Option Greeks: Earn a Living Trading Options – Video 1 Part 3

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You might know how to trade calls and puts but putting them together into an investment portfolio into a business situation where you’re only managing by the numbers is extremely rare. This is not something that is common knowledge. I’ve seen seminars for $20,000 that don’t teach what I’m going to teach you in this class.

Now what I’ve done is put together about 20 different videos that go through what I just described here, all the Greeks which are the delta, gamma, theta and vega. I’ve given you introductory videos on the introduction of the profit scenario and what you really need to learn and how to understand the positions that we’re creating.

I’ve also gone into extensive trade selection and strategy. Trade selection and strategy is absolutely critical because we don’t put these kinds of positions on without a plan. This is a business, remember. We have a plan and we put these positions on with a plan so I go into trade selection and strategy.

I also go into portfolio building. How do we build our portfolio? You can put on just one or two of these trades like in the DIA, EEM, the IWM and the SPY but it’s really about putting on different positions and different prices and different indexes and building a portfolio.

This is where the power of the system comes in because you get to manage the portfolio rather than individual positions. You know, one position might go against you and the other three positions are looking good so you can kind of manage the one that is going against you and it doesn’t affect the other three. So even with $1,600 in margin here, we still have four positions so we are not trading large contracts. That’s another thing, too. When you get started, you’re trading just a few contracts and the return on investment is absolutely huge.

I talk about using this particular platform, the thinkorswim platform. The thing about this platform is it allows you to manage your investment as a business because of the numbers that they’re giving you. They tell you what the numbers are and they give you those numbers absolutely free. They have an absolutely fantastic charting package. I mean there are all kinds of things. You get live, real time prices. The package that thinkorswim gives to you, if you had to go out and buy software to do this, it would probably cost you a couple hundred dollars a month.

The one reason why I think this is the right time for a lot of retail investors to learn how to do this is because a lot of these tools haven’t been available except for the last couple of years. Thinkorswim constantly reinvests in their platform to make it better and easier to use and to give you more information. The type of analysis that you’ll see in the videos that we’re going to be doing is absolutely incredible. You can’t get the type of analysis and you can’t monitor your trades in a window like this in a lot of other platforms. They just don’t have it. I won’t knock other brokerage firms but I did have another account at a large firm and they just specialized in options. You couldn’t get these kinds of numbers. You couldn’t manage your business by the numbers like you can with this platform.

I have a video just on the selection, the order entry, how to get help, and how to manage your trading platform through the thinkorswim platform. Then I go into portfolio management and, specifically, portfolio management by the Greeks. Now if you know options, then you know the Greeks. If you don’t know options that well or you haven’t gotten an introduction to the Greeks yet, I go through that.

We’re going to manage our portfolio. That’s the whole deal. We manage the whole business. Then when we find a problem we dig down into each individual position to find out whether or not, in fact, we need to make adjustments to our business model just like a real business. We make the adjustments, things are looking good again, and we continue on with the position and at the end of the month all we do is collect our pay. That’s the whole deal. We just wait.

Let me show you exactly what happens because over time, the neat thing about this is that you can actually tell what your profitability is going to be over time. If we take a look down here in the left hand corner again, you can see that as of May 6 we’re going to be up $369. You can tell exactly what your business is going to make over the next week-and-a-half and then on May 13 we’re going to be up almost $870 and that’s exactly how you manage the business by the numbers. You know in the future what you are going to be making based on the type of portfolio and the management of the portfolio that you’re doing today.

This is what happens to this white line. This white line is your current profit and loss position. As we get closer to option expiration, this moves up so on May 6 we’re going to have a profit of $374. On May 13 we’re going to have a profit of $871. As we get closer to expiration, if we go back to the expiration graph here, we’ll see that the maximum profit is, if we stay right in the center here, is about a $1,000 on this margin or $1,200 to $1,300 if we move to either side.

So it’s very easy. This platform is absolutely fantastic and that’s what I teach you to do. I teach you to manage your portfolio by the Greeks, in less than just a few minutes a day. I said 15 minutes but, to tell you the truth, once you get used to doing this it’s going to be 5 minutes or less.

Adjustments….now this is huge. This is the big picture here. This is the most important thing nobody teaches us. Absolutely nobody teaches you how to do adjustments. You know you can learn bear call spreads. You can do bull call spreads. You can do put spreads that are bearish. You can do put spreads that are bullish. You can do all kinds of different kinds of weird, you can do collars and you can do all kinds of different positions and a lot of people teach that. They teach you how to put these positions on but generally they need you to have an opinion of the direction of the market. Well, with our system you don’t need that. This system does not require you to have an opinion of the direction of the market.

So you don’t have to do technical analysis. You don’t have to know anything about technical analysis. If you know how to manage your business by the numbers, then that’s all you really need to know. If you know how to put trades on, then like I said, these are not one-dimensional trades, these are multi-dimensional trades. They’re easy to do. They’re easy to adjust but adjustments are everything because nobody teaches you what to do if the position goes bad. You can put on a bull call spread and if prices go up, yes, you make money. But you know what, you’re not going to make the maximum amount of money until you get to expiration.

If you have done any type of spread option trading before and you put on bull call spreads, let’s say you bought an IBM $5 bull call spread and you bought it for $2.50 and at expiration it’s worth $5 because the strike prices are $5 apart in the market. IBM has gone up and now all of a sudden for $2.50 it’s now worth $3.50 then you know you want to be able to take that profit but you know at expiration it’s going to be worth $5 so you hope and pray that it goes above your short strike price and you get that full $5 of profit which you put on but then what happens. IBM turns around and goes back down. All of a sudden your spread is now worth only $2 and you paid $2.50 for it. Well, you know what, there’s an adjustment to that position that can lock in your profits at $5 if you only knew how to do it.

So adjustments are absolutely critical. It’s very very important for you understand how to do adjustments in your positions and we don’t do just one-dimensional type of positions. We do multi-dimensional positions so that we profit whether the stocks go up or down. But adjustments are really the big picture because nobody teaches it.