How to Construct an Options Trade With a Really Wide Profit Zone
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- Опубліковано 7 сер 2019
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Options Income traders learn how to make money over a wide range of prices, both up and down from the current price of a stock or index. But what happens if the price moves outside of that range? Do we just sit there and lose the trade? No, instead we can employ this technique to widen that range and still have a solid win. We'll show you how to do just that in this video.
#optionstrading #stockmarket #daytrading
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It’s crazy that I understood every word this gentleman said wow!!!!!!!!!!
Thank you for the videos Seth. I just successfully played a double calendar earnings play on TTD based on your video on that topic.
That's great cornthdl! Will let seth know or I'm sure he will see this comment soon!
Teach it, Seth! Another killer vid
Seth is the man!
Great video Seth
Thanks WhaleTail!
Thank you
Thanks for the video. There's another school of thought for adjusting neutral credit spreads, and that's to adjust the OPPOSITE side of the trade to narrow the spread when one side is challenged, and to keep doing it with the idea that the credit from those adjustments will increase the profit on the challenged side. Any opinion on that?
Hey SMB, I really like your videos; specifically your teaching style :-) I am new, but consider myself very successful retail options trader. I am self-taught and started my trading activity around February 2019. I have honed in on Option Credit spreads and many Iron Condors. You are absolutely correct, these strategies work very well. I started with a small portfolio ($40K) and now at $105K, a 260% gain since May 2019, all mostly on credit spreads and iron condors. Rolled out only twice. I exercise good discipline and have solid management strategies. I just wish I could determine what more I need to learn.
Correct my math: 160% gains 😂
These are really good numbers. How are you making these returns with only credit spreads and condors?
@@LosizakII The anatomy of an Iron Condor is essentially 2 vertical spreads, right? Each spread comprises 2 legs (a PUT and CALL leg). You are basically selling a long and short option in the vertical spread,. Stay with me... when you SELL an option, you instantaneously receive premiums in your account. When your underlying stock finishes trading inside your trading tunnel, this is called being OTM (out-of-the-money). When your iron condor reaches its expiration date and your stock price ends up below your Call and above your Put options, then your trade wins! You get to keep the money you made from selling your options (you get to keep your premiums). So, let's do the math now. Say I sell 250 put options of XYZ stock for say $1.75 credit (mid-price), that equates to real money I could receive if the trade wins. Take this hypothetical order, for example, I sell (as part of the Iron Condor), 200 options for AMZN at 1815/1817 for a $3.00 Limit Credit, I would pull in $61,600 in premium for selling these contracts. Point is, you make money in "proceeds" from selling options as part of the Iron Condor -- so long as your trade is OTM successful.🙌
@@TrentFallinGmail Hi Trent F. Thanks for the reply. I was wondering more about selection criteria of underlying & strikes ( deltas , etc.), adjustments. I know how ICs work. I also know they have a tendency to rip your face off without proper strategy while only providing modest returns. Your numbers are really high.
@Trent F These are really (too) good numbers. Especially with stocks that can gap and then you will not have a chance of defending your ICs. How wide are the spreads you are selling? Care to share a few of your trades and sizes?
great video!
Thanks Z B
Doesn't rolling the contracts in such cases result in wash sale?
Thank You
Welcome!
this might be a stupi question but if you sell an option (sell to open) and you (buy to close) before experation your bassicly not obligated to buy or sell the shares at the strike price anymore?
Correct, because of these transactions constitute a "closing" of the trade. Any buy or sell to open is opening your trade. Any buy or sell to close is closing your trade. 😏
@@TrentFallinGmail so its bassicly just like a normal short sale kinda? Im confused after reading online selling options its the riskiest thing you can do thats the picture you get. So as long as you close it before it hits the strike you have no obligations? I tought as soon as you sell an option you are obligated how can you just buy your way out lol?
@@FUCKYOU6677, I was referring to a vertical put spread, as an example. A vertical Put spread has 2 legs: a sell to open, and a buy to open. If I buying to close on my vertical Put spread, that means I'm closing the trade completely. Sorry to confuse you.😐
It's not a stupid question. When you sell an option, you acquire an obligation. If you buy back what you sold, then you have extinguished your obligation. That's the simplest explanation possible. A long (buyer) acquires a right, a short (seller) acquires an obligation.
If you borrow money, you acquire the obligation to pay it back. Let's say the original loan was for a year. If you pay it off in four months, you have extinguished your obligation. (let's forget about interest) You're done.
Suppose you sell four options. If you buy back 2 of them, leaving 2 of them "open", you have cut your obligation in half. Suppose you sell four options for $2 each. Later, the market moves against your position and the market values your short options at $3.40. You may on one hand freak out, but you may alternatively decide to sell more of those options to increase what you received for acquiring the obligation. It depends upon your skill level, the toughness of your stomach lining, and your conviction in the trade.
If you sell an option, then the long side of that trade may exercise the right conveyed his long *AT ANY TIME* (assuming American-style options) before expiration. That means, as a short, you can be "assigned" your obligation at any time. Intraday, or, wake up to it in the morning. This is something that strikes terror into the hearts of newbs but is almost always no big deal. As you acquire experience, you will understand under what conditions you might be assigned and under what conditions assignment is phenomenally unlikely.
One thing that confuses both beginners *and* occasionally the more experienced is the case of selling a call against stock you own, eg; a covered call. If you are short a call against stock and the stock declares a dividend, it may well become advantageous for the long to exercise his call and thereby collect the dividend. Under those conditions you can be called out of your stock (early) *AND* lose the dividend.
@@pneumatic00 thanks! thats explains allot. Do you know how often these options gets exercised? is there anywhere you can find information about it? Its hard for me to belive that daily SPY options gets exercised often and are mostly used by retail traders for trading and not protection.... and another question when you buy back to close your position i guess the option owner still has the options so who takes over that obligation? market makers?
Nice
weirdor or jeep strategy please explain. .
In that case why not roll the other side of the condor for a credit at the same time?
It will expire worthless anyway and there is still time till expiration so at the moment still has value. So you wait till the end of the contract to be worthless
The maximum loss is $20,000 ?
the MAX loss on these strategies are massive. I wish they would address this in more detail
The loss is always the different between the buy call/pull and the sell call/pull. In this stock he was showing, they were 25 apart. That's $25,000 when they are ITM. Subtract out the money that you got when you sold the iron condor, that's why it's $20,000 lost. If you pick other stock/index to trade that has smaller "steps", such as SPX, that is only $5 apart, the max lost is only $5,000 minus the money that you earn when you first start the trade.
Hi. In the given example u rolled the put side only as stock went down. Any reason why the call side not rolled down ? Wudnt that increase the cash earned ?
No. Because the call side can just expire OTM (out of the money). Trade was going lower, not higher. So, no need to mess with the unchallenged legs on your Iron Condor. Think of an Iron Condor as 2 vertical spreads (one calls, one puts). Then look at the call side and ask yourself, if my underlying is moving lower, then that's great because it will likely be lower than your call strike price. Remember, you want the stock price ending lower with a call strike, and the strike price ending higher for a put strike. Or, think of an Iron Condor as having a trading tunnel; with a high call and low put range. Theoretically, you could roll the entire iron condor (all 4 legs), but why do that when you can just roll the "challenged" side out (in this example it was the put side). And you might get a better premium on just selling the Puts at a better strike price and expiration. Good question though; I learned that lesson the hard way.😏
Pradeep, some traders trade that way, but I would personally be concerned about a bounce that would hurt me worse with a closer call spread. I'd sooner close the call side for a good profit, if the market really sold off hard.....
Absolutely yes! You do either depending on your directions and volatility expectation. Depending on the theta bleed to you and iv gain/loss in your holding period to that point you could at this point either roll down on the call or put vertical, or close out! This choice also depending on your future expectations: such as the relative cost of both verticals, or whether you wanted the credit to reduce your position cost, or the extra range (if you expected further movement or vol changes). There are lots of choices for lots of reasons, it's not just a flat no as I've hopefully illustrated. An absolutely great question from you!
bs
Thank you
You're welcome