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.
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.
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.
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!
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.
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.
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. 🙏
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
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.
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.
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
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
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.
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.
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.
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'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.
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.
@@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. :)
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%.
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...
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
@@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
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.
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.
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
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!
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.
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
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.
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.
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?
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.
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.
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.
@@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.
A lot of retail traders is doing this. 1 1/2 day in a trade and they doing it 3X a week in SPX, 3X stop loss of the premium they got which is 25 cent and there bias is taken from the hourly momentum. Easy trade to fallow, but the problem is tweet and news that will move the market during the day and the gap on the overnight. You can also protect with futures on the overnight. I am sure that this trade made money only on the last 15 minutes of the expiration day
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.
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.
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 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.
@@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.
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.
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.
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.
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.
At 7:02 in the video you mention 'depending on market conditions'. What conditions are you referring to? Its seems this information would be necessary to be successful at this trade to determine how for OTM or ITM you need to make your trade.
@@yousajiveturkey1 True, but most risk events happen during the day, not overnight. You feel you can get far enough OTM placing spread first thing in am?
I think I understand now. But I can afford to sell, or buy 1 call or put at a time, so to convert this strategy to my budget means I profit $50. At least I know how people who have the money get so rich and hope I can get to that point... before I am too old to trade. And because I am trying to trade on Robinhood, trying to understand the spreadsheet layout you have to their design is work too.
Tuesday August 13, 2019 Loss of 25K Thursday August 22, 2019 Loss of 25K These days had almost 3% drops. Imagine you decided to start this strategy the August 2019. So much of trading is luck.
That is also why Seth said to overlay some other indicators rather than just blindly trading this. Just using an 8ema and a 21ema moving average would have had you sitting on the sidelines and not in a trade on these specific days. This is a short-term strategy, so trade it accordingly.
@@Jeremy_ab_ca with such a low time frame, no indicator will protect you from a 1-2% down move. Professor Zig pulled out interesting stats about 1% move occurrence. Look above in the comments.
@@MrScalius Don't get me wrong, totally understand the risk in this trade and am not defending this strategy. In fact, this past week would have been a real test if one traded this on Thursday. It was VERY close to max loss on Friday's action. My point in my comment was that by using some indicators, you could actually avoid taking a trade, therefore not at risk of max loss (such as one the days mentioned). Totally understand that this would not work all the time - there would be times where one would get burned on this trade. People should not blindly trade this without fully understanding what they are doing.
I am also an options trader. And trade credit spreads. And very good at it. Hey Seth, I heard you said you do “funding” for trading. How can I get a loan for trading? I can show you in zoom that I know exactly what I’m doing and how to protect the spreads to never lose the collateral. Anytime.
@@dpckcmo Thanks for your answer! I trade with interactive brokers. Are there softwares for purely backtesting? Or, another question, can I open an account with these two and not trade with those brokers?
I'm a total newbie when it comes to options trading. I've been swing trading penny stocks with minimal success. I'd like to learn more about options trading, but it seems like it has a whole new lingo I will have to learn.
I've had luck selling covered calls and selling cash secured puts... you get paid right away and as long as you don't mind selling 100 shares you own at a price you set or buying 100 shares at a price you set... got half portfolio in stocks and the other in cash... I'm not going to get rich but so far i haven't blown up my account... so as long as i just sell and not buy i do alright... thats its good enough for me...
Taking a $5 risk (5 wide strike) for 0.28 credit doesn't even make sense to me. I like a 1:3 risk reward, Ideally $1.65 credit minimum for a $5 wide strike on a credit spread.
Seth Freudberg I realize that, I sell naked puts all the time, but the risk you take has to be worth the reward. Is there not a minimum premium you expect for a $5 risk/wide strike.
@@mattdelongofficial Yes, Matt and that's a very sound point. Every strategy should have a minimum income expectation per trade size, otherwise the trade should be skipped that period.
I think that trader also needs to determine the probability of a loss with that strategy. The risk-reward ratio in dollar amount is not perfect, but as long as it can achieve his goal with the risk he can tolerate it's a good strategy to him, imho.
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
Your max loss on this trade would be 25k less the credit of $1250 received. This may be Catastrophic for most. But you would see the loss building and could close at, say, 3x credit received. It's not an all or nothing trade.
@@paulkaz1752 It is a credit spreads. Credit and debit spreads are defined risk. The only undefined risk trade with options is selling puts or calls naked.
One of the draw backs to this and other trade ideas is the greed factor in the trader. The idea is sound but human nature will be to increase the size of the trade as profit builds. Thus the account is always 100% at risk and when the critical blow comes it will take months and months of trading profits and could ruin the account. Another flaw is the trader might start to depend on the gain every week. This dependence can be an actual need, i.e. a car payment or other expense or the dependence can be psychological, i.e their ego has become intertwined with the trade strategy and this keeps them from taking protection action when they should (gap risk aside). The goal with protection action is to preserve as much of the account as possible in a bad situation. If the market has broken some key resistance or support and moving against you, protection action should be taken but greed and ego will compel most to hang on to that trade thus risking a max loss situation
Why not sell them on Wed/Fri at the open to avoid the overnight? Why sell it as a condor rather than a PCS? you can probably get the same or larger credit with further OTM strikes
Absolutely correct, buy same day, and just use a neutral IC. Heck, I buy verticals sometimes 30 minutes to expiration. Sure it's risky, and you're obviously close to the money, but if you're trending higher or lower and can stand the directional assumption, then go for it. Before you know it, ding-ding expired OTM😂
@@TrentFallinGmail he could be doing better with less risk doing as an IC. Lot of commissions on those 50 contracts, too. Broken wing butterflies would also provide greater upside with less downside risk.
@@docmtaylor Yes, ICs are more forgiving in spread (if you pick the right strikes), plus potentially more premiums. If you're going to do that, same day ICs can dry up sometimes, but one day before is generally okay so long as your strike price is => than the weekly mean (movement) of the underlying. I know SPX quite well to realize it's capable of moving 10-35 points per intraday session. So... I place my strikes 35 points x n days from expiration away OTM. Successful stike placement wins over anything else. If it's Tuesday am and I'm placing an IC for Wed expiration, then my body width is 70-80, right? Tues can burn 35 points and so can Wed. So strike position, in the end, will save or kill your trade. Happy trading bro😏👍
@@TrentFallinGmail Would you mind recommending some resources that best helped you learn the options game? There's so much noise to cut through... books, services, etc..
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.
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. 😆😂👍
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.
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.
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.
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
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.
Best way to paper trade options in Australia considering how shit the opportunity is down here
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!
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?
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
Which software did you use to backtest?
@@karan261 Tested it manually
I see people say they back test these playbooks but I am not sure its 100% legit. If true that's a sad state of affairs
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
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.
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.
Seth, amazing content here. You did great on this one! Thank you for your time to share with us Seth!
You’re welcome
You could also switch to calls depending on your bias for the market that week.
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.
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
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.
Everyone is a genius when the Market goes up... When it stops you find what strategies actually work
You have a mistake in the slides at time 8:08. It should have been 2992.10 instead of 2922.10.
I like Seth's teaching style - I am intrigued and will continue with SMB
Thank you
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
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?
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
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.
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.
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
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
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.
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.
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. :)
I'm curious how he did a couple of weeks ago..
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%.
Wow. Thank you for this lesson. I will test it before I apply it.
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.
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
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.
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.
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
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!
So what was the backtesting software recommended?
To minimize the risk of an overnight gap up or gap down would be a good idea to just day trade credit spreads?
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?
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 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
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.
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
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
Thanks for addressing the probability side of trading.
Thanks for sharing video risk involved ,he can probably use monthly low strike price and executing near week expiry.
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
What backtesting software do you think we should use?
Google search it and compare it on your own...
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.
A lot of retail traders is doing this. 1 1/2 day in a trade and they doing it 3X a week in SPX, 3X stop loss of the premium they got which is 25 cent and there bias is taken from the hourly momentum. Easy trade to fallow, but the problem is tweet and news that will move the market during the day and the gap on the overnight. You can also protect with futures on the overnight. I am sure that this trade made money only on the last 15 minutes of the expiration day
Could you tell us what software you recommended for the backtracking of his strategy?
So what if you sold 0DTE instead? No risk of gaps
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.
Seth, what back testing software do you recommend? Thank you.
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.
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 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.
Can you share back testing software and analytical indicators recommended?
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.
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.
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.
Thanks Seth! Fantastic ideas here. Did the trader you mentioned in this video take one of the SMB Options courses?
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.
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 would like to know what back testing software you recommend?
Also wondering about this myself, seems like this would be helpful but we couldn't mention it in the video?
@@tinyutopia825 if you still care, the platform of showing the trade is optionnet explorer or would be optionvue
What software or websites do you recommend in general to use for back testing options?
How do you close out a credit spread? Just buy/sell back?
You simultaneously buy back the short leg and sell the long leg for a net debit.
Hi Seth Thanks for the video. Could you please advise what platform can backtest options trading Have been trying to find a goodone no luck yet.
This is mistaken at 8:15 you have written 2922.10 which would mean that the closing price moved through the spread by -$63.
At 7:02 in the video you mention 'depending on market conditions'. What conditions are you referring to? Its seems this information would be necessary to be successful at this trade to determine how for OTM or ITM you need to make your trade.
i heard somewhere: trade small trade often (50 contracts is A LOT!) reduce the size but do it on Monday Wednesday and Friday
He is avoiding Monday due to the weekend risk. I agree with just Tuesday and Thursday.
@@loubob21 you can open trades on expiry Mon, Wed, Fri to avoid holding overnight and the risk of a huge move.
@@yousajiveturkey1 True, but most risk events happen during the day, not overnight. You feel you can get far enough OTM placing spread first thing in am?
@@loubob21 no but you can sell it after lunch as well. profit margins will be a lot smaller, but the risk is also a lot less.
@@yousajiveturkey1 do you mean close the spread after lunch?
I think I understand now. But I can afford to sell, or buy 1 call or put at a time, so to convert this strategy to my budget means I profit $50.
At least I know how people who have the money get so rich and hope I can get to that point... before I am too old to trade.
And because I am trying to trade on Robinhood, trying to understand the spreadsheet layout you have to their design is work too.
Tuesday August 13, 2019 Loss of 25K Thursday August 22, 2019 Loss of 25K These days had almost 3% drops. Imagine you decided to start this strategy the August 2019. So much of trading is luck.
To be fair to those reading this comment, the VIX was over 17 on this day, so its possible a .25 trade would be more than 3 percent away.
That is also why Seth said to overlay some other indicators rather than just blindly trading this. Just using an 8ema and a 21ema moving average would have had you sitting on the sidelines and not in a trade on these specific days. This is a short-term strategy, so trade it accordingly.
@@Jeremy_ab_ca I find the upside is easier to trade using RSI. Falls are fast and unpredictable. Huge climbs exhaust themselves.
@@Jeremy_ab_ca with such a low time frame, no indicator will protect you from a 1-2% down move. Professor Zig pulled out interesting stats about 1% move occurrence. Look above in the comments.
@@MrScalius Don't get me wrong, totally understand the risk in this trade and am not defending this strategy. In fact, this past week would have been a real test if one traded this on Thursday. It was VERY close to max loss on Friday's action. My point in my comment was that by using some indicators, you could actually avoid taking a trade, therefore not at risk of max loss (such as one the days mentioned). Totally understand that this would not work all the time - there would be times where one would get burned on this trade. People should not blindly trade this without fully understanding what they are doing.
I am also an options trader. And trade credit spreads. And very good at it.
Hey Seth, I heard you said you do “funding” for trading.
How can I get a loan for trading? I can show you in zoom that I know exactly what I’m doing and how to protect the spreads to never lose the collateral. Anytime.
how much are you looking for?
@@nuttyjobstillsucks $100,000 or above
@@cashflowdriven7036 im interested in hearing what you have to say
What were the back testing software's that he suggested?
TradeStation and Think or Swim both can be backtested.
@@dpckcmo Thanks for your answer! I trade with interactive brokers. Are there softwares for purely backtesting? Or, another question, can I open an account with these two and not trade with those brokers?
I'm a total newbie when it comes to options trading. I've been swing trading penny stocks with minimal success. I'd like to learn more about options trading, but it seems like it has a whole new lingo I will have to learn.
Swing trading penny stocks ? 99% of them go bankrupt, they are only used for pump and dumps.
I really like this guy. Great teacher.
I've had luck selling covered calls and selling cash secured puts... you get paid right away and as long as you don't mind selling 100 shares you own at a price you set or buying 100 shares at a price you set... got half portfolio in stocks and the other in cash... I'm not going to get rich but so far i haven't blown up my account... so as long as i just sell and not buy i do alright... thats its good enough for me...
Awesome Video ! Thanks
You bet!
your slide at 8:13 is incorrect >>> should read 2992.10 not 2922.10, to make the two puts end worthless.
Taking a $5 risk (5 wide strike) for 0.28 credit doesn't even make sense to me. I like a 1:3 risk reward, Ideally $1.65 credit minimum for a $5 wide strike on a credit spread.
Matt it's all a function of the win rate and the size of each win. You can't look at only the risk reward per trade.
Seth Freudberg I realize that, I sell naked puts all the time, but the risk you take has to be worth the reward. Is there not a minimum premium you expect for a $5 risk/wide strike.
@@mattdelongofficial Yes, Matt and that's a very sound point. Every strategy should have a minimum income expectation per trade size, otherwise the trade should be skipped that period.
I agree Matt!!
I think that trader also needs to determine the probability of a loss with that strategy. The risk-reward ratio in dollar amount is not perfect, but as long as it can achieve his goal with the risk he can tolerate it's a good strategy to him, imho.
i have to practice this but I am so lost at the moment.
Great vedio. Can he hedge by shorting the index that he was selling the credit spread ?
I think I'd buy a monthly call on the VIX every month as a hedge if I was going to do this.
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
Nice video. Is there any risk that you could suffer a catastrophic loss on the puts sold or is your risk 100% capped and defined?
Your max loss on this trade would be 25k less the credit of $1250 received. This may be Catastrophic for most. But you would see the loss building and could close at, say, 3x credit received. It's not an all or nothing trade.
@@loubob21 Thanks so this is not a credit spread?
@@paulkaz1752 It is a credit spreads. Credit and debit spreads are defined risk. The only undefined risk trade with options is selling puts or calls naked.
Yes there was a lot of risk. Also fcash/margin used. Surprised he lasted that long with blowing up his account.
What was the back test software you recommended?
what software do you use to backtest??
One of the draw backs to this and other trade ideas is the greed factor in the trader. The idea is sound but human nature will be to increase the size of the trade as profit builds. Thus the account is always 100% at risk and when the critical blow comes it will take months and months of trading profits and could ruin the account. Another flaw is the trader might start to depend on the gain every week. This dependence can be an actual need, i.e. a car payment or other expense or the dependence can be psychological, i.e their ego has become intertwined with the trade strategy and this keeps them from taking protection action when they should (gap risk aside). The goal with protection action is to preserve as much of the account as possible in a bad situation. If the market has broken some key resistance or support and moving against you, protection action should be taken but greed and ego will compel most to hang on to that trade thus risking a max loss situation
Very true. You are wise man. Where do you from?
Why not sell them on Wed/Fri at the open to avoid the overnight? Why sell it as a condor rather than a PCS? you can probably get the same or larger credit with further OTM strikes
Absolutely correct, buy same day, and just use a neutral IC. Heck, I buy verticals sometimes 30 minutes to expiration. Sure it's risky, and you're obviously close to the money, but if you're trending higher or lower and can stand the directional assumption, then go for it. Before you know it, ding-ding expired OTM😂
@@TrentFallinGmail he could be doing better with less risk doing as an IC. Lot of commissions on those 50 contracts, too. Broken wing butterflies would also provide greater upside with less downside risk.
@@docmtaylor Yes, ICs are more forgiving in spread (if you pick the right strikes), plus potentially more premiums. If you're going to do that, same day ICs can dry up sometimes, but one day before is generally okay so long as your strike price is => than the weekly mean (movement) of the underlying. I know SPX quite well to realize it's capable of moving 10-35 points per intraday session. So... I place my strikes 35 points x n days from expiration away OTM. Successful stike placement wins over anything else. If it's Tuesday am and I'm placing an IC for Wed expiration, then my body width is 70-80, right? Tues can burn 35 points and so can Wed. So strike position, in the end, will save or kill your trade. Happy trading bro😏👍
@@TrentFallinGmail Thanks for the tip!
@@TrentFallinGmail Would you mind recommending some resources that best helped you learn the options game? There's so much noise to cut through... books, services, etc..
I would like to know which stock he traded?
Is there a followup video with back testing?
Thanks Seth another great educational video
Thanks, Ed! Let us know what other topics you'd like us to cover.
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.
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.