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Now, I have a very special guest with me today, a good friend of mine, Scott Foster. He’s been watching me as I was doing this video. I’m going to open it up to questions for him, and see if he has any questions on opening these positions.
Speaker 2: Okay. Hello, everyone. This is Scott Foster. It’s a pleasure to be here, Dave. I don’t have any questions at this point. I’m still digesting this, because this is the first time that I’ve sat and watched this.
I am very intrigued by this. In fact, you’re encouraging me all the more. I’ve always wanted to learn how to make money in stock trading and in options, as I’ve learned here. Now, I see it as a way I can actually do it. This is just great. I’ve been taking notes. At this point, I don’t have any questions for you. I just want you to keep going. I’m enjoying this.
Speaker 1: Do you think it was clear enough, the way I presented this, to show you how to enter these positions?
Speaker 2: Yes. I think you really simplify it, when you say that there’s two rules. One, that prices will fluctuate, and two, that options will expire. That’s probably the simplest way I’ve ever heard it put. At first glance, when you look at all of this, with the software, it looks really confusing. You’re really simplifying it. This is awesome stuff, Dave.
Speaker 1: That’s great. I’m glad it’s really clear, because I want to make sure… Scott really has no stock or trading experience. He was very interested in stocks several years ago, but he doesn’t have any experience trading stocks or options, at the moment. For him to say that this is fairly clear, that’s really encouraging to me.
I want to make sure that everybody is very clear on how we set up these positions, and also the fact that we are taking advantage of the two most inviolate rules of the market. Prices will fluctuate, and options expire. We’re taking advantage of both of those really important rules.
When we set up these positions, remember, if I go back to our Analyze tab here, I’m going to delete our simulated trades, and I’m only going to take a look at our portfolio. We want to set up a balanced portfolio. In other words, we’re going to do some double calendars, and we’re going to do some iron condors.
This gives us a very nice profit picture here, for our positions. We want to make sure that we have a nice high profit tent here, and that we’re always close to the center of the price movement. We want to take advantage of the fluctuation in the price, and we also want to take advantage of the expiration of these options.
Let me just show you an example of what happens. With the TOS platform, you can actually go up to this thing called “Day Step.” What I will show you is what the profit potential of this position is, over a number of days in the future. This is pretty interesting. Right now, our current profit position looks like we have a small loss for the day – but remember, we just started this position.
If we take a look at our center price here, and take a look at this green line that is flashing, take a look down here in the left-hand corner. The green line is a date in the future. That happens to be April 30, which is just about 7 days away. In 7 days, if price movement does not dramatically go one way or another, and we stay in a relatively narrow range here, in the market, we will have moved from a loss of about $50, to a profit of $217.
If we project out further, we go up to this blue line – if we keep our profit potential of this position under the current price, we will have a profit potential, on May 7 – which is another week out – of $591. As you can see, when I said that this white line will eventually move up, toward our expiration position, because this is what it will look like at expiration. It really does, over time, week by week, continue to move up until we get into a nice, profitable position, here.
This is Week 1. This is Week 2. This is Week 3. That’s the kind of profit potential you can expect to have. As I mentioned many times, it’s very important to monitor your position at least on a daily basis. It doesn’t take a lot of monitoring. We’ve done videos on monitoring and reviewing your positions. It takes about 10 or 15 minutes a day, and then you can go out and do whatever you want.
If you have a day job, you’re talking about 10 minutes of just reviewing your positions. This is something that you can monitor from work, or on your lunch hour. If you’re an entrepreneur, or you have a position where you can monitor these on a regular basis, it’s only going to take you 10 or 15 minutes. That’s all you need, in order to run this business. The profit potential is absolutely awesome.
I can’t think of a better way to trade than this. When you simply buy a call, or you simply buy a put, you’re really putting yourself into a position where you have the potential of losing your entire investment. If you’re not correct in direction of the underlying stock that you want to see – if you’re buying a call, and you want the stock to go up, you have to be right on direction. You also have to be right on your timing. If the stock does not move within a few days of you buying your option, you can see how much those options will actually decline in value, the closer you get to expiration.
That’s how we build our portfolio. We use two primary ways of building it. We use double calendars and we use the sale of iron condors. You can also, as you get more experience, you can add additional strategies to your positions. You can use regular double diagonals, which have a little bit more margin requirement, and they’re a little bit trickier to adjust.
That’s why I suggest, for just starting out and building really profitable positions, is using the double calendar. The margin requirements are very low. If we go back to our Trade tab here, on the sale of this iron condor, even though we’re doing 5 contracts, the margin requirement is about $2,000.
If we were to do the double calendar at these positions… This is the original double calendar that we had selected. Normally, when you’re starting out, you want to do between 1 and 3 contracts. The margin requirement is only $1700. The profit potential, as we said, with 3 contracts, is 1000. You’re only putting up $1700 in margin requirements.