Very confusing but after go over it a few times I think I get it. Buy a put at a given strike. Later on when the stock goes down you create a spread by by selling a put at a lower strike which now cost more than the original put you bought at a higher strike on the same expiration. You've secured some profit and have a free ride to gain more.
Yep, he tends to extreamly overexplain things, I think is on purpose so you have to keep watching the video, more views, more minutes per views, helps with the youtube algorithm
@@neuvocastezero1838 at that point in the trade it is the worst case. Prior to that the worst case is the full cost of the put as we said in the video.
There is no free lunch. Sure you can offset option premium cost by increasing risk. Yes you can open the position for free, but you will on the other side lose more if wrong.
there is never a free lunch, especially in the market. every trade has risk. In this case the offset options premium is not increasing risk though--it caps profit.
The key for this to work is that your initial indicator for buying a $9000 put must be correct, if the market continues to rally, you just lose 9k or get stopped out at a certain loss %.
If the initial bet was correct, why not sell the put option and received the profit...If the 1770 June Put was at $101.20, then the 1910 should be above $140. Then, the profit $5100...I would take the profit and run...
Thanks Seth. Nice trade. The key: buy puts at the market top, and buy calls at bottoms. Then, sell the short side when the market reverses sharply. Then spread = riskless profit. The key is timing!! You need a little luck on your side. Thanks.
Edison, no trade has zero risk. We were just pointing out the position you can be in if your indicator is solid and you know how to create a debit spread.
@@sethfreudberg4750 I know Mr Freudberg. My point on this message is just advice now traders about it. I`m not sure if was just me, but your explanation ( wich was great, as always ) , when you show the 3 outcomes possible for the strategy , seems that there is no risk to lose money . But anyways, you guys are outstanding!!!
The Put which I bought at 89.25 is now trading at 179.50. So selling this Put would create a profit of 9025 safe and instant. Making the short leg makes sense when you expect the long downward trendline of lower heights to continue, so in half year it's around 1750. On the other hand, there is a trendline of higher lows at the same time. From my perspective, the risk reward ration does not work opening the short leg. If there would be lower lows at the same time, I would see this differently. From a chart perspective, I would expect a rebound, so close the long put and open a bullish position, most likely using a CPS. But as usual, an excellent example of what is possible with options, and you have to choose your strategy depending on your expectations.
That's a valid perspective Chris. I"d argue to place the short put where you think the market is likely to bounce, thus locking in the best of both worlds.
Especially if IV is higher than usual i would think it make a lot more sense to sell the put right away. stock move up + Volatility crush really hurts long put.
Very imp thing - we must understand here - to make this work … First HAVE TO OPEN a PUT position take the risk and Wait for underlying position to drop. ONCE your PUT IS UP ITM : profitable THEN SELL THE SECOND LEG. Only then you lock the profit. This spread is NOT executed @same time. So we have to take one side position first , risk & wait out the time till the positions gets in your favor. NOT SUCH A EASY FREE LUNCH. - however there are many other way:like Selling high volatility moves and that’s a free lunch😊
Xquizite this is called "legging into a spread" and has a component of timing in it as you rightly point out. If the indicator is wrong or the timing is off, you may never get the chance to be in this position.
@@sethfreudberg4750 awesome. Thank you. 100% did get to learn something new from both your response and the video. Trying out a new short put spread today against naked put thats itm for month- ( bullish 👍)
People think he overexplained and he really didn't, if anything he kept it tight. First, the bearish thesis was put in place during a "lower" IV environment with a long put making the long put relatively cheap, all things considered. The rally then the sell-off with the binary news combined to get an IV expansion. This IV expansion is what drove up the price of the short put making selling the short put lucrative and allowing the trader to lock in profit not matter what happened further. That's what you see in scenario 1-2-3. The point of the video is, first if you have a directional bias you have to be right about your directional bias. And second, you need to use the right tool for the trade. Had the trader tried to buy a long call at the bottom this would have not been as successful because the cost of the long call was inflated by the same IV that made the short put worthwhile.
Thank you for this video Seth. Jon Najarian always says he'll wait for appreciation/decline after he buys a Call/Put before legging in the sell part of the spread but he never explained why. Now it makes sense! (3/17/23)
It became purely directional trading ( naked positions) , The strategy has explained in the video has Hedging and uncorrelated trades each others, mainly for risk management controls in trading. It minimizes the risk if moves against the view.
As many comments indicated. You must get the direction right, or you potentially face a 100% loss if you never get a chance to sell the short put. That being said, which indicator would you use that has the highest success rate of getting the short to midterm direction right?
Good tip Seth! Why don’t you just sell the PUTs on March 13th? Today (Thu 16th) those 1910 PUTs are sold at 151.80, so you could realize 151.80-89.25 = $6,200 gain with no further risk
@@hscelza That is true, although I think you meant "unrealized gains". It's "free" in the sense that you are guaranteed some profit once the short put price exceeds the long put original price.
Great strategy. Thanks for posting it. one question. What would be your stop loss if Russell didn't drop but kept going higher? Mine would have been just above the latest swing high around 2,000. Of course in that case, this would be a loss.
Mark you'd need to determine that through either technical analysis or back testing of different combinations of risk and reward. A little hard to explain in a quick comment.
What confuses me is, that the long Call option bought ATM have a Delta 50 not 100, and the short Put in Scenario 3 is roughly at Delta70. So the math behind seems to be not correct. But it´s a smart strategy - thanks
Thanks, Seth. As always, great content. Two risks I see: 1. You have to be directionally correct in your thesis 2. Volatility will need to increase materially when it comes time to sell the put In this case, we had a banking catastrophe as a catalyst. I wonder if this would work with more run-of-the-mill downturns? That said, I can see an opportunity on the other side with recovery from a big dip using call options.
Yeah, pretty much this. This is basically the same thing as taking profit on a day trade, except that it leaves open the possibility that you can make a bit more. You don't need to way until you can sell the lower strike at a net profit either, you can wait for 90% in the hope that the spread will be worth at least 10% of your initial investment, or roll the lower strike up for more profit, or what have you. Or you can sell a higher strike if it gets away from you and convert it to a credit spread if your view on direction changes.
Why at 3:52 do you state that the put option will pay $100 for each $1 the asset's price drops below the strike? That table shows a Delta of 0.45. Doesn't it mean that the put option will pay $45 per dollar, instead of $100 per dollar? That change would modify enormously the calculated profit of this put spread.
Ah so you wait till the puts appreciates and then sell one. If you think it’s going to bounce back, why not sell/write the new put above the strike put you initially bought receiving even more premium!?
Funny, I “thought” of this same strategy on my own (even though I was certain I wasn’t the only person to have thought it up…😂🙄, I just didn’t know what it was named until today from the comments: a ghetto spread.
The trick is being right that the underlying will go down. Otherwise, your 8925 goes to zero. The funniest thing to me is that, at the moment that the underlying is at 1744 and you suggest this adjustment, the 1910 put is at 179.50 (screenshot in video), which represents a 90.25 increase in price and the possibility of closing at a profit of $9025. The suggested adjustment is more profitable only if the underlying closes below 1770, which is around current market price. If the underlying rallies back up to around the price of the start of the trade, you give up (9025-1195)/9025 = 87% of the profit you would make if you closed right now for the possibility of a good increase in pnl if it keeps going down. I think it would be way more cash-efficient to spend, say, half of that profit to buy a low-cost inverted iron condor, for example.
When I heard make money at zero risk and zero cost I thought what is the catch. Everything he said is 100% true. However if the Market goes up and up, then one will lose the cost of your Put. So again the real trick is being right on the direction. For me I would just buy a Put out of the money for say 2K and if there is a good drop I can make 20K or more. Not boxed in to how much I can make by the short Put.
Yes, the title is incorrect and misleading. "If you're right". The worst case scenario is that you lose $8,925. Not to mention the theta burn that you are losing everyday.
@@mglacour Heck if I know the market is going to go down. I just buy a straight Put with less risk than what he shows. I can risk just 1K and make 20K profit if its a huge, huge drop.
We never said zero risk. The point of the video is that once your trade starts working, this is a method for pulling all remaining risk out of the trade while maintaining plenty of further profit upside.
@@sethfreudberg4750 Thanks for your info and all of the videos . OK, yes not zero risk but just how to manage it once it is going the right way and if the market then all of a sudden went in the opposite direction fast, your profits would be locked in at that point is what I now can see also,
This video is very confusing. It's not clear that you sold a put against your existing put after the market breaks to the downside (I presume this is what you mean?)
Why not sell 1910 put you paid 89$ for a month ago, now its worth like 250$ because index is down 170 points and still 4 months till june. You could pocket 16000$ and not play more games. You just have 3 options to make 50% less on average by not selling that profitable first put
This title is misleading. In the example, you didn’t enter the trade with zero cost, you adjusted when the original trade started working to your favor, by turning a single leg into a spread with net cost now below zero. I used to really appreciate the depth of videos from the channel.
He completely fails to mention that if price continues higher before a move lower and you never get to sell the short side, you're going to take a full loss on the long Put.
Are you guys on drugs ? So you will open one leg by buying one out of the money put and then you will wait IF the market has a huge sell off and IV skyrockets to sell a further out of the money put ? What if the market simply goes up? What if what happened with the banks does not happen every month? Did you think about that ?
Me too man, but that doesn’t justify this trade AT ALL 🤣…so they mean to tell us that they buy those puts every once in a while in anticipation of something like this? And how much do they lose before they win once ?
How can you do this with a straight face? Come on, please do a full risk analysis if you are a professional trader! What is your risk mngt if market continues up for example.
This video is rubbish, you're not clear when the option was sold. Your stats probably show people watching this over and over trying to make sense out of it. Those stats mean it's a bad video, not a good one. You get more TH-cam revenue, but I'm less likely to click another video or consider your training.
Put option price the higher strike price the more expensive, and you are totally massed up. You have got it upside down, 1770 put is much cheaper than 1910 put. Please do not waste viewers' time here.
Grab your spot at the options workshop: bit.ly/3lcw4oc
If I win the 2023 USIC will you finally respond to my fucking applications?!
I just watched a webinar was wandering how to gain access to the two books the playbook and one good trade.
Very confusing but after go over it a few times I think I get it.
Buy a put at a given strike.
Later on when the stock goes down you create a spread by by selling a put at a lower strike which now cost more than the original put you bought at a higher strike on the same expiration.
You've secured some profit and have a free ride to gain more.
Yep, he tends to extreamly overexplain things, I think is on purpose so you have to keep watching the video, more views, more minutes per views, helps with the youtube algorithm
It seems to me that the "worst case" is negative $1195 , it's still a debit spread, and I don't even think the video shows him creating the spread.
yeah it's called a getho spread
@@neuvocastezero1838 Yes the spread is created when the short put is sold Neuvo
@@neuvocastezero1838 at that point in the trade it is the worst case. Prior to that the worst case is the full cost of the put as we said in the video.
You guys have great strategic ideas. I don't do much directional trading but this is a great technique to lock in profits.
There is no free lunch. Sure you can offset option premium cost by increasing risk. Yes you can open the position for free, but you will on the other side lose more if wrong.
there is never a free lunch, especially in the market. every trade has risk. In this case the offset options premium is not increasing risk though--it caps profit.
The key for this to work is that your initial indicator for buying a $9000 put must be correct, if the market continues to rally, you just lose 9k or get stopped out at a certain loss %.
Exactly, this is very dependent upon the indicator being right. But if it's right this technique puts you in the drivers seat.
If the initial bet was correct, why not sell the put option and received the profit...If the 1770 June Put was at $101.20, then the 1910 should be above $140. Then, the profit $5100...I would take the profit and run...
That is a 100% risk...That is too much...
Thanks Seth. Nice trade. The key: buy puts at the market top, and buy calls at bottoms. Then, sell the short side when the market reverses sharply. Then spread = riskless profit. The key is timing!! You need a little luck on your side. Thanks.
No doubt, this is a timing trade.
Zero Cost ….it does not mean ZERO RISK !!!…be careful !!!
Edison, no trade has zero risk. We were just pointing out the position you can be in if your indicator is solid and you know how to create a debit spread.
@@sethfreudberg4750 I know Mr Freudberg. My point on this message is just advice now traders about it. I`m not sure if was just me, but your explanation ( wich was great, as always ) , when you show the 3 outcomes possible for the strategy , seems that there is no risk to lose money . But anyways, you guys are outstanding!!!
The Put which I bought at 89.25 is now trading at 179.50. So selling this Put would create a profit of 9025 safe and instant.
Making the short leg makes sense when you expect the long downward trendline of lower heights to continue, so in half year it's around 1750. On the other hand, there is a trendline of higher lows at the same time. From my perspective, the risk reward ration does not work opening the short leg. If there would be lower lows at the same time, I would see this differently.
From a chart perspective, I would expect a rebound, so close the long put and open a bullish position, most likely using a CPS.
But as usual, an excellent example of what is possible with options, and you have to choose your strategy depending on your expectations.
That's a valid perspective Chris. I"d argue to place the short put where you think the market is likely to bounce, thus locking in the best of both worlds.
Especially if IV is higher than usual i would think it make a lot more sense to sell the put right away. stock move up + Volatility crush really hurts long put.
Managing those trade legs is very important!
Very imp thing - we must understand here - to make this work …
First HAVE TO OPEN a PUT position take the risk and Wait for underlying position to drop. ONCE your PUT IS UP ITM : profitable THEN SELL THE SECOND LEG. Only then you lock the profit. This spread is NOT executed @same time. So we have to take one side position first , risk & wait out the time till the positions gets in your favor. NOT SUCH A EASY FREE LUNCH. - however there are many other way:like
Selling high volatility moves and that’s a free lunch😊
Xquizite this is called "legging into a spread" and has a component of timing in it as you rightly point out. If the indicator is wrong or the timing is off, you may never get the chance to be in this position.
@@sethfreudberg4750 awesome.
Thank you.
100% did get to learn something new from both your response and the video. Trying out a new short put spread today against naked put thats itm for month- ( bullish 👍)
How are you getting cash flow buying a put higher than where you are selling the put?
I’m bit confused. Why is 1910 put option cost less than 1770 put? Is this debit spread on both ITM puts?
Question, how would you manage trade if had moved against you before you legged in to the spread, as that is where the risk is.
This is a standard vertical spread. Paper trade these types for awhile to get a better understanding.
People think he overexplained and he really didn't, if anything he kept it tight. First, the bearish thesis was put in place during a "lower" IV environment with a long put making the long put relatively cheap, all things considered. The rally then the sell-off with the binary news combined to get an IV expansion. This IV expansion is what drove up the price of the short put making selling the short put lucrative and allowing the trader to lock in profit not matter what happened further. That's what you see in scenario 1-2-3. The point of the video is, first if you have a directional bias you have to be right about your directional bias. And second, you need to use the right tool for the trade. Had the trader tried to buy a long call at the bottom this would have not been as successful because the cost of the long call was inflated by the same IV that made the short put worthwhile.
Thank you for this video Seth. Jon Najarian always says he'll wait for appreciation/decline after he buys a Call/Put before legging in the sell part of the spread but he never explained why. Now it makes sense! (3/17/23)
Why did you chose to go long puts, rather than short calls? The profit would have been double when you bought in the 1770s
It became purely directional trading ( naked positions) , The strategy has explained in the video has Hedging and uncorrelated trades each others, mainly for risk management controls in trading. It minimizes the risk if moves against the view.
As many comments indicated. You must get the direction right, or you potentially face a 100% loss if you never get a chance to sell the short put. That being said, which indicator would you use that has the highest success rate of getting the short to midterm direction right?
Good tip Seth! Why don’t you just sell the PUTs on March 13th? Today (Thu 16th) those 1910 PUTs are sold at 151.80, so you could realize 151.80-89.25 = $6,200 gain with no further risk
If you’re still bearish, it makes sense to sell a lower strike to get a free debit spread
It is not free if you’re putting realized gains at risk again
@@hscelza there are no realized gains in this example. And owning a long debit spread for a net credit fits the criteria of “ZERO-COST” perfectly
@@Brayness very well put Brayness, exactly.
@@hscelza That is true, although I think you meant "unrealized gains". It's "free" in the sense that you are guaranteed some profit once the short put price exceeds the long put original price.
How can a higher strike price put option cheaper than the lower one?
Great strategy. Thanks for posting it. one question. What would be your stop loss if Russell didn't drop but kept going higher? Mine would have been just above the latest swing high around 2,000. Of course in that case, this would be a loss.
Mark you'd need to determine that through either technical analysis or back testing of different combinations of risk and reward. A little hard to explain in a quick comment.
What confuses me is, that the long Call option bought ATM have a Delta 50 not 100, and the short Put in Scenario 3 is roughly at Delta70. So the math behind seems to be not correct. But it´s a smart strategy - thanks
Can you advise me brokers for foreigner to trade options in USA ?
This guy is only 35 years old, but just looks older from the stress of trading options.
Thanks, Seth. As always, great content. Two risks I see:
1. You have to be directionally correct in your thesis
2. Volatility will need to increase materially when it comes time to sell the put
In this case, we had a banking catastrophe as a catalyst. I wonder if this would work with more run-of-the-mill downturns?
That said, I can see an opportunity on the other side with recovery from a big dip using call options.
Yeah, pretty much this. This is basically the same thing as taking profit on a day trade, except that it leaves open the possibility that you can make a bit more. You don't need to way until you can sell the lower strike at a net profit either, you can wait for 90% in the hope that the spread will be worth at least 10% of your initial investment, or roll the lower strike up for more profit, or what have you. Or you can sell a higher strike if it gets away from you and convert it to a credit spread if your view on direction changes.
So Its just hedging already realized gains....nothing to get excited about.
3:09 Pocket the Premium
Why at 3:52 do you state that the put option will pay $100 for each $1 the asset's price drops below the strike? That table shows a Delta of 0.45. Doesn't it mean that the put option will pay $45 per dollar, instead of $100 per dollar? That change would modify enormously the calculated profit of this put spread.
iam a newby how much does your classes
Ah so you wait till the puts appreciates and then sell one. If you think it’s going to bounce back, why not sell/write the new put above the strike put you initially bought receiving even more premium!?
Funny, I “thought” of this same strategy on my own (even though I was certain I wasn’t the only person to have thought it up…😂🙄, I just didn’t know what it was named until today from the comments: a ghetto spread.
Out of luck when market move up combined with volatility crush...
Must have perfect indicator, timing and of course, some luck.
The trick is being right that the underlying will go down. Otherwise, your 8925 goes to zero.
The funniest thing to me is that, at the moment that the underlying is at 1744 and you suggest this adjustment, the 1910 put is at 179.50 (screenshot in video), which represents a 90.25 increase in price and the possibility of closing at a profit of $9025. The suggested adjustment is more profitable only if the underlying closes below 1770, which is around current market price. If the underlying rallies back up to around the price of the start of the trade, you give up (9025-1195)/9025 = 87% of the profit you would make if you closed right now for the possibility of a good increase in pnl if it keeps going down.
I think it would be way more cash-efficient to spend, say, half of that profit to buy a low-cost inverted iron condor, for example.
When I heard make money at zero risk and zero cost I thought what is the catch. Everything he said is 100% true. However if the Market goes up and up, then one will lose the cost of your Put. So again the real trick is being right on the direction. For me I would just buy a Put out of the money for say 2K and if there is a good drop I can make 20K or more. Not boxed in to how much I can make by the short Put.
Yes, the title is incorrect and misleading. "If you're right". The worst case scenario is that you lose $8,925. Not to mention the theta burn that you are losing everyday.
@@mglacour Heck if I know the market is going to go down. I just buy a straight Put with less risk than what he shows. I can risk just 1K and make 20K profit if its a huge, huge drop.
We never said zero risk. The point of the video is that once your trade starts working, this is a method for pulling all remaining risk out of the trade while maintaining plenty of further profit upside.
@@erwinerwin1245 Depends on where you think the market is going from there Erwinerwin
@@sethfreudberg4750 Thanks for your info and all of the videos . OK, yes not zero risk but just how to manage it once it is going the right way and if the market then all of a sudden went in the opposite direction fast, your profits would be locked in at that point is what I now can see also,
It's just a spread ... the legs are just entered at different times due to long expiration date
This just seems like gambling to me. What's the advantage of this type of gambling vs. trading ES futures, which also seems like gambling?
Next show us how to find an option market where the lower strike bid is higher then the near strike ask.
This video is very confusing. It's not clear that you sold a put against your existing put after the market breaks to the downside (I presume this is what you mean?)
Jesus, im an experienced Options Trader but you guys lost me lol 😂😂
Here’s another clean easy simple way:
BAN SUBSCRIPTION/LICENSING MODELS.
GO BACK TO ONE TIME PAYMENTS.
Why not sell 1910 put you paid 89$ for a month ago, now its worth like 250$ because index is down 170 points and still 4 months till june. You could pocket 16000$ and not play more games. You just have 3 options to make 50% less on average by not selling that profitable first put
This title is misleading. In the example, you didn’t enter the trade with zero cost, you adjusted when the original trade started working to your favor, by turning a single leg into a spread with net cost now below zero.
I used to really appreciate the depth of videos from the channel.
We call these "ghetto spreads"
Never knew that actually.
Very confusing. There is nothing such as zero cost and great profit.
We never said zero risk Grow, we said zero cost under certain circumstances. There is a big difference.
I got lost honestly
Harpreet watch it again please and sometimes people get it the second time.
“Risk free (if it goes your way)” wtf is this
He completely fails to mention that if price continues higher before a move lower and you never get to sell the short side, you're going to take a full loss on the long Put.
Do people still think these videos are made to benefit you? I’m sincerely curious why you would think that.
Are you guys on drugs ? So you will open one leg by buying one out of the money put and then you will wait IF the market has a huge sell off and IV skyrockets to sell a further out of the money put ? What if the market simply goes up? What if what happened with the banks does not happen every month? Did you think about that ?
I caught all of that IV in banks 🤣 LESGO
Me too man, but that doesn’t justify this trade AT ALL 🤣…so they mean to tell us that they buy those puts every once in a while in anticipation of something like this? And how much do they lose before they win once ?
That’s called being wrong, in which case the strategy would lose money; they did not claim or imply this strategy was risk free
Standard options trade.....for experienced traders
Markets full of risk, not guarantees n anything
This is the utmost difficult way explaining how to trade options...
Geez fellas get it together.
How can you do this with a straight face? Come on, please do a full risk analysis if you are a professional trader! What is your risk mngt if market continues up for example.
@dori, to go through a full risk management on this video would take an hour. There are many nuances and considerations in when to take a stop
TLDR: legging into a put spread.
It’s a double-edged sword. I don’t do it.
lies, its not zero cost
This video is rubbish, you're not clear when the option was sold. Your stats probably show people watching this over and over trying to make sense out of it. Those stats mean it's a bad video, not a good one. You get more TH-cam revenue, but I'm less likely to click another video or consider your training.
Put option price the higher strike price the more expensive, and you are totally massed up. You have got it upside down, 1770 put is much cheaper than 1910 put. Please do not waste viewers' time here.