Options Blunders: I’ll make money every month and pay my bills out of my options income (episode 4)
Вставка
- Опубліковано 4 лют 2020
- Can you really make $5,000 a month trading options? This video covers the misconception that the term "options income trading" is often misinterpreted to mean that there will be monthly cash flow in every single month of an otherwise successful methodical trading strategy and the problems that can come from not understanding the realistic profitability patterns that encompass options income trading. Register for our free intensive trading webinar smbu.com/seth
#tradingoptions #optionstrading #optionsstrangle
SMB Disclosures www.smbtraining.com/blog/smb-...
A undefined risk trade on Spx will involve a LOT of margin which is not directly addressed in this video. figure 8000 margin per leg, per contract... that means 16000 per contract for a strangle trade. Times ten contracts = $160000 in margin... since you never want to fully deploy your entire portfolio capital on a single trade ( you always must have dry powder as margin requirements move..) ... you will need a portfolio of at least 350,000 USD to attempt this strategy in 10 contract lots...
Great POINT! This startegy is marketed as EASY income as if it is easy ATM machine !Very misleading the loss could wipe ou 10 WINNING trades!!
Yej I figured making 60k doing this would need a large account.
@@kedduff1814 HOW Large is large?
Another good one. The blunders episodes are some of my favorites.
Beautiful Seth well explained.. understood every word. Will definitely register for the options seminar.Thank You Sir!
Happy to hear the Razzy.
I needed this in 2018 when I paid 15k to response to learn this the hard way! True words.
Great work on this one Seth. Thank you for your time.
This guy is great. I really understand the way he explains stuff.
An experienced small business owner once told me you need 6-12 months of excess funds such that if you don´t make a dollar in revenue for 6-12 months you will still be able to pay your bills and eat.
As a small business owner I don't feel comfortable unless i have at least 6 months of expenses in liquid assets. I don't think I've ever had a month that was a loss, but I have had months that required dipping into savings.
I trade small. In a $7000 account I set the trade max loss no more than 1 percent of account size. Such a trade would be something like a vertical spread on XLU. Credit is only around .25 - .30 and max loss at .55 - .70. I close at 50 percent profit to increase the win probability and manage losses by getting out quickly. So, long story short, I'm lucky to make $25 in a week.
Not even 1% ? Why are you even trading? I mean why even risk it then ?
Dumb
trade addict and dumb
Great video! What if we just set these shorts at 10% or 15% above and below? That way it would be safer?
Selling strangles is the first big blunder! Unlimited risk on both sides,, no thanks! Of course with good management damage can be mitigated on most any option strat. Good video. I would say option income trading could be likened to a business, you never expect the same income each month sales fluctuate. Therefore, you need reserves and work on a quarter or yearly basis for paying bills or don't quit your day job.
I always confuse straddles and strangles because my mind thinks it makes more sense for a strangle to be the same strike price, like you're strangling it. And straddle would be where you're straddling two different strike prices.
And on the chart, a strangle has a flat top and a straddle has a V shape but it makes more sense in my mind for a strangle to be V shape and a straddle have a flat top with two legs on each side.
hi Seth. first of all great presentation as in other videos you have posted. A question. I am a newbie and for what I grasp I could place a "smaller" trade every single working day which is more than 200 trades a yr. if you split more than 5%, quite likely the options will not get exercised (besides lower premiums) and you would go along the way simply by collecting premiums all yr long. Am I right? TIA
thank you sir, gonna read some books on options
Great idea to further your education
is it a good idea to try and use a butterfly spread for index options?
11:51 was really funny. Thanks for throwing that in there.
Thank you for this!
Glad it was helpful!
But the trick is NOT to hold until expiration given the overall probability of 50% profit is generally high and GAMMA risk increases as it approaches expiry. Better to manage early and take at 50-70% profit level and close risk.
Depends on how far otm you are before expiration. If my position is 200 pts otm with a week to go i just hold until expiration. Why would i buy back at 50%
Does SMB recommend any specific software for back testing? Thanks.
What size of an account do you need to implement the strategies suggested in these videos?
Just a slight math error on this buy back calculation that keeps coming up --> 0.03x100x12 = $36 NOT $360
Now if i missed something, pls let me know as I'm still new to this option thing. Great video though, thank you!
Wow Bess, you are right. My apologies to everyone.
@@sethfreudberg4750 No apologies needed sir, you are helping us all more then you know. Thanks again!
was about to post this
Seth, You're the Best ! Tom Sossnoff is 2nd LOL!
Ouch! So given the directional risk, wouldn't it be smart to put tight stops above and below your puts and calls?
true. It's insane that his guy doesn't present risks
Great insight
Question for anyone: Over the last week I sold a net $3,354 worth of call (bought to close $151.98). I’m tracking the neutral value of my portfolio, adding unrealized losses and subtracting unrealized gains. Other than the sale of calls there were no deposits, the neutral value of my account went down $1,803.55. How can this be? Could there be transactions not cleared effecting the value? I do have some MARA calls fairly deep in the money now, can that be a factor?
But i prefer only naked on Put to reduce the cost bases and accumulate the ETF
what happened if the strike price hits and buyers wants to assign the stocks before the expiration date? where to get the underlying stocks to sell to them?
thank you
Our pleasure.
so strangle is best for a sideways market
Wich options have the most return potential is it calls and puts naked?
Wouldn't have worked this year... 4 out of 8 months SPX was over or under 5%
Great video! One question, in the first scenario when both options were going to expire worthless, why bother buying them back to close the trade?
Maybe to close out the margin requirements by your broker so you can open another trade
One scenario is closing the trade to ensure its profitable...to avoid a big move on that day to lower profits. There was only 3 cents left on the contracts they was nearly worthless..why risk letting them go to zero when they could have shot up in price with the time remaining and killed your profit.
Dave, you can let them expire, but at that point the maximum reward is 3 cents vs. an unlimited risk. Not a very good ratio :)
Thanks for the replies, makes sense.
Almost unbelievable that someone would go into this with actual dollars not knowing this!
You'd be surprised Dave.
That's how I started, I have much more success now with a deep understanding of these fundamentals. But I wouldn't recommend it. It did allow me to learn from a lot of initial pain though
sir on expiry day the value of option is getting low very fast if we r in loss how manage this condition at that time we don't have carry for next day option we have to square up on the same day before closing please put some light
Great Video Series .....maybe do one one the importance of having many options strategies instead of being a one trick pony trader.
I can talk about a balanced portfolio of options trades in another video. Thanks Thomas.
what software can we use to backtest options strategy please?
Seth: In this strategy, you're showing selling short strangles? Wouldn't it be less risky to do iron condors instead? Most brokers won't even allow most traders to sell naked calls in the first place.
Jeff yup Iron condor would have more manageable risk instead of these short strangles/straddles
And I thought the blunder would be to not have the buying power reduction (BPR) in mind. My alarm bell rang when I heard "naked strangles in SPX". Twelve naked strangles mean approx. 400.000$ BPR in your account. In case volatility rises, BPR rises, too. So you should at least have an account twice as big as the BPR you are playing. Hope, I didn't anticipate the following blunder... ;-)
In a video like this, it's hard to include all issues so I decided to simplify the discussion by just focusing on the naked strangle. You are right that there would be a very very large margin on this trade.
the office in the background looks like pure hell. about 3 workers at a single desk 🤣
What about the consideration of time decay? The same as equities option?
Time decay helps as you have sold the options and collected the premium. You want the contracts to go to zero as you recieved the premium for them. Theta (premium decay) works in your favour when you sell them
Yes all long options have time decay Tiffany. The essence of options income trading is time decay.
Sweet green screen
What am I missing... almost every PUT is going to lose all of it's value by expiration day from what you originally paid for, even if it hits very close to the strike. So what am I missing because you could just sell PUTs and wait until expiration day and almost always be profitable.
7:37 It would be $36, not $360 to close per position.
can we close the deal anytime we want before the expiry date? lets say we get credit 1000$ and after one week we are up 250$, can we close the deal and lock the money?
soheil Sadqian yes
Absolutely Soheil. You can reverse the trade and collect your profits at your discretion.
@@sethfreudberg4750 OK THANK YOU
@@soheilsadqian2887 pretty you cant if you live in Europe or near that side of the earth
how do i get funded
what about capital gains tax ?
taxes eat up short term capital gains
If you are paying taxes it means you are making money. Leave your money under your mattress if you dont want to pay taxes.
Ok🥺 let’s go back to the safety of a weekly paycheck
Vishka the point was that you need to plan your cash flow. There are thousands of people who successfully trade full time for a living, but they understand how to manage their cash flow.
Why need to buyback why not simply let it expire?
Cost to buy back is incorrect .. should be 36$
Thanks Seth. On the losing months, the trader should just let the calls expire vs wasting the $360 to close them out, correct?
Yes correct
Possibly, Jack. It's a prudent step to close nearly worthless short options so they don't blow up in value with something expected. That's what most pros do.
You should address the high margin hold requirement that many firms (especially TOS) have to put on a 12 contract naked strangle. I bet most of your audience wouldnt be able to even do this trade. Also what about sell commissions to open the trade?
A 10 delta strangle on the SPX would have about a $75,000 buying power reduction on a 1 lot!
Jeff Dahl exactly
See my reply above to m0wm3d. I'm aware of that. It's just hard to cover every issue on a video of this nature.
Why is that? It would take 3 minutes to explain. It's rather an important factor a trader should know about and how unrealistic it would be for the vast majority of your audience to even be able to execute it.
@@michaelmacrae2349 the purpose of the video is not to endorse that strategy, it's to discuss the uneven cash flow of options income trading. Nowhere in the video do I suggest that particular strategy.
💲
But how much money would the trader have to put up with the broker?
A FORTUNE !!!
So happens when Spx drops by 30-40% like it did last March ?and stop lose can’t execute on time!!!
You will Down over 100k
And never trade options again in you lifetime!!!
I'm 17 years old and I want to create steady monthly cashflow with options trading, I've recently opened a simulated paper trading account to practice my strategies. How much capital do I need to generate $5000/month? and do I have to pay all of it or can I get like a loan or something? if someone could help me out I'd appreciate it.
On average you can reasonably expect to make 3 to 5% a month. Which is about 36 to 60% a year. This is if you sell options. So lets say you have $25,000 in a particular stock or as a cash securement and want to sell an option, you can make $750 to $1250 a month.
Why are all the traders in the background under 30??
Or just get $40k and collect tesla premiums every week. I was laid off and these premiums have been paying my bills.
If I may ask, what kind of options do you trade? Spreads, Calendar spreads, Iron Condors?
@@Atropos06 have you not seen tesla and the premiums? Its easy money once a week
How about this year?
There are a lot of strategies to make tongue-wetting profit that the average joes don't know. . Personally, the financial-market for me seems the only way forward with my long time horizon (accrued roughly $457k in gains since Mid 2021 ) but if you don’t have that fortune of time it’s a tough market out there almost nowhere feels safe!
Yes, a good number of folks are raking in huge 6 figure gains in this downtrend, but such strategies are mostly successfully executed by folks with in-depth market knowledge.
@@MarcelPhilips It all depends on how long you're willing to hold for, stocks might likely tank further, but making serious gains in this downtrend wouldn't be a problem if you're a pro.
@@MarcusFred-wn3iv The reason I decided to work closely with a brokerage adviser ever since the market got really tensed and the pressure became so much(I should be retiring in 17months) so I've had a brokerage adviser guide me through the chaos, its been 9months and counting and I've made approx. 650K net from all of my holdings.
@@MarcelPhilips Please provide the information for your investment advisor here. I really need it now.
@@MarcusFred-wn3iv She is MARTHA ALONSO HARA, my consultant. Since then, she has devoted section and leave attention to safeguards that I have been keeping an eye out for. You can locate information about the chief online, on the off chance that you're interested. I made no regrets about substantially adhering to their exchange strategy.
No. It takes years to do this.
Very masculine trading desk you've got there...Almost feels like you're walking into a frat house.
Very immature post you have there...Definitely feels like you're reading a comment from a beta male.
The fact is that very few women apply to us for trading jobs. It's just a reality in the trading business.
@@sethfreudberg4750 echoing, the thought you responding to i really wish i could see more black people in trading firms. I will definitely use this to illustrate the need for more Blacks and Latinos to get some piece of the action. Again i know this is a private enterprise and reserves the right to get the most competent applicant them see fit. Optics can be a real turn off. That said i enjoy this series of yours
How about social distancing for these folks;)
@@nizarnurdinali4180 from February.
u need 400k to do 12 contract strangle...retail traders like me cant make money
What is totally ignored in all these videos and the examples given? Commissions!! No legitimate course or lesson on options would ignore the significant cost of commissions.
"Please note that the prices and other statistics on this page are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity, slippage, and commissions." It's an illustrative example and an advertisement for the prop desk, not a discourse on the intricacies of trading.
How annoying to be diligently working your desk job with this oblivious guy delivering a presentation a few feet away!
Anybody here mess around with options on robinhood?
Yeah. It's kind of barebones but as long as it helps me make money it doesn't really matter. Good practice. I use TD Ameritrade for better charts with MACD and Rsi to do technical analysis. But I end up placing the orders with Robinhood because I got so used to it
@@brandonvillatuya9539 Robin Hood is a terrible platform. Close the damn account and just stick to TD.
The background is so ridiculous
With the background of the various traders at SMB, why are they all white men? Any diversity at all there?
All this guy is really trying to do is sell you a course he really tells you nothing significant
Options is a hoax. young people should avoid it at all cost. Buy a house.
A house which you never fully own till you 90 years of age is not a hoax? according to you. Remember even Jesus Cristo, some in his time believed he was a hoax. options are real and i can attest to it.
Check back in 10 years. Rent only goes up. Options are driven by the click of a button from people you do not understand in situations that you also will never understand. Hope your time value premium goes to 0 many times so one day you will also know the facts.
Facts.
@@makingmadmoves7643 people out there making millions from this and u just sit here complaining on a youtube video.
@@Cos3D let me know when you make a million. Only 3 trades away. ;-)
@@makingmadmoves7643 it's not like if you do options, you can't buy a home. It's diversification. Plus, if you're selling the options and time value goes to zero... Many times... that's profit