Frequently Asked Questions
There are other options newsletters to choose from. What makes CycleSpreads any better?
Better is a relative term. Every investor should consider their own investment objectives before acting on any given strategy. There are other high return/income newsletters out there, and we ask you to consider the following:
1) How often do you want to lose? Our track record and style shows that we choose very high probability trades. It would be hard to generate income if you have losing months that often.
2) Is sleep important to you? It is to us- another reason we recommend high probability trades.
3) By auto-trading members benefit from our ability to trade at any time of the trading day. Many newsletters give you their recommendation prior to the upcoming trading day. Taking advantage of our exact timing is beneficial, but highly unusual with these kind of newsletters. It's the only way we trade, so you should expect nothing less.
4) We have been trading options for over 20 years and have formally traded this system since the beginning of 2007. All of our trade statistics are listed on our performance page.
What brokerage firm should I use.
To access the list of our preferred brokers, click here.
Auto-trading is a service provided by our options brokers to you that will allow us to automatically send them our recommended entry and exit orders. Before signing up for auto-trading you must first have an active CycleSpreads account. We have a full section within our members section which completely explains how to set auto-trading up. Members that use auto-trading will have their trade placed at approximately the same time as all other members. This frees you up from having to monitor your email for new trades alerts.
Note: At no point do we see, handle, or manage your money for you.
All of our preferred brokers will allow you to trade credit spreads within your IRA.
Do I need to auto-trade?
We strongly recommend you auto-trade our recommendations as we may make a pick at any time of the trading day. Also, our signals for trades are sent to our auto-trading brokers before our users, and this may result in you missing a trade. If you want to try to get the results you see on our performance page, you really should auto-trade.
Can you give me a quick overview of a trade?
To start out with, you will need $1000 per contract, and we recommend you begin with at least $10,000 in your account in order to minimize the impact of commissions on your trade. We recommend that when you first begin the program to invest sparingly until you become comfortable with the CycleSpreads program. The trades can be posted any day/time after the Friday of the previous options expiration. We will send you an email after the recommendation is posted and the autotrade is broadcast to our brokers. Each trade lasts an average of 25 days and ends on the 3rd Friday of the month. We only publish one trade recommendation each option cycle. At no time during the month are our recommendations modified or adjusted. One of two things will happen, either a stop loss order is hit and the trade is closed or the trade expires, resulting in a profitable trade!
It is important to understand when and how a stop order is triggered. The stop loss is triggered when the underlying index moves ‘into the money' of the position closest in price to the index. If a stop loss occurs, the loss is variable, but can be significant if the market has aggressively moved in the opposite direction we had originally envisioned. Investors should always use stop loss orders unless they are sophisticated traders who know how to successfully leg out of positions. If you will be using our auto-trading service, you don't need to deal with entering a stop loss order. These are entered on your behalf according to our recommendation.
A stop/loss is sent as a signal to the broker once the strike price closest to the underlying index is hit. In other words, if we're doing a bear call spread for 800x810 on the RUT, and the RUT index hits 800 before options expiration, then we send a signal to the broker to close both positions at the market price. The size of the loss is dependent on variables, the most important being the amount of time between the date of the stop/loss and options expiration.
One important exception to the stop/loss is our discretionary loss rule. At our discretion, we may close our positions at the market price if we're within 10 points of our stop/loss in the final hour of trading on any given day. We do this as a prevention against catastrophic loss should the market gap open in the opposite direction of our trade.
What are the consequences of losing a spread trade?
There are two scenarios where you can lose money with our approach to spread trading:
1) You lose when our stop/loss is hit and the trade has to be closed at market prices. The loss amount is variable and depends on the value of the underlying options at the time.
2) If the current recommendation is on the SPX or the RUT, and the index settles beyond our exit before the third Friday of the month (option expiration), you would lose $100 for every option contract for every point the SPX or RUT settles above or below our stop/loss level. You would still keep your option premium that you collected at the beginning of the month. This occurs because we lose the ability to issue a stop/loss should the market gap open in a direction against our trade. This can also happen on the day of settlement. Here's an example:
You purchase 50 contracts of the 760/770 RUT bear call spread. On Thursday night before options expiration, the RUT closes at 755. Friday morning, the RUT gaps up on the open. Not all of the RUT components settle at the open, so the exchange must wait until all stocks in the RUT settle. The final settlement price should be known by the end of Friday. In this case, let's assume the RUT settled at 763. That means that you would lose $3*100*50= -$15,000, less the premium you collected at the beginning of the month. This is not a frequent occurrence but you need to be aware of the risk. Again, it's one of the reasons we are so conservative in our approach to these trades.
A golden rule of thumb with any investment- only invest capital that you can afford to lose. No service, including our own, can make guarantees regarding your profitability with our service. Past performance does not guarantee future performance. Our service has a great track record, but it may not continue to do so in the future. Please review our disclaimer and risk warning in order to understand all of the risks involved.
Does Uncle Sam consider these trades to be long-term or short-term capital gains?
This is an added bonus for trading credit spreads. Gains made from trading these types of options are considered 60% long-term capital gain income and 40% short-term capital gain income. You should always consult with your tax advisor for more details and advice.
If you have any additional questions, please email us at info@cyclespreads.com