an OPTIONS stop order active in the market, it should be entered each morning a while after the opening when the options are actually trading as opposed to reflecting dream-world bids and asks. This cures the problem you face when you leave an option stop order in the market all the time as good-until-cancelled one that could well get hit on the open. Please check out these two blogs:

  163. Lee,
    I did not receive your book yet, but I have been trading iron condors before,
    today I put this one on which looks good to me as I do them, but have not yet been
    What would you do differently iaw your
    system? What am I doing wrong, or does
    this one look good?

    Sell 44 Buy 49 Calls, Sell 33 buy 28 Puts
    for credit $45, max loss $500 margin $455
    for return of over 9% on margin.

    This is 15% otm on puts and 10% otm on calls. This trade has 90% probability of
    expiring worthless.

    • Tom,

      Strictly speaking in terms of conforming to the Monthly Income Machine entry “rules,” some elements of the trade conform and some do not.

      The 15% distance-from-the-market of the put spread from the then-current underlying price conforms. The 10% distance of the call spread does not (it’s too close to the current market).

      The delta (90% likelihood of expiring worthless) is somewhat non-conforming, i.e. 92% is recommended.

      The area of major concern is the risk/premium issue. If the $500 maximum risk you indicate for the trade is meant to be the THEORETICAL maximum risk based on the spread between strike prices, you are of course correct. But, if you are willing to assume that as an actual risk on the trade, there is a problem. You will find the book is insistent that you have a MRA (maximum risk amount) for the trade that, if reached, you would take action by exiting the position with a relatively small loss, roll into a more distant spread, etc.

      Basically, we would never intentionally be willing to make an all-or-nothing trade in which a potential $45 premium is tied to a willing risk of $500. (Notice that if you made 10 such trades, even with a 90% probability of expiring worthless, and you indeed experience 9 successful and 1 unsuccessful trade, you LOSE.

      The amount of risk an individual is willing to assume is a personal decision (not hard and fast like the trade entry criteria), but we recommend risk (MRA) be limited to 1 ½ – 2 times the premium received and that the trade be managed with that in mind.

  164. lee,
    I got into spx “quarterly” condor and now cannot get out at anywhere near the ‘mid’
    price, no fills tried chasing it up and down 5points for over hour now, it is just
    not filling. Any ideas how to get out of this??

    • Tom,

      Problem is that SPX options stop trading Thursday (today) before the Friday tomorrow) expiration day. This, and the wide-spread, i.e. relatively low liquidity, issue is discussed at length in the white paper

      Unfortunately, at this point (after the close on Thursday) there is really nothing I know of that can be done unless one has a futures account and attempts to hedge the options position with commodity futures S&P contracts.

  165. As my SPY question, how to choose a good strike for credit spread? SPY has 1 dollar for each strike not 5. How to find a good credit premium? Thanks!

  166. Hi, Lee,

    Another question, recently, the market is chappy. What should we do to do for monthly income? While we can going to do iron condor should we need to define the market trend to do Bear Call or Bull put Spread or just use the entry criteria to do iron condor. As you may know guess market is direction is not easy.
    Besides, can I just mail my question to you through mail because here I can’t put my chart or pic. if ok, which mail address should I use?

    Thanks, Frank

    • The strength of the credit spread (and the Iron Condor pair of spreads) is that you can profit no matter which way the market goes so long as it doesn’t move so much in one direction as to reach the strike price of the spread prior to expiration.

      That’s why it is considered “non-directional.”

      That’s why the entry criteria require the “short” option of the spread to be a very substantial distance from where the underlying stock or index is when you enter the position.

      Of course, since sometimes the market may move a long way in one direction, we also have risk management techniques – including just exiting from the spread entirely – if our maximum risk tolerance (maximum risk amount) is reached by the market making a very large, continuous move.

      Even in last week’s very choppy market, with very large daily moves in the S&P and other indexes, the moves took place in both directions and at no time had the move even remotely approached 12% (the minimum distance-from-the-market entry criteria for indexes).

      Regarding doing just the bear call spread or just the bull put spread. Many invesors – myself included – will establish one of those positions when the market appears to be reaching an overbought or oversold state, or when the price of the underlying is nearing a chart support or resistance level. Later, if the market moves in the desired direction away from that spread, we can look for a similar situation in the other direction and then add the other spread to complete the Iron Condor. Both spreads should, of course, meet the entry crieteria at the time you establish them.

  167. Hi, Lee,

    I just finished reading your book and found that the strike of SPY is 130/131 or 130/135. It will be hard to find a good premium. What should I do for this? Should I use $5 gap to analysis my premium? Thanks!

  168. Hi, New member and just ordered the book. I opened the recommended OptionXpress until my book arrives. Any advice and has your life improved with the safe strategies?
    Thanks for reading

  169. I am trying to look for a tool that can help serach for the candidates. Just plug in parameters… Anyone?

    • Great idea. I’m sure the technology exists.How about Push Button Option Writer? I bought their software a long time ago. I dont recall if it can be totally programmed. ODDS on line…Don Fishaback”s product may do this.

      Email me and we can discuss it.

      • Hi Stephen, I agree with you that the technology to help in searching for options which fit entry criteria is out there, but is it applied to what we need for a search, and if so how do we access it. Have you had any recent experience with the two possibilities you mentioned in your response. All I have been able to find to aid in the search process is on the ‘think or swim’ platform. It is a list of recently placed options. I go through it and identify possibilities, and then use my own screening process. I have found a few possibilities that I would not have found otherwise. Lee mentioned the screens on Options Xpress. I have not found them to be much help. I appreciate any ideas you have, and would like to communicate with you to see if we can combine our experience and come up with something worthwhile. Thanks for your sharing in the forum. Mike Shaw

  170. I’m very Interested in the weeklys also. Like Jim V. is doing. I’d appreciate your thoughts on this. I would like to hear from Eric if possible. I can be contacted at Tnanks…

  171. Are “weeklies” considered “semi-day trading”? Do you recommend trading weekly credit spread or iron-condor?

    • Well, trading weeklies isn’t day trading, and is isn’t the heretofor “typical” longer trading period, so I think your “semi-day trading” definition is a pretty accurate one.

  172. Lee: Also,if you are going to update your book, how about dealing with the criteria for weeklies, since they will obviously be different?

  173. Jeffrey Langston Reply 24. Jun, 2011 at 6:43 pm

    Lee, have you ever thought about updating your book?. Looks like you wrote the book under different market conditions with more volatility. Main rules that need to be changed are the minimum premium and or the the time till expiration. What do you think?

    • Jeff, the entry criteria are based on studying many years of data that include both high and low volatility periods.

      I have looked at the notion of a “sliding scale” for the distance-from-the-market entry criteria based on current market or sector volatility as measured by the VIX. the problem was – and is – that volatility can change on a dime, a lot, and without warning (the week of August 8, 2011 being a case in point).

      So the 15% and 12% criteria are what I have found to be a good over all balance between safety and being able to earn a useful amount of premium.

      • Hi Lee, When we look out an extra month should we still use the entry criteria of 12 and 15%. We are subjecting our option to greater risk because of the additional time available for movement. Thanks, Shami

        • Shami,

          Typically, we are looking at the “next” expiration month because we are a week or two into the current month and, because of relatively low volatility, we are not offered enough premium. The next month my provide the right premium at the right distance from the market, but we can use the same % from market criteria so long as delta for the next month expiration meets the entry rules as well.

  174. I have also traed the SPX, as well as AAPL weeklies, and with the big up and down action this week (not for nervous stomachs)am ending a very profitable week. My July monthly RUT Call spread, however, is close to my sold strike, and will probably have to be rolled to avoid more trouble.

  175. I have been trading the weekly SPX options for a few months now. With this volitility, I have been getting 6-14% per week with spreads that are about 4% away. Between 80 & 90% chance of expiring. No losers so far and fast action. Like trading options on Expiration week, every week…..

    • Hi Jim…I am very interested in the weeklys.Please Contact me and we can discuss this and exchange information. I have been trading index credit spreads for a long time.

  176. I have been using the SPX and OEX options almost exclusively. 12% away and if you leg in as the market moves up and down, you can usually get very good premium. I sell the Bull Put when the market is dropping and I sell the Bear Calls when moving up. Take advantage of the fear and euphoria of the other traders. There is also a nice Tax break on Index options. 60% of index option profit can be taxed as long term gain and 40% as short term gain. A nice perk.

  177. I’ve been using Apple and Netflix spreads with good results. (These options usually seem to meet the “stock 15% away from the market rule.”

  178. There does not seem to be much traffic on this Blog. Is it just that new or is everyone bashful ?????

    • Response to Jim V: I couldn’t agree more Jim with your observation that this blog is not being well used. This is a great opportunity for those of us who use MIM. If we would use it on a regular basis to discuss what we have found in out searches for options meeting entry criteria, it could benefit all of us. My most recent finds are calls on NFLX and CSTR. I am sure others have found other possibilities. How about putting them up on this site regularly, and we will all benefit from each others research. I can’t see that we have anything to lose. We are such a small group that it will have no negative effect on the calculations used to determine out premiums. Good luck! (I am not sure we need luck but instead more discipline and ideas..)Scraggle

      • I could not agree more. Speaking of this hsve you found any good trades for March you are working on that meet the critera?

  179. I’m having a little trouble finding trades that meet the machine’s entry criteria. Any ideas on how to cut down my search time?

    • I find I can almost always locate some trade possibilities that meet all the entry criteria of the “Monthly Income Machine” by going through my underlying stock “checklist” (see the White Paper on this at, as well as active indexes like the SPX, SPY, RUT, etc. Also, you can always look out to the month following the upcoming expiration month.

      • jeffrey Langston Reply 24. Jun, 2011 at 10:57 am

        How are you able to meet premium rule using SPY spreads?

        • Can’t always meet premium requirement on SPY (or any stock underlying)depending on volatility at the time. But premium requirement on SPY and other indices is lower than that of an individual stock, and of course can be lower still when you get within 2 weeks of expiration. You can also go out one month further than the next expiry which will offer more premium (since your position lasts longer).

          • When evaluating a potential trade the 15% distance looks good, however when the MRA is factored in the stop price can be as close as 8% or less to the current price. This makes me uneasy since some of these stock can move 10-20 points in a days time. Thoughts?

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