Options Trading: MECHANICS | Scott Reese | Skillshare

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Options Trading: MECHANICS

teacher avatar Scott Reese, Engineer & Investor

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

10 Lessons (2h 31m)
    • 1. Introduction

      2:20
    • 2. The Watchlist

      11:32
    • 3. Implied Volatility & IV Rank

      22:36
    • 4. Trade Selection

      20:01
    • 5. Trade Size

      19:13
    • 6. Profit Targets

      13:59
    • 7. Trade Management

      28:53
    • 8. Trade Tracking

      6:40
    • 9. Putting It All Together

      23:26
    • 10. Wrapping Up

      2:19
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About This Class

One of the key factors crucial to the success of profitable traders is their mechanics. These are the sets of rules and principles they strictly adhere to when trading in order to eliminate the involvement of emotion. Emotional trading is often the main reason why novice traders fail to become profitable. So if you are new to the wonderful world of options trading, or if you are looking to improve your performance, this course will be a great tool in teaching you how to stay as mechanical and emotionless as possible when trading!

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Scott Reese

Engineer & Investor

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Transcripts

1. Introduction: Hey there. So when it comes to trading, whether we're talking about stocks, options, forex, etcetera. One of the key factors that allows successful traders to actually be successful is the fact that they really stick to their mechanics. They have basically created in the use a robust system in which to deploy their various techniques and strategies in the most mechanical and emotion lists. Manners possible. This is very important because emotional trading is almost always the downfall of beginners when they're just getting started with this profession, especially when things go wrong. That is literally the worst possible time to get emotional and start making rash decisions , as that usually just makes the situation worse, right? So if you are new to options trading, or maybe you're just looking for a way to improve your performance, this would be a great course for you, because I'm gonna be teaching you about my personal trading mechanics, which have allowed me to find success. Let's profession, and just as a brief introduction, my name is Scott Reese. I'm a software engineer currently in the financial services industry, animals on options trader, obviously, and my core strategy is all about selling options and giving myself high probabilities of success on every trade. So if you're interest or approach to options, trading is similar. I think you'll get a lot of value out of this course. However, if your approach is rather different, maybe you're trying to day trade options by buying and selling them based on technical analysis and things like that in this course is not gonna be for you. I hardly ever use technical indicators, and I'm actually strongly against buying options as a core component of your trading strategy. Because statistically speaking and I'm all about the statistics and probability, it's virtually impossible to be successful long term. With that approach and just one more thing to mention, this course will acquire Justin very baseline knowledge on how options work and some of the common strategies such as credit spreads and iron condors strangles and things like that. So if you are brand brand new two options trading firstly welcome and secondly, I highly recommend you first watch my other courses on options trading, the first of which is called Stock market Options introduction that will teach you everything you need to know about how options work and then have a second course called options Trading Strategies, and that will teach you everything about the various strategies that I personally use when trading options. And then this course, obviously, is all about creating that mechanical system in which to utilize those various strategies. So with all that being said, there's a lot to cover in this course, so let's get started. 2. The Watchlist: All right. Welcome to the first video, this course. And in this first video here, we're gonna be learning about how to create a watch list for yourself of various stocks and e T f s that you can utilize to make trades very efficiently, right? If you already have a set list consisting of a few stocks ts that you're already familiar with, it's very easy for you. Toe. Come into your trading platform every day, scan through it very quickly, and figure out which stocks need TIFs are currently in very opportunistic environments or situations that you can then make trades on. Right. So what you're seeing here is my personal watch list I put together a while ago. Um, it is a bit extensive. You certainly don't need to have a watch list this large, but I do recommend having at least 20 to 25 stocks and or E T. ETFs that you're familiar with. And there's gonna be some criteria that I get to get into here in a second that are very, very important Wing putting together a watch list of stocks and E. T s. So the first of these very important criteria is your watch list needs to be diverse. And what I mean by that is you should not have Onley stocks and utf in one particular sector, right? If you, for example, just have stocks in e. T s in the technology sector, you are going to be released. Report. Philly is going to be very, um, subject to the movements of that particular industry or sector. Right? So if you have only positions on an Apple and Microsoft and First Solar and Oracle and etcetera, etcetera, and something bad were to happen to the technology sector, um, most likely old of your positions are going to be going against you, right, Which is certainly a bad thing. And so you need to place trade such that you are diversifying the underlines of each position, right? So, for example, you don't need to have all the sectors covered, but certainly majority, you know, looking over here, you might wanna have a position and SP y, which is A S and P 500 e t f. You might want to make a trade in a non U. S market. Right? For example, E w J is Japan FX eyes China are I? Sex is Russia, right? There's also some currency each efs that are very good bonds. Energy right, financial services goes on and on on. Right. So having a list that covers a majority of the different industries and sectors and then placing trades in underlying is within these different sectors and industries will give your portfolio a lot of diversification. Right? So one industry or one sector has a bad week or bad month and something bad happens. Your whole portfolio is not gonna go down with it, right? Only a certain portion of it. So, um, like I said, diversification is very important here, right in the second piece, which is my opinion. Even more important is the underlying or the stocks and E. T. F s and your list need to be very liquid. And what I mean by that is there needs to be a lot of trading occurring every day for these specific underlines writes. Let me go over to thinker swim, for example. So what you're looking at here is the option chain for S P y, which is that s and P 500 e t f that I just showed you and it's one of the most common and popularly traded assets out there in the stock market. And also for the drifters market with options. Right. Um, so you can see here, you know, for these columns here, volume, open interest. And then the been asked that I'll get into in a minute here. Volume shows you how many of these contracts were traded during the current trading day. Open interest shows you how many contracts are currently open. So if you look at the volume first, you can see that for each of these calls and puts right for all these different strikes, there are hundreds or thousands of contracts that were traded just today, right These air for the calls here, Um, and then for the puts, you look over here, right? Hundreds or even thousands of these contracts were traded just today and of the contracts that are already currently open, there's thousands or tens of thousands, right? Just for just looking at the to 80 strike call option. There's over 82,000 of these contracts currently open, and 2300 were traded just today, looking at the puts, there's over 117,000 open put option contracts with a strike of to 80. So that is a very good indication that these SP why contracts are very liquid right there very heavily traded a lot of interesting them Another way you can ensure that whatever you're looking at is liquid is by looking at the bid Ask spread the bid just in case you don't know that bid represents the highest price at that particular point in time that a buyer is one to purchase. For example, the to 80 strike call option here. Right, This the this $13.31 prices The bid for this contract highest price. A buyer, um, is really willing to purchase this contract for and the market is closed right now, so these numbers aren't changing and whatnot, but at market closure, that's what the big waas the ask is it represents the lowest price. A seller is one to sell this contract for right, and what you find is the bid is always gonna be less than the ask. It's just how the markets work. But you will notice that four assets that are heavily traded the bid and ask are going to be very close to each other, right? We can see here the bid is $13.31. The ask is $13.43 right? Just just a 13 cent wide difference between the two. That's pretty close. And when the markets are actually open, these will be a lot tighter. Right? When there's a lot of trading happening, these will actually get to about 12 or three cents wide. Very, very tight. Bid. Ask spreads so you can look at the bid. Ask spread the open interest or the volume. Um, or I personally look at all three just to make sure that whatever isn't looking at, If I want to make a trade in something, look at these three metrics to ensure that. Okay, what I'm about to trade is definitely liquid. And the reason why the quality is so important is one. It will lie you to get in and out of trades very easily, right? If there's a lot of trading happening, you know, thousands or hundreds of contracts being traded every day, there's obviously always gonna be buyers and sellers out there willing to make trades with you. That's what's going to be great when you are making a trade right? There's gonna be a seller. Is gonna be a buyer willing to go through with you on that trade for you to set that position on? And then, more importantly, if something goes wrong, right and you need to get out of a trade if the stock or the underlying asset that you're looking at is very liquid, there's going to buyers and sellers willing to go through with you on that transaction so you can get out of the trade and move on right? If something really moves against you and you're losing money rapidly and there's no one out there willing to, you know, by the contracts that you have or sell contracts to you so you can close out of your position. You're kind of screwed right you have. There's nothing you can do except to just watch your position take on more and more water unless someone out there in the market is ruling Teoh, step in and trade those contracts with you and then the other important reason. While I quickly is so important. And then this is again referring back to the bid. Ask spread here is Let's say you wanted to sell this to 80 strike call option. Well, if they've been asked her very close, you will not have to, as the seller come down in price and very far to find a buyer willing to purchase this contract from you, right? It's getting pretty rare that you'll be able to sell something right on the ask. You might have to sell at a price in between the been the ask, but the bid is already so close to the ask. Coming down one or two or three cents is not. It's not a big deal right? Whereas if the been asks better were very wide and that can happen because they're just not a lot trading happening than you might have to give up a lot more than that to find a buyer willing to purchase those contracts from you. And just keep in mind here, you know, the been asked were quoted in just know, $13 basically on a per share basis, but these contracts represent 100 shares each, so you have to actually multiply these numbers by 100. So this this contract actually looking at the bid is $1331 the ask is $1343. So the difference which based on the quotes here, says only 12 cents. It's actually $12 right? Most put. Multiply it by 100. Let me show you, um, Ralph Lauren here. And this is an example of a very illiquid stock. So looking at the same exact option Shane for June 19 contracts you can see here one. There's not a lot of contracts, even that you can trade right? It's a very narrow chain right here, looking at the open interest for these call options. There's almost nothing across the board. There's three contracts open here to 10 here. 22 here, then nothing else. The volume How many of these contracts were traded today on Lee One, and there was the 90 strike call option. Only one contract was traded today and nothing else. And I'm looking at the bidden ask. These are extremely wide right. This Ah, this 90 strike call the biggest 30 cents the ask is $3.30 again multiplying by 100. That's a $300 difference. So if you want to sell this call option, you obviously want to sell for the highest price possible. You want to sell it at $330. But if someone's only willing to buy it from you at $30 you're going to give up almost $300 just to come down in price, right? You might be able to find a price somewhere in between here, maybe $40 right? That's why I said almost 300. But still, you have to give up a huge amount of money just to go through on one transaction, right? It's not gonna be worth it. And more importantly, as I said before, if something were to go wrong, let's say you sold this contract and Ralph Lauren really starts to rally and you need to get out so you can cut your losses Well, that there's only, you know, one person. Maybe that will be in the market looking to buy this contract from you. You may not be able to get out of that position at all, right? There's just not enough interest, not enough volume. Just it's not liquid enough for you to be safe in trading these contracts. So that's why SP y, for example, is a great underlying to look at because it's one of the most liquid assets in the world, actually. So I believe that covers everything I wanted to talk about in this video, including a watch list. I do have a screenshot of this watch list posted in the project section of this course. Feel free to copy exactly if you feel this watch list is good for you. But I can certainly give you ideas for what, you know, assets or E T. F s that you can use to create your own waffles, right? Keep in mind that not every one of these, um these doctor et ETFs is super liquid. That's why I'm still trying to tweak it and cut down on it as I realize that some of these these ticker names and whatnot aren't as liquid as I want them to be. Um So, like I said, feel free to take a look at the screenshot in the Project section Teoh, A template of some sort to create your own watch list. And in the next video, we're gonna learn about how to You know, once you have your watch list in place, how should you scan it to look for stocks or E T. F s that are currently in very opportunistic situations or environments. Cells see the next one. Thanks. 3. Implied Volatility & IV Rank: All right. So once you have your wash list put together on the various stocks and E. T. F s that you're familiar with and more importantly, have good liquidity and as a whole or a diverse selection of Stockton et efs. What should you now be looking for? As you scan your watch list every day to you, potentially make some trades? Well, the most important thing that I person look at when skinny my watch list is which stocks were et efs are currently exhibiting high implied volatility. And what does that mean? Well, I'll explain both. The more conceptual definition of implied volatilities well is theme or statistical mathematical version, because it's important, understand both but basically implied volatility. It's a number. It's a percentage that reflects the general level of fear or uncertainty. There is about a particular stock that you're looking at or also in regards to the market as a whole. Now implied volatility is one of the many factors that gets included in creating the price for an option calls and puts, um, and if you've watched my previous course called Stock Market Options introduction, you will learn all about the different factors that go into pricing an option. You know, there's basically the time left between now and expiration. There's the underlying stock price. Of course, interest rates, the strike price as well as implied volatility and implied volatility is one of, if not the largest, factor in pricing and option right. It basically affects the pricing the most. So in implied volatility really moves. The prices of the options themselves are also really going to move. The higher the implied volatility, the high the prices are going to be across all the options both calls and puts and you know as fear and certainly come down, implied volatility will contract and also come down with it. That's going to decrease the price of the options calls and puts. And so, since my core strategy is, I want to be an option seller, meaning I want to sell options at the highest price I can and then buy them back later for the lowest price possible. So that way I could make the difference as profit. I really want to sell options when implied volatility is high, because if ivy I'm gonna use ivy and implied volatility interchangeably here. If Ivy is really high. As I said, it's going to really boost the price of all options, and that's what I want to sell, where I want to sell when the asset is at the highest price, and I'll get into this more in a minute. But I ve is what's also referred to as a mean, reverting phenomenon. And I'll I guess I'll get into that a minute, but at some point implied volatility. If it has a large spike up, it's going to come back down at some point in the future, which means as it comes down, the prices of the options come down with it, which is going to be good for me, right, because the whole point is selling options when they're high and then buying them back when the prices are much lower in the making, the difference as profit. So that's the conceptual definition. Implied volatility just reflects the general amount of fear or uncertainty. There is about a particular stock or the market as a whole, depending on what you're looking at exactly. So, more mathematically speaking, more statistically speaking, implied volatility represents the one standard deviation expected range for particular stock. One year out in time and there's a little bit I'm gonna unpack here. So first going into what center deviation is, Um, so this is kind of a diagram that's illustrating the basics here. But, um, let's assume we have a stock and the currents and the current share price of the stock is $50 Well, and also the implied volatility is at 20%. So the way we interpret this information is one year from now, the one standard deviation move and explain what that means in a minute. The one standard deviation move a year from now is about 20% from where the stock price currently is. So 20% 20% move higher over $50. Where it's currently trading at is going to be $60 right. The stock moves 20% higher is going to be trading at $60 per share. Conversely, if the stock were to move lower by 20% it would hit $40 right, and so now we have a range between 40 and 60. So one year from now, we can be reasonably sure that this current stock is going to be trading between $40.60 dollars now, touching on what standard deviation really means. Well, you can see here we have the 68% at one standard deviation move happens about 68% of time. So, you know, if you were to look at various different stocks and what where they're implied, volatilities were some will be 20% some will be 10 some will be 40 whatever it is, and these numbers fluctuate. But over time, as you continue, look at the implied volatilities of all the different stocks and whatever that you trade. You'll notice that about 68% of time the range that the implied volatility currently reflects will be correct, Right? So 70% of time, roughly it's actually 68. In this case, this particular stock will be between 40 and $60 right? Which means 32 ish percent. The time it's going to move beyond outside this range, so either below 40 or above 60 and so that they might have a two standard deviation move. And the way you kind of think about that is, you know, if a one standard deviation move looking at the stock is 20% while two standard deviation room is just multiplying this number by two. So 40%. So a two cent aviation move for this stock really at $50 which means it could move higher by 40% which would be up to $70 or could move lower 40% down to $30. So a to stand deviation range would be between $30.70 dollars. And the way of standard deviations work is. But with one standard deviation, it's about a 68% chance of that happening between the two standard deviation move. It's a 95% chance of that happening, so I like to often look at both one and two standard deviations to kind of get an idea of where the stock might be, especially a to seven deviation move, because, like a said 95% of time, you know you can be pretty confident in that prediction, right? So a year from now, we could be pretty darn confident that this stock is going to be between 30 and $70 and then 70% of time between 40 and 60 and you know this number is going to change is going to fluctuate. Obviously, the stock price is going to move and what not. But you know, looking at this particular example at a very specific point in time, that's what we can take away from this information. So, you know, that was a little bit confusing. You know, don't worry about it. It's not super important to understand the statistical mathematical definition of all this in detail, but I do want it to you. I didn't want to just explain it. So you have that knowledge. But still, the main take away from this is we want to sell options when implied. Volatility is very high, right higher than usual. And what you'll find is, you know, some stocks are more volatile than others, right? Netflix, for example, is, ah, very volatile stock right? Moves a lot. So the implied volatility, on average for Netflix is gonna be a lot higher than let's say, for Coca Cola. Coca Cola is a very stable stock that doesn't move. A whole lot definitely has its moments, but on average, it's It doesn't move a whole lot, so it's implied volatilities going be relatively low, but each stock e g t f each asset you're looking at is going to have some average implied volatility that tends to be around over a long period of time. I like to look at about a one year time span. What's the average implied volatility, Right? So the way I personally look at implied volatility, meaning you know, when is it high? I want to find instances where the implied volatilities is far above the average. And so now this is getting back to when I described Ivy as a mean, reverting phenomenon. What that means is implied. Volatility very often comes back around to the average. So, for example, with this particular set up, let's say the average implied volatility for this stock is 20% right? Well, at some point in the future, maybe there's a scandal that happens in with the company. Maybe there's a supply chain shock. Maybe there's They have terrible earnings. Whatever it is. When the fear or uncertainty about this particular company increases, the implied volatility is also going to increase and could be far above the average. Hopefully. And so let's say the ivy goes from 20% to 40% and that's going to really increase the price of all the options on this particular stock. So at that point we will be looking to sell options, of course. And because IV's and being inverting phenomenon at some point in the relatively near future , this typically happens pretty quickly. The implied volatility will come back down and settle right around the average. Conversely, you know, if I implied volatilities very, very low, maybe it's selling at two or three or 45%. At some point, it's going to expand and come back to the average. So again, with that in mind, we, of course, want to be selling implied volatility when its high above the average, not when it's below, When it's way below the average, all the all the options are gonna be very cheap. And so if we sell those options when everything's cheap and the implied volatility starts to expand to come back to the average, all those options are going to start increasing in price. That's not what we want to happen. As an option seller. We want to sell high and buy low. So Bolivian said, I'm not going to first show you just another quick example with SP y. This is taker, swim again. And what you're looking at here is the same kind of diagram that you just saw with SP while that we're looking at now. And it's a graph depicting the expected range of SP y at some point out in the future. So on the Y axis here, this is this represents the share price of SP Y At some point in time and on the X axis here the this represents how many days out in the future are we looking at? So, you know, 90 days out from now, 120 days out from now, I can scroll over until we get to, you know, 365 days out from now, basically one year. And that's where I wanna be looking at because, you know, over here you can see the implied volatility of SP. Why? It's about 40%. And as I mentioned previously implied volatility is always stated on a one year basis. So, um, one year from now, we can be reasonably reasonably confident that s p Y is going to be either 40% higher or lower than where it's currently at right now, as people wise trading right around $276 per share. So coming up all the way to, you know, 365 days, one full year, we can be reasonably confident That s p y is gonna be between, you know, $168 per share and $374 per share. And this curve represents a one standard deviation move. So one year from now, we could basically be 68% confident that s p y is gonna be within this range. And I can change this to be a two standard deviation curve. And so now we can be about 95% confident that s p Y is gonna be somewhere in this range. So a year from now, we could be 95% confident that as people I was gonna be above $112 per share and below $556 per share, right? Pretty big range as people, I certainly moves, but based on the statistics and probability of you know how implied volatility works and where it's currently at, this is how confident we can be one year from today. So I just want to point this out again, Go through another example. So it's more clear. Um, but now, once you have this information, your mind, you know, how do you know which stocker which CTF is coming exhibiting very high implied volatility. Right? Well, we can go, for example, to the charge tab here on Thinker swim. You can see down here. I have an indicator that tells me exactly that. Right? You're looking at a graph here that is depicting the implied volatility of SP Y over a one year period right on the x axis. This is just the date of a particular point in time. And the white acts and the Y axis is just the current implied volatility level. You can see right here again. It's right around 39.87%. And so you can see over here again, Ivy, About 40% rounded up. And so we also have to metrics here I'd be rank and ivy percentile. Now you can use either one. I tend to use ivy ranked the most. Um and so the way this works looking first Ivy rank, I've your rank will show you based on the current implied volatility level. Where is it sitting between the one year low of implied volatility and the one year high? So looking at this graph, you know, the one year low is somewhere in this in this range here. I'm not sure exactly where it is, but it's somewhere here, and the one year high is basically right here. This is when the corner virus epidemic really hit its peak, and obviously, soda implied volatility and you can see after it hit its peak. It's definitely come down a bit, still definitely elevated compared to where it was for most of last year. But still they come down a bit. And so I've you. Rank will tell you relatively, you know, where is the current ivy level sitting between the high and the low? And it's saying right now it's about 41%. So we're a little bit blow half way between the high and the low. And so for me, I like to look at Ivy Rank when it's above 50 to tell me when I should and shouldn't make a trade. I won't completely rule out something if it's below 50. If it's in the forties, I'll still look at it and maybe make a trader. There's nothing else better, Um, in the marketplace. Currently with a higher ivy rank but typically above 50 is what I would really be looking at to make a trade. There's also Ivy percentile, which is just another way of looking at implied volatility relative to the past. And what I V percent, I will tell you, is how many days in the past year was implied volatility for S P y below. Where is right now? So obviously, with the implied volatility having come down a lot, there's going to be, you know, a fair amount of days where implied volatility was higher, where it is now. But because it's no come down but still pretty elevated, 88% of the days in the past year had implied volatility lower than where it currently is. So it's also a good number to look at. And you know, these numbers will be pretty different sometimes depending on how explosive implied volatility was in the past year. With the quota vise epidemic being so severe, implied volatility absolutely skyrocketed, and so that might skew a bit ivy rank because the high of the year was so darn high compared to the low. And so even though implied volatility is still very elevated, Um, it's still basically Ivan rank gonna show you that it's not that elevated again. It's because the the high of the year was so incredibly high. However, I still like to use Ivy ranked the most because implied volatilities high across the entire market right now. And so I like to look for stocks or ETFs that exhibiting high implied volatility relative to where the market currently is. So everything in the market currently has high implied volatility because there's so much uncertainty about the coronavirus and the effects it's gonna have. Why, then, that means I want to find stocks Pts that are exhibiting extremely high implied volatilities much higher than where the general market is currently. And so I've you rank will be a very good indicator for that. I've percentile you can still certainly use, basically, as long as you stick to one of them and you don't we deviate. You should be totally fine. But generally speaking have you rank about fifties where you want to be looking at Ivy percentile about 50 or 60 same kind of thing. It's just these numbers are gonna be different depending on as I said, how extremely high was for the year. And so now, looking at S P. Y. I'm just as an example, um, you know, with Navy rank of 41% as a kind of mentioned, you know, I wouldn't be really considering this, you know, it's still in the forties is not bad, but I play pass on it to look for something better. If I go to herbal life, for example, you can see here well, that I've drank a 64% definitely above 50. And it's pretty far about 55% tiles at 91 as well. So you both we have, ah, great indications by both of these metrics and you could see in the chart here. Yeah, implied volatility is definitely not at its peak, but it's still much, much higher than where ever was in the past. And so that means the options for hlf are gonna be very, very expensive right now. So I will be looking to sell options in hlf potentially, you know, if it's liquid enough and the pricing is right, because, as I mentioned previously, implied, volatility is mean reverting. So at some point in the near future, Ivy is going to dwindle back down, which is going to decrease the price of the options that's gonna help me make money. So if you really pick your spots when trading so you know when implied volatilities high and as an option seller, you also have time to K working for you. So as time marches Ford, the price of the options you sold are going to slowly deteriorate. It's just one of the ways Ah, the options work in terms of the pricing time always decreases the price of options as you get closer and closer to expiration. And you also have, ideally, the stock price itself moving in your favor. So, you know, if you had a a bullish position on, maybe you sold a put credit spread and hlf and you did it when ivy was very high relative to where the average usually is. At some point in the near future, I becomes down. That's gonna help time moves forward, so it's gonna also deteriorate the value of the options you sold that's gonna help, and that Herbalife also doesn't move up and away from your short strikes. That's also going to help. And so all three those things could work for you at the same time. Teoh, decrease the price of the options you sold and by a lot and very quickly, so that you can then buy them back for a much lower price and take the differences profit. And you obviously at that point took your money off. The table is no longer exposed to risk. You made some money and you can redeploy it for a new trade. You can also hold to expression, although I wouldn't advise it. As you get closer and closer to expression, there is a thing called gamma risk. Um, which I won't get into too much here. But basically, as you do get very close to expiration, the movements in the stock price are going to very dramatically start affecting the price of the options. And so, you know, one day you could be very profitable. And if the stock moves a little bit against you, then you could be underwater by a lot. So I like to close out of my positions a lot. Earlier generally around 50% of the maximum profit I could receive if I wait expiration. And, of course, if I, you know, put the trade on in the correct environment. You know, when applied military was high, Um, And as time moves forward and hope with stock moves in my favor than I could be looking to close out that position entirely for a profit in just a few days or a week or two and then move on right, So over that all makes sense Just key. Take away is you know, when you are looking at your watch list on the stock CTS you have there definitely find the stock CTS that have high implied volatility relative to the average, and looking at the idea rank arriving percentiles give me a great way of doing that. And so, you know, I'm not super familiar with all the different trading platforms. Eso I can't tell you which ones do and don't have these different metrics obvious here. Obviously here with Nico swim, you could certainly add in these two metrics, which is what I've done here. Um, there's also a very useful feature where you can skin for stocks based on certain criteria . So I set some criteria here, on the most important of which basically means our states find me stocks that have implied volatility percentile between 50 and 100. Um, and it will basically give me a list of old stocks for today that meet all this criteria. So if, for example, my watch list is kind of dry, I can't we find anything with high implied volatility? Using a scanner feature that you're trading trading platform might have is giving a great way to potentially find new stocks that you didn't think about before or that are not on your list. And then she might want to look at, depending on, you know, if they're liquid enough and they fit your portfolio, things like that. So this is also a great feature that most trading platforms offer to give you some more ideas until you find more stocks or ETFs that have a high implied volatility. So that covers everything for this video. And so the next video coming up now that you have your watch list and you know what to look for in your list, the next step is going to be no once you have, you know, one arm or different stocks that have, you know, high implied volatility that you want trades on. What specific trade should you make on those on those stock treaty ETFs? Based on what your portfolio currently needs? Okay, I'll get into more of what that exactly means the next video. So I'll see you next one. Thanks. 4. Trade Selection: All right, welcome back to the next video in this course. So now that you have your watch was put together and you know how to scan it to find the different stocks, any TS that are currently exhibiting high implied volatility. Now it's time to given those stocks need t efs. What positions should you choose to place in order to give your portfolio the most balance ? Right, Because certainly your portfolio could be more bearish than you want. More bullish, I'd say being neutrals right where you want to be. But as the market moves, your portfolio is going to move along with it in terms of becoming more bearish or bullish . And what I mean by that necessarily is You know, what you're looking at here is a visual way of seeing how your portfolio is situated Compared to the general market, this technique is called beta waiting. And basically, what does I'll just explain it on a conceptual level Is beta waiting allows you to group all the positions in your portfolio into one unit, right? Just treating them as a single portfolio and so you know each position each position could be bearish or bullish or neutral, and then each asset that those positions are situated on each of those stocks. E T ETFs also moves in a certain way respected to the market, right? Generally speaking, as the market moves higher, a lot of stocks let's say in the S and P 500 will move higher along with it. As the market moves lower, a lot of those stocks will move lower and those stocks, E t s will move different amounts, right? They all have their own unique relationship to the general U. S. Stock market, and some actually have inverse relationship. So as the market moves higher, some of these different stocks or ETFs actually move lower, right? They all just have their different relationship. So beta wedding allows you to group all the positions, as I said, and the assets that you have in your portfolio and as one unit allows you to see how your portfolio as a whole is going to move respective to a certain stock or asset that you choose, and it really, in my opinion, makes the most sense to do this Respected to a new E. T F. That represents the U. S. Stock market, right, Because that's the whole point. We want to see how our portfolio is going to perform as the general market moves around. So I have my portfolio. Beta waited here against SP y and as in mentioned previous previously SP Y is an S and P 500 e t f. It just tracks the U. S stock market as a large single unit. Right? So it's a great way to TTF to choose to bait away against, to see how your portfolio as a whole is going to move. Um, as the general market moves. So looking at these curves here, each one represents my profit and loss curve for my entire portfolio, but separated on different expiration cycles. Right? My portfolio right now has different positions. Some which expire in May. Right now, as at the time this video was recorded were in April. So this blue curve represents all the positions basically aggregated together, baby weighted against SP y and only for positions that expire in May. Right? The red line is for all my positions that expire in June. So it just allows you to kind of separate out the timeframes of the different positions in your portfolio. Um, so you could see how your portfolio was going to do short term and mawr long term compared to the market. So, you know, looking at the red curve here, we can see that. Do you know, um, I stand my portfolio, at least in regards to my June positions, stands to be pretty balanced right now and the way you can kind of Ah, look at this is you know, um, as I move my cursor, you can see these numbers down here change. And those numbers represent based on the colors represent how much money my portfolio stands to either make or lose based on where the market moves. And that's gonna be basically my cursor right. As I move my cursor, you can see on the X axis here. This represents the share price of SP y. So ever I move my cursor. These numbers are going to change such that they reflect when my portfolio stands in terms of being profitable or not profitable relative to where SP y is. So, for example, of sp y were to move all the way down to, let's say, 2 49 and right Now it's trading it about You can see right here $283 per share. So if they were to fall all the way to to 49 looking at the, um, read number down here, my portfolio would stand to make about $1200. So that's a pretty big, uh, range for SP. What a fall. And conversely, four to rise Right now, I don't have a lot of positions on in June, so on this curve isn't quite complete yet. It's a little bit skewed to the right. Um, but generally speaking, even sp water to move a lot higher, Let's say, went all the way to, you know, above 310. My portfolio would still be in good shape, at least in regards to my June positions. However, looking now at this blue curve which, as I said before, represents my May positions that expired May right, we can see that his sp y moves higher. I'm gonna start losing money until I break even and then become not profitable. Right? So these red ticks represent my break even points. And so, looking right here at this red tick, my break even. Point on the upside is if people why were to start trading at 200 almost $97 per share, I'd be looking to about break even on all of my May positions. Now, this is also not a perfect science. It's not meant to be taken literally so that, you know, if SP why were traded exactly to 97 I would be breaking even because each stock still has the freedom to still move independently from the market. But this is still going to give you a very good estimation of how your portfolio is going to do as the as the general market moves around. So given that USP wise killing treating right around here, $283 per share, there's not a lot of room for it to move higher. In order for me to remain profitable, at least in regards to my May positions, there's a lot of room for the market to move down and for me to still be profitable, right? Um, generally speaking, I like to maintain a more bearish portfolio anyway, um, meaning that I like to have my portfolio set up such that if the market war to drop by a significant amount. I'm either still going to break even or even make a little bit of money because markets they never crash up right? Mean that you can have some big, strong rallies. So large upward moves, But generally speaking, markets crashed down. So when you have gigantic moves, the market typically to the downside, right? And so I like to be on the cautious side of things. And if that were to happen in the market war to, let's say, dropped by a huge amount, you know, even still looking at my make May positions here. If people I wore to drop all the way down to $241 per share, which is a massive move to the downside, I'd still break even, right? And that's that's great. But because I'm starting to get a little bit close to my break, even on the upside, this is gonna tell me that. Okay, The next time the market opens, I'm probably gonna want to put on some bullish strategies, right? Because bullish positions make money when the stocks that the positions air on, move up right. And like I said before, as the general market moves up, a lot of these stocks, let's say the S and P 500 in the market are also going to move up in different amounts, of course. But that's generally how it works. So and before I get into you know how I would pick a strategy based on this one alternative way of looking at where your portfolio sits respected to the market is looking at your overall deltas. So me expand this up a bit. So looking here at these numbers, these are all of my current positions right now. So I have I have them grouped into, you know, iron condors, these Almiron condo positions. These are all my strangles. These are my naked puts. Dive sold. And you can see in this middle column. Here are all these what's called Deltas. So let's look at first, uh, at my naked puts. And that's also focusing on this. The Citigroup they could put that I sold a while ago. We're looking at the delta here, 4.5 This means that and this is all you know, all these. Ah, all these positions in terms of their deltas are beta weighted against SP y Just like in the diagram. We're now just looking at it, looking at the same kind of information. But in terms of just numbers, um as SP y moves up by $1 then this Citigroup naked put that I sold will be profitable by another $4.5. Right? It's currently already profitable by about $60. But if SP Y moves up even higher by $1 than this position will become $4.5 even more profitable, right? Roughly speaking again, This is not a perfect science, but that's generally how this works. Um, looking at my e w w position. Same kind of set up. Sold a naked putting that while ago Um, it moves a little bit different. Respective tsp Why? But generally speaking, as the market moves higher, if SP why moves up by one more dollar, then this position will stand to become more profitable by $2.34. And so this number down here is just the some of these three Delta's right. So basically, as SP y moves higher by $1 all of my naked puts together will increase my profitability by about $10. 18 cents. Now, looking down here at the strangles and iron condors, these are all negative Delta's currently for my strangles be The total dealt that I have for my strangles is negative $5.90. So it's S p y moves higher by $1. My portfolio would stand to lose $5.90 And looking at the Aaron Condors as SP y moves hard about $1 all my iron Contras would together stand to make my portfolio lose about $27. So based on you know, these totals for each position group weaken add them all together. So 10 plus, um, negative six basically is four and four plus negative 27 is negative 23. So as entire portfolio if SP y moves higher by $1 my portfolio was thing to lose about $23 . But the opposite is true if SP y moves down by $1. So if that happens, then my portfolio would stand to make $23. And for each $1 movement sp y, all these deltas are going to change so they just represent where my portfolio or where each position is going to move right now in time based on the current share price of SP y. And as it moves these, they will change. But a czar right now you could definitely see that with an overall total of negative 23 Delta. My portfolio was definitely bearish, right? I want SP y to move down. That's how I'm gonna make money. And I like to maintain negative Delta anyway. But as you saw in the graph previously, it's getting a bit close on from I'm from I'm a positions right. So when the market opens, I'm gonna be looking for bullish positions, right, such as selling more naked puts because they will give me more positive Delta and will make the money of SP y continues to move higher. I could also sell some put credit spreads. Or maybe if volatility is super low among a couple stocks or E T f s, I might even buy a call debits Fred, who knows? Right, But I definitely want to get some, um, more, more bullish exposure in my portfolio. So going to the charts now, um, one stock that I might want to look at is G I l d just a a pharmaceutical company that is clearly exhibiting very high implied volatilities. So it's definitely going to capture my attention. And I want to make a trade on this, um and so even though, um, I might have a different assumption in terms of where G I'll these gonna go maybe down sideways, whatever my portfolio still needs right now a bullish position. So that's why I'm going to do to help balance things out. So with the ivy rank being really high, I'm definitely gonna make a position on this. Um and so if I go to trade now, um, I'm looking to sell now, potentially a naked put in G i l d. So before I continue here, one thing I want to mention is you know, it was my May positions that are currently, um, a little bit in danger in terms of the market moving higher and them losing money. But if I were to go to the make contracts, you can see here this 21. These contracts expire in 21 days from now. And generally speaking, one of my mechanics is I don't like to sell contracts that expire less than 30 days from today. I just you will collect more in premium with more time in the contracts. And as I've mentioned before with gamma risk as you get closer and closer expiration, the prices of options are going to start swinging a lot more wildly based on where the underlying stock is gonna move. And that's gonna be, ah, bad thing that the stock moves against you. So I want to go further in time looking at the June contracts that expire in 46 days. Um, and so just more clarity. Between 30 and 60 days is generally where look 45 days, it's kind of a sweet spot. There are no monthly contracts that expire in 45 days. And generally speaking, I do like stick stay away from the weeklies. They're just not very liquid. So I'm most stick to the monthly contracts, you know, just May June, July, August, November, etcetera, etcetera. So, and you'll see that even selling an option with a June expiration, it's still gonna help Um, my my main positions, right, cause this is just this is still going to be a bullish strategy. And that's why what my portfolio needs. So regardless of when the expiration is as the market moves higher, it's most likely gonna pull G. I'll be along with it and move J l g. I'll be higher so that my they could put that I'm gonna sell here is gonna make money, And it will help offset any losses that my May positions may incur if SP y just keeps on moving higher. Right? So looking at the put options here for JIA G I'll the expiring in June, I might want to sell the 67.5 strike put option. Um, has about a 32% chance of being in the money of my expiration, which means there's about a 68% chance it doesn't happen. Those are pretty good odds. Um, obviously a lot of open interest for these contracts. A lot of volume bid ask spread is a little bit wide wire than I would like. The market is closed right now, so you know that has a tendency to, um, skew the bid. Ask spreads when the market's closed. So when there's trading happening, they will generally become a lot tighter But I do like the open interest in the volume here , and the bed ask isn't too wide. So, um, I'd be looking to sell this option right here. So if I said this up still single, I'll be looking to take in about $305 in credit, which is pretty nice. If I were to confirm and send it, my broker would require me to have about $675 in money set aside as to be used as collateral for this position. This number could increase. This is a naked position that I'm getting myself into. But $635 in buying power reduction, I think, is a very fair amount for the amount of credit and receiving. So before I make this trade, though, one thing I can do is quickly analyze it and see how it's going to affect my portfolio before actually pull the trigger. So I'm saying this back up now. Right here is the naked put that I'm looking to sell. Um, if I currently toggle it off so it has no effect on the beta waiting here. It's not being including my portfolio right Now we can see that without G i l d my portfolio my break even for the May positions that I have looking at S P Y is about $297 right? If I now include G I L d. In my portfolio, my break even has moved up to about $298. So not a huge difference, but it's a $1 move up. So it's people I could move to to 98 now and I'll still break even. And that's obviously gonna help. And this is also just one position, one trade that I could make today. I could make 5 10 Mawr trades that are all bullish in some way, and that's going to really push out this blue curve and also the red curve, because this is also a June position. But it's gonna push out both curves further to the right, so that if the market does continue to rally, continues to push higher and higher higher, I will hopefully at least break even, but ideally make a little bit of money, right? So that's the general idea of where the general technique that I use to you know, once I have these stocks 90 efs pick that I want to make trades on. This is how I will come in and look at my portfolio and see what my portfolio needs, right? Don't need to put on bearish positions. Do any put on bullish positions or my portfolio is currently very balanced. Then I might just put on a neutral position. So an iron condor cell strangle something like that. Right, Which is what I generally like to do. I usually don't take any directional assumptions when trading because I don't know where the market's gonna go. I don't know where the stock's gonna go, And if someone tells you that, you know, they do know where it's going to go, the public lying to you. But, you know, I just I generally like to not have an assumption where something's gonna go. So being neutral is typically where I like to be so strangles Aaron Condors. But if my portfolio does start to get out of whack a little bit too bearish to bullish, I will get directional just to balance things out. So this is a good example of how I how I would get a little directional, little bit bullish to bring some balance into my portfolio. So I believe that wraps everything up for this video and the next video. It's gonna kind of tie into this one in regards to, you know, how big should you get in terms of making your trade right, we can see here that, um, you know, with G I l d I something to make it put as you saw. It's gonna require about $600 in buying power reduction. That's going to be money locked up. I can't touch it until I close out of this position. Is that amount Um, small enough for large enough? Such that it's It's reasonable to go through on this trade based on my criteria in terms of where the implied volatility is where my portfolio is and things like that, right? Generally speaking, as implied, volatility is higher and higher and higher. You can go a little bit bigger in terms of your trade sides, put more money up, put more money at risk because the set up is so much better than that on average, right? So the better the set up, the more comfortable you should be willing to risk. And in the next video you'll see I'm just my general mechanics and technique for how I increase the size of my positions based on where implied volatility is. So I'll see in the next one thanks. 5. Trade Size: all right. Thanks for joining me here in this next video. And so now we're gonna be taking a look at How large should you allow your trades to be based on where the implied volatility is that now, my general rule of thumb before I kind of get into my rules and mechanics that I have 40 set for myself. My general rule of thumb is you should not be risking more than about 5% of your account value on anyone given trade. So as an example, if you have, let's say $5000 in your account than 5% of that is $250. So if you're looking at a stock and you want to put on, let's say, a credit spread of some sort or an iron condor, whatever the amount of money you have to put up as collateral, basically that you are risking because of the trade does move against you. And that's the money you could lose. That amount of money should not be more than about 5% of your account. So $200 in that case, right on, I'll just show you amore detailed demonstration so This is the Apple option chain here, calls and puts, Let's say I want a little bit bearish on Apple and I want to put on a call credit spread so I might go into the option Shane here and let's say, cell the 300 strike call option and then purchase the 310 strike call option and that be my credit spread. When we set that up, you're gonna sell vertical here, selling one option of Apple 300 strike and then buying one contract with a $310 strike. I've been taking in about $300 of credit, which is pretty great. If I would hit, confirm and send here, you would see that the buying power effect or the amount of money that I'm gonna be putting up as collateral. This is amount of money. I'm risking because if I If I'm wrong and Apple just rallies, my maximum amount of money I could lose on this position is $689.30. Well, if I only have $5000 in my account and you know, um, 5% of that being $250.689 is obviously way more than 2 50 right? This is a much larger percentage of my account that I'd be risking for this one trade. So I might have to go down to, let's say, buying the three or five strike call and some 300. So a smaller credit spread in terms of the with the strikes officer taking in less credit and looking at the buying power effect Now, Now I'm risking $331 right? This is the maximum maximum amount of money I could lose in this position. Now, this is still larger than 5% of my account. You know, if I had $5000 in my account, but you know it's not that much larger. In fact, let's do the math. Here s 0 $331. Divided by 5000. That's 6.6%. So, um, like I said, this is a general of thumb. I don't want to risk more than 5% but, you know, for people with smaller accounts sizes, you may have to risk Livermore 678%. That's totally fine. But the idea here is you want to stay a small as you can be, period. Because if you when you when you do lose trades and you certainly will, it's just a part of how trading works. It's much better to lose a a small piece of your account value than a huge fraction, right? Coming back from a very large, significant losses is way, way more difficult than rebounding from a few little losses here and there. Um so yeah, regardless of where implied volatility is, no matter how amazing the set up is, staying smallest possible is still the key to success. However, going back to my rules that have defined for myself and, you know, this is also just kind of general guidelines that I stick to, I don't have to be super precise in maintaining, um, you know these numbers. But generally speaking, the higher the Ivy rank is for whatever stock I'm looking at, the more money I'm willing to risk and you should be willing to risk is well for that. Given trade, it's because you know, if let's say the idea rank for some stock, Apple, in this case is 75 right? That's very, very high there's actually no, it's pretty rare for Ivy ranked to get above 70. It has happened, you know, semi frequently, but it's definitely much less frequent than you know 50 40 and below. So with Ivy ranking so high and also keeping in mind that implied volatility is a mean reverting phenomenon, Um, you can be pretty confident that at some point in your future, the implied volatility is going to be coming back down to where around the averages and the higher the ivy rank is the You know, you could be more more confident that implied volatilities gonna contract faster and faster , typically speaking, implied volatility implied volatility does not stay this elevated for that long you is. Usually it's because of some earnings event or some, you know, big supply shock or something very significant that happened in the marketplace. Um, and you know that will obviously spike implied volatility. But as things get worked out very quickly thereafter, it's gonna come back down a little bit lower. And so, with it being so high, if it comes back down from, let's say, 75 down to 50 or below, that's a that's a pretty big drop right, just from the implied volatility contraction alone from 75 down to 50 that is going to be very beneficial for any credit based strategies that you use so strangles credit spreads Aren't condors etcetera? Um, just that alone is going to be very beneficial and make your positions profitable and profitable enough to where you can make you maybe actually be able to take the trade off entirely. And that's completely independent of where the stock is actually moving or having a lot of time passed and time to cater to really set into decay. The value those options, right? So the higher the implied volatility is, the more likely it's going to contract very soon and much more rapidly than if it's at a lower level. So with that in mind and then also time moving forward as I mentioned, time to case slowly eating away at the value of the options that you're selling and then hopefully the stock also moves in your favor. All three of those things. You can really work for you to allow you to take your profits a lot sooner, a lot more safely, Um, and then you can redeploy that capital elsewhere for new traits. So, um, that's why I generally like to look at Ivy rank. Teoh, tell me how how larger should get with my trades? Because this is, you know, you saw in the previously in this course implied volatility is one of the major factors in pricing options, right? So the higher implied volatility is, the more expensive all the options are going to be. And then when I view Lincoln tracks and by a lot, that's really going to contract the prices of those options as well. So I've Your rank is gently. Why look for two? Tell me how big my trade should be now, also, with defined risk and undefined risk, trades define risk being, you know, credit spreads, iron condors, anything where I know the exact amount of money I could lose right. There's a maximum amount of loss, and so these are my general guidelines, but you'll notice for undefined risk. I'm willing to put up a little bit more money, and that's because, um, you know, if you are, if you if you do have approval from your broker to trade undefined risk positions, you'll notice that the amount of money you'll have to put up as collateral. Um is going to be greater typically than the amount of money you have to put up for defined risk strategies. Right? Let's say you put on an iron condor on Apple and you take in $1 of credit. So it's times 100 shares, so $100 total in credit and your maximum loss in the Iron Condor is $200. That's the minimum you're gonna be risking for that trade, whereas with an undefined risk strategy, let's say, a strangle. And so you're also taking in about $100 in credit. Most likely, your broker is gonna require you to put up much more than $200 in collateral to maintain that position. It might be 34 $500 just depends on how pricey the stock is and where implied volatility is so because undefined risk strategies require you to put more capital on average than define risk strategies. You know I don't have a choice but to be willing to risk a little bit more on my undefined risk positions and also keep in mind that, you know, with undefined risk strangles straddles naked puts and calls. The probability of profit on those positions is always going to be much higher than with defined risk positions, Um, and so, with greater chances of profitability, that's also going to be more advantageous, with implied volatility being very high and, you know, selling options about 45 days from expiration. So there's a lot of time decay that can happen in that kind of thing. So with an even better set up using an under finalist strategy, you know, of course, I should be willing to risk a little bit more anyway for, um, whoever trade him looking at. So I do have a screenshot of this posted in the project section of this course, so you can take a look at it. Feel free to copy. Copy it exactly if you think these general guidelines work for you. But you know, this is more. This is a more nebulous topic because it's really going to depend on your own personal risk tolerance, right? If you feel more comfortable risking 5% of your account when ivy is above, the rank is above 70 and go ahead. If you feel comfortable comfortable risking 67 or 8%. Go ahead. Just keep in mind that the the key here is to still stay a smallest possible right? So if you're going over 5% that's okay, especially if you have a smaller account, because you're gonna be kind of required to anyway. But, um, then you really keep in mind how larger getting If you're getting above 10% or something like that, then you might want to really think twice before you pull the trigger and from the trade. Because if you do lose that trade, always keep in mind that whatever trade you're about to make, you could lose all the money you're putting up as collateral. So, do you really want to risk 10% and potentially lose 10% of your account in one trade? Maybe not. But that's gonna be up to you. So yeah, feel free to copy this or tweak it as you see fit. So now that we have that out of the way, the last thing I wanna cover in terms of position sizing is you know, how much of your total account should you be risking at one given point in time? Right? You can have, let's say 10 positions on each using roughly 3% of your account. So 10 times 3% each is 30%. So I'll be 30% of your account that you are currently risking at any one given time. Is that too much? That too small? Well, let's find out here. So I don't have any, um, you know, set specific rules like this for how much of my total account I'm going to be risking at one time. But I will give you some general guidelines here. So we go back to the charts, let me pull up V xx. So the X X is an E t f that tracks the, um, the VIX index. Right, So just like the just like S p y. That's an E T F that tracks the S and P 500 index. The VIX index is just another Another index that shows you, um, the general level of implied volatility across the market, right? And v x x is just e t f that tracks that. So you can you can use the XX to see you know, where is implied volatility market wide right now and looking at this yellow line. Um, this is the 200 day moving average of V X X. So the way you interpret this is, you know, for any point along this line, you know the value you're seeing here, which is just the price. You know, in this case, right now, it's about $24.71. It's basically taking the past 200 days of V XX pricing and just taking the average of all those 200 days. And that's what that's what gives you the 24 71 at this point in time. So, um, this will give you a very good proxy. A very estimation for telling you. Where is the general average implied volatility across the market, right? We can see it's about $24.71 for looking at the XX. And obviously with this corner virus epidemic, we've had a huge explosion explosion market wide with implied volatility. Which means that, um, you know, with the general market implied volatilities skyrocketing, that's most likely going to expand the implied volatilities for all the stocks within the market. And so as implied volatility in a market wide increases you should be more comfortable and more willing to risk mawr of your account at one time because with implied volatility being a mean, reverting phenomenon, you can see it's already happening where implied volatility really expanded. And then it hit its peak. And now it's contracting down again and contracting at a pretty significant rate. Um, and you know, there's no telling of how long it's going to take for it to come back down to the average, but at some point, and I would say it in the relatively near future, Um implied will tell you will come back down to around the average again, and it might stay right around there. My goal, but lower. But generally speaking, once it hits that average is probably gonna hang out there for a little while. So if market wide implied volatility is elevated and coming down, down, down, that's going to likely mean that for all the individual stocks and E. T. F in the market, all their implied volatilities are still elevated right above the average, but also coming back down and contracting. And it's implied volatility contracts that's going to be very beneficial for positions where you're where you are selling options, right? So with the average being around $24.71 for V XX. And if it's cruelly trading about $41.32 that's pretty far above the the average here. So I'm willing, in this case to risk about 50 to 60% of my account value at at any one given time. So if, for example, you know, on average, all of my trades use about 3% of my account, that means I could at one time have about 20 positions on right 20 positions times 3% risk for each position is 60% right. That's how the math works. But as Ivy implied, volatility continues to contract. Down, down, down. I'd say once V XX goes from 41 down to stay low thirties, then I'm going to pull the reins back, so to speak. And instead of risking 50 to 60% of my account, I'm gonna bring that down to probably on 40% of the 45%. And then as Ivy contracts even further, let's say it starts to come down to where the averages, you know, mid to low twenties. I'm gonna bring that back even further down to, let's say, 30%. Generally speaking, I'd say a good guideline to keep in mind is when implied volatility market wide is around the average or below the average. Risking 25% to 30% of your account at any one time is pretty reasonable. And as ivy expands further and further above the average, I said, going up to 60% maybe 70% is also pretty reasonable. Just keep in mind that, especially if you are using undefined risk strategies. Um, the initial amount of money you put up as collateral can definitely change, right? So if I want to sell, strangle in Twitter, for example, that might my broker might require me to initially put up 3 $400 as collateral as a risk. Um, but if implied volatility explodes for some reason, or Twitter starts really moving against me, my broker, that might then require me to put up, you know, 67 $800 in collateral for that position. So it's going to it could double. It could triple. And if I initially thought, you know what, I put on that Twitter strangle, I was risking 3% of my account. If something bad happens, that might quickly explode. 267 10% of my account, right? So that's why staying small, small initially is a good idea because, especially with these undefined risk strategies, that can definitely change very rapidly. So that's also why I'm not risking 100% of your account at one time is smart because for the undefined wrist risk strategies that you are currently you're currently employing. If something bad happens and you have a couple couple positions and they go against you in your collateral or your buying power gets expanded by two X or three X, you might overnight be required. Teoh put up more money as collateral than you actually have in your account. And then you're going Teoh, experiencing what's called a margin call, which means of brokers saying you have put more money into your account very quickly. Otherwise, we're going to force you to close out some of these positions so that you actually have the money in your account to maintain what you have. So that's obviously not what you want to happen. So not risky mawr than 60 or 70% of your account for that reason in particular, is why I recommend that. So that being said, I think that wraps up here for this video key takeaways again. Stay small. Ideally, if you can stay under 5% of your account value for anyone given trade, that's ideal if implied volatilities Very high market wide. You know, looking at the looking at the vics or V XX, it's way above the average, you know, feel free to go 40 50 60 maybe 70% of your account, Um, at one time and then as Vicks contracts, you know, bring that back down to 30 to 25% right? But again, it's gonna be more up to you and your own risk, tolerance and and things like that. So in the next video, we'll be looking at profit targets. So, you know, once you have those stocks that you picked because they haven't pie implied volatility, you look at your portfolio to see what it needs. You're gonna have some bear strategies or some bullets strategies that you weren't put on on based on the ivy rank of those stocks. E. T. S. You know, how big each trade should be. Now, once you have those trades on, they set him in place. You've gotten you gotten fill on those orders. When should you be taking your profits? Should you hold all the way to expiration to take in the maximum amount? Or should you be taking your profits off a little earlier to avoid the gamma risk that I've been talking about on so that you can also put your money off the table sooner, take your profits and then redeploy that capital for new trades? So that's what we're gonna be discussing in the next video. 6. Profit Targets: All right. Welcome back to the next video in this course. So now we're gonna be talking about when you should be taking your profits. And this is also a little bit more of a nebulous topic because there's no one set, Correct answer for this. I certainly have my own opinion and my own mechanic that I stick to when taking profits. But, um, obviously everyone has their own different risk tolerances and their own goals with trading . So my general rule of thumb is to take profits off the table at 50% of the of the maximum amount you could make. So, as an example, if you sold credit spread on Iron Condor, a naked put or whatever $400 in credit initially. Well, if you wanted to keep that full $100 you would have to wait until expiration, right, Because obviously with the with the idea of selling options, you want to buy them back at the lowest price possible. So you could make the difference of when you sold them and when you bought them. Those two prices make the difference as profit. However, the only way you can basically ah quote unquote purchase back. Those options for a price of $0 is when the hit expiration and they expire. Worthless, Right? So not to say there's anything wrong with waiting until expiration to make the full credit that you initially receive when you sold those options. But there is, and I've alluded to this before. In this course, there is what's called gamma risk as you get closer and closer to expiration. So I'm gonna talk about that first and explain to you why I like taking profits fairly on not waiting till expiration, because I want to avoid this game a risk it all possible, especially when it comes to my naked positions because they're the most affected by it. So what you're seeing here is the option. Shame for Citigroup. Um, and these options both calls and puts expire in five days so very soon. That's what this five stands force only five days till expiration if I scroll down, Though, looking at these June contracts, these contracts expire in 54 days. So almost two months from now and so let's look first at the these make contracts, which expired five days and let's say, as an example, you initially sold this CO option in Citigroup maybe a month, a month or so ago. And, you know, things didn't work out because obviously, if you sell a call option on Citigroup, you have a bearish assumption on the stock. And at this point, the stock has rallied, and now it's just starting to test. Um, the strike of your co option, right. Citigroup's truly trading at $43.10. This corruption has a strike of $43 so it's actually 10 cents in the money. Um, I'm gonna refer to it as at the money. Um, so, you know, this is kind of a precarious situation here because there's only five days left till expiration. Citigroup is right there on your short strikes. So if it continues to rally higher, you're gonna start really losing money on this position so you could hold the next five days in hopes it goes down. You could roll this contract out to the next month. Explain mawr. What? Rolling is the next video. Um, and so you kinda have to make a decision here. And so, um, looking first at, you know, gamma and delta at the same time, actually, just as a quick review the Delta Oven option. That's what all these numbers are that you're seeing here. The Delta of an option in this case for this corruption is 52.52 It represents the amount the price of this contract will increase for a $1 increase in the price of Citigroup. So if Citigroup's Crilly trading at $43.10 if Citigroup rallies up to $44.10 this collection is going to increase in price by $52. Basically, right, Got Remember, these contracts represent represent 100 shares, so you gotta multiply all these numbers by 100. So that's going to obviously be detrimental to your position. Because if you sold this option initially a while ago for some credit and now it's increasing in price by $52 and then more there after you're gonna be losing money more and more, um, more, more intensely. So that's what Delta is now. Gamma Gamma will tell you how much Delta will increase for a $1 increase in the underlying stock. Citigroup in this case. So, um, if Citigroup rallies from 43 10 to 44. 10. Um, the price this contract will increase by $52 as I just said, and then at that point, the delta for this option will increase by 0.0.1, too. So I don't go from 0.52 2.64 which means that if Citigroup rallies yet another dollar, then this contract will increase in value by $64. Right. And so as Citigroup moves more and more against you, the Delta will continue to increase. And that's going to mean your position is going to lose more and more money as city rally is higher and higher and higher. But now, if I go to these June contracts, you know the strikes are a little bit different. You know, the call option I was looking at here had a strike of 43. Um, this collection has a strike of 42.5 is the closest you can get, so we'll stop still gonna use it. But you can see here the gamma is much smaller. It's only 0.4 So a Citigroup, you know, if you sold this co option instead, a Citigroup really is higher and higher against you. If that happens, right then the Delta is going to start increasing by a much smaller amount. So that means your position. Yeah, it's gonna be losing money. It's gonna be taking on water. However, it's going to be moving much less right. You're gonna be losing much less money as Citigroup moves further and further against you. That's just because there's so much time left. There's 54 days for the stock to eventually come back around and move lower strike. There's a lot of time value still baked into these options. So, um, the price. These options are not going to move as much, given a moving price for the Citigroup stock and so ultimate that's going to just help your position, especially when things go wrong. If the stock starts moving against you, you're not going to taking on nearly as much water. Um, if your options are much further further out from expiration, So that's why I generally like to take profits at 50% because, you know, if I sell an option with 45 days to go expiration, um, you know, if things go pretty well in the stock doesn't move against me much. I can reasonably expect that I'll hit that 50% profit target in about half the time. So if 45 days out, I sell the options. So in about 22 23 days, in an ideal scenario, I should be at that 30% profit target within that time frame. So still three weeks away from expiration, my gamma, the gamma, for the options that I sold still won't be that that much different than when I initially sold them. So the game of risk will be an issue. And, you know, of course, I get to take 50% profits. Take the money off the table so it's no longer exposed to risk. And then I can redeploy that capital elsewhere. But ultimately, it's a little bit up to you, right? If you think holding until you reach the 60% profit target or 70 or 80 or you want to go only to expiration, feel free to mix it up, and especially with positions that you hold expiration in most particular with options that are, or positions that are naked in some way, they could put call, strangle, straddle whatever my guess is you will see, especially in the week of expiration, that the price movements of your positions are going to start changing a lot more significantly as the stock moves. So, some days you might be very profitable. Some days you might be underwater by a lot, and it's just gonna be a little bit mawr frightening if things start to move against you in the last couple of days of expiration. So that being said, you know, having those profit targets in mind is great. But I also don't want to be sitting in for my computer all day and waiting for some of my positions to hit whatever profit targets I have in mind. Eso what thinker swim allows you to do? And I imagine many other trading platforms will allow this as well is you can set up automatic closing orders for your various positions that you have. So let me first just cancel the Citigroup order already have on second kind of demonstrated to you. So Ah, few weeks ago, I sold a naked put in Citigroup. You can see right here for these June contracts and you know, if I want to take my profits at 50%. I would do so at around $87 so meanly back up. I sold this option initially for $174 in credit. So half of that is $87. So whenever this option is trading at about $87 I want to buy that contract back, close out that position entirely, and then, you know, take my profits and move on. So what I can do is set up a buying order, just goingto set this, uh, by order here by one contract, The same thing that I sold initially a couple weeks ago. And I can set the price that I want to actually buy this back for. So if I sold us $474 it's actually already trading at 121. So it's already going in my favor, but hasn't quite hit that 50% profit target yet. So I just basically type in here. You know, once this option hits that price point, then buy it back and close me out, and it will be a done deal. So that's by the price. I want to buy this option back for, And then I can set this to be a good to cancel order. So which this order is just going to sit out there indefinitely until I either close it myself or at some point, this contract does actually trade down to around $87. So I just had confirmed send send it. And there you go. So you can go back to here and you see my order right here. It's just gonna be sitting out there indefinitely. Um, there's the price. I want to buy it back for its trading about trading at about 100 $15. That's the average between the bid and the ask. So not too much further to go before hit that profit target. So maybe in a week or two, I'll get down to that point. And, you know, at some point I'll be going about my business and my phone will get a notification saying that. Hey, you know, my Citigroup position closed out for such and such profit, and it's a done deal, right? So that allows me to not have to. As I said, watch the watch the markets 24 7 watch the value of all my positions and wait for the right pricing tow line up so I can go in and close close at the position, um, so good to cancer. Orders are very beneficial in that way. And the last thing I'll leave you with before up this video up is just one more thing to keep in mind is the sooner you take profits. Generally speaking, the higher your win rate will be. So as an example, when I initially sold this Ah, this naked put on Citigroup a while ago on and Citigroup has ride a little bit. So the problem, the probability here is actually moved in my favorites now only a 23% chance of being in the money by expiration. But at the time I put this position on, I had about a 70% chance of winning. So I mean a 30% chance of Citigroup coming back down and trading below my short put strike , and that at that point I'd be losing money. Obviously, um and so the inverse would be a 70% chance of winning on this trade, which is great as is. But if you take profits early, you are now going to skew the probabilities. Maurin your favor because all these probabilities assume you're holding your position until expiration. These probabilities state that, you know, 54 days from now. The likelihood that Citigroup is below 32.5 is only 20%. But if I take profits at 50% maybe that happens next week or two weeks from now, then that's going to, as I said, skew. The probability is more in my favor. So even though it said it initially had a 70% chance of winning, if I continually take profits early, 50% I may find that my win rights actually in the mid to high 80% which is phenomenal. Um, and to me, that's worth it in the sense of, you know, leaving money on the table because I'm taking profits, really. But I'm winning much, much more frequently because speaking from experience here in trading, the you know, the pain you will experience when you have losing trades is going to be more significant than the excitement of actually winning trades. So if I can decrease my losing rate as much as possible and in the process increased my win rate as much as possible. That's going to make the trading experience that much more enjoyable for me, and I expect the same for you as well. Moreover, and I already kind of talked about this briefly, but by taking profits fairly, you're not. You don't have to hold till expiration. So you are holding these positions for much less time, which allows you to have much faster turnover of making more trades, redeploying your capital. And, you know, the whole point of trading based on probabilities is to, um, make a lot of trade so that the probabilities can actually work out. That you have enough occurrences for these public is to actually work out over time. So having faster turnover so you can make more trades allows those probabilities to work more more effectively. And then, moreover, taking profits really also increases your win rate and excuse those probabilities even more in your favor. So, um, that's it for this video. Um, and the next one will be looking at how to adjust or roll your positions when things go wrong. So I'll see in the next one. Thanks 7. Trade Management: All right. Welcome back to the next video in this course, and now we're going to taking a look at how you can respond when positions that you have go against you. Right When things go wrong, how can you adjust them? Teoh, Bring some balance back into your position. How can you take in some extra credit to hopefully cut down on how much money you could lose or how to give yourself extra time, extra duration so that you know, there's mawr possibility that the underlying stock can come around and for your position to become a winner from initially being a loser. Right? So what you're seeing here is you are my general guidelines, my general trade management rules for how I like to adjust the positions that I have. Um and these are these are still guidelines. They're not supposed to be set in stone, fall them to a T. But, um, they definitely offer myself and hopefully you as well Some general, um, guidelines and rules you can stick by, but ultimately I still do treat adjustments a bit on a case by case basis, but still right here is definitely a great way to start. Um, so are first going talk about defined risk adjustments That's basically gonna be your for your aren't condors and your credit spreads and then we're gonna get into undefined risk adjustments. So, you know, strangles naked puts calls, things like that. I do also have some earnings earnings, play adjustment rules. I'm still tweaking them and kind of figuring out what the best way to go about adjusting earning strategies are so they're not gonna be in scope for this course. I will probably make a separate course just on how to trade earnings. But, um, for this video of the for this course, just be focusing on the more vanilla just to find risk, undefined risk strategies that I'm mostly employ anyway. So, looking first at the fine risk trades, um, I will adjust them, Generally speaking, when one of the options that I've sold gets tested at the 60 Delta. So what I mean by that? So we're looking at here is this is back to think or swim again? This is the option chain for S P Y. These are all may contract for the calls and puts here, and right now I have an Iron Condor on this on this underlying stock and, you know, spies currently trading at about $285. And on the cool side, my short strike is at 2 97 And then I bought the 2 99 as or sees me the 300 as my protection on this on this position, right and down the put side, I sold the to 34 strike put and bought the to 31 strike put. So this is a $3 wide iron condor, and I put it on about two weeks ago, and obviously Spy has Raleigh quite a bit. And now it's starting to get a little bit close to my call. Strike here, right, Still has a ways to go, and there's only about two weeks left. So the chance of SP Y being above to 97 by expirations still pretty low. But at this point, I definitely have my eye on this position with spy, you know, slowly creeping up on my short call strike here. So what? I mean by tested at the 60 Delta. As you can see right here with this corruption that I sold right now, it has a delta of 0.26 or 26 so still less than half of sixties. So I'm still not that worried about this position yet. But as you've already seen this course as, um, the underlying stock gets closer and closer to whatever options you sold your delta on that option is going to start increasing. And you can look at Gamma to see by how much that Delta is going to increase for every $1 move of that underlying stock. Right? So, you know, if SP why just keeps on rallying at some point, my delta here for this call option that I sold is gonna hit 60. And you can see looking down at this option, for example, this to 82 strike call. It already has a delta of basically just a little bit over 60 right? So, you know, if this was the option I actually sold. And now we've got a delta at 60 61 basically, and, you know, with the cull option here having a strike up to 82. Um, in this case with SP y being on around up in, say, 2 86 that means this option is almost $4 in the money, right? So it's pretty far in the money. And I would be looking to adjust on this position and just to kind of relate it back to the actual call that I've sold, you know, this was actually a 60 Delta. Then spy would be around. Um, the 302 is my guess, actually, be 301 somewhere in this range so well past my short strike and most likely passed my long call strike here as well. And in this scenario, if Spy actually never came back around and and fell by expiration, I'd be looking at a maximum loss here, right? Initially sold us and Condor $400 in credit. The max loss is therefore $200 because this is a $3 wide iron condor. And so, you know, like I said, if spy never comes back down below my long call strike, I'd be looking to lose the full $200 I obviously don't want that to happen. So how can I just this position to cut down on how much money I could lose if spy never actually comes around. Well, they go to way. To adjust Something like this is simply to roll up the puts that I've sold initially, right? And also, I guess I bought one as well, right? So what I would do is I would buy back this put spread for obviously now a much cheaper price, because spy has moved so far away from it. So this is gonna be a very cheap put spread to buy back. And then I would sell another put spread a little bit closer to where people eyes actually trading. And this will allow me to take in an overall net credit on. And I'll actually do it for you here. So I'm gonna set up a trade where I'm going to buy back this put spread. So I'm gonna buy back the to 34 strike and then sell the to 31 so you can see right now the debit to buy to buy back this position with this put spread is only $5. Um and you know, this is also with as people I actually only had 2 85 Um, if I were toe were to adjust this position, spy will be like I said around 301302 So this spread might actually worth like $1. So almost zero, almost nothing. But in this case, I'd buy it back for one or for $5 and then I would sell probably something around here. I would sell the set this up. Actually, first triggers sequential. I would then sell this vertical here, sell the to six to put and then by the 2 59 And it's gonna be the same $3 with in terms of the strikes here, right? So I don't actually add any more risk to the downside if spyware to come all the way back down and blow through my put strikes, it's still the same maximum loss of $200 initially, right? So not adding on any risk. But you can see if I'm selling my original put spread or excuse me, buying it back for $5 and then selling a new one for, let's say, 30 I'm gonna take in an overall net credit of $25. So if I initially sold this Iron Condor for 100 bucks and credit and now I'm adding on extra 25 that means my overall credit for this Iron Condor is $125. So if Spike keeps on rallying and ever comes back down, or even if you know a little bit wrong and it totally reverses and blows through my new put strikes, the maximum out I could lose is no longer 200. It's actually 175. I've cut down on the maximum amount of money I could lose in this position, which is which is great, right? It's not a huge adjustment. $25 is not super significant, but it's around. Um, let's do the math here. $25 of additional credit divided by the original $200 loss. That's about a 12.5% adjustment. So if the original Max loss was 200 I have now cut down on that original Max lost by about 12.5% on if I were to keep doing this for many, many positions that I had, which went against me over time, this is gonna add up to a lot of money that I have actually saved right. $10 in adjustments over here. 20 bucks over here, 30 bucks over there over hundreds or thousands of trades. That's gonna add up to a lot of money that I have saved right now. You could, if you want more credit, adjust this put spread even higher, right? You could come all the way up to, let's say the to 80 put strike right and you would probably take in, I don't know, maybe 60 $70 of extra credit, which might seem great. But now you've really narrowed this Iron Condor so that if SP why were to reverse and come back down, there's a much higher chance that it's not going to blow through your put strikes. And, yeah, you adjusted and you took in semester credit. But you've still created a losing trade. And that's not the point of adjusting. You wanna just so that you do, taking some extra credit just to help a little bit cut down on how much your max los was originally. But you don't want to adjust so much that you are really skewing the probabilities against you. Because obviously, if I were to, you know, move this put spread up. If I move it to the um the to 60 to put strike You know, there's now a more narrow range for SP water trade so that this this position is a winner. But to 62 is still well below 2 85 where sp wise currently treating And you can see here that this ah, this put option that I want to sell only has about a 16% chance of being in the money come expiration. So it's a pretty low chance and this is generally what I shoot for when I make an adjustment. I generally like to adjust up enough to where I am now going to be selling an option that's around 16% chance of being in the money. And ideally, I want to take in, um, and extra 10% credit based on the Max Los. So if the max losses originally $200 then ideally, when I just in the end overall, I wanted taken a net credit of $20. $20 is 10% of 200 but you can see here I'm buying for five and selling for 30. I'm actually taking in 25. That's even better than than what I I want at a minimum So obviously the adjustment has to be, um, safe enough to where you're not really skewing the possibilities against you. But it also has to be worth it, right? If you're only taking it taking in a net credit of, you know, a couple of dollars is that really going? Be worth the added risk of, you know, basically narrowing your iron condor and reducing your chance of success? Probably not. I would rather just let this iron convert go. There's still about 17 days to expiration, and I would just hope. I hope that s p Why were to come back around and by expiration land between my two short strikes? Um so it's definitely a bit of a balancing act. It's more of an art than a science. But generally speaking, when you have an option that gets tested at the 60 Delta, and this is just for to find risk strategies at the 60 Delta I'm looking to adjust, and I'm looking to adjust up to about that 16% chance of being in the money and ideally take in taking credit that is worth around 10% of the original Max loss, so that those remind general mechanics. But obviously it's not black and white. If there was a lot of time left till expiration, maybe you know, four plus weeks, I'd probably just let this position go a little longer. And maybe once I get test at Thesixties five Delta or the 70 Delta, then I would adjust right with a lot of time left. I'm more inclined to just kind of let time play out, let the pot buddies play out, and hopefully SP Why comes back around and this position that becomes a winner again. So that's why I recommend you would just iron condors. That's the same thing, either when you get test on the call side or the or the put side right. If you could test on the put side than just roll, the call's down, same process just reversed. And now if you just have a credit spread by itself, just a call a credit spread or put. Could it spread the way you would just that is? You just add on the opposite side of the trade. So if I just had this call cried, spread here, nothing else. And if Esther what comes up and up and up and I get tested at the 60 Delta than what I'm gonna do is I'm just going to sell the put spread that was originally part of that Iron Condor, right? It just when I had that credit spread by itself. Initially, I don't have this put spread, so there's nothing for me to even buy back when I make the adjustment. I'm just gonna go ahead and sell, put spread, and that's gonna be my way of taking an extra extra credit. I will, in effect, basically create an iron Condor as my adjustment, and I'll leave it at that. It's the same thing if you just had a put credit spread by itself. If you get tested on that short put at the 60 Delta, then just sell a coal spread and take in hopefully around 10 plus percent of that original maximum loss that you could lose. Now, when it comes to rolling for define risk positions, I generally role if I dio on the week of expiration. Now what is rolling rolling position means you are going to basically close out of the position you currently have by the contracts back, close that completely and you're generally generally gonna do this for a loss, but you're then going to re establish the exact same position in the next expiration cycle . So let me show you what I mean by that. So with this Iron Condor, if expiration week comes around and this position is still a losing trade, I'm still not profitable on it. I will look to roll this out from the make contracts to the June contracts. And so I would buy this entire Iron Condor back and then going to the June contracts down here, I would re establish the exact same position, same strikes, same everything. And ideally, I would do it for an overall credit as well. I never want to roll a position for a debit where I'm actually paying money to extend oration. The reason why you don't do that is because you know you are rolling a losing trade, and it may stay a losing trade indefinitely or for a very long time. And if you are constantly rolling the position and paying money to do so, you're just gonna piling up how much money you could lose on that trade. If it never does come around But if you can keep rolling for credit, you will basically just keep cutting down on how much money you could lose. And you're just giving yourself more time, more time for that stock to come around, and hopefully, at some point, it does come around and you actually have a warning trade on. And if you kept rolling for credits, you may actually end up making more money than the initial trade actually said you would make. So that's the ideal scenario. Um, however, it's not always possible with defined risk positions, but let me show you just how would set this up on my current Iron Condor if I wanted to roll it? All right, so here I have the order set up. We're going to first buy back the original Iron Condor I have for these May contracts, and we're gonna do so for an overall debit of $88. I'm gonna pay 88 bucks to buy this Iron Condor back and close out of it completely. But then I'm going to re establish the exact same position, same strikes, same everything but for the June contracts and gonna be able to do so for a for $161 in credit. So the difference between these two is about 70 bucks. So I would take in around $70 of extra credit when I roll this position out in time. And the reason why, in this case, I could roll us out for credit. It's because options with more time baked in are gonna be more valuable than options nearing expiration, right? Just the way option prices works. And so because these June contracts have an extra month of time baked in, they're gonna be worth more than these. Make contracts Now, when I said that, define risk strategies are harder to roll. Um, let me explain that. So the reason. Another reason why I can roll this trade for an overall credit. It's because my current iron calendar with these married with these make contracts, it's not being tested anyway. Right now, yeah, people, I was getting a little bit close to my call strike. It's not ideal, but overall my position is still very stable. It's very healthy. Nothing's being tested, and in those scenarios yet, it's it's gonna be very easy to roll position if you wanted to for? For a credit. Um, but you should only role a position if it's a loser, right? It only makes sense. If it's a winner, why would you ever want to roll it now that being said for cases where the stock is right on your long call strike. So when you go back to this, May contracts here. So if expiration we comes around and SP what has ride up and up and up, and now it's right around my long call strike around 300 or just a little bit above it's gonna be very, very difficult to roll this position for overall credit. It's just because the cull options that I had to purchase as basically creating my protection on this on this position they're also gonna have a lot of time value baked in a lot of extrinsic value baked in. And so because of that, you're gonna find that it's gonna be very difficult to buy back your position, have been sell brand new one. Even with a month out foreign overall credit, chances are it's actually gonna be for a couple of dollars of a debit. Or maybe you'll break even and I would say, You know, if you're break evening, if you're breaking even on a roll, basically buying for 88 then selling for 88 I would say That's fine. You will be losing a little bit of money cause there are commissions involved at least if you're treating with TD Ameritrade's Thinker Swim. But generally speaking, I never want to roll a position for an overall debit had explained why. So if an expiration we comes around and unfortunately the stock has ride just beyond your long call strike or your long put strike, whatever position you have on it's probably gonna be a losing trade no matter what you do. But ideally, at that point you've already adjusted somewhere along the way, either rolling up those puts or rolling down those calls you've taken into Mr Credit. You cut down on that max loss and you know you're just gonna have to let it go expiration and take the losses right. But if SP Y is right around your short strike, we're kind of in between your short in your long strikes. That is probably going to be very feasible to roll your position for an overall credit so it's just gonna be kind of played by your kind of thing. Um and hopefully it works out in that scenario, but it doesn't happen too often. I would say when it comes to just cutting losses, I never do that Undefined risk positions, right? No matter, no matter where the stock moves, no matter how bad things get, it's a defined risk position, right? You know how much money you could lose And, you know, ideally, when you put on the position anyway, you should know how much money you're risking. And you should know that. Yeah, it's very possible, although, although not super likely. But it's very possible that I could lose or you could lose Theo entire amount of money that you're putting up, um, to maintain this position right. Even though these things aren't condors and credit spreads are very high. Probability of success trades right? Ideally, you know, 60 70 plus percent chance of winning that leaves you 20 or 30% of time, where you're gonna be losing trades, and you could either lose a little bit of money or the full maximum amount. But, um, you know, just my in my opinion, my view. Define risk positions. They're kind. They're more base. Set it and forget it. Strategy. Obviously, you could do a little bit of management terms of rolling the untested side rolling up those puts rolling down those calls, maybe ruling out in time, if possible. Generally speaking, um, you know how much money you're risking, no matter what happens, that's the maximum amount of money you could lose. So I'm fully prepared to let time work as long as possible that those probabilities work as long as possible. And if it just comes by expression that it didn't work out, then so be it. I will take my losses and then move on. That's just my my philosophy with these define iris positions. But for undefined risk positions, it's gonna be a little bit different because obviously, if you have that approval from your broker to trade, strangles and straddles or naked puts and calls, there is no way of knowing when you put in that position how much money you could lose. And so you want to be a little more careful with these positions. So, generally speaking, when I went to a just an undefined risk position I'm gonna do so when my breakevens get tested, let me show you what I mean by that. I'm gonna now go to GDX. I have a strangle position on in GDX. I just sold a call and sold the put a couple weeks ago. And you could see now that Judy X is definitely rallied a bit. And it's starting to get very close to my short call strike. So I initially sold this strangle for $100 in credit. And the short call that I sold here has a strike of $35. And so my break even point is going to be $36. Right? Because let's say at expiration, GDX just rallies all the way to 36 on expiration date closes right on $36 per share. I'm gonna get a signed on this call option, which means I have to sell 100 shares of GDX to that option buyer. I don't have 100 shares of GDX in my portfolio, so I'd have to go out and purchase 100 shares initially at the market price of $36 per share and then sell them for 35 to that option buyer. So if I bought for 36 sold at 35 I would lose $100 on that trade. But, you know, if I take in $100 in credit initially I break even in that position. So my just general thumb is when I get tested at the break, even points of GDX rallies at some point in my trade, up to $36 or in this case, I might put side. I put that I sold Has a structure 24. If Judy X falls to 23 oops, Falls to 23 then I will make an adjustment and the adjustments gonna be very similar to the Iron Condor. I'm just going to, let's say, Judy X tests my coal Michael option here. I'm just going to roll up the put. I'll buy this put option back, and then I will sell a new one much closer towards you. Access trading. Probably around here, like I said, like to stick around that 15 16% chance of being in the money as my adjustment, I'd be looking at taking about $25 off extra credit, which would push up my breakevens even further. And that would be my adjustment, right? Same thing on the put side if GDX just falls and goes below 24 hits 23 that I'm going to roll down my call by this one back and sell a new one closer toward GDX is trading ideally run that 16% chance of being in the money and then hopefully Judy Ex coming back around. But if GDX keeps falling or keeps rallying, then because this is an undefined risk position, I don't have a choice but to keep on adjusting, taking more credit to offset how much money that could be losing here. So in the case of GDX, just keep continuing on rallying higher. I'm gonna keep rolling up that put more and more and more and more, and it may actually go inverted at some point if I have to. But I have not yet had that experience thus far, but I'm sure it will come. But that's the idea. Same basic thing is the N Condor. You just want to roll up the side of your trade that's not being tested and just take him or credit. Now, when it comes to rolling out in duration. If I want to give my position more time for undefined risk strategy, I will do so two weeks. Proud expiration. I will not wait till expiration week. 14 days comes around 14 days before the actual expiration date. If my position is still loser, I can't close a for profit. I will roll it out to the next month. Reason why I do it two weeks prior and this is kind of the the last possible moment. Ideally, I want to do it sooner. It's because of that gamma risk that I have already talked about right. When you get closer and closer to expiration, the price swings of those options, they're gonna move a lot more. I want to avoid that. So two weeks comes around. I'm going to roll out these contracts further in time. So currently, these contracts expire in 17 days. So just a few more days before, I have no choice but role in that case, you know, if they 14 comes around and GDX is still kind of right around this range, I'm gonna buy back these contracts, go to June and then re establish the same position for overall credit. And the cool thing about under FINRA strategies is you will always be able to roll them for credit. Reason is, you know, with an undefined risk, undefined risk strategy. There is no part of your position that required you to buy options. Initially, you just sold options, and that's it. And because options further out in time always have mawr time value baked in, they're gonna be more expensive. So you're always gonna be able to roll an undefined risk strategy for credit. It's just one of the benefits that they offer, but again, there's always that trade off of. You do have undefined risk. Um, I did forget also to mention how you adjust just a naked call or naked put same thing, as if you just had that call. Spread that call credit spread or that put credit spread right. If I just had this Naked Qala, nothing else, and Judy X kept rallying and hit my break even point. Then I would just sell a naked put against it right right around the 15 16% chance of being in the money, just selling they could put taking that extra credit and hopefully things work out. If I just had the naked put here and GDX kept falling, then once my breakevens get tested, I would just sell a naked call against it and that be my adjustment right there. And lastly, when it comes to cutting losses now, I do cut losses for undefined rest strategies because, you know, there's no way of knowing how much money you could lose. It's better to be a bit on the safer side then than to be sorry, right? So for undefined risk positions, I will look to cut losses when my position hits a an overall loss of three times the credit received. So what I mean by that is, you know, like I said with the strangle I initially took in $100 in credit. So if Judy extras keeps moving against me at some point, my position is now a $300 loser, right? 300 is three times the amount of credit I took in. Then I will most likely look to just close out this position, take my losses and then move on, because if I hit a $300 loser than you know, there's no way of knowing if it's gonna become a $400 loser or a $500 or $1000 loser, right? Cause that you have that undefined risk and all the research that I have seen when it comes to adjusting undefined risk positions, cutting losses at about three times the initial credit you receive, it's not going to negatively impact your performance going forward. So that pretty much wraps it up for my general mechanics. For how I just and roll positions. No. Once again, just as a recap for defining strategies look to adjust when one of those options you've sold, whether it's an Iron Condor credit spread by itself, whatever. When one of those options that gets you sold gets tested at the 60 Delta, um, I would look to adjust, basically selling a put spread against it if you just hold two. Call spread or rolling up one of the sides of your on condors. Whatever it is when it comes to expiration week and your position still loser. Ideally, if you can roll for credit, then do so. If you can't then just let it go and you know you have obviously defined risk. You know how much money you're gonna lose? Take your losses and move on. And that's why I personally never actually cut losses on define risk positions for undefined. Always adjust when you're breakevens, get tested, or you can even be safer than that and adjust when your short strike is tested. So once that CO option, you sold that put option you sold. That strike gets tested by the underlying asset. You can also, just at that point, I like to roll two weeks part expiration, and I will cut losses generally at three times the credit received. Once again, these are guidelines are not set in stone. But they should offer you some pretty good general rules for how you can adjust role and manage your trades. So I know this is a bit of a long one. So thanks for hanging in there and watching this is This is definitely a very important component of trading. So I hope you took a lot of value out of it, and I'll see you in the next video. Thanks 8. Trade Tracking: Okay, Thanks for joining me here again in this next video. And this will be a pretty quick and easy one. Just could be talking about the importance of tracking your trades. You know what this general options trading system that I personally use of basically making lots and lots of frequent trades with high probabilities of success. It's gonna be pretty difficult and challenging to know exactly where you are in your portfolio in terms of your performance and things like that if you don't have some way of tracking and logging all the trains that you've made in the past as well as the trades that you have on right now. So what you're seeing here is my spreadsheet that I created, which allows me to just log all the trades that I make. And I do this on a monthly basis. You know, for each month I'll just create a whole new clean spreadsheet and just log all the trades that I make. And along with each trade, I will keep track of a lot of different metrics and things, just as a few examples. You know, um, I have the really important ones, such as you know what underlying stock was. Each position on which each trade was on one of the strikes, what was the expiration date and some other more important ones, such as? What was the I B rank when I made the trade? What's my probability of profit on that position? Obviously, what did I open the position? Four. In terms of how much credit did I receive? Or maybe if I did a debit spread what I pay for it. What was the buying power reduction, How much money is tied up while I'm maintaining this position and so on and so forth? I also keep track of any adjustments I make. I'm during the position as well as some metrics when I close the trade, such as, obviously what was my realised profit loss by return on capital, where they closed the position for and so on and so forth. So you don't have to by any means track this many different metrics. You can literally just keep it a simple as the underlying stock and maybe the expiration date. Um, when you introduce and obviously what you made or lost on the position when you closed it, But I think it's important to have as main metrics as possible So you can really learn from this. Trading is something you're always gonna be learning from your never my pen. You're never gonna be a true 100% master of the stock market of options trading the markets , always gonna throw new situations that you that was always gonna b'more learning experiences. And the best way you can learn from your mistakes is to look back at the trades you made and figure out, you know, maybe what you are thinking in that during that time and how that maybe that was the wrong . That was the wrong thought of the wrong idea to pursue. So keeping track is keeping track of as much detail as you can about each trade is just gonna help you really learn from your trading experience as you go along. So I obviously use a spreadsheet to track everything, and I have all my trades group based on the actual position type so you can make a spreadsheet for yourself if you want, where you can keep it as simple as just writing your trades down in some kind of journal or trade log and actually most trading platforms will track the trades that you make for you. They'll keep a history of all the trades that you made, so you can use that if you want just the built in tracking feature that your train platform offers. But my guess is it won't track all the metrics that you might care about, you know, for think or swim, for example, that gently tracks, you know, obviously the basics of the stock. What was the strikes? The expiration date, the date that you enter the trade? But it doesn't keep track of the Ivy rank, for example, Or what was your probability of profit on the position? Eso and there's there's more beyond that. So that's why I prefer to use just the spreadsheet that I made so I can track everything that I want. And, you know, if I do want to use the thinker swim, trade, history just kind of see in a different way, I can use it. But it's ultimately gonna be up to you, right? If you just want to use your built in training platform feature, go ahead. But bottom line, as long as you have some way of knowing in the trades that you made in the past, and you're able to learn from them. There's enough detail there, and you have a way of knowing what trades you have on right now. So you know how to manage them as an example. Thinker, swim here. You can basically create different groups and categories for the various positions that you have on. So these are all my iron condors. These on my strangles naked call call a credit spread, and I could put so on and so forth. And these are all the trades that I have on right now. And I obviously have some different metrics and things like that to give me real time informations that when I log into my platform every day, I know exactly what what my positions are, what they're doing. If there's any adjustments, I need to make, you know if there's any positions that can take off for profits or close for a loss, etcetera, etcetera. So as long as you have something like this in your platform and you have some other way of tracking the trade that you made throughout time, you should be good to go just make sure you are. You are being good in updating your spreadsheet if you have one. Updating your trade log if you have one. Or if you just want to use your training platform, the feature that already provides you with tracking your trades and that's gonna few them. You don't even have to do that part. But I guess the most important thing is at least having some way of knowing that trades you have on currently so you can see exactly where each one is and which ones need to be managed. Right? So I will post screenshots of my spreadsheet here just in terms of the column headers. So you can have an idea of different metrics and things that I personally track for each trade. Um, you know, of course, feel free to recreate the spreadsheet if you want using the same metrics that I use, or you could just pick and choose if there's only a few that you really care about. But ultimately, make sure you tracker trades every day. Keep everything updated, and it's gonna I promise you make it so much easier to manage your portfolio and to know exactly where you are relative to the market and where your profit losses to track your performance over the course of the year. Right? So that's it for this video and in the final one coming up next on, there's gonna be showing you a demonstration of myself in terms of how I log into my platform every day and then basically use all the information taught in this course to, you know, look at my watch list. Scan through it to see which stocks or ETFs are currently exhibiting high implied volatility. Looking at my portfolio, seeing when my deltas are figuring out what positions I need to put on etcetera, etcetera. So I think, would be a good example of the kind of putting everything taught in this course together so you can see my general process. And then you can use that to create your own procedure for how you want to come into your platform every day and make trades so I'll see in the next one 9. Putting It All Together: All right, Welcome back to the final video in this course. And as I mentioned, I'm going to be basically tying everything up in this video and, you know, showing you a brief demonstration of how I typically come into my spreadsheet in my trading platform every day. And you kind of figure out what's going on. What's the market doing? And ultimately, based on that, you know, what trade should I be making? Stay right. So, you know, the way I start usually is I'll come into my spreadsheet and look at my watch list and you'll notice now I have, you know, some of these some The tickers here are highlighted in red. This is just my way of noting that I currently have positions on these particular stocks and et ETFs. This allows me to to just visually see where my portfolio is at in terms of how diversified it is, right? I want to make sure, of course, that you know, whatever positions I have, those underlying assets are diversified across different sectors and industries because I don't want Teoh be at risk of a lot of things being correlated and moving together. So, you know As of right now, you can see a party well diversified. I've got a lot of positions on in various different sectors and industries, although still have some gaps. You know nothing and currency yet nothing in bonds or utilities, but generally speaking, so far, pretty well diversified. So I can look at this and just kind of briefly see, you know, where should I really be focusing and looking for traits today? You know, I might want to be looking at Bonds or might want to be looking somewhere in consumer discretionary. A lot of stocks that are listed here that I have no positions on nothing in real estate. So, you know, definitely. Just like I said, give me a feel for, you know, gently. Where should I be looking in the market in terms of industries and sectors. So now go back to my think of some trading platform, and the first thing I'd like to do is check where the vics is that So I'll go to the charts here and just type in V xx. Um, and you will call that v X X is just e t f. That tracks the actual VIX Index And so you can see here will actually be kind of hard to see the prince so small. But the XX is up by almost 9% today, so we definitely have a pretty, ah, significant move up in volatility across the market. So when when implied volatility is elevated, that's definitely going to be a good situation to sell premium sell options because you remember that when implied volatility is high across the market, that's going to inflate the option prices across the markets. So higher option prices means when you sell them, you get to collect more credit. And that, you know, will push out your breakevens even further, give you greater possibilities of success. And of course, you have the added benefit of hopefully the next couple of days implied volatility comes back down a bit, it contracts, which would deflate option prices. That's really gonna help your positions. So she is definitely good day to be selling options. Um, it's not gonna come to the analyzed tab here and let me beta wait things against SP y. So Aziz, you recall from earlier in this course when I walked you through the the beta waiting technique this allows you to visually see where my Fort Phileo is or where your portfolio is compared to the overall market. I might have my entire portfolio beta weighted against SP y, which is just that s and P 500 e t f that most people use. Um and you know, once again, this blue curve is my profit. Last care for all of my may positions. This red curve is my profit and loss occur for all my June positions. This middle line right here, This dash line you can see down here the price to 80 to 82. That's the current trading price of SP y. And, you know, based on what trading were right down the middle for both my may curve and my June curves. So this is generally where I want to be as neutral as possible. Um, you know, I think I mentioned before. I really don't try to make any directional assumptions if I can avoid it, because I certainly don't know where the market's going and no one really does either. No one else does. So if I could be as neutral as possible and try to get my curves as centered around the current trading price of SP y. That's where I want to be. Although sometimes you know I might have a slight market overall market assumption of being . I want to be a little more bearish or bullish and I will say that you know, as of right now with this corner Vier stuff happening, I am a little bit bearish on the overall market. I do think it's a little too inflated a little too high, so I would prefer these curves to be a little bit further to the left. So I have more room for the market to fall if it does happen. And I could still break even or make money, but overall with basically being perfectly balanced, given where as people wise trading, I can't be upset. So my take away from this is you know, the trades I should be making today. Just be neutral, right? I don't need to get directional, don't need to sell, make it puts or calls or any credit spreads. So perhaps you know, iron condors and strangles, or maybe a straddle if I feel like it is what I want to be today. So now The next thing I'll do is come back over to my monitor tab and I'll briefly just check on my current positions, right? These are all my positions I have on right now. Just kind of briefly scan through it to make sure nothing is out of whack. Nothing's, you know, moving really against me, and you'll notice these little bell icons. These are alerts I have set up for each my positions. So I various alerts that will go off if you know bad things happen and certain stocks move against me and they basically ping my phone. If you know a stock reaches a certain level, Um, you know, that kind of hits my break even point. Or, you know, my Delta's on a certain position hit a certain level on my phone would get paying, and I can come into my platform or doing my phone as well. And I can make any adjustments that I might want to make roll things forward and move things around to bring some balance back into my portfolio. If you know I have some positions that are moving against me. So today you know I didn't receive any alerts which is definitely a good thing. Um so I don't need to make any adjustments today. Don't need Teoh, you know, move things around to kind of bring balance back in my portfolio, it seems Although I did roll some positions forward in time, my ung strangles you know, today is 14 days prior to expiration That may expiration cycle and the strings I had on Ung just didn't come in enough. They weren't profitable enough for me to just be satisfied and take them off the table. So I did roll them to the June expiration cycle. I bought back my two ung strangles and then sold to new ones for June. I did change the strikes a little bit, but, you know, I bought back a string list for $34 apiece and sold new ones for $58 apiece. So I still roll for a nice credit. And now, of course, I have an extra month for things to hopefully work out. And for me to eventually take these trades off for a run that 50% profit that I like to be at so once I have, you know, once I'm done looking at idle my positions. The next thing we'll do is go to my market watch tab. And this is where I have my watch list. Right? So all the stocks that are you that you see here in my spreadsheet, I have basically imported them into thinker swim because this gives me real time data, right? Every second these numbers changed. They tell me, you know, where is the current price? After all of these different stocks and et efs? And most importantly, what's the Ivy Rank and some other other useful metrics and things like that? And you can sort this list however you want. You can sort it based on the ticker symbol. So right now they're sort of just alphabetically. But of course, the most important thing is three ivy rink. You notice here, you know, think of swim calls it ivy percentile, which is going to be very confusing because obviously ivy percentile is a real metric. But, um, the numbers you see here are actually Ivy rank. They just For some reason, they made a mistake here calling i V percent town. They never changed it, But these numbers are actually ivy rank, so just keep that in mind. If you're using, do you think of some platform? But if I click on the Ivy, I'm gonna call Ivy Rank. Looks like on the Ivy Rank header. Here, Do it again. There you go. Now they're sorted. All these stocks and E T s are sort of based on Ivy rank from greatest to least. So I could just go to the top of my list and work my way down because these are the stocks and e t. F. So I really want to be looking at because they have high implied volatility rank right now , um, and see if I can find anything that I might want to make a trade on so I can see you and G is the highest on the list. Has an ivy rank of almost 84 very high. And that's actually why my u N G strings from May never were profitable enough cause just ivy rank, The volatility never came down. It just stayed elevated and didn't move, which is pretty rare. So I had a role these 2 June. So hopefully sometime in June, we get a nice contraction of implied volatility and I can take those trades off for profits . So already got positions on Mung. So I'm not gonna do anything more today in that next one zoom. I already have a position there, so I'll skip that one Herbal life and these little dots represent upcoming events. So you click on him, You can see Herbalife has earnings coming up very soon on May 7th. Currently may 1st, so only six days away. So I'm gonna hold off on making any trades on Herbalife with earning so, so close on the horizon. So I'll wait till basically May 6, the day before earnings to put a position on on herbal life. Assuming the Ivy rank is still high enough. So I'll skip that for now. Gilead or got position their capital one Got a position there. A i g. I have no position on a i G and the I V rank is 49 which is not, you know, amazing. But it's still pretty high. Pretty elevated, definitely worth looking into. If I go back to my spreadsheet here, a I G is right here. It's in the financial services sector. It's basically an insurance company of sorts. I already have a position on Citigroup. But Citigroup is very different line of business. They're basically kind of an investment bank. So I'm OK with having another position on in the financial services industry or sector, given that these two companies were pretty different. So Maggie checks out there, so I'm gonna go to the charts tab here on a type of a I G Take a look here, see what's going on. So, just like with most stocks, we've had a huge sell off because of the coronavirus pandemic and now just kind of bouncing around in a range, which is definitely a great situation if you want to put on a neutral trade like an iron condor or strangle if it just kind of bouncing around and arrange not really going anywhere . Um, so that's looking good There. You can see down here of your rank 49% pretty high and, you know, with the market implied volatility being elevate today, we can definitely see the out. There's definitely an uptick in implied volatility today for a I G. So this is definitely a stock that I might want to look at for trade and hopefully next couple of days this uptick comes back down, which is obviously going to be very beneficial for any options selling positions that you have. So everything's looking good here. I'm not gonna go. The trade tab could see what the option chain looks like. Um, since May contracts are expiring Only two weeks. I'm not gonna look at those. It's too soon expiration. So I'm now looking at June contracts. He's expire in 49 days, which is pretty close to that sweet spot of around 45. Uhm phenomena analyze the contracts here, the calls and puts to see if they kind of meet the criteria of being liquid. And, you know, am I gonna be able to get filled at good prices on these contracts and whatnot? So, you know, I'm gonna look at the bed ass spread here from with calls and puts, you know, for the 25 calls here, the bits 1 76 The Astros won 89. It's pretty tight, Um, and just kind of just getting through here, you know, these are definitely pretty tight spreads. Just a few cents wide. Stephanie, where I wanted to be, um, puts same thing pretty tight, but s spreads. Looking at the open interest here, you know, it's in the hundreds for both the calls and the puts. Although the put stuff we don't seem to be as popular per se, but still definitely pretty good Open interest on the put side. So I definitely like the liquidity in these G contracts and also just looking at the edgy stock prices only about $24. So I'm definitely looking at placing a strangle on this on this stock considering strangles our neutral strategies. And based on what you saw in the analyzed tab give my portfolio is pretty balanced. Placing neutral strategies on today is business. What I want to be doing, since I don't need to really be shifting my portfolio around much directionally so for strangle, you know, I might want to come out to the lets say the 29 Strike Call and the the 15 strike put right . If you look at the call here has about a 16% chance of being in the money on the day of expiration on the put side has about a 17% chance of being in the money, so 17 plus 16 is about 33%. So about a 33% chance that come expiration an edgy is either above 29 or below 15. Which means there's about a 67% chance that that never happens in. And you just kind of bounces around in this range, basically above 15 and blood 29. And as you saw the charge, that's basically what's been doing. It just kind of bouncing around, not going anywhere. So I feel pretty safe with this trade. So now let me go ahead and set up the trade, our sympathy orders. I kind of take a look at that. So strangle selling the 29 call and selling the 15 put its right now this ah strangles training for about for about $1.7 times 100 shares. That's gonna be 100 $7 or credit. Although I'm gonna try and get 408. Always want to try to, um, you see, there's any buyers out there when to come up in price a little bit to meet me? Um, you know, if I could get more money, more credit when placing these positions on, that's obviously gonna help. So I'll come up to 108 on these markets are pretty tight, so I may not get filled at 10 wait, But who knows? And one general rule of thumb that I actually forgot to mention his course in regards to naked positions. So strangles puts and calls and things like that. One of my generals, the thumb is I like to collect at least 2% of the stock price. So he pulled the calculator here with a I g clearly training at about all round up and say , $24 per share. 2% of that he is going to be basically 48 cents. And so you can see here the credit I'm receiving on this strangle is actually $1.8. That's almost three times as much. This is because, you know, with implied volatility if you look at the vics, implied volatility is still so elevated across the market. Premium is definitely expensive right now, so this is definitely great time to be selling options. So $108 in credit in this position, given that my minimum would actually be around 50 I will definitely take that, um, slash checks out there. Now, let me look at the high kick from send here. Only take a look at the buying power effect. How much money is my broker gonna requirement? Teoh Set aside and tie up to be used as collateral. If something bad happens in this position, it's on $240 for this one. Strangle. And, you know, with ivy ranked being under 50 I generally don't want to go above about 2.5% of my portfolio. Um, for any naked positions and I want to put on today so to 40 is actually a little bit low, so I might actually come up to two strangles, which is going to require just two times the buying power of just one. So about $481 of money that I'm going to have to set aside and tie up. It's a little bit under the 2.5% limit that I've set for myself. So I'm OK placing in order for two strangles here. But before I actually send the order, I do want to analyze it a bit. Some ego, The analyzed tab here, Beta way against SP. Why? Sen lme Tuggle off the I G trade here. So this is, you know, once again, my portfolio beta weighted against SP y and is currently not including not taking into account this, uh a i g these to a i g strings I want to put on. And so you can tell now that when I double it back on and I include these two strings of my portfolio, you can see things you're gonna change a bit, right? And so I mainly just want to look to see how this is going to affect my breakevens relative TSB wise. So talking it back off on the upside. Currently without a i g included in my portfolio, My break even is right around if sp wire with a trade about about $344 for share. And if I were to Tuggle a a g back on and included in my portfolio, it's gonna bring my break even down to about $338 per share. And I'm actually perfectly OK with that, Given that the all time high of SP Why before you know, all this corner fire stuff happened was 3 39 I think there's basically a 0% chance that will be saying the market climb back to all time highs anytime soon, let alone by June. So I'm OK with my breakevens coming a bit down on the on the upside and then let me tuggle age You back off my breakevens On the downside, not including a G is right around $231 per share for S P y. And now, if I include energy again, we can see that my break even actually moves down to 2 30 And this is definitely, you know, kind of what I want to be, right? Um, no, I expressed earlier in this video that I would like to have these curves a bit further to the left, considering I'm or nervous about the downside risk because I do think the market is way too high right now, given how negatively impactful that corner virus epidemic has been on the world economy. So if I can place trades that are still neutral because that's kind of my portfolio is telling me I should do today, but still have those trades on some level shift these curves a bit to the left, that's going to be even more ideal. So based on what I'm seeing here placing two strings and a I G is going to be a great addition to my portfolio here, someone come back to the trade tab now and just kind of double checked everything. Let me go back toe the A G option chain. So it was the 29 calls looking at in the 15 put, um, and so before us in the order. I just want to go back to the charts and just kind of visually see where those strikes are . So with a G, currently training in about 24 29 is right around there. You can see on the chart, so it's a little bit close on the upside to a I g still about, you know, $5 away. Um, and I'm much more worried. As I said about the downside risk. I don't think this stock is gonna be taken off and going to the moon anytime soon. So I'm okay with being a little closer on the me on the call side, but for the puts. And I was looking at the 15 strike put and we can see that the low of the year so far on this is when the corner viers panic and history was at its worst, this stock came all the way down to about $16 per share. I'm looking at selling a put with a $15 strike, right? And that's, you know, obviously even further below the current low of the year thus far. So I definitely feel pretty safe. You know, if things were to go south again in the market, war to start going down, down, down, I feel pretty pretty safe that my put strike is below the low of this corner virus pandemic . So far, so everything looks good here. The ivy rank is pretty good. Definitely have that uptick. It fits into my portfolio nicely. Um, and the pricing is pretty good. Liquidity is good. So I have no reason why wouldn't want to pull the trigger on this trade. So at this point, I would just come back and hear and double check everything you know to strangles. Make sure the strikes are correct. Make sure the credit I want to receive is correct. And then just, you know, double check the buying power one last time. And then once everything checks out, I would hit send, and then hopefully the order gets filled immediately. Although since I went a bit above where the market is trading at, it may not get filled, right? Right, right away. We're just fine. But if I come back to the monitor tab, you would see the order just kind of sitting right up here, waiting for, you know, some buyers to come in. And hopefully, you know, meet me at that price point. And if you know 15 2030 minutes goes by and no one's taking my my order, then you'll come back and maybe come back down to 107 and maybe one or six, right? It's definitely one of a kind of negotiation to kind of figure out where the sweet spot is with the pricing. And then once that water gets filled, I would immediately go in and create my closing order. Right. You see here all these orders and green, These are all my closing orders, as I've mentioned before in this course that likes take profits around 50% of the maximum possible. So with selling the strangles at 100 $8 per strangle. I'd be looking to take the muff once they reach about $54 per strangle. Right. So I'd make that closing order and it would just be sitting out here indefinitely until, you know, some point down the road in the future. Maybe when volatility contracts, enough for enough time to K has set in that I could close out that these positions for 50% profit on each of those strangles Once I have that done, you know, I would probably set up some alerts just to make sure that, you know, if they start a I g starts moving against me, I will get notified, and I can react immediately, make adjustments, roll things. If I have Teoh that kind of thing. Um And then once all that's done, that I could just come back to my market watch tab and repeat the process skay my list again, going further down and try to find more stocks or e T. F s that currently have high ivy rank and they trades on them. So that pretty much wraps it up for this video. I hope you found this demonstration to be useful so you can see just my general flow and process of how I do things. And you're obviously more than welcome to copy and mix and match and kind of your own process for trading. But definitely, I think the key, the key takeaways are, you know, skin your watch, list everything imported into your training platform and sort them based on ivy rank and just kind of go through that list because your portfolio see where your portfolio is at where it's balanced relative to the market and make trades accordingly. Doing Do you need to get more bullish or bearish? Can you just stay neutral and then, you know, just kind of walk us through the process of, you know, looking at the option. Shame, making sure there's enough liquidity placing those trades and then repeating the process. Right. So, um, thank you for watching this video and in the in the final one coming up next, I'm just gonna be wrapping things up and then sending you on your way. So I'll see in the next one. Thanks 10. Wrapping Up: All right, So you've now completed this course, and in regards to the Quest Project, I first want you to create your own watch list of the various stocks and E. T. F s that you're familiar with. And then, of course, have good liquidity and or in a diverse set of sectors and industries. And then secondly, I want you to create your own set of adjustment rules. So when you have trades on that move against you, how are you going to respond, right? At what point? At what Delta or at what price? Are you going to start making those adjustments? And then thirdly, I want you to create your own set of trade size rules. So based on how opportunistic the current situation is that you're looking at, maybe I've your rank is super high. Maybe just kind of so So you know, based on that, how much are you going to be willing to risk for that? Particular trade is just 1% 3% 5 10. That's gonna be up to you to kind of figure out based on your own risk, tolerance and goals and things like that. And, you know, of course, these rules that you set for yourself can change with time. It's just important to initially write them down, but they make sense to you and to stick by them to avoid any emotional trading and then down the road. If some things aren't working out quite right, you could make tweaks. You can make adjustments and then go from there. And just as a reminder, I do have screenshots of my own watch list, my own trade size rules and my own adjustment rules posted in the project section of this course. So please take a look at those copy them or get ideas from them, whatever you want. And then the last thing live you within this course is, you know, if options trading is something that really speaks to you is something that you really want to get involved with. Then I'll just say that practice really does make perfect. So if you are brand new to this kind of thing, I encourage you to start with a paper trading account basically using fake money because it is going to take some time to really internalized all this material to apply it to make those mistakes and learn from them and to ultimately become a profitable trader. So, you know, start with a paper trading account. And once you are more comfortable with this kind of thing, you have things figured out. Then you can move over to using real money. So with all that being said, thank you so much for watching this course. I am Scott Reese again. I publish one new course every two weeks, and my material is all about investing, software development and personal growth. So pleased to check out the other courses I have on skill share. Um, and also, please do follow me because you will get notified every time I publish in. Of course. And you don't want to selling that right? Um and so thank you. Gift watching this course. And I will see you in the next one. Happy trading.