Master Credit Spread Class COPY Flashcards
(217 cards)
1
Q
Premium - where is the money coming from?
TEST EDITING
A
The premium is the current market price of an option contract.
income received by the seller. ln the money premiums are composed of extrinsic and intrinsic value
2
Q
Theta
A
the rate of decline in the value of an option over time. its our best friend ON SELLING OPTIONS
3
Q
Delta
A
how much will the price of an option move if the stock moves $1? That’s where “delta” comes in.
Delta is the amount an option price is expected to move based on a $1 change in the underlying stock.
Calls have positive delta, between 0 and 1. That means if the stock price goes up and no other pricing variables change, the price for the call will go up. Here’s an example. If a call has a delta of .50 and the stock goes up $1, in theory, the price of the call will go up about $.50. If the stock goes down $1, in theory, the price of the call will go down about $.50.
Puts have a negative delta, between 0 and -1. That means if the stock goes up and no other pricing variables change, the price of the option will go down. For example, if a put has a delta of -.50 and the stock goes up $1, in theory, the price of the put will go down $.50. If the stock goes down $1, in theory, the price of the put will go up $.50.
As a general rule, in-the-money options will move more than out-of-the-money options, and short-term options will react more than longer-term options to the same price change in the stock.
4
Q
vertical spread
A
buying or selling a call or put and simultaniously selling or buying at a different strike price but with the same expiration
5
Q
Expiration Date
A
the date on which the options contract expires
6
Q
Strike Price
A
the price at which an option or other derivative contract can be exercised
7
Q
how much per month can you expect to earn on credit spreads. %
A
5-10%. 50K can bring in 2500 to 5000 PER MONTH
8
Q
How do I avoid max loss?
A
never hold to day of expiration
9
Q
He risks max loss of?
A
16% of account. 50K = max loss 8000 . TONY PLAN IS TO LOOSE 30% OF MAX LOSS so 2400 PER TRADE. TRUE RISK IS 5% OF ACCOUNT PER TRADE
10
Q
What is a vertical spread/credit spread? Where is the risk in the strategy?
A
Entering 2 options at the same time. Buying and selling each leg. Your risk is the difference between the two strikes.
THE LEG CLOSER TO THE PRICE OF THE STOCK IS WORTH MORE MONEY
THE LEG FARTHER AWAY IS WORTH LESS
A CREDIT SPREAD IS SELLING A SHORT AND BUYING A LONG
11
Q
Discuss how expiration date and premium and theta work.
A
The farther away the expiration the more premium you could recieve AND
the further away you can sell your spread from the stock price,
But theta does less work until closer to expiration, and you have more time for the trade to lose.
12
Q
Benefits of Spreads (4)
A
1 Dont have to have perfect entry timing
2 consistent income
3 you don’t tie up much buying power
4 pre determined ultimate risk
13
Q
cons of spreads
A
risking more than you are making
easy to mess up in the broker
14
Q
What is a bull put spread and how do you win it?
A
you are using buying and selling puts but you win if the stock stays above your sold strikes.
15
Q
How do you use puts for a BULL PUT SPREAD and how do you win?
HOW DO YOU WIN IN A BEAR CALL SPREAD?
A
You SELL a put and BUY a put. and as long as the price of stock stays above your sold put you win. YOU SELL A HIGHER STRIKE PRICE YOU BUY A LOWER STRIKE PRICE
YOU SELL A CALL AND YOU BUY A CALL IN ORDER TO WIN PRICE OF THE STOCK NEED TO STAY BELOW SOLD STRIKE CALL. YOU SELL A LOWER STRIKE YOU BUY A HIGHER STRIKE
16
Q
What does selling a put mean?
A
What does selling a put mean?
If it closes in the money at exp. you have to buy 100 shares of that stock at the strike. Its a bullish move.
If it expires worthless then, you just keep the premium and leave.
When you sell a put, you agree to buy a stock at an agreed-upon price. It’s also known as shorting a put. … That’s because the buyer must buy the stock at the strike price but can only sell it at a lower price than the current. Seller makes money if the stock price rises because the buyer won’t exercise the option.
17
Q
In a bull put spread do you receive a premium? why or why not?
A
You are selling a put and receiving a credit. You are agreeing to purchase the stock at a strike that you sold the put at. You will get paid to enter into that agreement.
18
Q
Why do you buy and sell a put in a BPS?
A
Buying a put is like buying insurance. It will kick in when the stock price moves below the strike of your put. This way you lock in a max loss.
19
Q
How are the expiration dates handled in a Bull Put Spread?
A
They are always at the exact same time
20
Q
How much money does the broker put aside for a bull put spread?
A
The difference between your short and long put
21
Q
Where is the value in the Bull Put Spread?
A
The Premium. Thats why we get out before expiration
22
Q
What stock action are BPS best used on
A
stocks in a bull trend that are having a pullback to support
23
Q
How do you win a bull put spread
A
You sell and receive money and then buy it back to get out.
This costs money.
So the money collected for the selling is larger than the money you spend to buy to get out.
24
Q
How does the winning strategy work when the stock is moving farther away from the credit spread?
A
If the price moves away from your spread the options will be worth less and thus you can buy back for less.
25
How does winning strategy work when stock doesn't move much in a BPS
theta - time decay. The closer to expiration the trade gets the less it's worth.
26
What is the most money you can make in a credit spread?
The amount you make from selling the spread. short put - long put = profit.
27
What is your "limit" price in a BPS
The combination of both legs in the spread.
28
What if you start losing on trades?
The market changes a few times a year. When this happens wait two weeks, reassess plan and make sure youre doing the plan right also
29
What is the only way you can loose max loss?
ON the day of expiration
30
He's only lost more than 35% how many times in 4 years.
twice.
31
How often does he lose 30% loss
Always a chance and happens a couple times after you are on a 10-30 win roll.
In 7 he might also lose on 2-4 of those at the most.
If in three then you will lose on maybe 1.
It's hard to tell really but overall 92% win rate minimum.
32
What is the max loss risk he likes to take?
16%. 1600 per trade max loss for a 10,000. But with his plan you lose about 30% max rarely
only if you lose $480 or 4.8% of max loss.
33
explain drawdowns
I lose when the markets change sentiment. On average 2-4 spreads at once. So drawdowns on average will be about 10% of his account.
Maybe happens once a year where you lose on your account (max loss?). But account will be bigger than now so its fine.
34
He wants to get paid what percentage of what he's risking?
10%
35
for a vertical spread you pick two things...
The strike and the expiration. strike is different USUALLY 5$ BETWEEN SELL AND BUY expiration is the same.
36
Where should you set the limit order
Mid price is good. The price between the ask and bid. or the price you are hoping to get filled at.
37
If you aren't getting filled within the first ten minutes
bump the price a bit 2 to 5 cents lower than the bid . Never market in or out of an credit spread. The lower the number the less you get paid
38
What will cost more in a credit spread. What will cost less?
The sold price will give you more than the buy price. The buy price is what you pay to get out.
39
What to check before placing an order?
| 6 items
1. You are receiving a credit for the spread and and not paying a debit for it.
2. You have the correct strike prices, expirations date, correct limit order
3, Hedging game plan
4. not selling over earnings or other major news announcement
5. You have the correct # of contracts
.....
6. You put your target in as soon as you are filled.
40
A monthly credit spread is what kind of trade?
swing
41
How long are we in a monthly credit spread
5-15 days or 5-8?
42
What is the win rate with a monthly credit spread
92%
43
What is his average profit on a monthly credit spread
75$ PER CONTRACT
44
What does IV mean to a monthly credit spread?
1. Low IV (big moves are not expected)
| 2. High IV (big moves are expected)
45
How many average daily contracts do we want a stock to have to consider a credit spread?
Minimum of 5000 total average. https://marketchameleon.com/Home/Dashboard
46
Monthly Credit Spread Plan General Beginning Rules
7 of them
These are broader than the #1 #2 rules
1. Minimum of 5000 total daily contracts
2. Do not sell over earnings
3. Sell the monthly spreads around 30 days out
4. Stock must be ABOVE the WEEKLY 60 ema for bull put spread
5. And BELOW the 60 ema on the WEEKLY for a bear call spread (go with trend)
6. Check 3 news sources to make sure no big event is coming out during the time of your spread. You don't want to sell a spread if has unusually high IV = gaps are death to spreads.
7. Close the spread, no matter what, the day before expiration. Max loss occurs on the day of expiration!
47
How many days out do you sell monthly spreads.
Also talk about time, premium and expiration and how they are inter-related
Sell monthly spreads about 30 days out.
the shorter the time to expiration the better, but the shorter the expiration time the less premium you will receive.
need to get paid 10%.
48
Low IV means?
Big moves are not expected
49
The average daily volume on options is what? how many minium should we be dealing with.
All calls, puts, strikes, expirations, volume traded needs to be above 5000. Below 5000 is not super liquid and will be hard to get out of and hit profit target.
50
How do we deal with earnings
Do not sell over earnings. If the earnings are over any time of our spread you can not do. How do we know for sure when earnings are?
51
How many days out do we do a monthly spread
around 30 days.
could be 20 or 40.
but the shorter the time frame the better.
Less time to not go against you. quicker you can get premium capture. But have to sell closer.
52
What EMA do we deal with on a BCS
60 ema above for a bull and below 60 for a bear call spread.
53
Watch 3 news sources before entering into a spread? why?
We dont want a big news event to come out over the time of your spread. you do not want a high IV. They are the Death to spreads. gaps are the death of spreads.
54
What do we need to know about IV related to news. How many weeks is it an average of?
52 week average.
1. broker can tell you about it (trade station)
2. market chamelion can tell you
3. if it's unusually high IV, normally means they are expecting something big.
4. If the premium is too good to be true, believe it.
5. They may not have news but the weird IV is saying something for that particular stock.
55
Implied volitility IV
How high is something expected to move. If there is a high IV we get paid more but there is a chance it will gap and go against us. IT's stock dependent.
56
We will close the trade no matter what when.
Day before expiration. It DOESNT matter what you are gaining or losing. Just get out.
57
What are the focus steps for entry on monthly BPS. Short version
1. RSI
2. Barriers closest to stock price
3. Determine what set up to sell one or two
4. What you get paid minimum 10%
5. Create game plan if trade doesnt work.
58
First step (1) on Bull Put Spread
1. Oversold on the 4 hr RSI
(below 32 on the RSI)
BELOW 32
If not oversold - no set up.
Wait for it to be oversold!
If oversold - move to step two
59
Step two (2) for a Monthly Bull Put Spread. 3 parts to answer
1. Locate the next two weekly barriers
WEEKLY support, or
WEEKLY ema 10.20.30
2. find those closest to the current stock price and the sold strike that you're selling
3. We can sell anywhere below the second weekly barrier
THE 2 BARRIER MUST BE 1 ONTHE CURRENT PRICE OF THE STOCK SECOND WHERE ARE YOU SELLING
60
Step three (3) for the Monthly Bull Spread
Determine if youre going to do setup #1 or #2
61
Step four (4) for Monthly Bull Put Spread
1. Make SURE you get paid a minimum of 10% of what you're risking if you are risking $500 the minimum you can get a pid is $50 for the spread.
If it does not pay at least 10% of what you are risking pass on the setup
If it pays more than 10% of what youre risking - move to step 5
62
Step 5 for a Monthly Bull Put Spread
Create a game plan if the trade does not work. If you cant figure out a hedging plan, do not take the trade
63
What setting do you want the RSI on for bull put spreads? and what about what chart to look at?
1. 14
2. extended hours OFF.
3. on a 4 hour.
It wont be oversold prob on a weekly. Doesn't matter. It's the 4 hour that matters.
64
Step #2 Monthly BPS - locate the next two barriers. how do we do this? and on what time frame? involved wicks
1. Weekly support, 3 or more interactions in the same zone or more.
You dont want these to be near where the price is at currently.
the barrier is a zone.
Three wicks at least or body closes in the support/resistance zone
2. 4 hour chart.
65
If a weekly support is near the price or even if the current price is sitting on an ema is this a good barrier?
No. If the current price is sitting on a barrier. Pass
66
The barrier has to be where as far as pricing?
Below the price of the stock and above the strike price for the BPS
67
With regards to barriers, where can we sell the monthly credit spread?
At the second barrier, which is the long put or below it.
68
How do I choose between set up #1 or #2 and what is the selling difference between them.
1. I will use if set up #2 is not available. Or if set up #2 doesn't pay the 10% ROI.
One 1# is when we sell right on top of a weely support. This would look like the neckline of a double bottom at the retrace of it in his example.
2. #2 requires a strong weekly support (if it was a strong resistance, it should be a strong support = needs two bear candles under support, check out example slide #13.
This is where sell below a higher low. (double bottom look on chart, sell if there is a second bottom or higher low, but below the first part of the double bottom or the first low of the support)
69
Which set up is easier to hedge. one or two
2
70
What does he consider a higher low
One bear candle on the weekly is not a higher low, two bear can be considered a higher low and then bounces above that, it can be a higher low. two or more. It's got to then bounce above those.
71
where do you want to sell it around the weekly support area? I think this is for #1
Right at the support or just below.
72
how do I hedge against set up #1?
Buy calls
They will make more than the spread is worth and when It bounces out of the area it will be a WIN in the end.
This is when the stock doesn't keep continuing up and looks like it's coming down to bounce off the support line. If it doesn't bounce and keeps going lower. you lose on the put spread and on the calls.
But hedging like this usually works (if youve picked your resistance and support lines well.
73
Location of set up #2
1. have barrier one and two
2. have higher low
3. Then look for the 10%
4. you will pass on most 4 hour oversold stock set ups
74
Dont forget to set up your EMAs like Tony
10.20.50
75
When does a weekly chart become bearish?
When we take out the higher low
76
Higher low sell Bull Put Spread below how far below higher low?
At least two percent away from alert level where you would short a stock. This gives you room to hedge with puts.
Higher low must have at least two bear candles in the pullback.
77
why do I have to get paid at least ten% of what Im risking
it's the ONLY way the math works for you to be profitable
78
What is the Math on 10 contracts with 4 spreads per month and three months
800 per month and 2400 in profits
79
What premium capture will you get in for the monthly BPS
Get in at 13-15% premium capture if can so you can exit at 10%
If he gets in at 10% he then will hold for 80-85% premium capture and walks with 8% premium capture
80
Always assume...
You are going to loose. have a plan if you will lost. Keep your emotions out of it. Follow the strategy.
81
on average how many loose?
1 out of ten
82
On average how long are you in monthly credit spreads?
5-8 days on average to win on these.
Ten on average overall.
1 1/2 weekly candles going sideways to win.
83
How to use the indicator start here for cards.
1. Money sign goes off
2. Use second barrier on it, orange line.
3. Decide set up #1 or #2. do you use the indicator?
There may be extra barriers there that the
indicator doesn't show.
*you can turn it to be more sensitive but he goes for the big supports. The sensitivity level is where he uses it.
84
What EMA do you want to be above on a BPS?
60
85
What do we want to see on a daily bullish chart for a BPS
Bear candles as it needs to be pulling back.
86
In the higher low pullback for a BPS how many bear candles
2
87
once % pay back gets into the ?, its getting into too good to be true
20s, you can get UPTO 20 but not more.
could be over earnings
look at the time frame,
don't trust anyone on earnings, give yourself room
88
watch youtube videos on
support levels
89
do not chase premium. what do you do. These are the steps for a spread
1. oversold 4 hour
2. 2 weekly barriers
3. what set up 1 or 2
4. where and why we will sell
5. then go to broker and see if your nice strike pays 10% of what your risking. if no go to set up 1 and see if it pays that. i
6. if does, then set up a hedge
90
he shows 50 ema on trading view b
but then types in 60 ema in the instructions and talks about 60 ema
91
bear call spread, trying to call the top
Dont do it. Hard to win on and even JAN sucks at it.
92
do not sell against...
the trend
93
set up #1 and #2. and barriers
set up 1 is AT the barrier and set up 2 is above the barrier.
94
what does an advanced set up entail as far as general principals that define it. Short term credit spreads. I think this is what Tony wants me to do?
more aggressive
set it closer
they come around more often
95
short term spreads are how long
two weeks or shorter
96
anything longer than two weeks is the ? credit plan
Monthly
97
advanced is almost always a set up #?
| Where are the barriers set up.
2
1. higher low
2. barriers on weekly.
98
Make sure you go to his charts used and....
put his weekly supports in
99
bull and bear markets quote
Someone told me once that bull markets open weak and close strong. Bear markets open strong and close weak.
100
for the advanced credit BPS plan what is the second setup meant to do
Its a trap set up
101
for the #2 trap set up. what do we want to see as far as action on the weekly candle
for the candle to break the support and then go back up in the same week.
If this happens. you put alerts above and below.
and the following week he will look to get into a spread on it
102
Managing the trade. First thing you do once you get filled
Profit target entry - Immediately enter into your broker your profit target.
(70% premium capture or more)
If you sold spread for 1000 set a target to spend 300 to buy it back
103
When he says playing it safe in credit spreads while managing the trade what does that mean?
Its ok to take .22 target instead of .20
| When you buy it back you make money if you buy it back cheaper than what you sold it for
104
For managing the trade why do you set an alert after you enter your target?
set it at the "concern" zone and your sold strike of your spread (set up #1) / your alert level (set up #2). In case the trade is looking weak
105
after setting up your alerts what do you do on your trade while its in action.
wait and do nothing until/dont lose cool
1. your profit target is hit
2. or one of your alerts are triggered, then follow the plan associated with that trigger.
106
How do you exit a BCS
exit together as a vertical spread in your broker, do not leg out, it can mess up your potential for a profit
107
How to handle the expiration date on a BCS
Do not let the spread expire worthless, always close out early
If you have made 600 in 4 does it make sense to wait another 20 to make 200? no. Close it out and spend that buying power to make another 600 in 4 days.
108
What is the concern zone and how to handle it.
The cz is a good way to determine strength of a spread before it hits your alert level.
Credit spreads will have a high win rate, but you are risking a lot to make a little. So if you can exit a spread (if it's not working like you planned), and save yourself a loss, it will elevate you above everyone else trading spreads.
so what is the sweet spot between exiting a CS at the right time and sitting and letting it work.
109
If you make what profit within the first two three days can you get out.
50%
110
what is the secret to being a great spread trader
"Shhhhhh"
knowing when to get out for a small win or loss when everyone else is taking max losses like a bunch of Noobs.
111
what is a concern zone
is usually in between one of your barriers and your alert level/ sold strike of the spread
The area that the stock should not get to (already broke one of your barriers
Gives you an early indication if your trade is working or not
112
what happens when your trade closes in your concern zone as far as what % you are trying to go for?
When it closes in your concern zone your no longer trying to make 70% profit target on the trade.
Just take the small win and wait for a better set up. If it is not working no need to be in it.
113
Concern zone rules. What do you need to be thinking if the CS gets in this area?
You have not lost on the spread yet, but it's showing signs of weakness
1. You can't hedge it yet because it has not met your requirements, but it's not looking strong
It must close IN THE CONCERN ZONE ON A DAILY CHART
2. if it enters the concern zone but does not close in it = you do nothing
114
what if your trade closes on a daily chart in your concern zone? (3)
1. if you are profitable - take the small win, exit the trade, look to get back in later on better set up. (take 3% win or whatever)
2. if you are not profitable - do nothing and wait until you are profitable and exit the trade for around break even
3. wait until your alert goes off, and then follow your hedging plan
115
He may have 20 entries in a week or 2 in a week
hes in most of his trades within a week or two each month. maybe a couple more set ups. feast or famine I guess
116
What are short term credit spreads. In general how do you describe them?
1. high risk because faster,
2. expiration in 2 weeks or less, 1-2 day swings, stock has to hang out for a fews days and you win,
3. have 2 sets of rules regarding expiration
117
Pros for short term CS (more aggressive) (4)
1. You can earn a month's worth of credit spreads profits in a few days
2. less exposure to time in the markets
3. easier to see where the stock could go over next few days
4. you can do with 10K trading account
118
Cons of shorter term credit spreads, (3)
1. you are selling your spread much closer to the stock price compared to monthly spreads (gaps are tough)
2. Your risk is the same as long term spreads, but win rate is less 80%-90% win rate and it fluctuates (92% with monthly)
3. Hard to find set ups in low IV markets
119
With regards to IV when do you take short and long credit spreads?
25 on VICS or lower is low IV - monthly
any time over 25 look for short term credit spreads,
30-50s play 100% short term credit spreads.
120
shorter term credit spreads. tickers (8)
```
AMZN, TSLA, SPY/SPX,
SHOP, CMG,
NFLX, AMD
if you use any other stock you will lose
you DONT want gaps
```
121
Same week credit spreads. (short term) same week expiration. (4). what are the main thoughts you need to have on them.
1. You can hit profit target in hours - 2 days after entry
2. Has 83% win rate
3. You are asking yourself "where is the stock not going to go in the next two days"
4. Entries will be based on skill of reading price action
122
where does the VIX need to be for short term credit spreads
above 25/ stock has high IV
123
For short term credit spreads you want to check three news sources to make sure no major events or company announcements. why?
you dont want gaps
124
Dont sell short term credit spreads over earnings. why? (3)
1. increasing IV offsets theta.
2. Now you are relying on the stock to make a big move away from your spread.
3. earnings bring gaps
125
What do you want the delta to be for short term credit spreads
.25 or lower
126
When is theta the strongest in an option?
the last week before expiration
127
How do you win with short term spreads with same week expiration
theta is the strongest
if the stock just hangs for a couple days you win
if it moves away from your spread you usually win the same day. 70% premium capture.
128
Delta
| How do we work with delta on credit spreads. What delta do we want to be selling?
The further out you go from the price the lower the delta is and your percent chance that that stock will be in the money.
If it's .10 there will be a 10% chance that that option will be in the money by expiration.
So you have a 90% chance it wont be. Thats how you win. We want out of the money. so we have a 75% chance to win. we want to sell the .25 delta
129
what percent does he always want to make on spreads
70% or more
130
how much of a distance between the alert level and where you sold your spread?
2% (of the stock price) minimum but it's too much on AMZN or othe super expensive stocks
131
hedging is different for the monthly spreads than the short term how?
The monthly has more confirmation. So if it's a month out he will be waiting for the daily close over alert level.
If its a couple weeks out he will look for buying calls.
132
What is the difference in the legs of a vertical BP spread? How do they work and how do you get paid?
The sold leg is closer to the price of the stock and pays. The long leg is a little further away from the price and costs you less.
133
To make 10% we need to get paid at least ? in monthly spreads?
.5
134
Set up #1 is where?
| Set up #2 is where?
AT the HL, while we wait to get the pullback further up on the S curve.
Set up 2 is below set up ones line and is using it as an alert.
135
When you find the HL you set up an alert where?
Waiting for the pullback on the S curve. When it pulls back He sells a spread. For one the set up is AT the higher low. This is where you look for premium. And for two,, your set up is below the HL and about 2% of the way down.
136
Prob OTM - what is it?
Delta in percentage form
137
pos - on the trade station app in options
expected move on strike prices of options. It is the IV
138
if we buy a call above the strike price, when do we go out of the money
Buying calls is a bullish behavior because the buyer only profits if the price of the shares rises.
139
further out of the money means what?
less of a chance of being in the money. And so the option is cheaper.
140
If I buy a put when the price is at a certain spot, how does it go more out of the money?
as it goes up
bearish play
An in the money put option is one where its strike price is greater than the market price of the underlying asset.
That means the put holder has the right to sell the underlying at a price that is greater than where it currently trades.
This allows for an immediate profit if they buy the shares back at the market price, therefore the price of an in the money put closely tracks changes in the underlying.
Buying a put option gives the buyer the right to sell the underlying asset at a price stated in the option, with the maximum loss being the premium paid for the option.
Traders buy a put option to magnify the profit from a stock's decline.
A trader can profit from stock prices below the strike price until the option expires. By buying a put, you usually expect the stock price to fall before the option expires.
141
for a bull put spread what legs and what direction do you go?
Buy a put, sell a put. Buy a put sell a call.
142
When you are placing a vertical order in TS and you see the two rows of strike prices. The price that is closest to the side you are looking to trade (put, call), is what side of the trade? And so the strike placed further away is the?
Short
| Long
143
1. How do you come to the 10% on a spread? give a numbers example from tonys lesson. 408/410.
2. Then what do you do with this number?
1. Take the difference between the two legs. Then figure 10% of that. and then Times X 100 for one contract. 408/410 = 2, X .10 = .2, X 100 = 20$.
2. Go to "mid" number and make sure it's paying more than that number (.2 ten % of the difference)
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When do you use "analize sell vertical". Right click on your price next to the strike you want.
1. He uses this example to change the spread to a $5 spread, but still wants to sell the 410 strike price.
2. You want to go to bottom of TS and go to the buy 408 to a 5$ spread and buying 405 is the end result. Then you look at reward risk ratio and you need .10 (on the bottom to the right)
Whatever the distance is between the legs. You need .? (point. and whatever number it is. So if it's 2 bucks. You need . 2. If it's bucks you need .5
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why do you want to do less contracts on TS?
Because it's less commissions
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How do you set it up so you can have less contracts (and pay less commissions)?
1. First move the # of contracts so you can get to max loss. More contracts is also harder to get in and out of due to the larger number of them.
2. Max loss can be 10% of your account ( for 30K account 3K max loss)
Max profit: changes
$5 dollar spread
3. Wider spread for less contracts. The wider the spread the faster theta will act. Theta takes off dollars each day as it decays.
4. The bigger the account the wider you can go. But then when you do a wide spread it messes with your max loss. It gets much bigger.
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What dollar spread should I always do right now in my account and why.
1. $5
2. Easy enough to get filled without too many contracts
3. Good theta but not risking too much of a percentage per trade.
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What is your max loss on 30K
1. Max loss can be 10% of your account ( for 30K account 3K max loss) - 900$
2. $5 dollar spread
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What is Tony's strategy max loss
30% of the max loss which for me will be 3,000 (max loss on TS). 9% of the original total. 30% of 30% out of 1000 is 9
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Is Buying a Call Bullish or Bearish?
Buying calls is a bullish behavior because the buyer only profits if the price of the shares rises
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Is selling a call bullish or bearish?
Selling call options is bearish. The seller profits if the shares do not rise.
Some investors use call options to achieve better selling prices on their stocks. They can sell calls on a stock they'd like to divest that is too cheap at the current price. If the price goes against the seller and rises above the call's strike, they can sell the stock and take the premium as a bonus on their sale
The purchaser of a call option pays a premium to the writer for the right to buy the underlying at an agreed upon price in the event that the price of the asset is above the strike price. In this case, the option seller would get to keep the premium if the price closed below the strike price.
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Is selling a Put bullish or bearish?
Bull
If the stock is below the strike price near exp. you will receive something for your option (intrinsic value).
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What position are you bull or bear if you are selling a call
selling call options is a bearish behavior, because the seller profits if the shares do not rise.
The purchaser of a call option pays a premium to the seller for the right to buy the underlying at an agreed upon price in the event that the price of the asset is above the strike price.
The option seller would get to keep the premium if the price closed below the strike price.
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How do put options work
A put option buyer grants the right—but not the obligation—to sell a specified quantity of the underlying security at a predetermined strike price on or before its expiration date.
On the other hand, the seller or writer of a put option is obligated to buy the underlying security at a predetermined strike price if the corresponding put option is exercised.
This is the opposite of a call option, which gives the option holder the right to buy an underlying security at a specified strike price, before expiration.
Put options are used as downside protection since if you own the underlying asset and you have the right to sell it at some price, it effectively gives you a guaranteed floor price. Put options can also be used to speculate on an underlying if you think that it will go down in price. Thus, a put can give short market exposure with limited risk if the underlying in fact rises.
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When Is a Put Option "In the Money?"
A put option is considered in the money (ITM) when the current market price of the underlying security is below the strike price of the put option. The put option is in the money because the put option holder has the right to sell the underlying security above its current market price. When there is a right to sell the underlying security above its current market price, the right to sell has value equal to at least the amount of the sale price less the current market price.
An in the money put option therefore is one where the strike price is above the current market price. An investor holding an ITM put option at expiry means the stock price is below the strike price and it's possible the option is worth exercising. A put option buyer is hoping the stock's price will fall far enough below the option's strike to at least cover the cost of the premium for buying the put.
The amount that a put option's strike price is greater than the current underlying security's price is known as intrinsic value because the put option is worth at least that amount.
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on set up two #2 where would you have your alert level
where you would short it
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what percentage do we have to get paid of what we are risking?
10
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Set up #1 where do you sell PBS
At the second barrier. right on or right above it
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set up #1 because you are selling it a bit closer to the current price you are probably going to get what percentage ROI
15% or higher return on Investment ROI
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set up #1 for a bear call spread. Where do we sell?
Right at the resistance or above. we need two or more barriers to come before it
161
Where do you set up alerts on #1
concern zone and sold strike of your spread
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if you hit ?% at any time within the first three days of a spread you can get out. you dont have to but Tony does
50. The last days of the spread will just take a long time. You wont make much more and you could put the money somewhere else and make more
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For short term credit spreads, how close do you sell from the price of the stock generally. This means gaps are tough.
2-3%
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What are the cautions of short term credit spreads? (5)
1. Short term CS have a really high ROI, but also have a small cushion to be wrong, since you have to sell closer to the stock price.
2. "Every time I stepped outside of the plan I lost money."
3. More for the advanced traders that are good at reading price action.
4. You will need to hedge more often with short term spreads since you will be wrong more often.
5. Everything happens quicker - good and bad.
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Why use only those 8 stocks on a short term credit spread. Same week spread.
1. They have high Daily IV but dont gap a lot.
2. They are consistent trend following stocks.
So he can sell a good distance away from a couple days out expiration and win. Any other stock that is going to pay you with a high IV, there is prob news coming out and it will gap.
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What do you mean by .25 delta or lower?
The further away you go from the price of a stock, the lower the delta is.
It's your percent chance that your stock will be in the money by expiration.
So if you're selling the option you have to reverse that and think 90% chance it wont be in the money if it's a 10 percent delta. with .25 it's 75% chance.
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When you set your targets to buy back on PBS, what percent must you not go below?
70% premium capture or more
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Entries for SAME WEEK expiration. (8) stocks. (8 steps). plus (2) other points. What are these things you have to know?
1. Only entering Monday or Tues
2. You dont have to wait for a bear day to sell a bull put.
3. Expiration is the current weeks friday.
4. Sell with the daily trend
5. Need 1 daily barrier between sold strike and stock price
6. Need 1 weekly barrier in between your sold strike and stock price
7. Set up #1 selling right at support or resistance. Better premium but harder to hedge
8. Set up #2 selling below a support/above a resistance. Allows you to use that support/resistance level as a place to hedge.
Other two points
9. Must get paid 10% ROI
10. Have a strong hedge plan in place before taking the trade. Sell at the correct location.
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For same week expiration, when is the time to get into trade. Why?
Only Monday or Tuesday.
Monday morning is the best time to enter the spreads.
The first 30 minutes to an hour is the best time if the set ups are there. the expected range is large here. and then when the stock picks a direction, the hope factor kind of goes.
That is when the expected move is the greatest for the week. You can sell farther away and still get paid, with greater chance of winning.
170
watch intro to options you bought. If you did.
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Selling out of the money is selling what?
hope
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With regards to selling with the trend on same week spreads...What you have to remember?
Stay with the trend. dont assume it will reverse just because it has a lot of candles.
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How do you handle barriers with the same week credit spread?
Need 1 daily barrier in between your sold strike and the stock price.
Daily support
Daily EMA (10,20,50,100)
Need 1 weekly barrier in between your sold strike and the stock price.
Weekly support
Weekly EMA (10,20,50,100)
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on short term credit spreads what ROI do you need
We need miniumum 10% ROI. He prefers 15-17% of the risk you take.
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Main set up for same week expiration. #1
1. Big pullback to weekly support
2. Strong break of an S-Curve
3. Trap and reverse
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the indicator was created for what time frame and trade type
monthly
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Entry on a one week spread. Pullback to weekly support. what does that look like?
where would you sell for #1?
How many does he get in?
What is a common occurrence for short term spreads?
On weekly and daily....you need a support. We want a pullback. Sell at weekly support for #1. goes up a little in price and we win. He gets in 2 or 3 a week in a good IV market.
You will have to hedge these more often. You will have to know price action well. More skilled. Need your hedge plan in place.
You make money on a little bounce
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For short term one week credit spreads. what does he do monday and tuesday to find trades?
He looks for potential breaks in S-curves and sets up alerts where that would be.
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What does he do on Fridays?
Takes time to look at weekly charts and see how they are about to close.
Looks at how trades might set up for monday and tuesday also.
180
How much time does he spend on his credit spread research?
30-40 min on monthly per week.
Short term spreads 1-2 hours on monday or tuesday. 3 hours a week to make a ton of money.
he spends most of his time on the golf course.
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What does breaking of an S curve look like?
Where the curve should continue it's trend, it doesn't and it goes the other way. That is where you get into short term spreads.
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Where do you get in (on the chart) on a weekly credit spread?
Below the daily and WEEKLY first support.
and then at or below the second DAILY support barrier 2.
They can be reversed. Dont have to be in that order
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How does an entry trap and reverse work on a weekly credit spread?
On a daily chart. The daily candle goes below the Daily support and then closes above it by the end of the day.
Best case: happens on a friday! And the example closed with a hammer.
He's only looking at those 8 stocks so it's easy to scan.
As it breaks out and opens above the hammer on monday. he's got his barriers and things figured out.
He then enters the trade and sells at the daily support barrier 2 and hopes it works a couple days later.
184
How do we manage same week trades? (3)
1. Exit the spread, no matter what by end of day Thursday.
Expiration day Friday is the only time you can lose max loss.
2. Profit target is 70% or more premium capture
3. Have a game plan to hedge before you get fille on the trade.
Hedge plan is determined based off of entry #1 or entry #2
Entry #1 - selling right at support
Don't hedge, or do a reverse hedge
Entry #1 - selling right at support
Don't hedge, or do a reverse hedge
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2 Week Expiration: (5) RULES
1. Can trade this strategy on any stock that meets the requirements
2. Enter on any day
3. Dont sell with stock that have inflated IV
with monthly spreads you can get away with it since the stock most likely wont gap to your spread. Selling 2 weeks out you are still too close to the stock price and gaps can easily take you out.
4. 5000 average daily option volume minimum
5. Must get paid minimum of 10% of your max loss
186
2 week expiration general ideas
1. easier to trade than the same week exp
2. expect to win after 2-7 days
3. 87% win rate
4. Entries are based off of more rules, than knowledge of price action, but you will need to know how to read price action to get the most out of this strategy
187
Entry Location rules for 2 Week spreads (4)
1. Need 2 weekly barriers in between your sold strike and the stock price
2. RSI on the 2 hr chart needs to be extended in your spreads direction before you can take a trade (oversold (<30) for bull put spread, and overbought (>70) for bear call spreads)
3. SET UP#1 Selling right at support or resistance better premium but harder to hedge.
4. SET UP #1 Selling below a support/above a resistance allows you to use that support/resistance level as a place to hedge.
188
Example of 2 week option trade. (3)
1. needs to be oversold on a 2 hour chart. can create a scan for that
2. delta .25 or lower
3. Go to a weekly and identify two weekly barriers
189
He keeps ?% of his total account for credit spreads.
16. not sure that is something I need to think about as my entire account will be used for that
190
Concern zone for the two week credit spread. (how do you manage it?)
```
Hedge plan based off of #1 or #2 entry.
#1 Selling right at support. Dont hedge, or do a reverse hedge
#2 sold spread below a support/above a resistance
Buy the hedge if it closes below the alert level with a 1 hr candle
```
Profit target = 70% premium capture
Exit the trade no matter what the day before expiration
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Dont's with short term spreads - 2 weeks
1. Do not sell against the trend even if you think it will go reverse a couple days.
2. if the premium is too good - don't take the trade.
** if you're getting paid more than 30% on your max loss and you're selling less than .25 delta = too good to be true.
192
options rewind on TOS you can practice back trading options. Not sure I need to do that?
193
?% of your total account do you put on each credit spread trade
16
194
Gaps happen to him with his short term strategy that knock him out how many times out of how many trades.
3 out of 74 in a year
195
He will do CS on more stocks on bi-weekly.
Find out what those are. Is it any stocks like on the monthly? Are the bi-weekly CS called "quarterly" on Trading Station? If not what is the quarterly?
196
if you have a good hedging plan youre going to make money no matter what? T or F
T
197
Rules for hedging are the same for all Credit Spreads. But for the monthly what is the difference.
You are going to make sure you have more confirmation. Wait for a daily close across your alert.
For the two week or the one week, he may wait for a one hour close instead.
198
Rules for Hedging (4)
1. Only enter a hedge if your rules have been met. Not because a big scary candle has come in.
2. Only hedge if it makes sense
If your max loss is 5K, and you can buy puts, that turns your max loss into $1500 = great hedge
If your max loss is 1K, and you buy puts that cost $2K, max loss is now 1500 = not a good hedge.
3. Remember = your spread will bring in money if your
rules are followed and you still lose on the trade
it happens sometimes
change mindset = you lost small, that's a win in spreads. you can make that back in a few trades
4. Can only do 2 hedges on the same trade, don't get whipsawed.
199
when you are in a losing CS and you want hedge more, what would you need to be doing to make another hedge worth it?
cut the loss at least in half.
200
You can only do ? hedges on the same trade.
| Why?
2.
| You will likely get whipsawed and lose A LOT more than you would have originally.
201
How to hedge #2
What is the key point?
What three supporting points do you need to remember?
Your spread location you sold is key to be able to hedge effectively.
1. If you sell too close to your alert level you'll need to buy a lot of puts/calls to hedge = the more you spend on your hedge the harder it is to lose small on the trade.
* *Sold strike of spread needs to be at least 2% away from the alert level.
2. Make sure there are no other major support levels in between your alert level and your spread.
* * If you sold your spread below a support, but there is another strong support between your alert level and your spread = when you buy puts when it hits your alert level, goes lower, hits the next support level and then bounces and you lose on those puts.
3. When your alert level is triggered your no longer trying to make money on the spread, your goal is to lose small or break even and get out.
202
Why is it easier to set up #2
because you have a clear zone where you are wrong. Your alert zone is actually where you would short it.
203
to hedge #2 you have to buy how much?
30% of your max loss. So you need to make room.
At your sold strike your spread is going to be down 30% of your max loss.
So at your alert you need to buy puts to cover this loss at break even or at a profit by the time it hits your sold strike.
204
What percentage do you hedge most CS with and if you can't do that percent due to expense of stock (over 1K or more), how do you make sure the numbers work?
You don't want to spend more puts or $ than half of what your max loss is. If the space between your legs is too much to hedge properly. Dont do the trade.
for most stocks it's at least 2% of stock value. But for more expensive stocks that's too much (AMZN) so just make sure the math works.
205
When your alert level on set up #2 goes off. what happens then. What is the rule.
you no longer want to be trying to make money. Your goal here is to lose small or break even and get out.
206
rules for Set up #2 hedge
| 3
1. Do not start the hedge until your alert is triggered
2. Wait for a 1 hr candle close across your alert level (can be a daily candle)
3. Exit hedge and spread when the stock price hits your sold strike/or when break even if it has not gotten to your sold strike yet.
207
Bull Put Spread Hedging rules #2. on Bull Put Spread - tips. (3)
1. buy puts when the stock closes with a 1 hour candle (or daily candle) below your alert level, unless your oversold on the 1 hr rsi. (Below 30 on rsi)
if oversold on the 1 hr at the time of the 1 hr candle close below alert, WAIT 1 day before getting into hedge.
After waiting 1 day, get into hedge when the rsi is no longer oversold and then wait for another 1 hr candle close below alert level, if not below it already.
2. Use the analysis tool to determine how many puts you will need to buy so that you will be at break even by the time the price gets to your sold strike.
3. If you get two 1 hr candle closes back above your alert level, after you entered the hedge, exit the hedge for a small loss.
Remember you are still going to make money from the spread so it's not that bad. Our goal is to lose small.
Bear Call Spread
same but inverted. (above 70 rsi)
208
where are you going to choose your strike for your hedge?
Between your alert level and your sold strike of your spread (too close to the price and it will cost a lot, too far from the price and it will lose value faster if the stock reverses)
You will plan ahead and know how many you will need to buy.
209
If you only have a couple contracts
dont hedge. it's not worth it.
210
```
on the analysis tool what do the colors mean?
yellow
green
purple
Blue on both ends
```
gives you an estimate on those days
yellow is your p/l today
green is just a date so you can watch it as it progresses
Purple is close to the expiration
Blue is the expiration and is capped at max profit and loss
211
On the analysis tool where is the price of the stock
Where is your P/L
Where is your break even?
where do you know youre losing money on a BPS
On the bottom of the graph moving from left to right. less to more
on the left
On the dotted line
Any line below the dotted line you are losing money on
212
Why is the blue line flat on the analysis tool?
Because that is the expiration date
There is a max profit on BPS. You can only make what you get paid. Your P/L is capped out what you made.
You also have a max loss which is also a flat line blue
213
What is a covered/married stock
shares hedged by options
214
In the vertical spread where you have two strike prices in front of you. Which is the short and which is the long?
The short is the one closest to the side of whatever type of option you are doing. (On the put side the strike price closest to the put side of the option choices is the short. The strike further away will be your long strike)
215
When looking at strike prices on the options sheet. When do you choose the ask and when the bid?
Bid is red and ask is blue. If you are selling a put. You choose the red row because you are selling. The red row is the bid.
216
When looking at the options sheet. Where do you look to compare the percentage you need for the trade (at or more than 10%).
The Mid price.
217
Hi Lera! I hope you are able to learn all of this really fast! In two weeks we will be experts. LOL
yay!
