Options Strategies for Regular Income: He won this trade through smart analysis & options knowledge
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- Опубліковано 3 гру 2019
- Options strategies employed for regular income, when combined with simple technical analysis can yield powerful results. In this video, we discuss how this trader picked support and resistance points in Alphabet stock and then used his options knowledge to design an options trade with a solid theoretical basis.
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So basically this is a 120 pt wide IC with 16 delta on the shorts. It should be mentioned this trade requires alot of cash or margin to execute. In this case, for 2 contracts, you need about 22k for a 1,562 or 7% return.
Yeah, that cost to entry puts a better perspective on all of these videos. I doubt most people have capital sitting around like this in order to push risky trades to make money from these techniques.
Great video. Informative. Seth Freudberg, you're the best. Wonderful, clear explanation. Could not get any better. I have watched hundreds of Options videos, yours is by far the best, hands down. The Iron Condor was explained so clearly. Thank you for educating me.
Excellent Presentation. THANKS!
Nice one!
Using back ratios are a good alternative to iron condors to manage risk better from the start.
Thank you for asking! Here you go. I'm trying .. EQIX Iron Condor: Jan 17th; Puts 510, 530 Calls 600, 610. And CSGP Iron Condor: Jan 17; Puts 530, 550. Calls 640, 660. Yes, hoping to learn more about managing these trades! How will Earnings Jan21 CSGP, Earnings jan 29 EQIX affect those trades?
Very good explanation. I am new to using options for income. This is helping me a lot. I only write covered calls and cash secured puts right now. I am a month un and seeing AROC of an average of 29percent. How much better could I do with verticle spreads?
I’m sure this is an obvious concept for experienced traders, but as a newbie, I recently came to this realization about managing iron condors, and it was a lightbulb moment! 💡 If profits are maxed out on one side, bank it!! 💰
Something that is not mentioned in any of the SMB option videos I have seen so far is to avoid placing a trade in an expiration cycle unless you want to gamble around a potential 2+ std dev move. Of course if you place trade in an index or an ETF then it is less of an issue.
Seth how much cash balance is required by the broker for this trade?
Well done Seth, needs a max risk warning though, as that is sizable. Without showing what the risk and reward is for an 84% profitable strike rate, we can't tell if the bet was positive EV or not, ie not good if you are risking >84% to win < 16%. I do like this trade however, but I'd favour just the bear put spread with the price near ATH, more so if implied volatility is very high relative to average, perhaps the market has elevated vix also and general market is also showing signs of weakness. An ensemble approach basically, put as many things as possible in my favour.
Any chance of more videos along these lines, where you talk about IV, perhaps in relation to mean reversion...? Also, are you able to discuss execution of these trades, as it would seem foolhardy to consistently cross the spread to get filled, I trust the market maker's models, paying the spread seems unlikely to result in positive returns, but I can't help feeling that posting offers only leads to me being filled when I'm 'wrong' also.
Would in iron condor work on SQ for it's next earnings?
The previous video was "Why Does Income Trade Win So Much"
12:25 SMB Capital, how did you determine that that trade had 84% probability of success?
Its calculated in all option trade analysis platforms.
Great presentation. I have a question about where you chose to set your offset strikes on the two spreads. I am going to assume that if the trade had started to go against you (price moved close to one of the anchor strikes), you would exit that side of the IC, or maybe exit the IC altogether. In other words, you would not allow yourself to still be in the trade if the price of the equity crossed either anchor strike. If that is true, wouldn't it be more capital efficient to put the offset strikes as close to the anchor strikes as possible? In my very limited experience, I always collect more premium from a two contract spread position one strike wide than one contract spread position two strikes wide, even though the max loss on the two is the same. What am I missing?
The trade takes more time to mature if your spread is narrow
@@MrScalius I don't think I understand your point. With a credit spread, the credit you collect when you enter the spread is all the revenue you're ever going to collect. Are you saying that it takes more time for theta decay to enable you to get out of the trade with a substantial profit without holding to expiration with a narrow spread? In other words, what do you mean by "mature" in the context of a trade?
@@wboquist It is quite difficult to see the difference on such short time and small scale. The thing you have to consider most is how much you can lose in any given situation. For instance let's consider the 3250/3245 (x2) put credit spread vs 3250/3240 (x1). Right now the 5pts wide spread gives you .25 CR while the 10pts spread gives you .50 CR. So technically, you would think the risk profile for each are very similar because you win and lose the same amount at expiration. Well, not entirely true. What happens if the price closes at 3245 at expiration? You would be 950$ in the hole with the first spread but only 450$ in the second spread.
Looking at this with the analysis tool in Tastyworks. The IV for GOOG is 14% (Not sure what the percentile is right now to be fair) but the P/L Theo figures look terrible across the board - only at expiration does it come good. (According to the Theoretical) Am I doing something wrong ? It also shows that the buying power is massively reduced by about $16K. You need a big account to place this trade.
ColGadarby You could run just a single contract with $5 strike width so your risk is greatly reduced. ICs are great for maximizing your required margin since it can only go against once - in a single direction.
That $12,000 risk though
Find another underlying with a similar setup so the risk fits your account size and risk tolerance. The percentages should be similar. The core message here is how to manage the IC and exit in a smart way. For instance, I like focusing on SPY now because it works with my max risk. If i did the same trades with SPX the risk would be too much. Once you find the right underlying with the right setup and price You can also fine tune with number of spreads and maybe distance between strikes.
All I got from this is "It takes money to make money"
You are right , it is not worth it to risk $12000 for $ 1694
I think it's kind of strange that the stock rallied past 1300 and yet both the put spread and the call spread depreciated similar amounts. I'd have thought that the put spreads would have a lot less value. Why is that?
the way options move does not always make sense. this is a really important thing to know. you can't count on options to move exactly the way you think they should move
The capital required with this trade is not much less than selling naked strangles. The hedges are so far away that they don’t protect much.
$DIS Feb 115/125/175/185 Iron Condor for 87 cents
Sell IC SPY 302/305/320/322 $1cr 01/08/20 TP50%, close challenged sold leg if SPY shows directional momentum.
While Iron Condors are an okay strategy, this was not the best play at the moment. Google’s implied volatility is relatively low at the moment. Therefore, it’s pretty cheap and you don’t get a good price for selling premium. Instead I’d recommend setting up a double diagonal and take advantage of IV expansion (I’m currently in this position). The risk profile is similar to an iron condor, except that the break even points expand outward as IV expands. Since IV is extremely low (almost the lowest it’s ever been for google) the likelihood of expansion is high. I should note that this strategy is BAD for high relative IV since the break even points will conversely CONTRACT on a decrease in IV.
IV Rank is a term that should be understood.
Would you say IV is the hardest of the three options variables to visualize intuitively? Is there anything you do to help understand and visualize vega action better or does it simply develop over time as you gain more experience?
If you have an IRA account you need about $250,000 collateral to make that trade. That means you cannot make any other trades for two months if the account has only 250K in it. Obviously, as a LIII trader, in a taxable account the collateral is about $50k
I’ve seen google rally 100pts in one week.
$SHOP Feb 250/270/500/520 Iron Condor for about 2.90
None of these Options "Income" videos tell the viewer the max risk. For each iron condor, you're risking 12,000 to make 800, which you need at least two years to recover if you're doing this every 60 days and get one of those black swan events. Also, I think no need to fill the video with basic descriptions or trivial stuff about options.
I agree!
Thanks for the shout out and the use of the suggested trade submitted from a previous video
Regular income my ass. You get 1 in return while risking 15. You can just buy spy call and make bank.
@@bumble144 Ideally you manage these spreads so max loss would only happen in a truly catastrophic event. You have to decide if you think the underlying is just going through a dip and will bounce right back or if it is a much deeper correction. Credit spreads seem like a better deal if you pick the right ones. SPY is one of my favorites too. Try out some short put verticals when you're bullish. Don't get greedy, 3% per month growth doubles your account every 2 years.
Good explanation of strats but one thing that's is never discussed is the draw down.
Even though these trades theoretically have high probability of success when held thru expiration,,, there can be large draw down along the way. This is what is so scary about selling options for premium. The loss curve improves as each day passes but to make good money you have to have the balls to take draw down and trust in the system to make good profits. How much draw down are you willing to take before enough is enough on a trade? Sure you can have rules on taking profits early but what about when you are taking losses? I like hard fast rules on maximum risk limits per trade but using probability allows one to stretch risk rules which could be bad if you get a couple consecutive losers. Just saying that the max loss per trade should not exceed 2-3% of the trading capital which could make for unattractively small profits. However, i imagine many traders look at a 80% prob trade and PUSH that max loss figure dangerously higher.
Brokers want too much margin for these kind of trades.
Leonel Ruiz Schwab charges $0
He’s talking about the margin requirement to hold the trade, not the trading fees.
Condors generally require margin equivalent to max loss potential. This can sometimes be higher than just selling naked options, ironically which are priced on std deviations based on volatility.However this means the margin requirements for naked positions will change while you hold it as vol changes. This can be bad if IV explodes.
caseytailfly ha! My mistake, thanks for pointing that out.
IC’s typically require the same amount of capital as a regular credit spread, no? The width of the strikes for one of the legs, since the market can’t be in two places at the same time.
@@mattportnoyTLV correct
@@mattportnoyTLV They reject these trades with small accts like 2500 or 3000 even if the recommendation is safe, once Schwab wanted 25000 margin, closed , did not fund my acct. options complicated market.