A comprehensive and well-structured guide that covers all the bases of options trading. It's packed with insightful tips and strategies that are crucial for anyone looking to navigate the options market successfully. The clarity and depth of information provided here are truly impressive. It's a valuable addition to any trader's learning toolkit.
Seth stands out as the finest I've encountered. It communicates with the audience in a clear and straightforward manner, completely free of any complicated terminology or technical lingo. PatrickTyler, you also did well with your comment..
If you're worried about a stock you own tanking, but still hopeful it might go up, this is like having a safety net. You buy a put option to protect against losses and sell a call option to pay for the put.
This video can be summarized quickly as such: when you do one day options you have an extreme amount of theta decay with long calls.. on the other hand when you sell puts you do not suffer from theta decay..
I put in 20k into options last year and flipped into six figures within a few months and still going. I've always been an advocate of trading because it has been rather rewarding. I hope to attain financial freedom soon. One more thing, great content brother.
Implied volitility usually goes down when the price of a stock goes up. So what I do for daily and weekly trading is SETUP A 9 MONTH POOR MAN COVER CALL POISITON, Buy a leap call in the money and with atleast 9 months of time on it, you sell a short call out of the money enough to allow you long call room to go up between 4 to 6 weeks out. If I.V. drops you short call will go up alot faster then the long leap goes down. You exit the position when you make your goals, usually around %10-%20 return. This can happen in a day or it might take 3 months.
Greater Fool Theory. Who the heck is holding a 0dte through to expiration lol. In any of those “losses” those call options are green if the price move happens quickly and early. Sell it when price moves
Learned too much the hard way (still learning), wish I ran across your material years ago lol But, all that hard learning has me looking at things the proper way now. Really motivated to understand Put Credit Spread method. Thanks for the informative lessons!
Any time you buy options you really need to pay attention to the options quotes for that strike price. Typically a zero dte option you want to capture a move through market structure. You have to know exactly what you are doing 💯.
Does anyone who knows what they're doing repeatedly buy 0dte 20 Delta calls? That entire backtest was ridiculous, because mathematically that strategy was total dog shit from the beginning.
I've more than 25 years of experience in trading options, and this is actually a good video if you are first time trading options but said that the video is missing explaining the concept of expected daily movement and if you have no idea of those, well you should not trade options
@@joshuademmers4947 Sure, it's surelly a good strategy , specially on boring stocks with low volatility , but don't forget that sometimes a stock can goes down a lot and all the calls you sold may not be enough to have a positive return, fo example Intel or Hello Fresh in then last months , here patience is the key. Another problem is cost specially if the call get exercised, you need a very cost effective brookers
On the scenario given, if you buy Call options At-The-Money (50 Delta) it would have worked out and you would have made money. Granted the options will cost more, so you don't buy as many contracts; but buying out of the money options rarely works out even if you're right on its direction. The average daily range of the SPY is only 4.18 points. Buying an out of the money options greater than that is a fools errand.
Yeah, I thought the same thing as soon as he said "20 Delta". Cherry-picked backtest set up to fail in order to make the put credit spread look better than it actually is. Comparing apples to Volkswagens.
@@bayesian2007because he had an agenda to make the spreads look better than they are. Even a total noob would stop buying those 20 Delta calls after about day three and reassess the strategy
Comparing stocks options to futures is nuts if you ask me haha. Over the years, I've been part of numerous investment programs, sifting through a barrage of information. Yet, none comes close to the sheer clarity, depth, and precision of Lora's instructions and insights. It's akin to finding a diamond in the dirt.
Nobody would have kept those Call options until expiry. As the SPY was rising their value would have risen a lot more and you could sell for a lot more profit than those Put spreads.
Yeah, and most noob traders know exactly where the top for the day is and sell accordingly. And they know ahead time the market will go up for the day, at some point.
@@cagirl2220 True, and it was overlooked in the video. As others have noted, April 2024 would've been tragic with the technique. I personally prefer atm spreads, or itm if I'm looking for leverage, though the market can be risky no matter what strategy is used.
@@cagirl2220 True the single daily loss would be more than simply losing on a single call option. However, I think the goal of the video is to show that if you have conviction of a direction the market will go, Put credit spreads could be a great alternative to simply buying.
But the SPY 506C calls bought on the first day would have gone 5 or 6 x, at least 3.00 when it hit over $508.19, if you closed them out mid day, why would you not close them out midday? .59 to at least 3.00.
For new traders seeking mentorship, sir Ronal’ guidance and supportive style creates an optimal learning environment to foster growth and success in trading. what a man with people’s interest.
Here’s a very important piece that’s being left out. If you sell credit spreads with a 40 delta, only 2 points wide, you’re going to open the trade immediately down 200-300% (because your downside protection aka your long position, is so close to your strike price). Trust me, I’ve been burned plenty of times because of this. Solution? Open 20-25 wide and you’ll open the trade at break even or down only -12% for example and let theta decay work in your favor. The ride throughout the day will be so much smoother and more forgiving. It’s not a sexy return and requires a bit more capital (since the wings are wider), but will yield far more consistent results. If you do a 2 point wide SPY credit spread position however, I guarantee you’ll be stopped out of almost every trade.
Also to sell 5 contracts at where spy is today June 10th is 533 aka you need 266,500 dollars to write 5 put contracts as cashed secured and if you buy the insurance AKA buying a call 2 point below you still come out with a net credit but the most important factor in this whole video that this is great in a bull market. Guess what happens to your trade if it drops and drops and drops. Well you will consistently loose money. Everything thinks they’re a genius in a bull market. You’re probably better off just selling puts and if assigned then sell calls and just being an option seller not a buyer. If spy drops and you puts are excessive than you got them at a cheaper price and you might just have to hold on till they recovered with it a downwards trending market overtime till the price returns to where you can sell call again above your cost basis.
@@pauliusmatiusovas4102 your comment about being 200+% down makes no sense. If you open the trade at the mid price (and not the ask) you wont be down anything. You could immediately sell the trade back to the market at the mid price. Your idea of trading 25 wide will have you in a much riskier trade since any unexpected market move against you has your long option much further away leading to a greater loss. The whole point of a narrow spread is controlling your risk. Another point on narrow spreads that most people don’t understand is they are more efficient. Your profit is higher trading 5 contracts at a 2 point spread than 1 contract at a 10 point spread. Look carefully at a live option chain and that basic math will be obvious and is the main reason to trade narrow spreads.
Can you explain how you made money the two profitable days in your Call examples - i.e. did the Call expire in the money and the broker just credits your account or did you have to sell the Calls just before closing to realize the profit? I've always assumed a Call expiring in the money just granted the right to buy shares at the strike price and nothing more. Thanks
I need to see markets open and watch this to analyze it. I dont have records from Friday. But just as an ex, you would buy a -40 delta put option at open? And would close with higher premium? Even doe we closed green?
It is good when we review this put credit spread strategy based on the backtesting. However, I have to raise my two question, 1) does call credit spread work good on the same situation? 2) why you short 40 Delta and but 2 more wide(wings) put?
This is really great content. Very grateful. Noobie question: when you buy back the ITM puts, how does that work? Do you only buy back the short position, or do you close out both legs of the trade?
@@pauliusmatiusovas4102 Extremely helpful response, thanks! Now what happens if both are ITM 5 mins before close? In that case, I do nothing and let the brokerage net them out?
@@pauliusmatiusovas4102 If the short is ITM, and the long is OTM, couldn't the broker just debit me the different between the current price and the short's strike price automatically? I'm looking at a paper trade right now where closing the short position costs more than the difference between the current price and the strike price. Granted there's still extrinsic value remaining, but in theory, I could be assigned at any moment, and I want to be confident my loss won't be astonishingly large, b/c I'm doing a Call Credit Spread on QQQ.
What is the probability of this long positive streak to happen again? With the puts credit spread strategy you mentioned, one loss would've easily wipe out 3 wins. No value added in the regular volatile market environment we usually trade in.
Wait for 30-60 minutes after market open to apply this strategy using the low of the day at the time as the target for the 5 puts you sell. I'm going to research the number of times the SPY closes lower than the initial move down (if it does) or the open if it is is the low after the market opens to calculate a win rate.
Quick question on these. With these being 0 DTE, most of the short put spreads in your example expire except for 2 of them (May 13 and May 16). How would this work with the 25k requirement for day trading? If I sold the vertical on may 13th and had to buy it back before market close the same day (0DTE), wouldn't this be considered a day trade?
This happened to me with Nvidia and SPY because it was too close to expiration because I was trying to risk less money and buy cheaper contracts. That doesn’t work
Fairly easy mistake to make, but also an easy one to avoid by taking a bit more time to understand the mechanics of options. The second he said "20 Delta" every single experienced options trader rolled their eyes because his examples were selected to fail. No serious options trader expects 0dte 20 Delta calls to pay
@@aaron6806I am not even a pro at options but can see that the strategy to buy 0dte options with 20 delta makes 0 sense… why would he give this example? I don’t think even newbies take this route
I've been trying to watch videos and learn about call options and spreads. I followed along with this video on yesterdays market, when trying to sell a put option, it would not allow me to since I did not have enough capital in my account. You say that you would estimate a 2000$ account, which is almost exactly what I have, it seems to me this is a little misleading or am I doing something wrong. Do I have to do this as a specific put option spread or can I open the sell put and buy put seperately?
With current market volatility, I've noticed that if you have a good entry and start trimming after your option increases at 30% and all out by 50% you can stay consistently profitable day after day. Hold and hope doesn't pay. Small base hits everyday PAY.
$6 is a big move for SPY, and those contracts were at 220% ($650) profit with the extra gamma pump in the afternoon that offsets the theta on zero days. The price hung up there for 50 minutes. Why did they not get sold somewhere in the 200% profit range, and left to expire as a losing trade?
Put credit spread half spy half qqq....well that wont work well lol 40 delta credit spread versus 20 delta calls. I have a feeling the 40 delta calls would have turned out way different here. Probably flipping the script.
Good question because there is risks of assignment after hours. Knowing this proves you are getting advanced with options. Unless the market is going very much in your favor then stay. Otherwise if you are not sure then close the trade early before the bell. Best advice for options
If you buy a call for only a week you have to remember that every day it’s going to lose value with time. Time eats up profit if your doing a one week call
What brokerage can you sell put contracts on the spy with a $1000, do you have to have backing on that sale of puts aside from buying the put contracts? Maybe you have a different options level and enough $ too cover the put sale. Can you elaborate @SMB. I've lost my @$$ selling nakedness puts.
Using a cash account, you have unlimited day trades. You're limited to the cash you have on hand and once it is used, you have to wait for that cash to settle. I use Webull and my cash settles overnight and is available the next day.
With a cash account you and day trade as long as you have money available. The only difference is with a cash account once you spend it on a buy and sell it, you can’t use that money again the same day like you can with a margin account.
Good, but not complete picture. As others have pointed out, to get the full perspective on this trade you have to look at all 3 pillars of: risk, reward, and probability. As Seth shows, OTM credit put spreads have very nice probability, where you win by keeping your opening credit, because you can win going up, sideway, or a tiny bit down. BUT, the risk is higher if it goes down a lot, and you lose more than you opened with. So, look at the whole picture.
Buying calls when the IV is high as the stock drops quickly. Hmm... Usually better to buy puts at the top, when the IV tends to be on the low side, but buying puts in a bull market can be very risky.
If you buy calls when the stock is going down you're going to be in a bad trade. That's probably the opposite of what you want to do. Never ever bet against the trend.
Great video Seth, once again SMB is creating great content you can learn from. I get the main thesis of buying at the open and let it run till the close. I think this would apply to those traders that don't watch the market the entire day and this would definitely work out in their favor if they wanted to play 0 dte options. The only flaw I saw was when you adjusted those 2 days on the credit spreads and did not let them go till the EOD. That would also apply to the calls which in your first example proves the point, that if you are actually watching your trade and using proper risk management you would have never let that call go to 0 and more active traders would actually use setups that could take advantage of these 0 dte options and not just buy at the open and let it run to the close, whether it's a quick scalp or a day trade, there are always lots of opportunities to be had if you find a very active stock with very liquid options. I would definitely not recommend using 0 dte options unless you are a very active trader or can use credit/debit spreads or covered calls in a more defined environment as Seth has given such a great example of.
And to be completely transparent, I actually went back in TOS and took the trades I would have potentially taken on these days and my trades would have made out better by just a bit with more stress that scalping and day trading can bring, lol.
Who on God's green earth buys a 0dte option and just walks away hoping it works out? Oh, I know, SMB Capital, because somehow they test trades that literally nobody other than a complete moron would take, then make a video showing how dumb the trades are, and how they can "fix" it for you.
In the stock market you can sell something first and then buy it later vs the usual buy it first and sell it later. Think of a business that sells you something but it ends up on back order. They've sold it to you first but then they actually have to buy/make later. To make a profit you always want to buy it at lower price and sell it at a higher price - no matter which order you do the buying or selling.
The concept of a put debit spread is explained very well but I don't get the max loss calculation at 11:49. The difference between the two strike prices = 20 (500 - 480). Each contract represents 100 shares. Multiplying 20 x 100 = 2,000 potential loss for each spread, and 2,000 x 5 spreads = 10,000. In that case, isn't the max loss = 10,000 - 300 premium collected = 9,700 max loss?
You are absolutely right, and your calculations are correct. It is simply a typo in the slide presented. It should be showing the 500 and 498 strikes. 2 x 100 = 200 x 5 = 1000 max loss -- less the credit received of 300.
Yeah, doing a month to month analysis, would highlight the more-often-than-not-true fact that there are no simple techniques that work in every market, every day. Elite trading skill might overcome this shortfall, with skilled use of techinque(s), but results may vary.
@@TheOriginalPickleRick Yes it would, because you would be buying closer to the money, thus reducing the amount that the SPY has to move in order to make the option profitable.
Not really. You would have ended up losing way more money. The closer to the underlying price you are, the more premium you have to pay and therefore the farther away is the breakeven price. Check for yourself. Go back to video at 5:07 for May 1, the 40 delta strike price is 503 and premium to pay is 1.48, totaling 1.48 x 100 x 5 = 740$. So, your loss would be 740$ rather the 295$ of 20 delta. On May 2nd, 40 delta strike is 504 and call price is 1.10 but even though this option is ITM since SPY close at 505.02, you are still losing money because your breakeven price is higher at 505.10!
Why would you buy calls that are so far out of the money? Buy calls that are $1-2 out of the money then when they come into the money they explode in value
Unless you buy an ATM or ITM option, short-dated OTM options are best for scalping. Timing is everything and you have to get in before the breakout starts and sell into momentum before IV tanks again. You're essentially trading vol in that instance rather than price.
People trying to buy the cheap calls too far out of the money lose. You have to buy in the money or within a few dollars to in the money. Also odte aren't meant to be held the whole day bc of decay. I get in and scale out then leave one or two runners. I have never had the stock go up and my options be down lol. Its easy to over complicate trading.
I lost over $80k when everything started to tank. Not because I was in an exchange that went belly up. I was just stupid to hold and because that's what everyone said. I'm still responsible. It just taught me to be a better investor now that I understand more of what could go wrong. It took me over two years of being in the market, I'm really grateful I found one source to recover my money, at least $10k profits weekly. Thanks Nicole Miller
You mean to tell me there’s no oversight by SEC and these platforms like RH work with MM and can individually have their algos wipe out your option almost every time. 😮 And you just keep buying them and they keep selling them to you? Wait. That’s who sells them to me? SMH 😢
Comparing the performance of 20 Delta Calls with 40 Delta Put Credit Spread is such an uneven story that it seems this example was rigged up for the contrast. Lesser quantities of 70 or 80 Delta Calls would fail way lesser obviously than the 20 Delta ones. So, the long only options traders better stick with in the money calls and go for Bull Call credit spreads to insure against the probable price pullbacks to a decent extent.
So you are really comparing 40 delta credit spreads to 20 delta call options? That’s disingenuous comparison. You should have compared them with the same deltas instead of.
Why did he buy 20 deltas? There is something missing in the explanation. What is magical about choosing 20 deltas? The one big black hole in most option videos are clear explanations of how to choose an option based on multiple factors delta, IV (avoiding crunch) volume open interest. That being said it’s still helpful to watch the put option strategy. I want to run this in a swing situation.
Buying the 20 deltas with 0 DTE is a poor strategy. Buying a higher delta has a higher probability of success, but those options are going to cost you more money.
For buying the long call there is no margin requirement. For the long put / short put version your margin requirement will be based on spread of the strike difference between the long/short puts. The larger the difference the larger the margin requirement. The long put acts as a security for the short put. The exact requirement can vary based on your account type, broker, and country.
Buying options at beginning of day when premium is the highest doesn’t make sense. Need to buy options based on technical set up during day and not based on 20 delta
This is very complex financial product, he is simplyfing the whole concept, if the underlying stock price goes against you, you get assigned and you have to fork out thousand of dollars to buy the stock 😅😅😅
If you are day trading youre not holding all day. So the moment when the stock pumps in your favor you would take the profit. You wouldnt buy in the morning and only sell in the afternoon. That is dumb.
