You can never say never to opportunity like S&P 500 ETFs, VOO which is up. I’m being instructed by an intelligent investor to buy more anytime it drops, cashing up along the way on every moves, also incorporating new stocks.
Stocks is not only about anticipating moves based off trends but anticipating through participating behind real top performers and attain how they execute perfectly. coach Frost hilda take good care of my holdings giving me an edge to successful interest.
l've been getting suggestions to use a proper enlightened top tier, similar to your viewpoint. I just opened on fidelity, I’m trying to figure out your selected holdings at the moment
It's enticing to consider purchasing some stocks in this bull run. I'm contemplating investing more than $300k for retirement. While the bull run can generate short-term excitement, i also need long-term investment strategy
I'd suggest you to seek professional advice because building a strong financial portfolio is more challenging. Your long-term objectives and budgetary preferences can be catered to in the ideas you get after that.
Yeah, financial managers do make a lot of difference, particularly in a market slike this. Bonds are pretty unstable at the moment, but if you do the right math, you should be just fine. Bloomberg and other finance media have been recording cases of folks gaining over 250k just in a matter of weeks/couple months, so I think there are a lot of wealth transfer in this downtime if you know where to look. I have been using an FA since 2020, and I return at least $30k ROI, and this does not include capital gain.
‘Sonya Lee MItchell’ is the licensed advisor I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
Thanks for the video! I like how this is basically a synthetic wheel strategy where you switch to a PMCC instead of taking actual assignment in order to keep your capital requirements low.
I really like your explanations. I have paid some big bucks for programs that were not nearly as good as what you are providing on RUclips for free. Thanks for making these available in such a good, precise, detailed fashion.
Good idea! You can also use the micro futures option chain to reduce cost, and another idea would be to switch between puts and calls when 50 day SMA changes direction
Interesting strategy! We personally prefer to take 100% advantage of the high gamma sensitivity of short-term options instead of the gamma working against us in short positions or only working for us to a limited extent in debit spreads. We only buy naked options and manage to generate a constant flow of income. This also has the advantage for small accounts that the PDT rule does not apply because this strategy can be traded in a cash account.
The short strike selection hovers around 2.5% OTM. But jumps to 3.6% some weeks. So must be using some volatility indication to sell further OTM like VWAP bands or Bollinger. Switching to call side with a 6 month calendar spread when things turn bearish is interesting. Psychologically, it's kinda degenerate gambling with inflation on your side because the capital requirement balloons so high. It creates a business model that's bent on not taking a loss.
I've noticed that these SMB videos tend to minimize the downside risk of options trading. It's possible to lose most of your money very quickly if things go the wrong way. Also, spreads that include a sold put or call can (due to a quick spike or drop outside of normal trading hours) end up with only one leg executed and leave you on the hook for thousands.
@@kesannwalrond-mcclean9781 true, if you do nothing as it turns against you...but you have to know how to manage your positions...roll out, roll down, roll out and down, or just close the position and take a loss. 5 outcomes to any position: 1. win big 2. win small 3. break even 4. lose small 5. lose big You just have to avoid #5.
When the Bull Put strategy needs to revert to the Call side, is the date of December (end of year) used due to it being: 1) end of year OR 2) Four months out?
Excellent explanation (always). I'm off to look for a resource that shows me how to calculate the capital required for a given ETF + put credit spread combination so that I know how much capital I need in my "Small" account. Thank you.
You fail to mention the worst case scenario, where the underlying reaches the long put. The trade is barely hedged by the long put since you want to make money each week and in practice what you would need to do would be to get out of the trade early if the market even approached these levels. In practice, all the long put is doing is limiting the margin you have to put up.
I am so happy that I made productive decisions about my finances that changed my life forever. I am a single mother and I live in Spain, I bought my second house in September and I hope to retire next year at 40 if all goes well. thanks to Louise O'Brien for helping me achieve this
Could someone please explain: On the put credit spread example, why are are you buying a put 25 points below the strike price you sold the put at, rather that just buying 2-5 points below instead? (or one or two levels below) In which case you'd need far less capital to take the trade? This would seem to lower your max loss too? What am I missing?
No mentions to commissions. On Interactive Brokers, trading a lot of cheap options can get very very costly. Also, This example was given in July when market do not move as much so chance of a big move down are less. In a very volatile period, I would think of using a different option strategy.
Are any of these trades considered wash sales? If so wouldn't that further hurt the bottom line especially if you are having these larger losses that you can't technically use to lower your taxable income?
I would start with 1 put credit spread and if the price moves down 0.5%, sell another put credit spread(with lower strikes) for another $0.60 credit. This way, you are averaging the price and reducing your risk. As they say, do not put all your eggs in 1 basket. or I would do a tranche by getting $0.60 credit for every week for the next 10 weeks.
Read "One Good Trade." SMB Capital traders have been successfully trading the market for years. Otherwise, they would not be in business. Personally, I am a small potatoes, scalp trader with one stock. Been fortunate enough to earn $5k+ per month. Establish your entry and exit rules and keep to them. Focus on the progress of your trades moment to moment. Some days I don't trade, some days I trade frequently until I run out of settled funds. You also have to be passionate and confident. SMB Capital has posted a lot of free, beneficial content to learn by. Wish you the best of good buys.
Wouldn’t work on the call side of the trade since Selling calls and buying further-dated calls with only a 3 dollar price spread loses money due to unmatched deltas; the negative delta on the short calls is greater than the positive delta on the long calls as the underlying price moves up or down, leading to losses.
For whatever reason always get uncomfortable selling call spreads or even call calendar spreads unless i own the qqq's so normally i just sell puts every three to 5 days and adjust accordingly. Also own a put leap as a hedge. Doing 10 sales is beyond the scope of my tiny brain and the width of the spreads is also scary (to me). if you get assigned the q's and you're just selling one put spread turn around and sell the atm call. I like to think of the q's as an apartment I own and the option sales as rental income...my campaigns will last until I go to my heavenly reward. Chances are the q's will also apprciate in value over time so there is that too
@Ianlord, the reason that it's not really ultimately risky (although it is in the short term) is that if a sell off were to occur you would revert to the call buying/call selling process we showed in the video until the profit was ultimately restored assuming the QQQs ultimately bounced to their all time highs, which has always happened in history. Do you understand why?
@@sethfreudberg4750 , the main problem that I see with the trade is that it is done with a "small" account. So before anything we need to define what a small account is . If we accept a 25k as a small account and do the trade with that level of funds then I find the risk absolutely unacceptable. While I agree that in the long run QQQ is very likely to keep its general upward trajectory that historical upward bias would be of little consolation to a trader who loses his account because he risks everything on a single trade, every single week. It would take just one large downward move of the QQQ to wipe out the account. In the video, the first loss is 470 $ but what if that loss is 2,000 or 5,000 or 20,000 $ or more ? Is that impossible to happen? I don't think so. Yes, it is unlikely but it could happen. The trader has almost no defense against that sort of a adverse move in the underlying because the total risk built in the trade is just too high. And any sufficiently large loss will prevent the trader from executing the call side of the strategy. If the trader loses even 5k on the trade then they will be unable to do the call side in the same proportion as the original put trade because they will not have sufficient funds to do so. Another point that I think is important to make is that while the QQQ is generally moving higher over time that does not mean there are no prolonged periods of downward movement. If the trader is caught in such a period, even if they have the ability to do the call side as in the video example, that will make matters even worse. Now, after losing on the put credit spread position, they are losing on the long call as well. The short call will not bring much relief especially if it is always executed on the initial SP strike which is now deeper and deeper OTM. So, it would be very important to be aware of the stage that the general market and the specific underlying, say QQQ in this case, are. A basic technical analysis will go a long way of preventing a trader to get on the wrong side of the market. IMHO, this strategy is more suited for a larger account but even then I wouldn't do such wide spreads.
@@sethfreudberg4750What if it takes 5 years to bounce back just like in 2008??? Your Long Call is WORTHLESS by then. You'll be forced to sell calls under your long strike and your margin requirement will soar. This strategy only works in hindsight.
@@sethfreudberg4750 Could you share in which scenario would this strategy work against us? From the top of my head, if we were to encounter a volatile market which suddenly whipsaws around, this strategy wouldnt work right? Also how do we calculate that scenario to perhaps move away until the market resettles?
Thanks a lot four video. Personnaly thats the point I dont get. When you lost the 490 why you just don t stop and continue the process normally? Thanks in advance four your help@@sethfreudberg4750
(asking seriously) Can someone please explain how is it not a 100% way to loss all the money? You trade the "put credit spread" and make your $500/week. Eventually, you will have a lossing trade and switch to the calls strategy, which includes buying the super expensive call options with EOY exp date for the cost of ~$25K. In the scenario that the market just picked and from this point it will go down for the rest of the year (which is a perfectly logical scenario) -- you are stuck with a worthless $25K call lossing you all the money.. Also, when buying the $25K call, is it always end of year (Dec) or should it be at least X months ahead? what if we are trading on Nov? What am I getting wrong?
I'm confused. If the initial credit spread had a max loss potential of 24,470 (25,000 strike spread, less 530 of income) then how did you arrive at closing near the end of the losing trade at only a $470 loss? If the price of QQQ drops below the Short Strike and continues down towards the long strike then the losses will become huge compared to the income received. Surely you have some sort of stop loss set so that the loss doesn't reach 24,470, a 46x loss?!!! Did I miss that in the video? Just holding and waiting until market close on Friday to buy-to-close the credit spread could be disasterous.
He skates by the fact that the short put ended up less than $1 in-the-money, so it didn't cost much to buy back. Every time you open that put spread, you're risking $1000 for every dollar it moves past the short strike, up to a max loss of almost $25,000. This is the kind of strategy where you can make a lot of money as long as there isn't a black swan event, but the "risk management" consists of nothing more than counting on that black swan not happening... and the longer you do this, the more likely that black swan is.
The risk adjusted reward looks bad, if you have one bad crash in the market you blow 24k, then you’re going to need 45 to 50ish positive trades to make up for it.
This credit spread strategy is very interesting and I will test it. I just want your confirmation that one can let the contract expire at the the day of expiration without any problems. Or would it be better to close it on the last day just to be on the sage side.
I dont get why the call credit spread has to be with different expiration dates? Wouldn't it be more profitable if you do exactly the opposite of the put credit spread?
It's enticing to consider purchasing some stocks in this bull run. What are your thoughts on this? I'm contemplating investing more than $300k. While this can generate short-term excitement, their long-term impacts can be unpredictable.
It seems like there's potential, but caution is warranted. hence I will advice you get yourself a financial advisor that can provide you with entry and exit points
Having an investment advisor is the best way to go about the stock market right now. I used to depend on RUclips videos but it wasn't working. I’ve been in touch with an advisor for a while now, and just last year, I made over 80% capital growth minus dividends.
What happens when the market doesn’t recover in 6 months. Your long option would expire worthless and you’d have only made a fraction of it selling calls. Wiping out all your gains and more.
What would be the downside of only doing a 5 point spread vs the 25 point spread and just increasing the amount of contracts to hit the target weekly earnings goal? If I understand correctly, to open a trade with a 5 point spread with the contracts adjusted to hit the weekly earnings goal would require significantly less capital, only about 25%-30% of the capital needed to open the 25 point spread. Is the difference on the call side of the trade? I don’t know how to backest historical options to see how they would have panned out.
Except he forgot to mention that these trades work differently in a different market cycle. 25 points wide with 1week expiration is extremely risky. One single overnight gap in price and your entire account is gone!
That depends on what your trading. With the Q's you don't get huge gaps more then maybe $5 or so. Your initial entry is between $10 and $13 otm around a 12 to 14 delta. With the 25 point wide spread it's only there for protection and to make it as if the position was naked while providing some protection. It has to make a huge move to really mess your account up.
How is your account "gone" if you got assigned $24k worth of QQQ? Sounds like you have zero idea of what you're talking about. So what if you get assigned 600 shares of QQQ? Just keep selling calls on it and it will rebound eventually.
@@alextsukanov3536 What about when it falls below your cost basis? Just sell CC and roll if it gets close? In a down turn you might be waiting a year for it to "rebound eventually".
@@alextsukanov3536because if your trading a small account you don’t have the capital to take assignment of 1000 shares. This is a strategy than can go wrong very fast and wipe out all or huge chunk of an account. It’s all good until it’s not.
This is all new to me and I am learning but a little confused. After the Q’s drop and you buy the contract back, you place the CALL at the same time (that makes sense) but on the 370 buy, the long call 6 months out, why does he do this? He buys the 10 calls for 24k and then he sells it off later for an additional loss. Why not skip this step? What does this step provide? Thanks Doug
Thanks for the explanation of the strategy! Just wondering with the market moving will the amount of capital required change? And when buying the in the money calls do you go out to December or a certain amount of months?
Scale it down to fit however much capital you have. Instead of 10 contracts do 5 or 4 or 3. Stack up profits and slowly increase bet size as you earn. I'd increase 10% weekly
Very interesting videos thanks for the effort and explanation. I am a rookie so just a quick dumb question. Why do we need to buy a call way at the end of year to pair with the 373 Sell Call? It seems that the downside protection of this leg of Buy Call is very limited, so my guess is that only sell Call of 373 may incur unlimited downside risk and thus is just simply too risk and probably won't allowed by the broker? Also, given the winning streaks preceded this losing trade of Aug, wouldn't it make more sense to just recognize this loss and wait for price to revert back to the bullish trend and restart the Put Credit Spread? Many thanks in advance for your reply.
Anyone know the exact logic behind the Dec call strike price and expiration date? Do you always buy three points lower and 5 months out? This wasn't explained in any detail. Thanks in advance!
I'm a total beginner, but I've watched multiple videos over the past couple of months internalizing put, calls, covered calls, etc. I'm interested in messing with this strategy in a paper trade account over the rest of this year just to see what I can do with it with no risk to my money. I have two questions: 1. What happens on a short week. E.g. if the expiration must end on a Thurs. because Fri. of the following week is a trading holiday? 2. Why sell at a near .60 cent? What is the significance of .60 cents and the ensuing 25 points below it? Thanks for this and your other videos. They've made me think about stocks and options in ways I never would have considered. I'm still a very long way off of putting money on anything like this, but it's fun to learn in a PT account.
1) just Sell the Thursday. 2) aim is not 60c but 10~ delta. Therefor theoretically 90% PoP. Watch out if you do this. Big sudden drop and all required $ is gone. 5%~ drop in QQQ washes away $25k
Lets assume the close price is below the put sell price of 373 but above the 358 put buy. Lets also assume on the expiration day of the option I’m unable to close the Put Credit Spread position due to some sort of unforeseen emergency . How does my small 25k account payoff my 373k share buying obligation?
You need to explain the risk involved in this which is plenty. If there is a huge slide in the QQQ, you would have lost a ton of money on selling the puts. So you sold 10 contracts then end the next week,with high gamma and delta which carries huge risk. 10 contracts at a 25 point spread can equate to loss of 25k on the put side (less than that but i'm not counting premiums). When you reversed and bought your 24k 10x contracts on the call side, you can also lose that theoretically. So you are close to 50k loss (yes, i'm not counting premiums and letting the calls expire worthless)
It seems like the put credit spread works better in an overall up market environment, isn’t it? Why is it always put in the orders one week before expiration? To minimize risk?
Of course. He states in the beginning this is a bull campaign. The strat is meant to be low maintenance and mechanical. It's turning on the computer 3pm on a Friday, open and close trades, and power off the computer at 4pm. Literally once per week for 1 hour.
This was a very informative video was a great job of explaining what some might think a complicated part of the strategy buying the diagonal calls and then keep selling call premium until the product changes trend. Very well done!
The thing im struggling to get my head around emotionally is risking ~24k worst case to make 500. I understand that this is a high probability setup but this risk vs reward would play on my mind. Would be good to see this back tested over 5+ years of data to understand the frequently of drawdown etc to help give confidence in this approach. Thanks for sharing this strategy
It's the old picking pennies in front of a steamroller strategy. Works great in retrospect when the market went up in a straight line, but when you put money to it, you wipe out your gains on just one loss. Do the math, 500/24000 is 2%, you need to be right 98% of the time just to break even. If you exit at a smaller loss, say the short strike, your winning percent goes down to closer to 50% even in an uptrending market.
I would add a collar specifically a naked put with a cost roughly 1/5th of the initial credit. You lose weekly gains but protect yourself from significant loss to a degree
Ive been burned bad twice doing this. As others have said it works great when the market is on the rise but with such a big gap in risk/reward one bad trade will ruin your progress. Id stick with CC/CSP where there really is not "total loss". Something else that you need to note is those greeks dont follow stats like you think. They dont take into account market news which can and will cause big movement. Once again thats how i got burned twice.
You would not lose the 24k. Worst case you would have it tied up in qqq via assignment until it rebounds. Before that happens you should 'buy to close' on the puts to close the position for maybe a few hundreds in loss. That's made clear in the video
Basically you are kinda fucked…. Maybe have a stop loss at certain point but only near the expiry. But in worst case scenario you have to buy the shares at strike price(needs big capital) and wait for it to bounce back. Than you can sell and recover your money.
did you watch the entire video? you close your Put Credit Spread and buy calls expiring at end of the year. Each week you will sell calls expiring in one week. Then when the stock reaches back your initial Put Credit Spread amount you resume the PCS strategy
@@BoundMusic Yeah but if it drops too far past your short put it may cost so much to close that you can no longer afford the long calendar call spread. And if you can, there's no saying during a severe downturn it will ever reach high enough before the long call expiration, you could lose the entire value of the call. This is definitely a "fair weather" strategy only.
@@BoundMusic Run the numbers. If Qs break your long put your capital is effectively devoted to this trade and you will could be in "recovery mode" for a long long time.
Sounds like it. Not sure I like. Here's why : You are humming along selling bull put spreads until the market crashes and you lose on one. Fine. But then you Buy an expensive Call option out into the future. ( this right there is a sketchy already if you think the Goodnight Irene moment has arrived ). You then earn that back selling near term Calls. Well if the market has really turned on you. Those could be cheaper and cheaper each month and not compensate, while the longer term one turns down in value. Looks good for a bull market only.
You aren’t risking 25k, that’s just how much capital is required, say you risk closer to 500 a trade, that would be a 50k account (if you follow 1%risk) or look to only make 50 a week, and then you only need a 5k account
How did you decide the logic for buying the $370C when you flipped? You explain the criteria well for the other strikes but once the PCS short side is breached and you sell the 373C you just randomly buy the 370 for a 3 wide debit spread? I'm trying to understand how it would translate elsewhere and how you choose that 370C. Thanks!
It's a call calendar spread. So that's standard to sell the near term strike, in this case 373 ATM and then he's assuming the market will keep going down, so he wants to "lock down" profit in advance with the 370 call strike. I'm guessing he's choosing 1% ITM 6 months out for the calendar lock down.
I just started with options, so it’s just my humble opinion. With Wheel strategy you are 100% covered. You sell csp - worst case you buy shares and get premium. Or CC - your shares a sold and you got premium. But with this one… we should keep in mind that option can be executed Any point of time , so , if it goes against you - owner of the option can execute you before expiration date. And you are obliged to buy for whole amount, which you don’t have probably. Is it right? Thank you
This is really good, I'm brand new to options trading. What I don't seem to understand, what would happen if your calls/puts got assigned? I know you close out the position a few minutes before expiration on Friday, but theoretically, wouldn't it be possible for the person on the other side to exercise before that time?
That what I would wish to know. I think with a small margin account. Without having that much capital. Margin call would then kick in. Meaning you are forced to buy back the option at a negative earning but without forking out 100k+ capital. This is done by the system of the broker.
Credit spreads are very risky and can burn your capital very quickly if you are on the wrong side of the trade. You should use no more than 5% of your portfolio per spread.
@SPYspreads, they are risky, but in this context it is sort of a short term risk because if you, after a drop, buy those far in the future calls and sell calls against it, you should be restored eventually as long as the QQQs ultimately bounce to their all time highs, which they always. have.
Seth, I think you answer my question here but if they go pretty far against you, 10 lots can be many thousands in a loss... Do you have a stop loss or just let er go until expiration day? The follow on strategy does offer recoverability but not nearly as much as the initial loss risk...no?
@sethfreudberg What do you do in a long down market where the QQQ's drop so low that there is no premium available at the 373 level? Especially if the downtrend last through December, and the Dec 370 calls you own become worthless. THANKS!
You get f***ed! Your long calls expire worthless and you loose the $24k you paid for them. This strategy works just fine in a strong up-trending market. But anything like 2022 and you're going to loose a ton of money!
@@cbpuzzle He explains a plan for it only goes against you in a small enough way. A $35 spread can move much further against you than the 96¢ it went in-the-money here. And there's still a lot else that can go wrong that he doesn't mention at all.
@@cbpuzzleif the put spread goes $10 in the money almost the whole $25 k is gone. What you gonna use to call wheel then? PMCC needs another $25K that can go up in smoke just as fast.
I was surprised after the first call that you sold in August 11 I think, expired worthless and you had a capital gain of about 7X greater than the first loss that you took on the previous weeks put sale. Why wouldn’t you have closed out your synthetic covered call then and resume your put selling strategy?
Because the week closed lower than the previous. So the assumption is that the following week will be lower as well... until it isn't. Which is why there's the 373 line in the sand where the call goes ITM and that's when you switch to bull puts.
Thanks for the video. One thing I am struggling to understand. In your case you are lucky that price reverted back from 358 to 373. What would happen if this doesn't happen and price is keep falling till the expiration of Call buy option reached. In that case, your call buy option will become worthless, loosing 24k. Selling Calls at 370 every week during this time is sufficient enough to recover the loss of 24k?
YES, this exactly! This video is a classic cherry-picked example. This strategy works very well when the market is in an up-trend. The 373 strikes got tested but the market rallied back above them within a month so those long call options only lost 1 month of theta decay - no big deal. But you're exactly right, if the market hadn't recovered above 373 before the long call options expired in December, you would have lost every penny of that 24k premium you paid for them (minus credit received for the short calls). Maybe the short call credit would have covered the loss of the long calls, maybe not. It all depends on what the market does. This is an overall bullish strategy and you WILL loose money on it if the market turns bearish. If you had started this strategy in the beginning of 2022, for example, you'd loose a ton on your long calls.
@@skerby2 Hah! I said the same thing in my comment. June, Sep, and Oct of '22 had weeks that lost much more than his worst week here, too, he would've gotten socked with _much_ more than a $400 loss if he had short put spreads open on any of those weeks.
Any large overnight movement will crush your account. Try this in 2022 and then try it again in 2017 and again in 2008. I dont understand why SMB doesn't make a big point of talking option risks and make sure viewers know to cut losses quickly.
Test it and see. Large indexes fill those gaps over time. The spread can go under water of course because the sold strike was put on wherever the previous Fri closed at, but the NEXT Fri close is the ONLY thing that counts.
I would like to know your advice, if the ETF suddenly loses money, then what to do. After all, volatility will increase significantly and losses may be the size of the margin, and there will not be enough money to buy 10 contracts. After all, such a risk exists and you need to be prepared for it.
He shows it took 24K to cover the call calendar reversal strat to trade 10 contracts. So just trade 1 contract and aim for $50/week and you only need maybe 3000 in the account. Once you get to 6000, trade 2 contracts. At 12000, trade 6. Until you get to 24000 and there's your 10 contracts going for $500/week. Maybe it takes you 3 years of grinding it out, but you'll need to make all the mistakes early on, when the account is small. After you're confident, then the size happens quickly.
25 point credit spread = $100 per point *25 = $2500 total per spread. They put in 10 spreads = $25k, but since they gain ~$500 credit = 25000 - 500 = 24.5k of your capital required. The broker will lock up 24.5k of your capital plus the $500 credit from your trade, since this is your worst case loss, and they need to make sure you can pay it. Once you close out the position or it expires useless, the money is 'unlocked' and you get access to use the capital again. If you don't have 24.5k to lock up, the broker won't allow you to open the trade. You can always size down the trade. So you could just do 1 credit spread for $50 credit, and only have $2,450 capital requirement.
This would need to be emphasized indeed. Imo you need to monitor the market all along, not just before expiration (even though assignement more likely then because automated by broker), so as to close the losing position before being assigned and avoid the risk of your other securities/contracts being liquidated to make up margin for the underlying
Can Anyone help to explain why by selling 10 puts and then buying 10 puts (1 st example that he given or even all the examples trade that make money )only need that small amount of capitol ($24, 410) at your account ? I think when your are selling puts for a stock of 3 hundred plus you need at least $300K or more cash or buying power at your account ?
Selling the puts and buying them further down the same option chain protects you from that. That spread is the most you can lose in that transaction. 25 point credit spread = $100 per point *25 = $2500 total per spread. They put in 10 spreads = $25k, but since they gain ~$500 credit = 25000 - 500 = 24.5k of your capital required.
The longer-dated calls don't lose value as fast as shorter dated ones. If the price goes even lower, you wind up losing money, up to the full cost of the long call.
wide spreads are used to simulate a naked position while keeping buying power reasonable. Narrow spreads are binary in nature and develop much slower. A wide spread mimics a naked position in that there is a much wider range of outcomes.
@@robertcurtis1191 I understand that, effectively a naked position. That's a ton of risk for most portfolios; not sure that is for SMB's targeted audience.
It's trading naked options without having Level 4 broker requirements. The long strikes at what calculates to 9 to 10% OTM from the Friday close are basically 10% stop protection or friction on the trade. That leaves a 90% efficiency, but without having Level 4. Keep in mind that some brokers don't even have Level 4. They max at L3.
Sure but this is literally meant to be turning on the computer ONCE Every FRIDAY at 3pm Eastern, closing and opening trades, and turning the computer off at 4pm. Trading SPX 0DTE requires more time and analysis. Doing something for 1 hour every week is different than continually coming back to a chart every 15 minutes every day 5 days a week.
You can never say never to opportunity like S&P 500 ETFs, VOO which is up. I’m being instructed by an intelligent investor to buy more anytime it drops, cashing up along the way on every moves, also incorporating new stocks.
Sounds like you are absolutely crushing it. Great work!
SPY, IVV, VOO, VTI hitting the scene so far. These ETF's doing just fine.
There’s much uncertainty now, my question is which stocks can be the next wave in terms of growth for the next decade?
Stocks is not only about anticipating moves based off trends but anticipating through participating behind real top performers and attain how they execute perfectly.
coach Frost hilda take good care of my holdings giving me an edge to successful interest.
l've been getting suggestions to use a proper enlightened top tier, similar to your viewpoint.
I just opened on fidelity, I’m trying to figure out your selected holdings at the moment
3:00 Put credit spread
8:30 Selling calls
11:50 Options income
16:10 No need for large account
Good
It's enticing to consider purchasing some stocks in this bull run. I'm contemplating investing more than $300k for retirement. While the bull run can generate short-term excitement, i also need long-term investment strategy
I'd suggest you to seek professional advice because building a strong financial portfolio is more challenging. Your long-term objectives and budgetary preferences can be catered to in the ideas you get after that.
Yeah, financial managers do make a lot of difference, particularly in a market slike this. Bonds are pretty unstable at the moment, but if you do the right math, you should be just fine. Bloomberg and other finance media have been recording cases of folks gaining over 250k just in a matter of weeks/couple months, so I think there are a lot of wealth transfer in this downtime if you know where to look. I have been using an FA since 2020, and I return at least $30k ROI, and this does not include capital gain.
Would you kindly explain on the advisor's background and qualifications?
‘Sonya Lee MItchell’ is the licensed advisor I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
I searched her full name online and found her page. I emailed and made an appointment to talk with her; hopefully, she gets back to me.
Your explanations of these strategies are excellent, far more professional and quantitative than many other channels. Thank you.
Thanks for the video! I like how this is basically a synthetic wheel strategy where you switch to a PMCC instead of taking actual assignment in order to keep your capital requirements low.
I really like your explanations. I have paid some big bucks for programs that were not nearly as good as what you are providing on RUclips for free. Thanks for making these available in such a good, precise, detailed fashion.
Good idea! You can also use the micro futures option chain to reduce cost, and another idea would be to switch between puts and calls when 50 day SMA changes direction
You could do that same thing with QQQ also.
Interesting strategy! We personally prefer to take 100% advantage of the high gamma sensitivity of short-term options instead of the gamma working against us in short positions or only working for us to a limited extent in debit spreads. We only buy naked options and manage to generate a constant flow of income. This also has the advantage for small accounts that the PDT rule does not apply because this strategy can be traded in a cash account.
How would you manage this with selling bear call spreads? Would you buy a .20 delta leap put and then sell puts? Trying to understand the inverse thx!
The short strike selection hovers around 2.5% OTM. But jumps to 3.6% some weeks. So must be using some volatility indication to sell further OTM like VWAP bands or Bollinger. Switching to call side with a 6 month calendar spread when things turn bearish is interesting. Psychologically, it's kinda degenerate gambling with inflation on your side because the capital requirement balloons so high. It creates a business model that's bent on not taking a loss.
I've noticed that these SMB videos tend to minimize the downside risk of options trading. It's possible to lose most of your money very quickly if things go the wrong way. Also, spreads that include a sold put or call can (due to a quick spike or drop outside of normal trading hours) end up with only one leg executed and leave you on the hook for thousands.
Aviod earnings and dividends and you shouldn't have to worry about a after hours exercise. Your long position would offset it anyways.
Also, learn how to watch and manage, learn how your broker treats things after hours.
Agree
This; this trade could destroy almost 25k in a sharp downturn
@@kesannwalrond-mcclean9781 true, if you do nothing as it turns against you...but you have to know how to manage your positions...roll out, roll down, roll out and down, or just close the position and take a loss. 5 outcomes to any position: 1. win big 2. win small 3. break even 4. lose small 5. lose big You just have to avoid #5.
When the Bull Put strategy needs to revert to the Call side, is the date of December (end of year) used due to it being: 1) end of year OR 2) Four months out?
Thanks a lot! Very professional video
Excellent explanation (always). I'm off to look for a resource that shows me how to calculate the capital required for a given ETF + put credit spread combination so that I know how much capital I need in my "Small" account. Thank you.
Width of the spread gives you capital requirement. $5 wide requires $500. $25 wide requires $2500. $1 wide requires $100
You fail to mention the worst case scenario, where the underlying reaches the long put. The trade is barely hedged by the long put since you want to make money each week and in practice what you would need to do would be to get out of the trade early if the market even approached these levels. In practice, all the long put is doing is limiting the margin you have to put up.
U guys are the best!!
Very informative training
what platform are you showing?
Thanks for the free info. Shalom
I am so happy that I made productive decisions about my finances that changed my life forever. I am a single mother and I live in Spain, I bought my second house in September and I hope to retire next year at 40 if all goes well. thanks to Louise O'Brien for helping me achieve this
I'm new at this, please how can I reach her?
SHE IS ON TELE GRAM.
@ATLouise55 ..that's it .
That’s her user-name
10:04 how did you derive at buying $370 calls for year end? Is it based on $2 off the closing price of the week or
Could someone please explain: On the put credit spread example, why are are you buying a put 25 points below the strike price you sold the put at, rather that just buying 2-5 points below instead? (or one or two levels below) In which case you'd need far less capital to take the trade? This would seem to lower your max loss too? What am I missing?
No mentions to commissions. On Interactive Brokers, trading a lot of cheap options can get very very costly. Also, This example was given in July when market do not move as much so chance of a big move down are less. In a very volatile period, I would think of using a different option strategy.
very insightful matter you have said.
Are any of these trades considered wash sales? If so wouldn't that further hurt the bottom line especially if you are having these larger losses that you can't technically use to lower your taxable income?
I'm gonna study this - thank you🎉
Thanks Inurufu
How much capital do you need to start this ?
Do you need to own the shares off qqq or can you start. Trading put
I would start with 1 put credit spread and if the price moves down 0.5%, sell another put credit spread(with lower strikes) for another $0.60 credit. This way, you are averaging the price and reducing your risk. As they say, do not put all your eggs in 1 basket. or I would do a tranche by getting $0.60 credit for every week for the next 10 weeks.
Hey buddy. Above is my personal digits,
This is what I call hindsight trading
Only rookies will fall for this.
I like this video and I know this is a stable strategy to gain profit. Keep doing more videos. Thanks.
Hey buddy. Above is my personal digits,
Get in touch
how do you determine the strike price to sell the puts and calls at? is it using delta or something else?
So easy after you know where the market went. Hindsight 20-20
Exactly! You can sell $500.00 a week in credit, but just one loss can wipe you out. He didn't mention that 🤔
Read "One Good Trade." SMB Capital traders have been successfully trading the market for years. Otherwise, they would not be in business. Personally, I am a small potatoes, scalp trader with one stock. Been fortunate enough to earn $5k+ per month. Establish your entry and exit rules and keep to them. Focus on the progress of your trades moment to moment. Some days I don't trade, some days I trade frequently until I run out of settled funds. You also have to be passionate and confident. SMB Capital has posted a lot of free, beneficial content to learn by. Wish you the best of good buys.
Good job explaining!
Glad it was helpful!
Wouldn’t work on the call side of the trade since Selling calls and buying further-dated calls with only a 3 dollar price spread loses money due to unmatched deltas; the negative delta on the short calls is greater than the positive delta on the long calls as the underlying price moves up or down, leading to losses.
For whatever reason always get uncomfortable selling call spreads or even call calendar spreads unless i own the qqq's so normally i just sell puts every three to 5 days and adjust accordingly. Also own a put leap as a hedge. Doing 10 sales is beyond the scope of my tiny brain and the width of the spreads is also scary (to me). if you get assigned the q's and you're just selling one put spread turn around and sell the atm call. I like to think of the q's as an apartment I own and the option sales as rental income...my campaigns will last until I go to my heavenly reward. Chances are the q's will also apprciate in value over time so there is that too
25 point spread is extremely risky given how close the short side of the spread is to the current price of the underlying.
@Ianlord, the reason that it's not really ultimately risky (although it is in the short term) is that if a sell off were to occur you would revert to the call buying/call selling process we showed in the video until the profit was ultimately restored assuming the QQQs ultimately bounced to their all time highs, which has always happened in history. Do you understand why?
@@sethfreudberg4750 , the main problem that I see with the trade is that it is done with a "small" account. So before anything we need to define what a small account is . If we accept a 25k as a small account and do the trade with that level of funds then I find the risk absolutely unacceptable. While I agree that in the long run QQQ is very likely to keep its general upward trajectory that historical upward bias would be of little consolation to a trader who loses his account because he risks everything on a single trade, every single week. It would take just one large downward move of the QQQ to wipe out the account. In the video, the first loss is 470 $ but what if that loss is 2,000 or 5,000 or 20,000 $ or more ? Is that impossible to happen? I don't think so. Yes, it is unlikely but it could happen. The trader has almost no defense against that sort of a adverse move in the underlying because the total risk built in the trade is just too high. And any sufficiently large loss will prevent the trader from executing the call side of the strategy. If the trader loses even 5k on the trade then they will be unable to do the call side in the same proportion as the original put trade because they will not have sufficient funds to do so.
Another point that I think is important to make is that while the QQQ is generally moving higher over time that does not mean there are no prolonged periods of downward movement. If the trader is caught in such a period, even if they have the ability to do the call side as in the video example, that will make matters even worse. Now, after losing on the put credit spread position, they are losing on the long call as well. The short call will not bring much relief especially if it is always executed on the initial SP strike which is now deeper and deeper OTM. So, it would be very important to be aware of the stage that the general market and the specific underlying, say QQQ in this case, are. A basic technical analysis will go a long way of preventing a trader to get on the wrong side of the market.
IMHO, this strategy is more suited for a larger account but even then I wouldn't do such wide spreads.
@@sethfreudberg4750What if it takes 5 years to bounce back just like in 2008??? Your Long Call is WORTHLESS by then. You'll be forced to sell calls under your long strike and your margin requirement will soar. This strategy only works in hindsight.
@@sethfreudberg4750 Could you share in which scenario would this strategy work against us? From the top of my head, if we were to encounter a volatile market which suddenly whipsaws around, this strategy wouldnt work right? Also how do we calculate that scenario to perhaps move away until the market resettles?
Thanks a lot four video. Personnaly thats the point I dont get. When you lost the 490 why you just don t stop and continue the process normally? Thanks in advance four your help@@sethfreudberg4750
(asking seriously)
Can someone please explain how is it not a 100% way to loss all the money?
You trade the "put credit spread" and make your $500/week. Eventually, you will have a lossing trade and switch to the calls strategy, which includes buying the super expensive call options with EOY exp date for the cost of ~$25K.
In the scenario that the market just picked and from this point it will go down for the rest of the year (which is a perfectly logical scenario) -- you are stuck with a worthless $25K call lossing you all the money..
Also, when buying the $25K call, is it always end of year (Dec) or should it be at least X months ahead? what if we are trading on Nov?
What am I getting wrong?
My three favorite channels: SMB Capital, Stock Brotha, & How Money Works. Make my week complete! 🔥 🔥 🔥
I'm confused. If the initial credit spread had a max loss potential of 24,470 (25,000 strike spread, less 530 of income) then how did you arrive at closing near the end of the losing trade at only a $470 loss? If the price of QQQ drops below the Short Strike and continues down towards the long strike then the losses will become huge compared to the income received. Surely you have some sort of stop loss set so that the loss doesn't reach 24,470, a 46x loss?!!! Did I miss that in the video? Just holding and waiting until market close on Friday to buy-to-close the credit spread could be disasterous.
He skates by the fact that the short put ended up less than $1 in-the-money, so it didn't cost much to buy back. Every time you open that put spread, you're risking $1000 for every dollar it moves past the short strike, up to a max loss of almost $25,000. This is the kind of strategy where you can make a lot of money as long as there isn't a black swan event, but the "risk management" consists of nothing more than counting on that black swan not happening... and the longer you do this, the more likely that black swan is.
The risk adjusted reward looks bad, if you have one bad crash in the market you blow 24k, then you’re going to need 45 to 50ish positive trades to make up for it.
Risk management is based on denial and YOLO
If the QQQ never made it back above 370 by December it would have been a max loss
Excellent education, I didn’t hear why 25 points away. Is this because of the ATR?
Why did we have long expiring December? What is the purpose
This credit spread strategy is very interesting and I will test it. I just want your confirmation that one can let the contract expire at the the day of expiration without any problems. Or would it be better to close it on the last day just to be on the sage side.
I dont get why the call credit spread has to be with different expiration dates? Wouldn't it be more profitable if you do exactly the opposite of the put credit spread?
Is it safe to do 25 width? Ive done only 5 dollar width because im scared that I will lose my cash if I lose that trade..
It's enticing to consider purchasing some stocks in this bull run. What are your thoughts on this? I'm contemplating investing more than $300k. While this can generate short-term excitement, their long-term impacts can be unpredictable.
It seems like there's potential, but caution is warranted. hence I will advice you get yourself a financial advisor that can provide you with entry and exit points
Having an investment advisor is the best way to go about the stock market right now. I used to depend on RUclips videos but it wasn't working. I’ve been in touch with an advisor for a while now, and just last year, I made over 80% capital growth minus dividends.
I've been looking to get one, but have been kind of relaxed about it. Could you recommend your advis0r? I'll be happy to use some help.
Vivian Louise Dehoff* is the licensed advisor I use. Just search the name. You’d find necessary details to work with to set up an appointment.
I searched her up, and I have sent her an email. I hope she gets back to me soon. Thank you
The problem is when the QQQ keeps dropping. You have to keep selling the $373 Call. The premiums would drop to pennies.
I had that same problem with arkk. No strategy is full proof. The market bailed me out with a reversal.
You could just re-adjust the short and long call strikes....to, for example, sell 370 strike and buy the 365 strike
What happens when the market doesn’t recover in 6 months. Your long option would expire worthless and you’d have only made a fraction of it selling calls. Wiping out all your gains and more.
@@StormHorusMoney Interesting idea.
@@karthiks9709 True. There's always some risk & using the QQQ minises the risk IMHO.
*Isn't there a liquidity issue with less volatility stocks*
Thanks
What would be the downside of only doing a 5 point spread vs the 25 point spread and just increasing the amount of contracts to hit the target weekly earnings goal? If I understand correctly, to open a trade with a 5 point spread with the contracts adjusted to hit the weekly earnings goal would require significantly less capital, only about 25%-30% of the capital needed to open the 25 point spread. Is the difference on the call side of the trade? I don’t know how to backest historical options to see how they would have panned out.
Cap req is equal if you do
A) 1 25$ spread
B) 5 5$ spreads
Both require $2500
$25 spread has better PoP and BE point than $5 spread. All else equal.
Except he forgot to mention that these trades work differently in a different market cycle. 25 points wide with 1week expiration is extremely risky. One single overnight gap in price and your entire account is gone!
That depends on what your trading. With the Q's you don't get huge gaps more then maybe $5 or so. Your initial entry is between $10 and $13 otm around a 12 to 14 delta. With the 25 point wide spread it's only there for protection and to make it as if the position was naked while providing some protection. It has to make a huge move to really mess your account up.
How is your account "gone" if you got assigned $24k worth of QQQ? Sounds like you have zero idea of what you're talking about. So what if you get assigned 600 shares of QQQ? Just keep selling calls on it and it will rebound eventually.
@@alextsukanov3536 What about when it falls below your cost basis? Just sell CC and roll if it gets close? In a down turn you might be waiting a year for it to "rebound eventually".
@@alextsukanov3536because if your trading a small account you don’t have the capital to take assignment of 1000 shares. This is a strategy than can go wrong very fast and wipe out all or huge chunk of an account. It’s all good until it’s not.
There is much more to this strategy which is not disclosed here. There are many ways this could go wrong and the adjustments are not discussed.
Why would you have to buy the shares if a short put spread expires ITM? Won't most brokers automatically execute the long put ?
Short Iron Condors. Market ETF's, 16 Deltas 30-45 DTE. My opinion.
This is all new to me and I am learning but a little confused.
After the Q’s drop and you buy the contract back, you place the CALL at the same time (that makes sense) but on the 370 buy, the long call 6 months out, why does he do this? He buys the 10 calls for 24k and then he sells it off later for an additional loss.
Why not skip this step? What does this step provide?
Thanks
Doug
how about after maket close will it gap down make a maxi loss $2500
How do you determine which long call to buy once you shift to the calls?
Hey buddy. Above is my personal digits,
This is complicated for me to understand! Time to do more research to fully understand these strategies.
What did you loose before June?
Thanks for the explanation of the strategy! Just wondering with the market moving will the amount of capital required change? And when buying the in the money calls do you go out to December or a certain amount of months?
Scale it down to fit however much capital you have. Instead of 10 contracts do 5 or 4 or 3. Stack up profits and slowly increase bet size as you earn. I'd increase 10% weekly
Don't chase the money, let it come to you
very useful
how far out is way out? In this example you went from Aug to Dec, 4 months is good?
Same question here
Very interesting videos thanks for the effort and explanation. I am a rookie so just a quick dumb question. Why do we need to buy a call way at the end of year to pair with the 373 Sell Call? It seems that the downside protection of this leg of Buy Call is very limited, so my guess is that only sell Call of 373 may incur unlimited downside risk and thus is just simply too risk and probably won't allowed by the broker? Also, given the winning streaks preceded this losing trade of Aug, wouldn't it make more sense to just recognize this loss and wait for price to revert back to the bullish trend and restart the Put Credit Spread? Many thanks in advance for your reply.
That’s why you buy the long dated call homie, now is limited risk since the long dated call protects the short dated call
Anyone know the exact logic behind the Dec call strike price and expiration date? Do you always buy three points lower and 5 months out? This wasn't explained in any detail. Thanks in advance!
I'm a total beginner, but I've watched multiple videos over the past couple of months internalizing put, calls, covered calls, etc. I'm interested in messing with this strategy in a paper trade account over the rest of this year just to see what I can do with it with no risk to my money. I have two questions:
1. What happens on a short week. E.g. if the expiration must end on a Thurs. because Fri. of the following week is a trading holiday?
2. Why sell at a near .60 cent? What is the significance of .60 cents and the ensuing 25 points below it?
Thanks for this and your other videos. They've made me think about stocks and options in ways I never would have considered. I'm still a very long way off of putting money on anything like this, but it's fun to learn in a PT account.
1) just Sell the Thursday.
2) aim is not 60c but 10~ delta. Therefor theoretically 90% PoP.
Watch out if you do this. Big sudden drop and all required $ is gone. 5%~ drop in QQQ washes away $25k
@@Rockingstarsbest reply ever thank you ! You filled the gaps I had
Lets assume the close price is below the put sell price of 373 but above the 358 put buy.
Lets also assume on the expiration day of the option I’m unable to close the Put Credit Spread position due to some sort of unforeseen emergency .
How does my small 25k account payoff my 373k share buying obligation?
Hey buddy. Above is my personal digits,
You need to explain the risk involved in this which is plenty. If there is a huge slide in the QQQ, you would have lost a ton of money on selling the puts. So you sold 10 contracts then end the next week,with high gamma and delta which carries huge risk. 10 contracts at a 25 point spread can equate to loss of 25k on the put side (less than that but i'm not counting premiums). When you reversed and bought your 24k 10x contracts on the call side, you can also lose that theoretically. So you are close to 50k loss (yes, i'm not counting premiums and letting the calls expire worthless)
It seems like the put credit spread works better in an overall up market environment, isn’t it? Why is it always put in the orders one week before expiration? To minimize risk?
Of course. He states in the beginning this is a bull campaign. The strat is meant to be low maintenance and mechanical. It's turning on the computer 3pm on a Friday, open and close trades, and power off the computer at 4pm. Literally once per week for 1 hour.
This was a very informative video was a great job of explaining what some might think a complicated part of the strategy buying the diagonal calls and then keep selling call premium until the product changes trend. Very well done!
Thank you Bruce!
The thing im struggling to get my head around emotionally is risking ~24k worst case to make 500. I understand that this is a high probability setup but this risk vs reward would play on my mind.
Would be good to see this back tested over 5+ years of data to understand the frequently of drawdown etc to help give confidence in this approach.
Thanks for sharing this strategy
It's the old picking pennies in front of a steamroller strategy. Works great in retrospect when the market went up in a straight line, but when you put money to it, you wipe out your gains on just one loss. Do the math, 500/24000 is 2%, you need to be right 98% of the time just to break even. If you exit at a smaller loss, say the short strike, your winning percent goes down to closer to 50% even in an uptrending market.
@@jcastr57 it won't be quite that bad. Remember 24k is the worst case loss.
I would add a collar specifically a naked put with a cost roughly 1/5th of the initial credit. You lose weekly gains but protect yourself from significant loss to a degree
Ive been burned bad twice doing this. As others have said it works great when the market is on the rise but with such a big gap in risk/reward one bad trade will ruin your progress. Id stick with CC/CSP where there really is not "total loss". Something else that you need to note is those greeks dont follow stats like you think. They dont take into account market news which can and will cause big movement. Once again thats how i got burned twice.
You would not lose the 24k. Worst case you would have it tied up in qqq via assignment until it rebounds. Before that happens you should 'buy to close' on the puts to close the position for maybe a few hundreds in loss. That's made clear in the video
In your example of the first loss, the QQQ was at 372.04, but what if it was even lower like 365, then what can you do? Thanks
Basically you are kinda fucked…. Maybe have a stop loss at certain point but only near the expiry.
But in worst case scenario you have to buy the shares at strike price(needs big capital) and wait for it to bounce back. Than you can sell and recover your money.
did you watch the entire video? you close your Put Credit Spread and buy calls expiring at end of the year. Each week you will sell calls expiring in one week. Then when the stock reaches back your initial Put Credit Spread amount you resume the PCS strategy
@@BoundMusic Yeah but if it drops too far past your short put it may cost so much to close that you can no longer afford the long calendar call spread. And if you can, there's no saying during a severe downturn it will ever reach high enough before the long call expiration, you could lose the entire value of the call. This is definitely a "fair weather" strategy only.
@@BoundMusic Run the numbers. If Qs break your long put your capital is effectively devoted to this trade and you will could be in "recovery mode" for a long long time.
@SMB Capital I think if you added a time decay on puts v calls this would have been perfect. Excellent content.
I think that's inherent in the content.
@@sethfreudberg4750 hence my subtlety directed towards the readers, and my genuine compliment to the content creator 👍🏼
So, on a loss, you change into a calendar spread?
Sounds like it. Not sure I like. Here's why : You are humming along selling bull put spreads until the market crashes and you lose on one. Fine. But then you Buy an expensive Call option out into the future. ( this right there is a sketchy already if you think the Goodnight Irene moment has arrived ). You then earn that back selling near term Calls. Well if the market has really turned on you. Those could be cheaper and cheaper each month and not compensate, while the longer term one turns down in value. Looks good for a bull market only.
Yep, bull market only. Play this long enough to experience an extended 25 drop and you end up worse off than a plain vanilla covered call @@BrisLS1
Relatively small... If you risk 25000 only (as it is in your example), then probably you need just around 500 000 account, right?
You aren’t risking 25k, that’s just how much capital is required, say you risk closer to 500 a trade, that would be a 50k account (if you follow 1%risk) or look to only make 50 a week, and then you only need a 5k account
@@POTUSgames you mean you put SL at 1150?
Your broker will ask 25000 of margin anyway.
@@alexanderpetrenko79 i meant more in the example they showed 10 contract, that required 25k capital, so if you trade 1 contract you only need 2500
How did you decide the logic for buying the $370C when you flipped? You explain the criteria well for the other strikes but once the PCS short side is breached and you sell the 373C you just randomly buy the 370 for a 3 wide debit spread? I'm trying to understand how it would translate elsewhere and how you choose that 370C. Thanks!
It's a call calendar spread. So that's standard to sell the near term strike, in this case 373 ATM and then he's assuming the market will keep going down, so he wants to "lock down" profit in advance with the 370 call strike. I'm guessing he's choosing 1% ITM 6 months out for the calendar lock down.
I just started with options, so it’s just my humble opinion. With Wheel strategy you are 100% covered. You sell csp - worst case you buy shares and get premium. Or CC - your shares a sold and you got premium. But with this one… we should keep in mind that option can be executed Any point of time , so , if it goes against you - owner of the option can execute you before expiration date. And you are obliged to buy for whole amount, which you don’t have probably. Is it right? Thank you
That’s why you need a margin account. You can’t do this like a normal Call and Option
This is really good, I'm brand new to options trading. What I don't seem to understand, what would happen if your calls/puts got assigned? I know you close out the position a few minutes before expiration on Friday, but theoretically, wouldn't it be possible for the person on the other side to exercise before that time?
That what I would wish to know. I think with a small margin account. Without having that much capital. Margin call would then kick in. Meaning you are forced to buy back the option at a negative earning but without forking out 100k+ capital. This is done by the system of the broker.
Credit spreads are very risky and can burn your capital very quickly if you are on the wrong side of the trade. You should use no more than 5% of your portfolio per spread.
5% sounds high. More like 1% - 3%
@SPYspreads, they are risky, but in this context it is sort of a short term risk because if you, after a drop, buy those far in the future calls and sell calls against it, you should be restored eventually as long as the QQQs ultimately bounce to their all time highs, which they always. have.
@@sethfreudberg4750 nothing is guaranteed , but ETFs tend to always go up so call spreads will outperform put spreads. 👌
Seth, I think you answer my question here but if they go pretty far against you, 10 lots can be many thousands in a loss... Do you have a stop loss or just let er go until expiration day? The follow on strategy does offer recoverability but not nearly as much as the initial loss risk...no?
@@jtyourinson8369roll over is best you can do if you are very close from expiration date.
@sethfreudberg What do you do in a long down market where the QQQ's drop so low that there is no premium available at the 373 level? Especially if the downtrend last through December, and the Dec 370 calls you own become worthless. THANKS!
Don't trade it is the answer. Find another stock or ETF that has a decent risk to reward ratio.
You get f***ed! Your long calls expire worthless and you loose the $24k you paid for them. This strategy works just fine in a strong up-trending market. But anything like 2022 and you're going to loose a ton of money!
You take a loss.
SMB never explains how to manage a loosing trade. The credit spread can go awfully wrong if not managed properly.
Hey buddy. Above is my personal digits,
Did you watch the whole video? The plan is pretty clearly explained on the call side.
@@cbpuzzle He explains a plan for it only goes against you in a small enough way. A $35 spread can move much further against you than the 96¢ it went in-the-money here. And there's still a lot else that can go wrong that he doesn't mention at all.
@@cbpuzzleif the put spread goes $10 in the money almost the whole $25 k is gone. What you gonna use to call wheel then? PMCC needs another $25K that can go up in smoke just as fast.
Please explain your logic when the trades switch to calls. Why not sit out a week to determine the trend or simply go back to the put strategy.
💯💯
When you switched to the call side is that called call credit spreads?
It's a poor man's covered call. The long call option purchased is a leap.
Thank you, in order to do this strategy, does it mean I have to study the charts weekly? Look at qqq’s candlesticks?
How did you decide on the exp date of the long call?
I think it's just 6 months out
I was surprised after the first call that you sold in August 11 I think, expired worthless and you had a capital gain of about 7X greater than the first loss that you took on the previous weeks put sale. Why wouldn’t you have closed out your synthetic covered call then and resume your put selling strategy?
Because the week closed lower than the previous. So the assumption is that the following week will be lower as well... until it isn't. Which is why there's the 373 line in the sand where the call goes ITM and that's when you switch to bull puts.
Thanks for the video. One thing I am struggling to understand. In your case you are lucky that price reverted back from 358 to 373. What would happen if this doesn't happen and price is keep falling till the expiration of Call buy option reached. In that case, your call buy option will become worthless, loosing 24k. Selling Calls at 370 every week during this time is sufficient enough to recover the loss of 24k?
YES, this exactly! This video is a classic cherry-picked example. This strategy works very well when the market is in an up-trend. The 373 strikes got tested but the market rallied back above them within a month so those long call options only lost 1 month of theta decay - no big deal. But you're exactly right, if the market hadn't recovered above 373 before the long call options expired in December, you would have lost every penny of that 24k premium you paid for them (minus credit received for the short calls). Maybe the short call credit would have covered the loss of the long calls, maybe not. It all depends on what the market does. This is an overall bullish strategy and you WILL loose money on it if the market turns bearish. If you had started this strategy in the beginning of 2022, for example, you'd loose a ton on your long calls.
@@skerby2 Hah! I said the same thing in my comment. June, Sep, and Oct of '22 had weeks that lost much more than his worst week here, too, he would've gotten socked with _much_ more than a $400 loss if he had short put spreads open on any of those weeks.
Any large overnight movement will crush your account. Try this in 2022 and then try it again in 2017 and again in 2008. I dont understand why SMB doesn't make a big point of talking option risks and make sure viewers know to cut losses quickly.
A sustained down move that lasts longer than expected will also result in far poorer returns
Don't forget a spread is like having a stop loss incorporated
@@xgarp1872 the spread is 25k wide in this example. Does that make sense?
what happens if the QQQ opens DOWN or UP 70 or 100 points due to some overnight event? how does the credit spread performs in such an event?
Test it and see. Large indexes fill those gaps over time. The spread can go under water of course because the sold strike was put on wherever the previous Fri closed at, but the NEXT Fri close is the ONLY thing that counts.
Why wouldn’t you sell call spreads instead for the second part?
Synthetic CCs are less risky for about the same amount of capital used.
Can u do this on Robinhood?
I would like to know your advice, if the ETF suddenly loses money, then what to do. After all, volatility will increase significantly and losses may be the size of the margin, and there will not be enough money to buy 10 contracts. After all, such a risk exists and you need to be prepared for it.
That's what the call buying process is for. Please see my answer to Ianlord77
He shows it took 24K to cover the call calendar reversal strat to trade 10 contracts. So just trade 1 contract and aim for $50/week and you only need maybe 3000 in the account. Once you get to 6000, trade 2 contracts. At 12000, trade 6. Until you get to 24000 and there's your 10 contracts going for $500/week. Maybe it takes you 3 years of grinding it out, but you'll need to make all the mistakes early on, when the account is small. After you're confident, then the size happens quickly.
Risk management? We don' need no steenking risk management!
When you said you don't need large amount of money into the account. How much exactly minimum to open the account?
You don't need any money to open most broker accounts. You can deposit as much or as little as you want.
When he switched to the call side of the trade, why did he keep his call at $373?
Would like a detailed explanation of capital requirements. In this case 24k. How is this number derived!
25 point credit spread = $100 per point *25 = $2500 total per spread. They put in 10 spreads = $25k, but since they gain ~$500 credit = 25000 - 500 = 24.5k of your capital required. The broker will lock up 24.5k of your capital plus the $500 credit from your trade, since this is your worst case loss, and they need to make sure you can pay it. Once you close out the position or it expires useless, the money is 'unlocked' and you get access to use the capital again. If you don't have 24.5k to lock up, the broker won't allow you to open the trade. You can always size down the trade. So you could just do 1 credit spread for $50 credit, and only have $2,450 capital requirement.
We can do a video on that Mr. Lopaka
How to avoid early assignment on the short calls needing to get a sell close on the long calls. One day before expiration?
This would need to be emphasized indeed. Imo you need to monitor the market all along, not just before expiration (even though assignement more likely then because automated by broker), so as to close the losing position before being assigned and avoid the risk of your other securities/contracts being liquidated to make up margin for the underlying
Good question
Yup. Smarter to do this on something with european-style options, like SPX.
Can Anyone help to explain why by selling 10 puts and then buying 10 puts (1 st example that he given or even all the examples trade that make money )only need that small amount of capitol ($24, 410) at your account ? I think when your are selling puts for a stock of 3 hundred plus you need at least $300K or more cash or buying power at your account ?
Selling the puts and buying them further down the same option chain protects you from that. That spread is the most you can lose in that transaction. 25 point credit spread = $100 per point *25 = $2500 total per spread. They put in 10 spreads = $25k, but since they gain ~$500 credit = 25000 - 500 = 24.5k of your capital required.
It is not clear why we are selling CALLs at 373 and buying exactly these December CALLs. And what to do if the price goes even lower.
The longer-dated calls don't lose value as fast as shorter dated ones. If the price goes even lower, you wind up losing money, up to the full cost of the long call.
What about the risk management? A single trade (September 01) that lost around 10% of the portfolio is.. brave ;-)
25-Wide credit spread is just crazy, particularly given relatively close to market.
wide spreads are used to simulate a naked position while keeping buying power reasonable. Narrow spreads are binary in nature and develop much slower. A wide spread mimics a naked position in that there is a much wider range of outcomes.
@@robertcurtis1191 I understand that, effectively a naked position. That's a ton of risk for most portfolios; not sure that is for SMB's targeted audience.
@@robertcurtis1191 exactly Robert
That's a matter of capital size ct
It's trading naked options without having Level 4 broker requirements. The long strikes at what calculates to 9 to 10% OTM from the Friday close are basically 10% stop protection or friction on the trade. That leaves a 90% efficiency, but without having Level 4. Keep in mind that some brokers don't even have Level 4. They max at L3.
Could we apply this strategy to the SPX? it operates daily, why wait a week with QQQ?
Hey buddy. Above is my personal digits,
Hey buddy. Above is my personal digits,
Sure but this is literally meant to be turning on the computer ONCE Every FRIDAY at 3pm Eastern, closing and opening trades, and turning the computer off at 4pm. Trading SPX 0DTE requires more time and analysis. Doing something for 1 hour every week is different than continually coming back to a chart every 15 minutes every day 5 days a week.
You can use the same strategy with QQQ on 2 or 3 day contracts as well.
I like this idea. I just have 1 big problem. I can only do buy writes, collars, straddles or strangles. (lvl 1) suck but gotta start somewhere
Hey buddy. Above is my personal digits,
Get in touch
This strategy would destroy you in a correction...