How to Generate Consistent Income Trading Options - Income Trading
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- Опубліковано 25 лип 2024
- In this video, I'll lay out the complete framework for our system which can help you learn how to generate consistent income trading options. And the reality is that to become profitable you have to do just five things (and can't skip even one of them) each and every month.
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Welcome to the Option Alpha UA-cam Channel! Our mission is to provide traders like you with the most comprehensive options trading and investing education available anywhere, free of charge. We're here to help you take your trading and financial education to the next level! For more, visit our website at www.optionalpha.com - Навчання та стиль
I have been trading options for 3 years and have learned most of what I know from Sosnoff, Kaufman and Carter, all experienced expert traders. But your video is, in my opinion, the best primer for someone getting started. I had to learn the hard way about the critical nature of the 5 rules you posted and I like the way you applied logic to them through great examples.
Wow thank you so much Craig - very nice comments!
Too good. You have showed all my mistakes in one place :)
I will keep these 5 points print out on my desk now. Thank you so much.
Most logical literature on credit spreads i've seen in years. 5 stars!
Awesome thanks for the kind words Radu!
The Holy Grail of Options trading! Nobody does UA-cam like Option Alpha... another great vid. 👌
haha thanks!
Watched all your videos in 2 days. Really the best one on internet.
07:10 should be quoted to the 2 dozen option trade videos on YT. Slow, steady, small gains
1st time to see a vertical bell curve on a stock chart. Very interesting.
Best delivery I've seen so far, but a lot of information to absorb in one showing. For me, at least, it will take a number of viewings.
this is spot on, every min is good stuff. great job.
Excellent tutorial, very informative, thank you!!!
So glad you liked it!
position size as you just mentioned is very important. Greed can kill you in this business and trust me i know
Really good advice about the, "law of large numbers"! By the way, around 500 test samples is when the median really starts to stabilizes. But with our ability to progressively learn I would easily say it would take less.
Yep!
This video is strong. And I love how you explain the topic
Thanks glad you enjoyed it!
super informative, very helpful ..
Nice video. Can't agree more on trade size. I have seen people trade way to high on small accounts and blow out all their money. My account is over $250k but each trade I do is in the $500-700 and sometimes adding to the same trade at a later date. Most of my trades are a lot longer 6 to 12 months and LEAPS. I do a few weekly and monthly. Just Subbed. Thanks.
Awesome thanks for the comment Chuck!
thank you very much , Sir....I'll be watching all your vids..thanks.
I like the way you explained
I lost lots of money by trading on impulses rather than on pre defined principles.
Thank You
Thanks appreciate the comments Raj!
Very educational! Thank you!! I always wondered how some people are so successful in selecting strike for each option they play and this explains it to a T! Thanksssss! Subscribing.
Sweet thanks!!!
This is good info. I just shared it to people I know have an interest. thanks for sharing
Im just impressed how this video is not watched by more people . And they wonder why they loose money lol
Thanks Eric - you could always help get more people to watch by sharing it for us ;)
I have learned something new about this video .
quality info - very useful
Questions about "stacking": 1. Say you take a call credit spread, the stock moves up, you take another position a few days later on the same stock. The 1st position has gone against you, so do you close it, or let it ride?2. You discussed how to select and open the trade, but how long do you let it decay? Or do you let it expire?
You let it go until it reaches it's profit target or expiration. Profit targets are discussed here: optionalpha.com/members/tracks/advanced-course/exiting-options-trades-automatically
when we short and short every week and stacking up the portfolio to stay neutral, when is the time to settle those contracts in case the mkt is going against you. thx
Love this video. Great teaching technique.
it was very helpful. thank you!
Glad it helped Pankaj
Hey Kirk I just discovered your podcast and I am learning as much as I can before jumping in. I am expecting a baby and I really want to add a new source of income.
Anyway, I just wanted to say thank you and keep going, you are doing a great service.
Later!
Awesome congrats! I've got 2 girls and they are fun (and crazy)!
Love these informative videos, just a quick question, why not just trade the index's?
You could for sure -just more margin required.
what is the name of the software that scann the implied volatility as in the EWZ etf? with the 3 top assets with 70% implied volatility 60%and 40%... where do you scann those assets.
thanks! and great video.
It's our in-house watch list and IV scanning software we built here: optionalpha.com/members/watch-list
Is there a strong correlation between the volatility in a company stock and the volatility in its options?
Yes
Great videos!! i have a question, i am currently researching options on futures, what can you tell me about them, are they liquid enough as the underlying ETF options? Best broker to choose with a relatively small acc?
Best regards!
Yes most of the options on futures are pretty liquid as long as you stick with the big names; /ES, /NQ, /CL etc. best broker for me is still thinkorswim or dough
Dough is a GREAT platform. I use it in combination with thinkorswim. Dough is great for being able to actually visualise the trade you're placing if you're new to advanced strategies, ToS is great for analysis.
what kind of returns should you expect with these strategies?
I think in the 20-25% range per year is reasonable.
When you say, "Sell the calls," are you implying a covered call? I understand buying a call but was a bit confused with the selling.
Not necessarily but yes that is in the category of call selling.
Probability of success is irrelevant, since markets are efficient and will pay you according to the risk you take?
Nope not true since IV is always overstated your edge is in selling premium. See here: optionalpha.com/members/tracks/intermediate-course/historical-volatility-vs-implied-volatility
Awesome! Enjoyed this video, and I will be sure and tune in to the next 2! I have a limited amount to start with, ($4000 plus another $15k in a Roth acct) How do I find these options quickly and easily?
To start grab our watch list here: optionalpha.com/members/watch-list
With stacking and laddering your trades will they all have the same expiration dates?
Yes they could but it's not required. We sometimes will stack 4-5 trades in one month then 4-5 in another and keep staggering them.
Kirk, at 32:05 when you say "sell a call option here and sell a call option here" when referencing the strikes above and below the market, did you mean to say sell a call above the market and sell a put below the market? I think that's what you meant but I'm just trying to make sure I'm not missing something.
Yes correct sorry if I mispoke
Can you give examples of broker platforms, please?
thinkorswim: optionalpha.com/tos
Hi there. I'm living in UK and would like to learn And trade Options. can u please recommend a UK based options platform that has a demo trading section. where can I sign up for your paid membership? Thank you
I believe the best right now is tastyworks: optionalpha.com/tastyworks
Good video, I liked it. :-)
Thank you for letting us know - always helps!!!!
10:22 Just to make sure, are you saying that there would pretty much be a 70% chance that the stock will be out of the money? I still get the ITM/OTM concept mixed up..
Great, super clear explanation.
Glad it helped!
I cant find probabilities looking in my trading platform, does this have any other names?
You might have to use delta as an approximate for probabilities. See here: ua-cam.com/video/DcWHh2co80M/v-deo.html
Hey man, great vid, it was very informative. I was just wondering what you thought about the costs (e.g. Brokerage fee's) associated with trading on such a consistent basis and how this can be mitigated. Thanks!
I think you have to factor them in of course and get them as low as possible - this podcast might help: optionalpha.com/show-020-how-i-negotiated-a-17-reduction-in-my-trading-commissions-17421.html
Why is a credit spread beneficial when there is high volatility? Since you are both buying and selling that implied volatility, then how does it give you an edge?
Because you are still a net seller of options.
I appreciate the reply, thanks. Furthermore, I can never find a risk to reward like $70/$30 like you display in your videos that are 70%+ probability. I find these spreads that are more 5:1 risk to reward ratios.
Yeah it's hard right now because of the super low IV in the market.
KIRK, U HAVE A WONDERFUL RANKING THING TO WORK ON , BUT NEEDED TO WORK ON INDIAN MKTS TOO. HOW COULD U HELP ME OUT IN THAT
When "Stacking or Laddering" are you applying those "Stacked" or "Laddered" trades on the same Options Expiration Date?
Yes and eventually we transition to the next month.
But won't a higher implied volatility result in the strike price for a high probability trade being further away from the stock price which results in a lower premium thus negating the effects of the increase in IV?
No - higher IV means that possibly for the same premium you could sell options 10% away vs 5% away (just as an example).
You mean 10% away from the trading price?
From what I know, If the IV is higher, the option trading with a strike price 10% away from the stock price the would carry a similar premium to a lower IV stock with an option trading with a strike price 5% away from the stock price.
Which would mean that the option trading with a strike price 10% away from the stock price would carry the same probability of success as the underlying asset is more volatile?
Please correct me if i am wrong.
Thank you!
True but with higher IV the overstatement in volatility becomes greater. So even though IV is higher and you can sell the same premium 10% out the likelihood of the stock moving 10% is lower over time.
Sorry, I'm not too sure what you're saying, you mean the option 5% out? not the 10%? because the higher IV would make the option 5% out similar priced to the lower IV option 5% out
If IV is high you might be able to sell an option 10% for say $100 (just simple numbers). If IV is low you could sell something 5% out for the same or less $100. But when IV is high that 10% out option has a higher chance of making money since IV will more dramatically overstate volatility at that point.
How much cash & which broker would u recommend newbies to start with?
I mean you should be starting with $3-5k as a bare minimum and I recommend either thinkorswim or dough as the best trading platforms.
Isn't there a danger of being assigned on those options you sell? That could potentially wipe out your entire account.
Sure but it'll never "wipe out your entire account" as long as you keep position size in check.
good video
Thanks !
At about 9 and 10 minutes in when you say, "we have a 70% chance that the stock NEVER gets to our strike price" - don't you really mean about a 70% chance the option does not expire in the money? My understanding of probability in the money is the likelihood of expiration in the money, not probability of touch, hence also the metric probability of touching in TOS which is a number always higher than Prob ITM for OTM options.
Correct and what I meant was "by expiration" the stock staying beyond that strike price.
what software u used to show the number in the video??
THANKS
Combination of our own in-house watch list software (optionalpha.com/members/watch-list) and our broker platform at thinkorswim (optionalpha.com/tos)
How much does ThinkorSwim cost? I mean is there any monthly, annualy fees or just commition + per-contract fee??? I use OptionHouse and looking for another platform.
No monthly or annual fee - just trading commissions
Hey man, I've got a question. I've been watching alot of the videos and I am all confused on the Implied Volatility. For instance, I went ahead and scanned using TOS and found a handful of stocks that have a High IV Rank with good bid/ask spreads. In this video, it shows the trader placing many small Iron Condors on AAPL every few days in order to average yourself in, but it seemed like alot of the trades placed would have been during times of low implied volatility.
Am I only to be placing trades when the stock has a high IV rank? Am I to move on to another stock if the stock I am currently trading falls below what I'm looking for on Implied Volatility rank?
Thanks!
Hey Clay - yes you should be focusing on placing trades only when IV rank is high. And yes, either move onto other stocks when IV falls or wait for IV to come back up.
OK, thanks man! I really appreciate your time to respond to my question. I've been loving the guides, I have just one more question for you, if you don't mind.
Ok, say you set up an trade with a 70% success rate... Do we only take trades that gives us more than 31% profit in order to ensure we have a positive % value? like a casino?
Or does this not matter. I am having a hard time finding High IV trades that actually out-price my Probability of Profit, especially after fees (for a small account).
Thanks dude! Take care, happy trading. :)
Yes it's hard to find for sure (and should be since this is the point where most people give up) but I can tell you that right now (8/28) volatility is really low so it's hard to find trades that fit this parameter. When volatility rises in the future it'll be much easier.
Ah ok cool man! Maybe I should be watching the Vix and "jumping into action" once I see volatility levels high enough, at the moment I've been checking each stock individually. You are totally correct, there's not many to chose from atm. Thanks man, I really appreciate your time and patience. It's one thing to make these videos and help people out... but the way you respond right away and help people out is awesome. I appreciate what you do. Thank you!
I'll probably end up getting the OptionAlpha paid membership after all of this! :)
If you do or you don't - either way glad to help!
Hey guys, what Broker can you recommend, since most of them scam you ..?
Thank you
We use and recommend thinkorswim: optionalpha.com/tos
just what I would like to do
Hi Kirk, I don't understand why you're making a big deal out of Volatility... I agree that selling Options is far more superior than buying them, but... my point is, even when selling a Spread with low IV, you don't have to buy it back for a loss if IV level rises like you pointed out in the simulation, just let the Spread expire worthless!
You "may not" have to buy it back for a loss but if IV rises it's going to be more challenging to make money on it - not that you can't do it, but it's not the easy trade.
Thanks for responding, one more question please, I'm sot so sure about the slippage part, if I buy a Call Option in Apple for 1.22, then immediately sell it for 1.21, that's only a $1 loss, not 2 (assuming there are no fees & commissions). What I mean is, you only lose on B/A spread when closing out the trade, not when initiating it.
Correct if you could buy and sell immediately for those prices but what if the spread gets wider when you sell 2 days from now? That means you could also lose more on slippage than just the exit.
Looks like a cheap Tastytrade knock-off ... even the IV rank script looks 'stolen'
Funny thing is that you could say the complete opposite. We've been around much longer than TT and were pushing option selling, small positions, managing winners etc. before they even registered their website domain. We just didn't have $85M to spend in advertising.