Whether you are an aspiring, a beginning, or a seasoned options trader, learning about options trading is inevitable if you want to make a profitable return out of it. Although option trading can earn you large profits within a very short time and with minimal capital investment, you need to exercise a lot of caution before putting your money into it.
Perhaps you have heard stories or even experienced first hand on how easy it is to lose all your assets within a very short time. Indeed, if not done properly, options trading can cause major losses to your assets.
Therefore, any trader who wants to grow his/her asset portfolio quickly and profitably should seriously consider stock options training. Many budding investors have ended up losing all their hard-earned money by trading options without having any prior knowledge of the trade. As everyone would agree, this is not good.
Therefore, in order to prevent such huge loses, wisdom demands that you equip yourself with the right knowledge before placing your first coin into the trade. Though it is said experience is the best teacher, you would not want to experience this, especially if it is avoidable.
Learning how to avoid making mistakes is a great sign of maturity on every investor’s part. Moreover, it should be your desire, too. Although options trading has its risk elements, most of the risks can be circumvented by simply learning how to trade options effectively.
Learning effective stock options trading would involve learning how to monitor the market trends in order to apply the right profitable options strategies. Learning also involves being able to conduct a thorough market analysis in order to be able to pick the right stocks. Such decisions cannot be made off the top of your head without committing time to learn.
When you are considering options trading, you should first differentiate it from gambling, where you solely rely on lady luck. Options trading is far more complicated than it may appear to many. But even so, you can still trade in options and make your share of huge profits.
If you are a seasoned trader, you may now know that trading options is very profitable when properly and systematically done. Learning is the beginning of successful trading and as an investor, you would not want to compromise your success for anything else. In fact, success is the reason why any investor gets into any investment business.
In summary, learning about options trading is critical whether you are aspiring to be an options trader, you are a beginner in the trade, or you are seasoned trader. Acquiring sufficient knowledge is the only way you can make a profitable investment in options trading. As an investor in options trading, you should not gamble with your hard-earned money; you simply need to learn your trade before putting your money into it. This will enable you to avoid making common mistakes when trading.
Hey tradeologists, we’re going to do our daily review today and basically it’s a very simple process. As always, all we do is take a look at the numbers. We manage by the numbers. We take a look at our delta, gamma, theta, and vega.Take a quick look at profit and loss figures for the day.
Weare in pretty good shape here,I think. We’re getting close to expiration. We have most of our trades in the May options. We’ve got about 11 days left on that. What we aregoing to do is take a quicklook at our deltas. We’re 45deltas long. Our gamma is at 155 which is pretty normal the closer we get to expiration. Our theta is a nice $77 at this point and our vega is at 111.30 so we’re looking pretty good here.
We are going to keep an eye on that gamma because gamma and theta go together. Obviously what we want to do is we want to capture as much theta as possible. Really these trades are theta positive trades. If you want to get more information on theta-positive trades, that’s how we make our money. We collect on average $76 every single day going forward. We’ve got a nice profit open but we’re still early. This is the crunch time for these trades. Eleven days before expiration; this week our profits are just going to explode.
We’ve got $330 open on a profit figure. We’ve got $174 just today. If we go over to our analyze tab here, we can see that this white line is our current profit and loss position. We’re not quite on center but you know we’re still looking pretty good here. I think that we’ve got a little bit ofroom to move on the upside and I’ll show you the VIX in just a second. All we do is take a look at this picture, we take a look at our monitor tab and take a look and see exactly where we are today. All of our numbers look good. Everything is positive and we’re starting to get into a really profitable position here.
Remember this white line here is our current profit and loss and that will continue to move up the closer we get to expiration. We’ve only got 11 days left and this last week before weget into expiration week is going to be absolutelycritical. We should be up around here just over the $1,000 level before Friday.
We’re going to continue to monitor this trade and hopefully we’ll get an opportunity here, if we start to get towards one ofour breakeven points, to add to ourposition. And especially during the last week before the week of expiration, that’s a great time to put on some trades because we will just crush the theta on that. So what we want to do is just keep an eye on this and take a look at our picture. Our picture looks really, really good. We’ve got plenty of upside room and plenty of downside room as we get closer to the expiration date, especially expiration week which is coming up after the end of this week. Today is Monday, May 5. This line is just going to start shooting right up here. I think we’regoing to be in absolutely excellent shape.
We don’t have to do any adjustments to our positions today. I think we’re in really good shape. The reason that I think we’re in really good shape is because of the VIX. Remember the volatility index really gives us kind of a hint of wherethe market is going to go. When this goes up, remember, the market goes down and when this goes down the market goes up. It acts as a contrary indicator and indicates fear in the market.
You can see we have these two peaks back here on January 22 and right around March 17. We have these two huge up days on the VIX which meant huge down days in the markets. Since then we’ve traded down. We had a bit of a trading range in here between 22 and 25 which was very, very nice. That was last month. We had a great trade last month. We did very, very nicely in there.
We’ve since broken down below the 22 level which was a prior support and was broken and is now probably going to act as resistance at this point. We’ve got support down here at 1,750 so we’re probably going to be trading just in this range here.
I doubt very much at this point we’re going to go below 17. I think probably we’re going to be in this range which will be absolutely perfect for our position because if the market goes up or down we’re going to be in a pretty sweet profit territory up here.
This is our expiration line, the green line. Eventually this white line will move up to meet this green line and that’ll be exactly what our profit is going to be for the month. Our maximum profits can be anywhere from $1,852 toprobably around $1,100 or $1,200 for the month and remember that’sonly like one or two contracts. Each one of these positions only has one or two contracts on so our open profit is, you know… Take a look at our real figures. There’s $334 on one or two contracts on each one of these positions. If we had 10 contracts, we would be up about $3,000 right now. So you know there’s plenty of profit potential.
This is our demonstration account. I don’t want you to think that you have to trade in large lots here to make a lot of money. If you’re interested in doing these types of positions, you only have to put up maybe a couple thousand dollars of margin in order to make $1,000 a month.
This happenedand this is not part ofthe daily review. I just want to give you an idea that when the prices do move against our breakeven points, and they did this past month, that gives us an opportunity, and I really mean opportunity,to adjust our positions and add to our positions. That’s whycapital allocation is so important. We don’t put all our money into thesetrades at the beginning of the month. We let them run and then take advantage of the opportunities when the prices dorun up against our breakeven point so we can add to the position. In the beginning of the month we had maybe a thousand dollar profit potential on these positions at the beginning. Now we’re up to almosttwo thousand dollars because we had the opportunity to adjust our positions.
When theprices move against us, they’re opportunities to add to your position and now you can see that, in fact,we’ve almost doubled our profit potential for the month. We’ve added an additional $2,000of margin. We start out with $1,600 in margin and we’re almost up to$2,000 in profit potential.
So that’s it for the daily review. We’re doing very well. The closer we get to expiration, the theta should get up to around $200 a day and that’s like with only one contract on each one of these positions. If you were doing ten contracts, your profit would be close to maybe $1,800 a day or $2,000 a day.
So the profit potential is definitely there in this kind of business once you learn how to manage your position based on the numbers. You have a good profit picture here. It’s only a matter of size as far as how much money you want to make and how much risk you actually want to take.
As always, trade with confidence and have a great day.
Hope you guys are trading well here and you’re all paper trading. I hope you have all paper traded beforeyou started actually allocating real money to trades. I have a very special presentation today.
Basically there are four risks to this type of business and I’m going to share all four risks with you today. These risks are something that you really need to keep an eye on as you develop your business. They’re not something that are terribly intuitive, but these are the things I’ve learned while doing this business and by creating these business opportunities.
When creating an investment business,we manage by the numbers. The numbers are everything. Every business understands what their product is. You have to have a very good, firm foundation of understanding what your product is. In this business your product is calls and puts. This is the stuff that we deal with, the product that we deal with. We’re selling options and we are buying options. We are a business that buys and sells.
Anytime you’re in business, you have risks. The four risks that I’m going to talk about todayare concentration of risk, overlapping trades, allocation of capital, and finally over trading or over adjusting positions.
Let’s take the first one, concentration of risk. What I mean by concentration of risk is that you have almost all of yourprofit potential centered around a single strike price. For example, I have currently on the screen our portfolio with the symbol IWM so it’s weighted against the IWM. As you can see, we have a fairly wide range in which the IWM can move and we could still profit from this position. Concentration of risks means that at the 73 strike price you have a very large position at the 73 strike price. I guess size all depends on the capital that you’ve allocated forthis business.
Let’s say $5,000 is a lot of money to you. Well, if you have $4,000 of your money tied up in marginand they’re all centered aroundthe 73 strike price, what you’re doing is you’re concentrating your risk at that point. If prices move way down or they move way up, you’re probably not going to have the same type of profit potential as if you had a wider range in which you could profit from. So that’s concentration of risk.
Concentration of risk means having a lot of contracts or size position for you at a single strike price. That could be if your capital allocation for the businessis $5,000or $20,000, or $50,000, or $100,00, or even $500,000, it doesn’tmatter. If you have a large position that you would consider large at a single strike price you have concentration of risk and that’s very dangerous. Prices can move dramatically against you very quickly and if you have a concentration of risk at a particular strike price, you’re going to get hurt.
The third thing I want to warn you about and the third risk of really this type of business is the allocation ofcapital. Allocation of capital means that you have so much capital available to you even if you had $200,000, you don’t want to spend $200,000 on opening these positions. If you have $20,000, you do not want to use all $20,000 opening these types of positions. If you have $5,000, you do not want to use all $5,000 opening these types of positions.
The reason for that is let’s say a gift store, like any other business, had an opportunity to buy stock to put in their store at a very low cost. This opportunity is only availablefor just a few days because there are other people who are interested in the stock. But you could get it very cheaply, maybe 50 percent cheaper than you can normally buy it, you would need the capital available tomake that purchase as the opportunity became available.
That’s what we need to think about in this business. When our prices start to run up towards our breakeven points in our portfolio,we don’t need to make changes to our business to take advantage of those opportunities because many times a position that runs up against our breakeven pointsis an opportunity to add to our current positions. It’s a smart allocation of capital.
We start our portfolio out on some basic positions but we always make sure that we have capital available, working capital. In any business it’sextremely important that we have the working capital to take advantage as necessary.
The fourth risk that I want to talk about is over trading or over adjusting. If we take a look at a current chart of the Dow Jones Industrial Average, you’ll see that yesterday we had an extremely large run-up in prices. In fact they were up almost $200 yesterday. Today they were up another $115but now they’ve backed down quite a bit. In fact, they backed down to the point where it’sbelow this 208 day moving average which we had kind of determined to be somewhat of aresistance points, as well as the 13,100 level.
Technical analysis is fairly simple. You have support and resistance points. You have support. You have resistance. You have resistance and you have support. That’s pretty much all you need to know as far as technical analysis goes for the type of business that we run. That’s pretty much it.
But prices do tend to fluctuate. Sometimes they go up, sometimes they go sideways, and sometimes they go down. Adjusting positions becomes really an art of knowing when exactly to make those adjustments. You want to try to keep yourprofit picture and your price pretty much centered. And if it goes off maybe you do want to do a little adjustment. You don’t have to do a large adjustment.
So those are the four risks of this business and I think it’s important that you understand those risks. I’ve talked about concentration of risk, allocation of capital, overlapping trades, and over trading orover adjusting but the key point is they’re only necessary because of price risk.
Price risk means that the price is going to move up and down against you. If there was no price risk, you would have absolutely no problem with concentration of risk. You’d have absolutely no problem with overlapping trades because you would not adjust anything. You would have no problem with allocation of capital because you could simply put your positions on at one price and remain there until expiration and you’d have no on risk of over trading or over adjusting.
All four of the risks in this business really have to do with price. Prices will fluctuate sometimes wildly, sometimes moderately, but they always fluctuate. They never stand still. So if it wasn’t for price risk, none of these other four risks would even be a consideration. And those are the four primary risks of this business. All of them are easily managed.
Our DIA position we still have our oneposition on. We didn’t make any adjustments to the DIA. If we take a look at our SPY position, we had to do one adjustment which was there’s really an art and a science. The science is the numbers and the art is knowing when to adjust.
Let’s go back to our trade position here and see what we’re doing. It’s still working and we haven’t gotten filled yet and it’s been about five minutes now so what I’m going to do is I’m going to raise this up to 16 cents and see if we can’t get out at 16 cents. We’ve got$305 of profit open on this and so we’ll capture that $305 as soon as we get out of this position. We made $40 just today on this position. Let’s try 17. So, youdon’t mind giving up a little bit of profit.
We started out at 15 cents. This is a good lesson. Like this morning I had no problem getting out at the price that I wanted which was really I think a penny off the mid-price. Here we had to go up two cents. We got out at17 cents. Westarted out at 15 cents as you can see down here. It went to 16 and then ended up gettingfilled at 17. When you have90 percent of your profit you can afford to give up a few pennies. It doesn’treally matter that much.
At this point what I wanted to do was I wanted to pair those positions down. You can see now on the April positions. I’ve got my SPY positions off. I’m not in the April position anymore and that’s the way I want it. I want out of that seven-day position because the closer you get to expiration there’s all kinds of weird things that can happen, especially gamma risk. If the market happened to get to one of our strike prices,then we get some weird stuff going on. I’m going to take my profit at 90 percent.
So we’re out of the SPY. If we take a look at our portfolio nowthe only thing we have left on there is the EEM’s and the EEM’s are looking pretty good. I’m not too worried about them. Because we do build portfolios we had a lot of different positions on here. Let me just refresh your memory.
We had a SPY positionand that’s gone. We had an IWM this morning and we took that off and we still have the EEM. And the DIA we took off this morning as well. So all those other positions are gone and the only one we have left isthis one. This one still shows some profit potential here. We can still move down on this quite a bitand still be in a profitable position. Our current profit on this is $138; with one contract.
Remember I’m talking small contracts. Imagine if we had 10 contracts. Now we’re up $1,300. If we had 20 contracts we’d be up $2,300 just on this one position. I mean how much money do you want to make? That is the only question. Once you learn how to build your portfolio and manage these positions, it’s only a matter of size.
Now this position, because the marketis falling, we’re now down 237 points. When we started out, we were down about 200 points. Now we’re down almost 240. This could go down a little bit more and we’d beeven in a better position. We made about $30 today. We have 136 open but let’s see where the expiration is. The expiration is $351 so we’ve got a couple hundred dollars of profit still in this position that we could take out of it if we hung in there just a little bit more.
Since I do not like to predict price, I only want to manage a portfolio based on numbers. Then you know what, I’ve got upside, I’ve got downside and it doesn’t matter if the market goes up or down from this point, I’m going to be in a profitable position. So I’ve got room to let this ride a little bit and I may do that just to grab a little bit more profit out of this position. So we’re going to leave this fornow but this is how you close out profitable positions. If we ever get into a losing position, I’ll do a video on that, too, so you may find one on your CD.
This is how you trade with confidence because it doesn’t matter if the market goes up or down. What you always want to take a look at is where your current profitable position is and that’s this white line here. Your expiration position is this greenline here. When you hover your mouse over your current position and live price, you can tell what the difference is between your current position and the profit potential that you have availableleft in this position, which is about $200. We’re going to hang in there I think a little bit more because we have room to breathe and this is the last position in our portfolio that we haven’t closed out yet.
So adjustments are absolutely critical. It’s very very important for you understand how to do adjustments in your positions and we don’t do just one-dimensional type of positions. We do multi-dimensionalpositions so that we profit and it doesn’t matter whether the stocks go up or down. But adjustments are really the big picture because nobody teaches it.They teach you how to put on these one types of positions either spreads, calls, puts, or whatever and that’s it. If they don’t work out you take a loss and if they work out you make alittle bit of profit. But I don’t think that’s a great way to trade.
I did that for years and you know I had 50/50success. Some months I made money and some months I didn’t make money. You have to have some market direction. If they don’t work out you get killed and if they do work out, you make a little bit of profit and that’s not a business, that’s a gamble. This is a business; managing our portfolio by the numbers. We know how much profit we’re going to make every month.
Then I go into closing our positions; our profit andloss. Let’s take a look at our profit and loss closing positions. This is absolutely critical because what we want to do is close out thepositions at the right timeand this is where you want to take a look at this picture again. You want to analyze your picture because when you get close to expiration that white line moves allthe way up here and it’s very close to your expiration full profit. You know that if your position is looking really good and it’s in the center, you might want to hold it another day or two just to see how prices go.
In general once you get to the point where you’ve got a substantial profit in these positions, you know you can close them out. It’s not going to hurt. You know you can still make a profit and you don’t have to be in a hurry about closing out your positions, which is nice. You have so much room to move in price on a daily basis that it’s not going to hurt you if you don’t close out your position one day. Say you got busy with something and you want to close it out but you forgot or you didn’t get the price you wanted or something like that. You can afford to be patient with these positions. It’s not like day trading where every little tick counts. In this type of trading, you’re putting on positions and you don’t have to settle for market prices. In fact, I don’tsuggest you settle for market prices.
The nice thing about the thinkorswimplatform is it allows you to get in at the mid-prices many times. It depends on the market, of course,but you can get into the mid-prices and if you can’t get in the mid-prices, then you can move up here little bit by little bit. The money that you save from trying to get mid-prices really helps pay for all the commissions that you’ll be generating. Now the commissions are very reasonable on thinkorswim so I don’t even want you to consider that because these positionspay for themselves and make a great profit. So commissions are really not a major component of your expenses,but they are an expense and that’s the only expense that you have in this type of business. That’s your overhead. Your commissions and that’s it. I think they charge $1.50 for anoption trade. I mean a couple of options are going to cost you $3; one option will cost $1.50 so it’s not a big amount of money but it is overhead that you have to pay.
So closing out the positions is the next videos set that I do and it’s very important that you understand how to close out your positions. You’re not in any hurry. You’re not day trading. You can actually take your time, close out your positions, and make sure you do them in the right way to collect your profits andmove onto the nexttrade.
Then finally we go to the big picture. I take a look at some technical analysis stuff. I have a proprietary technical analysis tool that I use to determine how the market will open every single day and it’s been right 95% of the time. It’s very close to being right almost all of the time. It’s very interesting because a lot of times the futures will trade before the option stockmarket open. I remember recently that the futures on the S&P 500 were down like $9 which is a pretty big down movement before the open and everybody expected the market to open way down for that day. My proprietary indicator indicated that it was going to be a flat open, in fact it might be alittle bit up and it did. It opened basically down about 5 points and then the Dow Jones Industrial startedgoing up 20-30 points so it’s a very interesting indicator to use. It’s a proprietary indicator that I came up withand I’m going to give that to you absolutely free as well.
I also talk a lot about the VIX and if you don’t know anything about the VIX don’t worry about it right now, but it’s a very important tool for stock trading and especially for our types of positions. It’s probably one of the most important tools that you can use to determine future direction of stock market prices, at least in the short term.
So that’s it. It’s everything that I go over in this course. Even one trade analysis is going to cover the costs of this easily. If this is the type of information that you want to learn, thenI suggest that you sign up. To tell you the truth, the type of information that you’re getting, I didn’t get at that $5,000 seminar.
Now it’s all online. All you have to do is login. New videos are going to be released every single day until the entire course is available online but I want you guys to start out real slow. I’m going to give you the introduction videos. I’m going to go through all the Greeks. I’m going to go through trade selection strategy, portfolio building, using thisTOS platform,portfolio management, using these Greek numbers, managing by the numbers,adjustments, closing positions, and the big picture technical analysis. I go through everything that you need to start putting on these trades. Like I’ve said, I’ve been to $3,000 seminars and $5,000 seminars and they don’t teach what I ‘m teaching you.
This is the real deal. This is how market makers and floor traders who know what they’re doing are doing and based on their trades for making their money through the spreads,they’re actually managing portfolios in this manner. I can’t say much more than that. This is the real deal. You’re going to get real information.
In fact, I have been a market junkie now for about 20 years, maybe even more than that. I find this absolutely fascinating and I’m slowly replacing my online income from marketing to just trading. Like I’ve said, it takes me 15 minutes a day and I ‘m done and I go do whatever I want to do. Go shopping,go to a restaurant, meet some friends, take my wife shopping, and do basically whatever I want to do. Summer is coming so I’ll probably play a lotmore golf.
These positions do not need to be managed on a minute-by-minute basis. You take a look at the open. Here’s something that’s very interesting and I’ll give you a little tip. Generally what happens is there’s a couple of different kind of days in the market. One are trend days and those days usually start out pretty good and they may continue to grow higher and higher and higher andthe market goes up or down and they trend all day.
There’s other types of days in which the prices will fluctuate within a range and the majority of the markets these days tend to fluctuatewithin a range and don’t trend that well. That’s why a lot of stock traders andoption traders who depend on trends to make their money are having a really tough time right now. So these types of trades are even more important to learn how to do in the market because this is a consistent way to make money every single month.
That’s it for me today. I really hope you join me.
Ihad a lot of questions guys are asking me what I do in my real account because all the sample videos that I do are in a trading account. It’s real money. I do trade real money but I’m only trading one or two contracts because I want you to get an understanding and a feel for what we’re doing. But a lot of guys are saying, well gee, you just do small numbers and I’m just wondering what you do in your regular account.
Well, this is my regular account and you can see what my balance is and what kind of positions I put on. These are the exact same positions I put on in the demo account that you guys have seen the videos on. It’s the DIAs and the IWMs. I do have anMNX position in here and the SPYs. I trade with my own money.
Now this is the beginning of the month because it’s just May 15. This is the expiration week for the May options. What I like to do is put on some positions now, especially in the Indexes and then come Monday, after the May expiration,all of the July options will become available on stocks. There area few stocks that do haveJuly optionsnowbut normally they only have the front two months. So right now if I wanted to trade in a stock position today,I would only be able to get the May and the June options for back-to-back months, the two front months. Once the May expiration happens tomorrow,Monday morning,I’ll have the June and the July options for most of the stocks that I want to trade in.
I want to give you an idea that you can trade any size account and you know your profits are going to be based on the amount of capital that you put into these positions.Now all positions have risk, obviously, and you want to have smart allocation of capital but I’m beginning to build my positions now for the June expiration.
I just closed outmy May positions and now we’re rolling those into the June positions and so every month you’re going to be doing this. You’re going to be allocating your capital towards some initial positions right about at this time during that week of expiration. It’s always good to know exactly when your options are expiring. Remember they expire the third Friday of each month,so this is the time to put on positions.
Now I’ve just started putting on positions. I know exactly what my profits aregoing to be if I keep everything the same. They don’t stay the same because what I do is adjustments over the next three to four weeks before the June expiration date. Right now, though,I have a potential profit of close to $5,000 just on this very, very small…I mean I’m talking about if you take a look down here in the right hand corner, I have $10,000 in margin requirements and that is pretty low right now. I will eventually bump that up significantly as I add additional positions, but I stress diversification.
I’ve got the DIAs, the IWM, the MNX, and the SPY, which are all indexes so far because those are the options that I can get June and July in. Once Monday comes, I’m going to start putting on positions in individual stocks where I can get the June and July’s on the individual stocks. I’m going to diversify using stocks in my portfolio. There’s other ways to diversify which I talk about in the videos in the course. There’s several ways you want to diversify your risk and diversify your portfolio so you can get the maximum profit.
Now remember, this white line eventually, as we get towards the June expiration, will rise up as you’ve seen in other videos. It will rise up to the point where it meets this green line which is our June expiration. We’ve already got a small profit. We’re anywhere between $60 and $100 today. That’s going to change overtime and it doesn’t matter. What matters is the fact that we know that there’s a reverse gravity going on here. This white line is going to eventually move up to this green line.
I’m going to try and capture the majority of the potential profits in this position by the June expiration. Anywhere from 30 to 40 percent of my position and margin is going to be pure profit. So if you have the account, if you do have the funds, once you learn this business there’s really no limit to the amount of money that you can invest in the system. But you have to know what you’re doing first.
That’s why I suggest,strongly, that you paper trade for at least a couple of months. Start getting into real money using one or two contracts until you understand the system that you need to understand to manage this business by thenumbers. Get in there and do this and you will have the confidence going forward.
This is very different than speculating or trading based on what you think a stock is going to do. I’ve done that stuff. I’ve day-traded. I’ve bought a stock and, man, this thing has got to go upand all of a sudden it doesn’t do anything or goes down a little bit and I losesome money.
Or you’re taking a directional position.You buy a single option hoping the stock is going to go up or the index is going to go up, whatever you bought the option on. And you’re sitting there, you know, watching the screen every second.
This is thekind of business that you don’t have to sit in front of a screen. You don’t have to sit in front of a computer every single day. You can put these positions on. Sometimes the market does crazy things but you haveplenty of room to move either in the downside or the upside of these positions. You don’t have to sit there and watch this thing every single minute of every single day. That’s why I say you can manage this businessin 15minutes a day and you really can.
I tell you exactly what happens when this position goes against me. I show you. In fact, there are several live videos in the course itself that shows you exactly what you need to do in order to actually make more profits. It’s very easy to do; to add to these positions.
The price going against you is an opportunity for you to not only increase the amount of money that you are going to make for that month,but also to get the experience and confidence that you know what you’re going to be doing if the price does go against you. You don’t have to abandon the trade. You can defend the trade and you can make additional profits.
I hope this was instructional for you and I really do hope that you join us in the class because this is the real thing. You aren’t going to find this kind of training anyplace else and I really appreciate you watching this video.
Welcome to the art and science of trading as a business.
First, I want to talk toyou specifically about the program itself, what it hopes to achieve,and what the objective of the program is.
The objective of the program for the first part is the money-every-month program, is to generate just what it says: money every month. We want to generate a consistent income on a monthly basis in our trades so that,just like any other business, we want to generate recurring, consistent monthly income.
Does that mean we’re going to be profitable every month? Maybe not, maybewe will.
The important point to think about is that we really want to have a monthly income stream. In order to generate a monthly income stream,we’re going to be using options as our primary trading vehicle.
Now every business manages their business based on numbers and that’s exactly what we’re going to do in ours. This is a real business. It’s a business in which you are buying and selling. Any business that buys and sells things,it doesn’t matter what it is. It could be a bakery. It could be an auto repair shop. It could be a part store. It could be a gift shop. You have to buy your stock from some place and then you sell it to a customer. Well, the very same thing happens in the market. You’re buying and you’re selling.
Let me give you an example of how we actually try to make our money in the markets as a business. All we’re doing is really meeting supply and demand. Let’s take for example a stock such asActivision, which we have on our screen right now. The symbol is ATVI. It’s currently trading at $27.23,down 27 cents today.
Now for the most part,you have people in the market who believe that ATVI stock is going to go up. You have other people who believe the stock is going to go down and that’s what makes a market. If we take a look at the options on this particular stock, we have what’s called “call options” and we have “puts”. Calls are those options that people purchase if they think the stock is going to go up. People buy puts on the stock if they believe the stock is going down.
So let’s say you think that the stock is going to go up. So youpurchase this call option on the May options for Activisionand you get it at 40 cents, almost in the middle of the bid and ask price. Well at 40 cents this option actually has no real value because the current price of the stock is $27.23. So not only do you have to be accurate as to your timing because the stock would have to move quickly in order for you to make money, but you also have to be accurate as far as direction goes. The stock has to move up in order for you to make money.
Ifyou were to purchase a put option, let’s say you got it for 70 cents. Not only would you have to be correctas to the direction of the stock as it would have to move down in order for you to make money,but your timing would also have to be correct. It would have to move down relatively soon in order for you to make money because there are only two absolute rulesof the option markets.
Those two absolute rules are: Number 1: prices will fluctuate. Yes, the underlying price of the stock will fluctuate and the individual option prices will fluctuate. Number 2: these contracts will expire. Any option contract that you buy on any stock will expire at a certain date in the future.
If we were to purchase these Mayoptions,the options that we’re looking at right now, they will expire and we have the expiration date right here. They will expire in 24 days. Normally the optionsexpire on equity and index options the third Friday of each month. That is the last trading day for those options. They actually expire the very next day on a Saturday.
You can also pick the expiration dates that you’re interested in purchasing. For example, if youthought there was an imminent move in Activision, you could purchase this option for 40 cents today at $27.50. If the stock did move up beyond the $27.50, you would actually start making money.
But what happens if the stock doesn’t move? Well if the stock doesn’t move, slowly, day by day,this option that you purchased, if the stock doesn’t move, will slowly erodein value. Why?
The reason is that you have the right as a call buyer to purchase the stock at the strike price that you purchased,in this case $27.50, at any time before the third Friday of May. As we get closer to the third Friday of May,the chances of that stock moving up beyond this strike price of $27.50 becomes less and less certain and because of that the option has less value to it.
Hey guys I want to thank you for joining me today.
A lot of you had questions and, you know, when I sent out the first email about trading as a business, I had a lot of questions and I had just an absolute ton of responses. Over 582 people have replied and asked for more information about trading as a business.
When I mean trade with confidence, I really mean trade with confidence because once you put these positions on, all you have to do is sit back and monitor them and really just manage them by the numbers. And, I’m going to show you exactly what I mean in this video.
I have set up a test account. Now, this is a live test account using my own real money and this is just one of a number of different accounts that I have. I try to spread out my strategies among different accounts but this one is specifically set up with real money just to demonstrate the positions that I put on and the type of management of the business that I do on a regular basis. So, when you get into all the videos you’ll see exactly how I set up these trades and how I manage them on a daily basis. In fact, I do a review every single day of the trades that I’m in so that you can take a look at those as well.
Plus I show you exactly what I do when I set up the trades and they are all live sessions using real money in this account, in this demo account. This is not the account that I personally trade because what I use is only one or two contracts for these videos because I want to show you the potential that you don’t need a lot of money. If you see me trading 10, 20, 30, or 40 contracts at a time, you’re going to say whoa, I can’t afford that. There’s too much capital. There is quite a bit of capital margin requirements required for trading in those sizes.
But what I want to show you is the fact that in this demo account that I use specifically to show you guys how to trade, there’s only $1,600 of margin required on this account. Today we have a total profit of about $55 which is not a lot but we are just getting started in these positions. And, this is what I mean by managing the numbers.
First of all let me just say that the only actual platform that allows you to do this inexpensively is the thinkorswim platform. If you go to thinkorswim.com, that’s the brokerage account that I use. The reason is that they have a superior trading platform for the type of trades that we’re doing.
Now you may have an e-trade account or you might have a number of different other accounts. There are a lot of brokers out there and I don’t make a cent from recommending thinkorswim. The reason I recommend thinkorswim is that they actually understand the type of trades that I’m doing and they have the analysis tools necessary to monitor and give you a really good and clear picture of where you stand every single day in your position.
So, when you do go in and you review your trades like I said, 15 minutes is actually a long time to review your trades. It’ll probably take you just a few minutes every single day. You can review them in the morning and that’s what I like to do. I like to review my trades in the morning just after the opening bell. But then, you know, at the end of the day you can also do an end of the day review and just kind of see how things are shaping up on your position.
But when I talk about managing numbers, now if you do any type of option trading, there is really what they call The Greeks, The Greeks. That means delta, gamma, theta, vega, and there’s a fifth Greek called rho, which has to do with interest rates. We’re not really interested in that right now. But what I do is simply manage these numbers.
Now I have four positions on in this test account. I’ve only put up $1,600 in margin and what I do is simply take a look at it and I teach this as I go through the course. What I ask you to do is to get comfortable with managing your portfolio because you’re putting on more than one position. Look it’s only $1,600 in margin, but I’m going to show you what the profit potential is. Now, this is just trading one or two contracts.
I’ve got four positions on right now which generally last anywhere from three to four weeks. Okay, with these positions I do this on a monthly basis. Right now it’s April 29 and as you can see up here the time is April 29 and it’s 11:52 in the morning. I’ve already done my review for today which basically is just going over these numbers. All I do is follow these columns all the way down to the overall totals and I take a look at each one of these individual numbers and just make sure that they are all within the parameters that I want them to be in. Just like any business, you want to manage it by the numbers.
So if you were in a traditional business and your sales and conversion ratios were off or some other ratio was off in your business, then you want to drill down into your spreadsheets and you want to drill down into your numbers to find out where the problem is and then, if you need to, you would adjust them as necessary so that you don’t lose money. You adjust your business or maybe you change your business model in some way so you don’t lose money. And that’s exactly what we do. We simply manage these numbers.
We go through each one of the numbers every single day and if you’re not familiar with delta, gamma, theta and vega. I go through and I teach you exactly what those are. I’ll show you how to manage them. And that’s why you just look at one set of numbers every single day and you’re done. I mean that’s it.
You know what, if there is a situation in which we need to make an adjustment, now this is where a lot of traders go wrong. And for you guys who have been trading stocks and options for a long time or you’ve been doing spread trades on options and so forth, you’re going to understand this. When you put a position on, normally when you put it on and if it goes against you, you close it out and you’re done and you’ve either had a profit or a loss. If it went in your favor, then you’ve made a profit; if it’s against you then you’ve got a loss on your hands and you probably just closed it out.
What you may not have realized is how much money you could have made if you understood how to adjust those positions. Because what I teach is not one-dimensional trading. It’s not about one position. It’s about multi-dimensional trading and I’m just going to have you take look at the profit picture that I look at every single day when I manage my positions. There are two things I want to look at.
The one thing I want to look at is these numbers. These numbers are incredibly significant and they tell me a lot. These numbers alone I can manage the entire portfolio. I can manage my business, my investment business, and these teach me everything that I need to know about my positions and that’s what I teach you. Manage by the numbers. If they do get out of line, then I teach exactly what you need to do in order to get them back on track and get into a profitable position.
But let’s go to the analyze tab for just a second because I want to show you what the potential is. Okay, I mean this may not be very impressive to you. We’ve got an open profit of $62 in our overall positions and we’ve got a profit today of about $40. But our margin is only $1,600 so this is a relatively low cost number of positions that we’ve got.
We’ve got four positions. We’ve got a position on the diamonds, the EEM which is an ETF, options on the IWM, and options on the SPY, which is the S&P 500. The IWM is the Russell 2000. The EEM and the diamonds is the Dow Jones Industrial ETF.
Now, let’s take a look at this which is what it looks like in numerical form; we manage by the numbers and now let’s go over to the analyze tab for a second. On the analyze tab what we do is we have a picture. We have a picture of our profitable position and what we want to do is we simply want to take a look at and manage this portfolio. Just take a look down here. We are managing a portfolio based on all of our positions as an aggregate position and here’s where it gets really really interesting.
As we get closer to the third Friday of May,the chances of that stock moving above the strike price of $27.50 becomes less and less certain, and because of that the option has less value to it.
If you take a look at an optionlike this overtime, let’s say that the stock doesn’t really move. Maybe in a week from now,this option will be selling for 20 cents bidand 35 cents ask; a week after that it’s 15 cents and 20 cents or 25 cents. The week after that maybe it’s 5 cents and 10 cents. So eventually the option that you purchased at 40 cents with great hope that the stock was going to move upis now only worth about 10 cents. You’ve lost 30 cents on the trade.
Well that’s exactly what the person who sold it to you is hoping would happen. That in fact, the stock did not go up in price. That you purchased this option that they know is going to expire and will eventually erode in value over time. That’s how they make their profit because they sold it to you at 40 cents; they can buy it back at 10 cents; and make 30 cents on that trade.
What about the guy who purchased the put option? Theoption that gives him the right to sell the stock at $27.50 and hoping that it would go down so he could buy it back at $22.50. If he could buy it at $22.50 and sell it at $27.50, he’s made a $5 profit. And that’s what his hope is.
Now if the stock doesn’t do anything at all, the same exact thing is going to happen to his put option. Eventually over time, because the actual probability that the stock is going to decline in price decreases as these options get closer to expiration. Then this option will be worth less and less each week. Let’s say next week at this time if the stock does not move then this option will only be worth maybe 45 cents to 65 cents. Another week passes by and it’s only worth 35 cents to 45 cents. Now another week passes by and it’s only 25 cents. As long as the stock does not move, all of these options will continue to decline in price if they have extrinsic value.
Now the prices of theseoptions are called “in the money” options. In the money options have some component of what they call extrinsic value and some component of intrinsic value. The way that you can determine intrinsic and extrinsic value is simply by taking the strike price of the option, in this case we’re taking a look at the May 20 calls, and their price is $7.40. On these 20 calls, if you add the strike price to the price of the call, you get $27.40. At the mid-price you’re probably talking closer to $27.25, which is exactly the price of our current stock. So you can say that this call option has no intrinsic value. In fact, if we look under the extrinsic value, you can see that it is actually zero.
The closer you get to “in the money” or the actual strike price of the stock, you can see that there is, in fact, some extrinsic value left. There is some time value left in that option and that time value is basically saying that “hey you know what, we do have three or four weeks before expiration” so the price of the option may actually increase to the point where it might be actually further in the money.
What is our objective, though?
This is just a very brief. You should already have a basic understanding of options. I probably haven’t told you anything new. Or maybe I have, I don’t know; but that depends on your experience. The important thing to remember, though,is that when we trade for monthly income the stock cannot be in two places at one time. At expiration we’re going to make money on one side or the other. That’s an important distinction tomake because we make money whether the stock goes up or goes down.
Now the types of vehicles that we use in order to trade options on the exchanges are normally going to be,and I’ll go through all those with you in the next series herein portfolio building. What we’re going to be using are(proprietary information edited out) adjustments. Adjustments are everything because as I said, prices fluctuate. That is oneinviolate rule of the market: prices will fluctuate. We don’t care if they go up or down but they do fluctuate.
There are a couple of rules to the option markets and that’s the two I’ve already told you. The third one is don’t lose money. So, the rules are: prices fluctuate,options expire at a date in the future, and don’t lose money.
In order not to lose money, many times we have to do adjustments to our original positions. This is where a lot of option players make a mistake. They do not adjust their positions. They put a position on and they believe that they can just keep it on there until expiration. Well, they forgot about the other rule of the market and that is prices will fluctuate. Options expire but they also fluctuate so if you get into a position, and a lot of option players do this, they just put positions on and they forget about them. They don’t even look at them until they have a loss and then it’s too late to do anytype of adjustment to that position because they are already too far gone.
Our goal is to monitor your positions. You put these positions on and then we will show you exactly what you need to do in order to adjust the positions. That’s where the majority of the real profits come in this business. What happens to a business when it’s not making money all of a sudden?
Well, just like this, if we’re not making money, then we have to take a look at the source of the problem and adjust our strategy in order to take advantage of new market conditions. That’s exactly what any business has to do. Any businessthatis not in a profitable position has to take a look at their business model and that’s exactly what we do in our business of trading. That’s why it really is a business because we manage by numbers and that’s what all good big businesses do. They manage by numbers.
This is an aggregate position ofour demonstration account for the purpose of these videos. You will see this throughout all the videos that we’re creatingon this strategy. We start out in a cash position,but I also want to show you what the profit potential of having more contracts is. Eventually as you get experience in this type of trading as a business, you’re going to be able to have a great deal of confidence in your ability to adjust trades over time.
I suggest that you begin with paper trading. Now the thinkorswim platform has a papertrading account that you can set up for free. It looks identical to this. The only thing that is differentis if you look up in this top left hand corner, this is a live trading account. It has a red symbol here with the thinkorswim symbol and logo.
If you have a paper trading accountopen, this is a green symbol but the platform is absolutely identical. Everything is exactly the same. You can enter trades, you can adjust trades, you can look at charts, and you can monitor your account. You can do everything that you can in the paper trading account with thinkorswim, as you can in this account.
Welcome to the art and science of trading as a business!
The objective of the program is to generate money every month. We really want to have a monthly income stream and, in order to generate a monthly income stream, we are going to be using options as our primary trading vehicle. What we want to do here is show you how it’s possible to make a monthly income and build wealth at the same time on very small positions.
As you take a look down here, you can see we only have one contract. But, just to show you what the profit potential is, on one or two contracts, we’ve only got $1,000 of margin up right now and we’re making $407. That’s a 40% return on investment, on margin, return on margin, in just the last two weeks.
When you’re trading with confidence, it doesn’t matter what the market does. As you can see from my position here, I’m right in the sweet spot and the market is down. If you take a look over here, the Dow is down 190 points and my position is beautiful. Right in the center here is where all the profit is made. The market could go down another 200 points and I would still be ok. It could go up 200 points and I would be okay.
You know, that’s why these kinds of positions are so powerful. Because you’ve got a wide range that the market can move in, it doesn’t matter if it moves up or down, and you’re going to be in a profitable position. I’ve got one contract here and I’m making $400 in two weeks. If I had ten contracts, I’d be making $4,000 in two weeks. If I had 20 contracts, I’d be making $8,000 in two weeks.
How much money do you want to make? That’s the only question. And the only way that you can make this kind of money in the market is by learning how to structure your positions, how to manage them on a portfolio basis, and how to adjust them when necessary. You never have to get hurt and if you want to make money, this is the only way I have found to make reliable monthly income from the markets and build wealth over the long term.
I mean this is the kind of stuff that you can hand down to your grandchildren and it will still work for them as well as it works for you. This is the kind of stuff you can hand down, it is something that is so secret that only market-makers who are extremely successful have ever learned about these markets.
This is the kind of stuff that would go into a vault; make personal copies for yourself and put them in a safety deposit box at your bank. Believe me, your children and your grandchildren and their grandchildren are going to profit from these strategies. The same strategies that you can profit from now, they are going to be able to profit from 20, 40, 100 years from now because these will never change. I would say less than 1% of all traders even know how to do this.
The market-makers have been doing this for years and now it’s possible for retail customers like us to be able to take advantage of this. But retail customers in general are not going to even understand these types of positions. They think price is the only way to profit from the markets. You know, prices going up, prices going down. I buy puts it it’s going down, I buy calls if it’s going up. I buy stock if it’s going up, I buy short-stock if it’s going down. But price is not the only way to profit from the markets. In fact, it is probably the least effective way to profit from the market.
The kind of positions that we are talking about here are the kind of positions that you can put on that don’t take all of your time. You can put them on, you can let them go, and you can adjust them as necessary and make a great monthly income from them and build wealth out of them. And there are very few people I would say, very very few people who understand this and can teach it. So that’s my goal.
My goal is to provide you with the very very best training; the very best tools; the very best understanding of building these type of portfolio positions, managing them and adjusting them as necessary so that you can draw that monthly income, build wealth, and trade with confidence.