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The Benefits Of Learning Options Trading

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For most people considering a new, profitable investment options might prove to be very challenging, especially if they do not know where to start. Usually, it is advisable to start with the basics, such as learning how the investment you are considering works before putting your money into it. Although this may seem easy, the question of which kind of training should be considered.

If you are looking at option trading as your investment vehicle, it would be prudent to first invest your time to learn how the options market works. Learning options trading may appear complex to many people, especially when you consider the jargon, trading principles, techniques, and the strategies used. On the contrary, this should encourage you to learn as much as possible and to learn everything you need to in order to get into the trading business.

Options trading is highly rewarding, especially if you are knowledgeable about it. However, investing in options without knowledge is also very risky. As an investor, you would want to keep the risks as minimal as possible and to maximize the profits. Well, if this is the case, then investing in good training should not be debatable. Even though your broker may be doing most of the work for you, you should try as much as you can to get a good foundation by learning all the necessary fundamentals of options trading.

Here are some of the benefits of learning about options trading that you need to know:

1. Trading options is very risky and can be complex at times, but with good training you will be able to minimize the risks and maximize the profits.

2. Learning about options trading will help you use the right strategies at any given time. This is because there are many option trading strategies that can be used either independently or in combination. Different market conditions require different strategies and your education will help you know when to use them.

3. Learning about options trading will enable you to avoid making unnecessary mistakes that would prove to be very costly on your end.

4. Ultimately, learning about options makes you a better trader, which increases your chances of increasing your profits.

As you consider putting your time, effort, and money into learning about option trading, it is important to find a good training program that will help you learn a lot. What should your training program contain? This is a good question to ask before enrolling in any particular training program.

The content of your training program will largely depend on your specific needs. If you are a beginner, the course content should be geared towards equipping you with the relevant basic skills to start trading. Your level of knowledge should determine the kind of program you require. To some, learning may require them to attend certain seminars or conventions, while for others it may require going through a more formal options training setup.

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Trading Options: Earn a Living Trading Options – Video 1 Part 2

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As I’ve mentioned, our margin is only $1,600.  I want you to take a look at this green linefor a secondbecause this green-line is our maximumprofit potential in this position.  If you look down here in the left handcorner of this picture, you notice that as I move the cursoraround, it gives you different numbers.

Right now, on Total, our position is generating about $20.  Actually this is a littlebit different than the monitor trade I show you up here.  We’re actually up about$51 but because they take into considerationthe bid and ask spreads, this might be a little bit lower thanwhat you just saw.  But it’s still $1,600 in March.  If you run your cursor over this green line, this is what happenswhen options expire.

Remember there are only two rules of the market.  One is prices will fluctuate.  Number two is all options expire.

Well when we put these positions on, theonly thing that we’re interested in ishaving these options expire within thisprofit range.  We have a fairly large range thatour prices can move in andthat’s what I mean bythe fact thatprices will fluctuate.  While prices can fluctuate upand they can fluctuate down, it doesn’t matter for our position.  All we have to do is be patient and waitand collect our money at the end of themonth whenthese options expire or just prior towhen the options expire.

Let’s take a look at thecursor.  Down in the left-hand corner you can see, even at this point, if prices were to move down significantly, we would still have a profit of $1,234 on this position at expiration, if prices move down.  Now we have a margin of $1,600.  What kind of a return on investment is that?  That’s close to an 80% return and may even be more.  If prices moved up, we might make even more money.  We have a maximum profit potential of $1,300 on this position.

If you look down here in the left handcorner, we’re looking at the date of expiration which is May 17, not the current date which is April 29.  We’re looking at May 17, which is the option expiration date.  We have a profit potential here of $1,327.27 at expiration.  That’s close to a 95% return.

Now you might be thinking well gee, Dave, that’s great; $1,600 margin and you’re making$1,300 or whatever.  Even if this landed someplace in the middle, you’re talking not less than a $1,000; anywhere from $1,100 up to$1,300 right in the middle.  So even if it went up or even if it went down, if it went way down here, well now your profit margins are a little bit lower but I can show you exactly what to do when you need to adjust those.  So, your profit potential isactually a fairly wide range here in prices so that you’re really taking advantage of the market’s fluctuations.

It doesn’t matter if the market goes up,it doesn’t matter if the market goes down, because you make money either way.  All you have to do is put these positions on three to four weeks before they expire and just sit back and just let them run and cash in a few days before expiration.  Let me tell you exactly what the actual potential of this is:  $1,600 margin, not much; maximum profit maybe around $1,300.  If you were to put let’s say double that,okay now you’re putting up $3,200 of margin; now your maximum profit potential is anywhere from $2,400 to $2,600 for only $3,200  in margin.

Let’s say you did ten times that.  I put $16,000 worth of margin up.  What’s my profit potential now?  My profit potential is $12,030 in this position at the one end and $13,375in this endand if it’s stuck right in the middle, it’s $10,335 in three weeksto four weeks.  And even that’s not a very large position.  It’s only ten times the margin so if you had $16,000 in margin, yourpotential profit at expiration is close to $11,000 to $12,000 in three weeks.

There’s lots of money to be made in this kind of trading.  This is the kind of trading thatthe professionals do.  They don’t care if the market goes up and they don’t care if the market goes down.  Either way they make money.  They pay attentionand respect the two biggest truths of the market:  that is that prices fluctuate and options expire.  That is exactly what we take advantage of with these kinds of trades.

So, with $1,600of margin and you can make about a $1,000 a month on this.  You tell me, is that a good return on your investment?  I think so.  You’re not going to get this kind of a return on your investment under any circumstances, under any other financial institution; only by doing this on your own.

This is the kind of system that I do.  All I do is look at it once a day.  I put on my trades 30 to 40days; you know three weeks to four weeks,before expiration of the options.  All I do is sit back and monitor them on adaily basis and then collect the money at the end of the expiration period.  That’s all I do.

And you know what,if you only have a couple thousand dollars of margin, look at the profits of $1,200 to $1,300 and, atthe very worst, maybe a $1,000 and the market can move up or down and it doesn’tmatter.  $1,000 a month is only going to cost you $1,600.  You get that $1,600 back in margin plus you make a $1,000.  So, I don’t see a situation in which you’re not going to get a huge return on your investment.

Nowdoes this always work?  I’m going to say that many strange things can happen in the market, there’s no doubtabout it.  Prices can fluctuate wildly and in those cases then you’re not going to be able to say well maybe we’re not going to have a profit; however, I’m not going to guarantee that you’re always going to have a profit.  What I am going to guarantee is that I’m going to show you everything that you need in order to create an environment where it doesn’t matter.  Even at one point,the market ran way against me and I had one position that was almost in a losing position and, guess what, most traders would probably just close out that position.  I turned it into a profit.

There are lots of situations that, if you know what you’re doing,you can really turn a losing situation into a profitable situation.  This is where the majority of traders in options just go wrong because theydo these one-dimensional trades.  They put on either a spread, they just let it go,they don’t know how to adjust,they don’t know how to manage their position by thenumbers, and they’re not treating their investments as a business. You know every business has maybe amonth out of the year and the other 11 months may be profitable if they’re running their business the right way you’re going to make a profit at the end of the year.

If you listen to the videos and I show you exactly how I do my trades and exactly how you can do your trades, too, then you’re going to have the knowledgeto trade with confidence.  That’s what this is all aboutbecause it doesn’t matter if the marketgoes up or down or even if it runs against yourposition, you’re going to have the knowledgeof what you need to doin order to turn that position around and make it profitable.

So, I wish you the best always.  This is the real deal.  This is how professional traders actually trade positions in large quantities.  This is how market makers who know what they’re doing and floor traders who know what they’re doingrun their investment business.

This is, in fact,probably one of the most secret and really hiddensystems.  You might know how to trade calls and puts, butputting them together into an investment portfolio, into a business situation where we are only managing by the numbers,is extremely rare.

 

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Virtual Options Trading: Earn a Living Trading Options – Video 4

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Hope you guys are trading well here and you’re all paper trading. I hope you have all paper traded beforeyou started actually allocating real money to trades. I have a very special presentation today.

Basically there are four risks to this type of business and I’m going to share all four risks with you today. These risks are something that you really need to keep an eye on as you develop your business. They’re not something that are terribly intuitive, but these are the things I’ve learned while doing this business and by creating these business opportunities.

When creating an investment business,we manage by the numbers. The numbers are everything. Every business understands what their product is. You have to have a very good, firm foundation of understanding what your product is. In this business your product is calls and puts. This is the stuff that we deal with, the product that we deal with. We’re selling options and we are buying options. We are a business that buys and sells.

Anytime you’re in business, you have risks. The four risks that I’m going to talk about todayare concentration of risk, overlapping trades, allocation of capital, and finally over trading or over adjusting positions.

Let’s take the first one, concentration of risk. What I mean by concentration of risk is that you have almost all of yourprofit potential centered around a single strike price. For example, I have currently on the screen our portfolio with the symbol IWM so it’s weighted against the IWM. As you can see, we have a fairly wide range in which the IWM can move and we could still profit from this position. Concentration of risks means that at the 73 strike price you have a very large position at the 73 strike price. I guess size all depends on the capital that you’ve allocated forthis business.

Let’s say $5,000 is a lot of money to you. Well, if you have $4,000 of your money tied up in marginand they’re all centered aroundthe 73 strike price, what you’re doing is you’re concentrating your risk at that point. If prices move way down or they move way up, you’re probably not going to have the same type of profit potential as if you had a wider range in which you could profit from. So that’s concentration of risk.

Concentration of risk means having a lot of contracts or size position for you at a single strike price. That could be if your capital allocation for the businessis $5,000or $20,000, or $50,000, or $100,00, or even $500,000, it doesn’tmatter. If you have a large position that you would consider large at a single strike price you have concentration of risk and that’s very dangerous. Prices can move dramatically against you very quickly and if you have a concentration of risk at a particular strike price, you’re going to get hurt.

The third thing I want to warn you about and the third risk of really this type of business is the allocation ofcapital. Allocation of capital means that you have so much capital available to you even if you had $200,000, you don’t want to spend $200,000 on opening these positions. If you have $20,000, you do not want to use all $20,000 opening these types of positions. If you have $5,000, you do not want to use all $5,000 opening these types of positions.

The reason for that is let’s say a gift store, like any other business, had an opportunity to buy stock to put in their store at a very low cost. This opportunity is only availablefor just a few days because there are other people who are interested in the stock. But you could get it very cheaply, maybe 50 percent cheaper than you can normally buy it, you would need the capital available tomake that purchase as the opportunity became available.

That’s what we need to think about in this business. When our prices start to run up towards our breakeven points in our portfolio,we don’t need to make changes to our business to take advantage of those opportunities because many times a position that runs up against our breakeven pointsis an opportunity to add to our current positions. It’s a smart allocation of capital.

We start our portfolio out on some basic positions but we always make sure that we have capital available, working capital. In any business it’sextremely important that we have the working capital to take advantage as necessary.

The fourth risk that I want to talk about is over trading or over adjusting. If we take a look at a current chart of the Dow Jones Industrial Average, you’ll see that yesterday we had an extremely large run-up in prices. In fact they were up almost $200 yesterday. Today they were up another $115but now they’ve backed down quite a bit. In fact, they backed down to the point where it’sbelow this 208 day moving average which we had kind of determined to be somewhat of aresistance points, as well as the 13,100 level.

Technical analysis is fairly simple. You have support and resistance points. You have support. You have resistance. You have resistance and you have support. That’s pretty much all you need to know as far as technical analysis goes for the type of business that we run. That’s pretty much it.

But prices do tend to fluctuate. Sometimes they go up, sometimes they go sideways, and sometimes they go down. Adjusting positions becomes really an art of knowing when exactly to make those adjustments. You want to try to keep yourprofit picture and your price pretty much centered. And if it goes off maybe you do want to do a little adjustment. You don’t have to do a large adjustment.

So those are the four risks of this business and I think it’s important that you understand those risks. I’ve talked about concentration of risk, allocation of capital, overlapping trades, and over trading orover adjusting but the key point is they’re only necessary because of price risk.

Price risk means that the price is going to move up and down against you. If there was no price risk, you would have absolutely no problem with concentration of risk. You’d have absolutely no problem with overlapping trades because you would not adjust anything. You would have no problem with allocation of capital because you could simply put your positions on at one price and remain there until expiration and you’d have no on risk of over trading or over adjusting.

All four of the risks in this business really have to do with price. Prices will fluctuate sometimes wildly, sometimes moderately, but they always fluctuate. They never stand still. So if it wasn’t for price risk, none of these other four risks would even be a consideration. And those are the four primary risks of this business. All of them are easily managed.

Our DIA position we still have our oneposition on. We didn’t make any adjustments to the DIA. If we take a look at our SPY position, we had to do one adjustment which was there’s really an art and a science. The science is the numbers and the art is knowing when to adjust.

 

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What is Options Trading: Earn a Living Trading Options – Video 3 Part 1

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Welcome to the art and science of trading as a business.

First, I want to talk toyou specifically about the program itself, what it hopes to achieve,and what the objective of the program is.

The objective of the program for the first part is the money-every-month program, is to generate just what it says: money every month. We want to generate a consistent income on a monthly basis in our trades so that,just like any other business, we want to generate recurring, consistent monthly income.

Does that mean we’re going to be profitable every month? Maybe not, maybewe will.

The important point to think about is that we really want to have a monthly income stream. In order to generate a monthly income stream,we’re going to be using options as our primary trading vehicle.

Now every business manages their business based on numbers and that’s exactly what we’re going to do in ours. This is a real business. It’s a business in which you are buying and selling. Any business that buys and sells things,it doesn’t matter what it is. It could be a bakery. It could be an auto repair shop. It could be a part store. It could be a gift shop. You have to buy your stock from some place and then you sell it to a customer. Well, the very same thing happens in the market. You’re buying and you’re selling.

Let me give you an example of how we actually try to make our money in the markets as a business. All we’re doing is really meeting supply and demand. Let’s take for example a stock such asActivision, which we have on our screen right now. The symbol is ATVI. It’s currently trading at $27.23,down 27 cents today.

Now for the most part,you have people in the market who believe that ATVI stock is going to go up. You have other people who believe the stock is going to go down and that’s what makes a market. If we take a look at the options on this particular stock, we have what’s called “call options” and we have “puts”. Calls are those options that people purchase if they think the stock is going to go up. People buy puts on the stock if they believe the stock is going down.

So let’s say you think that the stock is going to go up. So youpurchase this call option on the May options for Activisionand you get it at 40 cents, almost in the middle of the bid and ask price. Well at 40 cents this option actually has no real value because the current price of the stock is $27.23. So not only do you have to be accurate as to your timing because the stock would have to move quickly in order for you to make money, but you also have to be accurate as far as direction goes. The stock has to move up in order for you to make money.

Ifyou were to purchase a put option, let’s say you got it for 70 cents. Not only would you have to be correctas to the direction of the stock as it would have to move down in order for you to make money,but your timing would also have to be correct. It would have to move down relatively soon in order for you to make money because there are only two absolute rulesof the option markets.

Those two absolute rules are: Number 1: prices will fluctuate. Yes, the underlying price of the stock will fluctuate and the individual option prices will fluctuate. Number 2: these contracts will expire. Any option contract that you buy on any stock will expire at a certain date in the future.

If we were to purchase these Mayoptions,the options that we’re looking at right now, they will expire and we have the expiration date right here. They will expire in 24 days. Normally the optionsexpire on equity and index options the third Friday of each month. That is the last trading day for those options. They actually expire the very next day on a Saturday.

You can also pick the expiration dates that you’re interested in purchasing. For example, if youthought there was an imminent move in Activision, you could purchase this option for 40 cents today at $27.50. If the stock did move up beyond the $27.50, you would actually start making money.

But what happens if the stock doesn’t move? Well if the stock doesn’t move, slowly, day by day,this option that you purchased, if the stock doesn’t move, will slowly erodein value. Why?

The reason is that you have the right as a call buyer to purchase the stock at the strike price that you purchased,in this case $27.50, at any time before the third Friday of May. As we get closer to the third Friday of May,the chances of that stock moving up beyond this strike price of $27.50 becomes less and less certain and because of that the option has less value to it.

 

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