Options Trading Blunders: Why should I waste money buying long options to protect my short options?

[@smbcapital]

Learn more options strategies here bit.ly/2PrULJQ

[@RobertS122]

@Anonymous Market makers ensure liquidity and are obligated to transact on both sides of the market. For that they are compensated the bid/ask spread. Yes, they hedge their order books. No, there is no boogeyman.

[@seansterling8715]

you prolly dont care at all but does anyone know of a way to get back into an instagram account..? I stupidly forgot the login password. I appreciate any help you can offer me!

[@markhouston9570]

@Sean Sterling instablaster :)

[@seansterling8715]

@Mark Houston Thanks so much for your reply. I got to the site on google and Im waiting for the hacking stuff atm. Takes a while so I will get back to you later with my results.

[@seansterling8715]

@Mark Houston it did the trick and I now got access to my account again. I am so happy! Thank you so much you really help me out :D

[@peter768]

The biggest advantage of the Iron Condor vs. the Strangle is: quality of life. A naked option or a strangle is 30 days of anxiety. With an Iron Condor, you can sleep at night ... and check it 10 minutes / day. I like to factor in time, stress and peace-of-mind into the equation.

[@pengekcs]

not to mention the margin req / b.p. reduction

[@johncalvo1743]

I have to agree with you!

[@billdivine9501]

Can’t you sell naked puts 1 week out?

[@Kanjicafe]

Well said.

[@hot_wheelz]

Best line in this video "Unlimited risk, unlimited - that's a lot. Infinity is a lot". Thanks for another great video. And sometimes you really do have to put things in terms that are impossible to miss for some people I guess. Sure does make for entertaining watching though. Love all of your videos and they are a great resource for a new or intermediate options trader.

[@reprogrammingmind]

Best line in the video has a misspelling? A lot.

[@BrotherK-ex2co]

Keep up the great work. Before your videos, I would only do covered calls.

[@davidporter1039]

This explanation is a bit misleading and one-sided. With all the emphasis on the downside of "Unlimited Risk" there is no commentary about the concentrated risk of the Iron Condor times 20. If the market closes just above the call options, say 8,375 the condor loses the whole $40,500 while the Strangle loses $990 ($5,000 less the premium $4,010). The probability of a Black Swan event that trips the strangle into large losses is much less than the probability that the market simply gets outside the bounds of the Iron Condor. Where is the commentary about the higher probability of larger, more concentrated losses with the Iron Condor?

[@Chris-jo3nb]

I agree - you are taking the entire loss of your capital in the spread. So it seems to me in any case you're not going to let the whole trade run away to the downside regardless of whether you have technically unlimited risk or not. You might have a stop loss at 1x or 2x your max gain, for example, but even if you have a condor you can't afford to let it run even close to the protective long options. Maybe if the market gaps up/down a massive amount one morning you could be more protected with the condor as opposed to just a manual stop loss". Given that proviso, with the condor you do use less capital BUT the trade will reach your 1x or 2x stop loss with significantly less underlying price movement than the strangle. That "black swan event" could eat up your entire 40.5K in less than one day.

[@malihachape]

IMHO, if index drops it is unlikely that it will go to zero but it can drop significantly. Without buying protected put (as in Iron Condor), there could be huge losses, each point move $100. Iron Condor x20 is just a great example that shows to use only half capital to make significantly greater returns, yet nobody says that trader is required to get x20 contracts. In this example using Strangle, trader makes roughly 5% on $80,000 which is about $4,000. That's not bad if trader has $80,000. To make the same $4,000 using Iron Condor, trader would need about 9 Iron Condor contracts: each Iron Condor is roughly $2,000 with return about $460 (23%), so 9 contracts x $2,000 is $18,000 that trader is risking to make the same $4,000. Not bad at all, especially if trader doesn't have $80,000 and could close contract before expiration.

[@Justin-hz3co]

Hello Seth, a big thanks to you and the SMB capital team for putting out these great videos! I have been following SMB for a while and hoping to join as a intern this spring. Cheers!

[@anujanshankaran8577]

Question here : if the stock price lands between the strike price of the short call and the long call that could be a big loss, because you pay for the long call?. ex. NVDA short call at strike price 290 at a premium of $10 for a April 21 contract will give you $1000, NVDA at strike price 300 for $9 per contract for April 21 again you have to pay $900. Now on april 21 if the price is $295 on the short call you will lose say $500 but on the long call also you will loose $900

[@whacked17]

Thank you for this video - very clear and well explained!

[@smbcapital]

you are welcome!

[@johnnymomascaro]

Isn't it best to sell a winning position at some point PRIOR TO EXPIRATION to avoid GAMMA risk? And unnecessary exposure to the market when there are diminishing returns as we approach expiration? Plus you can redeploy capital on another great trade?

[@brandonnel4081]

please make more videos about level 2 and how to use it.please also explain swing trading fundementals,Rvol,ATHs,CITI,DB,RBC,ATR AND BETO thankyou very much

[@brandonnel4081]

Thankyou

[@Lucas1araujo32]

Very interesting. Just leaves me wondering why would anyone ever use a naked sell strangle like that then??? Like why is it even considered a strategy? Are there scenarios where a naked sell strangle like the one used in the video would be more beneficial than the iron condor?

[@rickphillips381]

One may consider a naked strangle in a lower priced ETF or stock, which does not use as much margin/buying power as NDX, SPX, or RUT. For example, if one sold an Apple strangle (sell 205 put, sell the 340 call for 3/20/20 expiration, only 21 days away...which are -25% and +25% from where AAPL is trading on 2/28/20 $273) for $200 of premium, it would take about $2800 of margin or buying power. The risk of a strangle is "unlimited, but that is a lot of runway for AAPL to move over the next 21 days.

[@brianpeters867]

Nice NLP writing in the 'webinar'.

[@carolynjoyce2251]

Your workshop is only offered at 7:00am. Please give other times!!!

[@smbcapital]

There should be multiple options for times Carolyn

[@RobHavemeyer]

Signed up.. great video!!! Been dabbling with scalping options on some of the higher RVOL large cap tickers... blind options are obviously risky but I find there’s often more predictability in large cap momentum if your tuned into SPY, then what I’ve been used to trading in low float small cap stocks. Looking forward to learning about more complex option legs and strategies, since I feel it fits my personality better.... great video 👍

[@Evilpingu123]

I would disagree with you, as a IC is a defined risk and manage and adjusting a IC is very difficult for credit and make it profitable. However the Theta decay and how fast the trade to become profitable is a 2 different world. IC depends on width of the spread it might take almost all the way to expire for Theta to decay enough value for you to get out of it, vs Strangle the Theta will decay in a rapid spead. Your Probability of profit its higher on Strangle vs IC aswell because the Long is a factor for cost. You can adjust if the trade go against you so easy with Strangle, sometimes only time is a factor for making a trade profitable and rolling out with Strangle is often easy unless the strike is penetrated. IC on other hand you must add more risk and capital in to be able to roll out in time for credit. However Creditspread is more "newbeginner" friendly, as this is a place and hold until expire and no much adjustment is needed as its a defined risk. Often when you are worried about the "unlimited" risk on strangle - techinically it is not unlimted as you getting exersized you will often end up with underlying that you can also cash flow - or outright sell for a profit. This is just my 2 thoughts - however Iron Condor gives a lower profits but a better loss risk and there is not much you need to do with it. If you win you win and thats it, if you lose you take the maxloss of the spread minus the credit.

[@gogreen7777]

How about iron condors with a very wide width that are a few cents? You get most of the Greeks and caps your buying power

[@balmasi1]

Do you have any data on how this would compare to buying a 10 delta broken wing butterfly for a credit on each side?

[@calicorex8014]

This is sound advice especially when trading index options or a very high priced underlying. But what about equity options where the price of the underlying is relatively low, say < $150/share? Would iron condors or credit spreads be more favorable than a cash secured put?

[@djayjp]

It's all proportional. Selling naked as in the iron condor always features a much higher theoretical return as you can deploy more of your capital for the options strategy itself.

[@ronsexton3685]

You mentioned the capital used and mentioned risk, but didn't really explain the risk here. So are you actually, even with the Iron Condor, still at risk of losing $40,500? That's a lot! How do you manage that risk?

[@Expprods]

I have the same question. I guess the risk will be index flat lining and time decay, even in this scenario the options Greek will apply. You may also get stuck not able to close out your contracts. I have used strangles occasionally to mitigate my risk on equities not indexes and in almost every situation strangle and straddle have saved or made me profits

[@sspencer3356]

I don't think he was suggesting doing this size of a trade. He was merely showing how the margin requirement on a one lot (naked) can handcuff your capital.

[@johncalvo1743]

Your risk is the net credit received subtracted from the width of the longest wing. Pretty simple...

[@reprogrammingmind]

Capital. Losing. How can you make money and not know how to spell?

[@ronsexton3685]

@@reprogrammingmind Happy now? Sheesh!

[@Donks-R-us]

Wow! This is a no-brainer! Why would you ever do short strangled, lol

[@greg188]

One thing confuses me. What is the risk if things do not go as planed? I see that you protect your positions with buying long options but how much would you lose if it would have turned out to be a loser?

[@mohammadali9302]

That's what he's hiding. He doesn't state your risk for assignment on those short options if it doesn't go as planned. Furthermore, it is harder to sell your iron condor in comparison to that of a credit spread with only two legs instead of four.

[@johncalvo1743]

Your risk is the net credit received subtracted from the width of the longest wing. Pretty simple...

[@johncalvo1743]

@@mohammadali9302 You don't have to sell the whole Iron Condor. If one side is ever threatened, then the other side obviously expires worthless.

[@djayjp]

@@mohammadali9302 There's no assignment risk with indices as they are European style meaning they can only be exercised on expiry. Also of course indices are cash settled ($100 per point per lot/contract).

[@m0wn3d]

Thanks again, Seth. :-) There is one open question, though: I noticed today (and in your previous videos) that the day when you enter a trade is always a Thursday. Is this just a coincidence or is the Thursday your favorite options trading day? And if so: Why?

[@joelp7780]

Thursday there is less time decay if youre trading options of that week

[@clarenceyee3529]

Being short NDX (or SPX) puts is a good way to lose lots of money. You might go months without a losing trade but a decline like this week will put you in the poorhouse.

[@RomilCPatel]

Clarence Yee Probably need to short it far out if the money

[@donaldthornton3531]

Sounds like you could get strangled

[@edwinbab3205]

One can profit less from options have to sell lot of contracts to get good profit

[@yurigarcia2879]

P

[@damaddog8065]

Think of the long options on a vertical spread like sticking big fat thick phone books in your pants, so when the horse wipe comes for you kester, you do not lose your kester.