Who doesn’t want FREE Money? In this video I am going to show you the closest thing to it and exactly how you can go about getting it.
Unless you don’t want it…
Hey look I know you might be skeptical and so was I before learning this strategy. But by learning this strategy you will have everything you need to know to start making passive income right away.
Especially if you are just buying stocks and holding them long and hoping that they increase in value slowly over time.
In this video I’m going to show you:
- My Strategy For Making Passive Income
- How To Enter Trades At A Lower Price Than The Current Market Price
- How To Close Out Of Trades At A Higher Than Market Price So That We Can Continually Collect Passive Income On A Weekly Or Monthly Basis
- How To Make This Happen Showing You Real Examples On The Option Trading Platform
Finally at the end of this video I will show you my exact game plan on how I sell options to create a continuous stream of passive income.
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Hey guys, Darren here.
Alright, I promise that we will dig into many different detailed option trading tips and tricks, and dive much deeper into options in future videos. So please do subscribe if you haven’t already.
I’ll wait….
For me it’s super important that we are using options to create a consistent stream of passive income. We are going to get right into this but first….
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Be sure to download the FREE options Workshop in the link below.
It talks about the two main benefits of trading options over buying stocks.
DISCLAIMER, I am not a financial planner and I am not recommending trades. Please do your own research and if you are new or learning options, I recommend you start small.
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What Is My Strategy For Creating Passive Income?
Guys, the first thing that you need to understand is the difference between buying options and selling options.
Along with that we must understand that they are exact opposites.
Great (clap)observation Darren!
When you Buy Options you pay a premium for the option
When you Sell Options you collect a premium
Upon placing the trade the money from the buyer of the option immediately goes to the seller’s account upon the trade placement.
Now the buyer and the seller are betting on the same trade so only one can win.
If the option expires in the money the buyer wins. If it expires out of the money the seller wins.
Now here is the interesting part. The percentage of winners between buyers and sellers is not equal.
This is because most of the options expire out of the money and end up being worthless. Now this doesn’t take into account closing the option early and taking profits along the way.
The point is you have a way higher chance of winning the trades if you are on the side of selling the options as opposed to buying them. Because well, math..
If you have tried buying options and you have seen that you have been losing money, that is because it has been going to the seller who has been collecting that free money and then laughing all the way to the bank. Hahaha….counting his….
Let’s jump into an option chain on the Tastytrade platform. It’s the one I use and it’s the best platform out there for trading options. I’ll put a link down below. Right now you can get up to $2000 back when opening an account.
Let’s punch in Ticker CRM for Salesforce and look at the option chain.
We will go out to the June chain since its about 1 month out. We click on it and open that up.
Let’s look at selling the 185 strike Put option by clicking on the bid. We see the mid price is $3.10 so that is $310 that we collect up front as the seller when we place this trade since one option contract controls 100 shares of stock.
We see this trade has an 89% POP which stands for Probability of Profit.
If we flip to the curve mode by clicking on curve in the upper left we see the profit zone in green.
To calculate the actual breakeven we take to $185 strike price – $3.10 premium collected = 181.90
Since the current price is $201.77, it would take a 10% drop in just the next 33 days before we started to lose a penny.
Now if we hit the swap, it flips the trade to buying the option instead of selling it.
So here we pay $310 and have just an 11% of profiting.
So would you want to sell the option and have a 89% chance of winning or would you rather buy it and have just an 11% chance of winning. No brainer right?
So you can see that your options trading platform take all of the guess work out of option trading. You know mathematically your chances of success because it tells you right there on your computer screen.
We follow the numbers, we follow the percentages and we will be successful!
Moving on to the next part of this strategy. The different ways to profit selling options. There are really 2 parts.
Selling Puts And Selling Calls
And of course there are combinations of these two with spreads and Iron Condors and other fancy trades. But basically they all come down to some combination of selling puts and calls.
Let’s review the definitions
Selling Puts
Gives the seller the obligation to purchase stock at the agreed strike price if that option expires in the money and the option is exercised.
So when we sell Put options for income we don’t want the stock price to drop below the strike price or we likely will have to buy 100 shares of the underlying stock at that strike price.
If the stock price does not drop below the strike price then we get to keep the entire option premium that we collected up front.
Selling Calls
Gives the seller the obligation to sell stock at the agreed strike price if that option expires in the money and the option is exercised.
So when we sell Call options for income we don’t want the stock price to rise above and exceed the strike price or we likely will have to sell 100 shares of the underlying stock at that strike price.
If the stock price does not rise above the strike price then we get to keep the entire option premium that we collected up front.
Now prior to selling options, your broker is going to require that you have the collateral necessary to cover your option contracts. In case they are exercised. So you need to either have 100 shares of the stock or the cash in your account to cover 100 shares of the stock.
Makes sense right? I mean this isn’t the mob where they just come and break your legs if you don’t pay and cover your debt.
Now when you sell these put and call options you will need to close out your position by buying back that contract at some point prior to expiration. Or the best case scenario is they expire worthless and you keep the entire premium.
Alright let’s look at another trade. This time we will punch in KRE and this is a Regional Bank ETF. The banks are under a little pressure right now and as you can see the Implied Volatility is high at 43.
This is good for us as we collect more premium! (maybe guy digging)
KRE is a basket of bank stocks so it should be pretty safe as well.
We open up the June option chain as it is about a month out.
We click on the 33 strike bid and see that we collect $102 and have to put up $1125 to place the trade. So that is a 102/1125 = 9% monthly ROI. So that is a 100% ROI annualized which is incredible! (group excited)
We see the trade has a 69% POP probability of profit. So since we are selling and not buying we are on the right side of the math!
Now I will keep selling this put option until the stock drops to the strike price and I am assigned if it does. Otherwise I just keep collecting the passive income.
Month after month after month!!
Once assigned what do you think we do? Just twiddle our thumbs. No!!
Right, we sell a Call option and collect more passive income!
So we will click on the bid on the 39 Call option and we collect $108 for selling this Call option. $108 on $1196 is again a 9% monthly return so we are still doubling our money with a 100% annualized return.
Wow, it’s amazing what you can do with options.
We still have an 81% POP Probability of Profit when selling this Call option.
I rinse and repeat month after month. Selling Puts if I don’t own the stock and collecting passive income.
Then assigned and I own the stock, I sell Calls and continue to collect passive income. Month after month after month.
Alright guys, if you are a bhttps://optionsfinanceprofits.com/option-trading-for-beginners/eginner and this sounded confusing do not worry. It did for me as well originally. We will be continuing to cover the details in future videos. We will continue to learn and succeed together.
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I’ve put a link down below for the FREE Options Workshop. Be sure to grab that.
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