FAQ

- options on S&P 500 e-mini (ES) futures - our preferred trading instrument, or

Why trade S&P 500 e-mini options? Because of the higher liquidity, narrower bid/ask spread and lower margin requirements compared to SPX index options. Higher leverage, if used correctly, can produce great results. And, finally but not last, if you are trading options on futures, 60% of your gains are taxed as long term capital gains, which could mean thousands of dollars in savings.

When a trader sells an option, he is not buying anything, he is selling so he collects premium. It doesn't cost money to sell the option, but it does require a certain amount of margin on account with your broker. In similar fashion to buying or selling a future, selling an option requires similar margin requirement. For the purpose of this discussion, selling an in the money option generally requires the same margin as does a future. In the case of the S&P 500 e-mini options, this is currently around $3,900 per contract. However, since we sell out of the money puts, the margin requirement is much lower (as low as $800). If interested, you can read here more on CME's SPAN margin system. Margin may vary based on your broker. Margin requirements are much higher for SPX index options, which are usually traded in stock trading accounts. For out of the money index options, the margin is about 15% of ($100 X SPX Index) - currently around $18,000 per contract. You also need to maintain your account balance above $50,000 in order to be allowed to sell short ("write") index options.

This is why we decided to trade options on e-mini futures instead of SPX stock index options. We base our model portfolio on $25,000 account balance for our Options Quant Trading Program (it changes depending on the S&P 500 index value). This is the ideal amount because it provides sufficient room to maneuver.

In average, the Options Quant Trading Program generates 1-3 trades per month. This program is not a day trading program. Hence, there is no need to monitor the price all day long in front of the computer screen. This makes our program suitable for traders in all time zones.

On options expiration days (generally, the third Friday of the month, unless a holiday), the system generates orders and we place the trades after market open, around 10:00 EST/EDT (15:00 UTC). In case of an adjustment trade, the signal is generated at market close, and we place the orders either during the Globex session, or the next day after regular market open. Best results are obtained by entering with limit orders inside the bid and ask price (at (bid+ask)/2 or else).

What about the risk?

A short options combination carries the same risks as a futures position with one major exception: it will generally move slower than a futures position. This gives a trader more time and latitude to rebalance should the market moves against his options position. Quant Trading is working in determining the risk parameters of each trade and which positions may be right for us.

Because we developed quantitative trading models for options that really work. To our knowledge, our performance back testing period of 18 years is unmatched on the Web! We send our subscribers a complete and unambiguous trading plan for the day: whether to initiate, hold open or repair an existing options position; which options contracts (strike prices, expiration months) to trade. Why spend money on buying useless text stuff like numerous "fast cash money systems"?

You must have noticed that all trading system advertisers on the Web show their performance either for the most recent, or the most successful testing period in the past. We could not find other back testing reports for option trading systems (besides ours) at all. The majority of systems are over optimized, or "curve fitted", for a given period of time and they fail to produce the advertised profits (or, even worse, they make huge losses!) outside the test period. The same systems can be made profitable, but only if system parameters are changed. The problem is that one doesn't know when to switch to different set of parameters. Our trading systems are different - they are not too sensitive to parameters changes and work with the same set of rules and coefficients for the entire life of trading! This property of systems is called robustness.

It is a sad fact that most people lose trading. One of the reasons is that they lack system, discipline and are unable to be consistent. A system can help you become consistent. Our opinion is that only mechanical systems are 100% objective, emotionless and give the trader more confidence in his/her trading. In other words, the mechanical, back tested trading systems tell the trader to be self confident when he is over-cautious and vice versa - to be cautious when he is overconfident. It is very difficult to make discretionary trading decisions, particularly in the heat of trading. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Mechanical trading eliminates this problem.

Hypothetical Performance Disclaimer:

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PLATFORMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

Risk Disclaimer

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE PERFORMANCE QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. TRADING IN FOREIGN EXCHANGE IS SPECULATIVE AND MAY INVOLVE THE LOSS OF PRINCIPAL; THEREFORE, FUNDS PLACED UNDER MANAGEMENT SHOULD BE RISK CAPITAL FUNDS THAT IF LOST WILL NOT SIGNIFICANTLY AFFECT ONE'S PERSONAL WELL BEING. THIS IS NOT A SOLICITATION TO INVEST AND YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTION. PLEASE SEE THE COMPLETE RISK DISCLOSURE.