Are you looking for a way to make money that doesn’t involve working for someone else? Trading options might be the perfect solution for you! In this video, we will discuss the secret to success when trading options that 90% of traders don’t know about. We will also provide some tips on how to manage your options effectively so that you can achieve long-term success. Trading stock options can be a lucrative way to make money. If you are willing to learn how to trade options correctly, then you could see some impressive profits!
We discuss:
– What is the Options Edge and key to trading options successfully long-term?
– How do you reduce risks in your options portfolio?
– How to manage your options portfolio effectively for long-term success
Real quick guys, please hit the like and subscribe buttons below as well as comment and let me know your thoughts on this video.
Also, be sure and grab the FREE Simplified Options Strategies Trading Guide. I’ll put a link down below. It covers the different options strategies setups, how and when to put them on, max profits, and trade management. It’s a great guide to have by your side when trading options.
So let’s get started!
What is the Options Edge and key to trading options successfully long-term?
To be a successful trader, you need to have an edge or something that gives you an advantage. This is true in anything, but it’s especially important in options trading. The options edge is the key to success when trading options. It’s what gives you the ability to make money even when the market is going against you.
How do we accomplish this? We sell premium!
To begin with, most traders focus on trying to predict the price direction of a stock. Price is just one of the factors that go into the pricing of stock options. In the short term, it’s a coin flip. Since the market is extremely efficient, stocks and the market have a 50/50 shot of moving up or down in the short term. Price is the one factor that we cannot control nor effectively predict in the short term.
The other two factors in options in addition to price are time and volatility or IV (implied volatility). We want to use these two factors to our advantage to give us our edge and increase profits and reduce risks. When we sell options we are selling time premium for taking the risk of being assigned the stocks. We are acting as the Casino vs the gambler and the house always wins.
By selling premium, we can make money no matter the directional move in the underlying stock. If the stock goes up we make money, if it goes down we still make money, and if it stays the same we still make money. This is best accomplished by selling options with a high IVR or Implied Volatility Rating.
What is IVR? It’s a number that shows how volatile the market is expecting a stock to be. The higher the IVR, the more expensive the options will be. This is because when there is more expected volatility, there is a greater chance for the stock to make a large move.
We want to sell options when the IVR is high, because we will be able to sell them at a higher price. This gives us a greater chance of success, because we will make money even if the stock doesn’t move in the direction we want it to. We can collect more premium and go wider with our strikes to allow for more movement in the stock or underlying.
Take a look a this strangle in Starbucks SBUX. It is trading at $87 has a high IVR of 69 so we can go all the way out and sell the 77.5 Put and 97.5 Call. This gives us a 68% probability of profit or chance that the price will end up inside our short strikes so that we keep our premium.
We are going 44 DTE or Days out to expiration. 30-45 DTE is the sweet spot we like to sell premium in. We can collect $237 in premium when we place this trade.
You can see that the stock price has remained within this short-strike range for the past 5 months.
It’s important to remember that options are a decaying asset. This means that they lose value over time. The closer we get to expiration, the faster the options will lose value.
Have you ever heard of someone being right on the direction of a stock and still losing money? Do you know someone who buys options? Inevitably due to time decay if you buy options you will eventually be correct on the direction of a stock and still lose money.
Time decay is why it’s important to have a plan for managing your trades.
How to reduce risks and manage trades in your options portfolio
There are a couple of keys to managing your options portfolio effectively. The first is to have a diversified portfolio. This means that you shouldn’t put all of your eggs in one basket. You should have a mix of different types of trades so that you can weather the storms when the market doesn’t go your way.
Rather than have only trades in Technology companies, you should have a mix of trades in different sectors such as Energy, Healthcare, and Finance. This will help to diversify your risk and give you a better chance of success.
We also should look to have a mix of strategies. Some short, some long and many neutral. This way we can profit when the market moves in any direction.
The other key to managing your options portfolio effectively is to have a plan for each trade. This includes having an exit strategy before you even enter the trade. Rather than shoot for 100% profit on every trade, we should aim for a more realistic goal.
A good rule of thumb is to aim for 50% profit on each trade with most strategies like naked options, vertical spreads, and strangles. However, if we make 25-30% in just a few days, then we should look to take the profits off the table to reduce our risk.
We also now have more money available for another trade opportunity with high IVR.
We also need to roll our losing trades at 15-21 DTE. This gives us more time to be right and for our trades to come back while collecting additional premium.
Tips on how to manage your options portfolio effectively for long-term success
There are a couple of numbers that are very important when managing our options portfolio. Delta and Theta. I go into some depth on these in the video “Use The Greeks To Obtain An Options Trading Edge”. I’ll link to it down below.
Since the market is extremely efficient stocks and the market have a 50/50 shot of moving up or down in the short term. For this reason, we should look to stay delta neutral. By doing this, we are hedging our bets and giving ourselves a greater chance of success.
Theta is the amount that an options contract will make (if selling) or lose in value each day due to time decay. This is why it’s important to have a plan for managing trades. If we don’t manage our trades then we will get eaten alive by the theta if we are buying options. However, we know our edge occurs when we sell options.
Even though Theta increases as we get closer to expiration, this doesn’t mean that we should wait until expiration to close our trades. We want to take profits off the table while the risk of expiring ITM In The Money is still fairly low and in check. For this reason we look to close trades
So we want to keep our Theta number high when looking at our entire portfolio. We can do that here on the Tastyworks trade platform. I’ll put a link down below and you can get a free offer when you open an account. It’s the best options trading platform out there right now.
Your brokerage should have a place where you can see the total delta of your portfolio. We should keep neutral or close to zero as possible. Theta should be available to see as well so that you know just how much you are making daily at all times just due to time decay.
Alright guys, please hit the like and subscribe buttons below as well as comment and let me know if you have any questions about selling options premium.
Also, be sure and grab the FREE Simplified Options Strategies Trading Guide. I’ll put a link down below. It covers the different options strategies setups, how and when to put them on, max profits, and trade management. It’s a great guide to have by your side when trading options.
Thanks for watching and see you in the next one!
What is your secret that helps you with your options trading? Let me know.
Comments are closed.