Weekly Options Trading Earns Him $2,500 Every Week (but he's missing something huge)
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- Опубліковано 20 вер 2024
- Weekly options can be a great way of supplementing your personal income. However, there are a few pitfalls of which you must be aware.
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Inflation depreciates idle money. I'm in a privileged position to be able to save almost 65% of our net household income, as I placed it on safer investments. The key for us was not spending beyond our means. If you invest and have other sources of income outside of dividends then you will be able to live off dividends. Got north of $520K in my portfolio as I bought a lot of dividend stocks before, I'm buying more now, and I will buy more when it drops further.
The main problem is that most folks don’t care about anything other than football, Basketball and Music etc. They find it normal to take credit card debt which will cost them 20% per year but considers it risky to invest their money and make 10% or more per month. Learning to avoid high interest debt while also learning how to put your money to work for you by investing is a very powerful combo.
The one effective technique I'm confident nobody admits to using, is staying in touch with an Investment-Adviser.
Starting out with a professional that knows the ropes of the choppy but profitable market is the best way to achieve getting a well structured portfolio. That’s why I have been working with 'MARGARET ANN WARNKEN" because in financial dealings one has to be prudent. Most traders enter and exit with a quick 10% profit which is not bad in general opinion but why not make more of the opportunities presented?.
She looks the part. MARGARET really seems to know her stuff. Out of curiosity i looked her up, found her web~page, and decided to read through her resume, educational background, qualifications and it was really impressive. She is a fiduciary who will act in my best interest. So, I booked a session with her.
Identifying lucrative investments can get you ahead in no time, in years of Investing, my portfolio has experience immense growth, because i did so.
Everyone is a genius when the Market goes up... When it stops you find what strategies actually work
To hedge risk, buying a back ratio with a further expiration date would be better if a dump in the market were to occur. A calendar spread would work as well. If you're range bound, sell spreads on support & resistance levels.
Hi Seth. Back tested from January to 1st November. Total trades 82. Winners 76 @+- $1250 and 6 losers @ about $23 600 that equates to loss of @ $46 600
@John Smith what software did you use for the backtest? Thanks
@@quantza8723 I did it manually using excel sheets
Wonderful content man. I am usually skeptical about trading channels because of how they over promise and never tell you the downside. But you are the real deal. Keep it up!
we try our best to recognize the downsides and give it straight to everyone watching
Thanks for this video 🙏 Please add current price when you show the entry calculation. That will help beginners in understanding how to choose strike price.
Also it will be great if you explain strategy to choose strike price for any trade. 🙏
Ok next time!
What do you mean the indices don't gap up/down all that often? They do it all the time. Last Thursday I had three short butterflies sitting dead center near max profit. The gap up Friday put me at max loss, and the subsequent run up sealed the deal. The thing about the index options is that they don't pay enough premium to offset your losses over time. The IV right now for at the money options is around 12%. The math doesn't work out over time. Plus, the cost of the trade is 100 bucks or so.
@11:32 - So what I'd like you to take away from today's video is...YOU have no chance of becoming a successful trader lol
One thing that I place emphasis on when teaching stock and options trading is paper trading to make consistent profits, most beginner traders want to jump in the market only to loose money then give up. In my own experiences I say , paper trade for a while maybe 6 months to a year and experiment using these type of strategies and learn from your mistakes but the good thing is, your mistakes will cost you nothing but time. Great post Seth!.
Paper trading is useless because it’s not real. There’s no point to it because once you have real money on the line you will begin to question your trade because there’s a real risk there
@@chump6901 it's a tool, we all use tools to perform task and job functions in order to get things done. Trading options is high risk like any other strategy in the stock market. if you are not sure of a certain strategic investment or options risk, you can use a tool such as paper trading to assess the risk. This is why all trading platforms have a paper trading section and its good for beginners to learn on until they become confident and successful at trading. "useless" is one thing but a waste and loss of money is another.
Well I liked to see the backtest of this strategy in the video as to know how much far from the close (in SP points ) is build
Taking profits often and early to is the key take away from selling options.
I'm with you man... I have been trading the premium lately and smashing it. I have never sold options only bought them, but that is just me.
@@adddad9779 are you doing Covered Calls? Selling Call or Put and receiving the immediate Credit?
Eddie Latorre Jr. none
@@eddielatorrejr.3018 I think he's just trading the options... Not a wise play tbh.
@@helloyes2288 I day trade options, what makes you say its not a wise play?
You could also switch to calls depending on your bias for the market that week.
Seth, amazing content here. You did great on this one! Thank you for your time to share with us Seth!
You’re welcome
This is why I'm switching to selling same-day expiration credit spreads, 3x per week. No overnight risk!
i really wanna do this to focus on my music and quit my job. PLEASE HELP ME
this is what im doing its a life changer lol
Nice to see back testing advice in an options video. I don't see it talked about nearly as often as i do in videos related to other markets.
it's a must!
@@smbcapital It would have been nice, if you also mentioned the backtesting software you recommended to him.
What you explain in this video is really the crucial part of any trading strategy, you have to plan for your losses as carefully (if not more carefully) as you plan for you profits, because many traders enter the market thinking that since they chose a "safe" position they are immune to losses as a result, and this could not be farther from the truth. I have designed many profitable strategies over the years and I only managed to reach a positive outcome once I realized this, and of course, all was based on thorough back-testing using hard data from the market, no guesswork of any kind.
So....what happend at the end of the day? What was the study results and final conclusion?
Juan Pedroza they all became bankrupt and got hooked on crack 🤷🏻♂️
Would have been creamed in likely March, June, September and it’s not even the end of this year god damn. I’d stay away.
@@macphistorules you can do the same thing with calls to put a bearish direction on the trade, so in a downtrending market it can still work
@@tarubewildin6931 ya the call side would have been killed all this week
Tune in next week? lol
Be aware - $2,500/wk income is based on 2 groups of such "spread trades" per week. The mishap/risk was based on 1 occurrence only.
Which doesnt mean it wont happen 2 or even 5 in a row.
Close it out, 3x premium received
Sold at 0.10, close out 0.30
Math game
I like Seth's teaching style - I am intrigued and will continue with SMB
Thank you
You have a mistake in the slides at time 8:08. It should have been 2992.10 instead of 2922.10.
Me being a small account guy of 10K, I would buy myself another put say 5 ticks lower then my first put, at a verily cheap price, so on a big gap down I make money on that one also, or should say lose way less then the 25K. Yes in buy buying more insurance I will not make 2500 week but only say 2000 a week but way less risk. And I can live with 2k a week even with the inflation of today
I wonder if he learned this lesson the hard way in the last two weeks.
Lou GC 😂
or now
@@josephabramo2324 or now
I wish we could get an update on this. It's been 4 years, and there were some wild markets in that time.
we'll have to contact the trader
I'm curious how he did a couple of weeks ago..
hmmmmm. love the channel. But this video is pure theory. Forgot the Commission for 50 contracts !!!! And the slippery !!! You can not do this 1 day before. the market maker is pushing down the price and the spread between ask and bit is so far away. And some statistics. the last 10 years SP500 have lost 1 % the next day .....::: 196 times. so not 4 times pr year but rather 20 times.
i always like to close out this trade once my loss is 2x my credit. so if you're trading the .25 credit close it out if loss hits $50+ Live to fight another day. this whole strategy is just hitting singles. no homers
when price is formed at the beginning of a strong move. a clear uptrend makes series of higher highs and higher lows, while a donwtrend makes series of lower highs and lower lows. Note; When the market stops making these movement patterns, it is no more trending and ready for breakout. so if you are a downtrend follower, you have to determine when the market is likely to stop trending, placing your stop loss with developed strategy. when it is likely to reverse to price breakout profitable. Google and read more about IQD Momentum strategy to get your copy of ebook format written by Lukasz Wilhelm and learn how the breakout candle closed above the market key level.
As we all know, old resistance becomes new support.
You could set an exit price on the short put of 50% of your max profit to catch any late-day swings that could crash the position. But when you're trading a very broad instrument (like an entire index), big changes like this don't come very often during the day. So you're probably going to be leaving a lot more money on the table than you would just letting them expire and taking the loss.
And like the guys says, 10 week payback for a complete loss is pretty good. But if you jump out at 50%, that climbs to 20 week payback. So now you can only afford 2 gap-downs in an entire year. Or you could just set your initial premium spread at about half what this guy did, and position yourself further out of the money, cutting down on the frequency of gap downs that will flip your position. The profit is the same, but the quantity of losses you can sustain is doubled, and the losses are less likely.
You provided good points. Trading put credit spread is like hitting single after single and a big loss is like a grand slam that goes against you. I like to trade a bit more conservative, hence, less premium but minimizing my risk. My main bread and butter are selling covered calls and buy LEAPS and sell short against those LEAPS for consistent weekly/monthly cash flow.
Good point towards the end about Max loss scenario. I was surprised you didn't mention that in the recent Elon Musk Twitter iron Condor video you made.
Hi Seth, I just stumbled on your content and am enjoying it. I've been trading for 4 years and always looking to learn more! Curious what you would think about this strategy if he hedged it by buying long calls in VXX or VIX. This trader is placing around 2SD's below the market. If a 2SD drawdown happens in one day, that would send VXX/VIX from their current levels around 15 up to 30+ pretty quick. If you scaled it right, you might even make more from a losing trade is SPX. What are you thoughts on that? Am I missing anything huge as well in that strategy? Thanks!
Rule 1 of any Market strategy. Never assume that your strategy is going to work consistently over a long, or even short. Of time. The trading gods do not like smart asses who think they figured out the market. I speak from experience.
There are no trading gods. The market is indifferent to you, your attitude, and your $80 Robinhood Account.
He gave sound advice and you insult him. Completely unnecessary.
@@anybodykilla92 You mean YOUR $80 RH account fool
To minimize the risk of an overnight gap up or gap down would be a good idea to just day trade credit spreads?
Would be curious to know what his total options trading portfolio is? Maybe a $5 spread is too risky for the size of his portfolio! Smaller portfolios should probably start at a $2 spread.
I made the same amount for a month then started losing money because of greed and not selling on time because of TP. Besides that weekly or biweekly options are a great way to build income
Wow. Thank you for this lesson. I will test it before I apply it.
Could you tell us what software you recommended for the backtracking of his strategy?
Can you share back testing software and analytical indicators recommended?
Your advice was good and interesting on that scenario.
My intuitive thought was primarily, unless this guy is WEALTHY and until he gets sufficient experience, he should trade SMALLER (and by implication, safer).
I might well need to look into some good backtesting software, depending on the price, as usually with my simple strategies, I just look at things like history, implied volatility, experience, hedging opportunities (and costs), etc.
So what if you sold 0DTE instead? No risk of gaps
8:45 - well, this comment aged well.
Lmao yep
Hahahahaha
But then...
@@KillerBearsaw EXACTLY! I’m a “long,” so I didn’t lose money during the COVID dip, and I bought more. Then it went down. And I bought more. Turns out that was a great strategy. :)
Caution, the distance from the underlying index ($SPX) can get pretty small (less than 50 points) during market rallies AND contracting implied volatility for these 25 cent 1 DTE Put spread trades. On Dec 23rd close, for Dec 24th close, you only reached 35 points OTM when spread premium was 30 cents.
best way to trade is selling puts ,with credit spreads ...bear call spreads and bull put spreads ...it can be a little confusing but you will get it......…...you keep the premium and a safe way to trade...just sell puts but do not buy them,play it safe
How you select strike price?
Do you check IV?
How you observe market trend?
Hmmm...just from a quick look see...I counted 17 -20 point down days (close to close, T-W, Th-F) in 2018, 8 in 2019, and 29 in 2020
When you risk 25,000 twice a week to make 1400 you have more to worry about than what overnight exposure. Even in this video the example used where he profited after they expired worthless he was still down a max loss at the point during the day when the PX was at its low of 2884. Doing this strategy with an index that has a 10% IV will lose just enough times per year on average to put the trader at or near a loss. The greeks are all calculated in such a way that no matter what strategy you use you are still going to struggle to break even.
Agreed. You have to have additional information to tip the odds in your favor. Perhaps some kind of trend indicator would do that. Hard to say.
To mitigate the risk, all he needs is a stop loss that's 3x his original credit for the short. That would eliminate most crazy delta events. No needs for a hedge or calendar spreads... a stop loss would take care of 99% of all gap downs. Or he could trade SPY and take assignment of the shares and wheel them until break even.
However a stop loss is not a guarantee that you will get stopped out at your price. On a big gap down, it will not get stopped at all at your price and when it does get stopped you may still lose 25,000 in his example or even more.
A gap down day past the stop loss is useless.
In credit spreads is impossible to lose your max loss.
Why? Because if your short side is breached, you can create a iron butterfly. Doing this, the max loss is reduced dramatically and the trade has the same risk.
I am not sure what's the purpose of the back-testing about this strategy. Yes, the strategy has its risk. But there is no way in a back-testing to determine the probability about an appearance of a "Black Swan" event; that's why it's called a Black Swan :-)
Backtesting is key. When you check your short strike price % OTM, that will determine if your trade idea is profitable. 90% OTM, with a 20C credit. Money in the pocket.
@@realjmaloi Sorry, but that's not quite right. All backtesting determines is if your trade idea would have been profitable IN THE PAST, during the specific time frame backtested. It says nothing about whether the trade idea will be profitable in the future.
@@iwasdeceived true. However, staying well out of the money statistically will provide a profitable trade. Past performance is no guarantee of future success. It's up to the trader to determine their own risk tolerance. 20 cents, 90% otm. Try it. Thanks for the reply bro. 💪🔥
@@realjmaloi Be careful. "Staying well out of the money statistically will provide a profitable trade" is true only if the spread expires OTM (or if you can and do close the trade early for a % of total expected profit).
In the example given in the video, the SPX was at 3010 the afternoon the trade was opened. If the SPX gapped down a mere 25 pts or more and didn't recover by 4pm, then a total loss would be incurred. This despite having a statistical probability of finishing OTM of probably 95% or more just the day before.
A 25 pt move on an index of 3010 is only a 0.8% move. Just this week the SPX closed down 27 pts on Mon and gapped down 26 pts on Tues because of unpredictable overnight tweets. This trader has to win 19 out of 20 trades (95%) just to break even. If he had a bad streak of 5 total losses out of 20 trades, that's $100k in losses and practically impossible to recover from using this same trading plan.
Once the MM sees what this trader is doing every Tues & Thurs afternoon, then the guy is toast. So have fun & make $$$, but I suggest trading small if you do something this risky...
@@realjmaloi 90% success at 20C credit with 10% loss at 480C is losing money. Do the math.
Dear Seth, how should we size up over time on an strategy like that? last thing we want is to do well in this strategy for 5 straight year while increasing size each year and on year six 1 loss wipes 5 years of profit. Thanks SMB!!
I may be missing something out here but if he sold puts at 2990 strike while the market was at 3010 when he did the trade, he hoped that if the market drops next day it would be less than 1% which is a drop that is pretty likely to happen in todays market. why not betting on lower puts? and in general why not pick much lower puts with a larger spread between the longs and the shorts?
many of these videos talk about margin required to put on trades, not this one....
wait!! There are companies that pay people to trade options for them?
I have attended the options workshop he mentions twice, took what I thought were good notes, and I still have no idea how to do it, let alone how to find stocks that meet the required criteria.
He shows only "index options" which are a group of more than 1 stock, like "spx" is all stocks or others that u get cash (or pay) instead of setteling in stock because there a group of stocks
Stick to Real Estate its easier and payoff are better
Sigifredo Coria It took me nearly 20 years to sell my first house, and it was at a loss, so real estate sucks for me too.
This some crazy stuff to learn
@@robertcampbell6513 IMO for 99.9% of traders, the only way to learn how to trade options in the REAL world is to blow out your account to complete zero multiple times over the span of 20 years. then you will finally LEARN what to do and what never to do again. until you suffer multiple blowouts you will find it irresistible to push boundaries. so... options trading is NOT a good idea for 99.9% of traders IMO
Hey, I’ve been trading for a while, I’m just finding out about portfolio advisory and I can’t believe how much sense this makes. I’ve heard a lot of people recommended investing programs, Why haven’t I looked for a way to take advantage of that? I just made the most rewarding trades these past months and now I’m all about credit spreads.
Sounds intriguing Luke, how can get this with your help? Please how is the performance rate?
Trust me, I hate tall claims when it comes to investing stocks but mine has shown good results . My account has increased 34% so far this month on a secondary level for nearly 80%. Starting with $2,000 with Charles Alen and trading with one account, I now have $38,000.That is an 78% increase in 3 months trades.
Wow that's a nice result on your account in what directives do you follow?
Luke this is an amazing trading performance
He can help do the same for you, I’ll suggest you write him yourself on
Allentradeoptions{a}gmai!•com
Is there a followup video with back testing?
It's curious that at the time of your example trade (approx 9/13/19) getting .28 credit, the short strike was 20 pts OTM which is approx a 30 delta, hence, 70% chance of expiring OTM for full profit. As of today 11/30/19, for .25 credit, the short strike is 70 pts OTM which is approx 11 delta, hence, 89% chance for full profit - much better probabilities. I wonder what would happen if you set a condition to exit if the price drops and hits the short strike; that is, you could cut your losses to well less than 50% max loss that way. Of course, there's always a chance that if price did breach the short strike, it could come back up before expiry for full profit. Would be an interesting backtest but whatever that backtest shows, it's no guarantee of future price action.
So what was the backtesting software recommended?
Very informative. While I may not trade that particular strategy, it still provides insight to take a look at whatever strategy I am using and look at it from a different angle.
I would like to see some videos on how to repair or trade credit spreads that went against you.thx
You should be aware of this and take advice from others that have already succeeded. I searched round a few sites and found a lot of great advice by searching google on websites such as Trevs Exchange Tactics. I wish you luck and hope you make some cash!
For something this short term there is just about nothing you can do. Loss is locked in. If the market opens below your long put, then if you try to roll it or buy it back, you will bank the maximum loss. Only option is to hope it bounces back before the close above your long put so you can recoup some of the losses.
Either I’m missing something or you got your expiration prices wrong. on time 7:45 you said that the spx closed at 2992 that’s why his option expired worthless but it couldn’t be worthless since his short put had a strike price of 2990, it was above his strike price but on time 8:12 you say that the index closed at 1922 which is why both long and short options expired worthless because they were below his strike prices of 2990 and 2985 respectively, which makes sense but not when you mention that the closing index price was 2992.
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I agree on your opinion generally I always look out for it to dump so I can purchase some more truly it has come to stay and also to change peoples life💯
Thanks for addressing the probability side of trading.
Helpful but the way you explained certain things is so confusing its no wonder some are confused in the comments. Should really remove the whole part with the 50k loss because that 2980 price is irrelevant and the price may very well be lower then 2980 in which case your example no longer works, super confusing to someone that's new to this. What should be said is the max loss that one can incur is the diff between options * option quantity * 100.
Thanks for sharing video risk involved ,he can probably use monthly low strike price and executing near week expiry.
Just wondering if you guys could explain how you handle wash sales. I'm assuming that you're using mark-to-market accounting? ..... thanks, I find your videos to be very interesting.
I am only a newbie still, but I think what glossed over really quickly in this video is the pattern of Friday being a shitty trading day for the bulls. With the pattern of more red on Fridays, some people are learning to make money from it.
Thanks Seth! Fantastic ideas here. Did the trader you mentioned in this video take one of the SMB Options courses?
I'm confused on the math. I thought his maximum loss was the difference between the strikes minus the credit received, that amount is deducted from his collateral and the rest is returned? For example a premium was paid of $10. The stock closes below the strike prices of $18/ $19. The difference is $1 so it's $100 - $10 = $90 subtracted from collateral and the rest of the collateral returned.
Can someone verify this for me?
How is 2990 below 2922? How is 2985 below 2922? That is what you said,isn't it? I've looked several times and that's exactly what you said.
He doesn't have to accept the loss 5 or 6 times a year. Couldn't He can close out of the credit spread at a much lower cost than letting the option expire ITM?
Yes, or roll down or out to a future Date. Further, he could add a call spread on the other side of the play without increasing required capital and make his spreads wider and increase his percentage of wins.
Well??? Is there a follow-up video on the subject? It would be high anxiety if the trade failed before you had sufficient capital saved from the strategy.
Lol, he's over complicating simple concepts. If you TRULY want to learn trading options - search for Elite Options 2 - he is a good teacher, join his trading room and learn, there are many people who are making decent money using much simpler strategies
If you are willing to lower your profit margin on this strategy , you can lower your loss
sawman man I’m new to trading but couldn’t the risk be reduced with stop losses?
@@authorkalliopimegali you’re messing with us. Why even comment if you’re gonna troll LOL
@@pmich8913 lmfao
I would like to know which stock he traded?
50 shares is way over leveraged. And what’s his account size to take the downside of the trade?
Any who...🙄
I've been running this trade for two months now, since I've first seen this video and it has been successful both times every week. The P&L curve is very steep on this trade meaning it can go from a winner to a loser very quickly. One of the ways I plan on mitigating risk if/when the trade starts to turn against me is to open a call credit spread to turn the trade into an Iron Condor. Taking in the additional credit will give me a little more breathing room to try and stay above the break even line while also lessening my max loss on the trade.
Brent W interesting. I’ve been doing this exact same strategy except as an IC. What time do you open your trades?
Initially I backtested the strategy going back 5 years then forward tested for 8 weeks using a 25% SL.
On backtest AND in TDA Paper Trade, it worked very well, 80% win, and nearly 100% returns each month.
In my live account the 25% SL simply doesn’t work. LOL, I’m sure nobody is surprised.
@@mattportnoyTLV I have been getting in on average between the last hour and last fifteen minutes of the day depending on how the s&p has been moving throughout the day.
@@1fastk Thanks for the info. When I backtest this over the last year, I show 4 greater-than-1% events that would have cause pretty much total loss on this system. March 22 2019, Aug 14 2019, Aug 23 2019, Oct 2, 2019. The remaining 96 trades were winners. Projected annual return on a single SPX contract would be $820.
@Brent W going back 5 years (2015 through 2019) I find a total of 16 losses, 14 of which would have wiped out all the trade margin assuming there was no stop loss in place.
As I said in my first post, I can back test with a stop loss and show dramatically improved results, and I've been able to mirror that in TDA Paper Trade. But no luck doing that with a live account unfortunately because of the pricing spreads.
I suspect this system could be improved upon if we were to research conditions on each of those loss days. Where was RSI? How did VXX or $TICK or $ADD behave? That sort of thing. Maybe it's possible to build a condition-based stop loss to weed out the catastrophic events?
@Brent W so I did some more digging through the last 5 years of data. In nearly every case the catastrophic loss events occur when there’s a large gap down at the open of >10 points.
Two of the gaps down were around 50 points, which means you’d have a catastrophic loss at the open and never recover.
What I’ve noticed is that, in every single case, if you wait until after the close of the first 15 min candle and then take the trade, you reduce catastrophic losses by 56%. If you avoid the large gaps down the catastrophic losses get reduced by 94%.
This is mistaken at 8:15 you have written 2922.10 which would mean that the closing price moved through the spread by -$63.
Thank you for the video. Please give all the information needed to understand the example like days to expiry and current index level. Explain how the strikes are chosen and the strike width. Thanks
I don't quite understand it... Isn't max loss limited with spreads?
It is...limited to the distance of the spreads sold vs bought x # of contracts.
I would be curious to see this trade replicated with some similar /ES futures options because they trade overnight and a stop could be placed to help reduce the gap risk.
very possible
Can you do credit spreads with futures like you can with options though?
@@bfourney yea and the margin is stan margin it's less then the difference between the strikes. Idk why es option are not as liquid as Spx
Seth why wouldn’t he just exit 2995 via a stop or other method?
Yes there was a lot of risk. Also fcash/margin used. Surprised he lasted that long with blowing up his account.
Instead of exposing your account to such significant single-trade risk, how about utilizing a market stop loss order immediately after selling the puts and give it some room to breath during the day with a stop 3X the credit, so you have a max loss potential of 2X? This would allow you to "trade another day" and you could recoup your 2X loss with 2 winning trades. There's obviously risk of getting stopped out, but also great advantage of not incurring huge losses.
If he shorted a put at a lower comparative strike (2980) instead of higher (2990), it would've been a vertical spread and it would've capped his losses at his initial investment but also capped his gains. His strategy here seems like a worse version of ATM puts. ATM puts would have limited loss, but he has unlimited loss. Correct me if I'm wrong.
Careful with shorting options everybody
Not Optimized: If he's selling overnight SPX credit spreads 2times per week on Weds & Fri...then why not do it 3 times per week on Mon, Weds & Friday? He's already taking a ton of Gamma risk, so why not increase his opportunity by 33% per week/year ?
Of course, he's gonna get whacked some N-number of times during the year...especially when the market stops going straight up, which BTW, is the only reason he thinks he's on to something special right now.
But, there are Soooo many ways to hedge out his credit spread Gamma risk. He could get short some number of Futs overnight to hedge out his -negative Deltas in case of Jump Vol. He could sell Broken Wing Put Butterfly's up and down his Realized Vol profile during the week/month....on & on.
Guy has just the very beginning of a winning strategy....but he has to figure out is exposure AND more importantly where & how to immunize himself from certain ruin.
This person's story reminds me of a favorite saying of my first boss: "Don't confuse Brains w/a Bull Market."
Interesting comment. Could you please expand a bit on "sell broken wing put butterflies up and down his realized vol profile..." I know what BWB are, but I do not understand what you mean with "realized vol profile". I agree with you completely that hedging gamma risk is crucial to this strategy, thus I would like to better understand what you are saying. Thanks.
He probably died these past few days
He'd be increasing his gains by 33% but the risk from overnight surprises is twice as high. If the chance of an overnight catastrophe over a year leads to this occurring 6 times over 208 nights then you'd be doubling it to 416. If the results of a weekend disaster on friday night or saturday from a presidential tweet or any other kind of terrorist attack affect the open on monday then his gains are more than offset by the increased risk.
There is no reason to adjust a fundamentally flawed strategy to try and make it less volatile and market-dependent (i.e. more delta neutral). You simply have to take the problem at its roots and remove the huge gamma exposure, and instead, start trading strategies that work because they take advantage of IV crush or expansion, some amount of directional bias, and a good amount of time decay.
on 50 contracts, The Traders defined risk is about 50K, to make $1400. Not sure I like risk to reward ratio
You can also insulate against a massive drop by applying your credit from the spread towards buying a call below your spread which will increase in value as your spread loses value.
Why would you buy a call if the fear is the market will drop like a stone when you expect it to stay where it is but not drop much.
@@erwinerwin1245 I think he means buy a put as "insurance". I'm a noob, but have been studying. If he used, the word "put", it would make sense, yes?
@@jasonhempel53 Yes they buy a put as insurance so on a huge drop they make money on that or lose only say 500.00. I just prefer to play it safe and buy a straight call or put. I will only lose the cost of my option while having the opportunity to make a good pay off on a big stock move.
Very good reflexions. What determinates if the position will be 20 points from the market or more? 100 points as an example. Is it ATR, his directional bias or something else? Thanks again!
hey Seth how about do a video on a regular condor?
Seth, what back testing software do you recommend? Thank you.
Awesome Video ! Thanks
You bet!
I want to know... Who saw this video in the last couple days, and now is out $25k on their first try?
Holy cow. I loaded up a spread yesterday afternoon and was ready to pull the trigger. 50 contracts at 2900 and 50 at 2895. Was a 1300 credit. Just lucky that big red candle yesterday had me worried that another big red could follow.
David, see my comment above to you.
@@sethfreudberg4750 yes... And in no way was I trying to say you did promote the strategy. I thought you very clearly laid out the huge risk. I just thought the timing of it all was interesting. That almost immediately after you talk about a strategy that should work 90% of the time, that 10% chance of failure strikes.
@@62Sketch Right which in a sense was the whole point of the video. To focus people on both the risk and the reward. Thanks for clarifying.
David, I also do credit spreads on SPX regularly, I opened up an Iron Condor on Tuesday afternoon but I also used part of the credit to buy cheap OTM calls and puts, on Wednesday morning I bought back my bull put credit spread for a loss and I kept my cheap OTM puts which I later sold for 500% so I made around double what I was going to make with the credit spread, hedging like this is the only way I do credit spread on SPX now, after taking some big losses earlier because I didn’t hedge properly.
@@ejgalindo82 I might need pictures to follow along with that.
I like this strategy and have been doing something similar for the last 10 weeks - The only caveat is you need to be near your computer 30 minutes before the close in case your short put is being tested and you want to roll to the next expiration.
Can you set a stop loss at the short put strike price when you enter the trade to at least cut your risk in half?
As soon as you said he opened the trade the day before, I thought immediately he's crazy, especially with the bevy of reports that come out every morning. He'd be better off opening the trade the morning of expiry instead. He also could cut his risk in half by opening iron condors, since you can only lose in one direction.
I don't undestand something, I open an iron condor the same day of exp, and when market close 4:30 I was in red 100 dollars, later next morning I was 470 negative. Do i need to closed the trade before 4:30 or let it expired until next day morning?
Nope, now you have upside risk as well. You can take big losses on either side of the trade with iron condors
Seems to be using 25 deltas, maybe try 10-15 ?
your slide at 8:13 is incorrect >>> should read 2992.10 not 2922.10, to make the two puts end worthless.
What happens if you just never go closer to the market? That would be my question.
The answer to "should you walk away from the trade?" is just to modify your strike selection.
If you know the SPXW resistance levels and weekly mean over the last 12 months, and if the maximum divergence move is a 6 to 7 standard deviation move, then just select your STRIKE PRICE ACCORDINGLY, duh! Simple and logical.
😆😂👍
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Hi Trent. I appreciate you sharing some of your insight, and I follow you for the most part. But when you say "weekly mean", do you mean the average weekly closing prices? Or do you mean the weekly true ranges? Also, how do you determine the standard deviations? Thanks.
I'd also like share an observation on an underlying that I've been trading derivatives from to see if we are on the same page. But not here. Like you, I'm very territorial when it comes to things that I have learned through blood, sweat and tears, especially when people rejoiced during my tough times.
Why not do this strategy ON the expiration day (Wed and Fri) .. no overnight surprises ?
Premium is sucked out overnight and by the minute
I used also 0 DTE , before the market closed, but mostly on Volatile days. That's the problem
in the same day , the price of the option are too cheap to make profits.
Your paper write up at time stamp 8:10 had a bad typo Your showing 2922.10 not 2992.10 Confusing if studying the explanation. Good video otherwise
Excellent. I couldnt understand why he said both expires worthless. Thanks
Yeah because based on the numbers in the video, both puts would be deep in the money. Which is far from expiring worthless.
This is a simple vertical spread trading strategy... Jeez. It's 50-50 chance of winning minus your commissions which makes it a losing trade. So what was your advice to this trader to make him a better trader with this strategy?
Makes no sense. Would rather trade stock options and only loose a few hundred if that but make 1k ever 2 weeks.
Do you just buy calls and puts? Thanks.
i have to practice this but I am so lost at the moment.
Hi. Thanks for everything.
Can you please explain;
1. Why doesn't he use Iron Condor and double the premium of the trade. Both sides. Isn't it more common that very bad news can take it down very strong but it's not the same with the good news. I think I will start using this strategy after another month of research...thanks
Thanks
What backtesting software do you think we should use?
Google search it and compare it on your own...
Why would there be an "overnight surprise?" The SPX has a 0DTE. There is nothing being held overnight.
Don't hold AH
Wanna wake up and your sold credit spread was 0.20 and now 2.45
Happened to me May 11-2021
You have no control and your SL won't fill
Never hold After Hours