An Easy Options Strategy that Crushed The Market
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- Опубликовано: 12 июн 2024
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Seth, you're one of the most effective speakers that I have ever heard on RUclips. You make this channel one of the most valuable for options trading. Thank you.
5:51 start of strategy
Prof. Roofs, MD thank you!!!
Strategy 9:33
Would love a video on best ways to adjust credit spreads and put spreads for losing trades to minimise the loss. Not enough high quality RUclips content on this matter in my opinion.
wow an actual concrete strategy. I've gotten used to clickbait
second that
Excellent video. Really appreciate your work Seth . It’s great to hear how options can be applied in different circumstances with the taking of losses explained and included
Thanks for clear objectives and strategy details, appreciate your sharing.
Thank you Ashok. Please let us know what other subjects you'd like us to cover.
@Seth Freudberg Seth, to clarify the stop loss, you said twice the premium received is the most you’re allowed to lose. Does that mean the stop is when the spread price reaches 3X the original premium? (3X buyback - premium received would make the actual loss 2X original premium.) Or did you mean the stop is when the price reaches 2X original premium? Thanks. Good video.
Great video! So if I understand right, ETF put credit spread is good for bull market. is there an ETF call credit spread for bear market??
Hi can you do this with other index like RUT or NDX?
Excellent video with clear, succinct explanations of what to do. Would love to see similar videos for different strategies, e.g. options strategies for different sectors (finance, biotech, etc...)
Thank you Tom. We'll see what we can put together.
I use bull put spreads, but there are special situations where it doesn’t work with index options. That said, I have had luck with GDX. Moreover, I love the way margin works for me, in its entirety. It is also said that it takes awhile to get “smooth” with this strategy. Size of trades is sooo important with one’s trades. Asking: “what can go wrong.”
Thank you ... Do you have a simple great option strategy for times the index is BELOW the 200 MA .... or do you prefer to go to something like e-mini futures when the 50 day EMA crosses below the 200 SMA ???
reverse the trade for bearish
hello. i 've watched several of your videos ...great work...........
Thanks Tom
What a valuable series of videos. Seth is a great teacher and explains the trades in a logical, understandable manner. Thanks so much Seth and SMB.
In several of your training videos (especially ones that have one of your investors explaining a trade or strategy) the commentator discusses how reading the tape helped in the trade. Have you ever done a training video on tape reading. Usually the topic is covered so quickly that it is hard to grasp how the individual is actually using the tool.
Thanks
@Seth Freudberg
Looking at SPX and /ES at the November weekly that expires in 67 days (as of today) Delta appears to be less than 1, no where near the 10 Delta. Am I looking at something wrong?
Rich the the Delta is actually the fraction the option price moves when the underlying Index or stock etc moves 1 point. So the 10 Delta can be written as a decimal 0.10
I like it! It's simple. Questions - How did you choose the places to sell and buy your puts? Do you only do this on indexes, or do you do it on individual stocks? Do you sort through to find those with higher IV rankings, or would that decrease the win ratio (too volatile, could fall below the moving average at any time). Thank you for making this video! I watched one or two others and have now subscribed.
He chooses the put to sell based on delta (finding the one nearest -10) which carries certain probabilities and changes automatically based on IV conditions.
Seth, Is there any reason not to trade the weeklies using the same 70 DTE? I believe there is sufficient volume on SPX weeklies. Thanks.
Great video. Clear information and teaching. I have watched tons of videos, this surpasses the rest. It would be good to explain what would happen if the SPY went south, and how to exit the Put Credit Spread.
He DID explain that. Your stop out on a loser is 2 * the net credit; or, you are allowed to exit earlier to preserve capital.
@@kuberanproperties3069 So basically in his example, on january total credit is 510$ so the stop loss would be something near 1000$ ?
There’s another way to save the trade, although your capital will be tied up.. you can basically roll your credit spread to a further expiry, and can still attempt to make some more credit, and can end up profitable. It might just happen that the market dipped a bit which happens to be at your expiry, and rallied later, so this might save the trade. I think he purposefully did not give that option, as many times it might be worth accepting a loss than to keep rolling the trade forever. Hope this helps!
Nice video. It would have been nice if you had instructed on how to work around a potentially loosing trade, when the market drops, but that is covered in the workshop they give out for free. As he said click on the link in the right upper hand corner. I did and watched the course and LOVED IT! I signed up again.
Keep these coming. Would be interested in hearing how this strategy was developed. The process behind it.
Thank you, Brandon. The process was a combination of technical marketplace observations and knowledge of deltas and volatlity. The process would be a little complex to explain in a comment reply, but that was the basis of my thinking.
@@sethfreudberg4750 I liked your presentation very much. My only comment is something I need to think about more deeply. It is this: using a value of delta to open an options trade is a substitute for technical analysis. True or false? I think it's true, but I'm not sure why. The 200DMA is a technical indicator. It looks at the recent past. Nothing wrong in that. But delta does that. The recent past is part of the options pricing model. Therefore, if SPX is trending below the 200DMA there is no need to skip a month. The 10 delta takes that on board and signals a lower and lower strike price. If the market is bearish, delta will guide you to a lower strike at the 10 delta level. Of course, delta's a probability. At the 10 level, the trader can expect to be right 90 percent of time. What I'm saying is that delta is a substitute for, not a supplement to, any technical indicator whatever. I think that proposition is true, but I do know enough to defend myself.
@@jamessoriano9488 Could the reason be - "why apply a bullish strategy in a bearish market?"
If the SPX is above the 200 ma, you enter the trade. But if it goes below the 200 ma after you get in, do you exit the trade right then and there or do you wait until the loss becomes double the original credit received?
You, once, produced a video about an 18 day broken wing butterfly. I can't find it on my computer and can't find it on your you tube channel or your website. If you know what I am referring to, could you put it up again? Thank you very much.
What platforms support index options trading?
Do you sell call spread at 10 delta when the market is below 200 moving average?
Seth, thanks a bunch for the great videos on options, much appreciated! So, just to be clear it's the 200 DMA, not the SMA? Also how long does it have to have been above it, before entering, and lastly are we holding to expiry, isn't there risk of assignment at that point?
Luis The 200 DMA = the 200 Day Simple Moving Average. Also no assignments on Index Options
Thanks Vince, much appreciated!
You don’t hold it to expiration. If it goes below you lose money.
@Smarter than you Fo sho they settle in cash
How far back do you check the 200 DMA? Current week or month?
Thanks for sharing. It was well explained. Question for you Seth: I have been planning the strategy in my TOS platform following your criteria (70 days out, 10 delta) and I can only get around $320 credit, far from the $500 that you showed in the video. Am I missing something? Thanks
Hi David, that seems a little low. Are your short and long strikes 50 points apart?
@@sethfreudberg4750Hi Seth. Yes, I used the same rules as you suggested, including the 50 points apart between the short and long put... Could Vega affect the price so much? I will plan the trade again and see if I get a higher credit.
@@davidaranda7639 Vega will absolutely affect the price, but that seems like too much of an effect. I'm surprised it got that low.
@@guyredares Thanks for the clarifications Guy. Nothing like back-testing to answer questions.
Since the SPX has weekly strikes, would it make sense to sell a 70 day put spread every monday and diversify your positions a bit as long as the spx is above the 200 da moving average?
I guess you could do that, but it means you could potentially have about 8 trades going at any given time. With approximately $4500 of capital required for each one of those spreads, just know that you’re going to have about $36,000 tied up. The other thing is, a 10-delta strike is pretty far out there; not sure if there’s the same liquidity in the weeklies 70 DTE as there is in the monthlies.
Hey Seth, Very nice video and awesome trading strategy. You gotta love the options! It's too bad it takes so much capital to put this trade on because that will put a big dampener on those with small accounts, at least those that are concerned with a proper capital allocation per trade according to their account size. Don't forget that most of the people watching your videos are probably new traders or traders with small accounts and new. So, in that regard, I think you should maybe mention to those people to not go all in when putting this trade on. Or maybe find something else to make this trade with. Don't you think newbies should stay away from "The Widow Maker", the SPX? I'm curious, have you looked at making this trade with the SPY's? It would take way less capital, probably close to 10x less. The SPY very closely correlates to the SPX and they can start off with not having to worry about blowing up their accounts should things not go well. I realize that the amount of profit would be less but so would their drawdowns. Other than that, nice trade.
I believe SPY is settled in shares, therefore he probably didn't mention it do to the fact that there can be other issues in the middle of the trade such as assignment. Where as the SPX is cash settled and all you really worry about it the outcome at expiration.
Initially It was my understanding the SPX had to above the 200 MA( 6:05), but at around the 11:40 mark, you made it sound like the short strike had to be at or above the 200 MA? Also, why not 5 or 10 point wide spreads. doing five 10 point spreads, over 12 expirations, would produce almost another month's income...
Thank you!
Let us know what other video subjects you'd like us to cover.
Great content
Would you not execute a Call Credit Spread if the 200 DMA is above the SPX?
Aren't call credit spreads are bearish? So, if the SPX above the 200 DMA implies a strong market (i.e. bullish) why would you implement a bearish strategy?
If the mkt is below the 200 DMA, why not sell a call spread?
wow... great strategy...
Why the 10th? is it the result of backtesting? ie...are you curve fitting?
Hey Seth, this is a good question. Please respond.
I’m guessing that the 10th of the month puts you pretty close to 70 days to the monthly expiration 2 months out, rather than looking at a weekly that far out.
Sometimes and usually even more frequently than sometimes, simple is the best strategy. What other business can one open for $10,000, make excellent returns with minimal overhead costs? I like simple. Learn to defend this strategy to complete the strategy and there's a business opportunity 🙂🙂. Thx again Seth. I look forward to how you adjust/defend this strategy. All businesses have to control risk to stay in biz. Usually this cost is some form of insurance. Option traders don't need to buy liability insurance but knowing good adjustment techniques would definitely help traders and allow them to "master" this business plan and trade humbly but with confidence.
Seth, thanks for sharing. It would be a lot clearer if you could "chalk talk" the subject on a white board for those of us who slant toward learning concepts visually. Best regards!
@ bmoraga I"ll try to use more illustrations. Thanks for the suggestion.
Does anyone know why the strategy needs to be started only on the 10th of every month? I guess they calculated that 7 weeks maximizes probability and the 10th is when you can buy the options with 7 weeks maturity, anyone knows for sure?
Do you fund option traders? I only see futures prop trading at your website. Thanks.
Yes we do F Adler.
I love your videos, I am currently working an income system based on vertical credit spreads and am doing well. I think it would be great to see an adjustment video for this strategy.
@Hardware4200: there are lots of ways to adjust put credit spreads. Let me try to put something together on that.
@@sethfreudberg4750 Thanks for the reply. I was thinking that any discussion about adjustments should include the concept of getting paid, while you exit the tested contract, you'll find a new contract having enough credit to offset the exit costs. If you cant find it then you have a decision on how and why you might want to increase risk to get that credit, and what risk rules you'd use.
@@hardware4200 the only comment I would make is that I don't think it should be a goal to cover exit costs. Exit costs should be a part of your overall strategy and be accounted for. The new contract, where you will receive a credit, will contain its own new set of risks and may well not be worth it.
@@hardware4200 Seth is correct. You've got to remember the more credit you take putting on a trade the more risk there is.
@@MoreSpaceStuff I don't agree with that you automatically increase risk, depending on the time added its possible to add time without adding over all risk (notwithstanding the risk of being exposed to the market) and covering the cost of rolling the contract out. I have started writing some S&P 500 index contracts to see how this works.
But my broker said that I can't sale Puts or Calls. On stocks
Omg how do you feel about 1.8 interest
Forget about it
Ok some clarity please. What is the ticker for this? Do I need 4500 to play this as someone suggested below. Oh btw it is the 20th of the month. So a speedy response is appreciated.
Ticker is SPX. It's in the video. It is the S&P500 Index itself, not the ETF which is SPY. SPX options are european style cash settled.
i so far only trade penny stocks never options but im learning though keep these videos coming, taking notes
Great to hear that you're learning from them. That's the way you'll improve.
Thanks for the video! But could you kindly explain why would you do this on the 10th of every month rather than any other day of the month? cheers!
Razer Zone looks like it makes the contract expiration work out better, but I’d love a clarification as well.
On "approximately" the 10th of the month you look at the option chains and choose the contracts that are expiring 2 months + 10 days out (which will be "approximately" 67 to 70 days out). Then sell the out of the money puts with a 10 delta and buy the same number of contracts 50 points below.
Seth, another great video. I really have to hand it to you and the SMB team, what a great program you have put together. I like this as the additional strategy that is easy to implement.
I should save the hours (and I mean MANY hours) and just watch your videos. Of course I am joking as it all goes to solidifying all I am learning from the Foundations course. Sometimes, I feel I am discovering PURE GOLD - then I realize it has all been done before or it feels like I am taking the long way around instead of going to the Shell Answer Man (not sure if you remember those commercials)
I literally came home this evening to research a few more opportunities for my playbook - one of those were credit spreads. Of course I completed the hours of backtesting prior to watching your 15 minute video. And yes, the SPX works well with the 200 Day SMA. I also checked it for the 50 day moving average as well. Not as good.
can we get out of the trade whenever we want(( before we are down twice we got paid for premium))?
Yep, you could. There's likely some mathematical reasoning behind the 2x premium being the ideal risk but you can always bail earlier/later.
@@shibity twice the premium, for this particular example he got 510$ in January and maximum loss should be 1020$. But collecting already 510 from premium, you end up loosing only 510$ at the end if everything goes against you
Wow
I backtested this strategy excluding the step of opening on the 10th day of the month. It obviously works very well. What is the significance of opening on the 10th as opposed to another day? Great stuff - thanks!
the 10 of the month is likely the best point for theta decay. basically, within 45-30 days of the expiry, the price of options drop drastically with time decay.
I guess it keeps you 10 days away from expiry, so you have time to sell the option back then buy another.
+SMB Capital
Very interesting. Curious to know just how long you folks at SMB have been doing this trade (specifically) for over the yrs? (Data sheet perhaps?) With this "record" bull mkt, seems very profitable. Yet, have you back tested the reverse or inverse (Call spreads) strategy during the same timeframe, or more so, over the 2007-2009 bear mkt period?? If so, what were your findings then? Tks. @SMB Capital
Probably tested with historical data
Al, doing this with call spreads would not work as well. Those trades are notoriously unprofitable. Most of the traders on our desk trade some version of butterflies, so there would not be a long track record of this particular style.
@@guyredares yes i'll put something together on that.
Did I miss something? Did he say that he held until exp. or took profits and a certain %?
Josh there is not a profit goal per se. Rather, we close the trade on the 60th day of the trade so that we can roll half of our capital over to a new trade 70 days out. By day 60, if the market hasn't sold off, alot of profit will have been earned however.
Why do you use MA200?? What does mean 200? Why is it not a 240 or 120 or 60? My point of view I can explaing what is 240 and it is an amount of dayies in year but yours one I can not understend. Do you realy use 200 because the most of people uses it and it is a reasen, dont you?
Ok I heard the 4500 part.
I don't understand why the focus is on gains as return on capital instead of on making the most profit? e.g. the video mentioned not using an additional $4500 for the third month and instead closing out the 1st trade early.
Add'l $4500 can increase the size of your capital by 50%. In turns, you get extra 50% more for each of your trade. So, in his example, you get $500 if you let it expire. Close it early will likely have to pay back $100 or so. That's $400. But if you have 50% more capital to begin with, you end up with $600 even you close it early in this example.
May I suggest that you provide a link that explains the basics instead of going over it in every video.
I think that the basics reinforce everyone's understanding and I like it.
So when you close the first month, you’re cost will be the commissions- gross profit of $550 correct?
What would happen with that strategy if the market crashes like a while ago due to some unforeseen viruses and stuff?
The max loss is limited to the difference in the spread (100 x $50 = $5000) minus the initial credit received, so somewhere around $4500 for max loss (thus the reason the broker requires $4700ish of margin). However, he mentions that part of the strategy is exiting the position if/when the losses = 2x the credit value, or around $900-$1000 depending on specifics.
@@shibity yes but if the market crashes like it happened in March, you are screwed with all 4700$
Did he deduct brokerage costs?
Yes I deducted our cost of trading options at our prop firm.
Ok 10th of the month, SPX, 4500 minimum funds.
Strategy Starts @ 3:09
Wise to tie up 10K in capital for 70 days at only 510 profit monthly?
As he mentions the margin required is around $4,500 NOT 10K
Vince C that’s per trade, and You have up to two going at any one time. So the 10k is correct, not considering current prices.
Right ... Like this is super slow money. I’d rather try and find a $100 trade every few days using a fraction of the capital.
Smarter than you Fo sho - the margin required results from the difference in strike between the short and the long option; nothing to do with the price of the underlying. Not really an accurate username.
Basically, he’ll never have more than $10K tied up. So if he wins 9 months ($4500), loses 1 month (-$1000), and doesn’t trade 2 months, that’s $3500 on $10,000 in capital. Are you making 35% annualized on your $10K account?
Video starts at 3:10
Seth, Pease explain why you start on the 10th of every month? I see a lot of comments below, but they are speculations from others who may or may not know what they are talking about, and I rather get an explanation from you. Thanks.
If you are willing to take the risk, you could put this strategy on steroids if you use ES options (futures options for the S&P 500) since it uses the more lenient span margin.
That seems like pennies in front of steam roller strat. 4500 risk to make 500?
Assuming you received a $500 credit, $4500 is the maximum risk. But the strategy would use a stop loss of $1000, not $4500.
"The broker will require about $4,500 in your account to make this trade." How do you arrive at that $4,500 figure?
Hi Jeff. The maximum possible loss on the trade is $5,000 but the trader has received $500 in premium for entering the trade, so the worst case loss is $4,500 which your broker will margin you for.
@@sethfreudberg4750 Thanks for the quick response. One more little piece added to my nascent options education!
@@jeffhorton259 Happy to help. Margining is an important topic and often misunderstood.
How good could this guy be? He sold his Rolex!
Good luck to find anyone to buy those options that far away.
market maker will always buy them. there is never a time where you can't get your option filled.
Actually S, there is a ready market for those options. You could execute in seconds, or if you were more picky about pricing, it would of course take longer.
Backward looking strategy that's no longer relevant. If you had a strategy that currently crushed the market, you wouldn't be sharing it on a free platform. Its just the truth.
You can't really dismiss a strategy unless you've backtested it yourself using the same rules that they do and employing the same discipline. Other than that then you're stating an opinion with no facts to back it up.
@@user70331 Not really, did you actually backtest and see?
Alex, we share lots of valuable, effective trades for free. That is how we have grown our community. What you may not have focused on in the video is that each trade has a stop that is reached well before a maximum loss situation could occur. I mention that in the video if you would watch it a second time.
@@user70331 Therefore with out a crystal ball one must be sure to get into and hold that 9-5 job that requires no clairvoyance. You're very welcome!
@@user70331 that doesn't mean that you have to leave the trade on for that long. If you see the trade going bad then get out! Don't stay in for so long "Hoping" that it turns around. GTFO! as we say. Cut your losses quickly.