4.)Options trading

Here you will see an example of analyzing different premiums for Square. You get to see the basics at work and the different choices you have when your option is in the money. Also you will understand that an option contract controls 100 shares. If you see a premium that is $2.00, your premium that you pay or receive is really $200. You will see how an options trade is conducted through the E-trade brokerage platform.

Every options contract has its own date for when it expires. In this video, we explain the process that happens upon expiration.

The person writing the options is the one who collects a premium. If done correctly, you have a higher probability of collecting a premium. Some do this as a way to create income. However, if you sell a call, you face unlimited risk. Remember, you make more money when selling a contract closer to the money, but you run a higher risk of the contract being exercised. It is common to sell contracts several strikes away (possibly 2 or 3 standard deviations away from the current market price), which indicates that the probability of profit is significantly in your favor compared to something trading right at the money. Bear in mind, you will collect less in premium because it is less risky.

covered calls are super boring as far as returns but they can be a really great natural extension of our longer term fundamental based strategies. They give you a lot of options if you make a mistake and it’s a way to profit on a position that you already own that’s just sitting there taking up buying power. So why not reduce the cost basis of the trade by selling some covered calls against it.

Our core portfolio has the largest portfolio allocation, longest hold time, and they are the positions that we know the most amount. Generally, I’m only adding to this portfolio a few times a year. The reason why is because I'm really searching for deals and the market rarely provides true deals.

Collars are a really good way to protect against losses when we have made a significant amount of money in our long stock portfolio. This is essentially a free way to hedge. If you just bought a put option you can protect against losses but if the position remains elevated the option will lose value to time decay.

A spread is when you buy and sell an option at the exact same time. There are two main types of spreads (Debit and Credit). In this video we will explain the difference, and how/when you should utilize this strategy.

An Iron condor is a combination of two vertical spread trades. So instead of just a put spread or a call spread you combine two. This strategy allows you to either profit from huge swings in either direction, or allows you to profit from absolutely no move.

In this video we will discuss a few ways that you can adjust an iron condor.

covered calls are super boring as far as returns but they can be a really great natural extension of our longer term fundamental based strategies. They give you a lot of options if you make a mistake and it’s a way to profit on a position that you already own that’s just sitting there taking up buying power. So why not reduce the cost basis of the trade by selling some covered calls against it.

A straddle is essentially the same thing as a strangle. It’s when you buy or sell two options on both sides of the trade with the same expiration. The big difference between this and a strangle is that you are buying or selling the same exact strike price on both sides.

A strangle is when you buy or sell two options on both sides of the trade with the same expiration date but with different strike prices. The most common form is a short strangle because this strategy collects credit for selling premiums on both sides of the equation.

The butterfly spread is a neutral strategy, and it's a 3 legged options trade. Either you do this with puts or you do it with calls but never both at the same time. This video will explain the mechanics of the trade, as well as the specific entry checklist.

A broken wing butterfly spread is the same as a regular butterfly spread except for you have an uneven width between the 2 spreads on both sides. So one side is essentially wider than the others. In this video, you will see visual examples of how the trade works, along with a checklist for entering positions.

As options traders, we need to have a very clear defined checklist before we enter our positions. We need to consider the impact that the position has on our portfolio beta weighting, does it fit within our single position risk constraints, do we have a clearly defined edge, and so forth.

Now that you have a basic understanding of the various strategies available, it's time to talk about the research process. When we are doing options research, the first place we start is options samurai. Options samurai allows us to scan for stocks based on specific criteria.

Learn about one of the most critical topics in statistics. This is essential for portfolio management and option plays.

Set a plan for adjusting positions before you make the trade. Some positions aren’t worth making adjustments because you don’t feel confident enough in your edge to keep recycling the trade.

Average True Range (ATR) is derived from a 14 day simple moving average. It was made to allow traders more accurately measure the daily volatility of an asset. It does not indicate teh price direction. It is geared to measure volatility caused by gaps and limit up or down moves.

Learn about some of the basic mechanics of including options in your portfolio. Options are used for various reasons. Some people use it to strictly speculate, while other may use options to hedge against market movement. Some people will use options to create an income source by collecting premium.